2012.07-Working Paper-Inclusive Growth and Universalistic Social PolicySome Observations on Processes of Social

Inclusive Growth and Universalistic Social Policy: Some Observations on Processes of Social Inclusion*
Andrew Fischer Institute of Social Studies, The Hague, Erasmus University Rotterdam

　　The Inclusive Growth (or Development) agenda has emerged in recent years following a stalemate in the opening years of this century on the precise meaning of ‘Pro-Poor Growth.’ Within this stalemate, the World Bank defined pro-poor growth as any growth involving absolute poverty reduction (i.e. all but the most disequalising growth), whereas the UN defined it as growth in which the incomes of poorer sections of a population grow faster than those of the richer sections (and hence, in which inequality falls). The debate has moved onto the idea of ‘Inclusive Growth,’ which the UNDP has defined as ‘the process and the outcome where all groups of people have participated in the organization of growth and have benefited equitably from it’(UNDP 2008). Notably, this definition is more or less the mirror image of the UNDP/ILO working definition of social exclusion in the 1990s and is
similarly open to criticisms of being vague and ambiguous (see Fischer 2011).
　　The purpose of this presentation is to bring some analytical clarity to the idea of inclusive growth, with particular emphasis on the centrality of employment and social policy in considerations of inclusiveness. Notably, in turning our attention towards inclusiveness, it is important that the focus is not simply placed on poverty and inequality indicators, as with poverty indicators in the MDGs. Rather, more attention needs to be given to the stratifying and segregating implications of various policy choices and their longer term impacts on processes of social integration and citizenship rights. This angle is important because it addresses the longer term sustainability of these various policy choices within the highly polarised social contexts of most developing countries. From this perspective, universalistic modes of social policy are arguably a crucial ingredient of inclusiveness, especially with regard to moving beyond poverty targeting and towards policy modalities that reduce segregation between poorer and middle social strata. Examples of these points are drawn from Brazil and China, and from the current policy trend of Conditional Cash Transfers.
　　A good starting point for considering economic inclusion would be through the political economy angle of three dimensions: production, distribution, and redistribution (or circulation).
　　• Production related to increasing size of the pie – focus of development policies, etc.
　　• Distribution – division of pie, especially between wages and profits
　　• Redistribution/circulation – fiscal and related policies, finance, etc.
　　Arguably, the two key areas that address inclusion explicitly are distribution (through employment) and redistribution (through social policy), as well as the interaction between the two (e.g.
employment is usually institutionally tied to social
insurance, or else social policy regimes play a role in regulating formality in employment). Productive policies (such as industrial policy) can often be quite exclusionary, particularly if focused on increasing productivity rather than expanding employment (as in China over last 10-20 years), hence the role of redistributive mechanisms in an economy are vital in order to compensate the natural tendency of concentration that is associated with productive policies, increasingly so the more that secondary sectors become more
* This paper is written and presented by the capital-intensive and less employment-elastic.

　　Universalistic modes of social policy (versus targeting) are arguably the most effective at both this redistributive function and poverty reduction. I have written about this elsewhere (see Fischer 2010; 2012), in accordance with others such as Mkandawire (2005), so I will just highlight some key points.
　　First, on universalism in social policy: there has been a subtle shift in the implied meaning of universalism in recent years, towards a connotation of universal coverage or access, such as sending all children to school, regardless of how such schooling is provided or financed. While universal coverage is obviously a necessary condition of universalism, it is not a sufficient condition. Rather, universalism is best understood as an umbrella term to reflect a set of guiding institutional principles. These include:
　　• provisioning through integrated systems, rather than through segmented and/or segregated systems (NB: this is not a public versus private issue given that many fully universalistic systems include substantial private provisioning, such as the public health care system in Canada)
　　• costs determined administratively through decommodified systems rather than through commodified systems of pricing
　　• financed indirectly (i.e. not at the time of need) by progressive forms of taxation (i.e. progressive income tax, corporate tax, capital gains tax, etc), rather than directly and regressively (e.g. user fees, out-of-pocket payments, value-added taxes, etc).
