Poverty and Exclusion in North and South

11
Poverty and Social Exclusion

in North and South
11
Over the past decade there has been a worrying increase in poverty in the
11 industrialised countries of the ‘North’, and in many of the developing coun-
tries of the ‘South’.
This collection argues that there are a number of likenesses between the
predicaments of North and South, and that these warrant further investi-
gation and analysis. Poverty and Social Exclusion in North and South covers, on
an integrated basis, such themes as:
111
• economic growth and social capital
• concepts of poverty and vulnerability
• risk and the ‘social safety net’
• food and poverty
• debt versus equity in urban regeneration.
This important book, written by a respected group of scholars, will be of

interest to students and academics involved with social policy and develop-
ment studies more generally.
111
Paul Mosley is Professor and Head of the Department of Economics at
the University of Sheffield, UK. He has written several books, including
Aid and Power, also published by Routledge.
Elizabeth Dowler is a registered public health nutritionist and researches

social and policy aspects of food and nutrition at Warwick University, UK.
111
111
Priorities in Development Economics
Edited by Paul Mosley
The University of Sheffield
Foreign Trade Reforms and Development Strategy

Jean-Marc Fontaine
Adjustment and Poverty

Options and choices
Frances Stewart
Econometrics and Data Analysis for Developing Countries

Chandan Mukherjee, Marc Wuyts and Howard White
The Green Revolution in Africa

An economic and political analysis
Paul Mosley
The IMF and the Future

Graham Bird
Poverty and Social Exclusion in North and South

Essays on social policy and global poverty reduction
Edited by Paul Mosley and Elizabeth Dowler
11
Poverty and Social
Exclusion in North
and South
Essays on social policy and global
11 poverty reduction
11
Edited by Paul Mosley and
Elizabeth Dowler
111
111
111
111
First published 2003
by Routledge
11 New Fetter Lane, London EC4P 4EE
Simultaneously published in the USA and Canada
by Routledge
29 West 35th Street, New York, NY 10001
Routledge is an imprint of the Taylor & Francis Group
This edition published in the Taylor & Francis e-Library, 2005.
“To purchase your own copy of this or any of Taylor & Francis or Routledge’s
collection of thousands of eBooks please go to www.eBookstore.tandf.co.uk.”
© 2003 Editorial matter and selection, Paul Mosley and
Elizabeth Dowler; individual chapters the contributors
All rights reserved. No part of this book may be reprinted
or reproduced or utilised in any form or by any electronic,
mechanical, or other means, now known or hereafter invented,
including photocopying and recording, or in any information
storage or retrieval system, without permission in writing
from the publishers.
British Library Cataloguing in Publication Data
A catalogue record for this book is available from the British Library
Library of Congress Cataloging in Publication Data
Poverty and social exclusion in North and South: essays on social
policy and global poverty reduction/edited by Paul Mosley and
Elizabeth Dowler.
p. cm.
Papers presented at a conference held at Sorby Hall, University
of Sheffield, on 9 April 2001 and jointly convened by the
Development Studies Association of UK and the Political
Economy Research Centre (PERC) of the University of Sheffield.
Includes bibliographical references and index.
1. Poor. 2. Poverty. 3. Marginality, social. 4. Social policy.
5. Globalization. I. Mosley, Paul. II. Dowler, Elizabeth, 1951–
HC79.P6P6828 2003
362.5′561–dc21 2002045457
ISBN 0-203-98782-9 Master e-book ISBN
ISBN 0–415–28577–1 (Print Edition)

11
Contents
11
11 List of illustrations vii

List of contributors ix
Preface xi
1 Introduction 1
PAUL MOSLEY AND ELIZABETH DOWLER
111 PART I
General reviews 15
2 Prospects for equitable social provision in a
globalising world 17
BOB DEACON
3 Globalisation and social policy: thoughts for

international development cooperation 35
ARJAN DE HAAN
4 Risk and vulnerability: the forward-looking role of

111 social protection in a globalizing world 47
ROBERT HOLZMANN
PART II
Insecurity, risk and social capital 81
5 Governance and the common man: embedding
social policy in the search for security 83
GEOF WOOD
6 Economic growth and social capital 123

PAUL WHITELEY
111
7 Defining the limits of a discourse: ‘social capital’
in Africa 149
111 JOHN CAMPBELL
vi Contents
PART III
The globalisation of poverty discourse 165
8 Who gains and who loses from globalisation?
New challenges for anti-poverty action North
and South 167
FRAN BENNETT
9 Globalisation and home-based workers in

North and South 175
P A U L M O S L E Y with assistance from J A N E T A T E
10 Food and poverty: current global challenges? 189

ELIZABETH DOWLER AND GEOFF TANSEY
PART IV
Anti-poverty instruments in North and South 209
11 Microfinance, poverty and social exclusion in
North and South 211
PAUL MOSLEY AND LUCY STEEL
12 Social capital and micro-enterprise development:

microfinance and urban regeneration in
eastern Europe 233
M A R E K M A R K U Š
13 Equity versus debt in urban regeneration 241

JO HENDERSON
Bibliography 251
Index 272
11
Illustrations
11
11 Figures
6.1 GDP per capita and trust in 1992 137
9.1 Value-chain in the global garment industry 180
11.1 Demand functions for low-income labour: three African
countries and three UK cities 220
11.2 Risk and yield in microfinance 223
111 12.1 The ‘poverty trap’ of disempowering relationships that
don’t work 236
13.1 The Manor and Castle wards in relation to urban
deprivation indices in Sheffield 242
Tables
1.1 Income poverty by region, 1987–98 2
1.2 Poverty and social exclusion in North and South: areas of
emerging consensus and continuing debate 11
111 2.1 The social dimension of regionalism in three southern
regions 30
4.1 Strategies and arrangements of social risk management:
examples 57
4.2 Assessed risk in Ethiopia by rural population, 1982–2002 69
4.3 Managing social risk in Argentina: main risks and
policy responses 71
5.1 Components of the institutional responsibility matrix 92
6.1 Indicators of social capital in the World Values Surveys 136
6.2 A principal components analysis of the trust variables
111 in the World Values Survey 136
6.3 Economic growth models, 1970–92 138
6.4 Economic growth models (robust regression procedure),
111 1970–92 141
viii Illustrations
9.1 Interventions on behalf of homeworkers 185
11.1 Two estimates of the structure of world microfinance, 2001 213
11.2 Initial assessment of impact: UK and LDC institutions 218
Boxes
3.1 Examples of increasing income inequality within
countries 37
11.1–11.4 Microfinance in North and South
11.1 The ‘triumphs’: microfinance as a ladder
Case study 1: Leather manufacture, La Paz, Bolivia 225
11.2 The ‘triumphs’: microfinance as a ladder
Case study 2: Gardener, Sheffield 9 226
11.3 The ‘disasters’: microfinance as a snake
Case study 3: Motor vehicle repairer, La Paz, Bolivia 226
11.4 The ‘disasters’: microfinance as a snake
Case study 4: Dressmaker and clothing retailer, Sheffield 5 228
11
Contributors
11
11 Fran Bennett is Policy Adviser to the UK operations branch of Oxfam.

John Campbell is Senior Lecturer in Anthropology at the School for
Oriental and African Studies, University of London.
Arjan de Haan, formerly at the Poverty Research Unit, University of

Sussex, is Senior Social Development Adviser with the Department for
International Development (UK), currently based at their Delhi office.
111
Bob Deacon, Research Professor of Sociological Studies at Sheffield
University, also directs the Centre for Global Social Policy (GASPP),
Helsinki.
Elizabeth Dowler is a registered Public Health Nutritionist and a Senior
Lecturer in the Department of Sociology at the University of Warwick,
where she works on food and nutrition as social policy issues. She has
carried out research and consultancy in many parts of the world, and
latterly has focused on food and low income, and public perceptions
111 of food risk, in the UK and the rest of Europe.
Jo Henderson, born in Zimbabwe, read drama at Sheffield University

and has worked on a number of urban regeneration projects within
the city. Currently she is consultant on social inclusion issues to the
Manor and Castle Development Trust, Sheffield.
Robert Holzmann, a member of the team which prepared the ‘social
risk management’ component of the World Bank’s World Development
Report 2000/01 on poverty, is currently Senior Social Development
Adviser at the World Bank.
111
Marek Markuš is general manager of the Integra Foundation, a non-
governmental foundation with offices in the United States and in
111 several countries of eastern Europe.
x Contributors
Paul Mosley is Professor and Head of the Department of Economics at
the University of Sheffield, author of Overseas Aid: Its defence and reform
(1987) and co-author of Aid and Power (2nd edn, 1995) and Finance against
Poverty (1996). From 1998 to 2001 he was President of the Development
Studies Association.
Lucy Steel holds an M.Phil. degree in development studies from the
University of Glasgow and recently took part in a Nuffield Foundation-
sponsored study, with Paul Mosley, on the role of microfinance in UK
inner cities.
Geoff Tansey is an independent writer and consultant. He helped found
the journal Food Policy, wrote, with Tony Worsley, The Food System,
worked on various agricultural development projects around the world
and has recently been working on food, biodiversity and intellectual
property rights.
Jane Tate founded HomeNet as a homeworkers’ association in West
Yorkshire in the early 1980s. She is currently international coordinator
of Homeworkers Worldwide, the international arm of HomeNet, and
is executing a Global Mapping project on the location and working
conditions of homeworkers.
Paul Whiteley is Professor of Government at the University of Essex. He
has written widely on political economy and political parties, currently
directs the ESRC’s Democracy and Participation Research Programme
and is a member of the team responsible for the ESRC’s UK General
Election Study.
Geof Wood is Professor of Sociology at the University of Bath and
currently Head of the Department of Economics and International
Development. With other members of the Department he is engaged
in a DFID research project entitled Social Policy in Developing Contexts.
11
Preface
11
This book began life as a set of papers presented to a one-day conference
on poverty and social exclusion at Sorby Hall, University of Sheffield, on
11 9 April 2001. The conference was jointly convened by the Development
Studies Association of UK – of which Paul Mosley was at the time President
– and the Political Economy Research Centre (PERC) of the University of
Sheffield. For the DSA, it was the second in a series of policy workshops
designed to extend its reach into new constituencies and roles – and in
particular into direct contact with practitioners, several of whom (Bennett,
de Haan, Henderson, Holzmann, Markuš, Tate) are authors or co-authors
111 of the papers presented here.
In particular, the workshop was conceived as a means of bringing
together the development and social policy constituencies, and we hope
that readers will feel that the distinctive approaches and languages of the
two disciplines have been usefully blended in the selection that follows. The
desirability of spelling out the analogies between processes of domestic and
international income redistribution has been frequently stressed, notably in
DFID’s December 2000 White Paper on Making Globalisation Work for the
Poor, and this book can be seen as a set of reflections, mediating and some-
times debating between development and social policy approaches, on when
and whether and for whose benefit processes of globalisation can indeed
111 be influenced in a positive way.
We would like to thank all those who took part in the workshop for mak-
ing it a success. Especial thanks go to the Director of PERC, Andrew Gamble,
and the Vice-Chancellor of Sheffield University, Professor Bob Boucher, for
giving the event their enthusiastic support; to the conference administrators,
Patricia Anderson and Sylvia McColm; affectionately to Sarah Tate for assist-
ance with the planning of the conference and for many conversations about
development and social administration; and to Robert Langham and Terry
Clague at Routledge for their continuing and patient support.
The publishers and editors would also like to thank Blackwell Publishing
111 for their permission to reprint Paul Whiteley’s chapter, which first appeared
in Political Studies, Volume 48, June 2000.
Paul Mosley
111 Elizabeth Dowler
11
1 Introduction
Paul Mosley and Elizabeth Dowler
11
11 ‘The end of history’, Ravi Kanbur has reminded us, ‘lasted such a short
time’. Writing in the wake of the anti-globalisation protests at Seattle,
Gothenburg and Genoa, but prior to the terrorist attacks of 11 September
2001, Kanbur was referring specifically to the breakdown of ‘convergence’
for many countries and specifically of consensus concerning what should
be done about global poverty and inequality. As the chief editor and
inspirer of the World Bank’s World Development Report 2000/01 on poverty,
111 Kanbur had helped achieve an important redefinition of what poverty is,
but in many detailed areas of policy had stopped short of detailed prescrip-
tions concerning what should be done about it. Agreement in reaching
such policies, he argued, was impeded by differences in the points of depar-
ture of the protagonists – concerning not only their definition of poverty
but also their ‘units of account’, including whose poverty was being
measured, at what level of aggregation, within what market structure, over
how long a period (Kanbur 2001: 1083).
In the presence of such deep cleavages of opinion it might seem foolish
to search once again for areas of common ground on anti-poverty policy,
111 and yet this is what is attempted here. Following some analysis of the
driving forces underlying such policies, we then seek to define what is
agreed and what is contentious about them. The distinguishing features of
our approach are, first, the attempt at an integrated treatment of poverty
in ‘northern’ and ‘southern’ environments but also, second, the extensive
incorporation of the views of development and social policy practitioners
as well as those of academic researchers.
To fix ideas, it is worth reminding ourselves that, in the decade or so
before the millennium and following the period of global crisis and struc-
tural adjustment in the 1980s, poverty trends – using the dollar-a-day
111 definition which Kanbur’s report partly supplanted – were as follows.
Within developing countries there were dramatic falls in poverty and large
increases, as recorded in Table 1.1, in Africa and in Europe and the former
111 Soviet Union. Within industrialised countries there were substantial
2 Paul Mosley and Elizabeth Dowler
Table 1.1 Income poverty by region, 1987–98
Region People living on less than $1 a day (millions)

1987 1990 1993 1996 1998
East Asia and 417.5 452.4 431.9 265.1 278.3
Pacific
Europe and Central 1.1 7.1 18.3 23.8 24.0
Asia
Latin America and 63.7 73.8 70.8 76.0 78.2
the Caribbean
Middle East and 9.3 5.7 5.0 5.0 5.5
North Africa
South Asia 474.4 495.1 505.1 531.7 522.0
Sub-Saharan 217.2 242.3 273.3 289.0 290.9
Africa
Total 1183.2 1276.4 1304.3 1190.6 1198.9
Source: World Bank (2000a: table 1.1).
increases in, specifically, child poverty.1 Many have sought to decompose

these increases into ‘transient’, ‘conjunctural’ or simply ‘new’ poverty
induced by structural adjustment (which is demand-related and can be
reduced by demand-side policies) and ‘chronic’, ‘persistent’ or ‘old’ poverty
(which is related to productivity and can only be reduced by supply-side
policies such as improvements in health, education and infrastructure).
Notwithstanding the large and obvious differences in initial conditions
between the industrialised countries of the ‘North’ and the less developed
countries of the ‘South’ – notably the higher levels of income, more exten-
sive levels of state welfare and pension provision and the predominantly
rural character of poverty in the South by comparison with the North –
a number of likenesses exist between the predicaments of North and South
that warrant the integrated, comparative approach which we have used in
this book. These include:
• an increased ratio of unproductive to productive people in most coun-

tries, derived from a rising ratio of old people to the population almost
everywhere, in many countries rising unemployment and/or poverty,
and in many countries a rising ratio of children to the total population;
• as a consequence, pressures on welfare spending in most countries,
not all of which can be abated by economic development however
poverty-focused; but
• at the same time, limitations on the scope for expansion of public
provision and increased selectivity of benefits (Gough et al. 1997), with
the ideal of a universalised welfare state having been reduced, even in
Introduction 3
11 industrialised countries, to a few items such as minimum pensions and
child benefit;
• at the same time as state benefits have been focused and reduced in
real terms, traditional sources of ‘extended family’ support have grad-
ually eroded as well, so that it is no longer possible for some poor
people to turn to family or community networks to counterbalance
what the state no longer provides; and finally
• labour contracts have, under the influence of globalisation, become
more short-term and less secure in the tenure they give, with a shift
11 in the centre of gravity of many countries’ labour forces from men
working full-time to women working part-time.
11 In the face of these shrinkages at both ends of the spectrum of social

protection – in state and in family provision – what has grown is the NGO
(non-governmental organisation) sector, defined by the World Bank as non-
profit organisations operating independently of government and serving
humanitarian, social or cultural interests. The number of NGOs operating
internationally rose between 1978 and 1998 from 10,000 to 42,100
and their budget increased to $1,100 billion, equivalent to 5 per cent of
111 GNP (Walker 2001, citing report by Lester Salaman of Johns Hopkins
University). They have taken over functions of income redistribution and
management of community development in many countries, North and
South, and often much more: for example SEWA in India, a registered
trade union, also takes responsibility for health insurance, legal repre-
sentation and financial support for self-employed women and BRAC
of Bangladesh, in addition to the above, provides primary health care,
agricultural support and marketing facilities, and primary and higher
education. The achievement of many NGOs has been criticised as falling
well short of their mission statements (e.g. Hulme and Edwards 1992, 1994;
111 Lister 2001) and they have been accused of lacking accountability. But for
now their growth continues, particularly in the context of what has been
called ‘the emerging development-security complex’ (Duffield 2001).
Especially in environments of reconstruction such as Rwanda, the former
Yugoslavia and now Afghanistan, the range of functions with which they
are in competition has grown to embrace also those of the army and the
security forces.2
In face of these common trends in resource allocation, two related and
equally global trends in thinking call for attention. The first is the recon-
ceptualisation of poverty in terms of insecurity or vulnerability, and of
111 anti-poverty policy, correspondingly, as (social) risk management. In relation
to industrialised countries, Nicholas Barr in his book The Welfare State as
Piggy Bank (2001), argues that the primary function of the welfare state
111 is not the ‘Robin Hood’ function of redistribution of income from rich to
poor people but rather the ‘piggy bank’ function of protecting everyone,
since we are most of us vulnerable, against unforeseen livelihood risks;
he further specifies, building on research by Falkingham and Hills (1995),
that ‘between two-thirds and three-quarters’ of welfare state expenditure
in the UK consists of risk-mitigating rather than income-redistributing
expenditure. In relation principally to developing countries, the 2001 World
Development Report – that for which Ravi Kanbur was responsible – based
its analysis on the three pillars of ‘opportunity, empowerment and secur-
ity’; and the greatest of these, or certainly the most innovative, was security,
since it involved a reconceptualisation of poverty from objective definitions
such as those of Table 1.1, which specify the number of people below a
consumption-requirements Plimsoll line, to at least partly subjective defin-
itions of poverty in terms of the vulnerability of one’s livelihood to being
pushed below that line and the certainty of being able to prevent this; in
other words, a security-centred and risk-centred definition of poverty
(see especially Holzmann’s Chapter 4 in this book). ‘To be well’, argued
one of the respondents to the Voices of the Poor study organised to provide
raw material for the 2000 World Development Report, ‘is to know what will
happen to me tomorrow’ (World Bank 2000a: 135) and, while not all
might share the preferences of the ‘elderly Bulgarian’ thus quoted, his
conception of well-being drives much of the reorientation of welfare policy
in both North and South. Risk mitigation, of course, is a key function not
only of the welfare state but also of microfinance (Cohen and Sebstad
2000), most of it operated by NGOs and the theme of Chapters 11 and
12 in this book.
The other key ‘North–South linking’ theme to which we wish to draw
attention is that of social capital. First invented by James Coleman in 1960,
this idea converts the insight that individuals may derive material gain
from their social relationships into the concept of those relationships as a
factor of production analogous to physical and human capital. What has
given the idea leverage is the proposition that, in some contexts at least,
the rate of return to this factor of production is so high as to make social
capital the pivot of the development process: as Paul Whiteley puts it in
his contribution to this volume (Chapter 6, page 123), ‘politics counts for
more than economics’. In Putnam’s famous (1993) analysis of comparative
economic development in northern and southern Italy, it was not the
superior capital stocks and skills of northern Italy that were the driving
force behind the country’s North–South divide, but rather the superior
linkage of citizens in the North to one another and to the policy process.
(And there is little doubt that economists, in face of the collapse of some
of their predictions over the past 30 years, feel somewhat on the defensive).3
What is important is that the concept of social capital, like the concept of
social risk management, invaded the analysis of the 2000 World Development
Introduction 5
11 Report, to the point that all Poverty Reduction Strategy Papers and nearly
all NGOs in both North and South see themselves as being in the busi-
ness of social capital-building. And social capital-building, as we argue in
Chapter 10, may in many cases be seen, precisely, as a form of risk man-
agement that brings interpersonal risks under control. As individuals
accumulate capital within ventures which invariably contain an element of
risk, so they mitigate the risk attached to those assets, not only through
the financial system, but also, where they can, by ‘investing’, often as a
literal money contribution, in support networks which might protect them
11 against the adverse consequences of their investment.4 That the returns on
such investments are not always easy to control or capture does not negate
their importance.
11 Within the context of these common North–South trends in thinking
and in social structure we may now locate the contributions to this volume.
It is useful to remember, specifically within the context of the Development
Studies Association (DSA), which co-sponsored the originating conference
of this book, that the approach of examining poverty across the North–
South divide is not new. It was used, for example, by Dudley Seers in
many a DSA meeting in the late 1970s and 1980s, but taken by him
111 to the extent of arguing that northern and southern researchers should
stick to the examination of processes of underdevelopment in ‘their own’
region, for example that Italian development researchers should focus
on the North–South divide within Italy, British researchers on west Wales
and Northern Ireland, and developing-country researchers on their own
countries and regions. This is the opposite of the comparative and mutual-
learning approach taken here, which can already see in operation, and
wishes to reinforce, processes of continuous transmission of development
policy ideas between North and South. This comparative approach,
however, formed the point of departure for Simon Maxwell’s edited version
111 of the IDS Bulletin (Maxwell 1998), which in particular performed the
service of extending the social-exclusion approach to poverty to the study
of southern contexts.
Setting aside this chapter, the remaining chapters of the book fall into
four sections, which are concerned with the relations between the social
policy and development literatures; our ‘linking concepts’ of risk and social
capital; the influence of the globalisation discourse; and operational solu-
tions. Within each section, we have deliberately tended to pair essays
expressing enthusiasm for a concept (e.g. Whiteley on social capital,
Chapter 6, or Mosley and Markuš on microfinance, Chapters 11 and 12)
111 with essays which are more sceptical (e.g. Campbell, Chapter 7, on social
capital and Henderson, Chapter 13, on microfinance).
Our first group of papers (Chapters 2 and 3), then, review the changing
111 context of the analysis of poverty and action against it in both North and
South. Bob Deacon, in Chapter 2, rejects the proposition that the principle
of selectivity, rather than universalism, needs to be the foundation stone
for the provision of social safety nets in a globalising world, and that the
continuing privatisation of welfare state functions is therefore inescap-
able. He insists however that for southern countries to have appropriate
ownership of such provision, a commitment to a much higher level of
North–South transfers is required, and that regional groupings such
as SADC, MERCOSUR and ASEAN may have an important role in
making this possible. In Chapter 3, Arjan de Haan, writing as a mem-
ber of, but not on behalf of, the UK Department for International
Development, also examines the consequences of globalisation which
contributed the main theme of the recent (December 2000) White Paper.5
He applies to the context of social policy the argument that prevention is
better than cure (or, if you will, that risk prevention and mitigation are
better than risk coping); in other words, that social policy needs to be a
forward-looking component of the process of economic integration, rather
than occupying the role of compensating ex post those who find them-
selves disadvantaged by the process. In the process he strongly criticises
the new growth theory regressions which concluded that economic conver-
gence (one element in ‘the end of history’) occurred whenever policies
converged on a neo-liberal norm of ‘good policy’, suggesting rather that
even good-policy economies may be unable to avert crisis – as was demon-
strated by the experience of many sufferers during the east Asian crisis and
now by the case of Argentina. If global inequality is increasing in a manner
which after-the-event compensatory policies cannot influence, then before-
the-event ‘insurance’ policies, incorporating health and pensions, will need
to assume a much larger role. This is a major theme also of Chapters 4
and 10. In Chapter 4, Robert Holzmann, one of the main architects of
the World Bank’s ‘social risk management’ philosophy presented in the
2000/01 World Development Report, develops that philosophy in the light of
later writing, including reactions to that Report. Holzmann echoes de Haan’s
call for a forward-looking role for social protection, traces its intellectual
roots back to a broadened awareness of information asymmetries between
gainers and losers, and redefines vulnerability in terms of the balance
between risk exposure and risk instruments. He acknowledges, and does
not idealise, the vulnerability of informal coping mechanisms. He draws
on recent poverty dynamics literature (e.g. Baulch and Hoddinott 2000) in
order to reinforce the point that shocks often reinforce a long-term slide
into poverty, thereby blurring the standard distinction between transient
and chronic poverty.
The second group of papers relates to our two ‘unifying themes’ of risk
and social capital, connected by the fact that the relationships of which
social capital is composed are expected to reduce interpersonal risks. The
Introduction 7
11 mechanisms by which this happens, as we discover in this section, are much
debated.
In Chapter 5, Geof Wood examines the role of welfare regimes within
the context of a ‘search for security’, one of the key aspects of the poverty
analysis adopted in the World Development Report and of Wood’s own previous
writing. He argues that, in an environment where both well-functioning
markets and effective state intervention are lacking, ‘the poor are exposed
to the weaknesses of social capital, without any prospect of meaningful
social resources to compensate . . . thus without social options to manage
11 risk, they have to rely more heavily on their family and less on transac-
tions with others’. This interpretation grows into a critique of the World
Development Report based on its lack of attention to what Wood calls ‘the
11 institutional aspects of risk: risks induced by class relationships, inequality
and social exclusion’, and to the conclusion that, since social policy ‘cannot
(at least in Africa and low-income Asia) engage with the common man or
woman via fiscal instruments’, it must do so alternatively by developing
other instruments for the poor by way of institutional reform. How it should
do so is an issue to which the essays in Part III try to speak.
For both Holzmann and Wood the concept of social capital is key,
111 indeed one of Holzmann’s arguments (Chapter 4, page 54) is that this new
approach ‘would adopt an extended view of instruments and institutions
to be used under social risk management, including the broad concept of
“social capital” ’. This broad concept, as we have seen, is already used as
a linking thread for many of the new poverty strategies, and the next pair
of essays is explicitly concerned with this theme. They could not be more
contrasted. Whiteley (Chapter 6) tests a Mankiw-Romer-Weil ‘new growth
theory’ model across a mixed sample of industrialised and developing coun-
tries to derive the conclusion that social capital has at least as much leverage
in the explanation of growth as physical and human capital, using a World
111 Values Survey (‘how much do you trust your family/ community/fellow-
countrymen . . .’) definition of social capital. Campbell (Chapter 7)
examines, with reference to the anthropological literature on Africa, the
origins of associations widely believed to provide the institutional basis for
social capital, some of which are examined in Part IV of this book. The
formation and activities of such voluntary associations, he reminds us, are
influenced by ‘local government policy and the availability of employment,
but also by demography and national policies’. Although articulated in
relation to Africa, this statement has equivalent relevance to the North,
and the role of government policy in forming social capital has been empha-
111 sised by Maloney et al. (2000; see also Chapter 10, this volume). But
Campbell also argues that the social capital concept is ‘limited by
insufficient attention to differences of culture, history and politics between
111 western and non-western societies’ and that the term social capital ‘operates
as a metaphor rather than an analytical construct’. Other contributors to
this volume, however, not only academics such as Whiteley, but practi-
tioners such as Jo Henderson (Chapter 13), continue to use social capital
as, precisely, an analytical and operational construct.
An underlying theme of the conference as a whole, echoed in de Haan’s
paper, is that the processes which create poverty and inequality can perhaps
better be understood in terms of global and country-specific exclusionary
processes rather than by examining the North–South divide, and Part III
of this book examines aspects of this process. In Chapter 8 Fran Bennett,
policy adviser to Oxfam UK, describes the manner in which Oxfam’s
perception of poverty-causing processes has changed in this direction over
the last few years. She describes the rationale for creating the UK poverty
programme as being motivated by ‘pressure from southern partner organ-
isations asking what Oxfam was doing about poverty in its own backyard’,
and emphasises, much as the World Bank did in commissioning its Voices
of the Poor study, the importance of involving people with direct experience
of poverty in defining poverty and policy solutions to it. By contrast, she
argues, in most UK government processes ‘participatory approaches to
policy-making on poverty issues are underdeveloped’ and ‘the government
tends to see the strategy as belonging to the government itself’ – by contrast
with the procedure in the South where participatory poverty assessments
are a precondition of aid money for debt relief being granted. In seeking
to change this collective mindset Oxfam hopes that eventually ‘we will stop
talking about North/South . . . and instead begin to talk about creating a
global alliance against poverty worldwide’.
In Chapter 9, with assistance from Jane Tate, the administrator of
HomeNet International, Mosley examines the role of homeworkers – a
mainly female and low-income group on the lower fringe of the labour
market. The role of homeworkers is discussed, first in Yorkshire, then in
Europe, and finally in relation to the global economy. These workers have
(as a totality) been both enriched in the sense that their numbers (some-
times their real incomes also) have increased, and disempowered in the
sense of their incorporation in the global labour market, producing ever
more specialised components of globally traded commodities as a conse-
quence of this incorporation. Measures by which such processes of
disempowerment could be put into reverse (including HomeNet itself,
pioneered by Jane Tate and others two decades ago) are examined.
In Chapter 10, Elizabeth Dowler and Geoff Tansey examine the nutri-
tional dimension of poverty – which particularly in the North, they argue,
is often misperceived on account of poor data and the anxieties which the
malnourished feel about publicising the fact that they are going short on
food. They argue that a shift in the terms of the debate has followed from
awareness of the consequences of globalisation; indeed, relevantly for this
Introduction 9
11 book, a number of the nutritional differences between rich and poor tran-
scend the North–South divide. People from lower socio-economic group-
ings, globally, are not more ignorant than the better-off about what
constitutes a healthy diet; but they consume nutrients from a less diverse
food base, and especially less fruit and fewer micro-nutrients. If the
constraints to nutritional adequacy are in fact structural rather than
educational – in particular the inadequacy of the minimum benefit levels
provided in industrialised countries – that may be crucial for the sustaining
of a vicious circle of poverty, and for the feasibility of the policy options
11 examined later in the book. In Britain, the authors argue that ‘few policy
responses yet exist on a large scale beyond the encouragement of local food
initiatives, whether by communities themselves (such as food cooperatives,
11 food growing projects, or community cafés) or through institutions (such
as school breakfast clubs)’. The sustainability of such projects ‘is challenged
by their dependence on volunteer labour and insecure, short-term funding’.
But the deficiency of relevant policy initiatives, the increasing loss of control
over their diet by low-income consumers and the transmission between
generations of the food poverty which results are global, and not country-
specific, problems.
111 The final group of papers is more localised in orientation and centres
on the politically crucial issue of urban deprivation (in northern countries
found mainly in the inner city, in developing countries much more
frequently in the outer city of shanty towns). To focus discussion still further,
the main point of reference for the ‘northern’-based studies is the region
of Yorkshire in the UK (also a focus for the chapters by Mosley with Tate,
Mosley and Steel, and Henderson) and for the ‘southern’-based studies it
is eastern Europe – specifically Slovakia, Romania and parts of European
Russia – regions which, during the structural adjustment period of the
1990s, suffered as badly as any country in the world in terms of changes in
111 standard poverty indicators. All the studies in this section, neglecting
Campbell’s advice, seek to operationalise the building of social capital, but
they use very divergent routes to this end.
Mosley and Steel (Chapter 11) in relation to the UK and Markuš
(Chapter 12) in relation to eastern Europe, examine mainly the micro-
finance instrument, which in relation to developing countries has been
diagnosed not only as providing a sustainable route to social protection
but also as providing a weapon against social exclusion in a number of
fields, including education, health, contraceptive use, crime and even specif-
ically domestic violence (Schuler and Hashemi 1994). Both Mosley and
111 Markuš emphasise that microfinance in industrialised countries needs to
be treated as a somewhat specialised instrument, aiming at the niche market
of the ‘bankable but financially excluded’; given the consequent high oper-
111 ational costs and the high rate of small business failure in both Britain and
eastern Europe,6 the claim that this instrument can reduce risk as well as
the expectation of absolute poverty needs to be carefully examined.
Nonetheless both – Markuš from a practitioner’s point of view – find that
this essentially southern redistributive instrument does have its uses in the
North, achieving in many cases not just reduction of material poverties but
also a contribution to social and political integration; the social capital
theme re-enters the picture here, not only through group finance, but also
through the linkages which microfinance borrowers develop with their
suppliers, their markets and people operating in complementary lines of
business. In the eastern European context, specifically, microfinance has
the potential to reduce corruption by reducing the bureaucratic compo-
nent of the process of getting hold of raw materials and financial services,
and by this means to lever other quite wide-ranging changes, including
greater institutional and political participation.
Jo Henderson, in the concluding Chapter 13, takes a quite different
approach, not so much rejecting as bypassing the microfinance instrument
and examining the complementary role of other instruments – with primary
reference to the inner city area of Sheffield where she works as consultant
to an NGO to which part of the urban regeneration function has been
devolved. However, she makes explicit reference to the approach adopted
by Marek Markuš in eastern Europe, to which she has acted as consul-
tant. She also examines the radical-pessimist thesis of Hoogvelt (2001) that
many state initiatives in urban regeneration fail because the beneficiaries
migrate to more favoured areas as soon as the benefits from subsidised
finance make exit from deprived areas possible. As a counter-measure she
advocates the creation of equity rather than the debt which is created by
loans – by means of business training and legal and negotiating advice,
and through lease-back/homesteading schemes in which tenants of prob-
lematic inner-city areas are ‘bailed in’ to ownership of properties in such
areas, with the risk problem being mitigated via the offer of improved prop-
erties at a guaranteed price. Preliminary evaluations, for example by
Sheffield City Council, suggest that such schemes have been successful in
dealing with the problem of ‘footloose entrepreneurial capital’ to which
Hoogvelt refers. But whether, on a broader plane, either this approach or
microfinance can make a large incremental contribution by securing a large
number of livelihoods remains to be seen.
In Table 1.2, we bring together some of the threads from this discus-
sion to assess what is agreed, and what remains disputed, within the territory
of this book. At the level of measurement, there has been some convergence
towards the use of a broader range of poverty indicators in both North
and South; in particular towards a greater use of intensity-of-poverty
indicators in the North (Osberg 2002) and a greater use of social exclu-
sion (or other subjective) indicators of poverty in the South, even if the
Introduction 11
11 Table 1.2 Poverty and social exclusion in North and South: areas of emerging
consensus and continuing debate
Field North–South analogies State of the debate
and influences
Measurement Considerable use of intensity- In general ‘agreement to disagree’,
of-poverty indicators and with relative poverty indicators
vulnerability indicators in South, commonest in North (except US)
now increasing in North and absolute poverty indicators
also (Osberg 2002) commonest in South
Interpretation
11 Cumulative Acknowledged as a potent Role of attitudes to risk and
causation cause of persisting poverty inter-generational transmission
in both North and South mechanisms increasingly
11 (Chapters 10 and 12, this recognised
volume, especially; also World
Bank 2000a)
Role of Now seen as a key influence Increasingly seen as a reason for
inequality on poverty (rather than failure to attain the International
separate from it) operating Development Targets in some
through a range of channels: countries (Hanmer and Naschold
level of demand, social capital 2001, etc.)
formation, conflict potential,
111 etc.
Social capital Measured strong influence Debates relate to: types of social
within North (Putnam 1993), capital (within-group, between-
within South (variety of group, etc.); subjective versus
sources summarised in World objective definitions; strategies for
Bank 2000a), and across a forming social capital; nature of
sample of both northern and losers from process of group/
southern countries (Chapter 6, community formation. Last of these
this volume). For many NGOs in particular can be seen as an
and local governments in both ‘aggregation debate’
North and South, social capital-
building is a key policy
objective
111
Policy and institution-building approaches and instruments
Prevention Advocated as a global approach Some consensus on the need to
versus cure (see Chapters 3 and 4, this move towards preventive
volume) approaches, given past failures in
shock prevention (e.g. East Asian
crisis)
Targeting General shift towards more . . . but this is contested (see
precise targeting of benefits Deacon, Chapter 2, this volume).
in both North and South Another ‘aggregation debate’
Microfinance Adoption of microfinance Debates relate to: size of wider
(‘community development impacts extending beyond the
finance’ models) in North, microfinance client (labour market,
111 many based on southern health, education, community
group-finance models (see participation, even macro-impacts)
Chapters 11 and 12, this
volume)
111
‘headline’ poverty data most often presented tend most often to be of an
absolute (level) nature in the South and of a relative-position nature in the
North. At the level of assessment and interpretation, this volume documents
three trends observable in the analysis of poverty in both halves of
the globe; the re-emergence of awareness of cumulative (often inter-
generational) causation of poverty, increased awareness of inequality as a
cause of (rather than a separate problem from) poverty, and the rise and
rise of social capital as a dominant influence in reducing both. But, whereas
almost all can agree that trust and sense of community ‘matter’ (O’Neill
2002), not all, as we discover particularly in Campbell’s Chapter 7, agree
about which forms of association matter, how they can be created or who
loses out from the process. We are in the heart of one of Kanbur’s ‘aggre-
gation debates’: if social capital creation for one household is social capital
destruction for another, what should be done and how?
Debates of this kind carry across into the field of policy and institution-
building, represented in Table 1.2 by the themes of ‘preventive’ social
policy, targeting and financial services. Whereas the first of these repre-
sents a kind of consensus-building instrument in both North and South,
the last two remain a battleground, again because it is difficult to get people
to agree about the group which should be the focus of the analysis. If
universalism (in the provision of welfare) reduces inequality and thereby
reduces overall poverty, should it be supported, as Bob Deacon argues in
Chapter 2, or resisted in the interests of short-term targeting of the poorest?
If designing microfinance as a single product for all of the financially
excluded causes the very poor to benefit only through employment and
the non-poor to benefit as borrowers, is that acceptable (as I argue in
Chapter 11)? Or should a specific financial product be designed and
targeted so that the poorest can take up loans? Or should the loan instru-
ment be avoided altogether in favour of equity, as Jo Henderson argues
in Chapter 13? These are dilemmas common to both North and South,
which again arise because of aggregation problems – because of inability
to agree about which groups of poor (and non-poor) people’s interests are
to be taken into account.
Indeed, of Kanbur’s three grounds for dispute about anti-poverty
policy, with which we began, debates about aggregation, rather than about
time-scale or market structure, clearly top the list. It is not that disputes
of the latter kind do not continue, as the debates about ‘IMF orthodoxy
versus the alternatives’ in Indonesia (and more recently Argentina) clearly
show; but in an audience heavily peopled with practitioners and social
administrators it is very hard to argue for medium-term solutions based
on assumptions of a competitive market structure. In addition, at least at
the conference which gave rise to this book, the whole idea of seeking crisis
prevention rather than reaction to crisis acted so as to finesse all considerations
Introduction 13
11 of time-scale of reaction, and acted as an additional consensus-building
instrument.
In spite of these welcome steps towards consensus, as we need to remind
ourselves, the end of history is nowhere near, and the expected conver-
gence of poverty and inequality – and policies to combat them – towards
a norm is nowhere near happening. In simpler language, many millions
of people in every country continue to struggle for survival and decency
in the twenty-first century, and what should be done to eliminate that state
of affairs is not agreed and not clear. We hope the ideas in this book make
11 some contribution, however small, towards changing that.
Notes
11
1 According to Institute for Fiscal Studies data (reproduced in the Independent,
17 March 2002), total poverty in Britain (defined as the proportion living on
less than 60 per cent median incomes) increased continuously from 1978 to
1996, and child poverty increased continuously from 1979 to 1996. Both have
since fallen.
2 At the time of writing ( January 2002), BRAC has been hired to oversee the
reconstruction of social and microfinancial services in Afghanistan. The quip
111 going around a BRAC reception that one of us attended just before their
departure was ‘you can begin by investing the money you get from the capture
of Osama Bin Laden . . .’.
3 Particularly embarrassing has been the failure of African economies to recover
in response to 15 years of liberalisation and structural adjustment orchestrated
by economists in the World Bank and African finance ministries.
4 One South African microfinance client studied by Mosley and Rock (2002)
went over the top and invested, on receiving a loan, in two rotating savings
and credit associations, one traders’ association and two burial societies.
5 For contrasting views of this White Paper and of its contention that ‘globali-
sation can be made to work for the poor’ see the symposium in New Political
111 Economy (Cammack 2001; Mosley 2001).
6 A statistic frequently cited by commercial banks in Britain is that ‘three out
of four’ small businesses fail within the first five years.
111
111
11
Part I
General reviews
11
11
111
111
111
111
11
2 Prospects for equitable social
provision in a globalising
world*
Bob Deacon
11
11
Introduction and overview
There are three themes in this chapter. One concerns the place of universal
social provisioning in the global discourse concerning desirable national
social policy. A second concerns the response of southern governments to
a northern imposed social policy agenda. The third concerns the prospects
for the development of a social dimension to southern regionalism. Linked
111 together, the themes and the analysis associated will enable an assessment
to be made of the prospects for equitable social provision in a globalising
world.
In sum the chapter argues first that the idea of universalism as an
approach to welfare policy came to be seriously challenged in the context
of neo-liberal globalisation. This challenge derived from an analysis of the
inequitable impact of the partial welfare states of post-colonialism. However
the World Bank and northern donors, in their understandable concern to
focus on the poorest of the poor, failed to appreciate the historical lessons
of cross-class solidarity building which was the underpinning of European
111 Welfare States. While focusing public provision on the poor, the middle
class were being seduced by global private markets in health, social care
and social security, thus breaking the basis upon which future equitable
* Earlier versions of parts of this paper were delivered at an UNRISD conference at the
Geneva UN High Level Meeting on Social Development in June 2000, at a Seminar on
Globalisation and Equity convened by the Swedish Academy of Sciences in Stockholm
in October 2000, at an UNRISD seminar convened in September 2001 in the context
of launching its research programme on Social Policy in a Development Context, at a
UNDPTCDC seminar on Social Policy in the Globalisation Context held in Beirut in
February 2001, at a UK DFID seminar on 30 March 2001, at the ILO-SES Advisory
Board Meeting in Bellagio, Italy, in May 2001 and at the UK Social Policy Association
111
Conference in Belfast in July 2001. The author is grateful for comments made at each
of these events, which both strengthened conviction that the paper was worth publishing
and enabled improvements to be made in the text. All errors and shortcomings remain
111 my responsibility.
18 Bob Deacon
universal social provisioning might have been built. There is some evidence
that the intellectual tide is now turning. Not only is there empirical evidence
that universal welfare states are compatible with globalisation but also there
are signs that important actors influencing the South may be rediscovering
the importance of universalism.
Second, the North-driven socially responsible globalisation agenda with
which the UK government have been associated through, for example, the
formulation of Chancellor Gordon Brown’s global social principles
(Ferguson 1999) has run into the sand of southern opposition. The social
policy principles have joined the labour standards issue in the global
North–South impasse. Two things are required to move beyond the
impasse. One is much greater northern commitment to either greater
North–South transfers or to global taxation for global public goods and to
the opening of northern markets to the South. The other is for the idea
of international social standards to be devised and owned by the South.
Third, constructive regionalism with a social dimension represents one
possible future for world cooperation based on principles different from
those of global neo-liberalism. A key question is whether the European
attempt to combine regional economic policy with a regional social agenda
will be replicated in southern trading groups. On the one hand there is
evidence of an advancing social dimension to southern regionalism in
MERCOSUR, ASEAN etc. On the other hand competing neo-liberal-
inspired regional groupings (e.g. FTAA, APEC) may undermine this.
The southern policy of the EU will be important: can it shift from being
perceived by the South as part of the problem to being part of the
solution?
Overall it is argued that the prospects for equitable social provision in
a globalising world depend on a greater northern commitment to global
social transfers, to a larger voice being given to the South in the articula-
tion of international social standards and to the fostering in the South of
a regional approach to social policy which echoes the model provided by
the European Union.
The analysis and conclusions in this paper are derived largely from the
results of the Anglo-Finnish Globalism and Social Policy Programme
(GASPP) that was set up in 1997 specifically to examine the relationship
between globalisation and social policy and articulate a case for a socially
progressive globalisation (www.gaspp.org). That project held five interna-
tional seminars. The first in 1997, involving middle- and high-level
participation from several UN agencies and the World Bank as well as
scholars from several continents, focused on the governance of global social
policy. The second in 1998, involving international trade union and social
movements spokespersons, focused on global trade and investment agree-
ments and their implications for social rights. A third took place in late
Equitable social provision 19
11 1999 and focused on the role of INGOs and consulting companies as
subcontractors in global social governance. The fourth was hosted in 2000
in India and focused on the globalisation of social rights. This enabled
the GASPP network to be broadened to include many southern voices. A
useful South–North dialogue on social policy emerged from this. A fifth
took place in 2002 in Dubrovnik on the globalisation of private health and
social protection and the implications of this development for socio-
economic security.
11
Globalisation and the threat to equity?
A key question is whether, as is often presumed, the globalisation process
11 influences or indeed determines for countries what their social policies are.
Does globalisation limit the social policy choices available to governments
in the North and the South?
In general terms I have argued elsewhere (Deacon 1997; Deacon 1999a)
that globalisation:
• Sets welfare states in competition with each other. This raises the
111 spectre but not the certainty of a race to the welfare bottom. It raises
the question as to what type of social policy best suits competitiveness
without undermining social solidarity.
• Brings new players into the making of social policy. International organ-
isations such as the IMF, World Bank and WTO and UN agencies
such as WHO, ILO etc. have become involved in prescribing country
policy. Also relevant are regional organisations such as MERCOSUR,
ASEAN, SADC etc. International NGOs have substituted for govern-
ment in this context.
• Generates a global discourse about best social policy. Because supra-
111 national actors have become involved, the traditional within-country
politics of welfare have taken on a global dimension with a struggle of
ideas being waged within and between IOs as to desirable social policy.
The battle for pension policy in post-communist countries between the
Bank and the ILO was a classic example (Deacon 1997).
• Creates a global private market in social provision. Increased free trade
has created the possibility of mainly US and European private health
care and hospital providers, education providers, social care agencies
and social insurance companies benefiting from an international
middle-class market in private social provision.
111
When we began the GASPP project there was a worry among those
concerned with universal social provisioning as part of the struggle for
111 social equity that these factors would push social policy in all countries in
20 Bob Deacon
a residual neo-liberal direction. In other words there was a worry that the
neo-liberal character of globalisation would determine that social policy
took on a neo-liberal character too (Deacon 1997; Mishra 1999).
These fears have been partly allayed. In terms of the actual impact of
economic globalisation upon social policy in more northern and more
developed economies a new scholarly consensus is emerging that argues
and demonstrates that:
• Globalisation does not necessarily have to lead to the residualisation

