Social protection in Latin America: One region two systems
What do we know about welfare regimes in Latin America? What do we know about the role of (f)actors shaping social protection development and inclusion? What do we know about recent debates regarding social protection and welfare in Latin America?
Social protection systems in Latin America have experienced deep structural change in the last two decades. Policies, programmes and institutions directed at population groups characterised by low incomes and informal employment have emerged across the region. Social assistance - consisting of budget-financed and rules-based programmes providing transfers and services to disadvantaged groups – now reaches around one third of the population in the region.
The most visible change is the emergence of large-scale social assistance programmes targeting low income and informal employment groups. They include budget-financed transfers to older people or social pensions and conditional income transfer programmes, providing regular and reliable transfers to families in poverty. Most countries have taken steps to strengthen the provision of social services to disadvantaged families.
This blog series aims to facilitate some of the results of a recently published book titled, ‘Welfare and Social Protection in Contemporary Latin America’ (Cruz-Martinez, 2019).
Emerging dualism
The emergence of social assistance runs counter the historically dominant role of social insurance institutions. Rooted in the Bismarckian model of social insurance, stratified pension schemes emerged in the more advanced countries in the region in the first decades of the 20th century. Industrialisation sustained their initial expansion and consolidation. Only in a handful of countries, social insurance extended beyond formal employment.
Pension reforms in the 1990s introduced individual retirement accounts. Claims by proponents that a direct link between contributions and benefits would prove more attractive to workers proved mistaken. By the turn of the century, less than one in every two workers in the region contributed to a pension scheme.
Social assistance plugs a longstanding gap in the region's social protection institutions. But structural change has resulted in dual social protection institutions: social insurance covering workers in formal employment and social assistance supporting low-income groups in informal employment.
This is reflected in the institutional framework and in the type and generosity of support. Today, most governments in the region have a Ministry of Labour and Social Security alongside a Ministry/Agency charged with Social Development. The expansion of social protection in the region since the return to democracy can best be described as vertical rather than horizontal. With few exceptions, low income and informal groups have not been incorporated into existing social insurance institutions, but into parallel social assistance institutions.
Sustainable social protection in Latin America
Growing dualism in social protection raises important questions about the future of welfare institutions in the region. Are dual social protection institutions politically, and financially, sustainable? Are dual social protection institutions good for growth and productivity? Are dual social protection institutions just?
To date, debate on the future of welfare institutions in Latin America has been largely normative and focused on reforms likely to overcome dualism. In countries with more extensive social insurance, the emergence of social assistance was initially viewed by some as a ‘low cost’ and short-term response to structural adjustment forced upon cash strapped governments by financial crises. Others viewed the expansion of social assistance as an opportunity to establish institutions grounded on ‘basic universalism’ with a focus on scaled down protection for all.
More recently, proposals for a ‘differentiated universalism’ advocate for retaining dual institutions while making sure that everyone has access to some form of protection. Concerns with potentially adverse effects of dualism on labour market incentives for informality with adverse implications for economic growth suggest dualism is perhaps self-reinforcing. Radical reshaping of social protection institutions might be needed to break with dualism.
With few exceptions, these proposals tell us what 'ought' to happen without necessarily engaging with the forces underlying current dualism. Research on the causal processes that led to the growing dualism in social protection institutions in the region is scarce.
What explains dualism in Latin America?
It will be helpful to separate out two sets of explanations. The first group answers the question: Why did social insurance expand up until the 1970s and stagnate thereafter? The second group answers the question: Why did social assistance expand as a separate component from the 1990s onwards?
Explanations for the growth and subsequent stagnation of social insurance in Latin America during the middle third of the last century point to the type of political coalitions emerging from processes of industrialisation and the expansion of the public sector associated with developmental states.
Industrialisation is associated with a rise in the share of the labour force working in the sector. In Latin America, it supported the expansion of social insurance, but it also set limits to this expansion. Import-substitution industrialisation strategies extracted surpluses from agriculture to finance nascent industry.
To an important extent, these strategies defined the boundaries between 'insiders' (industrial and public sector workers, urban middle classes, and domestic capital) and 'outsiders' (rural workers and farmers, informal workers and unregulated enterprises).
The stagnation in social insurance coverage has its roots in deindustrialisation. Industrial employment peaked very early in Latin America: Chile (1954), Argentina (1958), Colombia (1970), Peru (1971), Mexico (1980) and Brazil (1986).
Causal explanations for the growth of social assistance are harder to find. Research links the growth of social assistance to favourable environmental conditions, including democratisation processes strengthening demand for social protection policies; the rise to power of left coalitions championing inclusive policies; economic growth; and enhanced fiscal space. These are contributory factors to the expansion of social policies in general, but they are insufficient in themselves to explain the growth in social assistance.
What about the significance of possible electoral gains associated with social assistance programmes? On the whole, available research casts doubts on the explanatory power of this hypothesis. Politicians searching for electoral support are more likely to rely on public goods or on discretionary transfers, as opposed to medium term rules-based institutionalised transfers. Alternative explanations for the growth and institutionalisation of social assistance in Latin America are more likely to be found in renewed social contracts than in short-term electoral gains and losses.
Will dualism persist?
Current trends suggest that the current dualism is a more or less stable outcome of current political economy conditions. There are significant obstacles to downward integration of social insurance and assistance. In countries where individual retirement accounts replaced social insurance schemes, as in Chile, broad and vocal opposition to the former has not secured structural reforms.
In countries that retained social insurance pension schemes, marked inequality in benefit generosity will only strengthen opposition to integration. Downward integration will require lowering the generosity of social insurance transfers, directly affecting the interests of powerful insiders.
References
Barrientos, A. (2019). Social protection in Latin America: One region two systems. In G. Cruz-Martínez (Ed.), Welfare and Social Protection in Contemporary Latin America, pp. 59-71. London: Routledge. Accessible: https://www.routledge.com/Welfare-and-Social-Protection-in-Contemporary-Latin-America-1st-Edition/Cruz-Martinez/p/book/9781138600119
This blog series aims to facilitate some of the results of a recently published book in Routledge titled ´Welfare and Social Protection in Contemporary Latin America’ (Cruz-Martinez, 2019). Besides this blog, the series also features contributions by Gibran-Cruz Martinez and Joan Tejedor-Estupiñán.
