Exam 27: Inequality and Social Policy

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Compared to policies for reducing poverty, addressing inequality is harder to measure and evaluate. It involves assessing changes in well-being of the entire population. Targeted approaches to reducing poverty can be assessed through measuring the impact on specific groups. This is not easy: for example, one needs to understand the counter-factual, that is, what would have happened in the absence of a policy or intervention. But the question of impact on inequality-and the broader sets of policies that this chapter has discussed-of course requires a broader set of tools to assess success. There are four issues that make social policies that deal with inequality problematic. First, the financing of social policies is important. The way social policies are funded and implemented can be more or less progressive. Contribution-based approaches have large advantages related to political sustainability but are less suitable for the most marginalized and those working in the informal sector. General taxation is crucial for building up redistributive social policies, but methods of taxation matter a great deal, and it is critical to assess the net redistributive impact of governments' policies. Second, social policies are multi-sectoral. Good instruments exist to assess the impact of health and education policies and cash transfers. However, the well-being of populations and inequalities within these populations depend on the composite of these measures. Governments need to choose in which sector to invest their resources: as described, health care has tended to be relatively neglected. There are no hard and fast rules on what the composition of an overall public policy should be, but good policy analysis needs to take into account the impact of all sectors on the well-being of the population. Third, good social policy analysis is also political analysis. It is important to recognize the political nature of social policy formulation, their constituencies, and, therefore, how these vary across countries. Ideological differences are critical and are here to stay. For example, in some contexts inequality of opportunity is regarded as the critical criterion of a public policy, whereas in other contexts it is inequality of outcome. Similarly, social or group differences drive public policy and measurement in some areas, whereas individual inequalities are the main concern elsewhere. Fourth, there are no simple measures of universalism. Social policies necessarily imply a mix of universal policies (such as primary education or health care, in many countries) and targeted policies (such as unemployment benefits). They usually imply a mix of tax-financed policies and contribution-based policies, such as in multi-tier pension systems. Complete universalism, like complete equality, does not exist and may not be desirable, but it is important to develop a comprehensive assessment in support of the aspiration towards universalism.

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Spending on social policies should arguably be seen as an investment. Investing in broad-based education is good for entire economies because it leads to a better-educated workforce, and hence the potential for increasing productivity. The East Asian economic miracle was helped by a well-functioning education system. Similarly, public health is an essential condition for a healthy labour force and, therefore, for a vibrant economy. Public child care and maternity leave can encourage more mothers into the workforce, and thus is good for the economy as a whole.