Review Journal

Social Security in Developing Countries: Myth or Necessity? Evidence from

India
By Patricia Justino
Source: PRUS (Poverty Research Unit at Sussex) working paper no. 20
September 2003
Reviewed by Iman Sufrian
NPM 1206313974
A. BACKGROUND/INTRODUCTORY
The introductory paragraph summarizes the background information and purpose of the
research (specific questions the study researched).

System of socioeconomic security started in Europe in the late 19 th century and

gradually implemented in most countries in the early 20 th century. The aim of the
social security programs in its early era were:
as a means of improving the well-being of the poor;
To reduce inequality within society;
To conciliate different social demands thus avoiding the social and political conflicts,
which necessarily arose as capitalists forms of production evolved in the
industrialized countries.
The influential social security programs were the US 1935 Social Security Act and
social security program implemented in the UK summarized in 1942 Beveridge
Report. Those two social security programs were used to define modern form of
social security programs as defined by ILO. ILO defined social security as the
protection which society provides for its members through a series of public measure
against the economic and social distress that otherwise would be caused by the
stoppage or substantial reduction of earnings resulting from sickness, maternity,
employment injury, invalidity and death; the provision of medical care; and the
provision of subsidies for families with children (ILO, 1984).
The objectives of social security programs in its early era remained relevant with its
objectives in its later implementation.

There were controversies regarding the adoption and implementation of modern

form of social security programs in developing countries. Those who disagreed with
the adoption and implementation of modern form of social security programs in
developing countries believed that the adoption and implementation of modern form
of social security programs were difficult and even unviable because of several
following reasons:
The modern social security systems required sophisticated forms of targeting and
monitoring that would very expensive and be financially unfeasible in poorer
economies since governments in developing countries, in general, had less
capacity to collect taxes (low level of income), education and infrastructure.
Political pressure against the implementation social security polices was often high in
developing countries as such policies may imply some form of redistribution
Therefore, researchers that supported this idea suggested that poverty alleviation
and social-economic security of the poor should be rather achieved through
sustained economic growth that would raise the standard of living of the whole
population (Bruno, Ravallion and Squire, 1995; Dollar and Kraay, 2000).
In contrast, the supporters of the idea of adopting and implementing social security
programs in developing countries stated that although economic growth was an
important factor in the promotion of better standards of living, poverty could persist
due to the inability of some population groups to participate in the growth process
(Gaiha and Kulkarni, 1988). Therefore, social security programs were still needed to
protect those who were vulnerable groups against contingencies and uncertainties.
Implementation of social security programs to targeted groups, supported by public
participation and careful integration of social and economic policies could play an
important role to maintain the living standards and the well-being of the most fragile
groups in the population (Chenery et A. 1974; Dreze and Sen , 1991). By targeting
the programs to certain group and public involvement in the programs made the cost
of implementing the programs became quite small (Dreze and Sen, 1991). Therefore
the question should not focus on whether or not the government in developing
countries should implement the social security programs. The question would be
what type of social security policy should be implemented in developing countries.

The purpose of this paper were to try to discuss about the importance of social
security policies in developing economies and to discuss the viability of implementing
systems of social protection in developing countries.
B. METHODOLOGY
Then, explain the methods that were used to investigate the research questions (use past tense).

Authors of this paper conducted a wide literature review about the history of social
security programs and the theory of social security program. Based on the literature
review, the authors of this paper then constructed an econometric model to
investigate the research questions using the panel data of 14 major Indian states
from 1973 to 1999 as its case study. Subsequently, the author drew conclusion
based on the result of empirical analysis of Indias data.
C. JOURNAL CONTENT
Mention the major results of the study (use past tense).
State what the author of the study learned.

