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OPINION: Why the Biden administration should invest in a global safety net

by Lindsay Coates | BRAC Ultra-Poor Graduation Initiative
Wednesday, 2 December 2020 14:33 GMT

U.S. President-elect Joe Biden gestures to reporters as he departs after announcing members of his economic policy team at his transition headquarters in Wilmington, Delaware, U.S., December 1, 2020. REUTERS/Leah Millis

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* Any views expressed in this opinion piece are those of the author and not of Thomson Reuters Foundation.

A Biden administration commitment to protect and strengthen social safety nets, at home and abroad, signals America’s commitment to human rights and combating extreme poverty

By Lindsay Coates, Managing Director, BRAC Ultra-Poor Graduation Initiative 

As the economic pandemic caused by COVID-19 pushes more than 88 million people back into extreme poverty this year top donor governments are cutting support for humanitarian response by as much as one-third or $7 billion. With countries acting through the IMF and WB leveraging nearly $12 trillion to stabilize markets and provide emergency relief, increasing budgetary strain has already led some in the international community to consider austerity measures. This puts at risk social safety nets--programs that contribute to poverty reduction and protect the most marginalized people from shocks by meeting their  basic needs. Austerity, however, is not the answer to this time of crisis.

A Biden administration commitment to protect and strengthen social safety nets, at home and abroad, signals America’s commitment to human rights and combating extreme poverty. Investing in safety nets offers a proven path to inclusive, sustainable economic recovery worldwide and builds a better future for the most marginalized communities.

Domestically and internationally, a Biden administration would first need to focus on containing the pandemic. President-elect Biden should reverse America’s inward turn and play a greater role in emergency response to COVID-19 by rejoining the WHO and providing emergency support to the International Development Association. Biden must also commit to supporting international efforts to fund social safety nets for low- and middle-income countries (LMICs)--a long-term vision which would help lift millions out of poverty, contribute to global economic growth, and better prepare the world for future shocks.

The new administrations should consider backing the Global Fund for Social Protection, supported by over 200 civil society organizations. Though domestic resource mobilization is the most sustainable way to fund social safety nets, the Fund would help low- and middle-income countries close temporary financing gaps for social programs, especially during future shocks. By helping build a coalition to compliment domestic funding for safety nets and avert austerity measures in lower-income countries, a Biden administration would “recover America’s standing in the world” through moral leadership, as he called for in a 2019 speech, and support countries hurt the worst by this pandemic.

Concerns around funding social safety nets are valid. Many low- and middle-income countries face significant challenges in mobilizing the resources needed to improve and expand social safety nets. That is why it is crucial that a Biden administration and its international partners help create a fiscal space to meet the needs of the most vulnerable. While securing funding for universal safety net coverage during COVID-19 would be challenging, Biden should take a pragmatic approach. Drawing from the public health principle of progressive universalism, international aid should prioritize extending social safety net coverage to people in extreme poverty first, gradually extending protections to broader segments of society. By targeting the most vulnerable populations first, Biden would ensure foreign aid is being used to maximum effect in the countries that it would benefit most.

Financing social safety nets for low and middle-income countries is not charity, but a development investment which prepares developing countries for future shocks and stimulates more inclusive, sustainable growth long-term. Trickle-down economics, built on the assumption that policies which benefit the wealthiest members of society will bolster growth and therefore raise the standard of living for all, has been disproven by academics and researchers time and time again. Inequality negatively impacts overall growth and its sustainability. Growth that disproportionately benefits a small number of wealthy individuals is neither inclusive of marginalized groups nor sustainable in the long run. Growth that is rooted in including and uplifting the most vulnerable, meanwhile, has a “trickle-up” effect, facilitating long-term growth which benefits nations at the macro level.

By investing in social safety nets and programs, which help include the poorest and most marginalized groups in a country’s markets, we can raise national standards of living from the bottom up. At the household level, investing in safety nets for the poorest people prevents economic losses from shocks and increases the chances they will take entrepreneurial risks or join the labor market. At the national level, multiple studies show that social safety nets can reduce inequality, enhance human capital, increase productivity, and stimulate aggregate demand. This is especially true for women, who disproportionately live in extreme poverty and suffer exclusion from education and labor force participation.

Safety nets have the transformative potential to bring everyone pushed to the margins of society into the market. Beyond the enormous benefits to their livelihood and wellbeing, this can increase the size of a country’s domestic markets. Low-income groups spend a higher proportion of their income increases than wealthier groups, meaning that more of each dollar they earn returns to their local economies. The increase in domestic demand generated by helping people lift themselves from poverty through government programs creates an opportunity for long-term development through national growth to meet that level of demand.

This is a matter of short-term versus long-term thinking. In the near term, mobilizing resources to invest in social safety nets and programs designed to include more people in the economy can be costly. However, programs that empower people to escape poverty pay for themselves in the long run by reducing future dependence on government support and expanding domestic markets which facilitate growth. Not only that, but consistently investing in expansive, shock-responsive social safety nets is far more affordable than only funding emergency responses when disaster strikes. COVID-19 has made this abundantly clear.

In medicine, preventive care results in better outcomes for patients and costs far less than waiting until one is forced to go to the emergency room. The same is true for building comprehensive safety nets before a shock hits instead of leveraging massive amounts of emergency funding. Economic disruption caused by the COVID-19 pandemic is projected to cost between $9 trillion and $33 trillion dollars globally, while investing $70-120 billion in improving public services over the next two years and $20-40 billion annually after could drastically reduce the risk of a future pandemic and the economic shocks that follow. Investing in social safety nets that build preparedness will be several times more affordable than waiting until circumstances are already dire.

Shocks of this magnitude are not going away. A Biden administration must lead the global community to invest in global safety nets in preparation for the next global crisis, whether it is health, economic, political, environmental, or all of the above. For those who support increased investment in social safety nets in theory but express concerns based on fiscal pragmatism, consider the alternative. Consider the economic impact of disruptions on the scale of COVID-19 without government programs already in place to protect people from their worst impacts. Consider the millions of people excluded from markets who could be included in more sustainable economic growth driven by improving living standards from the bottom up.

Beyond the budgetary rationale of bringing more people into the economy and preparing better safety nets for future disasters, consider the value of every human life that would be saved, every woman empowered to make a living, every child who would reach their potential if social safety nets were truly comprehensive. A Biden administration must work with governments, multilateral institutions, NGOs, the private sector, and civil society to prioritize funding safety nets that reach the poorest and most marginalized populations, include them in the economy, and increase their resilience to future shocks. Until they do so, our societies will be just as unprotected as our most vulnerable people.