Social safety nets, or "socioeconomic safety nets", are non-contributory transfer programs seeking to prevent the poor or those vulnerable to shocks and poverty from falling below a certain poverty level. Safety net programs can be provided by the public sector (the state and aid donors) or by the private sector (NGOs, private firms, charities, and informal household transfers). Safety net transfers include:
Safety net programs can play four roles in development policy:-
The effectiveness of a safety net intervention lies in the details of the implementation process and stakeholders’ involvement therein (Figure A). An adequate transfer program incorporates at least a system to target beneficiaries, to register them, to set up program conditionalities, to make payments, and to monitor and evaluate its performance. Moreover, a stakeholders’ strategy that clearly assigns specific tasks and responsibilities for each agent is critical for program success. It is important to acknowledge that every intervention is unique in its complexity, needs to be adapted to local circumstances, and requires a fluent communication mechanism and a solid data process system.
Source: Adapted from Arribas-Baños and Baldeón 2007.
Note: Kosovo data are for 2003
Customizing safety nets for different contexts
There is a recognized need to adapt social safety nets programs to local contexts. Both the program mix and shape of individual programs should vary from place to place.
Safety nets in low-income countries are increasingly being recognized as effective tools to reach out to the most vulnerable. At their worst, they protect households facing hard times from falling into deeper poverty and help them manage risk by allowing them to maintain assets on which their livelihoods are based. At their best, they can provide households with a cushion to invest resources more efficiently and effectively in human capital. Common interventions vary from public works and food-based interventions to more recently cash and conditional cash transfer programs. Low-income states may face institutional capacity and financial constraints.
Safety nets in middle-income countries may aspire to cover all target groups although they tend to focus on helping the chronically poor. Individual programs may be sophisticated, but sophistication may not have spread to all programs in the country. Evidence suggests that they possess strong track record progress in design and implementation.
Safety nets in crisis contexts attempt to protect incomes and avoid irreversible losses of physical assets and human capital. They also help maintain political consensus around the policies needed to resolve crises (financial, fuel, food). Scaling up programs quickly is difficult, so some compromises with respect to targeting, incentive compatibility, and accountability may be needed.
Safety nets after natural disasters help households avoid irreversible losses that could ensue. Effective safety nets should be seen as a complement to larger efforts to protect livelihoods and undertake reconstruction and recovery. Countries with existing programs that they can modify will be better placed to deliver safety nets after natural disasters. They may need to adjust procedures during the response.
Safety nets to facilitate reforms can help compensate the poor for any losses suffered as a result of reforms such as abolishing subsidies. These may also promote the political tolerance required for reforms to take place. Some programs with a temporary political goal may be at a scale that is too large to sustain. Others with a clearer poverty focus may be meant to be permanent, and so must be designed to be sustainable.
Safety nets in fragile states are increasingly recognized as helping endangered and/or displaced households cope in post conflict or complex settings. Selected safety nets interventions, integrated with other actions, may assist in rebuilding societies and preventing future conflict. A critical issue is how and when to transition from primarily humanitarian relief efforts to more strategic sustained development.
Safety nets in developed countries have resulted in a much lower crime rates and generally lower poverty levels. One example is Canada's universal healthcare, known as Medicare, which was first proposed by Thomas Clement "Tommy" Douglas (called one of the "fathers of medicare"); in 2004 Douglas was voted the Greatest Canadian for his achievements and contributions to Canada, including working towards Medicare.
- Cash transfers
- Food-based programs such as supplementary feeding programs and food stamps, vouchers, and coupons
- In-kind transfers such as school supplies and uniforms
- Conditional cash transfers
- Price subsidies for food, electricity, or public transport
- Public works
- Fee waivers and exemptions for health care, schooling and utilities
General overview
Safety nets are part of a broader poverty reduction strategy interacting with and working alongside of social insurance; health, education, and financial services; the provision of utilities and roads; and other policies aimed at reducing poverty and managing risk.Safety net programs can play four roles in development policy:-
- Safety nets redistribute income to the poorest and most vulnerable, with an immediate impact on poverty and inequality
- Safety nets enable households to make productive investments in their future that they may otherwise miss, e.g. education, health, income generating opportunities
- Safety nets help households manage risk, at least offsetting harmful coping strategies and at most providing an insurance function which improves livelihood options
- Safety nets allow governments to make choices that support efficiency and growth[1]
- The chronic poor
- Even in "good times" these households are poor. They have limited access to income and the instruments to manage risk, and even small reductions in income can have dire consequences for them.
- The transient poor
- This group lives near the poverty line, and may fall into poverty when an individual household or the economy as a whole faces hard times.
