A paper prepared for the Second Intellectual Dialogue on Building Asia’s Tomorrow: Promoting Sustainable Development and Human Security, co-organized by Japan Centre for International Exchange, Tokyo and Institute of Southeast Asian Studies, Singapore, July 12-13, 1999, Singapore.

Research Assistance provided by Rahul Sen is gratefully acknowledged. The usual caveat applies.

Factors contributing to East Asia’s Social Development

i. Small holder based rural development
ii. Rapid growth in demand for non-agricultural labor
iii. Widespread public provision of basic education and health services
iv. Flexible labor markets and low labor market dualism
v. Upgrading workforce skills and investing in education ahead of demand

Social Impact of the Crisis: The Main Channels

Acceleration in rates of inflation and sharp currency depreciation leading to sudden increases in prices of traded goods (including food), and of public sector services, including utilities
Significant fall in demand for labor
Expected squeeze in public spending for the social sector
Erosion of the social fabric due to abrupt fall in living standards of large proportion of the population, combined with visible wealth and conspicuous consumption at the top, particularly in the countries most affected by the crisis such as Korea, Indonesia and Thailand

SOCIAL SAFETY NETS

Objective:

The social safety nets are designed to protect the real consumption of individuals and their families against abrupt and sharp fall in the living standards in the event of unemployment, disability, sickness, incapacitation or retirement.

Thus, both chronic incapacity to work and earn (chronic poverty) and a decline in this capacity from a marginal situation that provides minimal means for survival with few reserves (transient poverty) are constituents of Social Safety nets.

Factors to consider in designing Safety Nets

i) The number and composition of the poor

ii) Potential effects of reform policy measures

iii) Financial and administrative constraints

iv) Existing social security arrangements

Main Instruments/Programs of Safety Nets

Targeted Consumer Subsidies through a variety of Delivery Instruments - Public Distribution System
Targeted Public Works
Credit based Livelihood Programs
Formal Social Security Arrangements
Informal Family and Community based Support Systems

Key Assumptions Underlying East Asia’s Approach to Safety Nets

Reliance on the continuation of rapid economic growth, and consequent continuing reduction in the poverty levels in the region.
Policymakers have generally regarded social security provision for the non-public sector component of the labor force as essentially a private concern for the families, communities and employers.
Adherence to the organic view of the relationship between the individual and the state under which society is conceived of as a natural organism; and the needs and the goals of the community are stressed above those of the individual.

Reasons for Desirability

East Asia has coped much better with the Short-Run social impact of the crisis than was feared at the height of the crisis. Nevertheless, Reforming and Strengthening of Social Safety Nets is necessary to sustain Medium and Long-run Economic and Social progress.

Erosion of Informal Systems Due to Growth, Industrialization, Urbanization, and Attitudinal Changes.
Demographic Trends.
Convergence of Morbidity and Mortality Profiles of East Asian Countries towards those in Industrial countries.
Impact of Globalization.
The Contagion Effect of the Crisis.
Need to Invest Funds accumulated through Mandatory Savings Scheme for Retirement in prudent, yet remunerative manner.

Feasibility Issues

Involve Political, Financial, Institutional and other aspects. Better Governance will be the key.
Reforming Pension Systems for Public Sector Employees will be essential for constructing adequate, efficient, and equitable Safety Nets in East Asia, but will require considerable political will and governmental capacity.
Mechanisms for delivering Public Services will need to be made more efficient, and will need to be better targeted.

Leakages during the process of disbursement of funds budgeted for
Safety Nets Programs would need to be minimized, particularly in the era of fiscal stringency.
Feasibility will also depend on broader reforms in such areas as Financial sector, Labor markets, Corporate Governance, and Civil Service Reform. Thus, inter-linkages between the Social Safety Nets and other areas of reform must be explicitly recognized.
The East Asian countries would need to strengthen the institutional capacity to design and implement social safety net
Programs.

Such programs must be based on:

Firmer statistical databases and mapping of informal social security networks and cultural dynamics in East Asia; and
Changes in mindset of the policymakers and elites to ensure that
Social Protection policies are regarded as an integral part of economic management and
Regarding socio-economic information as a public good rather than a strategic and tactical tool.

i. In the final analysis, Pension reform would contribute to sustainable poverty

alleviation only to the extent it contributes to economic growth.