UN Department of Economic and Social AffairsUN Department of Economic and Social Affairs

Establishing a Social Floor for Establishing a Social Floor for the Global Economythe Global Economy

Isabel OrtizIsabel OrtizSenior Interregional AdvisorSenior Interregional Advisor

United Nations DESAUnited Nations DESA

UN Commission for Social Development UN Commission for Social Development Side Event by ILO-HelpAge-UNDESASide Event by ILO-HelpAge-UNDESA

New York, 7 February 2008New York, 7 February 2008

Distribution of World IncomeDistribution of World Income Globalization for whom?Globalization for whom?

Distribution of world GDP, 2000(by quintiles, richest 20% top, poorest 20% bottom)

Source: UNDP Development Report 2005

Ratio of the Income of the Richest 20% to the Poorest 20%Ratio of the Income of the Richest 20% to the Poorest 20% YearYear RatioRatio18201820 3:13:118701870 7:17:119131913 11:111:119601960 30:130:119911991 61:161:119971997 74:174:120052005 103:1103:1

Source: UNDP Human Development Reports 1999 and 2005, New York

Historical Trend: Historical Trend: Inequality Keeps RisingInequality Keeps Rising

Ratio of the Income of the Richest 20% to the Poorest 20%, 1820-2005

0

20

40

60

80

100

120

1820 1870 1913 1960 1991 1997 2005

YEAR

RATI

O

Apartheid at a Global Scale?Apartheid at a Global Scale? Need of a Global Social FloorNeed of a Global Social Floor

Source: Sutcliffe, 2005. Department of Economic and Social Affairs.Source: Sutcliffe, 2005. Department of Economic and Social Affairs. WP 2. United NationsWP 2. United Nations

A Global Social FloorA Global Social Floor Defined as Defined as a basic and modest set of social security a basic and modest set of social security

benefits for all citizensbenefits for all citizens1.1. Financing universal access to essential health careFinancing universal access to essential health care2.2. Income security for all children through child Income security for all children through child

benefitsbenefits3.3. Some modest conditional support for the poor in Some modest conditional support for the poor in

active age (employment programmes, benefits), and active age (employment programmes, benefits), and 4.4. Income security through basic, tax-financed, Income security through basic, tax-financed,

universal non-contributory pensions for older universal non-contributory pensions for older persons, persons with disabilities and those who persons, persons with disabilities and those who lost the main breadwinner in a familylost the main breadwinner in a family

All countries have some form of social security but few All countries have some form of social security but few provide a basic social floor for allprovide a basic social floor for all

The case for a Global Social Floor: The case for a Global Social Floor: Social Justice ArgumentsSocial Justice Arguments

Unacceptable levels of poverty and inequalityUnacceptable levels of poverty and inequality• Half of the world lives below the $2-a-day poverty Half of the world lives below the $2-a-day poverty

lineline• The poorest 50% of the world’s adult population The poorest 50% of the world’s adult population

receives 1% of global wealth (UN WIDER, 2006)receives 1% of global wealth (UN WIDER, 2006) Social security is a human right:Social security is a human right:

• Article 22 of the Universal Declaration of Human Article 22 of the Universal Declaration of Human Rights states: “Rights states: “Everyone, as a member of society, Everyone, as a member of society, has the right to social security”has the right to social security”

• But 80% of global population remains without But 80% of global population remains without accessaccess

But Also Strong Economic ArgumentsBut Also Strong Economic Arguments Inequality is economically inefficient / dysfunctionalInequality is economically inefficient / dysfunctional World problem of overproduction and global excess World problem of overproduction and global excess

capacity in the context of weak effective demandcapacity in the context of weak effective demand Consumption concentrated in top income decilesConsumption concentrated in top income deciles Raising the incomes of the poor increases domestic Raising the incomes of the poor increases domestic

demand and, in turn, encourages growth by expanding demand and, in turn, encourages growth by expanding domestic marketsdomestic markets

A Global Social Floor can be an effective instrumentA Global Social Floor can be an effective instrument to: to: Boost economic growth by raising domestic Boost economic growth by raising domestic

demand / internal markets demand / internal markets Enhance human capital and productive Enhance human capital and productive

employment - employment - a better educated, healthy and well a better educated, healthy and well nourished workforce.nourished workforce.