- Those with special circumstances
- Sub-groups of the population for whom general stability and prosperity alone will not be sufficient. Their vulnerability may stem from disability, discrimination due to ethnicity, displacement due to conflict, "social pathologies" of drug and alcohol abuse, domestic violence, or crime. These groups may need special programs to help them attain a sufficient standard of well-being.
The effectiveness of a safety net intervention lies in the details of the implementation process and stakeholders’ involvement therein (Figure A). An adequate transfer program incorporates at least a system to target beneficiaries, to register them, to set up program conditionalities, to make payments, and to monitor and evaluate its performance. Moreover, a stakeholders’ strategy that clearly assigns specific tasks and responsibilities for each agent is critical for program success. It is important to acknowledge that every intervention is unique in its complexity, needs to be adapted to local circumstances, and requires a fluent communication mechanism and a solid data process system.
Source: Adapted from Arribas-Baños and Baldeón 2007.
Financing of and spending on safety nets
Most developing countries spend 1 to 2 percent of their GDP on safety nets. If countries wish to increase their spending on safety nets, they can reallocate expenditures, raise taxes, obtain aid grants, or borrow. Reallocation of funds from less important items is preferable. If taxes are to be raised, the government must pay attention to the economic and political costs. If international grants are to be used, the government and donors should ensure that funding flows are stable and that procedures are conducive to building capacity. Debt finance is appropriate when programs benefit future generations by raising their productivity and consequently increasing future tax revenues, or during recessions.
Even where safety nets have a place within budgets, they may face financial constraints so tight that policy makers will have to make difficult decisions about how to allocate money insufficient to meet needs. In response, there are three approaches that may be taken in different combinations:- Keep the role of safety nets small relative to possible needs. Benefits may be limited to only a portion of the poor by defining specific subcategories of individuals, by using an eligibility threshold well below the poverty line, or by only providing seasonal benefits.
- Ensure complementarities with building physical and human capital. This helps the poor survive today and will reduce the causes of poverty in future years.
- In very low-income countries, international assistance may be used to finance social assistance. In fact there is an increasing willingness on the part of donors and countries to use aid in such ways.
Note: Kosovo data are for 2003
Customizing safety nets for different contexts
There is a recognized need to adapt social safety nets programs to local contexts. Both the program mix and shape of individual programs should vary from place to place.
Safety nets in low-income countries are increasingly being recognized as effective tools to reach out to the most vulnerable. At their worst, they protect households facing hard times from falling into deeper poverty and help them manage risk by allowing them to maintain assets on which their livelihoods are based. At their best, they can provide households with a cushion to invest resources more efficiently and effectively in human capital. Common interventions vary from public works and food-based interventions to more recently cash and conditional cash transfer programs. Low-income states may face institutional capacity and financial constraints.
Safety nets in middle-income countries may aspire to cover all target groups although they tend to focus on helping the chronically poor. Individual programs may be sophisticated, but sophistication may not have spread to all programs in the country. Evidence suggests that they possess strong track record progress in design and implementation.
Safety nets in crisis contexts attempt to protect incomes and avoid irreversible losses of physical assets and human capital. They also help maintain political consensus around the policies needed to resolve crises (financial, fuel, food). Scaling up programs quickly is difficult, so some compromises with respect to targeting, incentive compatibility, and accountability may be needed.
Safety nets after natural disasters help households avoid irreversible losses that could ensue. Effective safety nets should be seen as a complement to larger efforts to protect livelihoods and undertake reconstruction and recovery. Countries with existing programs that they can modify will be better placed to deliver safety nets after natural disasters. They may need to adjust procedures during the response.
Safety nets to facilitate reforms can help compensate the poor for any losses suffered as a result of reforms such as abolishing subsidies. These may also promote the political tolerance required for reforms to take place. Some programs with a temporary political goal may be at a scale that is too large to sustain. Others with a clearer poverty focus may be meant to be permanent, and so must be designed to be sustainable.
Safety nets in fragile states are increasingly recognized as helping endangered and/or displaced households cope in post conflict or complex settings. Selected safety nets interventions, integrated with other actions, may assist in rebuilding societies and preventing future conflict. A critical issue is how and when to transition from primarily humanitarian relief efforts to more strategic sustained development.
Safety nets in developed countries have resulted in a much lower crime rates and generally lower poverty levels. One example is Canada's universal healthcare, known as Medicare, which was first proposed by Thomas Clement "Tommy" Douglas (called one of the "fathers of medicare"); in 2004 Douglas was voted the Greatest Canadian for his achievements and contributions to Canada, including working towards Medicare.
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