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Social Security in Developing Countries$

Ehtisham Ahmad, Jean Drèze, John Hills, and Amartya Sen

Print publication date: 1991

Print ISBN-13: 9780198233008

Published to Oxford Scholarship Online: September 2011

DOI: 10.1093/acprof:oso/9780198233008.001.0001

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Social Security in Developed Countries: Are There Lessons for Developing Countries?

Social Security in Developed Countries: Are There Lessons for Developing Countries?

Chapter:
(p.81) 3 Social Security in Developed Countries: Are There Lessons for Developing Countries?*
Source:
Social Security in Developing Countries
Author(s):

A. B. Atkinson

John Hills (Contributor Webpage)

Publisher:
Oxford University Press
DOI:10.1093/acprof:oso/9780198233008.003.0003

Abstract and Keywords

This chapter focuses on the measures that have emerged as components of the social-security systems of developed countries. It considers the lessons that developing countries may or may not be able to draw from the experience of developed countries in devising social-security systems, concentrating on case studies of policies aimed at the support of children. The chapter notes that this serves to illustrate a number of key issues. It focuses on the situation in developed countries and considers how far the methods and approaches adopted in the analysis of policy in those countries do indeed suggest wider lessons of relevance to developing countries.

Keywords:   social-security systems, developed countries, lessons, developing countries, case studies, support of children

1. Introduction

This book is concerned with the strategies open to developing countries to use public action to protect the living standards of the poor. The relevant strategies encompass a wide range of possible policy measures, including asset redistribution, food distribution, agrarian reform, and public works programmes. The focus of this chapter is on the measures that have emerged as components of the social-security systems of developed countries (these were referred to in the Preface to this book as ‘formal’ social-security measures). We shall consider the lessons that developing countries may or may not be able to draw from the experience of developed countries in devising social-security systems.

It is evident at the outset that such lessons are unlikely to concern concrete programmes or particular policy measures. It is certainly not suggested that the social-security systems of countries such as Britain or the United States offer a blueprint which should be adopted by countries whose circumstances are completely different. Rather, our intention is to examine the choices which developed countries have made and the constraints which have influenced their various choices. In particular, the description of the methods of analysis which have been developed to examine the forces which have acted in this process may be of some interest to those exploring analagous questions in developing countries.

In considering the experience of developed countries, one must bear in mind that the shaping of social-security systems has been influenced by a diversity of goals. In addition to the goal of protecting the living standards of the poor, social-security systems may have an important role in redistributing resources over the lifetime or within the family. They may also be directed at (p.82) providing insurance against risks, such as sickness or disability, which lead to a fall in income but do not necessarily lead to poverty. Some writers have indeed suggested that the case for social security can be argued for reasons of efficiency as much as on distributional grounds:

The welfare state is much more than a safety net; it is justified not simply by any redistributive aims one may (or may not) have, but because it does things which private markets for technical reasons either would not do at all, .or would do inefficiently. We need a welfare state of some sort for efficiency reasons

(Barr 1987: 421).

It has therefore to be emphasized immediately that social-security systems in developed countries have neither been exclusively concerned with the protection of the poor, nor been seen as the only means to this end.

A related observation is that there is great diversity in the social-security provisions that are to be found even in countries of a similar level of development. This is illustrated by the three countries on which we focus in this chapter: Britain, France, and the United States. In Britain there is, for example, a universal child benefit but no income tax concessions for children; in France, the allocation familiale is only paid for the second and subsequent children, but the income tax, through the quotient system, offers tax advantages to families with children; in the United States there are no general cash benefits at all for children, but the income tax allows a deduction for children and for child care costs. In Britain the administration of social security is highly centralized; in France the caisses that administer benefits enjoy some limited degree of autonomy; in the United States important parts of the social-security system are operated by State governments with differences in benefit levels and conditions. These differences may simply reflect the historical path by which the systems have evolved; they may also reflect differences in objectives and constraints. In Section 2 of this chapter, we examine some of the factors which may explain the differences in the forms of social-security systems in different countries, paying particular attention to the constraints—economic, political, and administrative.

It is clearly not possible in the scope of this chapter to consider a wide range of social-security policies. We have therefore chosen to concentrate on a case-study of policies aimed at the support of children (Section 3). This serves to illustrate a number of key issues. While the first parts of the chapter concentrate on the situation in developed countries, in the final section we consider how far the methods and approaches adopted in the analysis of policy in those countries do indeed suggest wider lessons of relevance to developing countries.

(p.83) 2. Social Security in Developed Countries: Objectives and Constraints

2.1. Form and Objectives

Social security in developed countries typically combines three different elements—social assistance designed to relieve poverty, social insurance concerned with the provision of security and the spreading of income over the life cycle, and categorical transfers directed at redistribution between specific groups. The first category is typified in Britain by Income Support, which traces a direct line of descent from the Elizabethan Poor Law, in France by the minimum vieillesse, and in the US by welfare. The second category is illustrated in Britain by National Insurance pensions, unemployment benefit, and invalidity benefit, in France by a similar range of insurance benefits and in the US by OASDHI (Old-Age, Survivors, Disability, and Health Insurance). The third category is illustrated by Child Benefit and Allocation familiale, which, as we have noted, have no counterpart in the US.

These three elements contribute in varying degrees to different objectives. Social assistance usually has the objective of guaranteeing a minimum level of income and of meeting emergencies, either individual, such as family breakdown, or collective, such as the closure of most of a town’s industry. The definition of the minimum level of income and of the conditions of entitlement poses substantial problems, as extensively documented in the literature on the measurement of poverty. Are we in fact concerned with income poverty, taking income as a general index of well-being, or with specific poverty, measured in terms of the consumption of particular goods, such as food? If we are concerned with income poverty, then we must consider the specification of the period over which resources and needs are to be assessed, which in turn depends on the scope for people to smooth out fluctuations in their income. We have also to define the unit which is taken as the target of public support— individual, family, or household. As Fiegehen and Lansley (1976) show, the numbers defined as being in poverty are sensitive to whether the family or the household is taken as the appropriate unit. If one allows for unequal distribution of income within the family, the numbers in poverty would be different again.

Social insurance too is seen as a means of combating income poverty. For Beveridge, the key to the abolition of want in post-war Britain lay in the expansion of social insurance to replace the deficient assistance scheme. Increasingly in recent years the poverty alleviation role of social insurance has come to be stressed. In the US in the 1970s the test question applied to social-security programmes came to be ‘what does it do for the poor?’, to use the title of Lampman’s (1973) influential article in Public Interest. The 1985 White Paper in Britain on the Reform of Social Security described its objectives as being ‘to maintain and develop state support for those in need’ (Department of (p.84) Health and Social Security 1985: 2), without mentioning any wider role for the social-security system.

As we stressed at the outset, however, the combating of poverty is only one of several objectives. Indeed,

the French system of social security was never primarily conceived as a tool to fight poverty. Security, in terms of protection against the risks and hazards of life, was its first, paramount objective. Redistribution and equality were always supplementary considerations

(Jallade 1988: 248).

Similarly, for Haveman, ‘the primary economic gain from the welfare state is the universal reduction in the uncertainty faced by individuals’ (1985: 449). The aims of social-insurance systems include insurance against loss of income through contingencies such as unemployment and sickness, and redistribution within the life cycle—for many ameliorating a fall in living standards at times of relative penury, rather than being permanently required to keep them out of poverty. State intervention in this form has been justified in terms of the failure of private insurance markets to provide adequate cover for the relevant risks as a result of adverse selection and moral hazard problems. Where insurance companies cannot identify the riskiness of individual customers, and there are problems of adverse selection, the private market for insurance is unlikely to be perfectly competitive. It is also possible that there is a ‘markedly lower cost of administration in most forms of State Insurance’ (Beveridge 1942: 286).

