The political economy of welfare schemes

Governments that are interested in scaling up social security schemes prefer universal coverage

Social welfare schemes the world over are going through interesting times. Egged on by fiscal management targets, welfare cuts are routinely passed off as “reforms”. Subsequently, there is usually pressure on governments to target welfare to the most deserving. Determining who the deserving beneficiaries are and the appropriate value of these transfers is critical.

In a recent edition of the Pathways’ Perspectives, social policy specialist Stephen Kidd bats for universal social security schemes. His central argument is built around the political economy of targeting, suggesting that “inclusive social security schemes build political alliances between those living in poverty, those on middle incomes and the affluent”. Governments that are interested in scaling up social security schemes prefer universal coverage. The argument goes that this way, they build a wide coalition of interests that support their scheme and hope that this support translates into electoral endorsement. On the other hand, governments that are interested in scaling back social security schemes do so by first withdrawing from universal schemes and then introduce an element of targeting. Soon, those that do not benefit from the scheme are more likely to see it as wasteful public spending and therefore, support a move to cut back.

Theoretically, as a political economy argument, this makes a great deal of sense. The real test, therefore, is: this is a theory borne out by empirics? Here, Kidd offers us a variety of examples, ranging from 19th century Europe and modern-day United Kingdom to Mongolia and Uganda. These examples show how countries with more inclusive schemes display a higher commitment to financing social security, as demonstrated by higher levels of tax-financing for such schemes. For example, Nepal’s universal pension scheme spends about 0.5% of its GDP, which is significantly higher than that of its South Asian neighbours, India and Bangladesh, which only have poverty index-based pension coverage.

Kidd also provides examples of Chile, Bangladesh and the UK to show how poverty-targeting can lead to the exclusion of the poor from these schemes, either due to weak administrative capacity, or poorly administered eligibility criteria of poorly designed social security schemes. As opposed to this, universal schemes have not only the advantage of a straightforward beneficiary identification process, but can also be introduced as rights that citizens enjoy. There is also substantial evidence from across the world that for basic social security schemes such as old-age pension, universal coverage not only scores higher on equity, but is also administratively efficient and cost-effective.

Finally, with the example of Uganda’s successful universal Senior citizens’ Grant, Kidd illustrates how domestic political support (and finances) can be mobilised in favour of a universal social security scheme—the kind of support that is critical if development agencies supporting recipient governments are preparing for local ownership, scale-up and their eventual withdrawal.

While the political economy argument works, it also raises an interesting question: why would a democratically elected government ignore this rationale of expected electoral dividends? The answer lies in the specific nature of domestic electoral politics. But first an aside—from the country cases cited, I must point out that the likes of Uganda are hardly model democracies. There may be many other forces that contributed to the political economy conditions that led to the kind of decisions the governments in these countries took with regard to social security schemes, but electoral politics is unlikely to have been one of them. Social security schemes are as much about gaining legitimacy, as they are about promoting inclusive development. Even autocratic or semi-autocratic governments desire for a semblance of legitimacy.

Coming back to the nature of electoral politics, it is useful to examine how the specific conditions on the ground influence the design and roll-out of social security schemes in different countries.

Let’s take India, for instance—admittedly frustrating at times, as it does not conform to most general theories, but undeniably important since the country houses a large chunk of the global population that ranks poorly on various human development indices. Electoral politics in India is highly complex. A combination of identity-based politics, fragmented polity (numerous viable political parties) and the first-past-the-post system of elections creates conditions where narrow voting allegiances are cultivated through patronage dispensation. Therefore, determining ‘who’ benefits will always be controversial. Either aggregate data is plainly disputed by one or the other players in the system, or data takes a back-seat in the battle over identity-based entitlements. In regions where negotiations to corner a greater share of state resources play out as a zero-sum game, it is difficult to see political leaders pushing for universal benefits.

This is exacerbated by the existence of numerous viable political parties and the first-past-the-post electoral system which incentivises consolidating the votes of a core base of supporters rather than canvassing for a wider cross-cutting vote. Also, the fact that the poor turnout in higher numbers to vote also affects the thinking on these issues. Where a universal social security scheme might change the baseline conditions across an entire population, additional votes are likely to come from securing differentiated and attributable benefits for narrow constituencies.

More than the narrative around the pressure to manage the government’s fiscal deficit, perhaps that explains why governments in India are not committed to universal coverage of social security schemes? So long as political parties confine themselves to conventional politics, social security schemes will continue to be targeted, based on one or more criteria, rather than universal, even when faced with evidence to the contrary. It remains to be seen whether we will have a government that can push the boundaries of electoral politics, towards a politics of shared welfare through mobilisation that goes beyond conventional political allegiances.