(and privatisation) of social provision. In the North there are argu-
ments and experiences that show that redistributive social policy with
high levels of income taxation and high levels of public health, educa-
tion and social security are sustainable in the face of global competition.
In a comparative survey of Anglo-Saxon (e.g. UK), Conservative
Corporatist (e.g. Germany) and Social Democratic (e.g. Sweden)
welfare states both the neo-liberal and social democratic approaches
remained competitive. The neo-liberal approach of course risked
creating increased inequity that compensatory social policy such as tax
credits seeks to minimise. The most challenged were work-based
welfare states funded on the basis of labour taxes with locked-in inflex-
ible labour contracts for industrial workers. So long as revenue for
social provision was raised from citizens rather than capital and service
jobs are high-quality public ones, high-level universal social provision
is sustainable and does not undermine competitiveness and ensure full
employment (Scharpf 2000b; Sykes et al. 2001).
• At the same time the fears of social dumping in the South have been
shown to be exaggerated (Alber and Standing 2000). Moreover,
evidence from a recent global survey of the impact of globalisation upon
economies has shown that some governments in the South have chosen
to increase their social spending during liberalisation (Taylor 2000).
• It is now recognised internationally that globalisation and openness of
economies generates the need for more not less attention to social
protection measures (OECD 1999).
• A response to globalisation in some middle-income countries has
indeed been to create universalistic forms of social policy. A good
example is Korea (Huck-Ju Kwon 2001).
• Some of the social policy responses adopted in Latin America and else-
where in the heyday of the Washington neo-liberal consensus, such as
the full privatisation of pension schemes, are now being shown by
comparative policy analysts to have questionable advantages in terms
of net savings effects and other criteria (Mesa-Lago 2000 and Huber
and Stephens 2000). Mesa-Lago shows that neither old-fashioned state
11 socialism (Cuba) nor new-fashioned neo-liberalism (Chile) but socially
regulated capitalism (Costa Rica) does best economically and socially.
This is reassuring, but despite this evidence I have argued (Deacon 2000)
that certain tendencies in the globalisation process and certain policy
positions adopted by international organisations still give cause for concern,
especially with regard to social policy in more southern and more under-
developed economies. I examine these below.
Today we are not confronted by a global neo-liberal Washington con-
11 sensus where belief in unregulated market reigns supreme. The dominant
global discourse has shifted from a socially irresponsible neo-liberal global-
isation to one that expresses concern about global poverty. A ‘socially
11 responsible’ globalisation discourse and practice has replaced the earlier
one. It has had to because of the global social movements against the neo-
liberal form of globalisation. This new consensus is not a truly global con-
sensus. Many social movements in the South would not subscribe to it.
In a UNRISD paper (Deacon 2000) I showed in some detail that the
new consensus among northern donor agencies and major international
organisations consisted of the following elements:
111
• Global macro-economic management needs to address the social
consequences of globalisation.
• A set of social rights and entitlements to which global citizens might
aspire can be fashioned, based on UN conventions.
• International development cooperation should focus aid on meeting
basic social needs.
• Debt relief should be speeded up so long as the funds are used to alle-
viate poverty.
• The globalisation of trade generates the need for the globalisation of
111 labour and social standards.
• Good governments are an essential ingredient in encouraging socially
responsible development.
There are, however, a number of disagreements as to how to proceed with

this new orientation:
• Much of the South is understandably suspicious of even progressive

social conditionality.
• How both world trade and world labour standards can coexist without
111 the standards being reduced to minimal core standards or used for
protectionist purposes is far from clear.
• Initiatives to empower the UN with global revenue-raising powers
111 which fund global social rights are firmly resisted by some.
22 Bob Deacon
My concern with this emerging consensus is that, despite the apparent shift
from global neo-liberalism to global social responsibility, the coexistence
of four tendencies within the new global paradigm, if allowed to be pursued,
will still undermine an equitable approach to social policy and social devel-
opment. These tendencies are:
• The World Bank’s continuing belief that governments should only

provide minimal or basic levels of social provision and social pro-
tection.
• The OECD’s Development Assistance Committee’s concern (sub-
scribed to in Geneva 2000 by the UN as well as the Bank and IMF )
to fund only basic education and health care with its new international
development targets.
• The INGOs’ continuing self-interest in winning donor contracts to
substitute for government social services.
• The moves being made within the WTO to speed the global market
in private health, social care, education and insurance services.
My concern is the following. Where the state provides only minimal and
basic level health and social protection services the middle classes of devel-
oping and transition economies will be enticed into the purchase of private
social security schemes, private secondary and tertiary education and
private hospital level medical care that are increasingly being offered on
a cross-border or foreign investment presence basis. The result is predict-
able. We know that services for the poor are poor services. We know that
those developed countries that do not have universal public health provi-
sion at all levels and public education provision at all levels are not only
more unequal but also more unsafe and crime-ridden. Unless the middle
classes are also catered for by state provision good quality social provision
cannot be sustained. This is the prospect for many countries that buy into
this new development paradigm. Research is urgently needed into the
welfare strategies now being adopted by the middle class in developing
countries.
How did the idea of social policy geared to securing greater equity
through processes of redistribution and universal social provision get so
lost in the context of globalisation? Because, in my view:
• Globalisation in terms of the form it took in the 1980s and 1990s was
primarily a neo-liberal political project born at the height of the trans-
atlantic Thatcher–Reagan alliance. This flavoured the anti-public
provision discourse about social policy within countries and contributed
to a challenge to the idea of regional trading blocks such as the EU
which had a partly protectionist purpose.
11 • The collapse of the communist project, coinciding as it did with the
height of neo-liberalism, gave a further push to the rise of the myth
of the marketplace.
• The perceived negative social consequences of globalisation generated
a new concern for the poor. In the name of meeting the needs of the
poorest of the poor the ‘premature’ or ‘partial’ welfare states of Latin
America, South Asia and Africa were challenged as serving only the
interests of a small privileged workforce and elite state employees. A
new alliance was to be struck between the Bank and the poor. (See
11 Graham 1996; Deacon 1997.) The analysis of the privileged and exclu-
sionary nature of these provisions was accurate. However, by
destroying the public state services for this middle class in the name
11 of the poor the politics of solidarity which requires the middle class to
have a self-interest in public provision which they fund was made more
difficult. The beneficiary index measures of the Bank showing how
tertiary education spending, for example, benefited the elite contributed
in no small measure to this development. The Bank technical exper-
tise was ill-informed about the political economy of welfare state
building.
111 • In the late 1980s and 1990s the self-confidence of defenders of the
social democratic and other equitable approaches to social policy was
temporarily lost. The critics of neo-liberal globalisation came to believe
their worst-case prognosis.
Are there signs of a shift in the global discourse leading to a reassertion

of the politics of social solidarity and universalism? There are a number
of global initiatives that have the aim of re-establishing the case for, and
finding ways of implementing, universal public provisioning as part of an
equitable social policy in southern countries. Among them are:
111
• A new UNRISD research programme on Social Policy in a Develop-
ment Context under the leadership of Thandika Mkandawire, which
has the stated objective to ‘move (thinking) away from social policy
as a safety net . . . towards a conception of active social policy as a
powerful instrument for development working in tandem with
economic policy’. This programme held, with Swedish funding, its
inaugural conference in October 2000, at which social policy scholars
from most regions of the world were present. (See www.unrisd.org.)
• The rethinking presently being undertaken within the ILO concerning
111 the sustainability of its traditional labourist approach to social pro-
tection. In particular the Socio-Economic Security In Focus work
programme which is searching for new forms of universalistic social
111 protection to complement the very limited coverage in the South of
24 Bob Deacon
work-based social security schemes. Good practices being revealed
within this programme could inform southern social policy making
(www.ilo.org/ses).
• The ongoing activities of several UN agencies support this more uni-
versal approach. Such activities include the UN Commission on Human
Rights and their increased focus on the Convention on Economic,
Cultural and Social Rights, the continuing work by UNICEF to work
for Basic Services for All, the activities following on from the UNESCO
conference on Education for All in 2000, and the programme of work
leading to the high level meeting on Finance for Development in 2002.
• The follow-up work from Geneva 2000 by the UN Social Policy and
Social Development Secretariat, including the codification of UN social
policy. The work programme of the Commission for Social Develop-
ment that included in 2001 a focus on social protection and in 2002
a focus on economic and social policy is of especial relevance. Some
comments on this are elaborated below.
The report of the UN Secretary-General (E/CN.5/2001/2) on ‘Enhan-

cing social protection and reducing vulnerability in a globalizing world’,
prepared for the February 2001 Commission for Social Development,
is an important milestone in articulating UN social policy. Among the
positive features of the report are the following: (a) It is the first compre-
hensive UN statement on social protection; (b) The thrust of its argument
is that social protection measures serve both an equity-enhancing and an
investment function and such measures need to be a high priority of govern-
ments and regions; (c) It defines social protection broadly to include not
only cash transfers but also health and housing protection; (d) It accepts
that unregulated globalisation is increasing inequity within and between
countries; (e) It argues that social protection ‘should not [serve only] as a
residual function of assuring the welfare of the poorest but as a founda-
tion . . . for promoting social justice and social cohesion’ (para. 16);
(f ) It argues that, if equity is the goal, then ‘tax-funded social transfers are
highly effective if the fiscal situation permits’ (paras. 89 and 95k); (g) While
being rather vague on the nature of a public–private welfare mix in provi-
sion it does point out that ‘insurance markets are difficult to operate
effectively’ (para. 95c). It has to be said that discussion on even this paper
became bogged down at the Commission. While the EU were supportive,
the G77 wished again to link it to issues of global financing and gover-
nance arrangements (Langmore 2002). The North–South impasse on global
social standards to which this chapter turns below bedevilled even the
Commission’s work.
From the standpoint of those concerned to see the case for universal
provision to secure an equitable social policy at a national level being
11 reasserted in international social policy discourse there is cautious room
for optimism. The point should not be overstated however for two reasons.
The Bank is still powerful and not convinced about redistributive politics
and a North–South tension over social standards still complicates any global
agreement on desirable social policy. On the first point a recent Nordic
evaluation (Braathen 2000) of the 2000/2001 World Bank Development Report
on Poverty concluded that, although the Bank at least at the discursive level
had shifted from its 1990 focus of social paternalism to a 2000 focus on
social liberalism and even social corporatism within which the poor are to
11 be given a voice, it still did not embrace in any significant way the social
radicalism approach which would involve redistributive policies, except
perhaps in the sphere of land reform. It is to the second point that the
11 chapter now turns.
The North–South impasse and beyond

Reaction against the worst excesses of global neo-liberalism gave rise in
the 1990s to a number of mainly northern-generated initiatives to begin
to challenge this policy drift, to reinsert a social purpose into the global
111 economy and to counter some of the more obvious negative aspects of
partial global economic integration. These included:
• the suggestion to include a social clause in trade agreements;

• the proposition for a better-than-safety-nets set of global social policy
principles;
• the emergence of a discourse concerning global public goods;
• the increased emphasis given to social rights in the human rights
agenda; and
• the emergence on to the UN agenda of global tax regulation.
111
However, in terms of reaching a North–South agreement on a global
approach to national social policy that goes beyond safety nets there are
real obstacles to be overcome. An impasse now seems to have been reached
in the global dialogue concerning the desirable social policies to be imple-
mented in an era of globalisation. Northern-based global social reform
initiatives such as the social policy principles initiative of the UK’s Gordon
Brown, which were concerned to modify the free play of global market
forces with appropriate global social policies of international regulation,
have met with understandable but frustrating opposition from many south-
111 ern governments and some southern-based NGOs and social movements.
The debate in Geneva 2000 characterised this development when the
proposal for a set of social policy principles was rejected on the grounds that
111 these might become a new conditionality imposed by the North and there
26 Bob Deacon
was no money forthcoming from the richer countries to help pay for the
implementation of such principles. Moves beyond this impasse would seem
to require two changes. One would be a greater commitment on the part
of the North to support international resource transfers to pay for global
public goods such as basic universal education, combined with an opening
of trade opportunities in the North for southern countries, and the other is
for the South to own and develop for itself any such social policy principles
or standards based on a review of best practice in the South.
An interesting initiative that might point to a way beyond the impasse
was a recent 2001 South–South conference on social policy in a globalising
era convened by the UNDP’s Technical Cooperation between Developing
Countries unit. The aim of the conference and subsequent programme was
to develop, through policy dialogue, comparative research and exchange
programmes, understanding in the South of ways in which an equitable and
socially inclusive approach to social policy might be pursued within the
context of globalisation. (see www.tcdcwide.net/SSPGnet.)
At this conference it was argued that a South–South dialogue can and
should learn from the northern debates and experiences, but also that there
is already a considerable body of knowledge about what policies in the
South contribute most to sound human development. I articulated in an
opening address that the South might learn from the North that:
• Neo-liberal globalisation does not mean countries have to adopt neo-

liberal social policies.
• A commitment to equitable social welfare and economic efficiency and
competitiveness are compatible.
• Social provision (education, health and social care, social protection)
provided by the market works for some at the cost of equity.
• Social provision based on workplace entitlements used to work for some
at the price of the exclusion of others. It is increasingly ill-advised as
a strategy for welfare.
• Social provision based on citizenship or residence entitlement is the
surest way of maximising social inclusion and equity.
• Social policy in a globalised era requires not only national social policy
but also regional and global social policy. Regulations at EU/
MERCOSUR/ASEAN/SADC and global level are needed to ensure
the sound operation and equitable outcomes of the international
market in labour, health, education and social care.
In terms of already existing good southern practice it was noted that

Chen and Desai argued, while reviewing the positive experience that com-
bined economic growth with conscious social development in Botswana,
11 Mauritius, Zimbabwe, the Indian state of Kerala, Sri Lanka, the Republic
of Korea, Malaysia, Barbados, Costa Rica and Cuba:
The key ingredients to successful social development appear to be

responsive governance, socially friendly economic policies, and the
universal provisioning of social services. In all these endeavours the
role of government is central.
(1997: 432)
11 These examples of good practice in the South have been reinforced in

the recent UNRISD collection edited by Dharam Ghai (2000). Other best
practice countries and policies that have already been identified from this
11 earlier research and comparative evaluation include:
• In Asia, Korea because of its extension of labour-based benefits to a

wider population as a result of the government increasing outlays for
social expenditure from 5 per cent of GDP in 1980 to 7.8 per cent in
1997; in India, the state of Kerala because of its tradition of sustained
public expenditure despite globalisation; Malaysia because of its more
111 restrictive approach to globalisation; and Singapore because of its
investment in human capital and job creation.
• In Latin America, Uruguay or Costa Rica because of their reform of
PAYG pensions without a full privatisation; Brazil because of the
experiments with a minimum income approach to socio-economic
security; Colombia because of the broadening of its tax base in the
face of globalisation; and Argentina because of the state subsidised
employment programme in health and education which enabled female
workers to get jobs.
• In southern Africa, Mauritius or Botswana because of the introduction
111 of universal pension entitlements.
Nonetheless the UNDP conference also noted the significant differences

between the experiences and prospects of some southern countries and
those of more developed ones. These included the observations that:
• Coverage by formal social protection schemes in many developing

countries is tiny.
• Families and community networks contribute a large measure to social
protection.
111 • Basic land reform and the redistribution of assets have not begun
in some places; entrenched elites have not yet perceived that their
interests might also be served in the long term by a more equitable
111 approach.
28 Bob Deacon
• The fiscal and institutional capacity of many states has been severely
hampered by former colonialisation and subsequent globalisation.
• The western concern with state-based rights and equity is not easily
transferable to a Confucian-influenced ‘Asian’ discourse or a tradi-
tional African village practice of extended familial duties.
• The Islamic practice of Zakat embraces the notion of redistribution
but within a framework of obligations that may not extend to those
who are not Muslim.
• Some governments perceive their countries’ short-term interests as
being served by entering the unregulated global market on the basis
of the comparative advantage of the absence of ‘expensive’ social pro-
tection measures.
All of these and more factors would need to be taken into account in a
South–South dialogue. This would result in such a dialogue giving more
emphasis to new forms of universalism outside the work-based systems
of social protection. It would involve articulating ways in which govern-
ments can support familial forms of welfare etc. But, in my view, it can
be unhelpful if we exaggerate these differences. The lessons from one of
the most developed parts of the ‘South’, namely East and South-east Asia,
are interesting. It seems that the path of social welfare development may
be somewhat different from Europe (a greater focus on regulating compul-
sory private provident funds rather than actual state provisions). However,
taken overall these emerging welfare states are ahead of Europe when you
compare the time when legislation was enacted for risk contingencies
with the level of the development of the economy (Kulhne et al. 2000).
Moreover, they now face the same issue that Europe faces with regard to
the sustainability of pension provisions (Gough 2001). China too is
addressing in its reform of the workplace welfare state the same question
Germany or France faces: whether to move to individual unpooled private
pension funds or to a resident-based (within cities at least) pooled public
pension scheme. I think the differences can be made too much of, certainly
for large parts of the southern hemisphere.
Recent research and analysis by Wood (see Chapter 5) and his team at
the University of Bath, addressing the issue of social policy in a develop-
ment context, conclude that for large parts of the developing world lessons
drawn from comparative welfare state analysis based in the North can still
be applied. Here the issue is primarily one of ensuring that effective states
modify inequity generating markets. For other large parts of the South
such as India, sub-Saharan Africa and parts of South-east Asia the issue
is not so much one of supporting states against markets but of supporting
‘citizens’ against inequity-generating states. In other words, in my terms
for much of the developing world the issue is, as in the North, one of the
11 political economy of building cross-class alliances to support universalism
and equity. In the less developed parts the issue is the political economy
one of building effective social movements to struggle against entrenched
elite interests. A South–South dialogue needs to embrace both perspectives
and include social movements as key participants.
The social dimension of regionalism

The emerging South–South dialogue is also taking another form. Several
11 emerging trading blocks and other regional associations of countries in the
South are beginning to confront in practice the issues of the relationship
between trade and labour, social and health standards and the issue of
11 how to maintain levels of taxation in the face of competition to attract
capital. In this context the potential advantages for developing countries
of building a social dimension to regional groupings of countries are being
considered. Such advantages may be summarised as having an external
and internal dimension. In relation to the rest of the world such an
approach affords protection from global market forces that might erode
national social entitlements and can create the possibility of such grouped
111 countries having a louder voice in the global discourse on economic and
social policy in UN and other fora. Internally through intergovernmental
agreement, regionalism would make possible the development of regional
social redistribution mechanisms, regional social and labour regulations,
and regional sectoral social policies in health, education etc. They might
also develop regional social empowerment mechanisms that give citizens
a voice to challenge their governments in terms of supranational human
and social rights. A regional approach could facilitate intergovernmental
cooperation in social policy in terms of regional health specialisation,
regional education cooperation, regional food and livelihood cooperation
111 and regional recognition of social security entitlements. This in turn would
facilitate the regulation of the de facto private regional social policies of
health, education and social protection companies.
Initial analysis of the extent to which SADC, MERCOSUR and ASEAN
have developed a regional dimension to social policy in their southern
regions is summarised in the Table 2.1. There are some signs of such a
regional approach to social policy. However, in each region there are
complicating factors associated with (a) the particular histories of the regions
and (b) the geopolitics of the region that are affecting the pace of devel-
opment of the social dimension of the regions. In terms of SADC the era
111 of the front-line state solidarity afforded to South Africa by the other coun-
tries is still waiting to be rewarded. In terms of ASEAN the initial policy
of non-interference in the internal affairs of member states is only being
111 eroded slowly. In terms of MERCOSUR the differential devaluation of
Table 2.1 The social dimension of regionalism in three southern regions
Aspect of regional SADC MERCOSUR ASEAN

social policy
Regional Customs duties in SACU Talk of a regional social fund. Nothing significant. Some capacity
redistribution eroding. No new initiatives A few regionally funded projects building for new members
in border areas
Regional social and No. Campaigned for by Important labour and social Recent Declaration on ASEAN and
labour regulation COSATU declaration. Reciprocal social Caring Societies. No legal force
security entitlement. Joint health
and safety inspection
Regional health Yes, and recently strengthened Little documented Yes, but dependent on external
policy with equity concerns funds. Recent trade and health
initiatives
Regional education Recent capacity review. Mutual recognition of ASEAN university scholarships and
policy Quality assurance and other qualifications exchanges. Curricula design in
measures schools
De facto private New initiatives by regional Beginnings of cross-border Major lobbying of international
regionalism private health care private provision health insurance companies
companies
Cross-border learning Yes, especially pensions and Cuts both ways: Chile promoted Recently through safety net
from best practice grants to school attenders by Bank and Uruguay seen as working party
alternative approach
Human including SADC Gender Unit as Civil society lobby with regional Policy of strict non-interference.
social rights moves model. Call for SADC focus. Possible new MERCOSUR Little evidence of regional lobbies,
court of rights Working Group but may be changing
Source: Taken from a report to UKDFID (Deacon 2001).
11 Brazil and Argentina and the diverse ways the economies are responding
to globalisation threatens unity. At the same time a wider neo-liberal region-
alism with expectations of a lower level of concern for the social dimension
is a competing alternative certainly in the case of Asia (APEC) and Latin
America (FTAA).
An important factor in this global transatlantic struggle for and against
global neo-liberalism or global social democracy is the EU. Whether the
EU is perceived as a model to follow or merely a self-interested northern
social protectionist block will depend on whether it opens its borders to
11 southern trade unilaterally and increases its support for North–South trans-
fers (Deacon 1999b). The UK government role is quite important here
both in terms of arguing for easier trade access for the South which may
11 benefit some countries and for potentially undermining the European Social
Democratic project in favour of neo-liberalism. The ambivalence of the
UK position in this crucial EU versus US struggle for the social dimension
of regionalism is really rather important.
While an adequate assessment of the significance of the social dimension
of southern regionalism will have to wait upon further research and the
passage of time it can be concluded that:
111
• There is a social dimension to each of the three regional groupings
studied. These range from the least developed in ASEAN to the most
developed in MERCOSUR.
• Regional think-tanks, regional NGOs and to some extent the regional
secretariats are more focused on advancing this dimension than
national governments.
• Emerging social problems with a regional dimension may stimulate
further intergovernmental cooperation. These include cross-border
labour migration, cross-border AIDS infection and cross-border drug
111 running.
• The imminent advancing of free-trade arrangements within each
region will either lead to increased concern with differential labour
standards and other aspects of regional social policy or to the begin-
ning of the erosion of the trading block.
• In all regions the political choice between either strengthening the
existing regions, together with their emerging social dimension, or
dissolving the existing regions in favour of entering neo-liberal-inspired
wider trading blocks will need to be faced soon.
• Europe as a model of a socially regulated region and as an agency
111 which could help further a social dimension of regionalism elsewhere
is an important question. Within MERCOSUR Europe is playing a
role and is seen by some actors as a model. This is the case to a lesser
111 extent in SADC. In ASEAN Europe is more often neither seen as a
32 Bob Deacon
model nor are its attempts to influence regional policy accepted. If
Europe wishes to extend its influence to help construct a world of
regions with a social dimension (to counter global neo-liberalism) then
it will have to put its social development policy before its trade inter-
ests and it will have to match its moralising about rights with resource
transfers to enable these to be realised in practice.
The wider significance of the social dimension of southern regions arises

when the current North–South global social policy-making impasse is
brought into the picture. After Geneva 2000 (see p. 25) the need is to
foster a set of North–South alliances in favour of the social dimension of
globalisation, thought through in ways that do not appear to threaten
southern trading interests. Fostering a South–South dialogue on the role
of the social dimension of regionalism within the context of a greater
commitment on the part of the North to greater resource transfers/global
taxes may be one way of building such alliances.
Conclusion
This chapter has argued and demonstrated that globalisation is not incom-
patible with universal social provision within countries if cross-class alliances
necessary for that strategy to work can be built and sustained. Certain
features of both the global discourse on social policy (the favouring of neo-
liberalism) and the emerging global private market in health and social
care may however undermine the prospect for such solidarities being built
in many developing countries. Attempts by northern global social reformers
to soften the harshest aspects of the global neo-liberal project by injecting
a social dimension into globalisation have foundered on the rocks of
southern opposition born of past colonialism and structural adjustment
conditionality. The baton is now passing to the South to figure out ways
of developing effective social policies in a globalising context. Some
southern voices, those that are critical of the neo-liberal features of
globalisation, are now beginning this job. A South–South dialogue on best
practice in social policy from the standpoint of equity is being initiated.
Within that emerging dialogue the role of the social dimension of southern
regionalism is likely to figure large.
At the Indian National Convention against Globalisation on 21–3 March
2001, Walden Bello of Focus on the Global South addressed the theme of
the present Global Conjuncture (Bello and Bullard 2001). He noted the
existence of the post-Washington Consensus attempts to develop a softer
approach to corporate globalisation. He rejected however the strategies of
bringing the social agenda to bear on the workings of the WTO, the Global
Compact with TNCs initiated by the UN Secretary-General and the
11 increased co-option of INGOs into the business of the World Bank etc.
Instead of shoring up corporate globalisation we should, he argued, seek
to enter a period of de-globalisation that would include reorienting
economies for the local market and ‘carrying out long postponed measures
of income (and land) redistribution’. Such a strategy would work for a
plural world, would weaken the influence of the WTO, Bank and IMF
and
turn them into just another set of actors coexisting with and being
11 checked by other international organisations, agreements and regional
groupings. This strategy would include strengthening diverse actors
and institutions such as UNCTAD . . . the ILO, and evolving economic
11 blocs such as MERCOSUR, SAARC, SADCC, ASEAN. A key aspect
of ‘strengthening’ of course, is making sure these formations evolve in
a people-oriented direction and cease to remain regional elite projects.
(Bello and Bullard 2001)
There are therefore prospects for equitable social provisioning of North

and South in a globalising world if common purpose is found between
111 those northern and southern voices articulating the importance of
both nurturing solidarities within countries and nurturing a social dimen-
sion to regionalism in the context of a cooperative world order based on
negotiated inter-regional agreements rather than on unregulated market
principles.
111
111
111
11
3 Globalisation and social
policy
Thoughts for international
development cooperation
Arjan de Haan*
11
11
Introduction: the UK White Paper on globalisation
The recent White Paper on globalisation was for Clare Short the end of
a cycle of policy papers setting out the agenda for the UK contribution to
international development over the coming years or decades. The cycle
started with the first White Paper in 1997, and during the last year a series
111 of Target Strategy Papers were produced which each set out the policies
to achieve the International Development Targets.1
The recent UK White Paper complements these earlier papers, and
therefore does not repeat all the earlier messages. The White Paper on
globalisation develops policy statements regarding the new challenges that
a global, much more integrated economy poses (it notes that globalisation
is about much more than economic integration). It is based on the
observation that the importance of aid flows has rapidly declined com-
pared to that of private flows, and on what an organisation like DFID
should do to become a more strategic player in the new context. It is about
111 the negative effects of trade barriers in the North, and what DFID needs
to do and tried to do among its partner departments in Whitehall, for
example to support governments to strengthen their bargaining power in
organisations like the WTO.
Each of these topics would deserve separate publications, and much has
indeed been written on various elements of globalisation – including on
the globalisation of protest’. The issue I want to focus on in this chapter
is the role of social policy in a globalising world, a world of increasing
movements of goods and people. It focuses on the question of the ‘gainers’
111
* Social Development Adviser, DFID, currently based in New Delhi. The chapter was orig-
inally prepared as a contribution to the DSA panel on ‘who gains and loses from
globalisation’ (9 April 2001). The chapter reflects the author’s views, and is not neces-
111 sarily DFID policy.
36 Arjan de Haan
and ‘losers’ of globalisation, and the kinds of policies that are essential for
equitable outcomes of globalisation. The main contention is that social
policy needs to become much more central to policy making, and needs
to get out of the corner of the residual safety nets approach of the
‘Washington consensus’.
Gainers and losers – and why?