There are also wider principles of social solidarity underlying social insurance. As Ameline and Walker describe the position in France,

when statutory social insurance and family allowances were first introduced in the 1930s, their purpose was not to combat poverty but to establish a form of mutual support, solidarité, first between wage-earners, then between wage-earners’ families and eventually among all categories of worker and family

(1984: 193).

Although this concept has been of greater importance in continental Europe, it has also been influential in Britain: as Beveridge (1942) put it, ‘men should stand together with their fellows’. Such an objective of solidarity cannot necessarily be met by economic measures such as the improvement of credit markets.

The aims of categorical transfers also go wider than the abolition of poverty. The origins of the French system of support for families with children lie in pronatalist concerns about low population growth (the exact reverse, of course, of the major concern in many developing countries). The extent to which such concerns are still paramount is disputed. For Kamerman and Kahn, the continuation of such policies despite their failure to arrest the declining birth rate indicates that income maintenance objectives have taken over:

Most French view individual fertility decisions as based upon far more complicated factors…than the availability of a cash benefit…Thus, the French strongly support (p.85) income maintenance policies designed to reduce the financial burden of families, especially those with very young children

(1981: 21).

On the other hand, Baker argues that despite appearances the pronatalist element is still the most important: ‘It is politically unacceptable to seek to increase births explicitly but desirable to make the lives of parents and children easier and more rewarding, with that hoped-for result’ (1986: 423). Either way, it would be a mistake to assess the policy simply in terms of income maintenance.

2.2. Economic Constraints

The extent to which social-security programmes can meet their different objectives depends on the resources which can be mobilized by the government. The rise in taxation as a share of GDP with the level of development is a reflection not simply of the income elasticity of demand for public services, but also of the rise in taxable capacity with the monetization of an economy and increasing size of its formal sector.

Taxable capacity and the structure of social security are, of course, interrelated. The provision of social-security benefits may lead to a more effective and highly motivated labour-force, which increases production ’and hence increases the tax base. The existence of a State pension scheme may mean that people are no longer dependent on their children for support in old age and hence reduce the incentive to have children, with possible consequential beneficial effects on incomes per head. It is however the negative effects of social security on economic performance that have received most attention in the recent literature, particularly in the US. The disincentive aspects of social-security benefits have been emphasized, it being argued that they affect at the margin the decisions of individuals and firms. It is asserted that benefits distort an otherwise efficient allocation of resources, the point of reference being the standard competitive general equilibrium model. The particular areas of decision-making which have been investigated include the decision when to retire, the level of saving for retirement, whether to lay off workers, the hours of work supplied, whether to exit from unemployment and take a job, and whether to register as disabled.

Social-security benefits may therefore mean that people are induced to change their behaviour, for example retiring earlier than they would otherwise have chosen, and this may raise the cost of the programme. In an early article on the negative income tax, Diamond (1968) showed how the curve indicating the level of the feasible transfer lay below that estimated ignoring labour supply changes. Indeed it is argued by commentators such as Murray (1984) in Losing Ground that transfers to the poor have been counter-productive, in that more people are deterred from seeking self-help than are raised above the (p.86) poverty line by the transfers. In the case of benefits in kind, it has been argued that households reduce their own purchases, or resell the goods, thus undermining any attempt to achieve specified consumption levels of particular goods.

The significance of behavioural responses for the design of social-security policy depends on the quantitative magnitude of the effects. We lack, however, firm, agreed empirical estimates in many cases. There has been a great deal of interesting empirical analysis, much of it involving imaginative use of data, particularly at the micro-economic level, and the development of econometric techniques which allow in sophisticated ways for the subtleties of the problem in hand. The results are, however, all too often conflicting, even when authors use the same kind of data, since findings appear often to be highly sensitive to the specification of the behavioural model, to the way in which taxes and benefits are introduced, to the treatment of unobserved variables, and to the choice of sample. For example, Atkinson (1987 a: table 5.1) lists seven studies of the effect of pensions on retirement in the US using the same basic source (the Longitudinal Retirement History Survey), of which four conclude that pensions have a signficiant influence on retirement, but three conclude that the effect is either statistically insignificant or economically unimportant.

Moreover, the interpretation of the results is often open to question. For example, the samples studied are typically restricted to a subset of the population. This is illustrated by the US literature just cited on the effect of pensions on the date of retirement. If you are a white, married male in employment, then you stand a good chance of being included in the econometric analysis, but if you are black, or female, or self-employed, then your retirement decision is much less likely to have been modelled. This severely limits the extent to which the conclusions can be extrapolated to the population as a whole. A second example concerns the use of cross-section survey data, which has been the most active area of recent research. We observe differences in the behaviour of people with, say, different pension levels, but it is not clear what can be inferred from these cross-section differences about what would happen if pensions were to be increased for everyone. This depends on the general equilibrium of the economy, about which the empirical analysis may not be very informative.

It is for this kind of reason that, in an earlier review of the literature on the effects of income support on retirement decisions, on work-force participation by the disabled, on the behaviour of the unemployed, on family formation, and on retirement savings, one of us concluded, ‘the great volume of empirical research in this field in the past decade has not led to robust or widely-accepted answers to the basic question as to how income support affects economic behaviour’ (Atkinson 1987 a: 880). None the less, it must be recognized that the belief on the part of governments that disincentives are important has been a significant element in the policy debate.

(p.87) 2.3. Political Constraints

As our concern here is with public action, the political constraints on the use of public resources are of key importance. In one direction, voter ‘tax revolts’ may put a cap on welfare programmes; in the other direction, civil unrest may compel action or, as in the case of Bismarck, action may be taken so as to forestall the development of radical political alternatives. The nature of a country’s government and political structure conditions not only the aims of its social-security system (as discussed above), but also the resources available for it, the selection of which groups are assisted, and the numbers assisted. Indeed, the provision of social security at all is not an automatic consequence of economic growth, but reflects the political process.

The political acceptability of social-security programmes depends on the perceptions by the electorate of the benefits and costs. If, for example, universal schemes of social-insurance benefits are seen to be of general benefit, then there may be a rise in the acceptable share of tax in the economy. Conversely, if the public provision is seen to be inadequate, for instance where private insurance is necessary to cover medical costs, then this may lower the acceptability of taxation. The degree of acceptance may be influenced by the pattern of financing. The social-security ‘contributions’ which individuals make to finance social insurance may have little actuarial relationship with the likely benefits. Instead, they are in reality a hypothecated part of direct taxation. None the less, because they are generally conceived to be a payment for a clearly defined benefit, contributions (and the transfers they fund) may be significantly more acceptable than if general taxation was used. Here, as with other aspects of social security and its financing, perceptions of how the system works may be more important than its actual functioning.

The extent of redistribution via social security might be expected to vary with the degree of electoral support for socialist or radical parties, or with the strength of organized labour, but cross-national studies such as that by Heidenheimer et al. (1983) suggest that the relationship is complex. These authors note that

When a country must choose when to cross the line between public and private income distribution, the power of the political right probably is important in delaying, circumscribing, and otherwise restraining the vigor with which public policy goals are allowed to interfere with private arrangements

(1983: 212).

