Social risk management

Social protection has been a part of OECD economies for a long time but it has not played much of a role in development work because the imitation of these measures in developing countries is criticized based on equity and efficiency trade-off arguments.[2] This view changed as a result of the following policy, conceptual and institutional triggers that led to the creation of SRM as a new social protection framework:

• The East Asian economic crisis in 1997 revealed the volatility of high growth rates in the face of negative economic shocks.[3] Moreover, informal social safety net arrangements and public support programs were shown to be inadequate under those circumstances.[4]
• Globalization has led to higher income variability, which together with marginalization and social exclusion leaves major groups like women and ethnic minorities highly vulnerable. Also, higher mobility of factors of production has reduced government ability to raise revenue, pursue independent economic policies, and to have national policies to help the poor when they need them the most.[1]
• Fulfillment of World Bank's mission to reduce poverty requires a deeper "understanding of the nature and characteristics of poverty" itself.[5] Research in this area exposed the long-term negative consequences of seemingly transitory shocks[6] and suggested the need for a preventative view of poverty based on vulnerability.
• World Development Report 2000/01[7] presented social protection as a key element in attacking global poverty.
• World Bank's Social Protection and Labor Sector is one of its youngest units established in 1996.[8] Analysis of past experiences in this area for a future policy proposal in the sector's strategy paper revealed the need for a new framework of social protection that shifted its focus from instruments to objectives[1]

There are three important categories that aid in the classification of sources of risks:

1. Catastrophic vs. non-catastrophic shocks: Some events occur with low frequency, but have severe income effects like old-age, death in the family, and disabling accidents or illnesses, permanent unemployment, and the technological redundancy of skills. These catastrophic events can hit households hard and may require a continuing flow of transfers to the affected household if it cannot acquire sufficient assets. On the other end of the scale are high frequency events with non-severe income effects like transient illness, crop loss, and temporary unemployment. Protection against these non-catastrophic events need not require long-term net transfers to the afflicted household. If appropriate mechanisms are available, households may use savings or loans with no net transfers from others over time.
2. Idiosyncratic shocks vs. covariant shocks: Some sources lead to losses in only some households in a community like noncommunicative illness or frictional unemployment whereas others hit all households at the same time like drought, inflation or financial crisis. The former are known as idiosyncratic (or micro) shocks while the latter are referred to as covariant (or macro) shocks. Many more mechanisms are available for coping with idiosyncratic shocks than covariant shocks. The latter can be particularly devastating, leaving households with nowhere in the community to turn for relief. For poor and isolated households even idiosyncratic shocks might be difficult to cope with.
3. Single vs. Repeated shocks: A third distinction concerns shocks following one another like drought followed by sickness and death versus shocks that occur as single events. The former are known as repeated shocks and are typically difficult to handle through informal means.[9]

The following table lists social risks and their degree of variance varying from idiosyncratic (micro), regional covariant (meso), to nationwide covariant (macro).

Risk management strategies fall in three broad categories.:

In coordination with national governments of Togo[11] and Yemen,[12] World Bank conducted two feasibility studies of the social risk management framework.[13]

Within the Africa Region, Togo was selected as a pilot country to test this approach. The process of application was launched with a workshop in Lomé for key stakeholders from the government and civil society in November 1998. During the workshop, available data was analyzed to determine sources of risks, available arrangements of social protection and vulnerable groups in Togo. Since Togo's independence in 1960, the government has provided social security for the privileged minority working in the formal sector and social assistance to a few people or groups conventionally identified as vulnerable (widows, orphans, handicapped). This leaves 95% of the Togolese to rely mostly on informal arrangements through both internal arrangements, which are organized by the prospective beneficiaries and external arrangements, which are organized by agents generally not belonging to the community.

In order to improve social protection, the government rethought its social protection policy in the framework of SRM and the following prevention, mitigation and coping strategies were proposed:

• Conducting information and education campaigns focused on key preventive measures, especially for health and environment.
• Revising family laws and land tenure laws.
• Improving the collaboration between government and communities for better access to basic social services.
• Supporting risk pooling and creative initiatives for economic shocks and chronic risks.
• Discouraging widowhood rituals, harmful traditional practices and conspicuous consumption.
• Filling the gaps of informal arrangements.
• Reforming social security in the formal sector.
• Discouraging the exploitation of child labor and trafficking.
• Organizing a more efficient mechanism to provide assistance for disaster relief[11]

There is a lack of empirical evidence of SRM's practical application. Besides Yemen and Togo, SRM has not been experimentally studied within the development field. This raises skepticism regarding the framework's feasibility in the arena of international development.

SRM is sometimes also viewed as a neo-liberal framework that limits the government's role to coping strategies that spring into action only in the case of market failure.

Its aim to encourage riskier activities that reap higher returns has also come under fire in light of individual risk-taking behaviors that are determined by a multitude of factors and not just decreased risk vulnerability. Also, riskier behaviors not only hold the potential for higher returns but also for bigger losses making World Bank's encouragement of such activities inappropriate.

Lack of risk monitoring and reviewing to maintain an updated inventory of contextually appropriate risks and strategies is another serious deficit of the SRM framework (fallacy of composition).[14]

World Bank's Social Protection and Labor Sector is under the process of formulating its Social Protection and Labor Strategy 2012 – 2022. Conceptual note for the strategy outlines four indicative strategic directions:

• Expanding from improving individual programs to building social protection systems
• Strengthening the focus on low income and fragile states
• Emphasizing promotion of opportunities and livelihoods as a core element of the practice
• Continuing to build on core strengths in knowledge, innovation and results.

The upcoming Strategy is also aimed at dealing with SRM's operational issues exhibited by lack of sufficient guidance to design and implement effective social protection systems.[15]

• Emergency management
• Behavioral risk management
• International Monetary Fund
• Microcredit
• Risk management
• Social floor
• Welfare culture