The role of social policy in economic development

Abstract

"During the heady days of Neo-Liberal counter-revolution in the 1980s, the World Bank and the IMF prided themselves in not wasting their time on soft things like social policy in designing their structural adjustment programmes . In the older, hardcore version of Neo-Liberal orthodoxy that had prevailed until the early 1990s, diverting resources to social policy, which softens the blow of the adjustment on the weaker sections of the society, was regarded as buying short-run palliatives at the cost of long-term productive development, as it can only slow down the necessary adjustments . Many people remember how strongly this line of thinking was pursued during the 1980s. This was pursued to the point of producing a call for adjustment with human face by those who did not completely reject the need for structural adjustment programmes but were deeply concerned by what they saw as unnecessary human suffering caused by such programmes in their unadulterated forms (Cornia et al. 1987). However, with the continued economic crises in many developing countries throughout the 1990s, and the failures of the Neo-Liberal adjustment and reform programmes to resolve such crises (many would in fact say that these programmes are actually one of the causes of these crises), even the World Bank and the IMF are now beginning to pay serious attention to social policy (Mkandawire 2001), provides an illuminating review of this shift). They now acknowledge that developing countries may need a social safety net to catch those who fall through the cracks in the process of economic reform based on their programmes. This shift in the attitudes of the part of the Bretton Woods institutions was, for example, manifest in the IMF programmes in the East Asian countries after the recent financial crises (Korea, Thailand, and Indonesia), where the Fund and the Bank put unprecedented emphasis on building social safety network devices. The attention to social policy by the Bank and the Fund is most welcome. It is a positive development that they are now thinking about broader social consequences of their economic policies. However, there still exists a fundamental limit to their understanding of social policy. As the UNRISD has pointed out in a series of recent publications, the Bank and the Fund still view social policy as an essentially residual category of safety net , and not as an essential ingredient in developmental strategy (Mkandawire (2001), succinctly summarises the UNRISD view). However, social policy, if well designed, can be much more than a safety net and significantly contribute to productive development (for further details, see Chang 2002: ch.3). Cost-effective public provision of health and education can bring about improvements in labour force quality that can, in turn, raise efficiency and accelerate productivity growth. Social welfare institutions reduce social tensions and enhance the legitimacy of the political system, thus providing a more stable environment for long-term investments."(pg 1)