However, they go on to point out that this conclusion may not hold if the political right seeks to defuse pressures for change by introducing ‘defensive innovations’. More generally, the general level of support for social security is likely to reflect the prevailing political philosophy. Palmer, in his account of income security in the US under Reagan, refers to

(p.88) the widespread belief in the ‘American dream’ of individual opportunity, rejection of class-based politics and collectively orchestrated schemes of redistribution, suspicion of government power, and identification of personal freedom with private enterprise. These peculiarly American characteristics have conditioned public support for income security policies for decades…Even during the extremely liberal 1960s, successful politicians generally eschewed collectivist visions of the public good

(1987: 43–4).

Political factors may influence the form taken by social-security programmes. To the extent that the electorate are concerned with their own direct interests, they may be more likely to support programmes which are to the general benefit rather than those which are targeted towards small groups. Governments may be more willing to approve pension programmes where the costs fall on future generations not yet fully represented amongst the voters. In discussions of the relative merits of cash and in-kind transfers, it has been argued that the latter are more acceptable to electors, since their concern is more with the level of consumption of specific goods by low-income groups than it is with their general welfare. In the US it has been observed that food stamps are less unpopular with politicians and the general public than other forms of transfers, although by the same token some recipients have found them demeaning and stigmatizing (Wilson 1987: 57–8).

The role of interest groups is important. The ‘middle class capture’ thesis of Le Grand and Winter (1987) argues that in Britain under the Thatcher Conservative Government the programmes which have survived most successfully are those which have middle-class support, the middle classes being either beneficiaries or suppliers of services. Lynes has described the role played by different interest groups in shaping the evolution of pensions in France after the Second World War: ‘national solidarity had not proved strong enough to overcome the numerous vested interests or to persuade the self-employed and higher-paid employees to throw in their lot with the manual workers’ (1985: 25). In the US, food stamps are again an example, their expansion owing a great deal to the farming lobby (they are administered by the Department of Agriculture). According to MacDonald, the Food Stamp Act of 1964 was the result of a ‘logrolling arrangement between backers of wheat and cotton price supports and proponents of food stamps’ (1977: 7).

The form of the programmes which are enacted may reflect political preferences even where the motives are more disinterested. In the case of poverty alleviation, there may be differing weights on two different kinds of redistributional ‘efficiency’: horizontal efficiency in assisting all of the target group and vertical efficiency in assisting only the target group (Weisbrod 1969). If the ‘target group’ is taken as only the poor, systems based on universal contingency-based payments may perform badly by the second criterion. Child Benefit in Britain is received by all families with children and not just those below the poverty line. Means-tested systems may well perform badly by the first criterion. For instance, the official estimate of the percentage of those (p.89) entitled to Family Income Supplement (now replaced by Family Credit) in Britain in 1984 who did in fact claim is 55 per cent, with only 65 per cent of the amount available being claimed (HM Treasury 1988: table 15.17). The failure to claim non-universal benefits may result not just from their usual greater complexity, but also from the effects of the stigma attached to claiming, itself a product of the public acceptability of transfers.

2.4. Administrative Constraints

The way in which social security is administered may have major implications for its effectiveness and for its cost. Success in channelling benefits to those for whom they are intended, both avoiding payment of benefit to those not entitled and avoiding non-payment of benefit to those who are entitled, depends on the identification of potential beneficiaries and the elicitation of the correct information. Errors of one kind—payments to the ineligible—may be reduced by a harsh system of administration, as has long been recognized. As Midgley says of the English Poor Law of the last century, ‘by requiring the routine incarceration of the recipients of poor relief, the New Poor Law hoped to prevent fraud and to coerce the indigent to seek an honest living’ (1984: 87). But the cost of imposing such ordeals is that fewer of those genuinely eligible can be induced to apply and more of those with rightful claims are rejected in error.

The administration of social security is likely to be constrained in terms of the measures which may be used. It is, for example, hard to imagine that it could be made compulsory for non-claimants to provide information to the benefit authorities in order to see if they are in fact eligible. Similarly, there are restrictions on the information which can be obtained from employers about their employees.

Administrative considerations are also likely to influence the form of social-security programmes. A key issue is the availability of information, particularly that collected from claimants. Direct measurement of the income of the poor as a way of identifying those to receive benefits is administratively difficult. The forms recently issued for claiming the new Family Credit in Britain are sixteen A4 pages long (compared with the one-page form for the universal Child Benefit). The administrative costs for the means-tested Supplementary Benefit (now Income Support) in Britain amounted to 11.3 per cent of spending on the benefit in 1985/6. This represented 45 per cent of the total administration costs of social security, for a benefit which represented only 18 per cent of total expenditure (HM Treasury 1988: tables 15.22, 15.23).

Targeting does not, however, have to take the form of means-testing. Regular life cycle contingencies like maternity, sickness, disability, unemployment, and old age can be used as more straightforward tests of the probability of being in need. The efficiency of contingency-based benefits as a way of (p.90) targeting the poor (as opposed to the more general aim of reducing uncertainty for the population as a whole) depends on the extent to which those covered by the contingency are poor, and on the extent to which the poor fall into one or other of the contingencies chosen.

2.5. Alternatives to Social Security: Family Support, Fiscal Welfare, and Occupational Welfare

In most countries, social security has developed to supplement and to replace the support provided by family, local community, and charitable bodies. The extent and pattern of social-security provision is therefore likely to reflect the tradition and reality of support within the family and community, the strength and coverage of charities, and the level of development of collective organizations such as trades unions, friendly societies, and provident funds. The availability of these alternatives is related to the level of economic development—some positively (for example, the growth of trades unions with industrialization), others inversely (for example, the possible decline of family ties as geographical mobility increases).

Once again, the direction of causation runs both ways, and the level of public provision will itself affect the extent of family and community support; and this aspect of behavioural response must be taken into account. In the United States, for example, it has been argued that the ultimate beneficiaries from State pensions are not the retired but their children from whom the burden of support in old age has been lifted. In order to assess this argument, it is necessary not only to adopt a life-time view of redistribution, but also to consider redistribution between generations. The data required for such an analysis include transfers of income and capital (for example the effect of State pensions on the size of the estate left at death).

We have, however, to remember that social security is not the only form of provision that has grown up to replace family and community provision. Titmuss in his essay on ‘The Social Division of Welfare’ (1958) drew attention to the parallel systems of fiscal welfare and occupational welfare. Parallel to state pensions, for instance, are additional income tax deductions for the elderly (fiscal welfare) and occupational pensions paid by former employers (occupational welfare). In the case of fiscal welfare, it has been recognized by economists that tax expenditures serve a similar function to direct public spending on social security, but equally it has to be recognized that they are often viewed differently by politicians and taxpayers. Occupational welfare takes many different forms, depending on the nature of employment and of the contract between employers and employees, or their representatives such as trade unions.

In the case of all four systems of income support—social security, family or community support, fiscal welfare, and occupational welfare—we have to take (p.91) account of the interactions between them. Are social-security benefits reduced on account of income received from employers, from friendly societies and so on? Does help from family reduce a person’s State benefits? Are benefits subject to income tax? Is State welfare a residual scheme for those not covered by occupational provision? The answers to these questions are as likely to reflect the historical evolution of a particular society as the logic of economic or social planning.

