Research brief: From safety nets to safety ropes: towards a broader conception of social protection
- At a meeting of the Healthcare Policy Forum, one issue was raised: Should discussions on healthcare financing be linked to the broader policy issue of social protection?
- The answer to this question depends on whether the link will broaden and deepen the discourse on both healthcare and social protection and help build a better social protection system in Hong Kong.
- As a first step, this brief explores how the concept of social protection can be construed so that discourse on social protection can be broadened.
Social protection as social safety nets
- In Hong Kong, social protection is construed as social safety nets.
- The following briefly summarizes the level of social protection that Hong Kong citizens can expect from such social safety nets:
- The Comprehensive Social Security Assistance Scheme “is designed to provide cash assistance for financially vulnerable individuals and families to bring their income up to a level to meet their basic and special needs.” (Review of the Comprehensive Social Security Assistance (CSSA) Scheme, 1999, p. 2, emphasis added)
- “[E]mployable adults should run down all their assets to a modest level before turning to CSSA.” (Review of the Comprehensive Social Security Assistance (CSSA) Scheme, 1999, p. 30, emphasis added)
- If you lose your job, before all your assets are run down to the level eligible for CSSA, to meet your daily expenditures, you are advised by the Financial Secretary to help yourself either by counting on your savings or seeking loans from banks. (South China Morning Post, 27 Feb 2009)
Inadequacies of social safety nets and an alternative form of social protection
- The residual nature of Hong Kong’s social safety nets has long been criticized. To better understand the inadequacies of the safety nets and what other form of social protection can be contemplated, consider the analogy below:
- Imagine climbers scaling a sheer cliff face.
- One mode of protection is to place a net across the bottom of the cliff so that, no matter how high climbers have reached, if they were to fall, they would fall the distance to the net before reaching any protection—that is a “safety net.” The safety net guarantees against falls past an absolute level.
- An alternative mode of protection is to attach a length of rope to anchors set into the rock – a “safety rope”. This way no matter how high the climbers have got, they would only fall from where they were to the length of the rope from the highest anchored piece of protection. The safety rope guarantees against a fall more than a given distance, irrespective of the original height. This prevents climbers from the catastrophe of hitting the rocks at the bottom with complete loss of the progress made.
- For climbers near the bottom, the safety net provides reassurance; but for climbers who have already made substantial progress scaling the cliff face, a safety net, which benefits them only after they have lost nearly all progress, is much less attractive than a safety rope.
- In social terms, the analogy highlights that
- everyone on the social ladder (the sheer cliff) faces risks of falling – the risks can be job loss, illness, accident, disability, or other misfortune.
- for people near the bottom of the social ladder (the sheer cliff), the social safety net provides reassurance; like Hong Kong’s CSSA, a safety net prevents the unfortunate from falling into utter destitution or lift those who have fallen to such a level to a minimum acceptable standard of living.
- but for people who have already made certain social and economic progress along the social ladder, a safety net that benefits them only after they have run down nearly all of their assets or savings is much less attractive than a social safety rope.
- at any one time, except for the very poor and the very rich, what most people need is a social safety rope to protect them from falling far and losing all of the progress they have made when misfortune strikes.
Functions of social safety ropes
- The objective of social safety ropes is to:
- mitigate risk – reduce individuals’ or households’ vulnerability to potential adverse shocks they would face – whether or not the shocks push households to the level of destitution
- cope with episodes of poverty or a sudden drop of income (transitory poverty or drop of income) rather than chronic poverty
- prevent income/consumption/living standard from unacceptable large drop (income maintenance) rather than lift income/consumption to a minimum level (poverty relief)
- minimize the distance fallen from their original levels on the social ladder when shocks strike
- preserve the assets, savings, or capitals accumulated
- Social safety ropes function as an insurance-like mechanism, which pay off when households or individuals experience negative shocks.
- Social safety ropes can be financed according to the insurance principle – through regular contributions, individuals or households protect themselves against risk by pooling resources with a larger number of similarly exposed individuals or households.
An economic case for social safety ropes
- There is a strong economic case for instituting a social safety rope system.
- In a recent discourse on social protection, it is repeatedly emphasized that “in the absence of effective collective arrangements to manage risk, individuals and households (particularly amongst the poor) are forced to engage in micro-level, ‘informal’ risk management strategies which frequently impose very high costs of their own – and which may still prove ineffective, especially in the event of a major shock which affects the majority of households in a whole region at once.”
- That households/individuals are forced to engage in informal risk management strategies at the same time reflects the failure of the private insurance market to provide related insurance products, such as unemployment insurance or disability insurance.
- Micro/household-level, informal risk management strategies most often have serious negative economic repercussions. The following examples of such informal strategies can illustrate the point:
- Businesses may reduce or even cancel planned investments in the maintenance of business assets. This may result in reduced income in the future.
- Businesses may engage in distress sales of productive assets. This may permanently damage their future earning potential.
- Households/individuals may engage in distress sales of assets. This may result in permanent loss of wealth accumulated, which in turn undermines their future livelihood and makes them more exposed to future shocks.
