State Role in Welfare in Developing Countries:A Case Study of Bangladesh

Mozammel HuqDepartment of EconomicsUniversity of Strathclyde, Glasgow

30 May, 2014.

Structure of the paper

• Introduction• Main objective of the study• State role in Welfare: Theoretical Perspectives• Poverty in Bangladesh• SSN Programmes• Moving beyond the Basic SSN Programmes• The Way Forward• Concluding Remarks

Introduction

• State Role in Welfare: a fascinating proposition?

• A genuine question: Why the state should play a role at all and, if so, to what extent

• A genuine outcome of democratic development

Main Objective

• To view the state role in welfare as it has been emerging in developing countries, using Bangladesh as a case study.

• And, in the process, analyse the aspiration of moving from the initial goal of poverty removal to some comprehensive welfare measures.

• Thus, we are trying to widen the focus in terms of a comprehensive welfare approach as a long-term vision.

Theoretical Perspectives (only some key points)

• As with the efficient allocation of resources, the economists have remained concerned with the distribution of income.

• Society's view of just distribution may conflict with the existing distribution. In particular, there is concern with the injustice in the original distribution of endowments.

• Also factor market imperfections, especially monopoly pricing of the factors of production, can be an important cause of income inequality.

Theoretical Perspectives (cont’d)

• Private redistributions made voluntarily, say through charities, are riddled with problems, a major concern is that the task may be too big for the private redistribution to execute. • Musgrave (1959), among others, would like to justify state intervention to

maximise social welfare.

• Moreover, various charities may compete with each other as a coordinating role will be missing. Indeed, the state can perform a redistribution policy in a coordinated and comprehensive way. (See, e.g. Brown & Jackson 1990.)

• However, Hayek (1960)and other libertarians are rather concerned that state intervention in income distribution will cause curtailment of personal freedom and, in the process, hamper growth. • Hence the emphasis on voluntary contributions made by individuals personally

and/or help channelled through NGOs.

Poverty in Bangladesh

• The early years: Very high levels of poverty

• A major challenge to the economy: Is it going to remain a “bottomless basket”?

• Indeed, “a test case of development”.

Fig 1: Bangladesh - Dramatic Fall in Poverty

Proverty trends in Bangladesh

01020304050607080

*1981-82

*1983-84

*1985-86

1988-89

1991-92

1995-96200020052010

Years

Pove

rty

Hea

d C

ount

R

atio

by

the

DC

I M

etho

d 19

81- 8

2 to

20

00 (%

of p

opul

atio

n)

NationalRuralUrban

Source: Bangladesh Bureau of Statistics, Household Income and Expenditure Survey (various years).

SSN Programmes in Bangladesh

• In Bangladesh, the SSN programmes got a serious start in the early 1990s with the democratic government taking over in 1991.

• There now exists an extensive range of SSN programmes, as many as 90 or so (World Bank 2006; Khuda 2012; GOB 2011 Part 2).

• “The bulk of the programmes are implemented through government channels. However, non-government channels play an important supportive role particularly in those programmes focused on sustainable graduation. 97% of annual allocations are spent through 30 major programmes.” (Rahman and Chowdhury, 2012, p. 3).

• The programmes are mainly rural based, those with “an urban focus as yet remain minuscule , as only 0.7% of the total allocation” (ibid, p. 3).

Table 1: Major Types of SSN Programmes

TYPE PROGRAM EXAMPLES

• Cash Transfers • Old Age Allowance• Widowed and Distressed Women Allowance• Disabled Allowance

• Conditional Cash Transfers• Primary Education Stipend Program (PESP)• Stipends for Female Secondary Education

• Public Works or Training-based or in-kind Transfer• Rural Maintenance Program, Food for Work• Vulnerable Group Development (VGD)• Employment Generation Program (EGP)

• Emergency or Seasonal Relief• Vulnerable Group Feeding• Gratuitous Relief (GR); Test Relief (TR)• Open Market Sale (OMS)

Source: GOB (2011), 6th Five Year Plan, Part 1, o.166.

