Fight poverty by giving the poor social security

Keynesian economics is back. In response to the current economic crisis US President-elect Barack Obama, British Prime Minister Gordon Brown and other world leaders have quickly recognised the role that social spending can play in stimulating the economy.

In addition to tax cuts and lowered interest rates, they are proposing spending billions to put cash into the hands of consumers by expanding social security programmes such as unemployment benefit, child benefit and tax credits for low-income families.

Seen from the perspective of developing countries, one cannot help noticing the stench of hypocrisy in these measures.

For decades, the world’s poorest countries have suffered from stagnant economies.

Yet, the remedy offered by developed countries through their aid programmes — and enforced by the World Bank and IMF — has been the opposite of that currently being administered in their own.

In the 1980s and 90s, as a result of the Washington Consensus, poor countries were told to cut government spending, including on welfare programmes.

The message was that they could not afford such luxuries. Instead, trickle-down economics would provide the miracle cure for all ills.

The failure of this policy has been immense — in most developing countries, levels of poverty have remained stubbornly high, while levels of inequality have risen dramatically.

Although it is fashionable to claim that the Washington Consensus is dead, there remains a debate between donors and internally as to the role social security can play in promoting growth.

Often, the same neo-liberal economics is still found alive and well.

The Department for International Development has been a leading supporter of social security programmes, yet its recent policy paper on economic growth in developing countries still finds the notion of injecting cash into economies as a means of stimulating consumption an anathema.

It is as if the governments of developed countries suffer from a dual personality — at home, they are happy for Keynes to ride to the rescue during their own economic downturns, but woe betide any developing countries with similar ideas.

International donors need to learn the lessons from the current economic crisis and apply them to the world’s poorest economies by building social protection programmes that put cash into the hands of millions of poor people and generate growth.

In Namibia, the introduction of a small pension in the 1990s for everyone over 60 led to a significant increase in the number of shops in rural areas.

In Mexico, where the government introduced the Progresa cash transfer programme — also in the 1990s — a recent study has demonstrated improvements not only in the livelihoods of beneficiary families, but a significant increase in the assets owned by non-beneficiary households.