Based on the literature review conducted by the author of this article, it was clearly
shown that the author of this article supported the implementation social security
program in developing economies. However, the design and implementation of social
security programs in developing economies had to take into account three
fundamental issues have to be address. Burges and Stern (1991) identified those
issues as the following:
What is included within the objectives of the social security programs?
Who will be the target/beneficiaries of the social security programs?
Who should provide the social security programs?
The objectives of social security programs in developing countries
The objectives of social security programs in developing countries concerned with
the reducing vulnerability and unacceptable level of deprivation. However, since the
extent of poverty in most developing countries were much greater than those in more
developed countries, the typical social security benefits implemented in developed
countries are too costly. Therefore, the focus of the social security policies in
developing countries should be on the reduction and mitigation of structural forms of
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vulnerability and on the implementation of ways of coping with all types of risk
(Norton, Conway and Foster, 2001, Kabeer 2002) and be integrated within the
overall development strategy of the country rather than implemented as individual
programmes (Kabeer 2002).
The social security programs in developing countries should aim to protect and to
promote both human and physical capital. Policies that protected human capital
include better access to clinics, hospitals, better nutrition, better health support,
health insurance policies, improve access to schools, universal primary education
and so forth.
Physical capital can be protected by policies aimed at employment creation,
promotion of rural development, research and incentives to encourage labour
intensive investments, better access to housing and land, improved infrastructure,
reduction of remoteness of some population groups, measures to eliminate biases
against women and other vulnerable groups as producer and consumers,
implementation of employment support schemes, provision of secure ownership of
key assets, crop insurance measure, etc.
The success of these policies would be improved if the government also implement
sound macroeconomic management policies that aims to keep inflation low, to
promote sustainable growth, to keep low unemployment and to keep balance of
payment at a sustainable level.
The beneficiaries of social security programs in developing countries
Social security policies implemented in developing countries should be targeted
toward the needy, vulnerable groups of the population. (Jhabvala, 1998). The
author of this paper believe that addressing the needy rather than the workers will
guarantee more efficient cost of social security programs and politically feasible
since this formulation will not be opposed by the more powerful lobby groups.
The provider of social security in developing countries
In developing countries informal arrangement of social security have played a vital
role. The informal arrangement of social security is provided by both families and
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communities. However, this traditional form of family and communal arrangement

were gradually disappearing as a consequence of socio-economic modernization
and increasing urbanization, while no other form of social organization was replacing
the old one (World bank 1994). Therefore, publicly provided social protection policies
were a natural solution.
The question is then how much the state is willing to intervene in order to provide
social protection to vulnerable members of society?
Potential benefits of social security in developing countries
The author of this paper also mentioned about the potential benefits of social
security programs in developing countries. Those benefits were:

Demand benefits
According to Murphy et al (1998), internal demand can change as a response to
more equal distribution of income. Increases in the income of the poor will lead to
a wealthier middle class, which are consumers of manufactured goods.
Therefore, redistributive policies are likely to induce an increase in private
consumption and consequently, an enlargement of internal markets and higher
prospect for economic growth.

Human capital and stability benefits

Social protection policies may also improve the access of poor individuals and/or
groups to adequate health care and education. This, in turn, will improve their
chance to access more prosperous life opportunities and to access better jobs
and better incomes (Saint-Paul and Verdier, 1992, Galor and Zeira 1993, Perotti
1993).

Society as a whole will benefits as well, because wealthier, better educated and
healthier populations may reduce social discontent, which, in turn may reduce crime
level, violence and other forms of socio-political instability caused by the persistence
of poverty amongst certain population groups, job insecurity and other socioeconomic risk (Alesina et al 1992, Alesina and Perotti 1992, Ribero and Nunez
1999).