3. Social Security in Britain, France, and The Us: A Case-Study of Child Support

3.1. Social Security in Britain, France, and the US

The social-security systems of Britain, France, and the US are in themselves illustrations of the way in which different traditions, objectives, and constraints lead to varied solutions to the problems of social security. What is more, they are embedded in an economic and social context that differs significantly between the countries, as is exemplified by the provision of health care, an issue that is often closely related and for which policy is often formulated in the same ministry.

In terms of the three types of social-security scheme identified in Section 2.1 (social assistance, social insurance, and categorical transfers), Britain has a means-tested system intended to guarantee a minimum income now known as Income Support (previously Supplementary Benefit and National Assistance) and descended from the reliefs offered under the New Poor Law of 1834 and before that the Poor Law of 1601. Social insurance, under the title of National Insurance, consolidated after the Beveridge Report of 1942, provides universal non-means-tested benefits like the retirement pension or Unemployment Benefit payable to those affected by certain contingencies and depending on their contribution records. The State pension consists of a basic fiat-rate element and a more recent earnings-related scheme; the short-term benefits are essentially flat-rate. Despite Beveridge’s original intention, a substantial proportion of those in receipt of National Insurance benefits depend on Income Support for supplementation, so that means-tested benefits play a major role. The system includes a categorical payment to those with children, Child Benefit, which depends on neither means nor contribution record. Occupational provision is widespread in the field of retirement pensions, where it is possible to ‘contract out’ of the state earnings-related scheme if covered by an occupational scheme, or since 1988 by a personal pension. Alongside the social-security system is the National Health Service, which provides free hospital care and general practitioner services, although prescriptions are subject to a charge.

(p.92) The French system offers a contrast in a number of major respects, as has been described by Jallade:

[It owes] more to Bismarck than to Beveridge to the extent that the principle of universal, compulsory insurance is the rule and selective assistance the exception . . . universal benefits are much more important than means-tested benefits and the notion of minimum income to be reached by means of social benefits does not exist except in the case of old-age pensions . . . firm-based pension schemes are far less developed than their British counterparts

(1988: 223).

Although social insurance is fragmented, and indeed labyrinthine, in its organization in France, it is of central importance and has its roots in rather different objectives from those in Britain. As far as the benefits available to those with children are concerned, pressure from the ‘family movement’ and concern about the consequences of slow population growth had by 1932 produced regulation of a high proportion of employers to provide additional wages for their own workers with children. It is from this that the system of wage-related payments into the caisses d’ allocations familiales has evolved. The difference in evolution from the British system leaves a very different perception of the role of social security. The same is true of the relation with health care, where the provision is explicitly related to insurance coverage, there being compulsory health insurance, which reimburses a proportion of the expense, coupled with supplementary private insurance.

In the US, the oldest programme is the income-tested general assistance (welfare). This is administered by State and local governments and the entry of the federal government into the field is relatively recent: ‘until 1933 the federal government paid no grants and organised no programmes for relief or insurance, except for its own employees’ (Barr 1987: 24). This changed under Roosevelt with the Social Security Act of 1935, which introduced federal old-age insurance benefits financed by taxes on employees and employers. Originally these were intended to be calculated on an actuarial basis, but this was quickly abandoned. As time has gone by additional benefits have extended the range of social security to include survivors’ benefits (1939) and disability (1956). The 1960s saw a major expansion under the War on Poverty of programmes directed at helping the poor. These were in large part income-tested, such as food stamps, subsidized housing, low-income scholarships, and Supplemental Security Income (converted from the earlier Old Age Assistance). In a number of cases there are federal grants for State income-tested programmes, including Aid to Families with Dependent Children (AFDC) for families with children, restricted in the majority of States to those with a single parent. The variation in programmes across States is a feature of the US which has no direct counterpart in Britain and France. Private provision for pensions is substantial, as in Britain. Health expenditures are, as in France, covered under social insurance, in that the ‘H’ was added to OASDHI in 1965 in the form of (p.93) Medicare, but this is limited to the aged and disabled. For those not covered, assistance may be provided in conjunction with income-tested programmes via Medicaid. There is also an income tax deduction for medical expenses.

Even for three countries with a relatively similar level of economic development, varying traditions and political objectives have led to rather different approaches to the problems of social security. These differences are illustrated in Table 3.1, which shows the spending on social security and health in the three countries, expressed as a proportion of national income. The first striking feature is the much greater relative extent of this spending in France, the proportion of GDP being nearly twice that in the UK and nearly three times that in the US. Since the figures are assembled from national sources, there may be differences in the definitions, but it is interesting to note that the International Labour Office (ILO) comparative enquiry (1985: table 1 and app. table) shows total social-security expenditure on ILO definitions in 1979/ 80 as being 12.2 per cent in the US, 16.7 per cent in Britain, and 25.5 per cent (p.94) in France (in 1980). Looking at the breakdown by ‘risk’, we can see that expenditure on old age accounts for a sizeable part of the difference. Despite the concern expressed in the US about the size of pension spending, it represents a much smaller fraction of GDP according to these figures. A second sizeable source of the difference is to be found in spending on family benefits. A striking similarity is the proportion of GDP allocated to public spending on health.

Table 3.1. Public spending on social security and healtha: France, UK, and USA

France % of GDP 1983

UK % of GDP 1987/8

USA % of GNP 1984

Old age

11.0b

5.3c

3.6d

Unemployment

2.8

2.1e

0.4

Family

3.7

1.2

0.4f

Health

} 6.6

4.9

4.2g

Sickness and invalidity

0.8

} 1.9h

Disability and injury

2.3

0.6

Other benefits including income-tested housing benefits and food programmes

1.6

1.0

0.9

Administration

1.6

0.6

i

TOTAL

29.6

16.5

11.5

(a) Excludes pension payments to public employees, general spending on public housing, and provision of personal social services.

(b) Includes ‘derived benefits’.

(c) Includes supplementary pensions.

(d) ‘Social security’ and SSI paid to aged.

(e) Includes supplementary allowances.

(f) AFDC only.

(g) Medicare, Medicaid, and other medical programmes.

(h) Includes OASDI and SSI except payments to aged.

(i) Included in figures above.

Sources: France: Jallade (1988: tables 1, 2). UK: HM Treasury (1988: tables 2.7, 12.1, 14.1, 15.1, 18.12). USA: US Department of Commerce (1987: tables 574, 578, 580).

The pattern of spending by type of programme is shown in Table 3.2. Social insurance accounts for about half the total spending in France and the US, but a smaller fraction in the UK. This reflects in part the relative size of the National Health Service, but the smaller percentage of social insurance in Britain also reflects the greater weight of other cash benefits (such as child benefit). Among the non-social-insurance cash benefits, means-testing appears to play a larger role in the UK than in France, and an even larger role in the US, where there are no major categorical benefits unrelated to income.

Table 3.2. Breakdown of public spending on social security and healtha: France, UK, and USA.

Percentages of total spending

France

UK

USA

1983

1987/8

1984

Social insurance

53.7

38.4

50.4

Other non-means-tested

8.9

11.4

Means-tested

5.9

19.3

14.5

Health care

23.4

30.9

35.1

(of which means-tested)

(9.3)

TOTAL

100.0b

100.0

100.0

(a) Excluding administration for France and the UK.

(b) Including 8.1% not allocated above.

Sources: see Table 1.

We now turn to a more detailed examination of the systems of support for families with children. This case-study is not presented as ‘typical’. It does not touch on the insurance aspects which are crucial for benefits such as those for sickness or unemployment; it is not of the same quantitative magnitude as the provision of old-age pensions. Nevertheless, it raises a number of issues relevant to developing as well as developed countries.