Major SSN Programmes: Govt Expenditure Allocations

• Govt expenditures (as % of GDP) on SSNs from 1999-00 to 2011-12 are shown in the next slide (Fig 2).

• Except the Food for Work programme (in which financial allocation by the Government of Bangladesh decreased from Taka 8,060 million in 1999-00 to Taka 6,224 million in 2011-12), all the other major SSN programmes have witnessed an increase in allocations .

• Such increases are particularly marked in Honorarium for Freedom Fighters, Primary Education Stipend Project, Old Age Allowance, and the Allowance for Destitute Widows.

•

Fig 2: Government Expenditures on SSNs: 1996-7 to 2010-11 (as % of GDP)

1996 - 97

2000 - 01

2004 - 05

2006 - 07

2008 - 09

2010 - 11

0

0.5

1

1.5

2

2.5

3

GDP

Review and Assessments

• The emergence and the growth of the SSN programmes in Bangladesh have attracted attention from a large number of researchers.

• Various international organisations including the World Bank, UNDP and FAO have also shown a keen interest in it.

• Findings from selected studies (brief summary, next slides).

Authors Method of the Study

Coverage of the Study

Main Findings

Mannan & Paul-Majumder (2003)

Field Surveys, 2001

Country-wide, seven major SSN ProgrammesInvestigated

The targeted programs have positive impact on income, food consumption and access to safe housing, however there is urgency to extend the coverage with additional funding allocation. Also the distribution mechanism needs to be improved to get rid of political patronage.

World Bank (2006)

Analyses key primary data.

HIES 1991 & 2000, and 2000 Labour Survey, & a 2003 survey of selected SSNs

Strongly suggests for raising level of expenditures on SSN programmes in Bangladesh, currently at less than 1% of GDP. Also, critical of the current practice of administering these through numerous agencies – “Government, non-government and international bi-lateral and multi-lateral partners”, with “frequent overlapping between programmes and inadequate co-ordination across ministries.”

Iqbal et al (2007)

Broad overview

Countrywide, mainly using the above WB study

Strongly argues for raising the allocation on SSNs, besides recommending, among others, to attend to the “regional disparity”, in particular by creating employment on a permanent basis in the “monga” affected areas of northern Bangladesh.

Ahmed (2007) General overview

Analyses Budget allocations

Examines the Budget allocations overtime against the various SSNs. Also, argues for improving the functioning of these programmes in Bangladesh.

Khaleque et al (2008)

General overview

Assessment of SSNs in the monga-affected Greater Rangpur

“VGD/VGF has strong positive effect in reducing poverty while old age pension has no such contribution.” Highly vulnerable groups such as day labourers and beggars are found to be “left out from the benefit of SSN programs due to their limited coverage and size. Also, inter-ministerial coordination is found to be lacking, resulting high administrative expenses.”

Begum & Paul-Majumder (2008)

Field Surveys,Dec 2000-Jan 2001

Country-wide, Destitute Women’s Allowance

86% of the recipients spend their allowance to satisfy their food and basic needs, however there is urgency to extend the coverage as only around one-fifth of the deserving destitute women are getting the allowance. Also need to increase the amount.

Authors Method of the Study

Coverage of the Study

Main Findings

Paul-Majumder & Begum (2008)

Field Surveys,2000

Country-wide, Pension for the Elderly Poor

Programme largely successful, 96% of the poor elderly recipients are able to meet part of their basic needs, however the coverage of the programme has remained yet very limited or far below the appropriate level.

Morshed (2009)

General overview

Country-wide Both Govt and non-Govt agencies are actively implementing SSN programmes, however most implementing ministries lack sufficient capacity to monitor programmes.

Maniruzz-aman (2009)

Field surveys,2007-08

Food insecurity in Char (flood-prone) areas

High level of food insecurity (90% in Kurigram), while 34% in Narsingdi. 34% of the 321 male-headed households and 61% of the female-headed households received some SSN benefits, so greatly helping them with food security.

