SPectrum

Helping the VulnerableManage Risk

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Social Protection is a collection of measures

to improve or protect

human capital, ranging from labor market

interventions and publicly mandated

unemployment or old-age insurance to

targeted income support. Social Protection

interventions assistindividual, households, and communities

to better managethe risks that leave people vulnerable.

Cover Photo: World Bank Photo Library

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From Safety Net to SpringboardThe World Bank launches new Social Protection strategy 5

Assisting the Poor to Manage Risks in Africa 9

Growth is not EnoughMiracle economies in East Asia put focus on social safety nets 13World Bank and International Labour OrganizationJoin Forces in East Asia 15

Balancing Protection and OpportunityCountries in Eastern and Central Europe face unprecedented challenges 17Social Assistance in a climate of Organized Ethic Violence 18Strengthening Families and Communities to Care for Children 19

Risk and Chance in a Globalized WorldReform of the financial sectors in Latin America and the Caribbean is crucial 21

Poverty on the RiseSocial safety nets need improvement in the Middle East and North Africa 25MENA Spinning out of Control – Unemployment,

Old Age Security, and Pension Reform 26Algeria: The Case of the Algerian Social Fund 27

Investing in PeopleU.S. Deputy Secretary of the Treasury Stuart Eizenstat encourages focus on social protection 29

Hope for the FutureNew South Asian Social Protection sector strategy focuses on public works, micro credit and social investment funds 33Child Labor in South Asia 34Insuring the Poor – The Programs of Grameen Kalyan and SEWA 35The Vulnerability of South Asian Women 36

VulnerabilityWhat does it mean, and can it be measured? 37

SPectrum’s Resource Guide 40

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Contents

United Nations International Day of Disabled Persons

It may not have been the Oscars, but the stars certainly shined on several outstanding role models at the United

Nations’ International Day of Disabled Persons. Hosted by the World Bank on December 1, 2000, this was the ninth

occasion for this annual event.

The guests were welcomed by World Bank President James Wolfensohn who used the occasion to announce that the

Bank is in the process of creating a full-time Disability Advisor position. The scope of the position covers all aspects

of work on disability in the World Bank (see below).

Two young amputees, Mary Shea Cowart and Marlon Ray Shirley, who both won medals at the Paralympic Games in

Australia earlier this year, received Outstanding Athlete Awards. The Outstanding Achievement Award went to the

Achilles Track Club — a worldwide organization that encourages people with physical challenges of any type to enjoy

the pleasures of running and participating in races with the general public.

Aimee Mullins accepted the Award for Outstanding Role

Model. A bilateral amputee, Mullins soared to the top of

the sports world at the 1996 Paralympic Games in Atlanta.

Since that time, she has embarked on a fashion career

as both a print and runway model in the United States

and Europe.

Timothy P. Shriver, nephew of John. F. Kennedy, received an

award for his outstanding leadership of the Special Olympics

— an organization founded by his mother Eunice Kennedy

Shriver. In his capacity as president and CEO, he serves over

a million athletes with mental retardation and their families in 150 countries

worldwide.

Finally, President and CEO Cary Fields of WeMedia received the disAbility

Awareness Award for improving the quality of life and creating a more positive

worldview of persons with disabilities through the media. According to Deborah

Bonsack, executive director of the America's Athletes with Disabilities (AAD),

one of the sponsors of the event, WeMedia's coverage of the Sydney 2000

Paralympic Games allowed more people on the planet than ever to experience

the games.

World Bank Looking for a Full-time Disability Advisor

People with disabilities in developing countries are disproportionately represented among the poorest of the poor.

In order to accelerate the infusion of concerns about poor people with disabilities into the World Bank’s

mainstream poverty alleviation efforts and to continue to encourage disability-specific activities, the Bank is

creating a full-time Disability Advisor position. The scope of the position covers all aspects of work on disability

in the World Bank, including social protection, education, labor, health, communications, transport, gender and

post-conflict recovery.

For more information, please send an e-mail to disabilitygroup@worldbank.org.

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Pam Danberg presents

the Outstanding Role

Model Award to Aimee

Mullins.

Oral Miller,President of theUS Association

of BlindAthletes, pres-

ents the disabil-ity award toCary Fields,

WeMedia.

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3

Launching the Social Protection Sector Strategy

This issue of SPectrum will inform you of an important event for the World Bank’s Social ProtectionSector — the official launch of the Social Protection Sector Strategy on January 9, 2001. Similar tothe sector strategies of other sectors in the Bank, the social protection sector strategy takes stock ofexperience and develops the strategic thrust of future work with client countries. However, in thecase of social protection, the new strategy does more. We used the occasion of its preparation todevelop a new conceptual framework for social protection — social risk management.

With this issue of SPectrum, we want to illustrate social risk management, not only its rationale andconceptual underpinnings, but its impact on the World Bank’s thinking and work with its clients aswell. The true test of any new framework is, of course, its capacity to better map reality and toimprove policy design and implementation. While a full test is naturally still outstanding, the newframework is starting to influence the thinking about social protection both inside and outside theBank and, equally important, the way we think about social protection with our clients. The newWorld Development Report on attacking poverty proposes a three-pronged approach involving oppor-tunity, empowerment, and security, the latter of which incorporates the social risk managementapproach. Other international institutions, such as the Asian Development Bank, have developedtheir social protection strategies in line with the new framework, and a rising number of bilateraldonor institutions consider the approach as very useful to guide their country support.

While the initial reception of the framework and the proposed strategic conclusions are encourag-ing, the true work has only just begun. It will be necessary to continue to develop the analytic andempirical basis of the new concept.

One important example relates to “vulnerability” — a notion often used to describe a forward-looking view on poverty. Yet a clear and widely accepted analytical understanding of vulnerabilityis still lacking, not to mention an understanding of how social risk management instruments canbest be applied to reduce vulnerability. This will require major research efforts inside and outsidethe Bank and the work has started.

At the same time, it is important to move toward implementation of the strategic conclusions andto engage our clients in a participatory manner. The pilots in several countries of Latin Americaand Africa are encouraging, as you will read.

The new approach will also lead to stronger interaction between the social protection teams at theBank as it becomes better understood that the various programs — labor market interventions,pensions, social safety nets, social funds, child labor, disability — have a lot in common. Still, wewill continue to highlight the Bank’s work in the diverse team areas, and after disability, pensions,social funds, and child labor, forthcoming issues of SPectrum will cover the Bank’s work in thelabor markets and social safety nets area. I do hope to welcome you back as a reader.

Yours truly,

Robert HolzmannDirector, Social Protection SectorThe World Bank

Welcome

Photo: Robert Radifera

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“Because labor isoften poor people’smain or only asset,

access to safe andwell-paid work is

one of the mostimportant aspects

of risk reduction.”

by Lotte Lund

5

From Safety Netto Springboard

The World Bank Launches New SocialProtection Strategy

Breaking free from traditional macro-economic thinking, theWorld Bank’s ambitious new strategy for social protection(SP) is to view spending on social safety for the poor andvulnerable as investments instead of costs. By attackingpoverty at its roots, the strategy’s aim is to help the develop-ing countries to equip their people to prosper in a moderneconomy. This, in turn, will contribute to a more robustglobal economy that is less susceptible to crises, ready to dealwith crises when they occur and in which greater growth ismore broadly shared.

No longer will it be enough to say that SP is about providinga passive type of assistance, as was the official policy of theWorld Bank until 1990. “We want to present SP as a safetynet as well as a spring board for the poor,” says RobertHolzmann, one of the two main authors behind the strategy.

The two men behind the new social protection strategy,Robert Holzmann and Steen Lau Jorgensen, became partnersin 1997 when Holzmann became Director and JorgensenSector Manager of the World Bank’s Social Protection Team.The union of Holzmann’s expertise in social insurance, pen-sion reforms and financial markets and Jorgensen’s experiencewith community-based poverty reduction programs gave birthto the new concept of Social Risk Management (SRM) — theframework of the social protection strategy.

In the new strategy, social protection is about giving poor peo-ple the opportunity to take on risk in order to improve theirown situation. “We no longer see these people as powerless.In our new social risk management framework, they are theones in charge. It is no longer us who want them to partici-pate in our programs. The new framework demands that weadjust our programs to their needs,” the authors explain.

The SRM concept is derived from the theory of social risk incombination with the theory of risk management.Traditionally, social risks are the risks that exist in society, forexample, the risk of becoming unemployed. In the newSRM approach, it is not the risk that is social, but the man-agement of the risk. When individuals, families and com-munities get together in order to take care of each other.

From its beginnings, the World Bank has been active in thearea of social protection from a more macro-economic per-spective, primarily in the form of labor market policies. As thestructural adjustment debate started in the 1980s, the Bankalso began working on social safety nets. In 1996, the socialprotection sector of the World Bank was established to coverthe areas of social safety nets, labor market policies, pensionreforms and has since taken on disability and child labor.

The importance of the sector grew dramatically in the 1990s.First in the mid-1990s when the second peso crisis broke outin Latin America, and then in 1997 when the global finan-cial crisis started in East Asia. In addition, the 1989 fall ofthe Berlin Wall introduced the World Bank to a large groupof new client countries with some very sophisticated, butunsustainable social safety nets — something the WorldBank would also have to deal with without warning. Foreach crisis, each bigger than the one before, the Bank movedfurther into social protection until it established its policiesin this area as a formal sector.

The concept of SRM asserts that individuals, households,and communities are exposed to multiple risks from differentsources. These sources can be natural ones such as earth-quakes, floods or illness, or man-made ones such as discrimi-nation against women, war, or environmental degradation.

“Faced with risk, poor people have developed elaboratemechanisms of ‘self-protection,’ such as asset accumulationin good times, and informal risk-sharing arrangements, suchas extended family and community ties. However, thesearrangements are often relatively expensive and inefficient,and many coping strategies available once a shock occursoften reduce poor people’s human capital,” Holzmannexplains. This occurs, for example, when poor people cutback on their meals or pull their children out of school tocope with reduced income or needs within the family, suchas caregiving during episodes of illness.

