Could the adoption of welfare states reduce vulnerabilities and build resilience in developing countries?

I was delighted when I first noticed that Human Development Report 2014 has looked at the question of how poor people in developing countries can be made less vulnerable and more resilient in the face of natural disasters, commodity price instability and other threats to their well-being. In turning its attention to vulnerability and resilience the United Nations Development Programme (UNDP) has recognized the progress that has occurred in reducing world poverty in recent decades.

However, I am appalled that the UNDP has adopted an approach that is likely to lead to lead to greater welfare dependency and increased government debt in developing countries, and inevitably make the poor people in those countries more vulnerable to extreme poverty when fiscal restraint has to be re-imposed. There is something very peculiar about the idea that people can become more resilient by being made dependent upon unsustainable government largesse. The UNDP seems to have an obsessive desire to encourage developing countries to adopt the most expensive kind of welfare system imaginable.

At this point you probably think that I must be exaggerating. If so, you are wrong! The report does not argue for provision of a targeted safety net to assist those most in need of help at time they most need that assistance. In fact, it rejects that approach explicitly in favour of universal provision of basic social services such as education and health care. The authors argue:

“Universal coverage of basic social services is not only imperative – it is also possible at an early stage of development. And recent evidence shows that it can be achieved in less than a decade” (p 85).

The authors recite the view that when social benefits are targeted, “the middle class and elites are less willing to fund them through taxes”.  They obviously see little merit in public policy transparency. They also over-estimate their ability to pull the wool over the eyes of middle and upper-income voters. Such voters have not been backward in shifting the burden of funding universal welfare back to low income earners via taxes on wages or goods and services (as in Scandinavian countries) or in shifting it forward to future generations through increases in public debt (as in many other high-income countries).

When the authors discuss policies to promote full employment they show some recognition that a somewhat different approach might be appropriate in developing countries. They recognize a need for policies to address the vulnerabilities of people engaged in traditional agricultural activities and informal sectors. For example, they mention the role of micro-credit schemes, improved small-scale technologies and support for farmer cooperatives.

I was hoping to see some innovative thinking about food security in the report, but I didn’t find any. The issue is mentioned in the discussion of agricultural trade liberalization, where it is in the “too hard” basket. There is recognition that “spikes in the prices of food and other commodities are adding to hunger and starvation for the poor and vulnerable”, without consideration of how this could be avoided. There is recognition that farmers in developing countries often have to compete with subsidized agricultural products from developed countries, again without providing any suggestions about how this could be avoided. And there is this peculiar recommendation: “Agricultural liberalization needs to be selective in targeting goods mainly exported by developing countries to avoid increasing prices of food staples of developing countries”. So much for free trade, or even fair trade!

Actually, apart from that example of absurdity, I found the section on trade in Chapter 5 of the report to be one of the more sensible parts of the report.

While I am in a positive frame of mind I should also mention that the report has some informative diagrams showing progress in reducing world poverty. For example, Figure 2.6 (page 41) shows that for most countries the poorest 40 percent of the population have enjoyed more rapid consumption than the population as a whole over the period 2005-10. However, when the authors wrote about that Figure, what they emphasized was that consumption for those at the poorest end of the distribution has been slower than for the population as a whole in some countries where inequality has been high or rising. The three countries they cite as examples are Malaysia, China and Uganda. That seems to me to be grossly unfair to China and Uganda; in those countries, growth in consumption at the poorest end of the distribution has been much the same as for the population as a whole.

It was almost inevitable that the UNDP would produce a disappointing report about how to reduce vulnerabilities and build resilience in developing countries. People who work for international agencies are always subject to the temptation to see themselves as architects of human development. It would be overly optimistic to expect anyone writing a report for the UNDP to show an understanding the bottom-up processes through which economic development has tended to lead to growth of emancipative values and progressively greater efforts to protect vulnerable people from misfortunes.

The authors of the report seem to have hopes that the approach they advocate will influence international debate about the post 2015 development agenda, which is to follow the Millennium Development Goals. In my view their report should be ignored. The approach the authors advocate is a recipe for a return to more widespread poverty and misery throughout the world.