First of all, let me say that I am not very happy with the language of
gainers and losers. What this may suggest is that there is some kind of
sports game being played, and that we have agreed that winning and losing
are part of this game. Moreover, and perhaps more important, what the
language suggests is that policies are needed for the ‘losers’ after the process
of economic integration has happened – instead what I will argue below
is that these policies need to be part of the design of economic integration,
and thus potentially changing (rather than making up for) the outcomes.
Debates about the effects of globalisation have been heavily influenced
by economic studies, particularly cross-country regressions, looking at
links between economic integration, economic growth, and poverty reduc-
tion and inequality. The evidence is very ambiguous. There are major
questions about the robustness of the type of analysis, the appropriateness
of the indicators – perhaps most crucially the one regarding openness
– used, and indeed whether reducing inequality rather than reducing
poverty is the most important objective and factor to be analysed.2 It can
be questioned what the relevance of cross-country regression is for the
experience of individual countries: for example, the finding that on average
inequality does not increase with economic growth has little relevance for
those countries where inequality did increase, like the UK and Thailand
(see Box 3.1).
Despite this ambivalence, there are a number of ‘stylised facts’ that are
important for the debate:
• Economic growth on average is strongly correlated with poverty reduc-

tion (measured by poverty headcount index), and economic growth is
of course a precondition for sustained poverty reduction.
• Economic growth is not systematically linked with increasing inequality,
and the bottom 20 per cent of the population seems on average to
benefit as much from economic growth as others.
• Though overall globalisation may have had disappointing results,3
openness to trade on average seems to be good for both economic
growth and poverty reduction4 (there seems no evidence that economic
growth in closed economies benefits the poor more than in closed
ones).5
Globalisation and social policy 37
11
Box 3.1 Examples of increasing income inequality

within countries
Evidence indicates that growth is not systematically linked to growing
inequality, and that few countries have experienced long-term
increases in inequality. But there are many examples of countries
11
where inequality has increased. The following list shows some of
them, focusing on income inequality only:
11
• Earnings inequalities have risen in the US, the UK and New
Zealand.6 Some eastern European and former FSU countries,
particularly Russia, are experiencing rising income differences
from initially low levels.
• In Latin America, inequality is very high, and seems to have
increased since the mid-1980s.7 Chile experienced worsening
inequality in the 1970s, Mexico experienced widening income
111
differences in the 1980s, and Brazil suffered a further increase
in inequality – from already very high levels – during the 1990s.
• In Asia, income inequality has risen in China, but from very low
levels – regional inequality though is a crucial issue in consid-
ering effects of liberalisation. Thailand experienced dramatic rises
in income inequality, though this seems to have levelled off during
the late 1990s. In Bangladesh the situation is disputed; inequality
seems to have been increasing since the 1990s – the bottom 20
per cent may have profited very little from growth and liberali-
sation. In India, recent research suggests increasing inequality
111
since the period of liberalisation.8 In Vietnam between 1992 and
1998, poverty declined rapidly, but better-off households bene-
fited most.9
According to Cornia, after a period of declining inequality until

the 1970s, the global trend reversed. During the 1980s wage and
income inequality increased in 4 out of 8 countries in a lower
inequality band, 8 out of 14 countries in a medium inequality band,
and 8 out of 11 countries in a high income inequality band.10
111
111
38 Arjan de Haan
But does this imply that market processes, national or global, are suffi-
cient? The answer clearly is no, for a number of reasons. In the first place,
as indicated above, these analyses are about averages, and despite strong
correlations there are huge differences across countries, for example in the extent
to which economic growth reduces poverty – these differences remain to
be explained.11 It is also essential to extend this analysis beyond measures
of income poverty. As is well known different levels of GNP – and even
income poverty – can result in different levels of health, life expectancy,
education etc.12
Second, there are indications that worldwide inequality is increasing. Many
countries have not participated in global economic growth – and some of
these are in fact integrated into the world markets.13 The world Gini index
of consumption increased by 5 per cent between 1988 and 1993 (from 0.63
to 0.66) – this increase was driven more by rising differences between coun-
tries than rising inequalities within countries.14
Third, the East Asia crisis – and other crises during the second half of
the 1990s (Mexico, Russia, Brazil) – showed that even very successful econ-
omies may be unable to avert crises. It is not evident that globalisation leads
to more economic shocks, but there clearly are sufficient of them. There
may have been about 70 financial crises during the last two decades, and
many do have an international dimension. The potential long-term
impacts, particularly on the poor, are serious enough (and coping strat-
egies potentially damaging in the long run) to call for public policy
regulation and responses.15
Fourth, context matters. Analysis by Ravallion indicates that the absence
of correlation between growth and inequality may be due to the fact that
inequality changes are not always well captured, but also to the very
different starting conditions of countries.16 Alan Winters concluded that
there are no general conclusions about whether trade liberalisation will
increase or reduce poverty, and ‘the impacts on poverty will differ across
countries’. For him, it was ‘blindingly obvious . . . [that] effects of liberal-
isation depends on where you set off from’.17 A series of studies edited by
Taylor indicates that effects of globalisation and liberalisation on growth
and social impacts have not been uniformly favourable – indeed the social
impacts were unfavourable in eight of the 11 case studies.18
The reason why these links differ is simple, and does not contradict the
findings from cross-country regressions. There is a wide range of factors
that determine whether openness or opening up to global markets will
enhance economic growth. Dollar and Kraay in fact showed that, besides
openness to trade, macro stability and fiscal discipline, private property
rights and primary education had significant effects.19 Rodrik argued that,
among the non-market institutions that allow markets to perform, local know-
ledge matters a great deal, and participatory political systems are the most
11 effective ones for generating this.20 And Ritzen et al. showed that social
cohesion leads to better institutions which in turn lead to higher growth:
in cross-country regression measures of trust, income distribution and
ethnic homogeneity affect growth positively.21
Historical experiences of countries that successfully integrated into global
markets seem to highlight a similar point, and stress the role that states have
played in making the integration and market processes work. Currently,
large successful countries like China and India integrate into the world
markets in well-designed and paced manners, for example to allow for
11 potential political opposition. The East Asian experience also has suggested
that public institutions played an important role, not only in terms of social
policies (discussed below) but also in helping markets adapt to changing
11 circumstances, for example through assisting technology transfer.22
Similarly, a whole range of factors determines what type of economic
growth is generated by globalisation, and which sections of the population
benefit from types of growth.23 It may still be important to emphasise that,
even if cross-country regressions show that economic growth explains 50
per cent of the differences in poverty reduction, 50 per cent remains un-
explained (a statistical expression of the question ‘is the glass half full or
111 half empty?’).24 For example, the sectoral composition of growth – which
liberalisation often influences – has been shown to matter in India, as do
initial conditions relating to human resources, infrastructure, labour market
institutions, transfer system and even – as Atkinson indicated – norms about
redistribution.25 There is a growing body of literature that analyses the
gendered effects of liberalisation, showing different results – for example
regarding changes in female labour force participation but clearly indicat-
ing that effects of globalisation are gendered.26 Similar points about the
differential impacts of globalisation can be made regarding the quality of
employment, wages, the impacts of the transmission of global economic
111 shocks, and even international migration.
Thus, there are ‘gainers’ and ‘losers’. This is not surprising, as global-
isation is complex, and so must be its outcomes. It seems unlikely that
negative impacts of globalisation can be blamed on one factor only. In
fact, it seems that, in many cases, many good things go together, and so
perhaps do the bad things. Open markets do not automatically mean more
growth, and growth does not automatically turn into poverty reduction.
The next section discusses the role of social policies in this complexity.
Equitable globalisation: the role of national social

111
policy
The UK While Paper on globalisation emphasises that some people are un-
111 likely to gain from globalisation or economic integration, and that policies
40 Arjan de Haan
are needed to deal with this. But this was not developed in great detail. At
present work in DFID is ongoing, regarding the role of social protection
in a globalising world.27 Similar work is going on in other agencies, particu-
larly at the World Bank on ‘social risk management’ as described by
Robert Holzmann in Chapter 4 of this volume. In this part of the chapter
I will try to outline some ideas about the role of social policies in ensuring
more equitable outcomes of processes of globalisation.
The focus of this chapter is on national policy making – acknowledging
that there is a hugely important agenda at the international level, regarding
more equitable access of countries to international institutions. This focus
on the national level is intentional, as I believe that it is important to make
a paradoxical point which sometimes gets missed. This is that increasingly
integrated economies and societies require stronger (and perhaps larger)
states – the histories of successful integration in the global economy have
shown the opposite of the demise of the state.
Let me start by provoking some thought about the UK, reflecting on
some recent policy and other developments. First, take for example the issue
of the UK’s integration into Europe, including adopting the Euro. Though,
arguably, this may be beneficial for particularly poorer parts of the UK
population, as for example the manufacturing industry is exposed to some
threat if the UK stays outside the European economic community, it re-
quires a very strong government to push this through.28 Second, the govern-
ment has put great emphasis on enhancing education and marketable skills
within the UK. This is partly about bridging divides between better- and
worse-off groups, but also because increasing competition demands a better-
skilled population. Third, even in the recent foot-and-mouth crisis the
importance of the global market seemed to come to the fore: the export
market seems to have determined to a great extent the public policy
response, and indicated that better regulation and investment are needed –
in the case of the UK a more open economy seems to require at least better
governance, certainly not less. Finally, of course, the agricultural industry is
a clear example of how specific interests – in the case of OECD countries
of a remarkably small minority – drive foreign trade policies.
One finding that may help us to understand the role of social policy is
the recent one by Rodrik and others that, in the OECD, economies that
are more exposed to international trade have larger governments and
higher social protection expenditures. Government spending may play a
risk-reducing role in economies exposed to external risk, for example in
including publicly-provided insurance and greater involvement of collec-
tive bargaining.29 Greater openness and associated livelihood risks thus may
increase political pressure to expand state activities.
At the same time as pressure for state involvement is increasing, the
ability of the state to raise taxes may be reduced with globalisation.30 The
11 emergence of a global market in health, education and social insurance
also may contribute to undermining welfare provisions within countries.31
(See also Deacon, Chapter 2, this volume.)
It is common to associate findings about social protection with the need
for ‘safety nets’. This is in line with the approach that dominated during
the 1990s, as formulated in the 1990 World Development Report, and illus-
trated for example in World Bank programmes of ‘social funds’.32 This
approach – which is currently undergoing significant changes, as described
by Holzmann in this volume (Chapter 4), see particularly the social risk
11 management matrix – has been termed a residual approach to social policy,
in which the role of social policy/protection is restricted to dealing with
the negative effects of economic changes or reforms.
11 The main challenge of a future social policy agenda is to bring social
policy considerations to the core of debates about economic reforms and
policies. An example of this would be current World Bank plans – following
the pressure from Oxfam and others – to analyse the social impact of
lending. But, like the language of ‘losers’ of globalisation, this does not go
far enough – it is equally important to look at the other side of the coin,
the role of social policies, including social protection, in economic policies,
111 a point forcefully made by analysts like Elson and Mkandawire,33 and seen
as a priority in the commitments of the Social Summit.34 What does this
imply? The following is a tentative list of the issues – in no particular order
– that are involved in the challenge for social policy.
First, it seems to me that we need a better understanding of the histor-
ical role that a broad range of social policies has played in economic successes. It
is well known, but the information does not feature often enough, that
widespread education in particular played a central role in the success cases
of East Asia (where the state played a role in shaping the conditions for
global competition). Even in basic manufacturing, e.g. in shirt and shoe
111 factories, to be competitive basic skills seem to be required.35 As argued
above, education policies in the UK have a similar objective. Land reforms
also have played a similar role in some of the countries.
Second, recent debates about the impact of inequality on economic
growth also point to new challenges regarding social policies. Research
shows that inequality – including gender inequality – may affect growth, for a
number of reasons:36 more equal income distribution and lower poverty
means a larger internal market and would trigger innovation and growth;
with imperfect capital markets, high income inequality means that
fewer people have access to credit, thereby possibly lowering growth;37 as
111 Myrdal already noted (1957), equalisation in favour of low income groups –
in health, education38 and labour markets39 – is a productive investment in
the quality of people and their productivity; and higher inequality may lead
111 to violence for example, or create pressures to redistribute income and hence
42 Arjan de Haan
distortionary taxes and costly transfers.40 This is not to suggest that there are
simple links between inequality and growth, but the evidence seems strong
enough to indicate the important role of public policies.41
It may be noted that this seems to imply a rather wide definition of social
policy, and this is intentionally so. I believe it is important, and this is the
third issue, that we need to look across the range of education, health and,
for example, pension policies. These play interdependent roles, and in some
cases may substitute for each other. For example, pensions in southern
Africa have helped to get grandchildren into schools,42 a targeted nutrition
intervention in Bangladesh did not improve nutrition levels as much as it
contributed to helping children into schools, and an overall review of social
policy in the UK during recent decades would balance the maintenance
of universal health access against the privatisation of the housing market.
Such a wide definition of social policy is essential to make it relevant for
the livelihoods of poor people.
Fourth, and following from this, there is a big institutional challenge.
Coordination between social ministries is important, as is the coordination
between social and finance ministers. It has been noted that ‘finance minis-
ters do not see themselves as agents of development’, and it is probable
that finance ministers usually see poverty and social issues as residual, as
something that will be addressed after the macro-economic issues have
been resolved. The role of international agencies, particularly in the most
aid-dependent and indebted countries, is relevant, as they have tended to
strengthen the position of finance ministers, probably often without
concomitant strengthening of line ministers. The difficulty of constructing
an integrated social policy agenda can be illustrated for example with
experiences with the cyclical nature of social spending: in Latin America
for example this tends to be largely pro-cyclical. And as Mick Moore warns,
governments in poor countries tend during the boom to expand govern-
ment consumption rather than social spending (Moore 1999).
A fifth point relates to the ‘projectised’ nature of much development
experience, including – but not only – targeted poverty interventions. It is
essential that such projects are seen as part of one set of public policies. Micro-
credit, employment or nutrition programmes all need to be seen as part
of an overall agenda: they need to be seen in the context of sustainability,
but also regarding how existing groups of interventions jointly contribute
to enhancing access to opportunities for the entire population, and the
state’s responsibility in guaranteeing – if not directly providing – access to
basic services.
Thus, the major contention here is the need for a reassertion (or revalu-
ation) of social policy, and reconsidering the ‘safety nets’ approach that
was predominant in the context of the Washington consensus. Successful
development – including in the context of liberalisation and globalisation –
11 is contingent on state intervention, to regulate markets, and to create the pre-
conditions for populations to participate in markets. Social policies need to
deal with these preconditions as much as the after-effects of economic trends
and policies. Social policies are needed to ensure social integration, and to
provide the social investment that is needed for economic development.
Conclusion
Thus, the evidence clearly shows that globalisation presents opportunities
11 and challenges. Countries’ ‘starting points’ matter a lot to what they can
achieve, and present requirements for the kinds of policies required to make
globalisation work, for the country and for poor people. The evidence has
11 shown that globalisation can enhance growth, but that past history has
shown rising inequality – between countries and within a substantial
number of countries – and a large number of (economic) shocks.
Paradoxically – and notwithstanding the need and call for global res-
ponses – in a globalising world appropriate national responses are becoming
increasingly important. The argument in this chapter is that such public
policies cannot be the residual ones, but need to be seen as part of an
111 overall policy agenda, which looks at impact and sustainability but also the
contribution of social policy and investment to economic development.
More integrated economies certainly do not make this less important, and
arguably more so.
Notes
1 United Kingdom (2000a); United Kingdom (1997); DFID, series of Target
Strategy Papers produced during 2000–1, to be found on the DFID Website
DFID.gov.uk. See also the DFID seminar series related to globalisation,
111 on social protection and inequality, on www.ercdfid.org.uk/knowledgecentre/
seminardates.
2 See the debate in The Economist, 28 April 2001, between Robert Wade (‘Winners
and losers’) and ‘Economics focus’ (‘Of Rich and Poor’).
3 At least the period of globalisation, and earlier the period of adjustment has not
been marked by higher levels of economic growth, which of course does not
prove causality.
4 Dollar and Kraay (2000). Lundberg and Squire’s analysis suggested that open-
ness to trade (measured by the Sachs-Warner index) is correlated negatively
with income growth of the bottom 40 per cent of the population – however this
seems to have been based on erroneous calculations (Lundberg and Squire
111 1999).
5 White and Anderson (2000). Kakwani estimated that the elasticity of the
poverty gap index was –1.3 for sub-Saharan Africa versus –3.2 for South Asia
111 (quoted in Chen and Ravallion 2000). For India, see Ravallion and Dart (1999).
44 Arjan de Haan
6 Atkinson discusses reasons for the rising inequality in OECD countries, arguing
that rising wage inequality is not only due to factors relating to globalisation
and competition from low-wage countries, but is also socially generated and
related to a shift away from redistributive norms (Atkinson 1999).
7 Wodon (1999).
8 V. Ahuja et al. (1997). For Asian country trends, see de Haan and Lipton
(2000). Recent poverty data is heavily disputed. Nevertheless, speculation about
increased inequalities would not seem out of order, particularly if a sector like
software, based on highly-skilled workers, is one of the sectors that have grown
fastest since liberalisation.
9 Glewwe et al. (2000).
10 Cornia (1999). Van der Hoeven (2000a).
11 For example poverty elasticity, which averages about –1 for the 1980–2000
period, are positive for many Eastern European countries in the 1990s.
12 See for example the recent UNICEF paper about economies that are high
achievers in human development indicators, which also spells out the public
actions that facilitate this; Mehrotra (2000), www.unicef-icdc.org/publications/
index.html.
13 Exports apparently form 30 per cent of GDP for sub-Saharan Africa, and only
19 per cent for OECD (UNDP 1999: 2; also UNDP 2000: 79ff ).
14 Milanovic (1999b). Rises in in-country inequality tended to be accompanied
by rising rural–urban inequality – where overall inequality has grown fastest
(as in China) rural–urban inequality has usually increased too – despite expec-
tations that price liberalisation would reduce such differences (Eastwood and
Lipton 2000). See also Chu et al. (2000).
15 The crises of the late 1990s shared some features: they started with increases
in current account deficit, and often also fiscal deficits; the fear of default or
devaluation stopped capital inflows that financed the deficits, requiring the
country to reduce expenditure (leading to recession), switch demand and
production, and depreciate the currency. See Ferreira et al. (2000) (which also
describes differential impacts of crises on different groups); Adelman (2000);
and Holzmann (Chapter 4 in this volume) for a listing of results from panel
data regarding impact of crises on the poor.
16 Ravallion (2000). Elson and Cagatay (2000a: 1145–56), provides a gender
analysis showing some of the uncaptured effects.
17 Winters (2000). He explores effects of trade on poverty via four institutions:
enterprises, distribution channels, governments and households. Recent regres-
sion analysis by Block indicates that being closed to trade is more costly to
growth in Africa than elsewhere (Block 2001: 443–67).
18 Taylor (2000).
19 See also Collier et al. (2000).
20 Rodrik (2000).
21 See Ritzen et al. (2000). Kaushik Basu also points to the role of culture, norms,
beliefs and ‘organisational capital’ in economic development, specifically
India’s integration into the world economy; Basu (2001), www.epw.org.in/
36-40/sa1.htm.
22 Moreover, Ha-Joon Chang (2001) dismisses the notion that East Asia would
have been a social policy-free zone, and shows that implicit social policy has
11 been important in building social cohesion, and hence provide preconditions
for economic success. Russia is commonly cited as an example where the
opening up of the economy proceeded without the existence of strong insti-
tutions, including a legal framework; cited in Basu (2001: 4).
23 Different forms of growth patterns are discussed in World Development Report
2000/2001, and even more explicitly in The Quality of Growth, www.world-
bank.org/html/extdr/quality, September 2000.
24 It may be relevant to refer back to analyses of structural adjustment, which –
similar to recent cross-country regressions – showed that this did not systemat-
ically harm the poor, but could be made pro-poor. The evidence of the effects
11 of structural adjustment programmes on poverty is summarised in Killick (1999).
25 Using the unique data set on Indian states, Ravallion and Datt (1999) show
that rural growth reduced poverty more than urban growth, that initial
11 conditions relating to rural and human resource development influenced rates
of poverty reduction, and the two sets of factors interact (non-farm growth
was more pro-poor in states with initially higher farm productivity, rural living
standards and particularly literacy).
26 Using CGE modelling for Bangladesh, Fontana and Wood show the poten-
tial effects of trade liberalisation on women’s employment, wages and time-use;
Fontana and Wood (2001). See also Elson and Cagatay (2000).
27 For example, with other development agencies including the World Bank and
111 ADB, DFID started to develop policy on this and organised a seminar series
on social protection (www.odi.org).
28 Conversely, Basu (2001) emphasises that in India in 1991 the finance minister
was able to implement major policy shifts ‘in a moment of doubt or vacilla-
tion’ regarding the development model of the preceding decades, prompted
by the foreign exchange crisis. It seems also plausible that the fact that atten-
tion during that time focused on religious and communal tensions made it
easier for the government to push through the reforms (Yogendra Yadav,
personal communication).
29 Rodrik (1998). Bowles (2000). Moore (1999), argues that historically political
pressure for western European state welfarism emanated from citizens’ percep-
111 tions of market-induced risk.
30 Tanzi (2000). See also Rodrik 1998, but discussion in Winters (2000) points
at complexity.
31 Bob Deacon (2001) (www.ercdfid.org. uk/knowledgecentre/seminardates.html
#socprot).
32 A discussion of social funds can be found in Fumo, de Haan, Holland and
Kanji (2000).
33 UNRISD Workshop, September 2000, summarised in UNRISD Bulletin,
Spring/Summer 2001 (www.unrisd.org).
34 UN, General Assembly, Report of Secretary General, 1 September 2000, on
the World Summit and beyond.
111 35 Owens and Wood (1997).
36 Alesina (1998); van der Hoeven (2000b), Research has suggested for industrial-
ised countries that inequality itself can also be damaging for health (Wilkinson
111 1998).
46 Arjan de Haan
37 Birdsall (1999) provides a micro-model of savings, showing that low inequality
can result in higher savings, and faster growth and poverty reduction.
38 Trade liberalisation reduces poverty, more when the poor have access to land,
credit and primary education (Bussolo and Solignac Lecomte 1999). Deininger
and Squire (1996) found a weak relationship between initial income distribu-
tion and future growth but a strong relationship between initial land
distribution and growth. See also Deininger and Olinto (2000).
39 Tzannatos (2000).
40 Milanovic (1999a). The ‘median voter hypothesis’ describes the political mech-
anism through which voters redistribute income, but evidence for this is weak
according to Milanovic. The literature on political participation in growth
models, and the role of education, is reviewed in Bourguignon and Verdier
(2000). Access to land could reduce the need for costly public transfers; World
Bank (1997).
41 Basu (2001) notes that globalisation without complementary government inter-
vention in education might impoverish the illiterate population of developing
countries, as the price of illiterate labour is close to zero.
42 Barrientos and Sherlock-Lloyd (2001) (www.ercdfid.org.uk/knowledgecentre/
barrientospaper.pdf ).
11
4 Risk and vulnerability
The forward-looking role of social
protection in a globalizing world†
Robert Holzmann*
11
11 Introduction: motivation, issues, structure

Social protection is back on the international agenda. The restatement of
the international development goals by the international community during
the Social Summit 2000 (Geneva 2000 or Copenhagen plus 5) and the
refocus by international and bilateral organizations on poverty reduction
in recent years give social protection, generally defined as public measures
to provide income security for individuals, an important role in support of
111 these objectives. However, compared to the traditional understanding of
social protection (SP), these interventions are now scheduled for a more
proactive and forward-looking role. Several developments are responsible
for this change in outlook, among the most important being:
1 The East Asian crisis has brought to the attention of policy makers that
high growth rates, while necessary for lasting poverty reduction, are
insufficient and that any progress made on the poverty front may be
lost quickly under declining output and rising unemployment if appro-
priate social policy measures are not in place (World Bank 2000d;
111 Arjan de Haan, Chapter 3, this volume). Following a large covariate
(negative) economic shock, informal safety net arrangements tend to
break down, existing public support schemes, where available, are often
inappropriate or insufficient, and new schemes tend to prove difficult
to establish during a deep and protracted crisis. The conclusion
emerges that an ex ante approach is required which assesses the potential
†
This is the revised version of a paper originally prepared for ‘The Asia and Pacific Forum
on Poverty: Policy and Institutional Reforms for Poverty Reduction’, Asian Development
Bank, Manila, 5–9 February 2001. The paper has profited from valuable comments and
111 suggestions inside and outside the Bank. Special thanks go to John Blomquist, Jeanine
Braithwaite, Sudharshan Canagarajah, Margaret Grosh, Gillette Hall, and Isabel Ortiz.
All errors, however, are my own doing.
* Director, Social Protection, Human Development Network, World Bank, 1818 H-Street,
111 NW, Washington DC, USA. Tel.: (1–202) 473–0004 Email: RHolzmann@Worldbank.org
48 Robert Holzmann
risks and prepares social protection measures, in particular social safety
nets, before a major shock hits. This is the main conclusion of a report
prepared for the APEC ministers of finance by a group of international
organizations.1 But the lack of timely ex ante actions becomes again
painfully visible and felt in many developing countries with the world-
wide drop in economic activity during 2001, and the shocks created
by the 11 September 2001 tragedy.
2 The World Development Report (WDR) 2000/01 on attacking poverty
offers the conclusion that sustainable poverty reduction needs a
forward-looking approach in social protection (World Bank 2000a) and
signals the change in development thinking during the 1990s. The
WDR 1990 proposed a two-part strategy to address poverty: promoting
labor-intensive growth through economic openness, and investment in
infrastructure and access to basic social services (World Bank 1990).
Social safety nets were essentially an addendum, understood as ex post
provision of support in response to economic crisis and structural
adjustment. Ex ante income-support measures, risk and vulnerability,
and the mere concept of social protection were totally ignored. In the
WDR 2000/01, by contrast, social protection is a primary element
in the new three-pronged approach, along with opportunity and em-
powerment. The conceptualization of social protection as ‘security’
incorporates both individual (idiosyncratic) and macro (covariant) risks,
and the proposed underlying social risk management approach has an
explicit forward-looking agenda, moving from ex post poverty toward
ex ante vulnerability considerations. The WDR 2000/01 suggests that
to deal effectively with the diverse risks faced by the population at large
and the poor in particular – where feasible and economically useful –
needs an ex ante approach.
3 The forward-looking approach in dealing with poverty mirrors our
increasing understanding of poverty dynamics and economic mobility in devel-
oping countries, building on early considerations of risk and uncertainty
as key determinants to understand the dynamics leading to and per-
petuating poverty (Rosenzweig and Binswanger 1993; Banerjee and
Newman 1994). The increasing number of panel data sets signal main
regularities across countries: most importantly, that the poor consist of
those who are always poor – poor at all dates – and those who move
in and out of poverty, with the latter group tending to be strikingly large
(and such movements in and out of poverty can be observed when look-
ing at poverty in absolute or relative terms). The reasons why the poor
remain poor, or why some move out of poverty while others move into
poverty, are beginning to be understood. Beside personal characteris-
tics and endowments (or the lack thereof ), there is increasing evidence
that seemingly transitory shocks can have long-term consequences.2
Risk and vulnerability 49
11 This finding suggests the need for an ex ante view of poverty – vulner-
ability and a thorough investigation about the best social protection/
social risk management instruments for dealing with it.
4 Last, but not least, there is the perceived strong need to address the
increased risks resulting from globalization in an equitable but efficient
manner. Recent trends in the evolution of trade, technology, and polit-
ical systems have made possible great potential improvements in
welfare around the world. Globalization of trade in goods, services,
and factors of production has the world community poised to reap the
11 fruits of global comparative advantages. Technology is helping to speed
innovation and holds the potential to remove the major constraints to
development for many people. Political systems are increasingly open,
11 setting the stage for improved governance by holding those in power
accountable to larger segments of the population. Taken together, these
changes create a unique opportunity for unprecedented social and
economic development, poverty reduction, and growth. The other side
of the coin, however, reveals that the exact same processes that allow
for welfare improvements also increase the variability of the outcomes
for society as a whole and even more so for specific groups. There is
111 no certainty that improvements will be widely shared among individ-
uals, households, ethnic groups, communities, and countries. Expanded
trade or better technology can sharpen the differences between the
‘haves’ and ‘have-nots’ just as they can increase the opportunity for
all, depending on the prevailing social context and policy measures.
Globalization-induced income variability combined with marginaliza-
tion and social exclusion can, in fact, increase the vulnerability of major
groups in the population. In other words, the risks are as large as the
potential rewards. To further complicate matters, the trend towards
globalization and the higher mobility of production factors reduce the
111 ability of governments to raise revenues and pursue independent
economic policies and, thus, to have national policies to help the poor
when they are needed most.
These developments on the policy and research front call for a new
approach to social protection: an approach which moves from ex post
poverty to ex ante vulnerability considerations; an approach which presents
SP as a safety net as well as a springboard for the poor; an approach focused
less on the symptoms of poverty and more on its causes; and an approach
which takes account of reality – among the world population of six billion,
111 fewer than a quarter of individuals have access to formal SP programs, and
fewer than 5 percent can rely on their own assets to successfully manage
risk. Meanwhile, eliminating the poverty gap through public transfers is
111 beyond the fiscal capacity of most developing client countries.
50 Robert Holzmann
These considerations have motivated the development of a new con-
ceptual framework for social protection – social risk management (SRM)
(Holzmann and Jorgensen 1999, 2000).
The basic thrust of the SRM framework is supported by two perceptions:
(i) the poor are typically most exposed to diverse risks ranging from
natural (such as earthquake and flooding) to man-made (such as war and
inflation), from health (such as illness) to political risks (such as discrim-
ination); and (ii) the poor have the fewest instruments to deal with these
risks (such as access to government-provided income support and
market-based instruments like insurance). These perceptions have import-
ant consequences: (i) the poor are the most vulnerable in society as shocks
are likely to have the strongest welfare consequences for them; for welfare
reasons, therefore, they should have increased access to SRM instru-
ments; and (ii) the high vulnerability makes them risk averse and thus
unable or unwilling to engage in higher risk/higher return activities.
Hence, access to SRM instruments would tend to make the poor more
risk-taking and thus provide the opportunity to gradually move out of
poverty.
The new SRM framework is the basis of the security chapters of WDR
2000/01 (World Bank 2000a), the World Bank’s Social Protection Sector Strategy
paper (SPSSP) (World Bank 2001a) and six regional sector strategy papers,
has inspired the approaches by other multilateral institutions (such as IADB
and ADB), and finds increasing resonance with bilateral donor institutions
(such as AusAid, DFID, GTZ, and USAID).3 While the basic thrust of
SRM and the main strategic conclusions of SPSSP are getting increasing
support, they present only the beginning of a journey. In order to make
the new framework and its strategic conclusions effective for lasting poverty
reduction, much more needs to be done at both the conceptual and oper-
ational levels. Examples include an operational definition of vulnerability,
piloting of risk assessments and effective social sector expenditure reviews.
To outline the concept and open an agenda, the structure of the remainder
of the chapter is as follows:
The next section highlights the central elements of SRM while the third
section outlines the main strategic conclusions for SP. Then, the follow-
ing four sections outline the main conceptual issues and suggested next
steps toward implementation, including the need for an operational
definition of the vulnerability concept, the use of risk assessments as an
entry point for a new policy dialogue with governments, the lessons
from economic crisis management and what we have learned for social
protection, and social sector expenditure reviews as means to enhance the
effectiveness of public interventions. The final section presents concluding
remarks.
11 Social risk management: a dynamic conceptual
framework for social protection4
The main elements of the new framework are derived from introducing
the notion of asymmetric information in a world of diverse risks in a more
explicit way than has been done generally. Compared to an ideal world
(à la Arrow-Debreu) this has several consequences for managing risks, most
importantly:
1 The sources and the forms of risk matter, e.g. whether a particular
11
risk is idiosyncratic or covariant. For the former, more reliance can be
given to informal or market-based RM instruments; for the latter, more
government involvement tends to be required.
11 2 Since risk is not necessarily exogenous, there are many more strate-
gies to deal with risks than simple insurance, including risk reduction,
risk mitigation, and risk coping strategies.
3 As private insurance markets tend not to emerge or break down in
view of asymmetric information, there are three main institutional
arrangements for dealing with risk: informal, market-based, and
publicly-provided mechanisms.
111 4 There are multiple suppliers of RM instruments (including individuals,
households, communities, NGOs, market institutions, government,
international organizations, and the world community at large) and
distinct demanders (such as the formal urban, the informal urban, the
formal rural, and the informal rural worker).
5 We must bear in mind the interrelationship between social risk manage-
ment, social protection, social inclusion, and redistribution.
Social risk management beyond social protection