Several key concepts are important in understanding theSRM framework. “Dealing with risks involves recognizingtheir sources and economic characteristics, for example,whether they affect individuals in an unrelated manner orsimultaneously,” says Holzmann. “While unrelated risks canin many cases be handled within the family, such as tempo-

rary illness, risks that concern many people simultaneously,such as HIV/AIDS, go beyond the capacity of the communi-ty and even of the country to handle,” he observes.

“Viewing social protection from the perspective of social riskmanagement also allows for the identification of three mainstrategies to deal with risks in an ex-ante or ex-post manner,”says Holzmann. “Prevention is a strategy to reduce theoccurrence of a risk, while mitigation attempts to reduce theimpact of a risk ex-ante. In contrast, coping strategies takeplace ex-post, once the event has occurred. In the past muchof the social protection focus has been on coping.”

Different suppliers of risk management instruments can pro-vide these strategies through informal, market-based, andpublicly provided arrangements. Suppliers can be families,communities, NGOs, financial institutions, and governmentagencies. Most risk management currently occurs by meansof informal arrangements provided by families and communi-ties, and even in industrialized countries, the family is broadlyconsidered the first provider of risk management services.

“With a combination of strategies and arrangements and themapping of available instruments, we can show a country’ssocial risk management system in its entirety and reveal itstrengths and weaknesses. Based on this information, we cancome up with a clear assessment of an appropriate risk man-agement strategy for any population,” claim the authors.

Both inside and outside the social protection sector, SRMposes challenges in terms of rethinking existing public sectorprograms and better supporting informal and market-basedactivities.

“In order to achieve risk reduction, we need to take a closerlook at the area of labor markets,” says Holzmann.According to the new strategy, the World Bank will have tobetter ensure access to training oriented to the demands ofthe market, especially among women, and to eliminate harm-ful child labor. “Removing children from school is a com-mon coping mechanism for poor households, but it endan-gers the long-term potential of the children,” says Holzmann.He also wants governments to make labor markets moreequitable and inclusive. “Because labor is often poor people’smain or only asset, access to safe and well-paid work is oneof the most important aspects of risk reduction.”

In terms of risk mitigation, the new strategic directionsinclude improved old-age income security and the provisionof income support systems for the unemployed. In the areaof pension systems for the formal sector, the World Bank hasbecome an established leader in knowledge generation andprovision of assistance to country reform efforts. “Our chal-lenge is now to ensure adequate retirement income for theinformal sector and lifetime poor people,” says Holzmann.In the area of income support for the unemployed, manydeveloping countries are rightly questioning the standardinsurance approach. Holzmann and the World Bank pro-pose to carefully assess the experience of alternativeapproaches, including unemployment saving accounts; take

account of the gender perspective to a greater degree; andpilot promising approaches in close cooperation with theInternational Labour Organization.

“Risk coping mainly involves safety nets and we have seenpotential new avenues in this area. We need, however, tofind out how much public intervention is enough and howto help poor people cope while reducing or mitigating futurerisks. For this purpose, we are in the process of collectingand analyzing information in order to make safety nets sus-tainable, and to find the appropriate balance between differ-ent types of safety net interventions,” Holzmann explains.

The social protection strategy also proposes to expand com-munity-driven risk management mechanisms. In this area,social funds have proven to be relatively successful in sup-porting communities in more than 50 countries. The WorldBank will continue to improve the design of social funds sothat they not only target poverty, but also the most vulnera-ble and marginalized groups, such as women, the elderly, thedisabled, AIDS-victims, and orphans.

The strategy also includes two types of market-basedapproaches to social risk management — micro-finance andbuilding financial literacy — both of which have showngood potential. Again, this is not about passive handouts,but about teaching these groups to save and invest. “It is ahuge challenge to develop these new instruments, and we willhave to invest a lot to do it,” admits Jorgensen. Jorgensenand Holzmann also want to see informal mechanismsstrengthened through legal reform efforts that ensure poorpeople’s rights to assets, particularly with respect to women.

With regard to the World Bank’s regional work program, thenew social protection strategy has resulted in a reorientationof priorities. “We are in the process of finalizing regionalsocial protection strategies because the regions all differ intheir starting conditions,” says Holzmann.

6Steen Jorgensen (left) and Robert

Holzmann, the authors of the new Social

Protection Sector Strategy.

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Holzmann and Jorgensen do not agree with the classical crit-icism of social protection that it is a luxury that only the richand developed countries can afford. “Make no mistake thatit is equally important for the developing countries to have astrategy that helps their poor to grow crops that give a higheryield so that they can get two meals a day instead of one andafford to send their girls to school,” they warn. What theydo acknowledge as being true of the view that social protec-tion is for the rich, is that most of social protection instru-ments today, such as pension systems, unemployment bene-fits, and social safety nets, can be considered extravagantbecause they were developed in the old paradigm where socialprotection was seen only as an expense, not an investment.

Jorgensen points to another problem with the existing socialprotection instruments, namely the fact that they have beendeveloped to fit OECD countries with very large formal sec-tors. That means that they cover most groups within society,just as most groups contribute to them. In developing coun-tries, these systems are not appropriate. “Often we see that aformal pension system only covers a small share of the popu-lation — often the upper and middle classes — but costs 10percent of national income. In that situation, you end uphaving the poor paying for the social security of the alreadyrich,” he says.

The new strategy reflects how the World Bank is changing itsfocus and has responded to years of condemnation for nottaking human development and social aspects into its view ondevelopment. “The old prejudices are no longer true,” theauthors argue. In their view, the World Bank should be seenas the place where you find the sharp answers to the softquestions. “We are the ones who have the guts to say thatdevelopment is about economics. Education, for example, isnot only good for human rights, it is also a way to make peo-ple more productive and to create growth,” says Jorgensen.

With its new strategy, the World Bank will become a crediblepartner in worldwide social policy development. The strate-gy will help to follow up on the commitments of the SocialSummit 2000 in Geneva, and it will be part of the Report ofthe United Nations General Secretary to the Commission forSocial Development, which will take place in February 2001.

The next stage of the new strategy — developing partner-ships with other international agencies and bilateral partnersand establishing a combined approach to social policy withina global vision of poverty reduction — will be the true test ofwhether there will ever be a day when the World Bank’s“Dream of a World Free of Poverty” mission statementbecomes a reality.

Social Protection — A Growing SectorIn fiscal year 1999, World Bank lending in the social protec-tion area was US$3.76 billion, or 13 percent of the WorldBanks total lending. The same year, the social protectionportfolio consisted of 92 purely social protection loans, with acommitment of US$6 billion. Another 183 loans containedsignificant social protection components, adding US$8.9 bil-lion, making an overall portfolio of US$14.9 billion.

Lessons learned in Social ProtectionThere are some lessons available from experience with inter-ventions in each of the areas of social protection and adjust-ment operations induced by financial crisis.

■ Pension reform involves several key ingredients for success,including country ownership, flexibility, institution build-ing, adoption of innovations and sharing of experience.

■ Social funds have shown positive results in terms of tar-geting, impact, comparative advantage, and cost.

■ In the area of labor market interventions, vocational edu-cation and training perform best when demand-driven;job placement activities are generally effective; and enter-prise restructuring should include workers in the processfrom the very beginning.

■ Social safety nets are most effective when establishedbefore a crisis hits. Delivery mechanisms should involvethe local communities. ▲

Prof. Robert Holzmann, an Austrian national, joined the World

Bank in May 1997 with a leave of absence from the University

of Saarland in Germany where he is the professor of econom-

ics and the director of the European Institute. Holzmann was

professor of economics at the University of Vienna and guest-

professor at universities in Chile, Japan and the USA. As prin-

cipal administrator at the OECD (1985-87), he wrote a com-

prehensive report on public pension reform in industrialized

countries. At the IMF (1988-1990), and later as a consultant,

he was working on fiscal and social security issues of Central

and Eastern European transition economies, and he researched

intensively the economic and financial market effects of the

Chilean pension reform. At the Bank, he was heavily involved

in social protection programs during the recent financial crisis

in East Asia.

Mr. Steen Lau Jorgensen, a Danish national, has worked at the

World Bank since 1985. He has been involved in structural

adjustment and poverty issues in Latin America as well as

human development and poverty issues in Africa. Currently,

Jorgensen is the Director of the Social Development Group of

the Bank’s Environmentally and Socially Sustainable

Development (ESSD) Network.

Prior to joining the Bank, Jorgensen worked as a lecturer in

microeconomics at the University of Aarhus in Denmark;

researcher at the Danish Energy Research Group; and as an

advisor to the Czechoslovakian Ministry of Agriculture.

Mr. Jorgensen holds the equivalent of a Ph.D. in economics

from the University of Aarhus.

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About the Authors of the New Social Protection Strategy

Assisting the

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L ife in Sub-Saharan Africa comes with manyrisks. Characteristics of the region include highpoverty and inequality, AIDS and other epi-

demics, macroeconomic shocks, conflict, repeateddrought and seasonal food shortages — just to mentionthe most obvious threats to a safe and secure life.

Under these circumstances, does it make any sense at allto start talking about a social protection strategy? Itactually does, according to World Bank SeniorEconomist Trina Haque who was the main author of theWorld Bank’s regional social protection strategy paperfor Africa. The paper, which has been two years in themaking, concludes that there is both need and scope totransform the vicious cycle of risk, vulnerability andpoverty traps in Africa into a virtuous circle of riskreduction and poverty reduction.

“In Africa, there are very few formal social protectionmechanisms available. Instead, poor households use arange of informal strategies to manage their risk. Theyuse their social relationships, migrate, take their childrenout of school, reduce the number of meals per day, selltheir meager assets, and so on to manage shocks, oroften avoid risky yet highly productive agricultural tech-niques. Unfortunately, these risk management strategiesare often not very effective in reducing the vulnerabilityof the poor. In fact, they can sometimes end up makingpeople even worse off in the long run,” says Haque.