Child support in the three countries is summarized in Table 3.3, where we classify the programmes between the main headings of: (p.95)

  1. (1) universal cash transfers;

  2. (2) tax expenditures;

  3. (3) general means-tested cash transfers;

  4. (4) income-tested cash transfers to families with children;

  5. (5) means-tested benefits in kind.

Table 3.3. Child support in Britain, France, and the USA

Britain

France

USA

Universal cash payments

Child Benefit

Allocations familiales

Additions to Unemployment Insurance payments in certain States

One Parent, Benefit

Allocation au jeune enfant, initiate

Tax expenditures

Additional personal allowance

Quotient familial base for income tax Deduction for child care

Extra tax exemption for each child Special tax schedule for ‘heads of houshold’ Earned income and child care tax credits

General-means-tested cash transfers

Income Support

Income-tested cash transfers to families with children

Family Credit

Complement familial

Aid to Families with Dependent Children

Allocation de rentrée scolaire

Allocation au jeune enfant maintenue

Allocation de parent isolé

Supplement de revenu familial

Means-tested benefits in kind

Housing Benefit

Allocation de logement

Lower income housing assistance

Free school meals/milk

Aide personalisée au logement (plus lower rate of taxe d’habitation and lower social housing rents)

Free/reduced-price school lunches

Food stamps

Women’s, Infants’, and Children’s Supplemental Foods

This list is not intended to be exhaustive. We have not included occupational welfare nor other mechanisms, including subsidies to private suppliers of services, regulation of the private sector (for instance, minimum wages), or provision of public services (such as the National Health Service in Britain). It should also be noted that item (2) was not included in Tables 3.1. and 3.2, and is of some size, particularly in France and the US. It is not however likely to change the general ranking, which is that France has the most generous level, relative to GDP, of family support and the US the least generous.

3.2. Child Support in Britain

Universal payments to families with more than one child were one of the proposals in the Beveridge Report of 1942 and were implemented as family allowances from 1946. The rate of payment, originally set at some 4 per cent average adult male earnings for each child except the first, was lower than Beveridge had proposed (an age-related scale averaging more than 50 per cent higher). Subsequent upratings for inflation were infrequent, and by 1976–7 the real value of the allowance for taxpayers (taking account of taxation of the allowance and the ‘clawback’ of tax allowances) was only half the real value set in 1946 and even less important in relation to earnings (Child Benefits Now Campaign 1977). Meanwhile, additional child tax allowances had been given in respect of all children (including the first) for income tax purposes since 1909 (and before that between 1799 and 1806). These two systems were merged between 1977 and 1979 to give the current single system of Child Benefit. This is a flat-rate payment for each child, in 1988 equal to some 3 per cent of the average adult male earnings, paid usually to the mother (as had been the case with family allowances). Unlike its predecessor, Child Benefit is not taxable. The introduction of Child Benefit may be seen as the culmination of a long campaign which began with the ‘re-discovery’ of family poverty in The Poor and the Poorest by ren Abel-Smith and Townsend (1965). This campaign was largely conducted by specialized pressure groups, such as the Child Poverty Action Group, but it was very much in the Fabian tradition, which sees the intensive use of statistical, case-study, and other evidence as a powerful force in influencing political opinion and achieving social reform.

With the replacement of child tax allowances by Child Benefit, there are no special tax concessions to those with children except that single parents are entitled to claim an additional tax allowance to give equivalence with the (p.96) (p.97) treatment of single-earner couples. Single parents also receive a flat-rate benefit, One Parent Benefit, currently set at some 2 per cent of the average adult male earnings.

Social insurance benefits paid for short-term absence from work no longer include additions for those with children. On the other hand, there is a general system of means-tested minimum income provided through Income Support (known as Supplementary Benefit until April 1988). The ‘applicable amount’ allowances on which entitlement is calculated include age-related additions for dependent children and a premium for families with children. For a family with two children aged under 11 the total applicable amount is some 34 per cent of the average adult male earnings, which would rise to 38 per cent if the children were aged 11–15. The means-test is based on a 100 per cent rate of withdrawal of benefit from those with net income from other sources, including Child Benefit. The take-up for Supplementary Benefit in 1983 was estimated to be 76 per cent in terms of case-load and 89 per cent in terms of the amount available (HM Treasury 1988: table 15.17). Again there appears to be a major problem of horizontal inefficiency.

Families with children where one of the parents is in full-time employment (defined as more than twenty-four hours per week) are not entitled to claim Income Support, but can claim an alternative benefit, Family Credit (which in April 1988 replaced Family Income Supplement, originally established in 1971). This is means-tested with withdrawal at a rate of 70 per cent of net income after allowing for income tax and National Insurance Contributions. The amount payable and the income level up to which assistance is given rises with the number of children and their ages. The maximum entitlement for a family with two children aged under 11 is currently about 20 per cent of average adult male earnings and entitlement would be reduced to zero for this type of family at earnings of about 60 per cent of average adult male earnings. The corresponding figures for a four-child family (with two children aged less than 11 and two between 11 and 15) would be a maximum entitlement of some 30 per cent of average adult male earnings, reduced to zero at about 80 per cent of average adult male earnings.

Means-tested support in kind is provided on a general basis through Housing Benefit. This gives assistance with up to 100 per cent of rent and 80 per cent of rates (local property taxes) for those with incomes at or below their Income Support level, thus including those receiving Income Support. It is also means-tested, with a withdrawal rate of up to 85 per cent on net income (after tax and national insurance but including Child Benefit and Family Credit). There has been a succession of increases in the rate of withdrawal since 1983, when a taper of 28 per cent was applied to gross income (rate and rent rebates combined); the taper was increased to 38 per cent in 1984, 42 per cent in 1985, and 46 per cent in 1987. This increased withdrawal rate had the effect of substantially reducing the number in work with low enough incomes to be (p.98) entitled, so that this provision in kind is now relatively unimportant for families with children where the head is in work.

Provision of subsidized or free school meals and free school milk date back to the 1944 Education Act and provision of meals back to legislation of 1906 and earlier philanthropic efforts (Barbor-Might 1988). Free school milk was originally a universal measure, but this was ended in 1971. Free school meals were always subject to a means-test (although throughout most of the post-war period meal prices were subsidized). From 1980 free school meals (and welfare milk for children of below school age) were restricted to those with parents either on Supplementary Benefit or Family Income Supplement. From April 1988 they have been further restricted to those receiving Income Support, so that there has been a continuing trend to reduce the importance of this provision in kind.

3.3. Child Support in France

In France, as in Britain, there is a tax-free child benefit, Allocation familiale, which is not subject to any contribution test nor to a means-test. The benefit differs, however, in that it varies with family size and with the age of children. No benefit is paid in France for the first child and the amount for the second child is less than for the third and subsequent children. For all except the elder child in a two-child family, there are age premia above 10 and 15. There is therefore a strong ‘tilt’ in France in favour of larger families and of older children. Whereas in 1987 the amount for a two-child family came out to be broadly similar in France and Britain (and the one-child family received no Allocation familiale in France), the payments for larger families were considerably larger in France (amounts compared at the ruling exchange rate—see Atkinson 1987b). The programme is funded from a 9 per cent payroll tax on earnings up to a relatively low ceiling (rather below average male earnings).

