UN Department of Economic and Social Affairs A Global New Deal for People in a Global Crisis: Social Protection for All Isabel Ortiz Senior Interregional Advisor United Nations DESA United Nations Commission for Social Development New York, 6 February 2009

World’s Distribution of Income before the Financial Crisis: Apartheid at a Global Scale? Source: Sutcliffe, 2005. Department of Economic and Social Affairs.WP 2. United Nations

2008- Food and Fuel Crisis More people suffering from poverty, unemployment and hunger Food crisis sidelined although it continues to pose a global humanitarian challenge Falling prices but also falling incomes due to world recession Source: United Nations, 2009: World Economic Situation and Prospects. New York, UNDESA Food crisis currently sidelined although it continues to pose a global humanitarian challenge Falling prices but also falling incomes due to world recession

Violent Riots and Protests because Food Crisis Source: IFPRI, 2008 based on news reports

2008- Global Financial Crisis World income per capita will decline in 2009 Source: United Nations, 2009: World Economic Situation and Prospects. New York, UNDESA

Social Impacts Financial Crisis: Transmission Channels Prices Basic food Agricultural inputs Essential drugs Fuel Employment and Income Wage cuts, reduction in benefits Decreased demand for migrant workers Remittances Returns from pension funds Assets and Credit Loss of savings due to bank failures Loss of savings as a coping mechanism Home foreclosures Lack of access to credit Government Spending and Utilization of Social Services Education Health Social security Employment programmes Aid Levels (ODA decreasing?) 2009: MDGs at Risk

Lessons from Other Financial Crisis Lessons from other financial crisis show that social consequences need to be tackled urgently Quick increase unemployment, poverty, hunger Women more affected than men Children malnourished, out of school Increased morbidity and mortality rates Contracting fiscal space Urgent need to: Expand social expenditures, protecting: Job and income security Access to goods and services (e.g. food, health) Stimulus packages aimed to expand credit, economic activity Increase quality aid (ODA)

1929 crash led to a New Deal The New Deal (1933- ) Bank reforms Social Security Act (1935) Universal old-age pensions Unemployment insurance Social assistance for poor families and persons with disabilities Employment programs (public works), collective bargaining, minimum wages Farm/rural programs

So Why Not a Global New Deal? The crisis an opportunity to redress existing assymetries, poverty, over-reliance on market forces, speculation Economic policies – better regulating markets, reforming international system, fiscal stimulus… Social policies: A social security floor, a basic and modest set of social protection guarantees for all citizens Income security through basic, universal non-contributory pensions for: older persons, persons with disabilities Child benefits Employment programmes Financing universal access to essential health care Food security programmes

The case for a Global Social Floor: Social Justice Arguments Unacceptable levels of poverty and inequality Half of the world lives below the $2-a-day poverty line The poorest 50% of the world’s adult population receives 1% of global wealth (UN WIDER, 2006) Social security is a human right: Articles 22 and 25 of the Universal Declaration of Human Rights states: “Everyone, as a member of society, has the right to social security” But 80% of global population remains without access

But Also Strong Economic Arguments Inequality is economically inefficient / dysfunctional World problem of overproduction and global excess capacity in the context of weak effective demand Consumption concentrated in top income deciles Raising the incomes of the poor increases domestic demand and, in turn, encourages growth by expanding domestic markets A Global Social Floor can be an effective instrument to: Boost economic growth by raising domestic demand / internal markets Enhance human capital and productive employment - a better educated, healthy and well nourished workforce. Firstly, because poverty is re-emerging in developed economies, poverty is no longer a Third World phenomenon. Two decades of neoliberal policies have eroded the living conditions of citizens in the West. The end of the post-war boom in the 1970s made Organization for Economic Cooperation and Development (OECD) policy makers abandon Keynesian approaches and replace them with supply-side policies, under the correct assumption that growth would be helped if companies sharpened their competitive edge. But global demand continued stagnating leading to a squeeze of corporate profits, shakeout of labor, slow down of growth of fixed investment and thus a decrease in demand for capital. This generated pressure on lowering wages and making labor markets more flexible which increased income inequality. Gross public sector debt became as high as 70% of national income in OECD countries, and this made policy-makers to further curtail social expenditures and privatize social services. Paradoxically, most of these savings went to support private sector companies in the public effort to generate growth (tax breaks, incentives, bailouts, etc), so the average citizen has experienced a significant decrease in welfare, while growth has remained low, unemployment and public debt high, because these neoliberal short-term policies do not address the long-term structural causes of the problem: overproduction and global excess capacity in a context of weak effective demand. Social transfers serve as cash injections to local economies, having a positive impact on their development.

