Policy changes needed to enhance universal social welfare and reversal of inequalities

29 Jan 2015 - Commentary

In the run up to the presidential elections, the Opposition manifesto had little to say about economic policy. However, it did state that it was committed to free education and healthcare, including by increasing state expenditure for those sectors.

Whether the new Government will keep its promise is also related to a global debate on universal social policies versus targeted measures to address social ills such as poverty and social exclusion in education and healthcare. This debate also has implications for addressing the rising inequality in the country.

The United Nations Development Programme, in its annual flagship report, ‘Human Development Report 2014, Sustaining Progress: Reducing Vulnerabilities and Building Resilience’ has the following to say:

“Recent decades have seen a global shift in the politics of social spending, changing the emphasis from development to poverty alleviation. As a result, there has been greater stress on targeting social spending for the poor rather than for all. Targeted services were considered more efficient, less costly and more effective in ensuring redistribution. But historical evidence presents a more nuanced picture. Universal provision has in many instances been associated with greater poverty reduction, greater redistribution and lower inequality, something of a paradox since targeted benefits are theoretically more redistributive. A key factor is that when benefits are narrowly targeted, the middle class and elites are less willing to fund them through taxes. … [Targeting can give] rise to two-track systems: under-funded low-quality services for the poor and better quality commercial services for the middle classes and the rich.”

Sri Lanka was historically, known for universal education, healthcare and food subsidies. Assuring people of education, healthcare and food went a long way in the major gains in human development, leading to commendation of Sri Lanka as a model developing country in the Third World, where despite low incomes, human development was quite high into the 1970s. The lesson here is that high per capita income created through high GDP growth does not necessarily correlate with higher Human Development Indicators, but that it has to do with the particular form of social policies.

The recent deterioration in education and healthcare are related to both the creeping privatisation in those sectors as well as the rising inequalities in our society. In the context of patients going to private clinics and students going to tuition centres and bearing other costs, more and more expenses are borne by the public. And with rising inequality, the marginal sections of society are excluded from quality education and healthcare.

Inequality and Poverty

Indeed, inequality has been on the rise in Sri Lanka since the 1970s. According to social science researcher B. Skanthakumar, the GINI coefficient – which measures inequality – for Sri Lanka deteriorated from 0.35 in 1973 to 0.45 in 1981/1982 and to 0.49 by 2009/2010. Next, income distribution also reflects this trend with the poorest 40% of the population, having 19.3%, 15.5% and 13.3% as per national data for the years 1973, 1981/1982 and 2009/2010 respectively. (Skanthakumar, B. ‘Growth with Inequality: Neoliberal Reforms in Sri Lanka’, SAAPE 2013 Report, online at www.saape.org.)

Inequality

According to an ILO Report, the changes to inequality between 1990 and 2010 were drastic in Sri Lanka, and second only to China in Asia: “Income disparities have risen in many developing Asian countries, despite remarkable economic growth and poverty reduction in recent past decades. … Among countries with higher income inequality (measured by a Gini coefficient of 40 or higher), the ratio in China and Sri Lanka increased significantly by 10.0 points and 7.8 points respectively.”(‘Asia-Pacific Labour Market Update’, International Labour Organisation, April 2012)

In the context of such mounting income inequality, the shift from emphasis on universal social welfare to more targeted measures also led to a focus on the measurement of poverty. According to the Household Income and Expenditure Survey (2009/2010), the Poverty Head Count Ratio has been declining from 28.8 per cent, 22.7 per cent, 15.2 per cent and 8.9 per cent in the years 1995/1996, 2002, 2006/2007 and 2009/2010, respectively. In this way, Sri Lanka has kept sections of the population just above the poverty line through targeted measures. The problem here is that escaping the poverty line does not necessarily provide social mobility nor address social exclusion. Rather, it only attempts to sustain sections of society at survival levels, including the minimum nutritional intake. Furthermore, in the event of economic shocks or natural disasters, those living with the bare minimum above the poverty line can fall back into excruciating poverty.

Reflecting the emphasis on targeted measures to address both poverty and rising discontent in the countryside with little investment in the rural economy, the Rajapaksa regime pushed through the Divineguma Development programme. The regime’s priority for this programme was to address poverty as much as to build patronage down to the grassroots level necessary for electoral politics in Sri Lanka, where the rural vote has been significant in most elections. Given the importance of this programme to the regime, a clash with the judiciary on the constitutionality of the centralisation of rural development relating to the Divineguma Bill culminated in the problematic impeachment of the Chief Justice.

Major Social Mobilisation

The Central Bank Annual Report 2013 has the following to say about the previous Government’s targeted measures to address poverty:
“The Divineguma Development Department was established in early 2014 by consolidating the Samurdhi Authority of Sri Lanka, Southern Development Authority and Udarata Development Authority. This is expected to improve institutional strength to carry out development activities targeted at poverty alleviation, food security and individual empowerment through provision of micro-finance facilities, development of physical and social infrastructure, and development of human capital to improve the living standards of low income households.”

With the change of regime after the presidential elections, the future of the Divineguma Department might be in question. However, questions remain as to whether there will be significant changes to the substance of the Divineguma programme highlighted above

Historically, with the neo-liberal era since the late 1970s, change of regimes in Sri Lanka have only resulted in changes to the programmes of targeted measures to address poverty, rather than changes to policies to enhance universal social welfare and reversal of inequalities. Robust universal social policies,which are necessary to address the mounting inequalities and better quality free education and healthcare, may require major social mobilisations and struggles to hold the Government to its election promises.

This article also appeared in The Sunday Times on 25-Jan-2015