Taking children out of school to reduce current house-hold expenditures, for instance, means that the childrenremain uneducated and unskilled, and most likely stuckin a poverty trap for the rest of their life. During pro-longed or widespread shocks, mutual assistance or infor-mal insurance norms break down due to the strain onboth the receiving and the donor households. This isespecially true for the most vulnerable group of all —the whole generation of AIDS and war-related orphansand other highly vulnerable children in Africa.Traditional community networks for care of these chil-dren are under severe strain due to the scale of the prob-lem, placing these children at risk of falling into perma-nent and irreversible poverty. Moreover, exposure of thepoor to multiple sources of risk has costs for society as awhole by increasing impoverishment and reducing thepotential for growth. Under such conditions, publicinterventions are needed.

This is, however, easier said than done — as is alsospelled out in the strategy paper for Africa. First andforemost, public resources are scarce with many compet-ing demands, limiting the scope for direct redistribution.Implementing institutions are sometimes not strongenough or have a fragmented rather than coordinatedapproach. And sometimes, public interventions haveresponded to the needs of well-organized middle-incomegroups rather than trying to reach the poorest of the poor.

Realizing the magnitude of the vulnerability of the poorin Africa, the strategy proposes a multi-sectoralapproach in a few high-priority areas. The role of thepublic sector is to supplement the effective risk manag-ing actions that poor households and communities arecarrying out, and to replace those coping strategieswhich have high costs or perverse effects on the poor.High priority interventions include:

■ Social risk management advocacy and analysis.■ Maintaining a risk-reducing public investment

framework.■ A focus on children in extremely difficult

circumstances.

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Poor to ManageRisks in Africa

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■ Targeted social trampoline and safety net operations.■ A new generation of social investment funds.■ Public financing framework for direct social

protection.■ Promotion of financial savings mechanisms.

“Both advocacy and direct action are important for asocial protection program in the region,” says Arvil VanAdams, Human Development Sector Manager of theWorld Bank, who supervised the preparation of theregional strategy. In the development stage of the strate-gy, there will be need for consensus building on theapproach, for operational link-ups between differenttechnical groups and for analysis to fill the criticalknowledge gaps.

Risk reduction in the Africaregion requires sound macro-economic management and apublic investment program inbasic education and health serv-

ices, in addition to investments which secure the poor’saccess to markets. “A good policy framework in theseareas can lead to broad economic growth which is, inthe long run, the most sustainable way to help thepoor,” says Adams.

When it comes to the most vulnerable group in Africa— the growing number of children in extremely diffi-cult situations — it is clear that a comprehensiveresponse is called for. The area of child protection isone where many indigenous models of community-based assistance are operational in African countries.Many of these operate on a very small scale. The strate-gy recommends that the best of these be supported withsupplementary public funds for possible replication else-where. Community leaders who have been at the fore-

front of some of these local efforts, for example,could be supported to train other communities tostart similar programs. Public funds should alsobe used to co-finance local community efforts inorder to deepen or scale-up the web of protection

for children.

In order to strengthen the delivery of servicesto the poor through more participatory local

level structures in Africa, the strategy wants tobuild on the good implementation experience of

Social Investment Funds (SIFs). “There should not be aproliferation of ‘special extra-budgetary funds,’ but SIFshave proved to play an important role in creating moreparticipatory ways in which local governments can func-tion in planning and delivering core services to thepoor,” says Haque. The goal is that SIFs over time willeventually be able to hand-over their responsibilities tothe empowered urban and rural council authorities.

The strategy also recommends that each country create a“rainy day” fund, so that public resources will be avail-able when there is a crisis. The need for public social pro-tection is highest when the economy is at its weakest. Byvoting an explicit budgetary contribution every year andputting it into a fund for emergencies, the effects of thecrisis could be managed more effectively than otherwise.Finally, the strategy wants to promote financial savingsmechanisms. “Assisting the poor to build financial sav-ings can be a highly effective social protection mecha-

nism,” says Haque. To achieve these goals, public policyneeds to ensure credibility of financial savings and lowtransaction costs. Simple mechanisms like post-officesavings may be local alternatives to extending formalbank branches.

“The approach of this social protection strategy forAfrica is growth-enhancing and has positive welfareeffects both in the short and the long term. It will giveus a better chance of reaching the poorest and the poorwithin our limited resources,” says Haque. ▲

Afr ica Reg ion

“Both advocacy and

direct action are

important for a

social protection

program in the

region.”

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adar

Miracle economies in East Asia putfocus on social safety nets after the1997 crisis

For the past several decades, rapid and sustained eco-nomic growth was the primary means of socio-economicimprovement and social protection in East Asia. Theremarkable rise in living standards was the result ofheavy investment in education and health services.Unfortunately, the “miracles” produced by theeconomies gave governments little incentive to plan fordownside risks. It was believed that the regions stronginformal family-based arrangements were sufficient.

However, the financial crisis of 1997-1998 revealed thatgrowth was not enough to ensure sustained povertyreduction and that the existing formal safety nets weredramatically inadequate. In some countries, such safetynets hardly existed which made the effects of the crisiseven worse as the informal safety nets broke down.

Today it is clear that the region’s recovery from the crisisis going faster than expected, particularly becausedemand for the region’s exports has increased and theregion’s terms of trade have improved. While the socialimpact of the crisis was less than had been originallyfeared, poverty remains at high levels in several coun-tries, including the Philippines, Vietnam, Cambodia.Lao People’s Democratic Republic and Mongolia.

In high-growth countries, vulnerable groups such asyouths, migrants, refugees and other poor have emergedor increased in significance. Vulnerability to povertyremains high given the large numbers of households justabove the poverty line and rising inequality. As a result,real wages have decreased and economic insecurity hasincreased. The prospect of increased unemploymentalso looms in the transition economies of Cambodia,China, Laos, Mongolia and Vietnam as governmentsmove to reform inefficient state enterprises and down-size large public sectors.

Nonetheless, with the assistance of the World Bank andothers, governments are focused on creating new jobs,offering hope to workers and their families. And it isrealistic to expect with a few more years of growth,poverty levels would return to those prevailing beforethe crisis.

Also vital to the region’s future are well-functioninglabor markets — an issue that has always dominated theWorld Bank’s social protection portfolio in the region,mainly as a function of country preferences. Theemerging market economies have, over the years,achieved good relative flexibility with education andtraining having largely met demand.

Labor markets will continue to be of special interest ofthe World Bank in both the emerging market and tran-sition economies because of the continuous need to pro-tect the vulnerable. Special topics such as child labor,core labor standards, and labor relations will continue todemand attention.

The World Bank is also concerned about the emergingmarket economies’ financial sustainability of their pay-as-you-go social security systems and the same holdstrue for China, Mongolia and Vietnam in which state-owned enterprises have encountered difficulties meetingtheir obligations during transition.

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Growth is notEnough

The reform agenda for pensions in the region is largeand includes the strengthening of institutional capabilityand moves toward more sustainable multipillar options.The World Bank strategy also seeks to improve the for-mal, but limited safety net programs, such as publicwork programs, food programs and social funds thatexist in the emerging market economies. After the cri-sis, these programs are gaining greater significance andwill also remain important in the transition economiesas enterprise-based social assistance is dismantled (as inChina and Vietnam).

The financial crisis caught policy makers in East Asiaoff-guard and revealed their limited capacity to respond.It is now vital that social protection policies are integrat-ed and coordinated to prevent the same thing from hap-pening again. With the right combination of past poli-cies that led to impressive welfare gains and a newemphasis on risk reduction with a special focus on thepockets of poverty left behind by the regions’ dramaticgrowth, this should be possible. ▲

East As ia & the Pac i f ic Reg ion

Photos: Curt Carnemark

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World Bank and International LabourOrganization Join Forces in East AsiaAs the crisis in East Asia brought an abrupt halt to remarkable progress in poverty reduction and economic growth, millions of

workers faced layoffs or suffered dramatic wage cuts. With diminishing earning opportunities in the formal sector, affected

employees and their families struggled to survive on reduced incomes, informal activities, meager social assistance, and

support from family and community members. As the effects of the crisis worsened in late 1997 and 1998, the World Bank

and the International Labour Organization (ILO) began to explore ways in which they could collaborate with the region’s

governments, employers, and workers.

While risk mitigation efforts were well underway at this point in the crisis, the two organizations sought to contribute to greater

understanding of the labor market impacts and appropriate medium and long-term policies for managing risks associated with

economic downturns in the future. With substantial financial support from the Asia-European Meeting (ASEM) fund, the World

Bank and the ILO sponsored a regional labor market project covering the Republic of Korea, Indonesia, Malaysia, the

Philippines, and Thailand.

The project created an opportunity for the affected countries to share their experiences regarding the crisis and the policy les-

sons that emerged. It included the preparation of five country papers analyzing the labor market aspects of the crisis and an

additional series of policy papers by international experts in key areas, including unemployment benefits, active labor market

programs, support for vulnerable groups, and social dialogue.

In October 1999, these papers provided the basis for a workshop in Tokyo organized and hosted by the Japanese Ministry of

Labour and the Japan Institute of Labour. The workshop involved tripartite delegations from the five Asian countries as well

as Japan, and resource persons from academia and international organizations, including the Organisation for Economic

Co-operation and Development, the European Union, the World Bank, and the ILO.

The papers and discussions at the Tokyo workshops concluded that a strong labor policy framework includes active labor mar-

ket programs, human resource development, a social safety net for workers, and appropriate labor laws and standards. These

components need to be well-balanced and integrated. Governments must consider both growth and social protection objec-

tives and the formal and informal sectors. However, there is no uniform solution — an individual country’s strategy will depend

on its stage of development and its institutions.

East Asian Labor Markets and the Economic Crisis: Impacts, Responses, and Lessons, an edited volume of the revised coun-

try studies and policy papers, has recently been published and is available on the World Bank’s publications website at

http://www.worldbank.org/publications. ▲

16

S ince the World Bank got seriously involved insocial protection in the transition economies ofEastern Europe and Central Asia (ECA) after the

end of the Cold War, the Bank’s social protection lend-ing in this region has exploded, reaching almost $US2.5billion in fiscal year 2001, up from US$100 million in1991. A decade of experience in the region makes itclear that the main challenge for all the transitioneconomies will be to strike the right balance betweenpromoting growth and providing protection.

To this end, all countries must strive to develop compet-itive, but fair labor markets and foster affordable pen-sion systems for everybody.

