THE LINKS BETWEEN ECONOMIC
AND SOCIAL POLICIES
DESA
JOSÉ ANTONIO OCAMPO
UNDER-SECRETARY GENERAL
ECONOMIC AND SOCIAL AFFAIRS
INITIAL CONSIDERATIONS
 The “United Nations Development Agenda”
recognizes the central role of the social,
gender and environmental dimensions of
development
 But this integrated view is far from being
reflected in practice
 Rather, a “leader/follower” model prevails, in
which economic policy is determined first,
and other policies are called for to manage its
social, gender and environmental outcomes
INITIAL CONSIDERATIONS
To implement the “United Nations
Development Agenda”, we should thus
move towards “mainstreaming” the social,
gender and environmental dimensions into
economic decision-making, at the global
as well as at the national levels
FOUR MAJOR LINKS BETWEEN THE
ECONOMIC AND SOCIAL SYSTEMS
Ability of the economic system to offer
opportunities for adequate income
generation
→ Employment plays the central role.
Management of risks generated by the
economic system and associated
insecurity
FOUR MAJOR LINKS BETWEEN THE
ECONOMIC AND SOCIAL SYSTEMS
Ability of the social system to facilitate the
accumulation of capabilities, and the
associated effects on the functioning of the
economic system (human capital)
Capacity of the economic system to
provide adequate resources for that task,
and the implications of the way the
provision of services is organized
INCOME GENERATION
Growth facilitates the reduction of poverty,
but not all growth is equally “pro-poor”
Two major concerns in this regard
•
•
Fairly widespread increase in income
inequality
Poor employment generation, and rising
labor market dualism
NOT ALL GROWTH IS
EQUALLY “PRO-POOR”
4%
Annual average growth rate of poverty
(1 dollar a day)
Upper middle income
-1.5%
1981-1990
1990-2001
2%
-1.0%
-0.5%
0%
0.0%
0.5%
1.0%
1.5%
2.0%
-2%
Upper middle income
-4%
2.5%
Low income
Low income
Lower middle income
-6%
-8%
Annual average per capita GDP growth
Lower middle income
CONTRIBUTIONS OF INTRA-COUNTRY
INEQUALITY TO WORLD INEQUALITY
Points of Theil coefficient
Contribution of countries to world inequality
0.300
0.275
0.250
0.225
0.200
0.175
0.150
1980
1990
Large countries
2000
World total
Average unemployment rate
POOR EMPLOYMENT GENERATION
20
18
16
14
12
10
8
6
4
2
0
1980-1981
Developed Transition
countries economies
1990-1991
Eastern
Asia
2000-2001
South Asia
Latin
Middle East
America
and Africa
and
Caribbean
RISING LABOR MARKET DUALISM
60
50
Self employment as a percentage
of non agricultural employment
1980-1990
1990-2000
40
30
20
10
0
WORLD Developed
regions
Eastern
Europe
Western
Other
Northern
Europe Developed
Africa
SubSaharan
Africa
Latin
America
Asia
INCOME GENERATION
It is hard not to see here the adverse
effects of market based reforms without
adequate mechanisms in place to
guarantee acceptable social outcomes
Also, growth may be more effective
(indeed, essential) to reduce high levels of
poverty, but redistributive policies may be
essential at low levels of poverty
POLICY IMPLICATIONS
 Employment generation should be at the center
of economic policy, including macroeconomic
policy and structural reforms
 Accumulation of productive assets of the poor
 Rural development is the crucial issue in poor
countries, but economic opportunities for the
urban poor become critical in middle-income
countries
 Need to consider bringing issues of income
distribution to the center of economic policy
ECONOMIC INSECURITY
High risks of real macroeconomic volatility,
particularly employment risks
Structural change requires a change in the
structure of employment
In developing countries, the real exchange
rate is crucial for both dimensions
ECONOMIC INSECURITY
Financial risks
• Financial risks associated with pensions
are increasingly shifting to households
• Interest rate variations affect house
mortgages
• Interest rate variations also affect
smallholder credit and production
Agricultural price variations affect
smallholders
POLICY IMPLICATIONS
 Adaptability of the labor force to change should
be a major policy concern
…but pure labor market flexibility with
inadequate social protection has many
downsides
 Safety nets for macroeconomic crises should
evolve into a component of well-designed and
universal social protection systems
 Need for a broader risk management framework,
through public interventions or creation of
markets to manage risks faced by the poor
DEVELOPMENT OF CAPABILITIES
Human development: the capabilities
provided by social policy are more than
“human capital”; they directly affect the
well-being of individuals and societies, and
other dimensions of development (e.g.