111 There are many areas of public policy that impact on vulnerability and
income variability that are clearly outside social protection, such as macro-
economic stability, preventive measures against natural disasters, and
infrastructure investment (for example, roads and water supply). Against
the background of the social risk management objectives, this suggests an
advocacy and analytical role for social protection.
Social protection and income redistribution

Income redistribution features importantly in social risk management and
111 social protection activities, but it is not necessarily the primary goal. In the
social risk management framework income distribution enters as an equity
objective linked to adverse risk and emerges as an important outcome of
111 good social protection programs at different levels. The support of the
52 Robert Holzmann
critically poor is a main objective of social protection. Since financing cash
or in-kind transfers requires taxes on workers or non-working wealthy,
income redistribution appears as a result. Also, enhancing risk management
capacity has high redistributive effects on individuals’ welfare, yet it does not
require interpersonal income redistribution to achieve a more equal welfare
distribution (Holzmann 1990). On the other hand, not all redistribution is
social protection – for example, redistributive efforts accomplished through
a tax-transfer mechanism or through the distributive effects of public goods
provision lie outside social protection.
Social protection beyond social risk management and redistribution: social

inclusion
Even in a minimalist sense, social inclusion, cohesion, solidarity, and
stability are the result of well-designed and well-implemented social risk
management interventions. For example, a well-designed income support
system for the unemployed not only enhances individual welfare by
reducing vulnerability but also achieves social stability as a result. And
social assistance and measures that increase access to basic health and
education for the poor give parents and their children a better chance of
becoming integrated members of society. Another answer is that social
protection should go well beyond mere financial and income-oriented
considerations and adopt proactive policies designed to influence the social
structure of an economy. This approach would include investments in the
sociocultural infrastructure by supporting informal arrangements and
upgrading the non-profit sector, and it would also strengthen the ‘social
rights approach’ of social policy. Finally, it would adopt an extended view
of instruments and institutions to be used under social risk management,
including the broad concept of ‘social capital’ (Badelt 1999).
Sources of risks and their characteristics

The capacity of individuals, households, and communities to handle risk
and the appropriate risk management instruments to be applied depend
on the characteristics of risks: their sources, correlation, frequency, and
intensity. The sources of risk may be natural (for example, floods) or the
result of human activity (for example, inflation resulting from economic
policy); risks can be uncorrelated (idiosyncratic) or correlated among indi-
viduals (covariant), over time (repeated) or with other risks (bunched); and
they can have low frequency but severe welfare effects (catastrophic) or
high frequency but low welfare effects (non-catastrophic). The main sources
of risk and the degree of covariance can range from purely idiosyncratic
(micro or individually specific), to regionally covariant (meso), to nation-
wide covariant (macro) events.5
11 While informal or market-based risk management instruments can often
handle idiosyncratic risks, they tend to break down when facing highly
covariant, macro-type risks. To take Africa as an example, the main sources
of covariant risks that affect poor people are AIDS, wars and conflict,
seasonal volatility in prices, drought, and macroeconomic shocks. Idio-
syncratic risks include illness and widowhood or the break-up of the family.
Since many of the risks faced by poor people are covariant in nature,
informal management mechanisms at the family or community level are
typically not very effective. Among these risks, at least two are induced by
11 human activity (war and macroeconomic shocks), which need no ex post
coping mechanism if they can be prevented from happening in the first
place. Access to market-based interventions, such as saving mechanisms or
11 insurance programs, can mitigate some of the risks (seasonal price volatility
or illness). This suggests that different strategies and interventions are
appropriate depending on the nature of the risks involved.
Social risk management arrangements

Over time different kinds of social risk management arrangements have
111 evolved. These fall into three main categories: (i) informal arrangements,
(ii) market-based arrangements, and (iii) public arrangements on a large
scale. Each of them has relative strengths and limitations.
Informal arrangements
These arrangements have existed since the dawn of mankind and still
constitute the main source of risk management for the majority of the
world’s population. In the absence of market institutions and public provi-
sion of support, the way that individual households respond to risk is to
protect themselves through informal (family or community) or personal
111 arrangements (self-protection and self-insurance). Although they sidestep
most of the information and coordination problems that cause market
failure, they may not be very effective in helping the household weather
adverse events. Examples of this kind of arrangement include: the buying
and selling of real assets (such as cattle, real estate, and gold), informal
borrowing and lending, crop and field diversification, the use of safer
production technologies (such as growing less risky crops), storing goods
for future consumption, mutual community support arrangements, and
kinship arrangements through marriage.
111
Market-based arrangements
Individual households will also take advantage of market-based institutions
111 such as money, banks, and insurance companies when they are available.
54 Robert Holzmann
However, in view of these instruments’ limitations due to market failure,
their usage will be initially restricted but will rise with financial market
development. Empirical evidence suggests that the establishment of a sound
banking system and non-inflationary policy serves to reduce risk. Because
formal market institutions are reluctant to lend to households without
secured earnings, microfinance is also an important instrument of social
risk management.
Public arrangements
Public arrangements for dealing with risk came into being with the devel-
opment of the modern welfare state but are relatively scarce and have very
limited coverage in the developing world for fiscal and other reasons. When
informal or market-based risk management arrangements do not exist,
break down, or are dysfunctional, the government can provide or mandate
(social) insurance programs for risks such as unemployment, old age, work
injury, disability, widowhood, and sickness. The mandatory participation
in a risk pool can circumvent issues of adverse selection, in which indi-
viduals with low risk profiles avoid participation in insurance pools due to
premiums, while individuals with high risk profiles join in order to gain
access to payouts. Since these programs typically apply to those in formal
employment, their coverage in developing countries is generally low. On
the other hand, governments have a whole array of instruments to help
households to cope after a shock hits, such as social assistance, subsidies
on basic goods and services, and public works programs. Which of these
measures a government chooses to implement depends on its distributive
concerns, its fiscal resources, its administrative capacities, and the type of
risk involved.
Social risk management strategies

Risk management can take place at different moments – both before and
after the risk occurs. The goal of ex ante measures is to prevent the risk
from occurring, or, if this cannot be done, to mitigate the effects of the
risk. Individual efforts, such as migration, can prevent risks, but, in many
cases, this requires support from government (for example, disaster preven-
tion). Mitigating the effects of risk through risk pooling by definition
requires people to interact with other individuals, and poor people are typi-
cally less able to participate in formal and also informal arrangements. This
leaves most poor households with the residual option of coping with the
risk once it has occurred. They are normally poorly prepared to do this
and, therefore, often experience irreversible negative effects.
11 Prevention strategies
These are strategies that are implemented before a risk event occurs.
Reducing the probability of an adverse risk increases people’s expected
income and reduces income variance, and both of these effects increase
welfare. There are many possible strategies for preventing or reducing the
occurrence of risks, many of which fall outside of social protection, such
as sound macroeconomic policies, disaster prevention strategies, public
health investments, environmental policies, and investments in education.
Preventive social protection interventions typically form part of measures
11
designed to reduce risks in the labor market, notably the risk of un-
employment, underemployment, or low wages due to inappropriate skills
or malfunctioning labor markets.
11
Mitigation strategies
As with prevention strategies, mitigation strategies aim to address the risk
before it occurs. Whereas preventive strategies reduce the probability of
the risk occurring, mitigation strategies help individuals to reduce the
impact of a future risk event through pooling over assets, individuals, and
111
over time. For example, a household might invest in a variety of different
assets that yield returns at different times (for example, two kinds of
crops that can be harvested in different seasons), which would reduce
the variability of the household’s income flow. Another mitigation strategy
is for households that face largely uncorrelated risks to ‘pool’ them through
formal and informal insurance mechanisms. While formal insurance
profits from a large pool of participants, which results in less-correlated
risks, informal insurance has the advantage that all the participants have
access to more or less the same amount of information.
111
Coping strategies
These are strategies designed to relieve the impact of the risk once it has
occurred. The main forms of coping consist of individual dissaving,
borrowing, or relying on public or private transfers. The government has
an important role to play in helping people to cope, for example, when
individuals or households have not saved enough to handle repeated or
catastrophic risks. These people may have been poor during their entire
lifetime and, thus, had no possibility of accumulating assets. The smallest
income loss would make these people destitute and virtually unable to
111
recover.
111
56 Robert Holzmann
The social risk management matrix
The social risk management matrix in Table 4.1 combines arrangements
and strategies in various ways that can be refined and adjusted depending
on country circumstances and the issue being investigated. The matrix’s
three-by-three structure highlights the multidimensional character of risk
management and the need to select appropriate strategies based on oppor-
tunity costs and comparative advantage. Filling in each cell of the matrix
with existing instruments provides a means of examining the status of social
risk management in a given country or certain group within a country,
and comparing countries makes it possible to assess differences between
them and to determine appropriate and useful changes.
While each cell of the matrix can be filled in most countries, and even
more so in the regions, since all risk management instruments are likely to
be used at any moment, in time, the intensity and the scope of applica-
tion is likely to differ and change over time. The poorest countries will be
characterized by a predominance of informal arrangements and public
arrangements concentrated on coping strategies. In contrast, richer coun-
tries will apply the whole set of public arrangements and strategies, and
market-based instruments and strategies geared toward risk mitigation and
reduction will grow in importance.
SP as SRM: main strategic conclusions

Viewing SP within the SRM framework has many strategic implications
for addressing poverty in developing but also developed countries. Some
seem obvious, others perhaps counter-intuitive, and many will need empir-
ical testing through pilots in real country environments to prove their
usefulness. This section will highlight some of the main strategic conclu-
sions from the World Bank’s SPSSP, subject to further discussion,
extension, and improvement.
Social protection as a theme

Against the background of the SRM framework social protection emerges
as a theme (such as gender) of socio-economic development and poverty
reduction the reason being that the social risk management framework
applies to many areas outside the social protection sector. These include
national shocks (resulting from macroeconomic policy, disasters or civil
strife), the financial sector and microfinance, rural development, the
informal sector, infrastructure investments, health, population, and nutri-
tion. If appropriate policies are in place in these areas, then households
are much less vulnerable and can smooth much of their consumption with
personal instruments. This means that there is a need to build greater
11
11
11
111
111
111
111
Table 4.1 Strategies and arrangements of social risk management: examples
Arrangements/ Informal Market-based Public
strategies
Risk reduction • Less risky production • In-service training • Labor standards
• Migration • Financial market literacy • Pre-service training
• Proper feeding and weaning • Company-based and market- • Labor market policies
practices driven labor standards • Child labor reduction
• Engaging in hygiene and interventions
other disease-preventing • Disability policies
activities • Good macroeconomic policies
• AIDS and other disease
prevention
Risk mitigation
Portfolio • Multiple jobs • Investment in • Multi-pillar pension systems
• Investment in human, multiple financial assets • Asset transfers
physical, and real assets • Microfinance rights • Protection of poverty rights
• Investment in social capital (especially for women) (especially for women)
(rituals, reciprocal gift-giving) • Support for extending financial
markets to the poor
Insurance • Marriage/family • Old-age annuities • Mandated/provided insurance

• Community arrangements • Disability, accident, and for unemployment, old age,
• Share tenancy other personal insurance disability, survivorship,
• Tied labor • Crop, fire, and other damage sickness, etc.
insurance
Risk coping • Selling of real assets • Selling of financial assets • Transfers/social assistance
58 Robert Holzmann
awareness of the importance of risk reduction for development. Further-
more, social risk management can be used as an analytical tool to assess
interventions in the various sectors. Two examples illustrate the advocacy
and analytical role that social risk management can and should play in
selected areas outside the traditional remit of social protection:
Economic crises, natural disasters, and civil conflicts

These are the three most important causes of aggregate shocks and sharp
increases in the incidence of poverty (World Bank 2000a: chapter 9).
Between 1990 and 1997, more than 80 percent of all developing countries
experienced at least one year of negative per capita output growth as a
result of these phenomena. Macroeconomic crises cause poverty to increase,
which affects not only current living standards but also the ability of the
new poor to rise out of poverty, as has recently been evident in Latin
America, Asia, and Russia. Natural disasters repeatedly interrupt advances
in economic development, cause sharp increases in poverty in the affected
areas, and slow down the pace of human development. Civil conflict has
a similar effect on development and poverty in general, but it represents
both a source and consequence of low economic performance. Given these
circumstances, the following observations and recommendations are
suggested:
• Since many of these aggregate shocks are man-made, following from

inappropriate macroeconomic policy or political conflict, there is a
clear need to encourage governments to adopt preventive policies and
to make them aware of the disastrous effects that inappropriate policies
have had on economic development in general and on poor people in
particular.
• Truly exogenous shocks such as natural disasters also lend themselves
to preventive policies, such as the construction of earthquake-proof
housing or dams or the relocation of people – often poor people – to
areas that are less likely to be affected. While costly (and often beyond
the capacity of poor countries) these measures may prove to be cost-
effective from a long-term present-value consideration.
• The covariate nature of aggregate shocks means that informal or
market-based risk management instruments are often ineffective. How-
ever, this is not always the case. For example, insurance against natural
risks can still function if appropriately structured and priced, and inter-
national diversification of assets and fiscal stabilization funds can
smooth national consumption in an effective manner. The use of inter-
national insurance against natural risks is not yet well developed but
should be encouraged since it has the potential to benefit the poor.
11 Infrastructure investments
Infrastructure investments, such as the construction of a road, an irrigation
system, or a dam, have an important bearing on the development of an
economy and on what opportunities are available to the poor. In the past,
the central and often only criterion for such an investment has been the
estimated rate of return. However, many investments lead to a reduction
in vulnerability in the long run. For example, the construction of a road
between an isolated village and a market town reduces the vulnerability of
the village community by making it easier for people to trade their goods,
11 migrate, and access financial market institutions and their instruments.6
Similarly, irrigation projects are a useful investment for reducing high out-
put risk in agriculture when rainfall is unpredictable. The construction of a
11 dam can be the key instrument for preventing flooding in agricultural and
residential areas. These risk reduction or mitigation effects of infrastructure
are normally not taken into account in assessing the costs and benefits of a
potential investment, and the data and analytical toolkits that are necessary
to assess the vulnerability effects do not yet exist.
111 Balancing informal, market-based, and government-

provided arrangements
None of these arrangements is preferred in all situations, and all of them
typically coexist. While the importance of risk management for economic
development is increasingly understood in the development community,
there is still insufficient knowledge about which arrangements and instru-
ments best support the development process. The most contentious ques-
tions relate to: (i) the role of governments in risk management; and (ii) which
public interventions strengthen informal and market-based arrangements.
In any given country, whether and which public interventions are appro-
111 priate should be guided by the strengths, costs, gaps, and constraints of
the existing informal and market-based arrangements. This implies that
public interventions are important in those areas where informal and
market-based arrangements (i) do not function properly because of the
severity and scope of a particular risk; (ii) reinforce inequities; (iii) are lacking
or dysfunctional; and (iv) can benefit from public action.
While knowledge about governments’ capacity to strengthen informal
arrangements is limited, there is ample knowledge about public actions
that strengthen market-based arrangements. Even with this limited know-
ledge, it is possible to come to the following conclusions:
111
• The family in its diverse forms remains the core institution for handling
risks, and its capacity to do so will increase as more and better market-
111 based instruments emerge.
60 Robert Holzmann
• There are various informal arrangements that are effective in managing
risk but may be detrimental to long-term development goals.
• There is a strong role for risk management instruments provided by
communities and non-governmental organizations.
• Market-based arrangements, such as sound saving instruments, are
crucial for handling a wide range of risks at the personal level and can
contribute significantly to reducing poverty.
Balancing coping, mitigation, and risk reduction

strategies
At face value, the best social risk management would be to make sure that
(downside) risks never occur. The next most effective action is risk miti-
gation, as this reduces the negative effects of risks before they actually
happen. Risk coping is essentially the residual strategy if everything else
has failed. However, since each of these strategies has both direct mone-
tary and indirect opportunity costs, relying entirely on risk reduction or
mitigation may not be either efficient or feasible. The experience of the
formerly centrally planned economies has demonstrated that trying to elim-
inate all risks in advance through quantity planning, official price setting,
and public ownership of productive means has serious costs in terms of
lower economic growth.
At the other extreme, many of the current government interventions in
developing countries, particularly for the poor, concentrate on risk coping.
To increase the effectiveness of risk management strategies, these countries
should pay more attention to risk mitigation and reduction. The accumu-
lation of assets (such as land, cattle, and financial savings) and the adoption
of policies that discourage disinvestment (such as cutting down trees) are
of the utmost importance in this regard. This does not mean that govern-
ment should forget about social safety nets, since they are clearly necessary,
particularly during periods of natural disaster or economic crisis. Rather,
government should introduce programs that support coping while also
reducing risk (for instance, by subsidizing education).
Concentrating only on helping poor people to deal with a shock once
it has occurred runs the risk of reinforcing a poverty trap and perpetu-
ating the vicious cycle of low returns, low risk-taking, and deep poverty.
Balancing coping strategies with reduction and mitigation strategies has
the potential to trigger a virtuous cycle in which people can undertake
activities with higher variability in returns but also with higher absolute
returns.
11 Revisiting social protection as a sector
The risk management framework poses challenges to rethink the role of
existing public sector programs and to expand the range of interventions
to include informal and market-based activities. First, the framework
provides a starting point to understand individual programs and their inter-
action in terms of helping people manage risk. Second, it extends the sector
to include areas of informal and market-based arrangements in which it
frequently has little experience.
Regarding publicly provided social protection, reassessment of risk
11 reduction measures should involve:
• Assisting governments to make labor markets more equitable and inclusive,

11 including a review of labor market regulations and a pragmatic and
country-based approach to address public labor standards while devel-
oping support for market-based and voluntary standards.
• Enhancing pre- and in-service skills building, which will entail reorienting
supported policies to reflect the increased importance of market-driven
training and the shift from skills to knowledge.
• Eliminating harmful child labor. Removing children from school is a
111 common coping mechanism for poor households, but it endangers the
long-term potential of the children. Some uses of child labor are so
clearly harmful that a major global effort should focus on their erad-
ication.
In terms of risk mitigation the new strategic directions should include:
• Improving old-age income security. The multi-pillar pension system has

emerged as a widely recognized benchmark for formal sector pension
reform. But reform experience also indicates that coverage is to remain
111 a main issue of concern in developing countries. This calls for stronger
emphasis to ensure provision of retirement benefits for the informal
sector and lifetime poor (Holzmann and Stiglitz 2001).
• Providing appropriate unemployment benefits. Many developing countries are
rightly questioning the standard insurance approach to unemployment
mitigation. This calls for a careful assessment of the experience of alter-
native instruments, including public works programs (for informal
sector workers) and individual saving unemployment accounts (for
formal sector workers); see Vodopivec and Raju (2001).
111 Revisiting risk coping mainly involves safety nets. Promising avenues relate
to interventions that help the poor cope while reducing or mitigating future
risks (for example, transfers linked to keeping children in school). Key
111 strategic questions include:
62 Robert Holzmann
• What is the appropriate balance in supporting different types of safety net programs?
The key interventions include transfers in cash or kind, subsidies, and
public works. Since each has drawbacks and advantages, more and
systematically collected and analyzed information on program experi-
ence is needed to provide the best possible advice to countries.
• How much is enough? While the global financial crisis has emphasized
the need for coping programs, care must be taken that they remain
appropriately sized and do not hamper other forms of risk manage-
ment. Such issues must enter the dialogue of development banks with
the IMF in crisis situations.
• How can coping assistance help with risk mitigation and reduction? From the
perspective of the social risk management framework, this relates to
how assistance can be provided in a way that not only increases current
levels of consumption for poor people but also enables them to better
manage risk and climb out of poverty.
The social protection sector has had little experience to date in

supporting informal risk management, yet work can and should be started on
several fronts, including:
• Refining the role of social funds. Considering their increased emphasis on

community-driven development, social funds should (i) expand the
menu of eligible projects; (ii) target vulnerability in addition to poverty;
and (iii) strengthen support for software aspects that will enhance the
flow of services from installed infrastructure.
• Encouraging legal reform to protect poor people’s (and especially poor
women’s) property rights to assets, which includes the revision of inher-
itance laws.
• Supporting community-based coping related to orphans and AIDS victims, begin-
ning in the parts of sub-Saharan Africa where the traditional coping
mechanisms have been put under an unbearable strain.7
International institutions, including the World Bank and ADB, have

much more experience in supporting market-based reforms, and the chal-
lenge will be to incorporate risk management aspects into these reforms
without distorting fiscal and financial sustainability. Two potentially
promising areas stand out:
• Developing microfinance within social protection programs. Recent trends in

microfinance (towards instruments such as microsavings and micro-
insurance) and the combination of community-based and market-based
arrangements (reinsurance) should help develop new models that may
meet both financial and social sustainability criteria.
11 • Building financial literacy. Safe financial assets are key to poor people’s
ability to mitigate risk, and there is a potential role for social protec-
tion interventions in bridging the gap between formal financial sector
reforms and traditional social protection programs, for example
through the promotion of financial sector literacy.
Vulnerability: a concept in need of definition and

operationalization
11 A main objective of the new framework for SP is to move from an ex post
toward an ex ante approach in poverty reduction. The task for the govern-
ment in such a forward-looking approach is to undertake or facilitate risk
11 management which reduces the potential for poverty-related welfare losses
before they actually happen. This concern about expected welfare losses
is frequently linked with the notion of vulnerability and the unstable nature
of poverty, i.e. movements in and out of poverty by individuals and
changing welfare position, by poor people due to shocks. This section high-
lights some key empirical features of poverty dynamics and asks how these
characteristics can be best translated into an operational definition of
111 vulnerability.
Poverty dynamics and income mobility

The analysis of poverty dynamics and economic mobility has three dimen-
sions (Baulch and Hoddinott 2000). One is the metric, the way welfare is
measured (such as by income, consumption, expenditure, and assets). The
second is temporal, the time frame over which the metric is assessed.
The most important distinction is between cross-section and longitudinal
data (following households or individuals over time). The third dimension
111 involves the method used to summarize these measures over time. While
there is a rich literature to measure poverty in a static and ex post manner,
the literature on the temporary component is thin.
To assess the poverty dynamics in the short run, the approach used in a
growing but still small number of panel studies in developing countries
consists in estimating the percentage of households which are always poor
(i.e. poor in any period of time), sometimes poor (i.e. not poor in at least
one period), and never poor (i.e. not poor in any of the periods). This cate-
gorization is typically done using the metric of income or consumption and
a standard poverty line. Comparing 13 panel studies for developing coun-
111 tries in Latin America, Africa, Asia, and Russia (Baulch and Hoddinott
2000: table 1) confirms the assessment of still other studies that the
percentage of households which are sometimes poor is surprisingly large.
111 It ranges from 20 to 66 percent, with most countries exhibiting shares of
64 Robert Holzmann
transient poverty between 30 and 50 percent. This contrasts with the share
of households which are always poor and which ranges for most of the
investigated countries between 10 and 25 percent. While measurement
errors may substantially inflate the estimates of total and transient poverty,
studies that explicitly correct for measurement error still find significant
shares of transient poor. These findings suggest that an ex post focus on
poverty is likely to concentrate on many individuals that will not be poor
in the next period while neglecting those that are not poor now but will
be so in the next period.
A similar picture emerges when panel data are used to estimate changes
in the relative welfare position of individuals. Comparing eight transition
matrices (Baulch and Hoddinott 2000: table 4) suggests that fewer than
half of the households remain on the diagonal, that is, maintain their rela-
tive welfare position over time, while some 30 to 40 percent move by one
quintile, and another 15 to 20 percent move two or more quintiles. Again,
these results suggest that significant individual income and expenditure
variation occurs over relatively short time periods, underscoring the poten-
tial vulnerability of many people.
While the existence of a strikingly large number of transient poor is
receiving increasing empirical support, we still do not understand fully what
is behind these dynamics. The current wisdom is that poverty reflects a
combination of low endowments, low returns to these endowments and
vulnerability to shocks, and that these factors are closely interrelated.
A further conjecture is that temporary shocks may have long-term effects
on the ability of the vulnerable to permanently escape poverty, and that
these consequences are transmitted intergenerationally. Empirical valida-
tion of this conjecture would further strengthen the case for ex ante policies
to prevent or mitigate such events.
Defining vulnerability
The preceding discussion suggests that an appropriately defined concept
of vulnerability would be useful in the analysis and design of ex ante SP
policies. A tractable definition would (i) allow empirically meaningful
measurement of vulnerability both statically and over time at the individual
and group levels; and (ii) permit an assessment of the impact of SRM
instruments on vulnerability. While important work is ongoing inside and
outside the World Bank, no such agreed-upon definition yet exists.8
Reviewing the notions of vulnerability used in the literature reveals
many different concepts, depending on the specific application, whether in
economics, sustainable livelihood, food security, sociology/anthropology,
disaster management, the environment, or the health/nutrition literature
(see Alwang and Siegel 2001). The main tension seems to be between
11 conceptual and empirical strength. No concept employed so far seems to
have both.
What emerges from the current attempts to define vulnerability (be it
in relation to income or consumption, health, education, or other poverty
related indicators) is (i) the need of a benchmark; and (ii) a selection of
time horizons against which vulnerability is measured (a month, a year, or
longer).
In its simplest form, vulnerability for an individual or household can be
measured as the probability that expected future consumption falls below
11 some minimum level. For a household at time t, let cht denote per capita
consumption expenditure and let c denote the poverty line. Then, vulner-
ability, vht, is the probability that the expected per capita consumption is
11 below the selected poverty line, with an arbitrarily chosen probability
threshold Pr (of, say, 0, 25, or 50 percent):
vht = Pr (cht+1 ⭐ c) ⭓ Pr
To make this definition operational, we need to assume a particular
income-generating process for household consumption. This requires us to
think a bit about the determinants of household consumption. A house-
111
hold’s consumption in any period will depend on a number of factors,
including its assets, its current income, and its expected future income (i.e.
permanent income). In cases of liquidity constraints or low permanent
income, access to risk management instruments will importantly impact
future consumption levels and their volatility. Each of these variables will
depend on a variety of household characteristics, those that are observ-
able and some that are not observable as well as a number of features of
the aggregate macroeconomic environment. This suggests the following
reduced form of consumption:
111 Cht = c (Xh, Ih, ␤t, ␣h, ␧ht)
where Xh represents a bundle of observable household characteristics, Ih

the set of observable, available risk management instruments, ␤t is a vector
of parameters describing the state of the economy at time t, where ␤t
evolves according to some stochastic process; and ␣h and ␧ht represent,
respectively, an unobserved time-invariant household level effect, and any
idiosyncratic factors (shocks) to households which are otherwise observa-
tionally equivalent. Based on this simple model, heterogeneity across
households and a distinction between the cross-section and intertemporal
111 dimensions of vulnerability can be introduced and models for empirical
implementation can be derived (see Chaudhuri and Datt 2001).
Such a measurable definition of vulnerability will hopefully provide
111 insights into how different household characteristics, macroeconomic
66 Robert Holzmann
aggregates, and RM instruments influence vulnerability. Results on the
latter may help to assess their relative effectiveness and, perhaps, efficiency.
Yet, in order to fully examine the interaction between RM instruments,
household characteristics and macroeconomic aggregates, and to gain
a better understanding about the underlying choice of RM instruments, it
will be necessary to have a more explicit model of SRM and vulnerability.
This is still missing. One promising approach would be to determine a
model in which individuals or households have the possibility to reduce
their vulnerability through access to and application of a given set of risk
management instruments, with opportunity costs determining the choice
of strategies and arrangements. In such a model, it is the interaction
between risk exposure and risk instruments which creates vulnerability
(defined as hazard, or the expected damage or loss). Risk exposure is the
result of the interaction between risk and characteristics, of which some
are exogenous (such as gender), and some are endogenous and can be
changed by individuals as a preventive action (such as the location through
migration). The government can enhance the set of risk management
instruments against existing resource constraints, opportunity cost consid-
erations, and trade-offs to other policy objectives. The trade-offs for
individuals between the choice of different risk management instruments
can, for example, be specified in a simple model as proposed by Gill and
Elahi (2000), based on Ehrlich (1972).
Risk and vulnerability assessments: a new entry

point for an analysis and policy dialogue
The view that risks – both their sources and forms – matter for poverty,
and that the way out of poverty crucially depends on the availability of
appropriate risk management instruments, has important implications.
It implies that a necessary starting point is a thorough risk assessment which
details, measures, and assesses the crucial risks to which the population at
large and the poor in particular are exposed. A second stage involves an
assessment of the available instruments to address these risks and identifi-
cation of gaps in existing instruments. Finally, a plan has to be elaborated
which defines the priority and the sequence of actions to close the risk-
instrument gap. Such a systematic approach may be not only more effective
for poverty reduction, but also more palatable for national governments
and the conduct of a policy dialogue with international organizations and
bilateral donors.
This section summarizes current risk assessment efforts in Latin America
and outlines next steps.
11 Dimensions of risk assessment
There are two main dimensions for risk assessment: top-down and bottom-
up. The top-down approach takes a macro-view on the main risks a country
or region is subject to, and includes macroeconomic risks (such as infla-
tion, volatility of GDP, and terms of trade shocks), natural risks (such as
earthquake, flooding, or drought), major health risks (such as HIV/AIDS
and other communicable diseases leading to large covariate shocks), and
security risks (such as war and civil strife). Data for these risks are largely
available from national and international databases and the macro-risk
11 profile of a country can be established from a desk operation. The regional
SP sector strategy papers by the World Bank, which were developed in
parallel to the overall strategy paper, include a first approach in this direc-
11 tion (World Bank 1999a and b, 2000b–e).
Based on these macro-risk profiles of a country, a number of studies can
be undertaken to investigate the poverty effects and implications of these
risks, and to outline policy actions, many which will fall outside SP as a
sector.
At the regional level, a study was undertaken to investigate the oppor-
tunities and risks in a globalized Latin America and the Caribbean
111 (De Ferranti et al. 2000). The study asks whether globalization has increased
the macroeconomic risks for the region and how the realized macro-
economic risks in the 1980s and 1990s have impacted on the poor. It
concludes that, while the macroeconomic volatility in LAC is high (at least
higher than in industrialized countries), it has not risen in the 1990s; in
various countries it has even fallen below that experienced in the 1970s.
But, as documented by surveys, the perception of insecurity has increased
and with it the demand for risk management instruments by workers (most
importantly for unemployment income support). To deal with existing risks
ex ante, it suggests a number of policies, including macroeconomic diversi-
111 fication and liquidity management, and anti-cyclical budgetary policies.
With regard to the impact of crises on the poor, the results based on house-
hold panel data for Argentina, Brazil, El Salvador, and Mexico are rather
differentiated (ibid.: 8–9):
• First, economic contractions differ substantially in their economic

effects on poverty and human capital investment. In deep recessions
the poor suffer greater proportional losses in income than the wealthy.
In moderate recessions, the opposite appears to happen – in many
cases, the greatest proportionate income losses were borne by the rich,
111 while groups such as the elderly and single mothers do not appear to
be especially badly affected. This finding is not true in every crisis and
every setting. For example, conclusions vary by country, and within
111 some countries, between rural and urban areas.
68 Robert Holzmann
• Second, the poor seem to have gained more during growth periods
than is generally acknowledged. This does not mean that the poor
should not be helped, it merely implies that from the perspective of
poverty alleviation growth policies must be given priority, regardless
of concerns of high inequality in the region.
• Third, the poor – like those with more wealth – are reluctant to perma-
nently compromise their family’s future during economic crises that
are perceived as temporary. This is especially true for parental deci-
sions about children. The poor do not, for example, frequently pull
their children out of school during bad times, although they do when
the recession is perceived as severe.
• Finally, and unsurprisingly, access to reserves, such as assets and under-
used family labor, reduces the vulnerability of households to shocks in
the sense of having to adjust through reduced consumption or critical
investments such as schooling and health. Assets may be the key factor
in households weathering large versus moderate contractions. In brief
or mild contractions, even the limited assets of the poor can help
weather the crisis; in more severe or recurring crises, the poor may
eventually exhaust their assets and be forced to suffer drastic declines
in their well-being, with adverse long-term effects.
A bottom-up approach of risk and vulnerability assessment asks the poor

what they perceive as the most threatening risks for their livelihood. Their
assessment may be different from a (distant) government perception or an
(even more distant) perception by international institutions and bilateral
donors. And their assessment provides, perhaps, more direct guidance for
policies and the selection and provision of appropriate risk management
instruments.
An example of an ex post risk assessment is based on the 1994–5 Ethiopian
Rural Household Survey (Dercon and Krishnan 2000). As highlighted in
Table 4.2, for the rural population natural risks (such as harvest failure)
dominate other concerns, and even policy problems (such as resettlement
and taxation) are more serious than labor problems (such as illness, death,
and divorce). Altogether, agriculture-related risks dominate any other
concerns in the rural area, including even war and crime. Introducing
period-specific risks into the econometric specification further illustrates the
effects of shocks such as rainfall (or the lack thereof ) and livestock diseases
and the lack of consumption-smoothing instruments (ibid.: table 6).
Qualitative risk assessments derived from participatory assessments and
community consultations in other African countries confirm that the main
sources of risk are largely perceived to be covariate (AIDS, war and civil
conflicts, rural risks, and macroeconomic shocks), with some idiosyncratic
shocks such as illness, widowhood, and old age also of concern.9 Similar
11 Table 4.2 Assessed risk in Ethiopia by rural population, 1982–2002
Type of risky event Percentage of household Mode year of

reportedly affected by most recent severe
type of event event
Harvest failure (due to drought, 78 1984

flooding etc.)
Policy problems (resettlement, 42 1985
taxation etc.)
11 Labor problems (illness or 40 1993
death, divorce etc.)
Oxen problem (disease, theft, 39 1993
11 distress sale etc.)
Other livestock (as above) 35 1984
Land problem (land reform, 17 1989
transfer to family member)
Asset losses (fire, theft, 16 1885
villagization etc.)
War 07 1989
Crime/banditry 03 1986
111
Source: Dercon and Krishnan (2000: table 5), based on data from the 1994–5 Ethiopian Rural
Household Survey.
patterns also emerge for other lower- and middle-income regions in South
and East Asia, and in the Middle East and northern Africa.10 These find-
ings call for public interventions which may not necessarily put traditional
social protection programs in the forefront, but access to water, health,
and education. The situation in the former communist countries of Europe
and Central Asia is somewhat different since the old system tried to elim-
inate any kind of risk through public ownership of the means of production
111 and planning, while providing a whole range of social protection programs
(World Bank 2000b). Here, a restructuring of these social programs for a
market economy is needed and under way. What all regions and countries
need is quantitative evidence of risk and vulnerability and qualitative indi-
cators. Pilots in this direction are under way in Africa, Asia, and Latin
America, with the Latin American and Caribbean region in the lead.
Country pilots in Latin America