The transition from planned to market economies hascreated unprecedented challenges for countries in theregion as the infamous “cradle-to-grave” social securitysystem has disappeared. Even though many people havebenefited from the reforms, average living standardshave declined and poverty and unemployment haveincreased. For the first time, individuals have to dealwith income uncertainty and other types of risks ontheir own. The countries have tried to approach thesebreakdowns of the old social protection mechanisms indifferent ways: some countries have tried to reform;others have tried to adapt the old systems to emergingwelfare needs and fiscal realities.

The Bank’s newly proposed social protection strategy,while sensitive to each country’s context, broadly charac-terizes these countries as belonging to one of two groups:

■ European (all the European Union accession coun-tries, the Baltic countries, and successor states of theformer Yugoslavia).

■ Eurasian (countries that were part of the SovietUnion and Albania).

The distinction between the two groups is that relativeto Eurasian transition economies, European transitioneconomies have restructured aggressively and effectively.All countries in the region still have a long way to go,however.

In the European transition economies, the World Bank’ssocial protection strategy puts its focus on labor mar-kets, pensions and unemployment insurance systems, aswell as social services. Labor markets in these countriesneed to become more flexible, and collective bargainingshould be decentralized. Pension and unemploymentinsurance should be made affordable for all and benefitsshould be linked to contributions. Poverty should beaddressed through minimum pensions and means-testedsocial assistance. Social policy should also speed up de-institutionalization and the development of social wel-fare and community-based services.

In Eurasian countries, the strategy puts its focus on pro-moting restructuring, institutional development, andpoverty reduction. Macroeconomic stability should bepursued before attempting fundamental labor marketreforms. Until financial and administrative conditionsimprove, the strategy recommends flat benefits for pen-sions and unemployment. The local governments’ limit-ed ability to collect taxes and the existence of largeinformal economies mean that risk mitigation and con-sumption-smoothing programs are difficult to imple-ment in this region. One of the big challenges in theregion is to gain a better understanding of how theinformal safety nets actually work before new systemsare introduced. In the meantime, social investmentfunds and community works programs can help providetemporary employment.

The Bank will continue to focus heavily on these coun-tries’ pension systems as they invariably constitute thelargest public transfer program with immense fiscal andpoverty implications. Placing greater emphasis on socialassistance and labor relations is also needed as theimportance of these has not been commensurate withtheir importance in coping with poverty.

Development of innovative approaches is another priori-ty for the World Bank to address new areas such as post-conflict support and ethnic violence. In the area ofsocial services, the new strategy sees merit in consideringfurther the de-institutionalization of children and thestrengthening of community-based services.

17

Balancing Protection and OpportunityCountries in Eastern and Central

Europe face unprecedented challenges

Finally, it is crucial to create a sense of ownership andsupport for the policies in the countries. Stakeholdersmust be deeply engaged in the policy reforms and publicinformation campaigns should be used to increaseunderstanding of the difficult choices facing these coun-tries. The difficulty of moving from cultural depend-ence on state provision of security toward more riskbearing by individuals requires that the public be edu-

cated on market reforms. Policy makers should also beeducated on the tradeoffs among generous protection,fiscal costs, growth, and work incentives.

With the new social protection strategy for transitioneconomies, the World Bank believes it will be possible tomeet the unprecedented challenges in these countries andcreate not only protection, but opportunity as well. ▲

18

Social Assistance in a Climate

of Organized Ethic Violence

Organized ethnic violence has developed in several parts of Eastern Europeand Central Asia. The Balkans are the current hotspot, but Armenia and

Azerbaijan, Georgia and Abkazia, and various areas of the Russian Federation (Chechnya, North Ossetia) are also experiencing con-flict. The politically correct euphemism for such cases is “post-conflict situation,” but there is little reason to believe that ethnicviolence is close to ending in the region.

In one type of situation, conflicts results in the physical segregation of warring ethnic groups into different jurisdictions — as inArmenia and Azerbaijan. For all practical purposes, each country expelled all members of the opposite ethnic group. In such“border conflict” situations, assuming that resumption of violence can be avoided, problems of social protection and labor marketdevelopment are not much different than if people had been dislocated by natural disasters. Perhaps the main difference is thatpeople are less likely to return home than they would be if they had been displaced by a natural disaster.

In a more complicated situation, however, warring ethnic factions continue to share the same jurisdiction. Segregation may occurwithin the jurisdiction, but people are still confronted with the difficulties of relying on at least some common governmental insti-tutions. The Federation of Bosnia-Herzegovina is such an example. In this situation, people may view social protection programsthat entail net transfers from their ethnic group to another as helping the enemy gird for the next round in the conflict.

In such circumstances, decentralization can become the mechanism that one ethnic group uses to avoid subsidizing another.Responsibility for social protection, especially social assistance, can be decentralized to subdivisions that are small enough to bemore or less ethnically homogeneous. In the short run, this may be the price of peace, but it also fragments risk pools and guar-antees that poor subdivisions have poor social protection programs. In the extreme case, decentralization becomes the precursorto disintegration.

When ethnic hostility makes a statewide social assistance program impossible, especially when this is reinforced by decentralization,it may be desirable to fortify the social assistance elements of the programs whose basic purpose does not involve social assistance.For example, it may be desirable to give special attention to a social pension that is independent of work history or contributions, todevelop special provisions for the poor in the health finance system, and to rate special tariffs for the poor for utilities, transport, andeven food. In “normal” countries these measures might be considered second best to an explicit and well-functioning social trans-fer system, but in situations where ethnic conflicts are close to the surface, second-best mechanisms may be the best one can hopeto achieve. ▲

Source: Balancing Protection and Opportunity, The World Bank, 2000

19

Strengthening Families andCommunities to Care for Children

“Poverty in the Eastern Europe and Central Asia region (ECA) has been deeper and much morepersistent than might have been expected at the beginning of the transition process,” saysAnnette Dixon, Director of the Human Development Unit in the World Bank’s ECA region. Thisfall, she spoke on the issue of poverty and children at a conference on Children Deprived ofParental Care in the ECA region, held in Budapest, Hungary.

In 1998, an estimated one in every five people in ECA survived on less than US$2.15 per day.A decade ago, only one in 25 lived in such poverty. “For many families in the region, this leaves them with a deepsense of powerlessness and shame,” says Dixon.

Three factors create significant risks of poverty:■ Households where the head is unemployed or inactive■ Being a child■ Living in a rural location

According to Dixon, children are at much higher risk of poverty than are the elderly — which is contrary to widespreadbelief in this region. Likewise, the more children a household has, the higher its relative risk of poverty. “Havingmore mouths to feed puts the multi-child household at risk, even allowing for economies of scale in consumption,”Dixon adds.

Most importantly, there has been deterioration in the education and health systems in many countries in the regionover recent years. In some of the poorest countries in the Commonwealth of Independent States, enrollment rateshave started to fall from their previously high levels. From more than 90 percent in 1989, primary school enrollmentrates have fallen by 10 or more percentage points in Moldova, Armenia, Georgia, Turkmenistan, and Tajikistan dur-ing the past decade. “These problems are related to the decline in funding for educational materials, teachers’wages, school heating and maintenance, and the inability of families to afford shoes and clothing for their children— all affecting the ability of some children, in this region to access quality education,” Dixon explains.

"The institution of the family has come under great stress during transition and the number of children at risk hasincreased dramatically," says Dixon. She finds that the saddest indicator of this is rise in the percentage of childrenthree years and under who are placed in infant homes.

Another important manifestation of child neglect and family breakdown in ECA is the appearance of street children.“They regularly work on city streets and sometimes live there. Some are homeless, but many contribute their earn-ings to families. Street children in ECA by and large are not orphans; most have at least one parent alive, and somespend their days on the street, but return home to sleep,” explains Dixon.

“This situation creates a special challenge for us all. We have to work through all the avenues available to reducepoverty and public policy needs to increase social security for especially poor families,” says Dixon. She acknowl-edges that this may require interrupting the privileges that many of the less poor groups have traditionally had inorder to ensure that social assistance schemes are accessible to the poorest families with children and are afford-able and sustainable to the countries.

“Partnerships are required involving local communities, local and national governments, NGO’s, and international agen-cies,” Dixon continues. Community-based social services are also needed to provide support to families in crisis.

The World Bank is a partner in the effort to address this challenge, already supporting child welfare and communi-ty social service reforms in the Baltics, Romania, Bulgaria, and Albania. Along with UNICEF, the Bank is also sup-porting the Changing Minds, Policies, and Lives project which aims to provide resources to support the effort to findalternatives to institutions which can be used across the ECA region. ▲

The rise of poverty during

transition in Eastern Europe

and Central Asia is taking its

toll on families and is putting

children at increased risk of

institutionalization.

Risk

21

The countries in Latin America and the Caribbean(LAC) region are slowly resurfacing from the “lostdecade” of the 1980s, but the region is still characterizedby what is probably the most inequitable income distri-bution of any region in the world with the poorest 20percent of the population earning just 4.5 percent oftotal income. The result is that 177 million out of theregion’s 502 million people are living in poverty. Thenumber of poor is about the same as the total popula-tion of Brazil or the total population of all the othercountries of South America combined.

While growth is critical to reducing this level of poverty,growth alone may not do the job. The financial sectormust be reformed and capital markets deepened in orderto secure a stable foundation for much needed improve-ments in the social protection area. Such reforms willnot only lower the likelihood of future losses fromfinancial crises, they will also increase the number ofinstruments available for individuals and households toinsure themselves at a lower cost.

As it is now, the economic impact of disturbances ismagnified by the region’s weak links with internationalfinancial markets and the insufficient development ofdomestic financial systems, which lag behind those ofother world regions. In theory, domestic and foreignfinancial markets should play a major role in risk diver-sification and easing adjustment to shocks. In practice,their imperfections make them have the opposite effect.They amplify aggregate shocks and are themselves asource of volatility.