Social protection policies can generate positive externalities on the economic growth
process in developing economies, in the form of larger internal markets,
accumulation of human capital and more stable socio political environment.
Social Security programs in India
The author of this paper used India as a case study to support the viability of
implementing social security programs in developing economies.
In India, the poorest individuals belonged to minority religious and ethnic groups,
lower castes, women and those living in remote locations with limited access to
productive assets and institution and employed in secure jobs (Kabeer, 2002,
Khrisna, 2003).
Expenditure on social services in India had been very small in comparison to other
developing countries. An important pillars of Indias social security policies was the
food programs, implemented in late 1960s and integrated within a wider rural poverty
alleviation scheme. This combined a large program for land reforms and the
introduction of new technologies and crops in the agriculture, rural employment
scheme, designed to address the unemployment problems of landless, and the rural
development program targeted towards the creation of assets for the landless.
Later in 1995, the government of India introduced an all- India protective type social
security scheme which is called National Social Assistance Programme (NSAP). This
program covers a national policy for social assistance benefits to poor households in
the case of old age, death of person who support his/her family and maternity. This
program has three main components: the national old age pension scheme, the
national family benefit scheme and the national family benefit scheme and the
national maternity benefit scheme. This program received fund from national budget
in the 2000-2001 fiscal year.
Empirical Analysis
This paper examined the empirical effects of public expenditures on social services
on both the growth performance of the Indias economy and the incomes of the poor.
Poverty in India halved between the earlier 1970s and the late 1990s. In the same
period, Indias real per capita GDP has more than doubled between 1970 and 1999.
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During 1970s, the real GDP growth was slow, and then accelerated in the 1980s and
1990s.
The relationship between expenditure on social services and rural poverty is positive
in 1973 data. This coefficients suggested that, in 1973, states with larger
expenditures on social service were also those with the highest level of rural poverty.
This relationship changed in 1999, where the correlation became negative although
not statistically significant.
The economic effects of social service expenditure in India seemed to be stronger
for aggregate income and consumption expenditure. This was shown by the positive
and statistically significant correlation in both 1973 year and 1999 year. This
correlation suggests that expenditure on social services has had important social
and economic effects in India during the three decades observed.
Based on panel analysis, it was concluded that expenditure on social services had
had positive and statistically significant effect on the reduction of poverty and the
increase of income growth and consumption expenditure in India. It was shown that
the immediate effect of social security expenditure is to decrease economic growth
and increase poverty (these coefficients were not statistically significant). In the
longer term, expenditure on social services had contributed toward the increase the
economic growth in India and the decrease both rural and urban poverty.
The effects of social service expenditure on consumption expenditure were more
immediate and both current and lagged coefficients for expenditure on aggregate
income may be caused by the immediate negative impact education has on the state
income, which might delay the economic benefits of social security policies. The
immediate effect of education on consumption expenditure was positive suggesting
that consumption expenditure may be quicker to reflect social development progress
that aggregate income.
The incomes of the poor are affected by the levels of unemployment in the economy.
Increased levels of unemployment individuals were associated with the decrease in
the growth rates of consumption expenditures in the urban sector. However, higher
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unemployment had a large and positive effect on the reduction of both rural and
urban poverty. This was seen as a contradictory effect that might be associated with
the payment of unemployment benefits.
Finally , the larger levels of economic openness had a positive impact on both
income and consumption expenditures. The variable s also associated with the
reduction of poverty in Indias urban sector. Eventhough, not statistically significant,
the coefficient for openness had a positive impact on the level or rural poverty In
India, which may suggest the existence of inequalities in the distribution of the
benefits of recent economic reform. This issue may merit further research in future
paper.

D. SUMMARY
Include a summary as well as your own analysis and evaluation of the article.
Know the article thoroughly.
Do not include personal opinions.
Be sure to distinguish your thoughts from the authors words.
Focus on the positive aspects and what the author(s) of the study learned.
Note limitations of the study at the end of the essay:
o Do the data and conclusions contradict each other?
o Is there sufficient data to support the authors generalizations?
o What questions remain unanswered?
o How could future studies be improved?

Analysis and Evaluation of the article

Based on above parts, it can be concluded that the article has provided an adequate
literature review to provide framework on the history and the theory of social security
programs. The paper also provide relevant literature to support the implementation of
social security programs in developing economies. Furthermore, in order to
strengthen the notion of implementation social security program in developing
economies, the author use the case study of India using panel data of 14 major state
in India from 1973 to 1999.
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The empirical result from Indias data support the authors view that the expenditures
of social security program has a positive and significant correlation to aggregate
income an aggregate expenditures of the targeted groups (the poor). The empirical
result from Indias data also shows that the expenditure of social security programs
plays significant role in reducing poverty level in India. This conclusion is shown from
the negative and significant correlation between the social security expenditures and
poverty level from 1973 to 1999.
However, there are several important notes that would be valuable for the readers of
this paper. Those are as follows:

The author mentioned about further development of social security programs in

India following the previous social security program launched in the late 1960s.
The program was launched in 1995 and it was called NSAP. However, the
program received provision on the national budget in 2000-2001. The author
used the panel data starting from 1973 data to 1999. This means the further
development of social security programs launched in 1995 is not relevant with the

authors analysis.
There is no clear conclusion that the experience in India can be generalized to
other developing economies due to different structural characteristic in other
developing economies. Further research on other developing economies would

be valuable to ensure the experience in India can be generalized

The author, also include the level of economic openness in the model. The
empirical result shows that economic openness had a positive impact in reducing
poverty level in urban area. However, the economic openness had a negative
impact in recuding poverty level in rural area. The author, suggest the existence
of inequality between urban and rural area in receiving benefit of the openness of
the economy in India. This would be a valuable future research topic.

REFERENCES
Holcombe, Randall G; Sobel, Russell S., Consumption externalities and economic
welfare, Eastern Economic Journal; Spring 2000; Vol 26 No. 2; 157.
Pindyck, Robert S.; Rubinfeld, Daniel L., Microeconomics (3rd edition), Prentice Hall,
1996,
Varian, Hal R., Intermediate Microeconomics A Modern Approach (Fifth Edition),
W. W. Norton & Company, New York-London, 1999.

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