New ‘Risk and Vulnerability Assessments’ are currently being piloted by
111 the World Bank in Guatemala and Colombia (Arriagada et al. 2001),
with first results out for Colombia (Gonzales 2001) and the approach
and concept paper ready for Guatemala (Tesliuc and Lindert 2001). The
111 structure of these assessments is to:
70 Robert Holzmann
• Construct a typology of vulnerable groups in each country.
• Construct a profile of key risks and assess their impact on the poor
and key vulnerable groups.
• Examine household and community level mitigation and coping
mechanisms.
• Review formal risk management and social protection interventions in
each country and assess their effectiveness in reaching and protecting
key vulnerable groups.
A major practical challenge for these country pilots is to develop a

methodology and a set of indicators for assessing risk and vulnerability
using limited cross-section and qualitative data. Clearly, panel data would
be superior but are not available in either country and many other coun-
tries in the region. Even if they were available, they typically would not
(yet) contain information about risks, risk instruments, and vulnerability.
For this reason, existing cross-section data and newly launched survey data
have to be used, including:
• Single cross-section household data resulting from recently fielded

household surveys that include specially designed modules on risk,
vulnerability, and risk management in addition to traditional modules
which could also lend information to analysis.
• Participatory qualitative vulnerability assessments that gather informa-
tion on community perceptions of risk, vulnerability, poverty, and the
use of social risk management strategies.
• Other information that is potentially relevant in these countries, such as
poverty maps, maps of other vulnerability-related phenomena such
as natural resources and disasters, conflict maps, food security maps
(being tracked by WFP and FAO), other household surveys (such as
demographic and health surveys, census data etc.), and other economic
data.
Another approach already piloted in various countries in the LAC region

(such as Argentina, Jamaica, Mexico, Uruguay, and planned for many
others) consists of using secondary information to identify key risks by age
group, help identify possible measures to address these risks, and to clarify
the role of SP policies (including social insurance and social assistance
programs) vis-à-vis other sectors. The secondary information draws on work
on poverty assessments, budget analysis work, ‘voices of the poor’ surveys,
information from NGOs, and other sources. Identifying risks by age groups
is a simple but useful way to identify sources of vulnerability. As people
move through the age profile with given social programs, a readily avail-
able indicator for vulnerability can be established. This short cut in the
11
11
11
111
111
111
111
Table 4.3 Managing social risk in Argentina: main risks and policy responses
Age group/ Role for other Role for social protection, social insurance, Numbers of indigent
main risk programs social assistance and poor uncovered
0–5/
Stunted development PHC services pre-school – Early Child Development 400,000 ind.
education (ECD) programs 1,000,000 poor
6–14/
Low education Improve primary – – –
quality school quality
15–24/
Low secondary Improve secondary – Scholarship/return to 100,000 ind.
school completion school access/quality school incentive programs 400,000 poor
25–64/
Low income Labor-intensive growth Unemployment Workfare/income transfers 800,000 ind.
(unemployment/ and labor market insurance 3,750,000 poor
underemployment) reforms
65 and over/
Low income – Social security Non-contributory pensions 24,000 ind.
(contributory pensions) (income transfer) 200,000 poor
General population/
Low access to/ Provision of health Health insurance – 1,700,000 ind.
quality of health care services 6,000,000 poor
Low housing quality Mortgage facilities/ – Housing subsidies 200,000 hh. ind.
infrastructure investment 800,000 hh. poor
Source: Argentina: Managing Social Risks (World Bank 2000e).
72 Robert Holzmann
risk analysis process proved to be very powerful to complement traditional
poverty assessments and to engage governments in a discussion about
appropriate policy responses. Table 4.3 presents an abbreviated version of
such an age-group related risk-policy response table for Argentina.
Desk study pilots

Development research institutions throughout the world have established
own household and other data sets for countries, and increasingly panel
data with two or more points of observation, or have access to corre-
sponding data sets by governments or international organizations. Using
these data sets through desk studies can be a further approach to gaining
insights into vulnerability issues, including the testing of alternative speci-
fications and estimations of vulnerability. The Social Protection Unit of
the World Bank has commissioned studies in this direction from IFPRI,
covering five countries in four regions (Bangladesh, Mexico, Russia,
Ethiopia, and Mali), with final results for discussion at a workshop and
general distribution in Autumn 2002.
Next steps
The work on risk and vulnerability assessments is just beginning both at
the conceptual and operational level. The approach undertaken by the
World Bank is to move conceptual and operational work in tandem in
order to leverage the gains in understanding. Conceptual work guides the
next steps for implementation while operational work and new survey pilots
provide the feedback to rethink methodology and the conceptual frame-
work. The success of this approach is likely to be enhanced by:
• Information sharing between regions, international institutions, bi-

lateral donors, and others involved in this new approach. This is more
easily said than done (even within one institution).
• Supporting academic research at the analytical and empirical level,
such as the use of panel data to derive vulnerability indicators which
allow the use of cross-section data to signal vulnerability.
• Working very closely with governments to gain their support for the
new approach and to disseminate the new thinking and methodology.
Within the World Bank this is done through the World Bank Institute
(WBI), and a new seminar and training module on SRM was sched-
uled to be piloted with the African region in 2002.
• Capturing the state of the art and lessons learnt in easily accessible
form.
11 A pilot in this direction constitutes a template on risk assessment and risk
responses for which a first draft is available (Heitzmann et al. 2001).
Economic crisis management: what have we

learned for social protection?
Addressing major financial and economic crises such as the debt crisis in
Latin America in the 1980s and mid-1990s and the recent financial crisis
in East Asia presents a major challenge for social risk management. Such
11 crises stem from large covariate shocks to individuals and households which,
if deep and protracted, are likely to exhaust the risk management capacity
of individuals and households and their use of informal and market-based
11 arrangements, as well as the capacity of governments. Family and commun-
ity risk sharing arrangements are less effective in the face of covariate shocks,
tend to break down, and are typically less effective for the poorest of the
poor. Governments are typically not prepared to handle a rising number of
needy individuals, both in administrative and budget terms, and quite often
programs do not exist that can be expanded. Lacking or having exhausted
available risk management instruments, households will have to use short-
111 term coping mechanisms such as taking children out of school and increas-
ing the time spent in the labor market by children and women, selling
productive assets, and reducing nutritional intake with long-term negative
consequences for productive capacity and long-term poverty reduction.
This background has motivated the APEC finance ministers to ask the
World Bank, the IMF, ADB, and IADB to prepare a paper which takes
stock of the experience in Latin America and East Asia, and that distills
good practices for the region and the world (World Bank 2001d). The
report of this working group is based on responses to a questionnaire admin-
istered to six APEC countries (Chile, Indonesia, the Republic of Korea,
111 Mexico, Peru, and Thailand) and follow-up missions to these countries
during July–August 2000. The report provides a good first review of issues
and recommendations, and the main findings (ibid.: 18) include:
• The availability of timely and reliable information on poor and vulner-

able groups is critical for the design and implementation of social safety
net programs.
• Pre-crisis planning can contribute to the design of effective safety nets.
Planning will include an assessment of risks and target populations
together with identification of program instruments, financing, and a
111 strategy for reducing or phasing out programs after the crisis.
• Ideally, safety net instruments should be in place before a crisis occurs.
It is essential that the programs are targeted; provide adequate pro-
111 tection to the poor; avoid creating a culture of dependency among
74 Robert Holzmann
beneficiaries; and are consistent with economic incentives and overall
targets of macroeconomic and fiscal policy.
• Social safety nets should build on existing public programs and mech-
anisms for targeting and delivery. In practice, safety nets will typically
comprise a variety of programs and targeting methods. Major social
safety net programs include: cash or in-kind transfers, price subsidies,
public works, fee waivers for social services, supplemental feeding and
nutrition programs, targeted human development programs, and
microfinance programs, as well as social insurance programs that can
reach the poor.
• If adequate pre-crisis planning has not been possible, social safety nets
should concentrate on existing programs employing simple targeting
methods that can be adapted quickly to increased utilization during
crisis.
• Transparency and accountability in the design and implementation of
programs and in the use of resources are critical to the effectiveness
of social safety net programs. Public information on the different
programs and the eligibility criteria should be made available as well
as periodic and independent program evaluations.
• Social safety net programs should be coordinated across implementing
ministries and departments as well as different government levels to
avoid inefficient overlap and administrative waste.
• The building of adequate administrative capacity at the local level
should precede decentralization.
• During crises, proportional cuts in social spending in general and safety
nets in particular should be avoided. If possible, spending should be
maintained or increased and key programs should be protected.
• The involvement of NGOs, community groups, and religious organ-
izations can be promoted to enhance efficiency and accountability,
provided their capacity to implement social safety nets is adequate.
Adding support for these conclusions with experiences from other coun-
tries, encouraging further technical clarification about design and imple-
mentation, disseminating the findings in these countries and beyond, and
supporting the implementation in countries would be a major achievement
for social protection and lasting poverty reduction.
Social sector expenditure reviews: a means to

improve the efficiency of public interventions
The SRM framework suggests that many effective risk management
interventions fall outside the traditional social protection domain but are
within the social sectors, such as access to basic health, education, water,
11 and sanitation. This suggests that an integrated view on social expenditure
and financing would be beneficial. Furthermore, the poverty reduction
strategy papers and the underlying process call for a review of budgetary
expenditure in order to increase spending effectiveness. This asks for a
review of social expenditure and its efficiency in contributing to poverty/
vulnerability reduction.
Reviews of total government expenditure and selected policy areas are
undertaken by a number of institutions to serve a variety of purposes. The
IMF produces the Government Finance Statistics annually with the key objec-
11 tive of making the fiscal accounts consistent with other accounts in the real
and monetary sectors, to facilitate detection, analysis, and reaction to
sources of macroeconomic instability.11 The World Bank produces Public
11 Expenditure Reviews, which examine the structure of expenditures and provide
a broad-brushed analysis of expenditure problems (including institutional
weaknesses). The ILO produces Social Protection Expenditure Reviews and uses
the European System of Integrated Social Protection Statistics (ESSPROS)
as a starting point (Hagemejer 2000). Bilateral donors (such as DFID, GTZ,
CIDA, SIDA etc.) as well as multilateral organizations produce other
expenditure reviews for loosely defined social sub-sectors in developing
111 countries, most often on education and health, and sometimes on social
safety nets or social protection, however defined. However valuable these
different reviews by different actors are, they use different definitions and
concepts, are often not linked to the development indicators these expen-
ditures affect, and demonstrate the lack of agreement about the best
methods to estimate the effectiveness of these expenditures. In addition,
expenditure analyses often fail to take into account the (extra-budgetary)
spending by bilaterals and NGOs, or large employer-sponsored programs.
The current state of expenditure reviews calls for the development of a
systematic methodological framework of social expenditure, financing, and
111 performance reviews in developing countries. A framework is needed,
which is jointly developed and applied by international organizations, bilat-
eral donors, and countries, to undertake reviews with comparable results.
Such a joint methodology would have at least two main effects. It would
enable the development of benchmarks for countries, and would facilitate
learning from experiences of other countries. Moreover, once a method-
ology is established, institutions, bilaterals, and countries will be able to
outsource these reviews to international and local consultants, whose
work and results can be much better benchmarked and hence monitored.
Finally, a joint framework would provide a better basis for partnership
111 between international organizations as well as bilateral donors, and should
contribute to institution building in the joint-client countries.
The Social Protection Sector of the World Bank has developed a draft
111 framework which will form the basis of dialog with ILO, IMF, and other
76 Robert Holzmann
partners, and several bilateral donors have expressed their interest in joining
the effort. A first draft on the Social Protection component is completed
(Heitzmann et al. 2001); a draft for the overall social expenditure was circu-
lated in Summer 2002. In parallel, first expenditure pilots are taking place
in a few countries and will be upscaled once the overall template is ready.
The experience of these pilots would feed back into revising and refining
the methodological framework.
The currently proposed approach to conducting a comprehensive SSER
is three-layered:
• Identify the scope and structure of a country’s social sector.

• Monitor the necessity, appropriateness, and capability of social sector
programs/interventions to reduce poverty.
• Evaluate the economic effectiveness of social sector programs and inter-
ventions provided or financed by the public sector.
First, it is necessary to identify all expenditures related to a country’s social

sector by gathering information on relevant programs or interventions
provided or financed by the government or the private sector.12 The
successful conduct of this exercise will enhance the knowledge of the basic
composition and structure of a country’s social sector expenditures, as well
as the financing systems, and will allow analysts to answer basic expendi-
ture-related questions, e.g. on what, how much, by whom, and for whom.
Second, all social sector interventions and programs of a country need
to be reviewed in terms of their potential to reduce poverty/vulnerability.
This involves primarily the assessment of whether social sector interven-
tions/programs in a country meet the prioritized needs of the poor and
contribute to improved risk management. Furthermore, in-depth analysis
of programs or interventions of the public sector need to be carried out.
This comprises the examination of whether public programs or interven-
tions meet the rationale for public intervention, and the actual demand of
the poor. Moreover, the objective(s), progress, and outcome(s) of each
program or intervention will be studied to identify successful and unsuc-
cessful projects. The information gathered by this exercise provides grounds
for improving the allocation of resources between public programs.
Finally, all social sector programs and interventions financed or provided
by the public sector need to be evaluated in terms of their economic effec-
tiveness, e.g. by use of cost benefit analysis, benefit incidence analysis, tracer
studies etc. The successful conduct of this exercise will provide informa-
tion on necessary reforms of social sector programs/interventions in the
public sector.
Applying the three-layered methodology proposed here will permit a
description of the structure and composition of social sector programs and
11 interventions within a country, as well as an analysis of the appropriateness,
capability, and effectiveness of public sector programs and interventions to
reduce poverty and provide a rationale for necessary reforms of public
programs.13
The suggested road map for the development of the framework and its
implementation is pragmatic. First, after a reasonable and generally agreed
draft is available, it is suggested that a review should be piloted in a few
countries in each region to test its feasibility and to learn about its useful-
ness. Second, a sequential approach is suggested: a review would start with
11 an assessment of the main programs before deciding on selective deep-
ening of analysis and follow-ups. Finally, it is suggested that work begin
with initial qualitative assessments and memorandum items before deciding
11 on resource-consuming quantitative follow-ups.
Concluding remarks
This chapter has attempted to motivate and document a forward-looking
approach to social protection. It puts forward the notion that the concep-
tual underpinnings for a dynamic role of social protection in lasting poverty
111 reduction are to be found in the social risk management framework, a
construct that stresses the need to view social protection as a springboard
out of poverty.
The new concept is focused on vulnerability – a dynamic view of poverty
– and the need to offer risk management instruments to the population at
large and poor people in particular in order to reduce future poverty. This
forward-looking approach promises to be more effective for accelerated
and lasting poverty reduction; it is also consistent with the increase in
diverse risks facing people in a globalizing world. The concept of vulner-
ability already takes hold in the PRSP process as witnessed by the work
111 in Burkina Faso, Mali, Mauritania, and Senegal.
The refocusing on vulnerability as an ex ante view on poverty, compared
to the traditional ex post view only, has also important political dimensions.
With success in attacking poverty and the fall in the poverty rate, however
defined, the political constituency in support of continued anti-poverty
measures may decrease. The scope of vulnerability to poverty, however,
is much larger, even in middle-income countries, where it can still reach
50 percent and above, garnering continued support for social protection
measures.
While this new focus on vulnerability seems promising, many concep-
111 tual and operational issues still need to be addressed, but work in this
direction has started. This includes, inter alia, development of an operational
definition of vulnerability, the design and implementation of risk and
111 vulnerability assessments, the design of appropriate safety nets to respond
78 Robert Holzmann
to major economic shocks, and the conduct of social sector expenditure,
financing and performance reviews. Successful conclusion of this work and
implementation in developing countries during the coming years should
contribute to achieving the poverty reduction goals set at the Social Summit
2000 in Geneva.
To this end, a coalition is needed between multilateral development
institutions (such as the World Bank, UN, ILO, and ADB) and bilateral
donors (such as AUSAID, DFID, and GTZ), national and international
research institutions and donor and client governments. While each will
assume a specific role, working jointly on improving the design and imple-
mentation of a forward-looking social protection approach is important.
Only then can the richness of thought and experience be harvested and
applied for the benefit of the vulnerable.
Notes
1 Social Safety Nets in Response to Crisis: Lessons and Guidelines from Asia
and Latin America, Report prepared for the APEC Finance Ministers in collab-
oration with APEC member countries and a core team from the World Bank,
the International Monetary Fund (IMF), the Asian Development Bank (ADB),
and the Inter-American Development Bank (IADB), draft, January 2001.
2 For a collection of recent papers on these issues see the special 2000 issue by
The Journal of Development Studies on ‘Economic mobility and poverty dynamics
in developing countries’, edited by Baulch and Hoddinott.
3 See, for example, ADB (2001), Conway et al. (2000), DFID-OED (2000), and
Lustig (2000).
4 This and the next section draw on the SPSSP (World Bank 2001a) and can
present only the bare bones of framework and strategic conclusions. For a
more comprehensive and analytic presentation of the SRM framework, see
Holzmann and Jorgensen (2000).
5 For an extension of this list of risks, including those which impact on assets,
their translation into incomes and well-being of individuals, see Dercon (2001).
6 A recent vulnerability study for Kenya confirms that the time spent in reaching
markets enhances the poor’s vulnerability by reducing the mean consumption
while enhancing its variability; see Christiaensen and Subbarao (2001).
7 See the Proceedings of the World Bank/World Vision conference on Orphans
and other Vulnerable Children (World Bank 2001c).
8 Currently available economic approaches for definition and measurement
include Alwang and Siegel (2001), Chaudhuri (2000), Chaudhuri and Datt
(2001), Christiaensen and Boisvert (2000), Jalan and Ravallion (2000), and
Pritchett et al. (2000). For a recent review of the vulnerability concept and
suggestions for the way forward, see Dercon (2001).
9 See the African Sector Strategy Paper Dynamic Risk Management and the Poor:
Developing a Social Protection Strategy for Africa (World Bank 2001b).
10 See the strategy papers for EAP, SAR, and MNA (World Bank 2000c–e).
11 11 The new GFS manual enhances the link with the System of National Accounts,
inter alia, by moving toward the recording of flows on an accrual basis and by
integration of stocks and flows. See IMF (2000).
12 For a review of public and private transfers in the East Asia crisis context, see
Sumarto et al. (2000).
13 Linking the assessed risks by age group with budgetary costs per capita also
provides a first indication about the potential budgetary costs to cover the gap.
For an application to social sector programs in the Mexican context, see Hall
and Arriagada (2000: table 6).
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Part II
Insecurity, risk and
social capital
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5 Governance and the
common man
Embedding social policy in the
search for security
Geof Wood
11
11
Preamble
This chapter continues the task of linking together various strands of argu-
ment arising from the Social Policy in Developing Contexts (SPDC)
research programme at Bath. It is a third attempt. The two earlier incar-
nations have been ‘Regimes, Mixes And Ground Realities: A synthesis
paper’ (Gough and Wood 2000) and my earlier ‘Social Policy and the
111 Peasant Analogue’. This present chapter essentially revises the second of
these papers, but draws also on the first and other SPDC materials and
discussions. It does not constitute a descriptive overview of whole-team
contributions and does not reflect a full consensus of views, positions and
analysis. Rather, it represents a particular line of argument which seeks to
capture more closely the conditions of the poorer regions in the world,
especially South Asia and sub-Saharan Africa. In doing so, it challenges
many of the normative assumptions made by rich country social policy
discourses, especially in respect of the condition of the state and the labour
market. Hence ‘Governance and the common man’ (which I think has a
111 better ring to it than the common ‘person’) in the title. It is therefore
offering a particular argument rather than a synthetic overview of the Bath
project so far.
Introduction
Social policy as an applied multi-discipline of the social sciences has its
roots, like so much other social science, in the western political philosophy
of rich industrial and post-industrial countries. It has therefore been able to
rely upon two key assumptions: a legitimated state and a pervasive labour
111 market as the basis for most people’s livelihoods. Further key supporting
assumptions have included sophisticated, comprehensive and regulated
financial markets enabling strong links between the state and the market in
111 policy terms to support the savings, pensions and insurance sector. As a
84 Geof Wood
result, both the ontological construction of social policy, and the intellectual
discipline of social policy as a critique of inadequate and ineffective trans-
fers to the poor and insecure, focus heavily upon the role of the state. The
state as an outcome of formal political settlements about government
rights to tax and redistribute; and the state as a guarantor and provider of
essential services to deliver security at socially acceptable minimal standards
of living. In this sense, western social policy has been associated with
particular sets of means as well as ends. This chapter challenges the rele-
vance and efficacy of those means in poor country contexts.
This point of departure is influenced by Polanyi’s ‘great transformation’,
where economic modernisation and the development of liberal capitalism
is characterised as the disembedding of the economy from social relations
and the consequent realisation of ‘self-regulating markets’. But as Polanyi
argued, this principle of the market cannot easily be extended to fictitious
commodities like labour, land and money. Therefore, ‘social history in the
nineteenth century was thus the result of a double movement: the exten-
sion of a market organisation in respect of genuine commodities was
accompanied by its restriction in respect of fictitious ones’ (Polanyi 1944:
76, quoted in Harriss 2000: 328). Society therefore protected itself against
the market with respect to labour: ‘the labour market was allowed to retain
its main function only on condition that wages and conditions of work,
standards and regulations should be such as would safeguard the human
character of the alleged commodity, labour’ (Polanyi 1944: 177, again
quoted by Harriss).
These arguments have been strongly encapsulated in Esping-Andersen’s
notion of a welfare regime (1990, 1999), distinguishing between the
varying post-war political settlements across the richer industrial and post-
industrial societies with the terms ‘liberal’, ‘conservative’ and ‘social demo-
cratic’. The research programme at Bath included colleagues highly
familiar with the analysis of these political settlements working alongside
those with their roots in the development discourses of poorer countries,
especially in South Asia and sub-Saharan Africa. Heuristically we took the
‘welfare regime’ paradigm as an entry point into a debate about the under-
pinnings of a new, global social policy, which would not rely upon the two
key assumptions of legitimated state and pervasive labour market. The
‘project’ was never to apply a modification of the welfare regime. Rather,
it was about taking that conceptual apparatus and seeing what institutional
categories it generated when considering public/private combinations of
support for poor people’s livelihoods in non-rich countries. To aid this
process, we have increasingly distinguished between a strong version
of ‘welfare regime’ as comprising the state’s role in de-commodifying the
labour market (see below), and a weaker version which sees ‘welfare regime’
as a political settlement between the major competing interests in society.
Governance and the common man 85
11 However, even the weaker version does not adequately deconstruct the
institutions through which those interests compete, nor does it easily
contend with societies where the poor are effectively disorganised by those
institutions. The debate between us continues, and this chapter represents
some of its content. While there are various ways to pursue the argument
from this point, a simpler early observation has been that: the ‘welfare
regime’ paradigm in both its versions retains considerable validity in the
richer, middle-income countries of SE Asia and Latin America; is clinging
to relevance in CIS and transitional countries of eastern Europe; while
11 even its basic categories of analysis such as state and market are deeply
problematic as descriptions of conditions elsewhere, where the great trans-
formation in the Polanyian sense of disembeddedness might be considered
11 not to have occurred. At the same time, wherever peasant systems are
being transformed by the global restructuring of capital, with its flexible
labour markets, then even as peasants enter labour markets through migra-
tion and urbanisation, so they continue to be disempowered and insecure
in those markets and have little prospect of recourse to state protection
even where legal/formal rights exist.
This obliges us to argue for an ontology of social policy which embraces
111 an institutional ‘responsibility’ landscape: which does not conceptually priv-
ilege either the state or the market; which treats them both as problematic
alongside civil society or community and the household; which sees these
institutions as operating at different levels from the local to the global; and
which sees insecure, vulnerable people trying to negotiate secure livelihoods
through these imperfections and consequent uncertainties. It seems reason-
able to distinguish the business of social policy, as a critical multi-discipline,
from its less applied, more detached social science equivalent, namely
the analysis of political economy. In the latter, we may shrink even from
terms like ‘state’ and ‘market’ and substitute ‘polity’, ‘economy’, ‘society’ and
111 ‘family’ as more neutral terms (Bevan 2001). However, the study of policy,
and especially social policy in the service of poverty eradication, entails a
normative disposition towards the principles of rights and responsibilities.
This would seem to necessitate the more normative terminology of state,
market, civil society/community and household within an institutional
responsibility framework. But let us establish at the outset that these aspects
of the institutional landscape are regarded as deeply problematic for insecure
social actors negotiating livelihoods, and that these problems reflect both
the general principle of embeddedness within social relations and culture
as well as the specific issues of power, inequality, class relations and other
111 ‘identity’ bases to fission and fusion which constantly disturb the landscape
(Castells 1997). Thus, the object of our critical social policy studies has to be
the understanding of rights and responsibilities as actually articulated in the
111 institutional universe faced by the poor in developing contexts.
86 Geof Wood
This standpoint enables us to conceive of social policy itself (as dis-
tinct from studies of it) as a combination of the social, cultural and political
arrangements through which poor people (i.e. those who need it) supple-
ment their weaknesses in economic arrangements, partially but not
exhaustively framed as markets (whether labour, product or service).
This formulation puts some distance between the assumptions underpin-
ning the welfare regime paradigm in both its strong and weak versions,
and the institutional conditions prevailing in many parts of the poorer
world. The key difference is represented by the welfare regime principle
of ‘decommodification’, i.e. the state acting as a regulator and redistrib-
utor of otherwise unconstrained outcomes of market economic behaviour;
organising equity, in other words (Schaffer and Lamb 1981). The principle
of de-commodification simply does not make sense in societies where
economic behaviour is not commodified; where general commodity rela-
tions do not prevail as even imperfect markets; and/or where the social
embeddedness of markets limit any prospect of their purity.
Given poverty eradication as the point of departure, our central task
then becomes how to characterise these non-western conditions and
thereby to assess their implications for rethinking the basic principles of
social policy. In particular, these conditions bring centre stage the signifi-
cance of social and cultural resources at ‘community’ and family levels for
pursuing secure livelihoods, displacing states and markets. However, it may
be that the answer to the question ‘how do people presently survive?’ does
not lead to an adequate social policy answer, where a policy of strength-
ening present informal arrangements may amount to strengthening adverse
incorporation and clientelism. If so, then prescriptions almost inevitably
take the form of improving governance and the operation of markets
(i.e. the realm of rights and responsibilities). While these prescriptions
appear to conform to the agendas of the Bank and other international
organisations and donors, our conclusions are likely to differ with respect
both to the analysis of the value of present social resources, the territorial
space within which governance and markets might flourish, and to the
socio-political methods by which institutional conditions for a favourable
social policy can be created. That is to say, the means of social policy have
to be specified differently.
The way into this understanding can be described as the phenomen-
ology of insecurity, supported by a ‘poor actor-oriented’ epistemology.
In another language, we have to be more ‘emic’ in our methodological
approach with a stronger questioning of the present language and discourse
of normative social policy which is captured by an economics discourse of
levers and responses and a political discourse of citizenship, unmediated
by actually existing institutions (see the papers in Conway et al. 2000 for
an example on a non-emic narrative, especially the one by Jorgensen and
11 Holzmann from the World Bank). In a counter-narrative, poor people in
the poorer parts of the world can be characterised by other discourses such
as ‘peasant’ and/or ‘client’, reflecting the particular embedded nature of
livelihood options in a non commodified socio-political economy. Countries
in South Asia remain predominantly agrarian, and even though this
will demographically change over the next quarter century, the associated
principles of social organisation will persist perhaps indefinitely, since we
cannot equate urbanisation with a linear route to commodified moderni-
sation. At the same time, while these countries have operating nation-
11 states ( just) their problems of governance and effectiveness remain
(Landell-Mills 2001; Wood 2000; UNDP 2000). In sub-Saharan Africa,
continuing to be agrarian is only part of the understanding since the general
11 conditions of insecurity through wars, famines and AIDS challenge the
very conception of nation-state as a valid territorial entity. Bevan charac-
terises these situations as ‘insecurity regimes’, with large-scale political
clientelism (not just localised socio-economic clientelism) as the main frame-
work of social inclusion (Bevan 2001).
Indeed, the immediate predecessor of this paper was entitled ‘Social
Policy and the Peasant Analogue’ to express some aspects of the above
111 argument. In discussion, however, it was agreed that ‘peasant’ was too
limiting, even as a heuristic analogue, and would – perhaps like ‘welfare
regime’ – distort the wider argument. Nevertheless, I abandon it with some
reluctance since the principles of being a peasant extend as a description
into urban, industrial and informal sector life – i.e. into urban as well as
rural labour markets, and into urban as well as rural lifestyles (Roberts
1978; and, later, Wood and Salway 2000; Loughhead, Mittal and Wood
2000). This ‘peasant’ analogue could be described as the phenomenology,
of insecurity: risk aversion, discounting, covariance of risk emphasis upon
reproduction (physical and social), significance of the domestic/life cycle,
111 inter-generational forms of transfers and provision, intra-family dependency
ratios and significance of social resources in the context of weak social
capital. Pervasive clientelism takes this phenomenology a step further by
emphasising loyalty over voice in the absence of exit options (Hirschman
1970), but therefore the kind of loyalty which extends and compounds the
problem of governance.
As a result, one is tempted to say ‘sort out all of these conditions
before embarking upon discourses of social protection and safety nets’, by
recognising that tinkering with institutional reform in order not to frighten
the powerholders maintains the conspiracy of avoiding voice as the route
111 to change. Staff at the Bank are proud of their ‘Voices of the Poor’
Consultation for WDR 2000/01, but highly resistant to the exercise of
voice by the poor as the route to institutional reform.
111
88 Geof Wood
Welfare regimes outside the OECD

As some countries in erstwhile poorer parts of the world have experienced
dramatic economic growth, urbanisation and industrialisation, so has
social policy developed outside its traditional zones in OECD countries,
first in Latin America and later on in parts of East and SE Asia. There
has also been a further subset of richer OPEC countries with high per
capita incomes and a heavy reliance upon in-migration to deliver economic
growth and social provision. These processes of change have been part of
the story of ‘globalisation’. Elsewhere, strong systems of state-guaranteed
employment plus enterprise-based social protection were established in the
Soviet Union and the state socialist countries in the post-war period: these
are now being transformed by the uncertainties of markets, as yet barely
formed. In Communist China, a dualist welfare system was established
providing enterprise welfare in the towns and commune-based welfare in
the countryside, policed by residential permits; again, this is now being
transformed, though along a different path.
All of these regions are vulnerable to fluctuations and trend shifts in
global commodity and financial markets. Witness the collapse of the
Russian banking system and the East Asian crisis. But all these countries
enjoy macro-level social policies with some specified relation between the
state and market provision in the social sectors of education, health,
pensions and social care. The experience is variable between these coun-
tries and, in terms of distributional outcomes, within these countries.
Poverty and vulnerability clearly exist and persist within these countries
with many people having problematic rights and entitlements. There are
patterns to this distribution in terms of class, race, gender, age and
citizenship status.
But none of these regions, in aggregate terms, experience the scale and
depth of poverty found in a further subset of countries in sub-Saharan
Africa, South Asia and a few parts of East Asia. As proportions of their
total population, these countries are the least urbanised (currently);
have the smallest formal employment sectors; are most dependent upon
agriculture for primary incomes and employment; have the highest illit-
eracy rates; have the worst sex ratios; have the largest informal sectors;
and have the lowest education indicators. Occasionally they score highly
on economic growth rates, but from a low point of departure. They have
the highest population growth rates, with levelling out not expected until
the end of the first quarter of this century.
To what extent do these different countries and regions have ‘welfare
regimes’? The idea builds on the relatively trivial notion of the ‘welfare mix’
(or the weaker version of welfare regime, noted above): that different
domains of social life organised along different principles and rules
contribute collectively to livelihoods and welfare. As formulated by Esping-
11 Andersen, the concept of welfare regime contains three elements, not
entirely congruent. First, it applies to capitalist societies that have been
transformed into welfare states, i.e. not countries that happen to engage in
a bit of social policy on the side, but societies so deeply affected by their
non-residual, pervasive social policies that they are best defined as welfare
states. (This concept poses problems for the biggest developed country of
all – the United States – where 40 million lack health insurance and two
million, mostly poor and black, are incarcerated. Is this a welfare state or a
‘carceral state’?). Second, it denotes a degree of de-commodification
11 through state action – a measure of protection against total dependence on
market forces. To this can be added ‘de-familialisation’ – collective provi-
sion that reduces dependence on one’s family. The OECD countries vary
11 greatly here. Third, the concept denotes the ways in which states, markets
and households interact in the provision of welfare to produce and repro-
duce stratification outcomes. In this way social policies shape political
divisions and alliances and, usually, reproduce them through time thus
exhibiting path dependency. On the basis of the second and third dimen-
sions, Esping-Andersen distinguishes three welfare regimes in the OECD
world: liberal, conservative and social democratic. The liberal regime repro-
111 duces through a dualist politics, the conservative through status- and family-
based politics and the social democratic through a universalistic politics.
Can this ‘welfare regime’ approach be applied to poor, developing and
transitional countries? In the first sense, clearly not with the possible excep-
tion of the richest emerging market economies – Singapore, Hong Kong,
Korea and Taiwan – since it is questionable whether even the US is a
welfare state in the non-residual, pervasive sense. In the second sense, taking
the key ‘regime’ principles of de-commodification and de-familialisaton,
they used to apply to the Soviet Union, central Europe and other state
socialist countries including China until the very recent period. They still
111 apply to much of South America (Barrientos 2001) and parts of East and
SE Asia (Gough 2000), where extensive public programmes and private
provision coexist and interact, though in a highly dualist, stratified way. But
countries in South Asia and sub-Saharan Africa cannot be considered
to have welfare regimes in this sense. At best, the state contributes as a
significant employer in countries with large, even overblown, public sectors.
However, a key feature of this subset of countries is the absence of both
mature, well-functioning markets and effective state intervention in the social
sectors and welfare. How can one de-commodify the un-commodified or
partially commodified, especially when the instrument itself is tainted by
111 partial commodification?
In the third sense of stratification outcomes, there is only a broad appli-
cation (i.e. not specific to welfare regimes). Countries dependent on overseas
111 aid, or NGO-based provision, or migrant labour, or clientelist networks
90 Geof Wood
will develop group interests and political alliances which seek to continue
and extend the private benefits that these generate (see Davis 2001 on
Bangladesh). Even societies with persistent civil war and cross-border wars,
as in sub-Saharan Africa and parts of South Asia (Afghanistan, Kashmir),
may organise livelihoods and develop forms of collective provision which
adapt to war and reproduce through time.
Using this as our basis we might distinguish the following welfare regimes
outside the OECD:
• Degrading statist welfare regimes: Russia and parts of the FSU, central
Europe. China is a major subset here, perhaps a regime of its own.
• Dualist welfare regimes: the more developed countries of South
America, ‘settler’ countries in Africa (South Africa, Zimbabwe, Kenya).
• Productivist welfare regimes with growth-oriented states and social
policy: NE Asia, possibly parts of SE Asia.
But this still leaves major parts of the globe where the welfare regime
analysis may not apply: South Asia, sub-Saharan Africa, parts of SE Asia,
possibly China. To analyse social policy here – and indeed elsewhere – we
need to develop a broader analysis of the welfare mix using the institu-
tional responsibility matrix adumbrated below.
What is distinctive about developing countries?