Volatility Declined in 1990sAs demonstrated in the World Bank’s recent flagshipstudy from the Latin America and Caribbean region,Securing our Future in a Global Economy, the problem ofeconomic insecurity in the region is a major concern forworkers and households in LAC. They worry aboutfuture living standards — something the study showsthat there are good reasons for. However, contrary topopular perception, the trend toward globalization inthe 1990s has not made matters worse. Incomes haverisen and volatility has declined in the majority ofeconomies in the region. Those who have pursuedstrong reform policies have been especially rewarded.With globalization, the lesson appears to be that goodpolicies can reap larger rewards than before.

Data for countries such as Brazil and Mexico show that,in deep recessions, poor households suffer greater pro-portional losses in income than the wealthy. In moder-ate recessions, the opposite appears to happen. Thepoor also seem to gain more during growth periods thanis generally acknowledged. This does not mean that thepoor should not be helped, it merely implies that fromthe perspective of poverty alleviation, growth-oriented

Reform of the financial sectors in Latin America and the Caribbean is crucial forimprovements in the social sectors

and Opportunity in a Globalized World

Lat in Amer ica and theCar ibbean Reg ion

policies must be given a high priority, regardless of con-cerns of high inequality in the region.

In order to determine which insurance instruments areneeded, risks of loss at the individual, household, andcountry level must be identified. The availability ofinsurance instruments should also be assessed in order todetermine the role of government and what insurancedecisions government should augment through publicinstitutions and subsidies. Finally, a look beyond thefinancial sector is needed to spot regulatory barriers thatslow the creation on new, better, and cheaper instruments.

Insights from the study reveal where the Bank canimprove existing products as well as deploy new tools tobe used in the area of social protection.

Risks for Workers: Appropriate Income SupportPrograms NeededAs globalization has reduced barriers to trade, the basi-cally guaranteed lifelong employment that has been thecommon form of public unemployment support inmuch of LAC is no longer possible. Government canno longer protect these jobs in potentiallybankrupt firms as consumers are not will-ing to pay what are clearly higherprices than the market price. Indeciding whether to move towardgovernment-mandated self-insur-ance — through schemessuch as individual sav-ings accounts to

be accessed in case of unemployment or forms of unem-ployment insurance that involve the pooling of risk —several factors must be considered. The first criticalissue is the administrative capacity of the government.The second is the nature of risks faced by workers.

The logical first step should be to reduce the likelihoodof adverse employment shocks. Labor policy changesare widely regarded as lagging other economic reformsin the region. Most LAC countries have high levels ofinformal employment and many have high rates of for-mal unemployment as well. For governments that wishto facilitate comprehensive insurance decisions by theirworkers and households in a rapidly changing globaleconomy, labor policies should receive a high priority onthe reform agenda.

For slow-reforming LAC countries, the analysis andexperience suggests that self-insurance type schemessuch as individual capitalization funds are suitable. Thisis the preferred option when losses are frequent. It isless demanding in terms of administrative capacity andthe schemes entail low labor market efficiency costs andlow attractiveness to poorer workers, for whom forced

saving may have high costs.

Advanced reforming economies in LAC couldconsider conventional unemployment

insurance. Carefully designedunemployment insur-

ance schemes thatinvolve pooling, but

keep efficiency losses low, for example by keeping benefitsfrugal, are likely to increase welfare. Besides helpingworkers deal with loss of job or health, such insuranceschemes also function as “automatic fiscal stabilizers,”which governments in the region have lacked.

In all these countries, there will be people who cannotbe reached through such contributory schemes — prin-cipally those in informal activities. These individualsshould be assisted through programs that implicitly poolrisks such as public work programs and share someother characteristics with good unemployment insur-ance, principally keeping benefits low relative to earn-ings. Such schemes should be thought of as permanentinsurance and not as temporary or emergency programs.

Risks facing Poor Households: StrengtheningCounter-cyclical Support The region has generally improved when it comes toprograms designed to help the poor. During crises,however, spending on tightly targeted programs for thepoor does appear to suffer more than general social

expenditures. Governments could do better to pro-tect these programs from cuts.

The pro-poor behavior appears to coincidewith the return to democracy in the region.Even though authoritarian and democraticregimes in LAC both respond to economiccrises in a similar way, greater increases in

social spending take place

under democratic regimes. In fact, social spendingincreases only when there is both a democracy and anon-shrinking economy. This is, however, also wheregovernments run the greatest danger of adding policyrisk to economic risk. Well-intentioned governments orthose under political pressure sharply increase spendingon social programs during growth episodes only to haveto reduce spending in the next contraction, inadvertent-ly raising economic risk and sowing the seeds of socialdiscontent.

It can be concluded that there is considerable room forimproving the design of targeted safety nets, especiallyhow they relate to the economic cycle. Governments willneed to rationalize and streamline existing programs sothat their funding becomes counter-cyclical. Among thekey issues will be to determine the future directions androle of social investment funds as well as the need foradequate and transparent targeting mechanisms for reach-ing the most vulnerable groups, such as indigenous people.

With regards to the region’s extensive efforts in pensions,some will progress in the first generation of reforms;some will begin to act on second generation issues.Among these are high administrative costs, continuedlow coverage due to a large informal sector and unwill-ingness of certain groups to adhere. It is also necessarythat the civil servant schemes be mainstreamed into themain public schemes. The strengthening of the financialsector will also play an important role in this area. ▲

24

25

Poverty is once again on the rise in the Middle East andNorth Africa (MENA) after a period of unprecedentedgrowth in the 1980s. Due in large part to oil revenues,poverty fell to one of the lowest levels in the developingworld during this period. However, the situation reversedwhen oil prices began to fall in the mid-1980s. Alongwith declining revenues, the population grew dramatical-ly, putting informal mechanisms under severe stress.

The facts today are that:

■ Households in MENA now receive less income fromselling labor than they did ten years ago.

■ The young face higher unemployment rates.■ Adults have more debt to repay than their parents

and will pass even greater debt on to their children.■ The old and others unable to work remain largely

unprotected.■ All have less water for consumption.

In a word, they are all more vulnerable.

As a result, the World Bank Social Protection programin the region grew during the 1990s. Ten years agothere were two Social Protection projects. Now thereare 11 for a total amount of US$465 million or littleless than 10 percent of the total regional portfolio.

The region’s economic decline has created dauntingchallenges with regard to developing a Social Protectionstrategy for the region. To meet these challenges, theWorld Bank has given priority four areas:

■ Assessing formal market insurance systems andthe functioning of both formal and inform labormarkets. Market insurance systems and labor mar-kets have direct linkages not only to pensions, butalso to safety nets. In turn, policy decisions taken inone of these two areas can have important implica-tions in the other areas. A proper assessment of thelabor and social insurance system, which typicallyfails to reach families who do not work in the formallabor market, would indicate the required resourceallocation decisions across these three program areasas well as between the formal and informal sectors.Given limited public resources, this integratedapproach permits programmatic tradeoffs to be con-sidered when deciding budgets for pension, safetynets and labor market interventions.

■ Improving training systems. Though training can-not be blamed for much of the high and still risingunemployment rates in the regional economies, cur-rent training schemes tend to absorb considerablefunds that are often raised from payroll contribu-tions. They also deprive the education and humandevelopment sector of valuable resources and havegenerally poor results. National reviews of the train-ing systems and analyses of labor market data canpave the way for meaningful reforms with far reach-ing effects on the economic effeciency and poverty.Reforms in the training sectors would have sizableand deep effects on product and regional marketsand productivity, on the one hand, and householdearnings, unemployment and poverty, on the other.

■ Designing safety nets as developmental and com-munity-based, not just assistance and centrallyadministered schemes. While to date, informalarrangements have acted as a significant safety net,they have been supplemented by substantial, albeitdeclining, formal support. This support may becompromised further, and can also put informalarrangements under additional stress, unless there isan upturn in economic performance. In thisrespect, there is plenty of scope to improve thedesign of social protection instruments. Evaluationssuggest that, for example, social funds reach manypoor, but generally fail to reach the poorest and,often, women. Public works, which pay high wagesor have low labor share in their total costs, areunlikely to efficiently meet poverty objectives. Foodsubsidies can create significant economic distortionsand, if universal, are appropriated by the non-poor.

■ Developing integrated child protection schemes.Though embryonic in most regional economies, thisis an area of potentially promising developmentalactivities with strong participation of the civil society.

The Bank’s analytical work in the region is driven bycountry priorities. The MENA Social Protection teamhas been active in activities to expand Bank support forcommunity driven development (CDD), and works in acomplementary way with other sectors in areas such associal development, rural development, and gender.

Poverty assessments are, for instance, done in coopera-tion with the Bank’s Poverty Reduction and EconomicManagement sector (PREM). The recent emphasis ofthe Bank on more comprehensive approaches to develop-ment may imply fewer direct operations in each sector,but at the same time, may also create greater opportuni-ties for mainstreaming social protection. ▲

Poverty on the RiseSocial safety nets need to be improved in the Middle East and North Africa

26

MENA Spinning Out of Control – Unemployment, Old Age Security,

and Pension ReformMost Middle Eastern and North African countries are characterized by high unemployment. At the same time, for-mal social insurance schemes raise labor costs further, with contribution rates as high as Iran’s 30% for privateemployees. Pension benefits are generally low so that the average pensioner in Iran, for example, receives only 47%of the average wage. So the pension systems are not a good deal for the worker. As workers remain unemployedor join the informal system, contribution revenues to the existing schemes fall, causing fiscal problems which are gen-erally resolved by raising contribution rates further and the spiral continues.

As a smaller percentage of young workers are employed in the formal sector today, fewer older workers in the futurewill be entitled to publicly provided old age pensions. Because there are no broad-based safety net provisions for theelderly and few resources to initiate such programs, what is a budding crisis today will become a catastrophe in thefuture as traditional means for old age support disappear with nothing to replace them. In fact, Djibouti eliminated anoncontributory pension program to support its contributory pension system in which pension expenditures total about3% of GDP and cover only 9% of the labor force in a country where only 5.2% of the population is over the age of 60.By contrast, Japan spends 6.6% of GDP on pensions, a little more than double Djibouti’s level, on a system which cov-ers more than 98% of the labor force and where almost a quarter of the population is over the age of 60.

