Social Protection in Latin America: The Unfinished Revolution

Public policy
Fiscal Policy, Public and Welfare Economics

During the recent financial crisis, various Latin American governments announced temporary expansions of existing safety net programs, such as Brazil’s Bolsa Família or Mexico’s Programa de Empleo Temporal. Though the final numbers are not yet available, it has often been claimed that such interventions helped protect the poor from the worst effects of the recession.

Viewed from a long-term perspective, the very fact that large cash-based programs such as these existed in Latin America in the first place—which could then be rapidly scaled up—seems remarkable. Until the early 1980s, social assistance in Latin America consisted almost exclusively of food and energy subsidies. There were also some direct feeding programs, or small transfer programs for narrowly-defined vulnerable groups such as the disabled. 

Separately, most countries also had a Bismarckian social insurance system, consisting of old-age and disability pensions, health and, in some cases, unemployment insurance benefits. Such systems, which date to the early 1920s in the Southern Cone, and the 1940s in most other countries in South America and Mexico, cover workers with a formal employment status, and are financed primarily by mandatory contributions from employers and employees. In most countries, coverage never really extended beyond the urban formal sector, and therefore excluded the overwhelming majority of the poor, who work predominantly in rural areas or the urban informal sector.

A recent paper by Ferreira and Robalino examines the evolution from this “truncated welfare state”, which largely excluded the poor and redistributed income among the middle-classes, to a range of modern systems which are larger both in terms of resource volume and coverage, but which remain poorly integrated and still face real challenges in promoting both security from shocks and opportunity for prosperity.1  

Policy innovation in this area was spurred in the late 1980s and early 1990s by the convergence of need and opportunity. Need arose in the form of the debt crisis and the subsequent ‘structural adjustment’ policies, which were accompanied by deep recessions and substantial increases in poverty. However, as Nora Lustig and others have noted, the policy innovation came with a substantial lag. In almost all countries, governments either ignored or used inappropriate instruments to respond to rising poverty in the 1980s.  Opportunity, at least in countries like Argentina, Brazil and Chile, came with political re-democratization. Need and opportunity spurred experimentation in the design of new policies, and the willingness to commit resources.2 

Although there is little evidence of a “master plan,” the paper argues that the expanded social assistance systems in LAC in the 2000s center around three pillars: non-contributory social insurance programs, conditional cash transfers and workfare schemes (alongside improvements in the provision of in-kind transfers, such as food and nutrition programs).

Non-contributory social pensions are entitlement programs that extend the right to regular payments—such as an old-age pension—to a pre-determined population, without requiring any previous contribution history or imposing any current condition. Their coverage may be defined by age alone, as in Bolivia’s Bono Solidario, which makes a universal fixed transfer to all citizens aged 65 or older; or there may be some means-testing, as in Brazil’s Benefício de Prestação Continuada (BPC). These are often large programs, with a measurable impact on current poverty, even if their incidence is not as progressive as those of conditional cash transfers (CCTs).

CCTs are payments made to parents (usually the mother), provided that certain conditions associated with their children are met. Conditions usually include a minimum school attendance rate and, in some cases, there are additional health care-related conditions. Although CCT transfers are typically small, their incidence is usually quite progressive, even in countries—like Brazil and Mexico—where the programs now cover a quarter of the total population. 

Workfare programs have an established history in LAC, going back to Chile’s Programa de Empleo Mínimo in the 1980s. More recently, however, they have re-emerged as an important safety net for the urban unemployed who are not entitled to formal unemployment insurance. During Argentina’s deep 2002 recession, for instance, its Jefes y Jefas de Hogar reached some 11% of the country’s labor force. 

The transformation undergone by many social protection systems in LAC over the last ten to fifteen years should not be underestimated. Conditional cash transfers and social pensions currently deliver reliable payments to some of the poorest people in Bolivia’s altiplano, Brazil’s sertão and to isolated indigenous communities in  southern Mexico—people and places that seldom received assistance from their governments twenty or thirty years ago. 

Equally important: this quiet revolution has resulted from homegrown policy innovation-- particularly in the case of CCTs—and stronger political will in many countries, most of which are now robustly democratic. Yet, the paper concludes on a cautionary note: the “organic” nature of the growth in social assistance implies that the existing systems, though larger, remain inefficient in a number of ways. Poor integration between social insurance and social assistance has led to increasing labor market distortions. Poor integration among individual social assistance programs also mean that policies form less safe a net than they might to protect the poor from shocks, and less effective an “opportunity rope” than they could. While the most famous innovations (like CCTs) aim to reduce structural poverty, the insurance capability of many programs is still limited – and so is their ability to respond automatically to shocks, such as the ongoing rise in food prices. Much has been achieved, but the quiet social protection revolution in LAC is far from complete.

Disclaimer: the views expressed in this article are strictly personal and do not necessarily represent the views of the World Bank or any other institution.

1Ferreira, Francisco and David Robalino. Forthcoming. “Social Protection in Latin America: Achievements and limitations”, in Ocampo and Ros (eds.) Oxford Handbook of Latin American Economics.

2See Lustig, Nora. 1995. Coping with Austerity. Poverty and Inequality in Latin America, The Brookings Institution, Washington, D.C. (Editor) and Lustig, Nora. 2000. “Crises and the Poor: Socially Responsible Macroeconomics,” Economía, The Journal of the Latin American and Caribbean Economic Association, 1(1), 1-45, Fall

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