Social protection pays off

Governments must use the momentum created by the COVID-19 pandemic to make rapid progress toward collectively financed, comprehensive social-protection systems.

If the COVID-19 pandemic has sent the world one message, it is that we are only as safe as the most vulnerable among us. Those who are unable to quarantine themselves or to get treatment endanger their own lives and the lives of others, and if one country cannot contain the virus, others are bound to be infected, or even re-infected. And yet, around the world, social-protection systems are failing miserably at safeguarding the lives and livelihoods of vulnerable groups.

Nearly 40 per cent of the world’s population has no health insurance or access to national health services. Some 800 million people spend at least 10 per cent of their household budget on health care each year, and 100 million people fall into poverty because of medical expenses. This means that many simply lack the means to seek treatment when they are sick—including when they have highly contagious diseases like COVID-19.

Compounding the problem, an overwhelming majority of workers lack the economic security to take sick leave or cope with an unexpected emergency. Because fewer than two-thirds of countries have a social insurance and/or social assistance scheme in place to provide sickness benefits, the ill are often forced to choose between endangering personal and public health and paying their bills.

Not surprisingly, unemployment protections are also severely inadequate, despite their critical role in supporting household incomes and stabilising aggregate demand. Already, enterprises that depend on suppliers in outbreak-affected regions or that face reduced demand due to lockdowns and other containment measures have come under immense pressure. Hundreds of thousands of jobs are now in peril. And yet only one in five unemployed people worldwide can count on unemployment benefits.

In fact, as it stands, 55 per cent of the world’s population—about four billion people—do not benefit from any form of social protection whatsoever, with many countries relying on market-based solutions (which only some can afford) to fill the gaps. As the COVID-19 pandemic starkly demonstrates, this not only hurts the poorest and most vulnerable; it threatens the wellbeing of entire societies and of the entire global community.

Minimum levels

This is not news to world leaders. After the last global catastrophe—the 2008 financial crisis—the international community unanimously adopted the International Labour Organization (ILO) Social Protection Floors Recommendation (no. 202), thereby committing to establish minimal levels of protection that would form the basis of comprehensive social security systems.

In 2015, world leaders took another promising step forward when they agreed to the 2030 Agenda for Sustainable Development. Many of the Sustainable Development Goals advance the social-protection imperative. For example, target 3.8 aims to ‘achieve universal health coverage, including financial risk protection, access to quality essential health-care services, and access to safe, effective, quality and affordable essential medicines and vaccines for all’. Target 10.4 calls for countries to ‘adopt policies, especially fiscal, wage and social protection policies, and progressively achieve greater equality’.

But, as the COVID-19 crisis makes clear, not nearly enough progress has been made. If the pandemic has a silver lining, one hopes that it spurs governments to expand access to health services, sickness benefits and unemployment protection. After all, evidence shows that such spending has a larger positive multiplier effect on the economy than other measures (such as tax reductions for higher-income earners, extension of credit to first-time homebuyers, and some corporate tax provisions) and can support social and political stability.

How to pay

Of course, there is still the question of how to pay for it. The ILO estimates that, for developing economies, the average financing gap for implementing an adequate social-protection floor is equivalent to 1.6 per cent of national gross domestic product. For low-income countries, that gap is much larger—around 5.6 per cent of GDP. They are unlikely to have enough fiscal space to close that gap on their own.

Yet the world has never been as wealthy as it is today. Pandemic-induced recession or not, we can mobilise the necessary resources. To this end, countries should implement corporate-tax reforms aimed at ensuring that multinationals contribute their fair share to public coffers. Progressive income and wealth taxes, as well as policies to reduce illicit financial flows, would also help.

But these measures would take time to have an effect and, with the pandemic already disrupting economic activity and decimating incomes and demand, speed is crucial. In the immediate term, both developed and developing countries need more flexibility for deficit financing and concessional international borrowing to support investments in social-protection systems.

Increasing spending

Many governments—particularly in countries with health-care systems funded by social contributions or taxes—are already increasing spending, in order to ensure access to necessary services during the COVID-19 crisis, including by integrating prevention, testing and treatment measures into benefit packages. South Korea, for example, conducts thousands of COVID-19 tests each day in government-funded drive-through testing centres.

Moreover, a number of governments have ramped up economic support to households and businesses. France, Hong Kong, Ireland and the United Kingdom have extended sickness benefits to quarantined or self-quarantined workers. Germany and the Netherlands are offering partial unemployment benefits to workers whose hours have been cut due to plummeting demand.

Similarly, China, France, Portugal and Switzerland have broadened eligibility for unemployment benefits to include workers at businesses that have been ordered to close temporarily, while Australia, China and Portugal have expanded social assistance for vulnerable populations. And many countries—such as China, France and Thailand—have delayed deadlines for social-security and tax payments.

But these measures are just a first step. Governments must use the momentum created by the current crisis to make rapid progress toward collectively financed, comprehensive and universal social-protection systems. Only then will our societies and economies be able to weather the COVID-19 pandemic—and the other crises to come.

Republication forbidden: copyright Project Syndicate 2020, ‘Social protection pays off’