How can these systems be so expensive and yet provide such low pensions? Most of them start with generous ben-efits at early ages for example at 80% of the average of wages from the last 3 years for only 30 years of service incountries like Tunisia, with benefits beginning as early as age 50. Generous early retirement packages and specialprograms encourage people to withdraw from the labor force early, reducing contribution revenue and increasing thenumber of pension payments each person receives. But because the benefits are fixed throughout the retiree’s life,the average benefit rapidly falls to less than half the average wage. The problem can be summed up as too littlemoney spread among too many people.

Reform strategiesThe World Bank is working in countries like Djibouti, Morocco, Tunisia, Lebanon, and Jordan to raise retirement agesand lower initial benefit levels, and to introduce indexation of pensions to inflation so that the eldest of the elderly,clearly the most vulnerable, do not see their pensions disappear. We are encouraging links between contributionsand benefits to reduce the labor market distortions as well as discouraging the use of pension systems as substi-

tutes for unemployment schemes. Merging the myriad systems,which cause great inflexibilities in labor markets and obstaclesto privatization of state-run enterprises, and improving theinvestment performance of reserves also can contribute to bet-ter performance. The introduction of private funded systems isalso being discussed both as a means to raise the level of pen-sions and to increase the level of national savings. ▲

Photo: Curt Carnemark

Algeria: The Case of the Algerian Social FundA father throwing his two daughters out onto the street because they engaged in prostitution for economic survival.A husband kicking his wife and two small children out of their home because he was unemployed for a long time andat his wits end as to how to survive. The ruins of a 17th century cathedral built by the Spanish becoming home to85 families, 25 of whom live in a dank crypt carved out of rock and the rest inhabiting former monk’s cells. Six shep-herds in a small mountain village murdered by having their throats slit. Bizarre mass murders of hundreds of peo-ple at a time in villages across Algeria. These are sights and stories gathered by a recent World Bank team visitingthe interior of Algeria.

20 years ago, Algeria was a middle income oil producer. People were quite well off and there was social stabilityand the minimal level of crime and violence associated with the southern edge of the Mediterranean littoral. By1995, after 10 years of economic decline and a brutal civil war between Islamic fundamentalists and all kinds ofcutthroat opportunists on one side and government security forces on the other, Algeria had reached a nadir of vio-lence and social misery more akin to some of the more desperate sub-Saharan countries than to its own past. Thenew government which has finally started totaling the scale of the atrocities. And in 1999 it publicly announcedsome 200,000 dead and 600,000 wounded since 1993 in a population of a little under 30 million.

Algeria had built up quite an elaborate system of social protection programs since gaining independence in 1961.But they were designed for an earlier age that did not foresee problems of homelessness, street children, youthgangs, prostitution, breakdown of the family, increases in poverty and unemployment, and, above all, the devastatingphysical and psychological scars on the survivors of the massacres and other violence of the civil war. There wereno psychologists trained to handle post conflict trauma in children. No programs to bring social services to the spon-taneous “bidonvilles” that sprang up around the major cities as rural people fled violence and sought the relativesecurity of the city. No services for the elderly who were being more often abandoned by their families under theduress of unemployment and growing poverty.

A small group of concerned government officials asked for help from the Bank in the mid 1990s. What was cookedup by the government together with a Bank team that was unable to visit the country because it was too dangerous,was a first Social Safety Net project. This has established an Algerian Social Fund with some distinct characteris-tics. Like social funds elsewhere it operated small scale public works programs implemented by private contractors inareas of high unemployment and poverty. It also started the first community development program with some demanddriven features in a country where to date the government had provided everything under the slogan of “Solidarité.” Foran Algeria still wedded to centralized planning and a 1960’s type of socialism, this was revolutionary.

But the most unusual feature was a program to develop 28 social service centers in the worst of the “bidonvilles”where there were no social services of any kind. These centers were to act as a point of contact for vulnerable pop-ulations in those areas, and to provide a caring face of government in communities which had seen only soldiers.Most of these “bidonvilles” were also “zones chauds” or high risk security zones for obvious reasons. The first exper-iment was in the town of Boumerdes, a hot zone near Algiers, in 1994 shortly after a horrendous massacre of morethan 200 people. It was a joint effort of a few government officials and an NGO led by a woman who could not standdoing nothing in the face of the Bourmedes tragedy which was near to her home.

Since then the program has evolved. The 28 centers are still young, but most offer a variety of services, mainly of asocial intermediary type (outreach to school dropouts, parents health and education awareness programs, informationregarding social rights, channeling people to the relevant service, etc.), but also some direct services (immunization,youth sports, and cultural programs). Among the direct services are psychological, psychiatric and physical rehabili-tation services to victims of terrorism in Algeria. The priority target group is surviving children 8-14 years old with sec-ond priority being given to surviving mothers. Other services include assistance to the blind and physically disabledin gaining access to services, including organizing placement in institutions where necessary; and organizing homemedical visits for persons with disabilities and those who are immobile.

To be sure, the program still faces serious problems. These include juridical, budget and quality of services as well asachieving adequate coordination with other public sector agencies. For example, young psychology graduates are beingthrown into counseling work without adequate training; coordination with relevant line ministries and agencies is stillweak; and the centers have trouble prioritizing in the face of overwhelming need. But the surest sign of impact is thattheir staff can enter communities and be received and trusted where it is very dangerous for other officials to go. ▲

28

US Deputy Secretary of the Treasury Stuart Eizenstat

29

U.S. Deputy Secretary of the TreasuryStuart Eizenstat encourages focus onsocial protection

When the second-highest ranking official at the UnitedStates Treasury Department visited a World Bank SocialProtection program in Algeria, he was visibly touched bystories of how the program was uplifting to this society’smost vulnerable — widows, orphans and those who havecome to rely on the government for life’s basic necessities.

During a trip to North Africa earlier this year to holdeconomic discussions with the Algerian government,U.S. Deputy Secretary of the Treasury Stuart Eizenstatvisited the Bir Khadem Social Protection site, just anhour’s drive east of the Algerian capital Algiers. It was aday when words like “protection of human capital,”“targeted income support,” and “short term job cre-ation” became more than cold technical terms in aWorld Bank document. On this day, the words translat-ed into real people and real lives.

“I was very moved by what I saw. It is something that Iwill never forget,” the Deputy Secretary tells SPectrumin an exclusive interview in his office next to the WhiteHouse and just minutes from World Bank Headquartersin the heart of Washington, D.C. As Treasury’s numbertwo man and a senior U.S. Administration official,Eizenstat helps oversee America’s economic and financialpolicies. On his experience in Algeria, Eizenstat notes,“I saw women learning to paint on silk screens in orderto become self-sufficient, but also to help them dealwith their mourning. I saw young kids sitting at com-puters learning computer skills. I even sat down andfollowed part of an actual session with a person who hadbeen traumatized by the violence and was now trying todeal with the psychological impact of it.”

Eizenstat has been to many developing countries, butthe trip to Bir Khadem was a rare occasion in more waysthan one. As one of America’s top government officials,his tight schedule normally leaves little room for site vis-its. In Algeria’s case, the additional problem of a some-times precarious security situation could have renderedsuch a visit impossible.

Eizenstat’s decision to visit Bir Khadem made him thefirst senior U.S. official in the to go outside downtownAlgiers since the country was plunged into a period ofbloody civil war in 1994. He chose to do it because hewanted to send a clear message that he was confident inthe steps the Algerian government was taking towardseconomic reform and political normalization while pro-tecting the most vulnerable since the election ofPresident Abdelaziz Bouteflika.

In Algeria, these two objectives go hand in hand. Withthe civil war leaving more than 100,00 people dead andmany more injured, Algeria is struggling to return tonormalcy. President Bouteflika’s election in 1999 on aplatform of renewed economic growth and national rec-onciliation was welcomed by the U.S. and the EuropeanUnion, which is Algeria’s largest trading partner. Whenthe violence shut down most of the country’s normaleconomic activity, unemployment soared and economicdislocation trebled. Programs such as the one at BirKhadem have helped mitigate the effects of the violenceand the economic slowdown on Algeria’s most vulnera-ble. As the government moves forward on a program ofstructural economic reforms — including much neededprivatization — programs such as the one at BirKhadem will become increasingly important.

The Deputy Secretary regrets that he does not get to goon such fieldtrips more often. “I think that one of theproblems we have in senior government is that we go toa lot of hearings and meetings, we develop policy, and wedraft a lot of legislation. But often we do not see theresults of it on the ground. But, you know, being able tomeet these people and see them getting support to moveon in life, is to me what all our policy efforts are about.”

Investing in People

In his opinion, there is a need for the international com-munity to refocus on the World Bank’s role in further-ing Social Protection programs and expanding socialsafety nets around the world. “For me and my col-leagues, the start of any successful strategy is economicgrowth. But it has to be based on both sound economicpolicies and good social policies — investing in people,investing in health and education,” he says. “This issomething the World Bank has become specialized inand we encourage it through our participation in theWorld Bank as a shareholder.”

The U.S. government itself has become increasinglysupportive of strong social protection policies after therecent financial crises in Asia, Russia, and Brazil wheremillions of the most vulnerable in society experiencedsudden economic dislocation.

“One of the best things we can do is to build a systemthat is less prone to crisis and better able to addresscrises when they occur,” says Eizenstat. “The mostimportant interventions are those done before there is acrisis. Prevention is about alleviating the conditions thatbreed ethnic violence and wars. And that is what theWorld Bank is trying to do. Solutions after the crisis hashappened are much more costly to deal with, not only interms of possible military interventions, but also in termsof the emergency programs that are often necessary.”

He acknowledges that precautionary and deep-seededreforms required of developing countries like Algeriacould result, in the short term, in less rapid economicgrowth and temporary increases in unemployment, evenas their long-term benefits will be higher sustainedgrowth and lower unemployment. “Obviously, if peopleof a country are to be expected to accept these [short-term costs], they must have some confidence that a socialsafety net is in place to help them weather the transitionand manage the risks of a market economy. Economicreform cannot just show up in statistics. People must beable to see the change in their job opportunities and theconditions of daily life,” he continues.