… and Political Arguments A Global Social Floor can be effective to prevent conflict and create politically stable societies Poverty and gross inequities tend to generate intense social tensions and violent conflict Other crisis: riots, violent xenophobia The huge disparities in income inequality encourage uncontrolled migration

Transfers Reduce Poverty more than 50% in OECD Countries Source: OECD

South Africa Social Transfers Effective to Reduce Poverty and Destitution – Cost 3% GDP Source: Sampson, M. 2006, EFPRI South Africa => However social transfers are rarely considered in National Development Strategies/Poverty Reduction Strategies in Developing Countries => Social Transfers can make the difference between achieving MDG1 of halving poverty by 2015 or not

Cash Transfers Schemes in Developing Countries: Covering 200 Million People TYPE OF TRANSFERS COUNTRIES Unconditional Household Income Support Chile, China, Mozambique, Zambia Social Pensions Argentina, Bolivia, Bangladesh, Brazil, Bostwana, Chile, Costa Rica, India, Lesotho, Mauritius, Moldova, Namibia, Nepal, Samoa, South Africa, Tajikistan, Uruguay, Vietnam Child/Family Benefits Mozambique, South Africa Conditional Cash for Work Argentina, Etiopía, India, South Korea, Malawi, South Africa Cash for Human Development Bangladesh, Brazil, Colombia, Ecuador, Honduras, Jamaica, México, Mongolia, Nicaragua Source: Source: ILO, 2007. Social Security Department, Geneva and UN DESA, 2007: World Economic and Social Survey 2007, United Nations

Cash Transfers – Lessons Learnt from Developing Countries Prevalence: In more than 25 developing countries Covering at least 150-200 million people Cost: Basic means-tested social assistance benefits- about 0.2% GDP Complete set of basic universal benefits – From 2% to 5% of GDP Poverty impact: South Africa reduced poverty gap by 48 % Mexico PROGRESA/Oportunidades and Brazil’s Bolsa Scola: Reduced poverty by 12 points Education: Positive enrolment effects and school attendance duration in Mexico, Brazil, Colombia, Bangladesh, Nicaragua and Zambia Health: Positive effects on height, weight of children and nutritional status in Colombia, Mexico, Chile, Malawi, South Africa

Financing a Global New Deal: National Sources A Social Floor is affordable, estimated at an average 2% to 5% GDP in developing countries (ILO) It have to grow with the fiscal space made available by: Increasing GDP Aid/debt Domestic resources exist: Accumulated reserves Budget reallocation Need to increase efficiency of tax collection - Billions lost through tax evasion, inadequate tax systems, illicit flows South-North transfers must be reversed, use savings for the development of the South

Budget Reallocation: Warfare vs. Human Welfare Source: Richard Jolly, 2004: Military spending and development, Sussex, IDS

Potential Fiscal Space: Use of Accumulated Reserves Increasing Global Reserve Accumulation, 1998-2007 Little left to governments to spend on social and economic development

Potential Fiscal Space Developing Countries Financial Flows Source: EURODAD, 2008. Capital flight diverts development finance. EURODAD: Brussels.

Financing a Global New Deal: International Sources Strong argument for North-South transfers given world inequalities, 70% explained by differences in income between countries (UNDESA) ILO estimates that basic social security would cost 2% of world’s GDP Mechanisms: Increased Official Development Aid Multilateral and bilateral ODA to governments New instruments like SWAps and Budget Support ideal World Solidarity Fund? Global New Deal Fund?

Crisis: What Next? Monitoring social conditions (creating “alarms”) to call for urgent support Social expenditures need to be protected and expanded Analyzing distributional impacts of different economic policy options to the crisis, and creating a public debate Supporting governments (“How to”, instruments, best options…) Crisis response facility (World Solidarity Fund/Global New Deal Fund?) Donor contributions Management: One-UN Recipients: Governments to jump-start a New Deal: Income security through basic, universal non-contributory pensions Child benefits Employment programmes Access to social services Food security programmes

United Nations Department of Economic and Social Affairs Thank you United Nations Department of Economic and Social Affairs http://www.un.org/esa/ Email: ortizi@un.org