- Households may pull school-age children out of school, either to save on schooling costs or, more commonly, to put them in the labour market to earn additional income. Households may alternatively get their school-age children to work part-time. These will make it harder for the households to develop human capital.
- Households may reduce consumption of nutritious foods; this is likely to have serious long-term consequences for the health status of children in particular. This will undermine the quality of the households’ human capital.
- In each of the above examples, current consumption is maintained through actions that seriously, sometimes irreversibly, compromise future livelihood and earnings; such scenarios can be avoided if a social safety rope system is in place to help households maintain consumption levels in the face of sudden short-term income shortfalls.
- At the macroeconomic level, the neglect of a social safety rope system
- makes countries more vulnerable to economic shocks
- slows down economic recovery after an economic crash
- undermines long-term human development and economic growth
Social protection as safety nets plus safety ropes
- By way of summarizing what has been discussed, this brief ends with a more formal definition of a broader conception of social protection.
- The definition can provide a framework for policy development.
- Following Norton, Conway and Mick (2002), social protection refers “to the public actions taken in response to levels of vulnerability, risk and deprivation which are deemed socially unacceptable within a given polity or society.”
- According to this definition, “social protection deals with both (i) the absolute deprivation and vulnerabilities of the poorest and (ii) the need of the non-poor for security in the face of shocks and the difficulties of different stages of the life-cycle (for example, pregnancy and child-rearing, marriage, death and funerals).”
- It encompasses as its core two main fields of policy response:
- Social assistance (safety net), which encompasses public actions designed to transfer resources to groups deemed eligible because of deprivation (defined by low income, or in terms of other dimensions of poverty such as social or nutritional status). It is usually financed by government general revenue and is means-tested.
- Social insurance (safety ropes), which is financed by contributions and is based on the insurance principle. The essence of insurance is understood as individuals or households fending themselves against risk by pooling resources with a larger number of similarly exposed individuals or households.
- The essence of social protection is a protection against falling rather than a promotion of opportunity and livelihood for all citizens.
- Thus, education does not belong to the domain of social protection but healthcare does.
- The following table provides a sketch of the key dimensions and related policy issues of a social protection system.
|Macro-economic effects:||Policy issues:
Winston Ng (吳君韻)
Hong Kong Democratic Foundation (香港民主促進會)
5 May 2009
 The analogy is from Pritchett (2005) and Sudarno Sumarto et al (2003).
 Conway and Andy (2002), p. 534.
 The examples are drawn from Morduch and Manohar (2002).
 The following discussion is quoted directly or paraphrased from Norton, Conway and Mick (2002), pp. 543-544.
 This example and the following two are quoted from Asian Development Bank (2003), p. 18.
 Asian Development Bank (2003).
 The examples are quoted from Asian Development Bank (2003), p. 17.
 See the research brief Healthcare financing made simple for an analysis.
 It should be noted that social insurance programs based purely on the insurance principle can help reduce social inequality. This is because such programs can help the poor better manage social risks and allow them to have better opportunities to accumulate capital (both physical and human).
 This question is based on Nicholas Barr (2004).
Asian Development Bank. 2003. Social Protection. Manila: Asian Development Bank.
Barr, Nicholas. 2004. The Economics of the Welfare State. 4th edn. Oxford: Oxford University Press.
Conway, Tim and Norton, Andy. 2002. Nets, ropes, ladders and trampolines: the place of social protection within current debates on poverty reduction. Development Policy Review. 20(5): 533-540.
Devereux, Stephen. 2002. Can social safety nets reduce chronic poverty. Development Policy Review. 20(5): 657-675.
Dercon, Stefan. 2004. Risk, poverty and public action. In S. Dercon. Ed. Insurance against Poverty. Oxford: University Press, pp. 439-450.
Holzmann, Robert and Jorgensen, Steen. 2000. Social Risk Management: A New Conceptual Framework for Social Protection and Beyond. Social Protection Discussion Paper Series No. 0006. Washington DC: Social Protection Unit, Human Development Network, The World Bank.
Holzmann, Robert and Jorgensen, Steen. 1999. Social Protection as Social Risk Management: Conceptual Underpinnings for the Social Protection Sector Strategy Paper. Social Protection Discussion Paper Series No. 9904. Washington DC: Social Protection Unit, Human Development Network, The World Bank.
Morduch, Jonathan and Sharma, Manohar. 2002. Strengthening public safety nets from the bottom up. Development Policy Review. 20(5): 569-588.
Norton, Andy, Conway, Tim, and Foster, Mick. 2002. Social protection: defining the field of action and policy. Development Policy Review. 20(5): 541-567
Pritchett, Lant. 2005. A Lecture on the Political Economy of Targeted Safety Nets. Social Protection Discussion Paper Series No. 0501. Washington DC: Social Protection Unit, Human Development Network, The World Bank.
Skoufias, Emmanuel. 2003. Economic crises and natural disasters: coping strategies and policy implications. World Development 31(7): 1087-1102.
Sumarto, Sudarno et al. 2003. Safety nets or safety ropes? Dynamic benefit incidence of two crisis programs in Indonesia. World Development 31(7): 1257–1277.