… … and Political Argumentsand Political Arguments

A Global Social Floor can be effective to prevent A Global Social Floor can be effective to prevent conflict and create politically stable societiesconflict and create politically stable societies

Poverty and gross inequities tend to generate Poverty and gross inequities tend to generate intense social tensions and violent conflictintense social tensions and violent conflict

The huge disparities in income inequality The huge disparities in income inequality encourage uncontrolled migration encourage uncontrolled migration

At the international level, globalization will find At the international level, globalization will find further resistance unless it deals with its social further resistance unless it deals with its social aspectsaspects

=> Need of a => Need of a global social contractglobal social contract

Source: OECD

Transfers Reduce Poverty more than Transfers Reduce Poverty more than 50% in OECD countries50% in OECD countries

South Africa Social Transfers Effective to South Africa Social Transfers Effective to Reduce Poverty and Destitution – Cost 3% GDPReduce Poverty and Destitution – Cost 3% GDP

Source: Sampson, M. 2006, EFPRI South Africa

=> However social transfers are rarely considered in National => However social transfers are rarely considered in National Development Strategies/Poverty Reduction Strategies in Developing Development Strategies/Poverty Reduction Strategies in Developing CountriesCountries

=> Social Transfers can make the difference between achieving MDG1 => Social Transfers can make the difference between achieving MDG1 of halving poverty by 2015 or notof halving poverty by 2015 or not

Redressing Income Assymmetries and Redressing Income Assymmetries and Reducing Poverty Requires:Reducing Poverty Requires:

National Development Strategies that National Development Strategies that includeinclude

1.1. Employment-generating Employment-generating macroeconomic and sector policiesmacroeconomic and sector policies

2.2. Adequate labour regulations and Adequate labour regulations and standardsstandards

3.3. Social Transfers – Social Transfers – A Social FloorA Social Floor4.4. Progressive fiscal policies Progressive fiscal policies

HOUSEHOLD INCOME = HOUSEHOLD INCOME = EarningsEarnings + Rents/Private Transfers + Rents/Private Transfers + Social Transfers+ Social Transfers – Taxes – Taxes

A Social Floor is Affordable even in Low A Social Floor is Affordable even in Low Income CountriesIncome Countries

Affordability in African and Asian countriesAffordability in African and Asian countries(old-age /disability pension and child benefit) (% of GDP)(old-age /disability pension and child benefit) (% of GDP)

Source: ILO, 2007. Social Security Department, Geneva

Social Pensions Cost less than 1% GDP Social Pensions Cost less than 1% GDP in Most Countriesin Most Countries

Source: UN DESA, 2007: World Economic and Social Survey 2007, United Nations

Is there an Old-Age Crisis? Is there an Old-Age Crisis? Future contingent liabilities not a problem Future contingent liabilities not a problem

because of changes dependency ratiosbecause of changes dependency ratios

Source: UN DESA 2007

Financing a Global Social FloorFinancing a Global Social Floor National Sources: National Sources:

A Social Floor is affordable, estimated at an A Social Floor is affordable, estimated at an average 2-4% GDP in developing countriesaverage 2-4% GDP in developing countries

Several countries have started building a social Several countries have started building a social floor: Namibia, South Africa, Botswana, Mauritius, floor: Namibia, South Africa, Botswana, Mauritius, Bolivia, Brazil, Argentina, Thailand…Bolivia, Brazil, Argentina, Thailand…

SSocial transfers have to grow with the fiscal space ocial transfers have to grow with the fiscal space made available by increasing GDP or Aidmade available by increasing GDP or Aid

Domestic resources exist:Domestic resources exist: Budget reallocationBudget reallocation Billions lost through tax evasion and Billions lost through tax evasion and

inadequate tax systemsinadequate tax systems Currently South-North flow of funds that needs Currently South-North flow of funds that needs

to be reversedto be reversed

Financing a Global Social FloorFinancing a Global Social Floor International Sources: International Sources:

Strong argument given world inequalities, 70% Strong argument given world inequalities, 70% explained by differences in income between explained by differences in income between countries countries

ILO estimates that Global Social Floor would cost ILO estimates that Global Social Floor would cost between 2%-6% of global GDPbetween 2%-6% of global GDP

Mechanisms: Mechanisms: Increased Official Development AidIncreased Official Development Aid

Multilateral and bilateral ODA to governmentsMultilateral and bilateral ODA to governments New instruments like SWAps and Budget Support New instruments like SWAps and Budget Support

idealideal A Global Welfare Fund? (Milanovic, to citizens)A Global Welfare Fund? (Milanovic, to citizens)

Global tax justice Global tax justice Collecting a minimum tax on corporate profits and Collecting a minimum tax on corporate profits and

strengthening tax cooperationstrengthening tax cooperation An International Tax Agency? An International Tax Agency?

Voluntary donations: Global Trust (ILO)Voluntary donations: Global Trust (ILO)

It Can Be Done: Remember that Not It Can Be Done: Remember that Not Long AgoLong AgoThere were children working in There were children working in England’s mines and factories…England’s mines and factories…

……Spanish low Spanish low class emigrants class emigrants going to Latin going to Latin America in search America in search of any job…of any job…

… … poverty was widespread in poverty was widespread in the US or South Korea…the US or South Korea…

……and in South Africa’s and in South Africa’s apartheidapartheid

Thank youThank you

United Nations Department of United Nations Department of Economic and Social AffairsEconomic and Social Affairs

http://www.un.org/esa/http://www.un.org/esa/

Email: ortizi@un.orgEmail: ortizi@un.org