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Symposium 2009

Solution for Dealing with the New Social Divides

The Challenge

Around the world, jobs are disappearing and wages declining in the aftermath of the financial crisis and the consequent economic downturn. Recovery remains uncertain. In Europe and the United States ...

Around the world, jobs are disappearing and wages declining in the aftermath of the financial crisis and the consequent economic downturn. Recovery remains uncertain. In Europe and the United States, many people are joining the ranks of the unemployed; in developing countries, millions of workers are being pushed into extreme poverty. At the same time, as a result of decreasing asset prices, millions of families have lost significant parts of their wealth and lifetime savings, and many lost their homes through repossession.

Promote micro-insurance (e.g., rainfall insurance) and incomesmoothingassistance by governments and aid organizations; develop and elaborate social insurance systems for vulnerable groups.

The poor suffer not just from low incomes, but also highly variable income flows. Farmers face good years and bad. Street vendors are at the whims of
suppliers and the flow of customers.

Part of bridging the divide between rich and poor is providing low-income individuals with the means to smooth their incomes. Currently, in developing countries, the poor have little option other than informal insurance through family members and friends. What is needed is more direct assistance from governments or—where necessary—the aid community.

While the emphasis in microfinance has been on small-scale enterprise, there is a nascent movement towards micro-insurance. Of course, any insurance product is subject to abuse—for example, a farmer insured against crop failure may be less diligent in tending his fields.

One potential solution to this dilemma is rainfall insurance, which pays out in cases of bad weather rather than being in response to the farmer’s own outcomes. There already exist such insurance instruments, as well as others that are dependent on global commodity prices. But it is necessary to find ways to scale up such product offerings.

The aid community must be more proactive in coming to the assistance of the poor when crisis hits. One suggestion is that aid organizations should provide assistance when the rains do not come, rather than waiting for famine to occur.

Going beyond micro-insurance for the self-employed, emerging market and lowincome countries should take the crisis as an opportunity to develop or elaborate systems of social insurance, particularly in the spheres of unemployment insurance and pensions. Well-functioning social security systems work as an automatic stabilizer, and in severe crises, they may be extended or adjusted to implement expansive macroeconomic policies or to support particularly vulnerable groups effectively. In many countries, policy-makers have extended benefits and implemented labor market programs that have gone considerably beyond what had been the traditional scope of these systems before the crisis.

Such policy interventions have included the provision of additional social benefits to vulnerable groups (for example, dependent children, female-headed households, the long-term unemployed); increasing the level, the duration and the coverage ofunemployment benefits; extending existing work-sharing agreements; provision of training programs for the unemployed; financial incentives for employers to hire the unemployed (particularly among the older segments of the work force); programs dedicated to the creation of jobs for the young; a strengthening of employment search mechanisms for the unemployed; and extension of health insurance benefits to the unemployed.

    Implemen- tations

    Implementation
    Symposium 2010

    Kilimo Salama

    Polity, Academia, Business, Civil Society
    Implementation
    Symposium 2009

    Weather Index Insurance from Microinsure

    Polity, Academia, Business, Civil Society

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