Written by Isabel Ortiz, Global Social Justice Program Director, Joseph Stiglitz's Initiative for Policy Dialogue
Crises oblige policymakers to rethink development models. The 1929 financial crash led to a New Deal that radically altered the development model of the day. Further, at the end of World War II, politicians from advanced economies were determined that unemployment and economic crisis, which fueled fascism, should never be repeated. They accepted that full employment and social cohesion should be primary national policy objectives, and, as a result, governments became more involved in education, healthcare, social security and housing assistance, as well as in promoting investment and employment-generating growth. This policy change was highly successful: postwar policies achieved high productivity gains in the workforce, expanded internal markets and increased economic growth, with the populations of Europe, North America, Japan, Australia and New Zealand experiencing a prosperity unseen in history before.
A comparable policy push is needed today. The current global economic crisis presents an opportunity to rethink socio-economic policies for all persons. The lack of adequate pre-existing social protection systems became a liability during the current crisis. Maintaining 80 per cent of the world population without social protection translated into continuing and exacerbated hardship for households, and weak domestic demand.
In response to the crisis, social protection has been a major component of fiscal stimulus plans in 2008-09; on average, an estimated 25 per cent of fiscal stimulus was invested in social protection measures in both middle and higher income countries. Also in response, the chiefs of the United Nations called in April 2009 for Social Protection Floors, endorsed in 2012 by the G20 and by all countries at the ILO.
Social protection floors are nationally defined sets of basic social security guarantees, which secure protection to old persons, children, persons with disabilities, the unemployed, or the poor and food insecure. The initiative brings together national governments, civil society partners and international organizations such as the ADB, ILO, WHO, UNICEF, UN, UNFPA, UNDP, FAO, UNDP and the World Bank in a forward-looking collaborative strategy to build a recovery for all.
Social protection floors are needed not only as a matter of social justice – they are also fundamental to sustain economic growth. Inequality is economically dysfunctional, at the moment consumption is concentrated in the richest income deciles in most developing countries – these countries need larger domestic demand.
In 2013, depressed world markets and lack of global demand has led to question export-led models, many Asian countries are starting to build internal markets by expanding social protection coverage, health and social services, adopting wage policies, and other measures aimed at raising household incomes. For instance, People's Republic of China (PRC), Lao PDR and Thailand are increasing their wage bills, expanding coverage of social services and social protection transfers; PRC, the Philippines, Thailand, and Viet Nam are increasing minimum wages. What is important to understand here is that this is about expanding coverage of social protection and social services to as many people as possible to increase domestic demand and raise living standards – not about a minimalistic policies targeting to the poorest.
Social protection floors also contribute effectively to at least six of the Millennium development Goals, enhance human capital and productivity of the labor force, and further, social protection floors build political stability, as social benefits ensure the political/electoral support of citizens.
This is a historical opportunity for Asian leaders and development practitioners to turn the current development model into a virtuous circle that effectively links economic and human development, eliminating poverty and ensuring that nobody is left behind. A New Deal is warranted for countries in Asia and the Pacific, through increased public investments to boost aggregate demand, catalyze sustainable development and political stability, and achieve long-term global prosperity for all.