Huq and Salimullah (2010)

Field Surveys,2010

Assessment of the SSNs coverage, in rural and urban areas.

One-fifth of the rural households received Govt-provided SSN benefits, while in urban areas it was almost negligible. NGOs were providing SSN-type benefits in both rural and urban areas, helping about 13% households in the former and just over 4% of the urban poor households.

Khuda (2011)

General assess-ment

Review of the SSNs in operation.

High success of the SSNs, the lessons learned should even be of great help for other lo-income countries, however need to improve co-ordination significantly.

Khandker et al (2011)

Household surveys, 2006-07

Review of SSNs in the ‘monga-affected Greater Rangpur

Social safety nets are found to have a positive effect on mitigating both seasonal and non-seasonal food deprivation, however also recommends investment in physical infrastructure and human capital, and argues for diversification of income and increase in productivity.

Rahman & Choudhury (2012)

Field Surveys,2010-11?

Country-wide, comprehensive review.

Improvement in income and food intake, also halving of hunger in the chronic deficit areas, however serious concerns because of disaggregated nature of the coverage gaps, multiple types of leakages, presence of some low value-for-money programme components,

Impact of SSNs on Poverty Decline,Findings by Inchauste et al (2012)

• Negligible role of public transfers in poverty reduction in Bangladesh; “leakages and small size of individual transfers made their impact on poverty negligible, despite an expansion of transfer programs during the last decade”. (Inchauste et al, 2012, p19).

• In contrast, labour-market related factors contributed to 61% of poverty decline in Bangladesh, “pointing to an increase in real wages and higher productivity as the main contributors to poverty reduction.” (p. 4)

• International remittances, and also decline in population growth and fall in the dependency ratios also contributed significantly to poverty reduction in Bangladesh.

Key Issues & Concerns

• Although the SSN-support has been of particular help to some needy groups and areas, e.g. poor elderly, destitute women and the poverty-stricken parts, the programme is still low in coverage and size. Also, day labourers and beggars, among others, are also found to be left out.

• As strongly argued by the World Bank (2006), Bangladesh seems to spend somewhat below the norm (less than 2% of GDP) – as compared to 2% for Africa and close to 5% for South Asia. (The serious resource constraint faced by the Govt in Bangladesh is, understandably, a major hindrance.)

• There are also a number of other concerns (see below).

Key Issues & Concerns (cont’d)• A major concern relates to the deficiency in administration of

the SSN programmes. Some 30 or so Government Ministries are reported to be involved, and without any inter-Ministerial collaboration.

• Also, at times various Government and non-Government agencies are found to be working without any coordination.

• “Leakages” are frequently reported, and in some programmes as high as 26% (GOB, 6th Five Year Plan, Part 1, p.168).

• Hence the need for improving the administrative capacity and, in particular, involving central co-ordination, thus institution building demanding a serious attention (World Bank, 2010).

Moving Beyond the Basic SSNs:Case of a Long-term Vision

• Many developing countries are still struggling to remove extreme poverty.

• Also, there are strong oppositions to create welfare provisions.

• Ideological pressures following globalization.

• However, with the march of democracy, the West European model is likely to remain a cherishing dream.

The Way Forward

• Realistically, any hope of comprehensive welfare measures is likely to remain a long term vision.

• Two key components: a) Need to grow steadily government expenditures

on welfare provisions as a percentage of GDP and

b) Need to keep improving the administration of such welfare measures.

Concluding Remarks

• Need to maintain a strong competitive market economy, thus helping to keep improving the resource allocation, while also the state remaining active in income distribution with carefully selected (and also well administered) welfare measures.

• The short-term goal is likely to remain the eradication of poverty.

• Any success in providing comprehensive welfare measures will be dependent on how the capacity pf the state has improved, involving two main areas: (a) social welfare allocations as a percentage of GDP and (b) an organisational set up to administer the programme efficiently.

Thanks!