　　While most people agree on the principle of sending all children to school, it is clear how the other dimensions of universalism are potentially rife with intense political dispute, as observed in the recent battles over health care reform in the US.
　　Evaluations of various policies on poverty and inequality impact, or of effectiveness and sustainability more broadly, need to be considered holistically in terms of these three aspects. For instance, this is a problem with many studies of conditional cash transfers (CCTs) or health insurance programme, whereby impact or effectiveness studies often only consider one of these aspects in isolation. Indeed, where narrow programmes such as CCTs are seen to have broader transformative effects, these are usually associated with changes in the broader social policy system supporting CCTs, particularly increased public investment into school and/or medical systems servicing poor people, or regulating costs within these systems, rather than the simple ‘supply-side’ impact of the cash transfer per se (see this point in Ghosh 2011).
　　The central components of a universalistic social policy regime – and where universalism is practiced to its fullest extent in strong cases – are arguably in the education and health care sectors. These two social services usually constitute the largest shares of government expenditure (education is usually the largest, more than three times health care spending in the case of China, for instance). They involve potentially large impacts on household expenditures and vulnerability (particularly if commoditised), for both poor and non-poor, however defined. Education has huge implications for social mobility and the structuring of education systems goes to the heart of social stratification and the social reproduction of inequality. Both health and education systems touch a core nerve of social politics because they structure when and how various social groups and classes might come into contact with each other in very intimate and vulnerable ways. They are also the policy areas in which universalistic principles have been practiced most comprehensively in strong cases of universalism, in contrast to other areas such as public housing or various aspects of social security, where less achievement has been made towards universalistic principles even in‘advanced’ countries. Indeed, there has been much recent confusion with regard to whether the Mahatma Gandhi National Rural Employment Guarantee Scheme in India should be considered a universal programme given that it does not impose means testing on those who claim their right to receive employment. Many claim that it is universalistic for this reason, although in effect it represents a form of self-targeting – one of the classic forms of targeting. The degree to which universalism should be applied in the direct provisioning of employment is of course debatable– short of the state assuming a collectivist role in the labour market (as in China in the Maoist period). Such contention is much less pronounced with respect to health and education, particularly if there is a strong political consensus that public provisioning in these sectors should not be commoditised (which is not the case in the US and in much of the Global South).
　　While targeting usually plays a role within universalistic systems (e.g. ‘targeting within universalism,’ as per Skocpol 1991), targeting as an institutional modality refers more generally to the abandonment of the guiding principles of universalism and towards more selectivity in publically-funded provisioning and benefits (e.g. means-tested welfare). In effect, selectivity is usually implemented through increased segmentation and even segregation in social provisioning systems between different social groups (typically, between the poor and the middle classes, but also between ‘nationalities,’ as with the shaoshuminzu education system in China). In other words, publically-funded services or benefits are targeted to the (identified) poor through differentiated provisioning systems, separate from private or public systems servicing the middle and upper classes. Indeed, segregation often constitutes much of the political appeal of targeting as middle and upper classes seek to obtain their own privileged access without needing to rub shoulders with lower classes (and often ethnicised classes, as is increasingly the case in Europe and the US).
　　As outlined by Mkandawire (2005), targeting modalities have been variously advocated since the 1970s on grounds of efficiency, expediency and even equity although there has been much research demonstrating that targeting is not necessarily efficient, expedient or equitable. This point was made inadvertently, for instance, by Appleton, Song and Xia (2010) with respect to China, albeit only after their argument is correctly re-interpreted. They argue that government antipoverty programmes had little impact on urban poverty between 1988 and 2002, which had fallen almost entirely due to overall economic growth rather than ‘redistribution.’ The misconstrued element in their argument is that they refer not so much to redistribution but, more specifically, to targeting given that China’s anti-poverty programmes were heavily oriented towards targeting within an overall retreat from more universalistic principles over the 1980s and 1990s, including the rapid erosion of most pre-existing redistributive and/or social security systems, and a notably regressive shift in the burden of taxation (for instance, see Khan and Riskin 2001). In this context, it can hardly be said that targeted poverty reduction programmes constituted a strong case for redistribution. Rather, targeted social assistance probably represented one of the few marginal factors compensating an overall regressive shift in the social policy regime of China. Hence, it comes as no surprise that most poverty reduction could be shown through econometrics to have come from growth, although this can hardly be used as a case against redistributive polices. With this corrective in mind, the argument of these authors otherwise
corroborates well with the insights from the social policy literature discussed here.