For higher income families, the income tax system offers significant benefits for those with children. The tax charged depends on the amount of taxable income of a family divided into separate parts according to the Quotient familial. This awards one part for each adult and half a part for each child (with a whole part for the third child). Thus a two-child family pays the same average income tax rate as a single person with three times the income. This provision only benefits those families which are paying income tax, or would otherwise have been paying tax and, despite some limits on the extent to which the quotient system can reduce tax payable, the system is clearly of greatest benefit to those with the highest incomes. Atkinson, Bourguignon, and Chiappori found that ‘its effect in terms of net income appears to be strongly regressive’ (1988: 372). There is in addition a deduction for child care costs for single parents, or couples where both work full-time, with a child aged under 5.

The favourable treatment of large families in France also applies to the (p.99) income-tested benefits. The Complément familial is paid to families with at least three children aged 3 or over and provides a fixed payment if net income in the previous tax year is below a specified ceiling, and is reduced 1 f. for 1 f. if this ceiling is exceeded. The Supplément de revenu familial is paid to families with at least three children and whose net income in the previous year was below a specified ceiling. It brings income up to a specified level subject to a maximum. Other family benefits include the Allocation au jeune enfant, paid in pregnancy without an income-test and, subject to an income-test (the same as that for the Complément familial), to those with a child under 2, and the income-tested Allocation de parent isolé, paid to low-income single parents for a year or as long as there is a child aged under 3. Families with school-age children also receive an annual payment at the start of the school year, the Allocation de rentrée scolaire. This is a flat amount for each child (including the first) and the ceilings for receipt are somewhat lower than those applying to the Complément familial.

Means-tested assistance in France is in fact more important among families with children than for social security as a whole. The ceiling for the Complément familial, for example, is quite high—more than double average male earnings for a two-earner couple with three children—and this benefit is received by about half the total number of families in receipt of Allocations familiales (CERC 1988: annex IV). To the benefits described above must be added income-tested assistance with housing costs, which can be divided into two parts, the Allocation de logement and the Aide personalisée au logement. The former (divided in turn into two categories relating to families and other beneficiaries) depends on rent, family composition, and income (on a sliding scale). The latter is linked to the purchase of housing or renting of certain modernized dwellings. In addition, access to, and the rents of, social housing (Habitations à loyer modéré or HLMs) depend on family composition and income and the local tax charged (tax d’habitation) is reduced for larger families (Bradshaw and Piachaud 1980).

Whereas the British social-security system is controlled entirely by central government (even when local authorities are responsible for administration they now have minimal discretion over the benefits paid), the administration of equivalent benefits in France enjoys a degree of decentralization, being in the hands of quasi-autonomous local institutions. Child-related benefits are controlled by more than 100 local caisses d’allocations familiales. These have elected representatives in a majority on their controlling boards and, although the rates and entitlement rules for the main benefits are set centrally, they have control over action sociale spending programmes (about 10 per cent of their budgets) and over benefit administration (Simpson 1983). Participation in the administration of social security may on occasion retard reform, as in the case of pensions after the Second World War, but in general it may have led to a greater sense of identification and hence permitted France to maintain relatively high levels of benefit.

(p.100) 3.4. Child Support in the United States

Social insurance plays a major role in the US social-security system, but has little direct function as a means of child support. Only in the case of payments under unemployment insurance does the amount vary with the number of dependent children, and this provision applies only in a minority of states. Unlike Britain and France, there is no general categorical benefit for children and, interestingly, there seems to have been little public discussion of such a benefit.

By contrast, the income tax contains significant concessions for taxpayers with children. An additional exemption can be claimed for each child, equal to that for a single adult (just under $2000 in 1988). For a person paying a marginal rate of 15 per cent, this is worth $5.63 a week per child in 1988, for a person paying 28 per cent, it is worth $10.50 a week, or about 3 per cent of average production worker earnings. As with other exemptions, this is withdrawn from those on high incomes, but its effect would persist for incomes up to some $200,000 per year (married couples filing joint returns). The exemption again has no value to families that would not have been paying income tax anyway, and it may be noted that the 1986 Tax Reform Act reinstated the principle that those below the official poverty line should not be paying tax and by raising the exemptions and standard deduction (for those not itemizing deductions) this Act removed nearly 5 million people from the taxpaying population (Pechman 1987: 18). Secondly, heads of household (effectively single parents) benefit from a more favourable tax schedule than single people, with a larger standard deduction, a wider 15 per cent band, and a later threshold for the start of the exemption withdrawal. In each case the allowances and bands for single parents lie between those for single persons and those for couples filing joint returns. Thirdly, the earned income tax credit is open only to certain types of family, including couples with children and single parents. This provides a credit against tax on earnings limited to those with low incomes. Finally, a credit is given for child care expenses (unless there is a spouse at home). This is available whether the taxpayer itemizes deductions or not and is calculated as a percentage which falls with income (but, unlike the exemptions, is not phased out altogether from those on the highest incomes).

A principal policy concern in the US has been provision for the children of single-parent families, and the most important means-tested cash benefit for those with children is Aid to Families with Dependent Children (AFDC). As already noted, this is only available in general to single parents; only in twenty-three States (and the District of Columbia and Guam) is AFDC available where the principal wage-earner is present but unemployed. As a State-run programme, there are major variations across the US: ‘Within…broad guidelines, the States may choose whom they will assist, how the assistance will be given and how much it will be. There is great variation among the States in (p.101) their choice on these matters’ (US Department of Health and Human Services 1986: 52). The calculation of the AFDC entitlement depends on the difference between a family’s resources and the State’s needs standard for that family type. The latter vary greatly, ranging in 1985 for a family of three children from $286 a month in Mississippi to $421 in Colorado and $474 in New York. States do not have to pay the full difference and can impose a limit on the amount paid. Average amounts paid vary widely: in December 1984 from $91 per month in Mississippi to $578 in Alaska, with a national average of $335 (figures from US Department of Health and Human Services 1986). Originally, the AFDC calculation involved a 100 per cent marginal tax rate of any earnings above a specified level; between 1969 and 1981, the marginal tax rate was reduced to two-thirds; in 1981 the disregard of a third of earnings was restricted to the first four months of receipt.

The emphasis on assistance to single parents, and the absence of any general support for families with children, has meant that the effects of AFDC on family break-up has been a major issue, even though the empirical evidence is open to debate. The role of AFDC has also to be seen in conjunction with that of the judicial system which determines liability to maintain by absent parents and there has been considerable discussion of the proposal for a system of unified child support insurance (Garfinkel 1985). The attempt to enforce payments of maintenance can be seen as a way in which the State tries to prevent the fall in income which otherwise creates the need for benefits. A further major issue in the recent evolution of AFDC has been that of ‘workfare’, the term covering a wide variety of schemes ranging from those mainly intended to ensure that claimants do not receive ‘something for nothing’ to those involving the provision of child care, good-quality training, and support in job-hunting (Burghes 1987).

Of equal importance in terms of spending are means-tested benefits in kind: food stamps, subsidized school lunches, and supplemental foods for women, infants, and children. The means-test for these programmes depends generally on income in relation to the State needs standard, although receipt of AFDC can act as a ‘passport’ (for instance to food stamps and medicaid). Entitlement to food stamps depends on a number of tests, including the requirement that income be below 130 per cent of the poverty line (even where entitlement is ‘passported’). The average monthly value of food stamps was about $43 per person in 1984, with a total annual cost of over $10 billion. There is some degree of general subsidy for school lunches and they are available free, or at a reduced price, to those with incomes below certain levels. Finally, as well as general subsidies to public housing, means-tested assistance with housing costs is available through lower income housing assistance.

