A game changer for social protection? Six reflections on COVID-19 and the future of cash transfers
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There is little doubt that the magnitude of the social protection response to COVID-19 is of historical proportions. According to our research on measures taken by 215 countries and territories, at least $800 billion have been invested in social protection in the past nine months, a level 22% higher than during the great recession of 2008–09. This amounts to more than 1,400 social protection measures, of which about one-third took the form of cash transfers reaching over 1.1 billion people, or 14% of the world’s population. Relative to pre-COVID levels, cash transfer benefits nearly doubled and coverage grew by 240%, on average.
Yet “large scale” doesn’t mean “adequate”: our analysis shows that in the countries examined, cash transfer programs lasted 3.3 months on average, with a mere 7% of them being extended; 30% of programs were one-off payments; and only one-quarter reached more than one-third of the population. In low-income countries, spending per capita amounted to a scant average of $6 per capita, which is 87 times lower than in high-income countries.
The crisis is shedding light on longstanding holes in current social protection systems – at the very bottom of the distribution, but also in its ‘middle.’ As such, there are concerns that as the crisis winds down, so will much-needed social protection programs.
Could the pandemic offer an opportunity to move the needle in scaling-up social protection more permanently?
To address the question, we need to unpack six pre-pandemic bottlenecks that are inhibiting coverage extension. These relate to mindsets and preferences; sectoral priorities; institutions; delivery; financing; and politics. Let’s examine if and how each of these dimensions were affected by the COVID-19 response.
First, societal attitudes toward effort, work, self-reliance, family, or mutual support play an important role in shaping social protection coverage and design. While studies on cash transfers have largely disproved fears of dependency, work disincentives or unwise use of money, a certain level of wariness may still endure among policymakers. It is plausible that the lifeline provided by cash transfers during the pandemic might have represented a “proof of concept” and boosted trust in those programs. Whether programs would “stick” might hinge on their adaptation to local cultures, values and norms. This would put a premium on efforts to understanding the nature of reservations as opposed to “convincing” skeptical policymakers.
Second, because of cash transfers’ extensive multisectoral evidence, there could be inflated expectations about their effects. This risk may have been amplified by the magnitude of the cash response to the pandemic. A humble approach that acknowledges degrees of trade-offs with other competing priorities (typically investments in education, health, agriculture, and infrastructure) may be needed. Cash transfers are no silver bullet: even within a sector, they have a role in some cases (e.g., when child malnutrition is caused by limited access to food and dietary diversity, or learning at school is hampered by household income), while less in others (e.g., when malnutrition is the result of poor health environments, or when learning is deterred by other factors).
Third, a range of institutional developments are underway. In higher income countries, monetary policies by central banks and fiscal measures by governments are converging around cash transfers. About a century ago, Depression-era monetary and fiscal policy coalesced around public works as the program of choice. “Unconventional” monetary measures involving direct support to households played an important role in the last decade’s great recession. Cash transfers are now becoming a premier vehicle for attaining monetary and fiscal objectives (i.e., injection of liquidity to bolster consumer demand and protect the population, respectively), and in 7 cases such fusion took the form of universal transfers.
Compared to other crises, in lower income countries governments moved center stage in the pandemic response relative to external assistance and other sources of support. This also included spurring an array of innovations, such as working with mayors to extending cash transfers in urban areas and devising programs to reach migrants. Furthermore, the salience of reaching informal sector workers is leading to ‘quasi-universal’ provisions, and the debate on universal basic income is intensifying. Some of these approaches were probably considered unorthodox just a few years ago. Future scale-up decisions in crises could also be better tied to preparedness plans, including early warning systems that trigger assistance in a more objective and transparent fashion.
Fourth, the crisis put on full display options and creativity in extending delivery capabilities, including streamlined enrollment processes, flexible payments schedules, etc. Policymakers may consider retaining practices that can help overcome longstanding challenges related to accessibility of benefits. Since the pandemic has engulfed nearly the entire population in many countries, they may establish “universal delivery systems” that could potentially reach everyone. Such systems would be instrumental as countries build their paths toward universal social protection. In addition to programs’ administration, their design has also been simplified by waiving conditions or work requirements. As such, it is possible that the pandemic raised the bar for demonstrating the comparative cost-effectiveness from adding layers of activities around cash transfers – that is, we may see more benchmarking alternative designs against “simple” unconditional cash transfers.
Fifth, there are lingering questions related to financing matters, including in terms of sources of revenue and levels of fiscal space required. There are valid reasons for why financing constraints have been relaxed, and past experiences have underscored the risks of “scaling down” too early. So far, funding modalities for social protection included among others deficit spending, reprioritization of expenditures, and cuts to other services. These may not be feasible or desirable options in the longer-run. Fiscal constraints may become particularly challenging where social protection is already heavily reliant on external assistance. In such contexts, reimagining partnerships in the humanitarian space will be important. Yet historically, the development of domestic tax systems has been a key step for domestic social protection expansions. The crisis, perhaps, could generate further space for such conversation. Governments could build on the emerging response to forge a new social contract with “tax and benefits” at its center.
Finally, there are political challenges. Real-world policymaking is messy. Societies are an amalgamation of a wide array of constituencies which can gain or lose from reforms. The influence, power and pressure that specific coalitions can exert on decision-making processes can be substantial. The fact that COVID-19 reached people previously uncovered – including large shares of informal sector workers – may generate a new constituency demanding social protection, hence possibly enhancing the political sustainability of large-scale programs. The prospects for coverage expansion may hinge in no small measure on whether new measures would “translate into votes” and trigger political gains.
In sum, the COVID-19 temporary cash transfers are helping; but they operate alongside preexisting structural gaps in social protection. Whether the pandemic can be a game changer for addressing such gaps may depend on how the crisis affects six factors inhibiting coverage pan out in different contexts. On balance, the pandemic response may help address some bottlenecks, for example related to mindsets, delivery, and institutions (e.g., monetary-fiscal policy coherence, coverage in urban areas, crisis preparedness), while others may remain more uncertain (such as sectoral trade-offs, financing, and politics).
Sometimes history presents an unexpected window of opportunity for change. When this occurred in the past, windows tended to close rapidly, and the path taken (or not taken) at those junctures could set the course for decades.
Well said Hugo! We should never let a crisis go to waste. Now is the time to bring about significant policy changes that will sustain over time rather than focus only on the shorter-term solutions.