As a precondition for developing a policy model based upon the relation-
ships between a series of key concepts and processes, we have to engage
with the distinctiveness of developing countries as a context within which
concepts gain more specific meaning. The intellectual project of transfer-
ring ‘social policy’ into a developing country context has to be done
explicitly, acknowledging some basic problematics in the transfer attempt.
Social Policy colleagues at Bath were, early on, accused in effect of contex-
tual ignorance and intellectual imperialism by poor country specialists.
Although such accusations came initially from outside Bath, some concerns
are expressed internally that the specifics of particular countries, and their
path dependency, cannot be contained and seriously engaged with via
North Atlantic/OECD social policy perspectives.
Returning to the central problematic of ‘de-commodification’, this prin-
ciple drove Esping-Andersen’s North Atlantic work on post-industrial
societies. It both reflects long established assumptions in social policy as
well as moving it forward in terms of a large-scale, comparative model.
The welfare regime idea, derived from it, has acted as a conceptual entry
point for the Bath team. As such, it got us into immediate trouble with
critics who have maintained the non-transferability of such approaches,
11 which rely upon the state regulation of markets to achieve more equitable
social outcomes. Several objections loom large, instantly:
• the economy is not commodified and free of other major social and
cultural objectives which determine both its functioning and outcomes;
• the state has so widely ‘failed’ both in competence and legitimacy that
it cannot feature as a corrective to class creating markets; and, more
linguistically,
• ‘welfare’ in poorer countries is perceived in contrast to ‘development’
11 as a combination of relief and charitable transfers, occurring within kin
and other social relationships where the culture sustains such morality.
11 These objections to welfare regime as a universal policy model have led

us to introduce the institutional responsibility matrix (IRM), in which the
institutional domains that comprise the social policy landscape are delib-
erately problematised from the outset. The IRM thus represents a more
universalistic, abstract conception to embrace the notion of welfare and
development mix. Its composition, around the normative principle of
‘responsibility’, reflects that we are analysing policy frameworks rather than
111 insecurity and political economy per se. We build up the IRM by linking
domestic to global. The first requirement is to extend the Esping-Andersen
triangle of state–market–family to include ‘community’. This refers to the
multitude of sub-societal organisational forms, including NGOs, and the
related notion of civil society. The result is the domestic ‘institutional
responsibility square’ (IRS).
Second, a variety of international components feature strongly in the
institutional landscape of poor countries. These include supra-national
equivalents of the four domestic components: official donors and other
international governmental organisations; global markets; international
111 NGOs and other ‘voice’ organisations; and the ‘internationalised house-
hold’ – migration, remittances and global risk aversion through access to
international welfare (Deacon 1999c; Room 2001) and finance institutions
(Sharif and Wood 2001). Table 5.1 illustrates all eight components of the
resulting institutional responsibility matrix (IRM).
A crucial feature that the IRM shares in common with welfare regime
analysis is that these institutions do not operate independently from the others in terms
of rules and pervading moralities. In other words, there is permeability. However
we have to distinguish between the quality and therefore outcomes of this
permeability – positive and negative. This in turn sets limits in different
111 contexts to the possibility of one set of institutions counteracting or compensating for
the dysfunctional effects of another.
It has been familiar to assert that the state can compensate, in distrib-
111 utional terms, for the market. Indeed, this assumption underpins the
92 Geof Wood
Table 5.1 Components of the institutional responsibility matrix
Domestic Supra-national
State Domestic governance International organisations, national
donors
Market Domestic markets Global markets, MNCs
Community Civil society, NGOs International NGOs
Household Households International household strategies
de-commodification basis of Esping-Andersen’s welfare regime approach.

North Atlantic societies and social theory seem to be premised upon the
incommensurate principle, enunciated inter alia by Isaiah Berlin (in his essay
‘The Hedgehog and the Fox’, 1967), in which behaviour (and presumably
morality) in one sphere can be successfully deployed against countervailing
behavioural principles in another. This implies that humans in such situ-
ations habitually live and function in opposite, incompatible and contrasting
categories of thought, commitment and behaviour, and accept that imper-
fections in one arena can always be corrected by another. It represents a
kind of moral free ride, rather like Catholic confession, in which sin is
always possible because absolution and external restraint are likewise on
perpetual offer. This would appear to be a fundamental element of western
liberal philosophy, in which there is an expectation that freedoms and
excess will be constrained by the activation of other freedoms. In contem-
porary governance thinking, the fulcrum or fault line has moved on to the
point where civil society is expected to act as a countervailing force upon
the unaccountable state – a very unGramscian idea.
Notwithstanding Isaiah Berlin (dangerous, I know), we will have to
understand permeability in such societies at a higher, meta level (in another
language – at the level of public aims rather than personal objectives). Thus
in developed societies, we might acknowledge a consistency between the
publicly-espoused principles and aims of fairness, equity, transparency and
trust as they operate in all domestic institutions of the IRS. Of course, at
the level of personal objectives people are selfish and engage in tax evasion,
avoidance and cheating, but not to the point of allowing anarchy and
chaos to prevail over order. Furthermore, it is as if people know their own
predilections for selfishness in their private ‘market’ and ‘community’
corners and deliberately accept the obligations of citizenship enacted
through the state corner. So can we really say with this analysis that the
state is ‘compensating’ for the market, when those operating in the market
are simultaneously committing a degree of their personal autonomy to the
state because they do not trust their own autonomy to deliver the public
goods of social order based on equity and sharing? Furthermore, they
11 accept the state because they acknowledge their own propensity along with
those of others to otherwise free-ride.
The problem arises when the permeability functions with the opposite
effect – i.e. when alternative principles and public aims prevail: of privi-
lege; of natural superiority of rights and entitlements; of selfishness;
of private short-term gain; of fission; and of social closure. Here all com-
ponents of the IRS exhibit failures. Markets are imperfect, communities
clientelist, households patriarchal and states marketised, patrimonial,
partial and based on political clientelism. In most developing countries,
11 with non- or partially commodified markets and a more ascriptive basis to
the acceptance and exercise of authority, core values prevail across the
different spheres of relationships with greater certainty. One’s behaviour
11 is simply not different whether inhabiting the state, market or community
and household. Under such conditions, how does it make sense to expect
the state to disentangle itself from deep structures in order to compensate
for them? To bend a famous phrase of Poulantzas: the state is a conden-
sate of social relations. In this situation all are prisoners (Wood 2000).
The issue is whether the prison is worth living in or not, and what func-
tions it performs. But do not expect its west wing to ‘compensate’ for its
111 east wing! In other words, we have the negative principle of permeability
between the arenas of social and economic action, guided by dominant
and cohering sets of values and accompanying norms, thus removing any
prospect of the corrective principle being applied.
Operationalising the matrix

Having replaced the ethnocentric welfare regime with a more universal-
istic institutional framework, there are three substantive and methodological
issues to consider: the basic critique of the institutional corners of the
111 domestic square; the significance of the global dimension of the IRM as
representing the corrective principle; and the arguments for a ‘meso’ focus
which links poor people as social actors to the problems of governance and
markets. Let us take each in turn.
First, therefore, and corresponding to the four corners of the IRS, there
are four sets of institutional problems to consider:
1 The state in terms of its legitimacy and governance to mobilise opinion

and resources towards poverty eradication, given that it has limited
autonomy to operate independently of other prevailing structures
111 of power in the society, including the informal buying and selling of
its services.
2 The market in the context of transition from localised, personalised
111 forms of exchange into wider systems requiring universalised principles
94 Geof Wood
of contracts and trust, maintained through public goods conceptions
of social capital.
3 The community as incorporated civil society acting as a supporting
pillar to governments (in the Gramscian sense of civil society); critical
civil society winning and maintaining rights (as in the present norma-
tive assumptions about contributing to improved governance); and as
voluntary and private activity towards one’s own needs as well as those
of others, but presently beset by problems of social closure, clientelism
and adverse incorporation.
4 The household, increasingly problematic as the primary unit of welfare
for its members, with gender and inter-generational obligations at risk.
(More detailed problematisation of the IRS can be found in Wood (2000),

as well as earlier SPDC papers.)
Second, there is the global dimension of the IRM, representing either the
corrective principle or opportunities for exit for those domestic classes with
choice. This includes:
• Formal supra-national organisations such as the World Bank, IMF and other
regional development banks, along with bilateral and multilateral
donors, represent a series of discourses on the social policy agenda of
poverty eradication, livelihood security, human development, gover-
nance and human rights. The UNDP Human Development Reports
have been hugely influential even though they are ‘detached’ from
UNDP projects. Even where funding agencies are not so financially
significant, as in India or China, they can nevertheless influence and
even shape domestic social policy through moral commentary and tech-
nical assistance, along with leverage over third-party organisations
(i.e. MNCs seeking business in such countries). Given that the IMP is
now more explicitly attaching poverty eradication conditionality to its
financial assistance programmes, all countries are under increasing
pressure to conform to the global discourses represented by these
organisations in order to access emergency support in times of finan-
cial crisis. The prevalence of insecurity regimes in Africa nevertheless
continues to limit the efficacy of these external discourses, weakening
the corrective principle.
• The dissolving power of international markets in goods, services, labour,
capital and finance impacting upon livelihood security in contradictory
ways: sometimes an employment generator; sometimes an employment
destabiliser; sometimes a mobiliser of investment resources; sometimes
an opportunity for capital flight; sometimes a driver for technological
change; a contributor to the rise of a domestic middle class with corres-
ponding increases in skill levels; a purveyor (though not always, and
11 not always perfect) of economic moralities about contract adherence,
competition, efficiency and the value of long-term investment; an influ-
ence over individualism, nucleation of families, narrower conceptions
of moral responsibilities to the society, migration and urbanisation
(entailing new codes of living).
• The mushrooming of international NGOs (with operations as well as
discourses – e.g. Oxfam, Save the Children, ActionAid, Amnesty
International) and other international lobbying organisations (such as
One World Action, World Development Movement, other human
11 rights organisations, and so on). Certainly these organisations can be
regarded as having close links with the critical parts of domestic civil
society, constituting networks and access to wider knowledge as the
11 basis for trying (though constrained by permeability) to shift policy
priorities and resource allocation within their own societies.
• International household strategies which cross national boundaries such as
labour migration. Both permanent and impermanent migration
provide remittance flows from the migrant to members of the family
and households at home. The former may also provide valuable goods
and a possible future exit for other family members. The costs are
111 often lack of all rights – denizenship rather than citizenship – and
extreme insecurity, not to speak of hazardous labour. International
household strategies also include different forms of exit – that of the
rich and middle classes who purchase education and health care
abroad, import maids and servants from poorer countries and export
capital. This in turn can undermine political coalitions seeking to
improve domestic social policies. They offer the opportunity for the
domestic middle classes in different countries to opt out of domestic
arrangements thus weakening the revenue basis of public provision
and/or insurance publicly or privately arranged. To the further extent
111 that these middle classes increasingly divert their savings as investment
to MNCs and investment banks operating outside their own society,
so they are reducing the multiplier value of their capital to the domestic
economy, especially in terms of employment generation. Their opt-out
potentially spoils provision for everyone. A counter trend is where the
‘opt-out’ behaviour of people from richer societies (at least in the sense
of health and care services) generates a specific sector of domestic
employment opportunities.
Even though the globalised dimension of the IRM produces the opposing
111 outcomes of some corrective functions as well as exit options which weaken
the pressure for improved domestic governance, the domestic IRS dimen-
sion needs to remain as the focal point of our analysis. Why? Social policy
111 is ultimately about political commitment, the interaction therefore between
96 Geof Wood
social forces within an identifiable political economy with which that popu-
lation identifies as its site of primary rights and responsibilities. This is
where the ultimate trade-offs, negotiations, concessions and agreements
have to be made. This is where the path dependency occurs, which leads
us to the third, methodological issue in operationalising the IRM.
So, thirdly, we come to the arguments for a ‘meso’ focus which links
poor people as social actors to the problems of governance and markets.
There still remains a methodological tension between those seeking gener-
alising statements (laws, patterns and grand theory) and those concerned
to emphasise the specificity of particular countries, regions and cultures.
Writers like Esping-Andersen and Fukuyama (see ‘Trust’ (1995)) teeter on
the edge of banality in the attempt to erect comparative theory involving
empirical generalisation about institutions such as the family or composi-
tion of business or attitudes towards the state. Does our quest for a typology
of regimes (welfare, development, growth, growth through equity, secu-
rity/insecurity) commit the same offence to the micro-empiricists?
This whole project has been about confronting the discourses and
language of social policy, given its western roots, with the reality check of
societies where the same basic assumptions about legitimated states and
pervasive labour markets cannot be made: namely, the poorer countries
with large-scale poverty. As indicated in the permeability discussion above,
that confrontation entails a basic challenge to the unproblematised, large-
scale categories through which social policy as a social science assembles
data and makes argument, such as:
• the state acts . . . ;

• the market behaves . . . ;
• the poor need . . . ;
• the family functions . . . ;
• the voluntary sector can . . . ;
• the globalised economy offers . . . ;
• and so on.
Thus, for example, has the confrontation challenged sufficiently the utility
of such epistemology to an understanding of poverty and its eradication in
the rural, agrarian and subsistence contexts of sub-Saharan Africa or South
Asia? Despite the IRM, do some of our papers on regional welfare regimes
(e.g. Barrientos in Latin America and Gough on East and SE Asia) reflect
an inclination to see social policy as only extending as far as other
urbanised, industrial and post-industrial societies, with little relevance
beyond that? Do other regional papers (Bevan (2001) on sub-Saharan
Africa, Davis (2001) on Bangladesh and the upcoming Davis and Wood
on South Asia) offer a conceptual and therefore empirical alternative which
11 embrace the realities of poverty and insecurity better because they prob-
lematise the institutional landscape through which any social policy is likely
to be achieved? Do the regional welfare regime papers for East/SE Asia
and Latin America over-focus upon the classic categories of social policy
(e.g. pensions, social insurance, social protection, safety nets and social
sector spending on health and education) without an embedded analysis
of the state (i.e. governance) and the labour market (i.e. the circumstances
of the common man, with high proportions excluded altogether from the
labour market, and others experiencing various forms of adverse incorpor-
11 ation and exploitation within them)?
However, in the quest for embeddedness, micro, highly context-specific,
perspectives also have limited utility as well, as the trees take over in the
11 quest for nuanced subtlety and holistic analysis. Such contextualised detail
would be useful only so long as the corresponding resources were also at
hand at that micro level: of expertise in terms of analysis, as well as capacity
to follow up with finely honed policy, requisite resource transfers and
commensurate institutional strategies. In the context of micro-diversity,
exacerbated by dynamic social and economic opportunities, that is precisely
the approach developed by micro-empiricists such as Wood and Bevan in
111 northern Pakistan (Wood 1996). But the situation is unique, with an over-
funded technical agency (the AKRSP) still able to commit human resources
at such intensity to the grassroots. Such conditions are simply not replic-
able on a grander scale elsewhere in Pakistan, let alone further afield.
So we have to reach for the meso in our epistemology, generalisation
and level of engagement with policy. The macro is out simply because we
cannot presume the state nor the generalised morality that enables strangers
to exchange in the depersonalised market over time and space. But, empir-
ically, the meso does enable us to say why Ethiopia and Zimbabwe share
similarities and are different from Uganda or Zambia on, for example,
111 dimensions of security or governance (Bevan and Sseweya 1995). Epistemo-
logically, the meso enables us to connect an actor-oriented perspective to
institutions through the exploration of negotiation, choice, room for
manoeuvre, opportunity and iterative redefinition of the landscape itself.
In other words, it connects people’s actual livelihood strategies to the insti-
tutional, policy and ideological landscape which shapes their options,
prompting acceptance/compliance or struggle.
In establishing this methodological focus upon the meso, we also have
to be more alert to the mediating contexts through which livelihood
strategies are pursued. Western-derived social policy relies very heavily
111 upon mature labour and financial markets when considering the bound-
ary between people’s own behaviour (and options) and compensatory
intervention by the state. Labour markets, with corresponding thinking
111 (Room 2000b) about personal investment in human capital development
98 Geof Wood
(i.e. de-commodification for personal development) are presumed to be the
major ingredient of private livelihood strategy, supported by financial
markets that enable saving and borrowing; liquidity management over
family domestic cycles through loans and savings access; and longer term
security via pensions and personal equity plans. The business and entre-
preneurial sector is located as a feature of the labour market. The dominant
assumption is formal sector employment – whether self or salaried. Thus
the labour market and financial market are conceived as the major
mediating context for pursuing livelihoods in urbanised, industrial and
post-industrial societies.
Leaving aside the social embeddedness and imperfections of such
markets (the former is intrinsic to the concept of market, the latter can
always be found), over-reliance on mature labour and financial markets as
a basis for defining the public and private content of social policy is too
ethnocentric when considering poor, developing countries. We simply
cannot make the same kind of assumptions about commodification (Esping-
Andersen) or generalised commodity relations (Marx) under capitalism.
People are not ‘freed’ in the Marxian sense to treat their labour or that
of anyone else as a commodity, disentangled from other relationships – the
Polanyian argument. Exchange is not single transactional in single periods,
but multi-transactional in multi-period games: interlinked, and for the
most part interlocked. Although such exchange can be reciprocal, and
frequently is in very poor, pastoral societies, in the inequality of agrarian
societies where control over land is paramount to understanding its struc-
ture, exchange is hierarchical, patriarchal and clientelist: within and
between families.
Are we therefore paying sufficient attention to such implications of
agrarian, subsistence, semi and full pastoral conditions? Do we recognise
that urbanisation in the poorer countries is not coinciding with the devel-
opment of mature, disembedded labour markets connected to formal-sector
industrial, manufacturing or services growth? Are we understanding the
significance of gender in structuring labour markets and household-level
subsistence activity? Have we been overemphasising productive functions
(via a labour market focus) rather than reproductive ones? Have the former
been considered too strongly in terms of policy towards human capital
investment maintenance (including migration for health and education),
rather than informal, family-based activity connected closely to immediate
survival contexts (e.g. farming and risk-averse cropping decisions, livestock
management, infrastructure maintenance, storage and rationing, induction
into kin and community cultures, marriage arrangements, nurturing the
young and caring for the elderly)? How far can our approach to inter-
generational transfers (Collard 2001; JID 2000) embrace this reality?
Can the conceptualisations and instruments of social protection, prevalent
11 in western-derived social policy, actually engage with such lives? (See
Conway, de Haan and Norton (2000) for an exposition of the donor
discourse.) What assumptions about rights actually make sense in this
context, not just at the level of universal morality but in terms of institu-
tions, which can meaningfully perform correlative duties?
Poor actor-oriented epistemology

So how far are we prepared to challenge the technocratic approach to
11 social policy in which rich nice people do nice things to poor nice people
through problematising structure and action? Our policy stance has to be
more exclusively actor-oriented from a poor people’s perspective, based on
11 four key presumptions:
1 that only the poor will ultimately help themselves to the point of struc-
tural significance in relation to the basic terms of control over key
societal resources;
2 that the poor will act according to their perceptions of options, but
that these perceptions can be enlarged by their own and others’ actions
111 to expand room for manoeuvre;
3 that individual acts can be significant at the level of the graduating
individual, but come up against the usual social mobility arguments in
which only a few change status and only in steps rather than jumps;
so that,
4 collective action can be structurally significant for wider units of
solidarity with many gains on the way to full structural re-formation
(which may never be).
Thus, collective or social action becomes the key ingredient of our policy
111 stance where poverty eradication relies upon the principle of structural
change, with individual action as a secondary, though significant, principle
offering routes to improved livelihoods through graduation.
In other words, poverty eradication is about cohorts confronting power and inequality,
whereas poverty alleviation is about reducing the incidence of poverty via processes of
graduation and successful incorporation into existing social arrangements and patterns
of distribution.
The key to understanding policy is then identifying what is conducive
to structurally significant social action as well as individual, graduating
action within the institutional landscape that circumscribes options and
111 their respective meanings. Conduciveness is a function of the conditions
experienced by the poor. Thus there are individuals, social collectivities
and institutions operating iteratively upon each other in a continuous
111 process of redefinition of possibilities. Giddens called this ‘structuration’.
100 Geof Wood
Put in our present language, we envisage a fluid, institutional responsibility
matrix (IRM), with global as well as domestic aspects, as the main vehicle
through which the autonomy of institutional spheres becomes relative and
interdependent.
If all this sounds a bit abstract, accept it as clearing the decks for a
perspective in which individuals and social collectivities have to negotiate
their way through a complex landscape which continually alters shape, not
just as a result of their own actions but those of others as well. ‘Others’
are sometimes remote. Thus we have a policy model which is intrinsically
about structure, relationships and conditions under which people have
constrained choices due to the poverty of the institutional landscape which
is thus partly responsible for reproducing their own poverty in the process.
Thus, the policy model includes, as an object of policy, institutional reform.
Thus, the policy agenda is about institutional reform, not just strategies
towards the conditions of being poor. In another language, it is about the
capacity of institutions to perform the correlative duties of honouring the
rights claimed by or offered to the poor as the basic condition of poverty
eradication. Since such institutions are themselves peopled by people impli-
cated as classes, races or genders in the subordination of others, institutional
reform itself is not just a matter of prescription – hence the limitations
of the technocratic perspective. Our expertise (as technocrats?) lies in
analysing why positive outcomes are so difficult to achieve, not because
solutions do not exist, but because they are mediated through relation-
ships of power and inequality which define the performance of the very
institutions through which we expect outcomes.
Conceptualising the common man: peasants and

clients
Mindful, therefore, of context and actor-oriented epistemology, a pheno-
menological position is adopted by considering security and insecurity
as, respectively, the central link between livelihoods, aspirations and the pre-
carious social conditions through which they have to be realised (including,
crucially in a policy context, the problem of governance). It links conditions,
perceptions and family/domestic life cycles very closely together. If, when
considering livelihood strategies, we focus upon key decision-making levels,
then the primary points are: individual; nuclear family; and extended family
(sometimes joint, but increasingly less so). We must always recognise that
individuals and families see themselves as dynamic not static, as video not
photo (Bevan’s AKRSP and MID lectures). They intrinsically and inherently
operate within a strong sense of life cycle, the domestic cycle of the family
with its notions of stewardship, with shifting dependency ratios over time,
perpetually threatened by events, requiring continuous trade-offs between
11 present consumption (the more poor, the higher the necessity) and future
investment (the more poor, the less certain the conditions for it).
Given the concerns, expressed above, about overemphasis upon labour
markets in our point of departure, we therefore need more of the ‘peasant’
in our basic understanding of these decision-making levels. This remains
true even when we acknowledge structural change in the direction of
marketisation and commodification; wage employment; industrialisation
and the new service economy; urbanisation; rising incomes; and the nuclea-
tion of families (see Kearney (1996) on reconceptualising the Mexican
11 campesino). In poor countries, we cannot assume that these changes will
inexorably lead us towards commodified modernisation. Contemporary
survival options include seeking to reproduce ‘peasant’ behaviour and
11 client status under conditions of urbanising labour markets, characterised
by segmentation and informal sector attributes (Opel 2000) as well as
increasingly unstable families ( Jesmin and Salway 2000).
This peasant mentality, perforce, has to focus more upon reproduction
than production as the central motivation for managing the domestic cycle,
whether annual or inter-generational. The peasant, with low technological
control over the environmental conditions for production and always a
111
price-taker rather than a price-maker, is pervaded by a sense of market
insecurity. But since the peasant is rarely, if ever, self-sufficient, then any
exchange, as a prerequisite for survival, is fraught with danger. And with
the state historically functioning more as a predator-protector than as a
market compensator and enabler, the state represents part of the problem
of insecurity rather than a moderator of it. Thus, the peasant has to rely
for survival more upon those institutions where membership is more
complete, acknowledged and legitimate, i.e. community and kin. This,
arguably, is where the peasant has more chance of controlling events
111 and reducing insecurity. This only works up to a point. Where the com-
munity level is itself characterised by severe inequality, then class or
other exclusions undermine the value of these institutions to the excluded
as a basis for dealing with uncertainty and insecurity. Certainly, under
such conditions, any notion of reciprocity has to give way to hierarchical,
adverse incorporation, i.e. the embracing of client status and a consequent
reinforcement of clientelism as the pervasive political settlement.
Dimensions of insecurity
111 Although the analogue of the peasant has been deployed above, and will be
again below, it is therefore also important to reflect upon wider conditions
of insecurity derived loosely from a country’s poverty status as well as the
111 family-level, life-cycle conditions. The wider conditions also contribute to
102 Geof Wood
the uncertainty at the local, community and family level and undermine/
challenge/weaken the viability of institutions at that level to perform secure
reproduction functions. These points are made more with reference to
contemporary Africa, than South Asia or elsewhere. But, when considering
them, let us not forget Afghanistan, Kashmir, Burma (and the border areas
with its neighbours), East Timor, other parts of Indonesia and the
Philippines, parts of Colombia (despite its overall paradoxical progress on
economic and social indicators (Barrientos 2001)) and the Balkan region.
Recent history would add a few more examples outside Africa too. Thus,
consider the following list:
• the socially embedded state producing discretionary, even arbitrary out-

comes with legitimacy based upon authority rather than accountability;
• such states, and the challenges to them, as a cause of war, with large
clan and ethnic factions capturing the state and excluding others;
• intense, all-or-nothing, competition over scarce and valuable natural
resources (i.e. minerals and watersheds);
• war as pervasive civilian dislocation negatively impacting upon different
points of the life cycle over short-term periods (crop seasons), medium-
term periods (theft of livestock) and longer periods (undermining a
predictable basis for human, natural and productive investment);
• such dislocation undermining the incentives for large-scale, long-term,
public investment which might, for example, manage water more
securely and therefore crops;
• colonial restructuring of agrarian and pastoral economies undermining
flexibility of response to climatic conditions (e.g. Karamoja);
• thus, for some countries, especially in Africa, periodic threats to food
security and collapse of markets;
• under such conditions, a shrinking morality which emphasises the
significance of ever decreasing circles of more immediate kin as the
corollary of the breakdown of public trust;
• enforced mobility of populations as refugees from war zones and disas-
ters, sometimes the outcome of arbitrary colonial borders;
• long-term oppressed minorities under siege (e.g. southern Sudan); and
• legacies of indentured labour (especially in southern Africa) with
migrant, male cultures and machismo gender outcomes interacting
with trade routes to socially underpin pandemics like AIDS, now a
major source of insecurity at all institutional levels.
Under these conditions, it is hardly surprising that the poor in poor coun-
tries have a high discount rate. The demands on the present are too extreme
to warrant sacrificial investment in a highly uncertain future. This can be
exacerbated by global economic conditions as well as thoughtless domestic
11 macro-economic policy which removes certainty from skill-based labour
markets, and thereby removes the propensity for private or public human
capital investment in them. (See Kanbur (2001) for the all-important
distinction between growth, which is always positive for poverty reduction,
and particular growth-oriented economic policies, which maintain poverty
where it might otherwise have been reduced.) Better, therefore, for the
poor to operate in the spheres of the known, familiar and controllable.
The survival algorithm is stronger than the optimising one (Lipton 1968).
11
Risk: aversion and covariance
Thus, when understanding the poor in a poor country context, the peasant
11 is a stronger analogue than that of employed worker. Insecurity and uncer-
tainty induce risk-averse behaviour, by leaving poor people more exposed
to livelihood-threatening risk. This insecurity and risk is partly an issue of
time and partly an issue of social capital and social resources. Time is the
discounting issue, noted above, and is elaborated elsewhere in Collard
(2001) and Wood (2001). Certainly the ‘snakes and ladders’ analogy is
useful here (Room 2000b; see also Chapter 11 of this volume, Figure 11.2).
111 Across the tenuous uncertainty of time, precarious families are stretching
out a survival strategy, but always dominated by a hand-to-mouth reality
which prevents preparation to cross the chasms and traps that reside en
route. Room discusses this in terms of endowments as resources and rela-
tionships which can offer ladders to bliss if aided by passports, or which
offer only snakes leading to social exclusion unless inhibited by buffers.
Passports and buffers are created through the public/private partnerships
of social policy, but unfortunately the institutional prospects of achieving
them are lowest where the need is greatest. This is why we must always
connect the micro circumstances of people to the meso and macro condi-
111 tions of institutions across the IRM. So how does the insecurity of the
present affect the uncertainty of the future?
We have already noted the overall problem of institutional failure in the
IRM (see Wood and Salway (2000), and Wood (2000)) in which states and
markets are especially problematical for everyone in such societies. Under
such conditions, everyone suffers a problem of social capital but not
everyone suffers a problem of social resources and power to control or
manage events which flow from such resources. This to say that social
capital has to be conceived more as a public good (or ‘bad’ if functioning
in highly partial ways – see Khan (2000)), whereas social resources can
111 be seen more as a private good which operates to offset the weaknesses
of social capital. Weaknesses of social capital constitute a lack of faith by
social actors in a range of institutions from formal political organisations
111 and their civil bureaucratic counterparts on the one hand, to informal,
104 Geof Wood
community and kin organisations on the other. Such weaknesses ultimately
derive from uncertainties about membership and stakeholding, and accom-
panying ambiguities about rights and entitlements.
A lack of social capital breeds a lack of social capital in the sense that
the moral universe shrinks to the irreducible unit of the family, producing
Banfield’s ‘amoral familism’ (1958) and intensifies a sense of distrust in
the community-level institutions. Without trust (Fukuyama 1995), there
is insecurity in almost any imaginable arena of social interaction. However,
those with social resources (clearly a dimension of power and an expres-
sion of superiority in the political economy) recreate trust through a
labyrinth of interlocking networks in order to introduce greater security
and predictability in transactions, especially over time. They are actively
involved as dynamic actors in creating a structure that works for them
(as Long and van der Ploeg (1994) remind us: actors are active, structures
are fluid). When such processes become institutionalised, we call it ‘civil
society’ and expect its features to act upon the state and market as a
reforming angel. However such origins of ‘civil society’ are themselves
reflections of power and unlikely to be representative of the interests of the
poor. This is how Gramsci (1976) could see the emergence of civil society
as a pillar of the unrepresentative state – acting out the observed prin-
ciple of permeability. With social resources so unevenly distributed within
the society, the problem for the poor is that they are exposed to the weak-
nesses of social capital, without any prospect of meaningful social resources
to compensate. Their claims across the IRM are weak, as a result. Therein
lies their major source of risk. And without the social options to manage
that risk, they have to rely more heavily upon their families and less upon
transactions with others. Hence the shrinking moral universe, hence the
validity of the peasant analogue.
This exposure to risk is multiple and covariant. The WDR 2000/01
discusses risk in various places, distinguishing between micro, meso and
macro levels of risk in chapter 8, and covariant risk, particularly induced
by conflict in chapter 3 (see especially box 3.2) and chapter 7 (World Bank
2000a). The WDR claims to encompass the risk terrain by also distin-
guishing between covariant and idiosyncratic risk (chapter 8), such as
illness, injury, old age, violence, harvest failure, unemployment and food
prices (p. 136). However, nowhere does the discussion acknowledge the
chronic aspects of risk induced by inequality, class relations, exploitation,
concentrations of unaccountable power and social exclusion as absence of
‘community’ membership. In other words, an institutional account of risk
is missing. This is a key objection to much of the contemporary liveli-
hoods discourse (see below in this chapter): it fails to explain the micro
circumstances of poor people in terms of meso and macro institutional
performance, which express political economy and culture.
11 The ‘resources profile’ approach to vulnerability (Lewis and McGregor
1993) is basically a framework of non-idiosyncratic covariance, with weak-
ness on one dimension triggering weakness on another with an unravelling
effect on livelihood security as a whole. Some of this covariance is more
familiar than others. For example, we expect poverty, seasonality of
incomes and food availability, nutrition levels, morbidity, acute illness and
loss of employment to go together, leading to loss of assets and further
spiralling decline. Until recently, we might not have connected strength in
social resources to human resources such as health and education; or labour
11 participation (under a ‘material resources’ heading, i.e. income flows) to
common property access where an ability to contribute labour constitutes
membership.
11 It is this covariance of risk which needs to define policy process and
content: understanding in context which type of support/intervention offers
the most leverage on strengthening the livelihood portfolio as a whole via
identification of key risk linkages. Clearly the WDR 2000/01 addresses this
partially in its chapter 8, box 8.3 ‘Mechanisms for Managing Risk’ (p. 141),
where it distinguishes between reduction, mitigation and coping objectives
and IRM categories of response (informal: individual/household and group
111 based; formal: market and publicly provided). But since it is derived from,
and therefore limited by, its prior antiseptic, depoliticised treatment of the
issue, it continues to be naive about social and political institutions and
the opportunities for positive action via their rules. Physical incapacity of
male adults for the labour market might not matter if there is no labour
market, or access is heavily segmented ethnically and culturally. Prices on
essential agricultural inputs, or levelling out seasonal fluctuations in local-
level food prices could be much more significant for local peasants and
casual, agricultural wage labourers, but prices should never be offered in
an analysis of this kind as a given.
So we have a proposition. The imperatives of risk aversion as well as
111 avoidance in the present may deliver short-term security while reproducing
the conditions for long-term insecurity in the future. This causation exists
particularly strongly in the social domain with the quest for functioning
social resources in the context of overall weak social capital requiring
either over-strong reliance upon internal family relations or allegiance to
other providers at the cost of dependent and sometimes bonded loyalty
(adverse incorporation). But such risk avoidance extends to other behav-
iour which has to favour meeting immediate needs over future ones within
a peasant analogue: crop diversification and subsistence preferences regard-
less of prevailing prices; debt acquisition foreclosing future investment
111 options (e.g. raising dowry capital versus investment in education); and so
on (Wood 2001).
Thus, when poor social actors are negotiating their institutional land-
111 scape, their cognitive maps are full:
106 Geof Wood
• of discounting;
• of managing immediacy within severely constrained choices;
• of awareness about long-term loss for short-term gain; and
• of frustration about never being able to get ahead of the game for long
enough to really commit resources for the future.
How can policy alter these time preferences? How can it convince poor
people of sufficient present security to invest in their future? How far, then,
must we conceive of social protection, safety nets and welfare more gener-
ally as having a fundamental development function by altering time
preferences? How far is it appropriate and ethical to shift the balance of
effort in social policy from the stance of intervention to compensate for
market outcomes (social protection) to the stance of supporting poor people’s
higher level of entry point into labour, commodity and services markets
(social investment)? And leave it to structuration for the performance of
real markets to improve poor people’s lives? In response to this funda-
mental problem of discounting and time preference, we need to continue
the discussion of insecurity and livelihoods with reference to prevailing
approaches to vulnerability (the circumstances of the common man) and
rights and correlative duties (particularly the significance of informal rights
in the context of poor governance).
Vulnerability and insecurity