With regard to the people who demonstrated against theWorld Bank in Prague in the fall of 2000, Eizenstat saidhe wished they had instead visited Bir Khadem. “I donot question the goals of those who were demonstrating.They are often trying to achieve and spur action by theinternational financial institutions and governments todeal with poverty alleviation and debt relief,” he says,“But I wish we could have taken those who present thiskind of critique and the violent episodes directedtowards the World Bank and other international finan-cial institutions with us to let them see what the WorldBank is actually doing.” ▲

30

“One of thebest things we

can do is tobuild a

system that isless prone to

crisis andbetter ableto address

crises whenthey occur.”

Middle East and North Afr ica Reg ion

33

Poverty is deep and widespread in South Asia.Hundreds of millions live near or below thepoverty line in a region where poverty and vul-

nerability are mutually reinforcing, each likely to aggra-vate the other. A domestic calamity — a breadwinner’sillness or death — or a community-wide scourge —drought, flood, crop failure — for instance, can quicklyerase the hard-won gains of men and women striving toovercome poverty. Deprivation itself shrinks the marginof safety for such families, denying them opportunitiesto shelter against adversity. The most vulnerable are thewidows and working children. For them, even a mar-ginal income fluctuation can have serious consequences.

The scope of formal social risk management instruments,however, is severely limited. First, the economy in SouthAsia is distorted by the heavy-handed interference of thestate. Secondly, financial markets are weak. The WorldBank is now in the process of developing a regional SocialProtection strategy for South Asia that targets the mostvulnerable groups by focusing on three areas:

■ Public works programs ■ Micro-credit and insurance ■ Social Investment Funds

South Asia does not have any social funds yet, but socialfunds-like approaches are present in some projects. Themost recent example being the District Poverty InitiativeProject in India, launched in the three states of MadhyaPradesh, Andhra Pradesh, and Rajasthan.

The regional strategy, prepared by Tara Vishwanath,Ambar Narayan, and N. Roberto Zagha, recommendspublicly financed reconstruction to provide an emer-gency source of income to those who have lost theiraccustomed livelihoods. “Public works programs areimportant mechanisms in South Asian countries whereprovision of formal safety nets is difficult. Such pro-grams do not, however, reduce vulnerability from allsources, nor are they able to reach all vulnerable groupslike the old, the sick and children. Other programs arethus needed to complement the role of public works,and targeted transfers in cash or kind are an importantclass of such programs,” the strategy paper states.

According to the authors, it has proved problematical toensure that the jobs created are actually filled by thepoor people. However, experience shows that benefitsof the programs can be directed towards the needy if thewages are kept low enough to ensure self-selection bythe needy into the program.

According to the regional strategy paper, innovations inmicro-finance as well as in the provision of more formalmarket-based insurance, and pension systems will alsobe crucial elements of the strategy.

A characteristic of the rural poor is their exclusion fromthe flow of credit and insurance that deprives them froma valuable tool of risk mitigation and coping. Financialinstitutions in the South Asian countryside, where theyexist, rarely open their doors to those who represent apoor risk. An exception is the 98 micro-finance institu-tions that, as of 1997, had US$900 million in 2.8 mil-lion outstanding loans — the median value of whichwas US$57. Those statistics appear to indicate a flour-ishing sector, but just two banks — the Grameen andSri Lanka National Savings Banks — accounted for 89percent of the value of all regional micro-lending, withthe Grameen Bank alone providing 74 percent of allloans to its 2.1 million clients.

The impact of micro-finance on reducing povertyremains the subject of further examination, according tothe authors of the strategy paper. Studies have shownthat, in the absence of alternate forms of insurance, useof micro-credit for consumption smoothing helps to

Hope for the FutureNew South Asia social protection strategy focuses on

public works, micro credit and social investment funds

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reduce short run vulnerability. This especially crucialfor the poorest of the poor for whom access to micro-credit often opens the door to alternate informal sourcesof credit. However, credit used for non-investment pur-poses does not generate income, which implies thatrepayment obligations can be met only at the cost offuture consumption, or by taking additional loans.Therefore, the strategy wants to provide alternativemeans of risk mitigation to the poor in the form ofaccess to insurance and saving schemes which can helpmicro-finance achieve its long-term poverty reductionobjectives, for example.

Savings can be another valuable instrument for risk mit-igation and coping among the poor. While early micro-finance programs were not effective in mobilizing sav-ings because it was thought that the poor are too poorto save, recent experience has shown that even poorhouseholds are eager to save if provided with safe, flexi-ble and accessible accounts and attractive interest rates.The authors of the strategy paper find that the key tothe success of these institutions in mobilizing savingsfrom the poor is their ability to organize communities atthe grassroots level, while decentralizing key elements ofdecision making to groups within communities, whichhas led to ownership and commitment.

An innovative form of community based insurance —often associated with microfinance institutions — hasrecently begun broadening coverage into areas of health,life and asset insurance. Too young to be definitivelyevaluated, the Grameen Kalyan program and the Self-Employed Women’s Association (SEWA) in India havegiven some proof of their sustainability and their poten-tial value in reducing the commonplace risks faced bypoor, rural women. While the insurance products pro-vided by these schemes are formal in nature, the deliveryof the products is carried out through organization atthe community level.

The authors believe that the full potential of community-based innovations can be realized if they are incorporatedexplicitly into the overall Social Protection strategy, whichwould help in replicating so far isolated efforts on a largerscale. The government should play the role of the facili-tator, especially while nurturing the efforts through theirearly stages, possibly through creating the right institu-tional framework, conducting financial reforms to makemarket instruments available to micro-finance institu-tions, and contributing in initial financing. ▲

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Child Labor in South AsiaWorking children total more than 20 million in South Asia. An overwhelming majority of these children are employed in the ruralareas, but urban child laborers are generally more likely to be engaged in hazardous work. For example, nearly 70 percent of urbanchild workers in Bangladesh work outside the family enterprise, and significant proportions engage in hazardous occupations inmanufacturing or in domestic service where they are vulnerable to physical abuse.

While the ultimate goal should be total elimination of child labor, a more incremental short-run approach would aim at protectingand rehabilitating children who are already working.

The long-term solution lies in using safety net programs to mitigate the risks faced by poor households and in reducing poverty soas to remove the incentive to favor child labor. Complementary measures would create social awareness about the value of edu-cation for children, provide access to education of relevance and quality and build on a consensus for development and enforce-ment of laws.

Strategies adopted in various countries have mostly taken a partial approach, operating mainly through isolated programs aimedat working children in specific occupations and areas. While such efforts are important to reduce short-term vulnerability of work-ing children, a long term-solution to the problem lies in a holistic approach that treats child labor as one aspect of a broad socialprotection strategy, recognizing the complex nature of the problem.

In recent years, countries in South Asia have by and large been able to enact legislation addressing the problem of child labor.Pakistan, for example, has enacted laws prohibiting the employment of children under 14 years of age in certain hazardous occu-pations, regulating working conditions of children in allowed occupations and, in a separate law, has banned all forms of forced orbonded labor. The Constitution of India imposes a duty on the state to ensure that children are not driven by economic necessityto vocations unsuitable for them, and prohibits the employment of children in hazardous occupations.

A number of countries have also adopted various schemes for the withdrawal and rehabilitation of working children under theInternational Labour Organization’s International Program on the Elimination of Child Labor (IPEC). In addition, a series of part-nerships between the government, NGOs and the private sector have been instrumental in addressing child labor, even though theyare limited in scope and coverage. ▲

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Insuring the Poor — The Programs of Grameen Kalyan and SEWA

Grameen KalyanGrameen Kalyan is a not-for-profit company founded in Bangladesh in 1997, when it took over the Rural HealthProgram (RHP). The RHP was initiated by the Grameen Bank in 1993. The RHP acts as insurer and health careprovider through health centers attached to branches of the Grameen Bank.

The strategies used in micro-finance are used to decentralize healthcare. Each healthcare unit uses local expertise atthe Grameen Bank branch to spread awareness on the benefits of insurance, preventive care and services availableat the center. Referrals are used to utilize the existing public health infrastructure and minimize overlap of services.

The RHP corresponding to each Grameen Bank branch is created only after a consensus is reached in discussionwith members, who decide to subscribe to the annual plan for the RHP. Annual premiums are collected from mem-ber-households associated with a health center. Non-Grameen Bank members can also use the facilities for a feecommensurate with the market rate for the service.

Different types of pricing schemes for various service packages have been attempted, and supplementary servicesfor an additional premium are also available. Subsidies to the scheme are targeted to the poor households withinthe health center zones, where Grameen Bank branch staff in the area identify the poor.

The package presently includes a combination of annual check-ups, subsidies on laboratory tests, quality medicinesat prices below market price, maternal and child health care, other forms of preventive care, part of the cost of hos-pitalization, as well as part of the cost of specialist consultation and tests in case of referrals.

On average, health centers have recovered approximately 65 percent of total operational costs; those with the high-er rate premium structure of Taka 100-120 per household had better cost recovery of approximately 72 percent,while those with premiums of Taka 50 recovered about half of operating costs.

The scheme presently receives premiums from about 66 percent of Grameen members, and it is estimated that costrecovery will increase significantly as more members get insured.

Self-Employed Women’s Association (SEWA)SEWA is a registered trade union working mainly with women in the unorganized/informal sector in India. Membershipis almost a quarter of a million, comprised mainly of hawkers and vendors, home-based workers and laborers.

In addition to performing conventional labor union functions, SEWA provides legal aid and operates a bank and asocial security scheme. The bank offers saving services and loans to members. The Integrated Social SecurityProgram is the largest comprehensive contributory social security scheme in India today for informal workers, pro-viding health, life and disability and asset insurance for over 32,000 workers.

SEWA members can choose whether to join the scheme. The asset and health components come as a package andlife insurance is an option. At present, only the women members are covered for most benefits.

Membership and claims processing is done through SEWA Bank, helped by a considerable field presence and grass-roots level organization by SEWA Bank and Union staff.

Premiums are also collected through mobile services similar to — and adapted from — collection methods normallyassociated with microfinance deposits and loan repayments. Flexible premium structures have been designed to suitdifferent income groups among the poor.

