Is Asia ready for inclusive social protection?

ADB
Stephen Kidd
Senior Social Policy Specialist, Development

A farmer and his donkey in rural Uzbekistan. Supplied

In recent decades, there has been a growing recognition across Asia of the need for greater investment in national social protection systems, in particular those financed from general taxation. Yet, across most Asian countries investment in social protection is still low. While developed countries invest on average 14% of GDP in social protection, few Asian countries come anywhere near this. The notable exceptions are Uzbekistan and Georgia, which invest around 12% and 6% respectively. In fact, Nepal’s investment of almost 1% of GDP in tax-financed schemes for the majority of citizens is well ahead of middle-income countries such as the Philippines, Indonesia, Cambodia and Viet Nam.

In many Asian countries a pattern of investment in social protection has developed in which small tax-financed social transfer schemes have been established for those living in extreme poverty, while contributory social insurance schemes are in place for formal sector workers. The majority of the population—most of who work in the informal economy—have no access to any form of social protection. But in reality, almost everyone across Asia would benefit from access to some form of guaranteed income security, since the vast majority continue to live in or be vulnerable to poverty.

In many Asian middle-income countries, over 90% of the population can’t afford a latte each day even if they spent the entirety of their daily income on it. The absence of a guaranteed minimum income from the state—which is recognized as a basic entitlement in most developed countries—means that any small shock or crisis will severely impact on the wellbeing of these families. Furthermore, even basic social protection entitlements such as old age pensions and disability benefits are absent for the majority of the population in many countries, despite the expectation that over 17% of the Asian population will be aged 60 and above by 2030.

However, there are exceptions, with some Asian countries beginning to establish inclusive systems of social protection. For example, Brunei, the People’s Republic of China, Georgia, the Maldives, Nepal, Thailand, Timor-Leste, Uzbekistan offer almost universal old age pension coverage to their citizens. Mongolia has established a regular cash transfer for every child, which is likely to significantly enhance their wellbeing and development. Seventeen Asian countries have tax-financed benefits for people with disabilities, although only a few are making serious efforts to offer more comprehensive coverage.

Many of these social protection programs stand as beacons to the rest of Asia. Yet, many countries have still to be convinced that higher levels of investment in more inclusive social protection systems are in their self-interest. Comprehensive and inclusive social protection systems are an essential component of any successful and sustainable economic growth strategy; the reality is that the most successful economies in the world have the highest levels of investment in social protection.

Comprehensive social protection impacts on economic growth in a number of ways. If citizens are offered a guaranteed minimum income during the course of their lives, they are more likely to invest in higher-return income-generating activities or find employment. More inclusive social protection systems generate greater social cohesion and more peaceful societies, which are essential for encouraging investment in business. By channelling cash to the majority of citizens, countries can stimulate demand and consumption in the economy, thereby supporting entrepreneurs by offering them a larger market. If children are offered cash benefits at an early age, stunting—the scourge of South and Southeast Asia—can be tackled. This in turn will help produce a more productive workforce, which can be further reinforced through child benefits that enable children to remain in school and perform better. Disability benefits protect workers against risk while old age pensions ensure that all citizens feel secure and can look forward to spending their final years in dignity.

If Asian countries continue to target their tax-financed social protection benefits only at those living in extreme poverty, they will miss out on many of these benefits. Furthermore, these schemes for the poor will not generate popular support and will remain insignificant. In democratic environments, citizens will not agree with their taxes being spent on programs from which they cannot benefit.

As has happened across developed countries, the stage is now set for ambitious and progressive politicians to understand the social and economic benefits of extending the coverage of social protection to the majority of citizens – and, of course, gain political benefits themselves through the democratic process. Only through increased investment in social protection—and other core social services such as health and education—will sustainable and inclusive prosperity be achieved across Asia.

The alternative of increasing inequality and social conflict, which will be the result of alienating the majority of citizens from social investment, must be avoided.