Nguyen Huy Kham/Reuters

Asia after the crisis: Social protection and inclusive growth

Governments in Asian countries have been responding to the global crisis with stronger social policies. The economy should benefit.

Over the past three decades, developing Asia has made unprecedented gains in reducing the share of the population living in poverty and lifting hundreds of millions out of dire conditions. But the global economic slowdown hit developing Asia hard over the past two years, slashing its growth substantially. Most affected were nations heavily dependent on OECD member countries for their export sales. Although growth has picked up again and is expected to accelerate through 2010, the pace will be much slower than recent rates–which included a 9.5% surge in 2007.

While the global slowdown did not drag Asia as a whole into recession, it either slowed or halted poverty reduction in the region. Among the people hardest hit have been those just above the internationally recognised $1.25-a-day poverty line, including those working in labour-intensive export industries, like electronics, ready-made garments and textiles. Young urban workers and rural migrants employed in the city appear to be among those disproportionately affected. Slowing growth rates have led to job losses, a reduction in working hours and downward pressure on remuneration. Most of the Asians who have lost their jobs enjoy few benefits, such as meaningful severance packages, health insurance and unemployment benefits.

In fact, the slowdown could lead to an additional 80 million people living on less than $1.25-a-day in 2010, analysis by the Asian Development Bank (ADB) shows. In addition, the diminished pace of growth could push an additional 108 million people into poverty. The Chinese Academy of Social Sciences estimates that up to 41 million workers in the People’s Republic of China lost their jobs during the economic slowdown, and that the urban jobless rate hit 9.4%. About 670,000 small and medium-sized enterprises have closed there, adding to the jobless figures.

The social impacts of the slowdown have affected men and women differently. The difficult economy has often forced women to take on additional, informal and even degrading work to make ends meet. In Cambodia, for example, 70,000 workers lost their jobs in the garment industry. Most of them were young women whose rural families depend upon them for remittances. Many of those laid off have sought work in the entertainment industry, putting them at risk of exploitation and abuse. A survey of Indonesian furniture exporters showed discernible gender-based patterns. Since women workers have usually been involved in parts of the production process, such as packaging, that are considered less critical, they often have been the first to be made redundant.

Governments respond
As elsewhere in the world, governments of developing Asia implemented fiscal stimulus packages to reinvigorate their slowing economies. A share of these packages, ranging between 8.8% of the total stimulus package in Indonesia to 42.1% in Georgia, has been directed to social protection, including cash and in-kind payments to the most affected and least able to cope. Many of the social spending packages have been one-off measures or simply topped-up existing programmes, regardless of their efficiency or impact. Recent spending has generally failed to address the more fundamental weaknesses of social protection programmes, such as patchy coverage and poor targeting.

The challenging economic times have stirred thinking among decision-makers about what must be done to ensure adequate financing of social protection programmes in the future, including old-age pensions, health insurance systems and transfers to the very poor and incapacitated. In fact, more people now believe that social protection measures can quickly help those most affected during an economic crisis, while also giving the economy a welcome boost.

Take China, which has recently expanded its basic medical coverage scheme in rural areas with funding provided through a mixture of individual, local and central government resources. For the poorest, though, this does not provide sufficient support, particularly in the event of health catastrophes. It has now been supplemented by a new medical assistance programme. The country intends to spend $124 billion on the first phase of a 10-year overhaul of the healthcare system and has set a goal of providing universal basic health coverage to all by 2020.

Bolstering social protection
In developing Asia, rising overall prosperity over the years has been accompanied by growing inequality, poor social service delivery and lingering real risk of impoverishment in the case of calamity, such as accident, sudden illness, job loss, or natural disaster. The informal social protection mechanisms traditionally used in the region are becoming unsustainable due to changes in family structures, working habits, cultural values and urbanisation. Governments of Asia’s developing countries only dedicate about 4.3% of their GDP to social protection.

The talk these days in developing Asia is about rebalancing–reducing reliance on exports to older industrialised economies overseas and instead boosting domestic consumption and intra-regional trade. Social protection systems help to limit the drop in demand when the economy dips and can help to re-orientate the economy. Putting in place a more reliable and extensive social safety net will turn some part of the region’s precautionary savings into higher consumption rates.

Moreover, social protection and wise spending on education represent investments in human capital, which is key to a competitive economy with sustainable growth. Social protection helps to forge more cohesive and inclusive societies, too.

So while the global slowdown has dealt a blow to large numbers of Asians, it has, like earlier crises, generated new thinking and policy action. In the next few years, watch for the steady expansion of social protection measures in several countries. While sharp differences will remain in the social policy choices and funding priorities among countries, the new trend is clearly visible and growing.


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©OECD Observer No 276-277 December 2009-January 2010




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