　　However, in terms of social inclusion, the crucial considerations of targeting modalities reside in their political and social implications. Because targeting usually entrenches segmentation in provisioning systems, this tends to reinforce social and economic stratification by separating middle classes from the services accessed by the poor. As a result, the political voice of the middle classes is also removed, à la Hirschman, from these services as well (see the seminal work of Bob Deacon on this issue, e.g. Deacon 2011). In the best of pro-poor times this can lead to shortterm bouts of poverty reduction and even inequality reduction, as has occurred in recent years in Brazil under the various targeted poverty alleviation programmes of the Lula Administration. However, sustaining these gains requires strong political commitment and leadership in order to maintain funding, supply and quality within these
provisioning systems servicing the poor. Yet, this condition for sustainability is undermined precisely by the institutionalised segmentation of provisioning systems encouraged by these targeting approaches, particularly once politics turn less pro-poor. The resulting political economy paradox was best expressed by Richard Titmuss(1968) – although often attributed to AmartyaSen –that the targeting of services to the poor usually results in poor services.
　　The case of Brazil is worth highlighting. There are debates in Brazil concerning the extent to which the BolsaFamilia– a targeted conditional cash transfer programme – has been the main cause of inequality reduction in recent years, versus other policies such as minimum wage legislation, which might have contributed significantly more. Soares et al (2010: 41) calculate that between 1999 and 2009 – during which the Gini coefficient in Brazil fell from 0.591 to 0.538 – reduction in labour income inequality accounted for 59 percent of the Gini reduction, whereas the Bolsa accounted for only 16 percent and the non-contributory indexed (targeted) pension system for 15 percent. In personal communications with Fabio Veras from the International Poverty Centre in Brazil, where much of these studies have been piloted, he commented that this is no surprise given that labour income accounts for around 70 percent of total income. Moreover, it remains an open question whether the labour income effect was due to increases in minimum wage, reductions in returns to education, a tighter labour market (the unemployment rate has never been so low), or to the increased formalization of employment (email communication, 5 July 2011). However, the fact that so much inequality reduction has occurred within labour income is, in itself, a notable achievement, given that this source has more usually driven inequality increases rather than reductions. Hence, this particular pattern of
inequality reduction would appear to validate the labourist and developmentalist agenda of the Lula administration, in combination with a favourable climate for primary commodity exports and the impact of Chinese investment and demand over these years (and despite monetary policies of high interest rates), much more so than the targeted social protection programmes, although the contribution of the latter has nonetheless been significant, even if minor (unless of course one would accept the argumentthat cash transfers – conditional or otherwise – raise the reservation wage rates of the recipients and reduce labour supply, thereby tightening the labour market and putting upward pressure on wages for low-skilled labour). The relatively minor contribution of these targeted cash transfers must then be balanced with their potential perverse impacts on social integration. For instance, Kerstenetsky (2009)
argues that the current emphasis on selectivity in the BolsaFamiliascheme has resulted in financial and political constraints to its expansion, whereas less selectivity in the scheme, and hence less separation between those who pay for the scheme and the beneficiaries, as well as, paradoxically, higher expenditures, could ensure wider adoption and political support for the scheme.