It is not our purpose to simply reproduce the thinking of other recent
texts on livelihoods and vulnerability in this section (see Room (2000b),
Wood and Salway (2000), and Loughhead, Mittal and Wood (2000) for
critical summaries of recent stances). Rather, in particular, we need to
make the link to insecurity. But a few presumptions, arising in that litera-
ture, will inform our position. First, vulnerability is not synonymous
with poverty, so that the non-poor vulnerable need to be included in a
pro-poor social policy. Second, therefore, we are dealing with dynamic
categories: individuals and families are always in a process, somewhere
along their domestic cycle, experiencing troughs and peaks of financial and
other security. The WDR 2000/01 refers to the transitory poor, others to
poverty churning. Thus, third, in trying to catch that sense of movement,
livelihood thinking at Bath has used the present continuous categories of
improving, coping and declining. This is not entirely satisfactory unless one
is clear that we are confining these terms to an analysis of the poor, and
are not seeking to apply them to people who are in non-vulnerable, secure
conditions. Of course, we are all vulnerable to something – sudden loss
of employment, for example. But secure people either have the skills to re-
enter the labour market at reasonably similar levels, or they have been
11 incorporated into other protective financial arrangements (redundancy
entitlements, pensions, insurance, and so on). Fourth, the more well-known
attempt to capture aspects of this dynamism has been Carney’s model
(1998) of sustainable rural livelihoods (SRL), which has its own roots in
the work of Swift (1989), de Waal (1989), Lewis and McGregor (1993),
Wood (1994) and Moser (1998). The SRL has been critiqued in Wood
and Salway (2000) for over-privileging social agency, unrealistic assump-
tions about poor people’s social action, confusion between social capital
and social resources, for having a stochastic approach to shocks as a decon-
11 textualised rather than chronic feature of poverty, and for being an
inadequate account of political economy and power (similar criticisms, in
effect, to those of the WDR 2000/01, above).
11 As a counter to some of these criticisms, Room (2000b), as noted above,
is offering ‘snakes and ladders’ as a more obvious framework for under-
standing the dynamic ‘careers’ of people in contrasting trajectories of
poverty: improving or graduating; coping; and declining through irrevers-
ible ratchets/traps (unless assisted by social protection in general and safety
nets in particular). Although ‘snakes and ladders’ offers only limited addi-
tionality to its predecessors, its importance to our composite approach is:
111
• it tracks individuals and groups through gateways of opportunity and
disaster, with some indication of what happens to them on the way
(it is a ‘career’ approach);
• it is thus consistent with a poor actor-oriented epistemology of agency
negotiating structure, characterised by hostile political economy; and
• it therefore offers a model for understanding both how people nego-
tiate the institutional responsibility matrix, and how social policy might
assist in the improvement of that negotiation – e.g. not just ‘individual
graduation’ but ‘institutional reform’ passports for whole societies, with
111 different contents and meanings for different people and situations.
The rationale for social policy in this kind of poverty scenario is assistance
to people who face chronic rather than stochastic insecurity. The basic
conceptual issue here is that shocks are not shocks but hazards (grateful
to Sarah White for pointing this out). This then becomes the basis of a
distinction between social policy as ‘relief ’-type interventions (when shocks
are shocks, whose unpredictability requires rapid mobilisation of short-term
response) and social policy as ‘preparation’ for the more predictable hazards
which affect subsets of the population chronically. Thus ‘relief’ responds
111 to situations where security has broken down in surprising ways, e.g. flash
floods in Italy. But ‘preparation’ should be in position for the predictable
hazards of flooding in Bangladesh, in a well-functioning, non-hostile
111 political economy (i.e. one with good governance, economic growth, public
108 Geof Wood
revenues and policies of redistribution via state instruments). This notion
of ‘preparation’ is thus directed at improving the capacity of poor people
to negotiate their institutional landscape, which features hazards more
significantly than it does shocks. It consists of the creation and mainten-
ance of security, especially when that security is predictably threatened by
life-cycle events.
So, we have social policy in poor countries as essentially comprising
preparation; improving negotiating capacity; and the creation and main-
tenance of security in the context of hazards. And to this, we must add
two other dimensions: the prevailing context of rights; and the significance
of the household unit as a security provider over time – a variable, itself
determined by the surrounding character of rights and the corresponding
performance of institutions outside the household (either elsewhere
within the family, more broadly defined with recognisable moral content,
and beyond into ‘community’, market and state, with global attributes).
This moves our discussion from the circumstances of the common man at
the social level of reproduction, production and exchange to those circum-
stances affected by the problem of governance, i.e. the whole question of
rights and correlative duties.
Rights and correlative duties

Thus, alongside the phenomenology of insecurity and risk aversion/
avoidance, cognitive maps include ideas about rights and entitlements,
which reside deeply at different levels of community and kin. The key ques-
tion for poor people in poor countries is: do rights and entitlements reside
securely elsewhere in the IRM? This is the key to evolving a definition of
social policy in a developing country context. Where do rights come from
in the state and market arenas, especially in the context of the peasant
analogue and associated, widespread socio-political clientelism? In short-
hand: is a gemeinschaft rather than a gesellschaft basis of rights possible?
We believe it is, and has to be, in the context of poor governance, non-
legitimate states and political insecurity.
For the market, we have the classic debates between Scott (1976),
Granovetter (1985) and Platteau (1991), and now Putnam (1993), Fukuyama
(1995) and dozens of others, about the capacity of emerging societies to
evolve moralities of exchange, and therefore trust, beyond face-to-face,
personalised transactions with perfect information, towards generalised
exchange between strangers under conditions of imperfect information.
Clearly the issue of rights and entitlements in the market incorporates a
notion of fairness into the relationship between scarcity, quality and
price. And as we know from Sen (1981), the principle of fairness can
break down catastrophically for the poor, as sudden scarcity, whether real or
11 manipulated, dominates the exchange equation. Under such conditions,
there are no ‘moral economy’ restraints to speculation or concern over dis-
astrous outcomes for some, since there is a low level of moral proximity
between the gainers and losers in distant markets, as entitlements collapse.
So, rights in markets beyond those circumscribed by the moral economy are
contingent and precarious. The prevailing political conditions of insecurity
in many parts of Africa reflect such fragility. But in the peasant analogue,
applicable to other parts of Africa as well as South Asia and other poor
regions and pockets, significant proportions of poor people have significant
11 proportions of their economic transactions within more localised, moral
arrangements, where a residual sense of fairness persists and therefore rights
to entitlements exist.
11 As already discussed, in the welfare regime approach to social policy,
the amoral market, producing unsustainable outcomes for poor people, is
compensated for by the state: residual in the ‘dualist’ liberal regimes;
targeted in the conservative; and universal in the social-democratic. We
have already critiqued that position as a decontextualised view of the state,
benignly de-linked from the morality of the prevailing political economy.
It is a position that does not pass the permeability test. It thus constitutes
111 a narrow, interventionist and naive, account of social policy. No one, for
a long time, has seriously confined social policy only to the activities of the
state. The means have to be extended. This is a fortiori even more so in
societies where questions about the legitimacy of the state are combined
with critiques of democracy and governance. Within development political
science (or development administration, as it was called for a long time)
there are real dangers of ethnocentric argument, which have been chal-
lenged in the past by a wide range of ‘Third World’ political leaders,
especially from Africa, such as Nyerere and Kaunda. The contemporary
critiques of democracy and governance have a strong déjà vu feeling for the
111 generation of us who were there before in the 1960s and 1970s. It is diffi-
cult to sustain a universalist account of formal rights and citizenship, based,
in effect, upon western liberal philosophy in societies where even
the incorporationist version of civil society was underdeveloped through
colonial behaviour; nowhere more so than in Africa.
Thus the idea of rights emanating from the legitimated state, serviced
by intermediary organisations (social capital in the Putnam sense (1993))
constituting civil society, is almost laughable as a responsible description
of the evolution of political institutions of power and authority in sub-
Saharan Africa, South Asia evolved differently, with respect to civil society,
111 with a longer and more educated basis to an organised critique of the
colonial state, alongside an incorporated set of intermediary institutions.
But even in South Asia, the tradition of an expected set of rights defined
111 by the state, realised and maintained through civil pressure, is much
110 Geof Wood
stronger in contemporary India than in its neighbours, Bangladesh and
Pakistan.
All this is to observe that the idea of rights enshrined in the state remains
a weak and contestable phenomenon in the cognitive maps of social actors.
Rights have a tenuous position in the state and market arenas of the
domestic IRM, and thus limit severely a view of social policy as state inter-
vention, or ‘remedies by the state’. Even looking for that position commits
the sin of ethnocentrism and ignores the real history of actually existing
social capital instead of the one foisted on to such countries by contem-
porary modernisationists. The fact that people may be in a prison does
not prescribe, unrealistically, the form of escape.
Our social policy agenda thus has to be sensitive to variation in means
because this is where the contextualisation applies, even if we continue to
accept that a universal approach to the definition of rights and needs can
be upheld, as Doyal and Gough would argue (1991) as well as the HDR
2000 (UNDP 2000). Given such an approach to rights, where do they actu-
ally reside most securely in the minds of social actors in poor countries?
Where are the universal rights and needs most nearly provided for in the
domestic, and sometimes globalised, IRM? If the domestic state and market
domains continue to be problematic, then clearly we have to look to the
‘community’ and household domains.
Before exploring these further, there is a logical point to be made. It is
axiomatic that we cannot conceive of society without some established
acknowledgement of need, and a notion of rights to ensure the meeting of
need. In other words, rights and perceptions of need have to reside some-
where to fulfil the conditions for calling a collectivity of people ‘a society’.
Otherwise, we are only looking at anarchy and war; i.e. such a state of
insecurity that no one’s interests can be met, so that there is no reason for
that particular collectivity to exist. Bevan (2001) gets close to that position
when being pessimistic about Africa.
Outside the domain of the state and therefore law, such rights and
entitlements are usually referred to as ‘informal’ in contrast to formal.
Within the overall presentation of the IRM, the alternative institutional
domains to the state and the market have been designated as ‘community’
and household. There can be many ambiguities in terms such as com-
munity and household. Both are heavily contested terms. ‘Community’,
for example, can stretch from imagined ones (Anderson 1983) to closed,
locational and residential ones, with other variants in between. Some
communities can be more moral than others (Bailey 1966). They can be
characterised by reciprocity and hierarchy, sometimes simultaneously.
For social actors, the experience of community is variable, according to
circumstances of conflict and unity, of fission and fusion. In other words,
they are fluid not fixed, and our understanding of them has to depend
11 upon an actor-oriented epistemological perspective. Sometimes, the con-
struction of community reflects kin structures, thus blurring the distinction
between community and household. Indeed, we have preferred the term
‘household’ over ‘family’ precisely to enable kin relations to appear under
a community heading, while reserving the term household to refer to much
closer, hearth-bound, interdependencies and senses of responsibility. Thus,
within ‘community’ we can include clans and lineages which offer social
actors crucial identities as well as the social frame within which rights of
allocation of scarce resources occur, such as land, water, access to pasture,
11 places to build homesteads, and so on.
Kin dimensions of community also offer a key basis of ‘membership’, and
with membership go rights, which are connected to prevailing presumptions
11 about needs and entitlements. To lose ‘membership’ is to be excluded.
People lose membership under various conditions: migration; resettlement;
urbanisation (until ‘membership’ is regained, or re-established); failure to
conform or perhaps contribute; being elderly or infirm (e.g. in the West);
being cast as a minority in the context of larger-scale events (e.g. Jews in
Germany in the 1930s and 1940s); or being outcast in various ways
in South Asia and Africa.
111 Apart from the usual list of scarce resources associated with the peasant
analogue, such as land etc., what kinds of needs are usually recognised,
with corresponding supporting rights (or ideology)? The purpose of this
question is to identify the extent to which the transferred notion of
‘social policy’ extends this ‘usual’ list by implicitly rejecting the peasant
analogue as an adequate definer of needs and rights in the modern world.
This extension may partly refer to an improved quality of basic needs,
consistent with the peasant analogue, such as food security and sanitation;
but crucially it also refers to the development of people’s talents, aspira-
tions, cognitive maps and therefore opportunities beyond the peasant
111 analogue. From the welfare regime perspective, this is where Room’s
‘de-commodification for self-development’ applies (Room 2000a).
In other words, should we define social policy as ‘moving the agenda
forward’ for poor people in poor countries by a combination of improving
present conditions attached to the peasant analogue, as well as a process
of self-development that moves poor people away from the peasant
analogue, where it is clearly no longer sustaining them? For example, the
landless men and women of Bangladesh, for whom crucial aspects of the
peasant analogue no longer apply? If so, then we need to understand what
appreciation of needs, and supporting sense of rights, currently obtain.
111 Let us take an extreme example. That is, ‘extreme’ to us westerners,
but also capable of raising the eyebrows of others in northern Pakistan.
Women in Kohistan suffer from vitamin D deficiency due to culturally
111 induced non-exposure to the sun. Their bone strength deteriorates quickly
112 Geof Wood
in their twenties after several pregnancies. They develop gynaecological
complications, which not only undermine their quality of life, but threaten
it. What are their rights, since their needs seem to be clear? Very limited,
when males argue that the cost of visits to health clinics/hospitals compares
unfavourably to acquiring a new wife. Neither the household or the
community offer any kind of security; there is no market freedom for
women to purchase curative care; and the state simply does not operate
in such an area. Even within the peasant analogue, as recognised by other
peasant societies elsewhere (even close to Kohistan), basic needs are not
acknowledged.
Let us now take the condition of men in the same society. Outsiders,
especially feminists, might hold the men wholly responsible for the sad
condition of their women. This must be partly true, even from the most
relativist of analytical perspectives. However, it is reported by men from
the region that 60 per cent of young men (certainly of marriageable age)
dare not go out of their homesteads after sunset for fear of feuding reprisals;
that a resolution of inter-family conflict involves a man taking a woman/girl
as a wife from the opposing family’s near kin; and that for a man to treat
his women with respect, as defined locally, requires extreme purdah without
which the man himself has no honour locally. Without honour there is no
membership, and without the latter, no rights for either the man or his
women. Wives and daughters are then at risk from more predatory interest,
and further rounds of feuding ensue. What is the process by which social
policy extends the rights of women and men, under these conditions, let
alone moving the agenda on to self-development? It would require
confrontation with the locally powerful mullahs who define the present
ideological agenda, that is the prevailing definitions of right and wrong,
or, in other words, rights.
Clearly this is an extreme, though real, example. But it helps to reveal
contexts more subtle than this, but which nevertheless contain the basic
challenge to the extension and formalisation of rights and a recognition of
the power (and, by some reckonings, limitations) of the informal ones.
Within the political economies of poor countries, especially in the poorest
ones of South Asia and sub-Saharan Africa, what general informal rights
pertain? Given the vested interest of the rich in the prevailing structural
inequalities, we need to distinguish between rights through hierarchical
relations and reciprocal ones.
Rights through hierarchical relations basically operate within relations of
adverse incorporation and clientelism. They can be classed more as welfare
ones than developmental. That is to say, clientelist relations will offer relief
but rarely invest in the long-term security of others through, for example,
education or capital transfers on easy terms. Relief or welfare transfers,
for example through tied labour, long-term debt or interlocked tenancy
11 agreements, occur in return for loyalty and other ‘dependent’ favours which
contribute to the reproduction of the initial inequality. Such relations are
as likely to occur between close kin as between others more distant.
With market penetration and a widening of economic opportunities, the
shrinking of moral ties further reduces the sense of responsibility for others,
especially at the community level. Indeed, with the ideology growing, in the
minds of the rich, of interdependent markets and states, the sense that poor
people are the responsibility of government grows and community-level
rights about welfare correspondingly decline. At the same time, especially
11 in rural contexts, community leaders/elders and stronger classes are reluc-
tant to see whole poorer families or poor relatives completely outcast or cast
out. Where, in northern Pakistan for example, access to common property
11 remains an important part of the family livelihood portfolio, then those
unable to fulfil the conditions for membership are often assisted to that
effect, for example widows and the elderly or infirm (including mentally).
Other basic needs rights might also be guaranteed locally:
• allocation of homestead land;

• allocation of agricultural and pasture land (where the community or
111 extended kin group traditionally disposes);
• access to drinking water (but much less so to irrigation water);
• access to materials (wood and mud) for building construction;
• access to fuelwood or peat; access to wild fish stocks and forest prod-
ucts (i.e. gathering and hunting rights);
• a share in communally engineered new land (via forest clearing, new
irrigation channels and feeder roads opening up new physical access);
and
• access to primary health care and even education facilities, possibly
with some means-tested adjustment to expected cost recovery.
111
Where the provision of these rights, in the sense of correlative duties to
honour them, are hierarchical via the collectivity of richer, dominant
families in the community, then we might imagine a collective version of
adverse incorporation, where there is a strong expectation for poorer,
aided, families to express gratitude by not challenging the basic arrange-
ments of the political economy which reproduces the poverty in the first
place. In this way, we observe institutional and plural clientelism at the
community level, alongside the more private, individualised form which
emphasises intense personal loyalties and dependencies. Thus, we have
111 collective and individual patronage, with the former offering more long-
term security than the latter.
Rights through reciprocal relations can be problematic in other ways.
111 Basically, rights offered and guaranteed by those with little power in the
114 Geof Wood
society or local community are not worth much in longer security terms.
Thus the poor do not have much to offer each other beyond very micro,
immediate transfers plus sympathy. However, such a dismissive remark
needs to be qualified in at least two opposing directions. First, reciprocal
relations, offering rights, between the poor are further limited by the struc-
tural conditions of poverty which place the poor in competition with each
other for scarce resources, including those social resources of patronage.
Solidarity is not necessarily natural. But second, movements to build soli-
darity among the poor have precisely emerged from the interrelated
analysis of structural inequality and the need to overcome the ‘within-poor’
competition that results from it. Such movements intend to create the social
resources for the poor that are naturally lacking, and thereby contribute
to the formation of social capital (i.e. institutions) more conducive to their
long-term interests. Proshika in Bangladesh would be a good example of
this approach.
So reciprocal relations can be enhanced, and this has to be a major
ingredient of any poverty-focused social policy in poor conditions.
However, it is these socio-political characteristics of poverty, as revealed
through the discussion of rights and correlative duties, which have to be
interwoven into a conception of poverty-relevant social policy.
Peasant analogue, clientelism and challenging the

meso domain of the IRM
Given the prevailing conditions of uncertainty and insecurity, which reflect
a lack of confidence by the common man and woman in states and markets
and the resort to ‘community’ and household, albeit under various types
of adverse conditions, we have to return, heuristically, to the principle of
the ‘peasant analogue’ and clientelism. Once we do so, we see, amongst
other things, the significance of the inter-generational transfer processes of
welfare to deal with present insecurity and investment in capacity to deal
with future insecurity. And we also see the significance of informal rights
in the absence of formal governance.
This must make us wary of the de-familialisation and the de-clientelisa-
tion alternatives to de-commodification, since both ‘families’ and ‘the rights
of adverse incorporation’ represent key lifelines, and indeed key aspects of
social inclusion. While recognising that households are gendered, and
sometimes non-altruistic along gender lines, they continue to represent the
most reliable retreat option for most of their members and hence security
over time. The inter-generational bargain is acted out more strongly at
the family level when other institutions cannot be trusted. As the basic
elements of security within the peasant analogue (i.e. secure usufruct over
land as the principal means of production and own consumption), steadily
11 disappear as economies transform, so the hazards of land management
under low technological conditions are replaced by the hazards of amoral
labour markets. The common man (and woman) increasingly face, instead,
the hazards of globalised market conditions (i.e. adverse terms of trade,
shifting comparative advantage, currency fluctuations and an enlarged
reliance, for some countries, upon food imports). However, it is import-
ant to acknowledge that the reliance upon the household does not simply
disappear under these conditions. Hence the peasant analogue, as a guide
to perception and behaviour in relation to insecurity, takes a long time to
11 fade, precisely because of the untrustworthiness of the remaining elements
of the IRM.
By adopting this perspective as a ‘reality check’, we can also assess more
11 critically the impact of certain prescriptions as they occur within global
and universal rights agendas. Let us go to the heart of the matter: marriage
as the essential rite de passage in the reproduction of the immediate family
(household) and therefore security. The universal rights prescriptions, with
a strong emphasis on liberal concepts of freedom and moral individualism,
raise questions about child betrothal, arranged marriages, dowries and
control over sexuality as refuting the fundamental rights of choice for girls
111 and women. Without over-elaborating the point here, each of these
marriage practices can be seen as essential to the rationality of the peasant
analogue in the context of the uncertain IRM. Without such practices, the
security of all individuals within the household is threatened. With them,
hazards are minimised, especially at later stages in the life cycle when inher-
itance becomes a key inter-generational transfer issue.
With urbanisation and other aspects of the proletarianisation of labour,
some may argue that the peasant analogue recedes in significance, thus
permitting a weakening of reliance upon inter-generational transfers within
the family and, consequently, a more justified intrusion of a universal rights
111 agenda as a corrective function. But such assumptions presume a social
replication of rich country labour markets in poor countries, whereas what
we observe is a peasantisation of cities (Roberts 1978) through the char-
acteristics of what others have termed the informal sector.
Clientelism and adverse incorporation are key aspects of peasantisation
and the informal sector. But clientelism extends well beyond economic
relations into social and political ones as preconditions for physical and
material security. While I characterised the whole of Bangladesh as a prison
in this respect (Wood 2000), we have to be wary of simply advocating
de-clientelisation as the process of escape. Ultimately it must be, even if I
111 stand accused of ethnocentric modernity. However, the transition must be
defined so as to avoid cutting the poor off from their present institutional
lifelines without adequate substitutes. To continue the metaphor, if escapees
111 or released inmates have nothing to go to they quickly become recidivists
116 Geof Wood
– which is probably as good a description of the turmoil in Russia and
FSU states as any.
This leads on to another observation about means. The emphasis in this
chapter has been on institutional failure in the state and market arenas of
the IRM, with adverse incorporation and clientelist problems elsewhere
interacting with the metaphor of the peasant to represent the common
man, in the absence of pervasive, formal sector, labour markets. This
combination of conditions severely constrains some of the classic instru-
ments of social policy. The instruments for engaging with the needs of
people as atomised individuals in formal sector labour markets are not
applicable for dealing with needs of people characterised by the peasant
analogue. In formal sector labour markets, the principle of incentives
through altering the price of things and services can operate more strongly.
Policy can therefore be far more fiscal on both the demand and supply
side. It can operate either within the loop of the state via tax revenues and
direct employment of service providers (like social workers, teachers and
health staff ); or within the quasi market via targeted subsidies to enable
the poor and needy to purchase services from private sector providers; or
through tax relief as an incentive to invest in financial markets for old-age
security or educational trusts for one’s children, or even to purchase elite
services beyond the state’s basic, direct provision in the health, care and
education sectors. And of course to remind ourselves, in the West, such
policy is basically residualist and concessionary – more about alleviation
than eradication, and committed to a retention and reproduction of the
capitalist market as is. That is to say, it is about compensating for the
market, improving it as a vehicle for livelihoods, but not destroying it.
In contrasting countries, the weakness and partiality of market pene-
tration denies efficacy and coverage to fiscal instruments. The relation
between the state and people in poor countries with agro-pastoral, feudal
and colonial histories has always relied heavily upon intermediate institu-
tions, which deliver limited services in return for loyalty and quiescence.
This is the meso domain, referred to earlier in the chapter. In the context
of the peasant analogue, the problem is that this meso domain is occupied
by highly problematic elements of the IRM, broadly performing the func-
tions of adverse incorporation – where time preferences clash with social
capital. At best, these intermediate institutions might be regarded as incorp-
orated civil society, performing hegemonic duties outlined by Gramsci. At
worst, they are mafia-type, clientelistic social arrangements, acting out
prevailing class relations and power at the local level with the outcome of
entrapping the poor into short-term security at the cost of their own long-
term personal development.
Thus, since social policy, almost by definition, cannot engage with the
common man or woman under these conditions via fiscal instruments, so
11 it has to develop other passports and buffers for the poor (as collectivities
not just graduating individuals) via institutional reform. Since this cannot
be done top-down, both because the inclination to do so cannot be assumed
in a hostile political economy, and because rights given are worth much
less and are much less secure than rights gained, the focus upon support
for agency and social movements/action has to be much stronger.
The presently problematic intermediate institutions, currently occupying
the meso domain of the IRM, therefore have to be challenged as a pre-
condition for extending support to poor people. That is, the means and
11 instruments have to be different from the fiscal ones of welfare regimes.
Some examples follow below.
An obvious example is microfinance, which challenges the banking
11 sector (see Sharif and Wood 2001) and can offer welfare support (small
loans and savings for liquidity management and consumption smoothing),
as well as development opportunities through deepening with larger-scale
finance, connected to wider capital markets, even global ones. Another
is land reform, including urban tenure rights, but this has to rely on
mobilisation for social agency as in West Bengal, not just legislation.
Another might be public–common property partnerships for sanitation
111 and clean drinking water. Another has been the highly pragmatic work
of SEWA in Gujarat, India on labour standards. Another has been to
challenge local municipalities not to evict without replacement. Another
has been drop-in centres for female victims of violence, organised by a
very local NGO in Gilgit, northern Pakistan. Another has been the wide-
spread introduction of non-formal primary education in Bangladesh by
BRAC, Proshika and others as a challenge to the state education service.
Another has been the development of labour-contracting societies of poor
people to circumvent the corruption of local contractors and local govern-
ment engineers in collusion to defraud the state and the labourer. Another
111 has been to enter product and service markets with higher productivity
technologies than those offered by traditional microcredit. There are many
other examples of the underperforming meso domain which can be chal-
lenged, deploying agency, social movements and social action which do
not expose the poor to the organised repressive retaliation of the state
and its privileged beneficiaries. What they have in common, ironically, are
pre-existing notions of membership (and therefore rights and entitlements)
derived precisely from ‘common law’ assumptions about inclusion in
relationships of reciprocal and hierarchical rights. For the hierarchical
rights of adverse incorporation, these challenges to the meso domain of
111 the IRM might be termed the ‘judo’ approach: using the strength of your
opponent to prevail.
111
118 Geof Wood
Conclusion
This chapter has argued that neither the weak (political settlement) nor
strong (de-commodification) versions of the welfare regime can appro-
priately be applied to conditions prevailing in the poorest regions of the
world, such as countries in South Asia and sub-Saharan Africa, although it
might have much more validity in other regions. The poorer regions of the
world do not comfortably conform to the two key assumptions upon which
the OECD model of welfare regime relies: a legitimate state; and a perva-
sive, formal-sector labour market. This immediately sets up the two key
interactive issues of governance and the socio-economic circumstances of
the common man (and woman). These circumstances have been understood
through the metaphor of the peasant (to capture the significance of repro-
duction, family and household-level inter-generational transfers) and the
analysis of clientelism as pervasive adverse incorporation (comprising hier-
archical rights, meso-level intermediation with the national level polity and
economy, and quasi-public goods social capital). These political, economic,
social and family dimensions have been brought together, for policy analysis
purposes, as the institutional responsibility matrix with global as well as
domestic dimensions. These four institutional domains are seen as perme-
able, which can have positive or negative outcomes for different societies.
The world’s poor regions are characterised by negative permeability in
which the level of personal objectives penetrates the level of public aims to
produce poor governance and insecurity for the majority of their popula-
tions by removing the corrective principle. Only partial compensation is
offered by global discourses, conditionality and debt-remission leverage.
The problem of insecurity thus looms large in the analysis, with a focus on
its implications for time-preference behaviour at the level of personal invest-
ment as well as social. Indeed the time-preference behaviour of the poor is
seen to clash with the creation and maintenance of long-term social capital
and improvement of governance – a Faustian bargain of dysfunctional
structuration under conditions of no exit, little voice and tainted loyalty.
Faced with this scenario, the chapter has argued for a ‘poor’ actor-
oriented epistemology, which emphasises how the poor negotiate a complex
and hostile institutional landscape dominated by severe inequalities
of power which reproduce their poverty. This position entails a view of the
state as not impartial but working for dominant classes and segments,
including a bureaucratic and political class, which sees state control as a
crucial means of their own accumulation and reproduction. Since this is
a familiar view of the state, it is obvious that social policy as a discipline
derived from critical sociology does not rely upon a benign, liberal, pluralist
view of the state. Thus the issue of ‘governance’ as contemporary
‘development-speak’ is intrinsic. Hence the chapter’s title: ‘Governance and
the common man: embedding social policy in the search for security’.
11 This is why any social policy of poor countries very quickly moves on
to the agenda of ‘civil society compensating for the inequities of the state’
instead of the OECD welfare regime principle of ‘the state compensating
for inequities of the market’. But, given the inherent problem of the state,
and the issue of permeability, there cannot be a naive optimism about the
role of a ‘progressive’ civil society as compensating for the state. The reality
of poor country political cultures is that we have to distinguish between
civil societies (i.e. in the plural): between the Gramscian civil society incor-
porated into the elite project of unaccountable state power; and the critical
11 civil society. However, the critical civil society is never completely
autonomous of prevailing culture and permeability (because it consists at
best of renegade elites with personal positions to defend and reconcile with
11 more radical, critical agendas – the tense relation between personal objec-
tives and public aims again (Devine 1999)).
Thus social policy, from an actor-oriented perspective, has to include
struggle and movements, i.e. collective action which has impact, maybe only
incremental, upon the institutional landscape itself to secure a formalisation
of informal and precarious rights. Such social action can be distinguished
from approaches to social policy which emphasise the creation of enabling
111 environments (by whom?) within which individual action for graduation
can occur. That ‘methodological individualism’ is again premised upon
the notion of the liberal, pluralist state, acting as a compensator so that
individuals can invest in their own human capital development (de-
commodification for self-development). Methodological collectivism, on the
other hand, is a structuration process in which the potential instruments of
policy are themselves reformed through large-scale political action.
How can one conceive of social policy, in such societies where the issue
of governance is central, in any other way? Social policy, as practice, has
always (and must definitionally) reflect political settlements. The point
111 is whether such settlements, when they work against the poor, can be de-
stabilised? But is it always a zero-sum game between classes? Although
OECD social policy does rely heavily upon the concessionary principle
(namely, elite-dominated states recognising the costs of not making con-
cessions to an increasingly organised working class), it has also been
acknowledged that economic elites had increasing interests in the devel-
opment of a skilled and educated labour force to manage technological
advance, including the organisation of industry itself (i.e. management
roles). That was how apartheid was eventually undermined in South Africa,
by the expanded reproduction interests of white capital.
111 Thus, in the context of globalisation, we should not presume a zero-
sum game clash of interests between a global rights discourse and poor
country, domestic economic elites. Much of the global social policy agenda
111 is about universalising rights and creating level playing fields, as if domestic
120 Geof Wood
resistance is to be expected. Yet, there has been insufficient consideration
of national-level elite interests in creating an educated, skilled labour force,
which sees itself as committed, therefore, to the capitalist project (a labour
aristocracy?) as in Taiwan, South Korea and, especially now, in India with
its neighbours nervously adopting similar ideas (witness these moves in the
Ministry of Science in the Government of Pakistan). Indeed, these were
classic, anti-communist strategies supported strongly by the US from the
end of the Second World War. The rural equivalent has always been
about creating petty landholders (petty commodity peasants) to offset the
communist mobilisation of disaffected, expropriated rural labour – hence
land reform as a long-established instrument of social policy, i.e. giving
some classes of poor people a stake in the elite project. Thus we have social
policy, under these circumstances, as essentially incorporationist.
Certainly this kind of win-win political settlement (though beware the
many who continue to be excluded) prompts a need to distinguish between
types of countries, as indicated early on in the chapter. In countries where
industrialisation, urbanisation and development of an off-farm, formal-
sector labour market is stronger, as in parts of East, SE Asia and Latin
America, then the political settlement is more likely to resemble the OECD
ones. This would consist of extensive social insurance for the employed,
social investment in the form of welfare to work for the ‘graduating’ poor,
and targeted safety nets for the socially excluded (see Gough 2000, 2001;
Barrientos 2001). All this is premised upon the welfare regime assumptions
holding, and sometimes they do not, as in the Asian financial crisis and its
continuing political aftermath.
However, this chapter has focused, conceptually, on poorer societies:
where the incidence of poverty is highest; where the agrarian basis of poor
people’s livelihoods remains dominant; and where the peasant analogue
applies more strongly (even in conditions of significant rural labour, with
labour retaining peasant psychologies and cognitive maps), characterised
by risk aversion under conditions of high insecurity (i.e. much of South
Asia and Africa). The prospects for win-win political settlements under
these conditions are more remote. The political economies are just too
hostile to the poor, with everyone desperately searching for security (Wood
2001) through the pursuit of personal objectives rather than public aims.
Under these conditions, the action agenda has to be different: less incor-
porationist, more oppositional. But at the same time, we have to remember
that various factors operate to foreclose more ambitious individual and
collective action: the discounting behaviour of the poor; short-term liquidity
management; the uncertainty of the future; and the acceptance of adverse
incorporation and clientelism (as the predominant form of non- and pre-
commodified economic relations). But we cannot naively look to benign
others to overturn this. What changes such time-preference behaviour?
11 In a resource profile framework, emphasising the mutual interdepen-
dence of different sets of resources (material, human, social, cultural etc.),
which set of resources is key, in the sense of altering the status and func-
tioning of the others? It might be individual self-development via education
and vocational training in some circumstances (parts of East and South
Asia); it might be overcoming adult male morbidity in others (e.g. urban
Bangladesh); it might be social action around common property manage-
ment in northern Pakistan; it might be struggle-based social action on
wages, rents or family law in rural India; and so on. In other words, more
11 social policy needs to be based on a ‘horses for courses’ approach, rather
than assuming a universal agenda everywhere. Not everyone’s basic needs
are the same, because the jugular problem for them is not the same. Thus
11 a ‘holistic’ approach is about recognising interlinkage of variables, and
identifying, among the non-idiosyncratic covariance, which is the key entry
point for whose action.
The point about ‘whose’ action does not therefore presume the state (of
course! given negative permeability and problematic governance). It does
not presume countervailing forces in the civil society. It does not presume
the poor themselves either as individuals or collectively (trapped as pris-
111 oners in adverse incorporation). It does not presume the efficacy either of
aid or universal discourses about rights. And it certainly does not presume
technocratic responses. What it does presume is a meso approach to under-
standing the room for manoeuvre for action in context: which actors and
what agendas will vary according to meso context. We could say ‘micro’,
except that we are ruling out micro (methodological individualism) as
mainly insignificant under conditions of hostile political economies.
Thus, this chapter concludes with re-emphasising the need to under-
stand three processes. How different groups and classes negotiate
problematic institutional landscapes (the IRM, appropriately globalised).
111 What they can get out of existing political settlements (the access, partici-
pation agenda). And how their social action can effect changes in that
landscape to offer more security in the future (the political action/struggle
agenda).
111
111
11 6 Economic growth and
social capital
Paul Whiteley
11
11 Introduction
Recent interdisciplinary work suggests that social capital, or the extent to
which citizens are willing to cooperate with each other on the basis of
interpersonal trust, plays an important role in explaining both the efficiency
of political institutions, and the economic performance of contemporary
societies (Putnam 1993, 1995a; Fukuyama 1995; Coleman 1988, 1990).
The mechanisms by which civic values influence socio-economic perform-
111 ance are several: if widespread levels of citizen trust exist in society, this
serves to reduce transaction costs in the market economy, helps to mini-
mize the deadweight burdens of enforcing and policing agreements, and
holds down the diseconomies of fraud and theft. Thus, it can be argued
that trust greatly facilitates economic and social relationships.
Putnam’s work, in particular, has drawn attention to the relationship
between civic values and politico-economic performance. In his study of
the Italian regions he discusses the link between civic culture, of which
social capital is a key element, and socio-economic development in the
following terms:
111
Like a powerful magnetic field, civic conditions seem gradually but
inexorably to have brought socioeconomic conditions into alignment,
so that by the 1970s socioeconomic modernity is very closely corre-
lated with civic community.
(1993: 153)
He makes the controversial claim that contemporary economic develop-

