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Key Text Can Social Safety Nets Reduce Chronic Poverty?

Author: S Devereux
Date: 2002
Size: 19 pages (164 KB)

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Summary

Institutionalised systems of social welfare are often thought of as unaffordable luxuries for poor countries, or as token handouts, which avoid addressing the structural causes of poverty. This article from Development Policy Review presents empirical evidence from three programmes in southern Africa. It argues that transfers can have sustainable developmental potential, and that they should be recognised as effective policy tools in the reduction of chronic poverty.

There are three clusters of determinants of income or consumption poverty, along with associated interventions: (i) Low productivity: Inadequate returns to productive input. This is best tackled through income generation (ii) Vulnerability: Exposure to risks and their consequences. This is best tackled through safety nets (direct transfers, productivity-restoring interventions) (iii) Dependency: Inability to generate an independent livelihood due to inability to work. This is best tackled through social welfare (direct transfers). A common strand in thinking on social safety nets is that they protect minimum living standards but have no effect in promoting living standards in the long term. This assumption should be questioned.

Although policy makers see livelihood-protecting and livelihood-promoting interventions as quite separate, in practice this distinction is often blurred. Safety-net transfers can contribute to asset creation in several ways: Through reducing hunger, thereby increasing labour productivity; through investing in education via school feeding programmes; and through public works programmes which transfer income in the short term and create assets with sustainable development benefits. They can also encourage investment behaviour by encouraging moderate entrepreneurial risk-taking.

Research from three social safety-net interventions in southern Africa is examined: Cash transfers in Namibia (pensions) and Mozambique (cash payments to urban destitutes), and public works in Zambia. The following findings are emphasised:

The impact of transfer income on poverty is a function of the size of the transfer and its contribution to total income.
Higher transfers result in higher investment and higher savings, with participants of more generous programmes acquiring productive assets with high long-term returns.
Cash transfers generate significant income multipliers: All income spent translates into income earned by others, and provides a major impetus to trade. Informal redistribution of formal transfers can also result in significant numbers of secondary beneficiaries.
These programmes were gender neutral in the distribution of benefits, but the impacts were not gender neutral. Women may be prevented from owning key productive assets. Even where this is not the case, their incentives to acquire assets may be limited by the fact that assets will revert to their husbands on death or separation.

Engels’ curve predicts that people spend proportionately more of their income on food as incomes fall. Whilst not refuting this argument, the research reported in this paper suggests that poor people are surprisingly entrepreneurial, implying that a more complex process is at work. The following conclusions are drawn:

Tiny transfers have tiny impacts, but moderate income can have major impacts. The poor invest income incrementally as it rises, in human, social and finally directly productive capital.
For the ultra-poor, small amounts of cash can make a huge difference. They can stimulate trade, creating income multipliers, bringing down commodity prices and raising purchasing power.
It is important to understand the socio-cultural context: Safety nets are not simply transfers of resources, but constitute a relationship of power that may have unforeseen impacts on the recipient society.

Cash injections without structural transformation means unsustainable outcomes: The lack of assets and income are only symptoms – weak institutions and bad policies cause poverty.

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Source: Devereux, S., 2002, ‘Can Social Safety Nets Reduce Chronic Poverty?’, Development Policy Review, vol. 20, no. 5, pp. 657-675
Author: Institute of Development Studies , http://www.ids.ac.uk/ids