　　Such issues have been observed with the muchlauded Progresa/Oportunidades conditional cash transfer programme in Mexico – the pilot that launched the current enthusiasm with CCTs among donors. The programme has shown some degree of success in raising consumption levels, certain health outcomes, and school attendance
and enrolment rates (Skoufias 2005). These results were obtained with relatively low operational expenses, in large part because the programme was implemented through an already well-established network of clinics and schools
servicing the targeted rural populations (as distinct from the subsidised network servicing the urban middle classes). However, even its proponents such as Levy (2006) admit that increased coverage was achieved at the cost of lower quality within this overstretched and segregated network. Notably, the programme had no impact on the academic performance of students or on their later employment prospects. Thus, while it had a positive impact on absolute human development indicators, it did so at the cost of entrenching the segmentation of provisioning systems and probably accentuated social stratification as a result.
　　The potential for targeting to bring about marginal improvements in poverty, education and/or health is not in question (if, that is, targeting actually induces an increase in resources transferred to the poor). If a poor person is given ten dollars, it should be no surprise that his or her income would be ten dollars higher by the end of the year than it otherwise would have been without such a transfer. The hope or assumption underlying many cash transfer schemes is that the person’s income would increase by more than ten dollars due to some sort of micro-multiplier effect unleashed by the transfer, such as when the extra cash allows the person to overcome other obstacles to
increasing their productivity or returns to labour. The fear of those warning about the perverse incentives induced by welfare is that the income of the person receiving the transfer is less than ten dollars at the end of the year, due to the
substitution of some work for the welfare received. These narrow questions and debates underlie the obsessive attempts to measure the impacts of cash transfer schemes on the overall income of beneficiaries. However, in either case, that the increment in income might bring the person above a poverty line – say, if their income was previously five dollars below this poverty line – should come as no surprise. Rather, the broader concern here is in the stratifying, segregating and subordinating trajectories brought into play by the institutional modalities used to enact such marginal improvements. These are potentially very counterproductive for any long term strategy of poverty reduction, particularly if and when resource transfers to the poor decrease rather than increase as a longer-term consequence of targeting, as has often been the case.1
　　The obvious rejoinder is that, in the short or even medium term, universalism would be impossible to achieve within the starkly polarised social context of most developing countries, with social policy path dependencies already firmly entrenched within segmented, segregated and often highly privatised forms of provisioning (or effectively
privatised, as in the case of many public hospitals in China). Hence, we must do what we can now. However, we must also ask why universalistic social policy is not even on the agenda as an explicit long term goal, with the exception of a few sections of the UN, such as UNRISD and more recently UNICEF. For instance, the World Development Report on services (WB 2003) can be seen as the most recent and explicit major policy positioning of the World Bank on issues related to social policy, and has continued to define World Bank policy positions up to the
present, such as the promotion of (targeted) cash transfers as a means to bolster client power or else the promotion of New Public Management style public sector reforms. This report makes no explicit reference to universalism. One of the eight possible ‘sizes’ discussed in this report (versus a‘one-size-fits-all’ approach) is ‘central government provisioning,’ although it is not clear if this implies universalism.2 In any case, the reportargues that this size is only applicable in a context of pro-poor politics and a homogeneous population that is easy to monitor. In other words, similar to earlier World Bank arguments about South Korea and industrial policy, the report seems to imply that, if you are not Cuba, don’t try it at home. Instead, it offers strong implicit endorsement of targeted New
Public Management approaches to social policy, promoting choice and client power through various mixtures of decentralisation, private-provisioning, marketisation, user fees and vouchers. Yet, as argued by Dunleavy et al (2006), even in rich countries with well-developed administrative capacities, the policy complexity introduced by
such approaches generally led to a reduction in citizen competence and the tide has since turned in ‘leading-edge’ countries. More importantly, insofar as we recognise high levels of inequality as problematic, the censor of universalistic social policy from mainstream agendas implies abandoning at the outset some of our most powerful policy tools to date for dealing with inequality and poverty simultaneously, in combination with broader development strategies such as industrial policy.

References
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