It is interesting that, while in both the US and Britain there has been an expansion of income-tested programmes, in Britain the role of cash assistance has increased and that of in-kind assistance has fallen; in the US the reverse is (p.102) the case. Between 1976 and 1986 means-tested cash assistance to all households (not just those with children) fell in real terms in the US, whereas total means-tested assistance grew in real terms by about a quarter (Burtless 1986: 22).

3.5. Conclusions

As far as objectives are concerned, the elimination of poverty has received most attention in the US, where much of social policy in the past quarter-century stems from the War on Poverty. It is noteworthy that this has not led to any universal provision of child support. The trend has been in the direction of greater targeting and, in contrast to Britain, the greater use of income-testing has concentrated particularly on benefits in kind, like food stamps, with proposals for cash transfers such as a negative income tax, or Nixon’s proposed Family Assistance Plan, not being enacted. In Britain the theme of targeting on the poor has been stressed more recently with the Conservative reforms and here has taken the form of greater emphasis on income-tested cash assistance. In France there are signs of greater emphasis on the poverty objective, as is evidenced by the pledge during the 1988 Presidential campaign to introduce a guaranteed minimum income, and the recent report from the Centre d’Etude des Revenus et des Coûts on Protection sociale etpauvreté. It is however striking that the country where poverty has been least discussed is that which provides the most generous cash support to families with children.

The explanation for this difference lies in part in the weight attached to other objectives, like the birth rate, but also in part in the way these programmes are perceived, with notions of solidarity and participation achieving a higher level of social support for these transfers. It is political considerations that have probably been as important as any economic factors in shaping the evolution of family policy in the three countries. The caisses in France provide a powerful lobby to protect the child benefits, and the benefit derived by families of all income levels ensures a wide basis of support. From a rather different direction, the farm lobby in the US has undoubtedly been influential in the extension of food stamps.

It is also the case that the shape of family support policy reflects administrative constraints resulting from decisions taken about other areas of policy. This is particularly true of fiscal provisions. The abolition of child tax allowances in Britain was a natural part of a process of moving towards the collection of income tax at source and towards simplification at the level of the individual taxpayer. The more complex French system is possible in a situation where income tax accounts for a smaller proportion of revenue.

This is not, however, to say that economic effects are unimportant. In particular, there has been considerable concern about the effect of the child support programmes in the three countries on the budget constraint faced by the individual family. For many low-income families, this is of considerable (p.103) complexity. Receipt of one benefit can count as income in the assessment of entitlement to another benefit. Different income-tested benefits embody different withdrawal schedules and several have cut-off points set in relation to gross income while entitlements are calculated after allowing for various deductions. There is an overlap between social-security contributions and income tax, with the further complication in the US of the earned income tax credit. The total effect leads to the ‘poverty trap’ whereby families face overall marginal rates which are well above top income tax rates and may exceed 100 per cent (Lynes 1971; Lampman 1975). While the relationship between the different elements may be rationalized, as with the move to a net income basis for assessing benefits in Britain in 1988, it is not possible to avoid high marginal rates of tax without either reducing the benefit levels or extending the breakeven points. At the same time, the French pattern of benefits may be seen as adopting the latter approach but increasing the targeting of benefits by greater use of categorization (for example via benefits confined to larger families).

4. Are There Lessons for Developing Countries?

4.1. Two Answers

The comparison of family support policies in Britain, France, and the US suggests that these countries could learn from each other’s experience. Do the lessons, however, extend to developing countries? The answer to this question may appear to be self-evidently ‘no’. The design of benefit withdrawal schedules is simply a matter of ‘fine-tuning’ compared with the problems faced by low-income countries. More generally, as we said at the outset, it does not make sense to regard the social programmes of Britain, France, and the US as a shop window from which a developing country can select the ingredients it prefers. Neither Beveridge nor Bismarck nor Roosevelt can provide a model for social security in developing countries. The level of development has an important influence both on the nature of the problem and on the instruments available for its solution, so that the experience of countries such as Britain, France, and the US is far removed from that of developing countries.

First of all, the problem is quite different in both scale and nature. If we ask whether it is possible to target benefits on the children of poor families, then the solutions are likely to be quite different if we are concerned with 60 per cent of the population rather than 10 per cent. Galbraith described in The Affluent Society (1958) how rising national output in the US had reduced poverty from the problem of a majority to that of a minority, and how this in turn meant that new policies had to be devised. By the same token, the policies which have emerged in countries such as the US are unlikely to be applicable in low-income countries. Where the focus of policy is famine relief and the avoidance (p.104) of starvation, it is specific poverty in terms of food consumption that is of concern, rather than a generalized measure of well-being such as income, which is the principal target of social policy in developed countries. While income redistribution may be an effective means of famine prevention, the success or failure of policy is judged in terms of food adequacy rather than of the numbers with incomes above or below a particular level.

It is not just the level of development but also the structure of the economy that is different. Social insurance for example is predicated on the employment status (as is evidenced by the difficulties faced by many schemes in incorporating the self-employed or part-time workers), where individuals typically have an earnings and employment record and an arms-length relationship with their employer. This is not the case for many of those in the traditional or rural sectors of developing economies. As a result, the institutional assumption that social-security schemes can be introduced for the bulk of the population, while a reasonable goal of twentieth-century reformers in Western countries, has little applicability to developing countries. Midgley opens his survey of formal social-security systems in the Third World by saying that

although the development of social security in the Third World during the post-war years has been impressive, these schemes have brought few, if any, benefits to ordinary people. They cater primarily for those who are already privileged by having secure jobs and steady incomes and exclude those whose needs for social security are the greatest

(1984: ix).

Systems paid for in part by taxation on the whole population which provide benefits for those in the formal sector—albeit at the bottom of the formal sector—will necessarily be regressive when that sector represents the top of the income distribution.

The policy instruments which need to be developed to protect vulnerable groups in developing countries are therefore different from those that have been found useful in developed countries. The shaping of social-security systems in developing countries needs to be responsive to their specific circumstances, relating inter alia to the nature of the contingencies to be covered (including, for example, crop failures and the threat of famine), informational constraints (such as those regarding the assessment of incomes), political influences (for example, the importance of ‘urban bias’), and incentive problems (such as the interaction between state support and household formation).1

Systems for the targeting of aid, for instance, are unlikely to resemble the complex family assistance schemes which we have described in Britain and France. In the absence of reliable information about income, recourse has to be made to devices such as ‘self-acting tests’, categorical transfers based on (p.105) correlates of income (such as landlessness or disability), or the involvement of village institutions in the implementation of social-security programmes. Self-acting tests based on the requirement to work have, for instance, been a major element of the relatively effective famine prevention systems of countries such as India and Botswana (see Chap. 10 below; also Drèze 1988). Self-acting tests have also been part of the experience of developed countries with social security, and there are common issues involved (such as the problem of ‘take-up’). However, there may be a major difference between the efficiency of such tests as a way of distributing relief when the alternative is starvation, as opposed to the avoidance of less absolute poverty, which again limits the ‘lessons’ to be drawn from the developed country experience.