political participation)
Low levels of human capital are a crucial
element of the “poverty trap”
DEVELOPMENT OF CAPABILITIES
However, the links running from human
development to economic development
are not linear
Important risk: in the absence of
opportunities, there may be considerable
“waste” and loss of human capital
POLICY IMPLICATIONS
 Human development should be at the center of
any development strategy
 It is possible to make major advances even at
low levels of development
 A major effort to break out of the poverty trap of
low-income countries should be at the center of
international cooperation
 Need to better understand ways to maximize the
effects of social policy on economic
development
IT IS POSSIBLE TO MAKE MAJOR
ADVANCES EVEN AT LOW LEVELS OF
DEVELOPMENT
Annual rate of growth of the HDI, 1975-2002
2.5%
Nepa
2.0%
Gamb
Oman
1.5%
Indo Egyp
Bang
Suda
Beni
IndiChad
Moro
Tuni
Nige
Paki
Chin
Mali
Alge
Sene
Guin
Maur
Boli
Syri
Hond
Iran
Ghan
Mala
Papu
Saud
Turk
Guat
BurkRwan
Kore
Thai
Togo
Sing
Mala
Nige
El S
Sri
Came
MaltBraz
Buru
Domi
Chil
Hong
Nica
Mada
Peru
Bots
Colo
Ecua
Mexi
Phil
Fiji
Isra
Port
Para
Cost
Pana
Jama
UrugBarb Arge
Keny
Cong
Hung
Trin
Vene
Gree
Cent
Leso
Guya
Cote
Sout
Swaz
1.0%
0.5%
0.0%
2
-0.5%
2.5
3
Cong
3.5
Zimb
Zamb
-1.0%
log of per capita GDP in 1975
4
Kuwa
4.5
FINANCING AND DESIGN
OF SOCIAL POLICY
 There are significant differences in the levels of
social spending at comparable levels of
development; countries spending little should
raise it
 There is also strong evidence that social
spending –and, particularly, social protection—
is associated with high levels of development
 The redistributive effects of spending may be
more important than those of taxation, though
the latter are not irrelevant
FINANCING AND DESIGN
OF SOCIAL POLICY
 The stability of social spending is crucial.
Instability reduces the efficiency of social
investments
 Universal policies may have stronger effects
than targeted interventions if the aim is to reduce
inequalities
 The state always plays the central role, but
social and private participation can help
SIGNIFICANT DIFFERENCES IN THE
LEVELS OF SOCIAL SPENDING AT
COMPARABLE LEVELS OF DEVELOPMENT
Total social expenditure as a percentage of GDP
50
Denmark
45
40
Low
Mean
High
35
Croatia
30
26.3
Belarus
25
22
20
17.8
15
10
Bhutan
Oman
Bahamas
5
0
Lower income
Upper middle income
High income
SOCIAL SPENDING – PARTICULARLY,
SOCIAL PROTECTION— IS ASSOCIATED
WITH HIGH LEVELS OF DEVELOPMENT
health
education
social
protection
30.00
25.00
15.88%
% of GDP
20.00
10.91%
15.00
7.26%
10.00
6.61%
5.4%
5.00
4.6%
4.93%
5.93%
UMIE
HIE
3.04%
0.00
LLMIE
Economic grouping
LLMIE – lower income, UMIE – upper middle, HIE – high income
Total social sector spending as a % of GDP
SOCIAL SPENDING HAS BEEN INCREASING
IN MIDDLE INCOME COUNTRIES
Year
1995
1997
1999
2001
30.00
25.00
20.00
15.00
10.00
5.00
0.00
LLMIE
UMIE
HIE
Economic grouping
LLMIE – lower income, UMIE – upper middle, HIE – high income
Source: Kelly and Saiz-Omeñaca
POLICY IMPLICATIONS
Adequate and stable levels of social
spending should be explicit objectives of
economic policy
Some universal policies are essential even
at low levels of development
It is important to guarantee access of the
poor to social services: targeting should be
seen as an instrument, rather than as a
substitute for universality
POLICY IMPLICATIONS
But a broader system of social protection
may be impossible
The design of specific, targeted
interventions should be, in the long run,
part of universal systems
Private sector participation should be done
in a framework that guarantees the basic
principles of universality and solidarity
INSTITUTIONAL IMPLICATIONS
Poverty-reduction strategies can become
the major instrument of integration of
economic and social policies, particularly
in poor countries
It is essential that, in this process, needs
assessment become a regular practice…
… and that the leader/follower model be
abandoned
INSTITUTIONAL IMPLICATIONS
In broader terms, it is essential that social
objectives are explicitly mainstreamed into
economic policy-making:
• Start by making “visible” the social effects
of economic policies
• Regular analysis of the social implications
of budgets and tax reforms
• Also, regular analysis of the distributive
effects of other economic policies (e.g.
agricultural and industrial interventions)
INSTITUTIONAL IMPLICATIONS
Go beyond “inflation targeting”
towards the explicit incorporation of
employment and output, as well as
real exchange rate targeting, in
monetary and exchange rate policy in
developing countries
THE LINKS BETWEEN ECONOMIC
AND SOCIAL POLICIES
DESA
JOSÉ ANTONIO OCAMPO
UNDER-SECRETARY GENERAL
ECONOMIC AND SOCIAL AFFAIRS