About a third of the costs are covered by premiums; the rest is financed by a grant from the German TechnicalDevelopment Agency (GTZ) and subsidies from the government in collaboration with two public/private insurancecompanies.

SEWA views contributions by members as a step toward their increased participation in the design and administra-tion of the scheme. The combination of microfinance, insurance and union services has increased SEWA’s member-ship and helped raise the incomes of its members.

ConclusionsThe experience of these exclusively voluntary and demand-driven programs shows that not only can social securityprovision be sustainable for the poor or workers in the informal sector, but also that the poor are willing to payincreasing amounts as long as the service is appropriately designed and sensitive to their needs. ▲

Source: Lund and Srinivas, 1999 (The World Bank)

36

Vulnerability of South Asian womenWomen in poor households in South Asia are particularly vulnerable in a number of ways. Women in households

with adult males are vulnerable on account of having little decision-making power. While assets are considered to

accrue in the household as a unit, women often have very little say in decisions about how these assets would be

used, especially during times of crisis.

Consequently, household decisions may not take enough cognizance of the women’s need and contingencies during

times of crisis. Even when women do have some control over productive assets, there may be gender differences.

In Pakistan, women raise smaller livestock like chicken and goats, while men usually raise cattle. During times of

crisis, the smaller livestock get sold first. Cultural factors play a role too. In some areas of India where women have

their meals after everybody else in the household, women are left with virtually no food during times of shortage.

Studies have shown that women often suffer more from adverse shocks than men. According to a 1990 World Bank

study, rising food prices in India led to larger reductions in nutrient intake for women than for men.

There is also evidence for pro-male bias in household health and nutrition expenditures. A recent study found lim-

ited evidence that in Pakistan, such bias increases as incomes fall. In addition, households headed by females, espe-

cially those with children who are too young to work or to take care of themselves, are particularly vulnerable. A

study in Pakistan in 1993 has shown that such households may have fewer work options, lower incomes and low

labor power. Cultural factors can also affect the health risk of

divorced women in South Asia — such women often face higher mor-

tality risks than married women because they are denied access to

their late husband’s property.

For such reasons, women in rural Bangladesh place great value in

ownership of homesteads which provide them with the collateral to

secure loans. Such loans are important to them for productive enter-

prises, as well as for providing security in case of contingencies like

widowhood, desertion by husbands, and divorces. The fact that most

of them feel that they cannot work outside their homes for wage labor

makes it all the more important for them to acquire assets like

homesteads. ▲

Source: Voices of the Poor, Volume I, The World Bank, 1999.

Photo: Curt Carnemark

VulnerabilityThe use of this term has proliferated lately among econ-omists, sociologists, other development practitioners,and policy makers as concepts of risk and risk manage-ment are no longer only found on Wall Street, but alsoright in the center of the newest thinking about poverty.

There are good reasons for this concern for vulnerability.The vulnerable are more likely to suffer welfare lossesdue to risks, and better management techniques canimprove social welfare. Vulnerable households are con-strained in their ability to efficiently manage risk,because they often operate in environments with miss-ing or incomplete markets.

But what does it actually mean to be “vulnerable” in thisnew context?

It is generally agreed that vulnerability is a more com-plex concept than poverty because it is a forward-looking uncertain state. Because of this complexity,considerable confusion persists about the understand-ing of vulnerability.

In an attempt to clarify the meaning and meas-urement of vulnerability, we have, in a recentlycompleted World Bank paper, reviewed andassessed the literature and operationalconstructs related to vulnerability acrossdisciplines such as economics, disastermanagement, environmental science,sociology/anthropology, andhealth/nutrition. Our approachwas to separate the different“components” of vulnerability —e.g. risk, exposure, response,and outcome — as discussedbelow.

Defining Vulnerable and VulnerabilityAn individual, a household, or a community can beconsidered vulnerable when there is a probability thatthey will experience a level of well being that is below asocially accepted threshold. The vulnerable thusincludes the poor and the non-poor. The degree of vul-nerability depends on the characteristic of the risks,exposure to the risks, and the ability to respond to offsetlosses from unfavorable realizations of states of nature.

Vulnerability also depends on the time horizon: one maybe vulnerable to risks over the next month, year, etc, and

risk management in one period affectsfuture vulnerability. Risk management

includes decisions and actions madewith respect to changing risks.

Thus, not everyone is vulnerable,although everyone faces risks.The challenge is to find waysto help people better manage

risk in order to lower theirvulnerability.

by By Jeffrey Alwang, Paul B. Siegel,and Steen Lau Jorgensen.

Vulnerability. We hear the term vulnerability all the time.

But what does it mean, and can it be measured? A recent study looks for the answers.

Photo: Curt Carnemark

38

Vulnerability begins with risk or uncertainty. Riskyevents have a measure of probability associated withthem. These events are characterized by their magni-tude, their frequency and duration, and their history.Vulnerability can be defined with respect to specificshocks, such as earthquakes or floods or aggregatedacross sources of risk. Many risks are interconnectedwith one another, and in fact households face not one,but a set of risks at the same time.

Exposure to risk, the second component of the chain, is afunction of the assets of the individual or householdsand of the precautions taken before the risky event isrealized. If exposure to risk is monetized, then the con-cept is akin to what will potentially be lost (or gained)from the realization of each uncertain event. Non-mon-etized assets are also exposed to risk; human capital, forinstance is exposed to risk of illness and when resourcesget scarce, social capital is exposed to breakdown insocial cohesion.

Hazard is the interaction between risk and exposure,and there are possible actions that can reduce risks(e.g., eradicating pests), or reduce exposure to risks (e.g.,using pest resistant crop varieties).

Further means of managing risk and countering lossesfrom hazards are encompassed by the response to thehazard. Although reducing risk and risk exposure canbe considered forms of responses, we use the termresponse to signify efforts to mitigate and cope with riskin response to expected and realized losses. Responsesinclude use of ex ante mitigation such as self-insurance(e.g., precautionary savings, social networks), insurancebased on expansion of the risk pool, and ex post copingresponses such as seeking temporary employment andreceiving government assistance.

Poor households are constrained in risk management bytwo main factors. First, their ability to manage risk is lowbecause they do not own many assets. Secondly, theyhave incomplete information, face incomplete or missinginsurance markets and are often excluded from social net-works. Such constraints facing the poor lead to ineffi-cient risk management, which may slow economic gains,therefore the constraints are a central interest from asocial protection and social risk management perspective.

Because poor people lack assets and are more exposed tomarket failures, they are likely to be vulnerable. Thelevel of vulnerability can even be aggravated within agiven poor household, where some members can bemore vulnerable than others because they bear a highproportion of the burden of risk response. The exis-tence of more vulnerable members within the house-holds, whether due to social norms, power relations, orthe nature of risks themselves, is a clear concern of socialrisk management.

Risk and exposure combined with the householdresponses lead to the outcome. The outcome is the chiefinterest of social policy. By conceiving of vulnerability asthe position resulting from a dynamic game replayedover time, more information about its attributes can begained. While we can measure damage — such as levels ofconsumption, losses of assets, changes in wealth, increasedmalnutrition, etc. — these are only static outcomes of acontinuous process of risk, exposure and response.Vulnerability is the continuous forward-looking state.

Moving aheadPlans are currently underway to move ahead with fur-ther refinements of the definition of vulnerability and tobegin systematic attempts to measure the components ofvulnerability. The possibility of using several single andmultiple measures of vulnerability will be considered. Tofurther our work on these issues we are reaching to peo-ple inside and outside the World Bank to build consen-sus on what is meant by vulnerability and to design andimplement measures. A major portion of the ongoingwork is being funded by an ASEM Trust Fund grant,which will include field work in several Asian countries(Indonesia, Korea, and Thailand.) ▲

The Authors:

Jeff Alwang, Associate Professor, Department ofAgricultural and Applied Economics, Virginia Tech,USA (Email: alwangj@vt.edu)

Paul B. Siegel, Consultant, Social Protection, TheWorld bank (on leave from position as Senior Lecturer,Department of Economics and Management, Tel HaiAcademic College, Upper Galilee, Israel (Email:psiegel@worldbank.org or siegelpb@hotmail.com)

Steen L. Jorgensen, Director, Social Development,The World Bank, Washington D.C., USA. (Email: sjorgensen@worldbank.org)

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Social Protection Discussion Papers related to the Social Protection Sector Strategy:

Social Risk Management: A New Conceptual Framework for Social Protection and BeyondSocial Protection Discussion Paper No. 0006; Publication Date: 02/2000

Contribution pour une Stratégie de Protection Sociale au BéninSocial Protection Discussion Paper No. 0001; Publication Date: 01/2000

An Asset-Based Approach to Social Risk Management: A Conceptual FrameworkSocial Protection Discussion Paper No. 9926; Publication Date: 10/1999

A Social Protection Strategy for TogoSocial Protection Discussion Paper No. 9920; Publication Date: 06/1999

Please note that all Social Protection Discussion Papers are available on the web athttp://www.worldbank.org/sp.

Questions concerning the World Bank’s work in Social Protection or requests for copies of the SocialProtection Sector Strategy Paper may be directed to:

Social Protection Advisory Service The World Bank1818 H Street, N.W., Room G8-138Washington D.C. 20433U.S.A.

Telephone: + 1 202 458 5267Fax: + 1 202 614 0471e-mail: socialprotection@worldbank.org

SPectrum’s Resource Guide

SPectrum is published four times a year by the

Social Protection Unit of the World Bank.

SPectrum is intended to raise awareness and

enliven debate and present the latest thinking

around social protection issues including

pensions, labor markets and social assistance.

The views presented in the articles are solely

those of the authors and do not reflect the

views if the World Bank. Articles appearing in

SPectrum may be reproduced or reprinted

provided the author(s) and SPectrum are cited

and a courtesy copy is provided to SPectrum.

Submissions, letters and story ideas are

welcome and may be sent to:

Lotte Lund, Editor

Social Protection Team

The World Bank

1818 H Street, NW

Washington, DC 20433 USA

Tel: +1 202 473 1143

Fax: +1 202 522 3252

Email: llund@worldank.org

Social ProtectionHuman Development Network

The World Bank1818 H Street, NW

Washington, DC 20433 USA