A second way of interpreting the question posed in the title of this section is to ask whether there are lessons to be learned, not from the actual policy choices, but from the methods of analysis applied to social-security policy in countries such as Britain, France, and the US? Again this may well be denied, the transfer of methods of analysis being seen as little more than intellectual imperialism. Indeed, much of the economic analysis in developed countries of the need for government intervention via social security takes as its starting point a model of a perfectly competitive general equilibrium which—whatever its applicability to countries such as Britain and the US—clearly cannot be transferred to most developing countries. Even if the limitations of the model are recognized, all too often it affects the way in which social security is viewed. By taking as a reference situation one where an efficient allocation is achieved, the case for intervention is put on the defensive. It can certainly be argued that a more appropriate starting point is a model that makes explicit the reasons why markets fail to clear, or are incomplete, or fail to exist altogether. The analysis of unemployment insurance, for instance, needs to consider the movement of labour between sectors in a dual economy (or triple economy, allowing for the urban informal sector) with rigidities, as well as the role of factors such as efficiency wages in the setting of pay. Similarly, the analysis of pension schemes has to take account of imperfect information, monopoly power, and the interlinking of transactions.

None the less, we believe that there are certain lessons to be drawn, as we argue below.

4.2. The Approach to Social Security Analysis

The first theme which has been stressed in our review of policies in Britain, France, and the US has been the need for the analysis to range outside the purely economic and in particular to seek to understand the political influences on the design of policy. The political economy of social security is of great importance. This may not perhaps require stress in the development context, where there has been greater awareness of the interdisciplinary contribution (p.106) than in other branches of economics. But it is clear that the level and form of the programmes which can be sustained depends on the degree of political support. We have noted at several points the role played by interest groups and the ‘middle-class capture’ of the Welfare State. Two further elements may be noted here. The first is the role of participation in the administration of social security, which has historically played a greater role in France, and which may increase the acceptability of transfers. The second is the access to information and the accessibility of economic analysis. The ‘Fabian’ tradition in Britain has recognized the importance of statistical evidence not just in informing the public debate but also in campaigning on social issues. The Institute for Research on Poverty at Wisconsin has played a leading role in the public debate in the US. How far this is possible depends critically on access to basic data and on the support provided to empirical research.

A second major theme of the analysis of social security has been the need to view in entirety all measures which contribute to a particular objective. As Titmuss has stressed, fiscal and occupational welfare may be as important as explicit State welfare programmes, and may operate in conflicting directions. In the case of child support, a good example is provided by the income tax allowances for children in France and the US. In general the provision of a deduction for a child has a value to the family which increases with the marginal tax rate (the effect of the French quotient system is more complex), and in both countries the highest-income groups would benefit the most. In order to prevent this, a ceiling is placed on the net benefit in France and in the US the exemption is phased out altogether. But it remains the case that the tax provisions are of no benefit to those who would not be paying income tax anyway. In the context of a developing country, where the income tax paying population is likely to be a minority, the use of income tax deductions for children is likely to be highly regressive and in distributional terms may offset other direct measures of support for children. The application in several francophone African countries of the French quotient system is, for example, criticized by Goode as ‘an example of the transplantation of an important income tax feature to an environment different from that in which it was conceived’ and for which it seemed ‘quite unsuitable’ (1984: 107). In anglophone African countries too the existence of tax concessions for children owes its existence to the colonial past. Once established, however, such concessions are hard to remove, as witnessed by the recent rejection by the Zimbabwe government of that country’s Tax Commission’s modest recommendation that the number of children for whom income tax credits are given be gradually reduced from six to three (Commission of Inquiry into Taxation 1987).

The experience of developed countries suggests that the interactions between different programmes may have important effects. The superposition of different programmes has, for example, led to high cumulative marginal tax rates in a manner that was not always planned or desired. In the context of a (p.107) low-income country the possibility of overlap in means-tested government programmes may appear less of a problem, but where different agencies are operating different targeted programmes (such as in health, education, and food relief) not dissimilar problems may arise.

A third major theme is the need to distinguish between the form and reality of social security. All too often economists have studied the social-security manuals and taken for granted that the benefits actually paid correspond to what is intended in the legislation. In practice this is often not the case, as is well illustrated by the problem of take-up that we have discussed: for example, the fact that nearly half of the intended beneficiaries of the Family Income Supplement in Britain did not claim their entitlement.

The difference between form and reality is relevant when we come to examine a fourth theme, the effect of social security on the behaviour of households and firms. These behavioural reactions, and the resulting general equilibrium adjustments, are evidently important. The dimensions of household response studied in countries such as Britain, France, and the US are not necessarily those most relevant to developing countries, but they point to the kind of considerations which should be investigated. The study of divorce in the US may not be directly relevant, but analysis of the effect of social security on support by absent family members and other private transfers has a clear parallel. The potential importance of this problem has been recognized for a long time as can be seen, for instance, from the somewhat dramatic statement of the Famine Commission Report of 1880 in India:

Even where the legal right does not exist, the moral obligation of mutual assistance is scarcely less distinctly recognized (in rural India). . . . Any form of relief calculated to bring these rights into obscurity or desuetude, or to break down these habits by showing them to be superfluous, would be an incalculable misfortune

(quoted in Drèze 1988: 24).

Similarly, the debate about benefits in cash versus benefits in kind which has taken place in developed countries may not have immediate relevance to low-income countries, but it raises relevant issues. The general equilibrium incidence of different types of provision (Foldes 1967) may, for example, help elucidate how the choice between providing food and providing cash in a famine depends on the food supply situation as well as the characteristics of the food market.

The reference to private transfers illustrates the last of the themes we would like to stress. It is evident that the extent of such transfers depends crucially on a person’s family and local circumstances. In these there is great diversity, and the analysis of social security must take full account of such diversity. The experience in developed countries has shown that it may be quite misleading to base consideration of a policy change on a few hypothetical examples. The use of sample survey information to provide evidence about the impact of reforms (p.108) on a representative sample of the population has been one of the significant advances in developed countries in recent years. At the same time, it is important to consider the choice of the unit of analysis. The typical sample survey in a developed country takes the household as the unit and considers a nationally drawn sample (possibly with some clustering to reduce survey costs). As such, the survey throws little light on the social context. The position of an unemployed couple with two children may be quite different depending on whether they have been long established in a village, surrounded by family members, or whether they are recent immigrants to a large city where they have no kin. The wider use of sample survey data in the analysis of policy reforms has therefore to be combined with information about local communities. Village studies can provide a rich source of such information (see, for instance, the study of Palanpur in Bliss and Stern 1982).

Seventy-five years ago, an Indian philanthropist provided funds for the Ratan Tata Foundation at the LSE for the study of poverty. Its officers, including R. H. Tawney, sought to provide answers to ‘questions of poverty and destitution, their causes, prevention and relief, whether at home or abroad’ (our italics). The main conclusion of this paper is that, while the answers at home are likely to be different from those abroad, the methods of analysis lying behind the answers may indeed be of value in both contexts.

(p.109) References

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Notes:

(*) In preparing and revising this chapter the authors have benefited greatly from comments and suggestions made by Bill Andrews, Angus Deaton, Jean Drèze, Julian Le Grand, and Michael Lipton, as well as by other participants at the conference at which the paper on which it is based was presented. The research reported was undertaken as part of the Welfare State Programme at the Suntory Toyota International Centre for Economics and Related Disciplines at the London School of Economics. Our work has also benefited from research carried out as part of the Franco-British programme of the Economic and Social Research Council and the Centre National de la Recherche Scientifique, whose support, together with that of Suntory Limited for the Welfare State Programme, is gratefully acknowledged.

(1) For further discussion of these issues, with reference to specific regions of the world, see the case-studies included in the second part of this book.