ment in the Italian regions is better explained by the civic conditions in
those regions in the nineteenth century, rather than by their level of
111 economic development at that time (ibid.: 156–62). Put simply, politics
appears to have a more important influence on economic development
than does economics.
111
124 Paul Whiteley
Not surprisingly, such a claim has attracted criticism, particularly from
students of Italian politics, who have argued that the dynamics of capitalist
development and state policies have more to do with socio-economic devel-
opment in the Italian regions than civic values (Pasquino 1995; Goldberg
1996; Tarrow 1996). Such criticisms, however, do not rule out the rele-
vance of civic values in promoting development, although they do assign
them a subordinate role in the process.
The debate about the importance of civic values and political culture
in influencing economic performance has received a further impetus from
the work of Granato, Inglehart and Leblang (1996a,b), who suggest that,
when ‘achievement motivation’ values are incorporated into an endogen-
ous model of economic growth, they explain variance in cross-national
rates of economic performance, which cannot be explained in the absence
of such indicators. This research broadly supports Putnam’s findings.
However, these ideas have in turn been criticized by Jackman and Miller
(1996), on the grounds that political culture is not very well defined in this
account, and also that the findings are not empirically robust. In addition
Swank (1996) argues that communitarian or corporatist modes of policy-
making provide a better explanation of comparative economic performance
than political culture. This debate has provided a further impetus to
research on political culture which has experienced something of a renais-
sance since the 1980s (Laitin 1995).
The purpose of this chapter is to examine the relationship between social
capital and economic growth in a sample of some 34 countries, building
on the theoretical framework of a neo-classical model of economic growth.
Thus, our concern is not the wider question of how strongly inter-
personal trust is related to political culture, but rather the question of
whether or not social capital, measured in terms of interpersonal trust, has
an important influence on economic performance, over and above those
variables which appear in a standard neo-classical model of economic
growth. Thus, we examine the influence of social capital on economic
performance in a dynamic model of economic growth.
The findings suggest that social capital has had an important impact on
economic growth in the sample of countries since 1970. Moreover, the
influence of social capital on growth appears to be at least as strong as the
influence of human capital or education, which is the focus of much of the
recent research on endogenous growth theory (Barro and Sala-I-Martin
1995). It appears that social capital has approximately the same influence
as convergence or ‘catch-up’, which refers to the ability of poorer nations
to adopt technological innovations pioneered by their richer counterparts,
and thus close the gap between themselves and richer countries.
These findings apply to countries other than the usual sample of demo-
cratic nations, which have been the primary focus of empirical research
Economic growth and social capital 125
11 on the relationship between politics and economic performance in recent
years (see, e.g., Castles 1982; Janoski and Hicks 1994; Hollingsworth,
Schmitter and Streeck 1994). Social capital appears to be important regard-
less of the democratic credentials of the regime in power, or even if that
regime had a market economy during the estimating period. However,
since there are no really poor countries in the sample, the findings do not
generalize to all countries.
The chapter is divided into five sections. After a brief initial review of
the research on economic growth, we examine the debate about the defi-
11 nition of social capital and then derive a measure which is subsequently
incorporated into a model developed from Mankiw, Romer and Weil’s
neo-classical growth model (1992). This modified neo-classical model
11 includes social capital as a factor of production, which, along with human
and physical capital, facilitates the diffusion of innovation in a society and
thereby stimulates growth. This is followed by a third section in which the
measurement issues involved in estimating this model are addressed. The
fourth section examines empirical estimates of the model and the robust-
ness of these estimates. Finally, conclusions and implications are discussed
in the fifth section.
111
Modelling economic growth
The literature on economic growth goes back many years, but John
Maynard Keynes’ pioneering work provided the chief impetus to modern
theories of growth (Keynes 1936; Domar 1947; Harrod 1948). The starting
point for more recent debates about the nature of growth was papers by
Solow (1956) and Swan (1956), who developed the first neo-classical models
of growth. Taking rates of growth of population and savings as exogenously
determined, Solow and Swan showed that these variables explained long-
111 run levels of income per capita in market economies. Their models imply
that the higher the rates of savings the greater the stimulus to investment
and the richer the country, and the faster the rate of population growth
the poorer the country, since available investment has to be spread more
thinly over the population of workers.
In the Solow–Swan neo-classical growth model it is assumed that the
aggregate growth can be modelled by a Cobb–Douglas production function
of the following type:
Y(t) = K(t) ␣ (A(t) L(t)) 1–␣ 0 < ␣ < 1 (1)
111 where Y = income, K = physical capital, A = the level of technology and
L = labour.
This is a multiplicative model, so that the effects of increases in labour,
111 capital and technology on economic growth all interact with each other
126 Paul Whiteley
and are greater than the sum of their individual parts. The Solow–Swan
model has two implications which have generated much subsequent debate.
First, the lower the starting level of real income of a country in the growth
period, the faster the growth rate. This means that poorer countries will
‘catch up’ with their richer counterparts in the long run. This prediction
derives from the assumption of diminishing returns to capital investment.1
The second prediction is that, in the absence of continuing technological
progress, economic growth will eventually disappear, leading to the long-
run stagnation of market economies. Again this follows from the assumption
of diminishing returns to capital investment.
The neo-classical growth model has been criticized on a number of
grounds, but the strongest criticism is that the two key variables which it
uses to explain growth, namely technological progress and population
growth, are both exogenous or determined outside the model. Thus, the
model does not explain the two factors which it assumes are the driving
force behind economic performance (see Romer 1994). Subsequent work
on growth theory aims to respond to this criticism, by endogenizing or
explaining technological progress as well as by incorporating human capital
into the growth model. Such endogenous growth theories challenge the
assumptions of decreasing returns to capital investment, perfect competi-
tion, exogenous technological progress, and the absence of human capital,
all of which are features of the original neo-classical model.2
As with any other model, the neo-classical model is something of a com-
promise between an ideal which represents the full complexity of the growth
process and what is feasible given the availability of data and the state of
theory. Moreover, endogenizing technological innovation or human capital
is difficult, since, as Romer (1986) points out, technology is a partially
excludable, nonrival good; that is, once a new technological discovery is
made, the benefits following from its use cannot in the long run be restricted
solely to those countries which invested in it in the first place. This means
that investment in research and development cannot be explained with the
same type of theory which explains investment in capital goods.
A similar point can be made about human capital. While individuals
receive returns from investment in education, there are significant spillover
effects from widespread educational attainment in a society. Such exter-
nalities imply that the growth process is characterized by constant or
increasing returns to investment in human capital, an idea which appears
to be more consistent with the long-run evidence on economic growth than
with diminishing returns to scale (Maddison 1987, 1991).
While many of the criticisms of the neo-classical model have consid-
erable validity, the empirical evidence relating to endogenous growth
theories is, however, not very strong. Pack (1994) examines some of the
theoretical and empirical weaknesses of the endogenous growth literature.
11 He highlights the point that externalities from human capital cannot
explain the extraordinary growth rates of the Asian ‘tiger’ economies up
to the 1990s, whose investment in education and in research and devel-
opment has not greatly exceeded that in many other developing countries
which have failed to grow. Similarly, attempts to model technological
progress have not progressed very far up to this point.
Mankiw, Romer and Weil (1992) show that a relatively simple neo-
classical model does an excellent job in explaining cross-national variations
in growth rates in some 98 countries, once human capital is taken into
11 account, and cultural differences in saving rates between countries are
allowed. They write:
11 [I]nternational differences in income per capita are best understood

using an augmented Solow growth model. In this model output is
produced from physical capital, human capital and labor, and is used
for investment in physical capital, investment in human capital, and
consumption.
(1992: 432)
111 Their basic empirical model, which is derived from equation (1) in
Appendix A contains two variables, investment and population growth.
When it is augmented by human capital, it can be written as follows:
ln [Y/L] = a + ␤1 ln (investment) + ␤2 ln (population growth +

constant) + ␤3 ln (human capital stock) + ␧ (2)
where ln is the natural logarithm of a variable,3 ␧ is a random error term,

and Y/L is the ratio of capital to labour, or Gross Domestic Product per
capita.
111 The model takes into account the dynamic interrelationship between
investment and income by estimating a steady-state version (see Appendix
A). The basic approach is to examine economic performance in the long
run, so that feedback mechanisms between population, investment and
growth are all taken into account in estimating effects. For a sample of
98 non-oil countries, this rather simple model explains some 59 per cent
of the variance in GDP per capita, and tests of restrictions on the model
coefficients suggest that ␤1 and ␤2 are equal and of opposite sign, which
is consistent with the predictions of the neo-classical model, that the factors
of production are paid the value of their marginal products. While the
111 model may be an oversimplification, it appears to capture the main features
of cross-national differences in economic growth.
Barro and Sala-I-Martin (1995: 414–510) survey the empirical work
111 which has been done on economic growth and examine the large number
128 Paul Whiteley
of variables which have been included in different specifications of growth
models, such as investment and trade variables, measures of human capital,
measures of the quality of political institutions and democracy and indi-
cators of political stability (ibid.: 414–56). They suggest that a number of
these variables are important for explaining growth. However, Levine and
Renelt (1992) have also surveyed the empirical literature and found that
only a few of the many variables which have been included in different
models are robust predictors of growth. They subjected the empirical work
in this field to a variant of Leamer’s Extreme Bounds Analysis (Leamer
1983), a technique designed to elicit the robustness of predictor variables
in a regression model subject to changes in the specification. Levine and
Renelt found that ‘almost all results are fragile’ (1992: 942), although invest-
ment proved to be a robust measure, as did the relationship between
investment and trade. In addition, Levine and Renelt found qualified
support for a measure of catch-up as a predictor of growth.
In the light of this discussion, we will extend the neo-classical model used
by Mankiw, Romer and Weil in order to explain the role of social capital
in influencing growth, while taking into account the other empirical work
in this field. The extended model which incorporates social capital into the
specification is discussed in the next section, which focuses on the definition
of social capital and its theoretical influence on economic performance.
Economic growth and the role of social capital

Before examining the influence of social capital on economic growth, it is
necessary to clarify the meaning of social capital. Putnam, for example,
defines it as ‘features of social organization, such as trust, norms and net-
works, that can improve the efficiency of society by facilitating co-ordinated
actions’ (1993: 167). Unfortunately, this definition mixes up three distinct
concepts: citizens’ feelings of trust in other members of society, social
norms supportive of cooperation and networks of civic engagement. The
first two are psychological phenomena, whereas the latter is a behavioural
relationship between individuals, moulded by the institutions in which
they live.
James Coleman (1988) identifies three distinct forms of social capital:
obligations and expectations, information channels and social norms. He
defines the relationship between the first of these and social capital in the
following terms:
If A does something for B and trusts B to reciprocate in the future,

this establishes an expectation in A and an obligation on the part of
B. This obligation can be conceived of as a credit slip held by A for
performance by B.
(1988: s103)
11 Thus social interaction generates ‘credit slips’ of obligation and norms of
reciprocation.
Coleman’s second type of social capital is based on the idea of trusting
other people to provide accurate information as a basis for action. Thus
an individual who does not want to spend time learning about the political
world can rely on a friend to read the newspapers and follow political
events and provide him with such information. Clearly, such a relation-
ship does not create the same obligations or ‘credit slips’ as the first type
of social capital, but again for such communication to be possible a pre-
11 existing level of trust between individuals has to exist.
Coleman’s third type of social capital derives from social norms. To
illustrate these, he cites the following example: ‘Effective norms that
11 inhibit crime make it possible to walk freely outside at night in a city and
enable old persons to leave their houses without fear for their safety’ (1988:
s104).
Of these three types of social capital, Coleman believes that the trust-
worthiness of the social environment is the most important, since that
permits obligations to be repaid, which in turn facilitates social inter-
actions that would otherwise not be possible (1990: 306–7). Trust promotes
111 norms which abjure self-interest and reinforce the idea that individuals
should act in the interests of the group in order to solve collective action
problems.
The idea that trust promotes reciprocity and cooperation is an old one
going back to Tocqueville (1835) and Simmel (1950) and is exemplified in
its modern form by communitarian theorists like Etzioni (1993) and Bellah
and his collaborators (1985). Such trust goes beyond tit-for-tat calculations
of reciprocity which underpin game theoretic explanations of cooperation
(Axelrod 1984, 1997). Such calculations can reinforce cooperation once it
has begun, but they cannot explain why it begins in the first place. There
111 is what the computer scientists call a ‘bootstrap’ problem (Whiteley 1999)
which comes about because non-cooperative equilibria in game-theoretic
models of the collective action problem are generally quite stable. This
means that if little or no social capital exists in a society to begin with, it
is very difficult to create it, since anyone who tries to cooperate in such a
society will simply be exploited. In such a situation the process of gener-
ating social capital will not get off the ground.
This implies that a key element of social capital involves a willingness to
trust others, often strangers, without expecting that they will immediately
reciprocate that trust. It relies on the fact that altruistic behaviour will be
111 repaid at some unspecified time in the future by an unspecified person.
Clearly, this type of generalized reciprocity involves risk and uncertainty
since it occurs without any obvious prospect of return (Luhmann 1988;
111 Misztal 1996). As Frank (1988) points out, it also implies that individuals
130 Paul Whiteley
should be willing to cooperate in situations where non-cooperative behav-
iour cannot be detected by others. This means that their trustworthiness is
not merely the product of external social sanctions or fear of punishment.
The puzzle is to explain how such generalized trust emerges in the first
place. Putnam is uncertain about the precise origins of social capital, and
in any case controversially locates its origins in Italy’s medieval past. As
far as the maintenance of social capital is concerned, he adopts a
‘Tocquevillian’ model which stresses the importance of voluntary activity
as the key mechanism for sustaining generalized trust (Putnam 1993: 88–9).
More recently he has conceded that the most fundamental form of social
capital may be the family (1995a: 671) implying that it may be the most
important source of social capital as well.
In a similar vein, Margaret Levi has suggested that ‘trust is more likely
to emerge in response to experiences and institutions outside the small asso-
ciations than as a result of membership’ (1996: 48).
Newton (1999) argues that social capital research which focuses on
formally organized voluntary associations may be missing a large part of
the story. His basic point is that a number of other agencies such as schools,
the media and, above all, the family have a stronger and more enduring
hold on the individual’s time and attention than does voluntary activity.
In this view voluntary activity is likely to play only a relatively minor role
in sustaining social capital.
Knack and Keefer (1997) find no evidence of a relationship between
voluntary activity and economic performance in a cross-national sample
of countries, although they do identify a relationship between economic
performance and trust. Clearly, this implies that, if generalized trust does
have benign influences on the economy, then it must be generated by
mechanisms other than voluntary activity.
Accordingly, we hypothesize that such generalized trust is an ‘exter-
nality’ which has its origins within the family, but which is also influenced
by the community and the norms and values of society. At its simplest,
individuals learn to trust primarily in the family, but schools, the imme-
diate community and voluntary organizations play a role in reinforcing
and sustaining such trust. In this view, particularized, or ‘thick’ trust
(Williams 1988) of the type generated by intense interactions within primary
groups spills over into the society as a whole, and generalized, or ‘thin’
trust arises principally out of this particularized ‘thick’ trust. This also
implies that the strong ties that are generated within the family and in the
immediate community are the basis of the weak ties which make society
possible (Granovetter 1973).
There is of course a counter-argument which suggests that some
societies, particularly those deeply divided by ethnic or racial divisions,
may have strong ties and high levels of ‘thick’ trust within particular
11 communities, but this does not generalize to the society as a whole.
Northern Ireland and Cyprus can be cited as examples of such societies.
Such cases exist, but they are exceptional; if they were not, empirical work
would show no relationship, or even a negative relationship, between partic-
ularized trust associated with the family and generalized trust associated
with society as a whole. As the evidence shows below, in a large number
of rather diverse societies, ‘thick’ trust and ‘thin’ trust are quite strongly
related to each other, forming a single dimension. Our hypothesis is that
this derives from the fact that generalized trust is an externality arising
11 from particularized trust.
In the light of this discussion, we define social capital as the willingness of
citizens to trust others including members of their own family, fellow citizens and people
11 in general. This definition follows Misztal’s argument that different types of
trust form a ‘continuum or a spectrum, ranging from personal trust to
abstract trust’ (Misztal 1996: 72). The most important component of this
continuum from the point of view of economic performance is generalized
trust, but since we have suggested that it arises out of particularized trust,
it is important to include both in the operational definition. We return to
the issue of the measurement of social capital below.
111 Turning next to the relationship between social capital and economic
growth, the Nobel prize-winning economist Kenneth Arrow has written
that:
Virtually every commercial transaction has within itself an element of

trust, certainly any transaction conducted over a period of time. It can
be plausibly argued that much of the economic backwardness in the
world can be explained by the lack of mutual confidence.
(1972: 345)
111 This kind of reasoning suggests that social capital, defined in terms of
interpersonal trust, has a very important influence on all aspects of the
economy.
If we extend the model of equation (2) to include social capital, the
model can be expressed in a log-linear form as follows:
ln [Y/L] = ␣ + ␤1 ln (investment) + ␤2 ln (population growth) +

␤3 ln (human capital stock) + ␤4 ln (social capital
stock) + ␤5 ln (initial GDP per capita) + ␧ (3)
111 This version also includes initial GDP per capita as a measure of catch-
up, since the bigger the gap between this measure and the GDP per capita
of the leading technological nation, the greater the scope for catch-up.
111 Thus backward nations should be able to catch up faster with advanced
132 Paul Whiteley
industrial societies than moderately prosperous nations by utilizing public-
ally available information on new technology and by investing in education.
As before, in this specification social capital interacts with all of the other
variables to determine economic growth.
In their discussion of the role of human capital in economic growth
Nelson and Phelps (1966) make the point that poor countries can only
utilize technology if they have adequate reserves of human capital to enable
them to do so, which implies that catch-up is not automatic, but depends
on an interaction between human capital and technological change. In
their specification catch-up depends on the level of human capital and
the deficiency in the ‘theoretical knowledge’ of a country. If the size of this
deficiency is large and a country has considerable reserves of human capital
then it will be able to catch up rather quickly and growth rates will be
high. On the other hand if it is not endowed with adequate reserves of
human capital, catch-up will be very difficult, even if opportunities for tech-
nological progress exist.
This idea has been developed further by Benhabib and Spiegel (1994).
In their model, human capital influences growth via two distinct mechan-
isms; first, the stock of human capital in a society affects growth directly,
since high levels of education promote a good economic performance. But
second, human capital affects the catch-up component of the model, since
diffusion of innovation works more effectively in educated rather than in
uneducated societies. Clearly, both of these mechanisms apply to social
capital as well. Social capital has a direct effect on economic performance
through its influence on reducing transaction costs and offsetting the effects
of malign externalities. But it also works indirectly via interactions with
human capital, physical investment and catch-up, all of which make a
greater contribution to economic growth in a high-trust society.
Social capital has a direct influence on growth because it enables actors
to solve collective action problems. Problems of allocating common pool
resources or dealing with malign externalities such as smoke and noise
pollution are likely to be easier in high-trust societies (Ostrom 1990;
Ostrom, Gardner and Walker 1994). The legal enforcement of agreements
and state regulation to police contracts and protect property rights are
much more important in low-trust societies, precisely because social capital
is not available to perform these tasks. But these all impose transaction
costs and potentially reduce efficiency. Moreover, if such externalities cross
jurisdictions, an obvious problem in relation to environmental pollution,
there may be no benign solutions to collective action problems at all, and
a ‘tragedy of the commons’ will result (Hardin 1982).
The Coase theorem (see Coase 1990) asserts that, when transaction
costs are low, actors will be able to negotiate solutions to collective action
problems more efficiently than could be achieved by outside regulation.
11 By reducing transaction costs, social capital makes solutions to problems
of externalities easier to achieve, which in turn improves economic
efficiency and stimulates growth.
Another direct effect is that principal–agent problems are much less
significant in high-trust societies. These occur when a principal (e.g. an
employer) has to trust the agent (e.g. an employee) to deliver goods or
services, but cannot fully supervise the quality or effectiveness of their work
without incurring high costs (Moe 1984). In this situation agents have an
incentive to shirk, or to deliver lower quality goods. It seems plausible that
11 in high-trust societies agents are much less likely to shirk than they are in
low-trust societies, making principal–agent problems much less acute.
Social capital also reduces the costs of fraud and crime, which in turn
11 means that society does not have to invest so much in security and policing.
These effects should all promote efficiency and growth.
The indirect mechanisms work via the other variables in equation (3),
such as the interaction between social and human capital. This is partly a
matter of greater innovation produced by educational investment, but also
due to the fact that externalities from educational spending, which are a
key feature of endogenous growth theories (Barro 1997), operate more
111 effectively. In a low-trust society educational investment may not work
effectively if employment practices are strongly influenced by ascriptive
criteria such as kinship and ethnicity. These criteria are often inefficient,
but they will be sustained in a low-trust society precisely because they
provide a reliable alternative to social capital. Similarly, the benign exter-
nalities associated with social capital are likely to create higher returns to
educational investment.
Another indirect mechanism is the link between investment and social
capital. In addition to the point about the diffusion of innovation arising
from investment being more efficient, actors can afford to take greater risks
111 and thus be more entrepreneurial in a high-trust society. High levels of
social capital mean that society will be less risk-averse and this produces
greater incentives to invest in both physical and human capital.
Finally, just as ‘catch-up’ is more likely to work in societies with high
levels of human capital, the same point could be made about social capital.
If a country lags behind another in terms of technological progress, then
the diffusion of innovation of new techniques will be greatly facilitated by
high levels of social capital, in contrast with a low-trust, risk-averse society
in which innovation will be inhibited.
To summarize the argument up to this point, social capital can be
111 conceived as both particularized and generalized trust, with the latter
arising out of the former and being the most important factor in stimu-
lating economic growth. There are a variety of reasons why a society with
111 high levels of social capital can innovate more efficiently than a society
134 Paul Whiteley
with low levels of social capital. These operate directly by lowering trans-
action costs and reducing principal–agent problems, but they also operate
indirectly via investment in physical and human capital. Moreover, a high-
trust society will tend to catch up on its competitors more effectively
since the diffusion of innovation is facilitated by cooperative and trusting
behaviour.
While equation (3) provides the basic theoretical specification to be tested
below, it is important to examine other control variables which might influ-
ence economic growth. As mentioned earlier, a large variety of control
variables have been included in different empirical models of economic
growth, including the growth rate of government spending (Ram 1986);
the growth of domestic credit and a measure of civil liberties (Kormendi
and Meguire 1985); the growth rate of exports as a share of GDP
(Romer 1986); the size of government as a percentage of national income
(Barro 1997: 26); and the experience of wars and revolutions (Barro 1991).
But Levine and Renelt (1992) point out that few of these variables are
robust predictors of growth, although their work also suggests that
important links exist between trade and investment, which implies that the
openness of the economy may be an important factor in explaining cross-
national variations in growth.
Accordingly, we will include a measure of openness of the economy and
also some political variables, which Levine and Renelt did not examine,
as additional controls in the model. Political scientists have considered a
number of political variables which fall into this category. Following the
debates referred to earlier, we will include the four-item indicator of values
included by Granato, Inglehart and Leblang (1996a) in their model, and
also the two measures of communitarian politics included by Swank (1996)
in his growth model.
Granato, Inglehart and Leblang draw on a large literature relating to
civic culture and political values, and Swank draws on a similarly large
literature on the effects of corporatism and communitarian policy-making
on economic performance. One stresses values and the other institu-
tions, but there is a considerable overlap between these two theoretical
approaches. Since institutions help foster values, and values in turn influ-
ence institutional arrangements, they are not clearly defined alternative
explanations of growth.
The Granato, Inglehart and Leblang measure is constructed from four
items from the 1990–3 World Values Surveys (see Appendix B). The first
measure of communitarian politics examined by Swank identifies if a coun-
try has been part of the Confucian statist tradition. In this case the mechan-
ism for stimulating growth is thought to be the industrial policies
pursued by East Asian countries (Swank 1996: 669). The second is a meas-
ure of social corporatism linked to the encompassing character of interest
11 associations in certain countries, which have enabled them to internalize
costs faced by other countries which lack such corporatist institutions for
solving collective action problems (Swank 1996: 668). Finally, we also include
a control for membership of the communist block during the estimation
period.4 The overall aim is to determine if one, or more, of these control
variables explain additional variance in economic performance, once social
capital is taken into account.
We examine the measurement of the variables and the sample in the
next section.
11
The measurement of the variables
11 The data for the empirical section of this chapter is obtained by merging
three different databases. The first is The Penn World Table, which is a set
of national economic time series covering a large number of countries, in
which variables are denominated in a common set of prices and curren-
cies (see Summers and Heston 1991). This makes it possible to compare
real quantities directly without the problems of comparability which can
occur with data from different national accounts.5 The second database is
111 the World Values Surveys of nationals from 45 countries, carried out between
1990 and 1993 (ICPSR 1994; Abramson and Inglehart 1995). This provides
data on social capital and also data for the four-item value scale. The third
database is the UNESCO cross-national data on educational investment,
which is used to construct the indicators of human capital.6 The precise
definition of these variables is given in Appendix B. The sample of 34
countries represents the largest number of countries for which common
data are available. The time period over which growth was measured was
1970 to 1992, which is long enough to eliminate any short-run influences
on economic performance induced by the trade cycle or by specific shocks
to the economy.
111 There are three variables in the World Values Surveys which can be used
to measure social capital as it is defined here. These are questions about
trusting members of one’s own family, trusting fellow nationals and, finally,
trusting people in general. The responses to these questions from the more
than 56,000 individuals surveyed in 45 countries in the 1990–3 World Values
Surveys appear in Table 6.1.
Inglehart argues that interpersonal trust is part of a ‘broad syndrome
of attitudes reflecting whether one has a relatively positive or negative
attitude towards the world in which one lives’ (1990: 43). In his view inter-
personal trust is associated with satisfaction with life and general levels of
111 happiness. Interestingly enough only a minority of respondents trust other
people in general, although it is a sizeable minority. Not surprisingly, they
are much more likely to trust members of their own family, and to a lesser
111 extent their own nationals, than people in general.
136 Paul Whiteley
Table 6.1 The indicators of social capital in the World Values Surveys (N = 56,088)
Question Percentage
Generally speaking, would you say that most people can
be trusted or that you can’t be too careful in dealing
with people?
Most people can be trusted 34.5
Can’t be too careful 65.5
How much do you trust various groups of people?

a) Your family
Trust them completely 79.8
Trust them a little 14.2
Neither trust nor distrust them 2.6
Do not trust them very much 1.4
Do not trust them at all 1.9
b) Your own nationals
Trust them completely 19.7
Trust them a little 44.4
Neither trust nor distrust them 22.7
Do not trust them very much 10.2
Do not trust them at all 3.1
A principal components analysis of the three trust variables appears in

Table 6.2, and reveals that there is a reasonably good one-dimensional
scale underlying the responses to the three questions, although the scale is
a better measure of trusting fellow nationals and members of one’s own
family than of trusting people in general.7 There were no other significant
factors identified, and the highest loaded indicator on the scale is trusting
fellow nationals. This is clearly an indicator of the generalized trust aspects
of social capital, which we have suggested is particularly important for
promoting economic growth.
Table 6.2 A principal components analysis of the trust variables in the World
Values Surveys
Variable Factor loadings
Trust in family members 0.52

Trust in fellow nationals 0.63
Trust in people in general 0.22
Eigen value 1.37
Percentage of variance explained 45.7
11 The fact that a single trust scale exists, and that the loadings on trusting
members of the family and fellow nationals are high, means that particu-
larized and generalized trust are closely related to each other. Accordingly,
the mean factor scores calculated from all of the respondents within a
country are used as indicators of the level of social capital in that country
in the subsequent analysis.8
Empirical results
11 A preliminary impression of the relationship between economic perfor-
mance and social capital can be seen in Figure 6.1, which compares the
Gross Domestic Product per capita in 1992 in the sample of countries with
11 the average percentage of respondents in the World Values Surveys who trust
other people, the first item in Table 6.1.
There is a surprisingly strong correlation between these variables in the
34-country sample.9 Figure 6.1 measures the relationship between trust and
levels of income, rather than trust and economic growth, but it makes clear
that economic performance is quite closely related to social capital.10 The
estimates of the various models of the relationship between economic
111 growth and social capital appear in Table 6.3.
The first model, A, in Table 6.3 is the estimate of equation (3), which
excludes additional control variables. It can be seen that the model explains
(N = 34 countries)
20,000
15,000
GDP per capita in 1992
111
10,000
5,000
0
111 0 10 20 30 40 50 60 70
Percentage trusting other people
111 Figure 6.1 GDP per capita and trust in 1992.

138 Paul Whiteley
a moderate amount of variance, and all of the variables are statistically
significant except population growth and secondary school enrolments, the
latter being one of the indicators of human capital. The model shows that
physical investment, human capital, catch-up and social capital are all
significant predictors of economic growth. Clearly, the effects associated
with human capital are captured by primary school enrolments, and
secondary school enrolments are not significant when these are taken into
Table 6.3 Economic growth models, 1970–92 (dependent variable is log of mean
growth rate 1970–92; N = 34)
Predictors A B C D
Constant –10.99* –8.92 –11.81** –

(1.8) (1.3) (2.1)
Log of investment 1.47*** 1.75** 1.60*** 0.69***
(2.7) (2.9) (4.7)
Log of primary school 2.22* 2.13* 2.22** 0.29**
enrolment (1.8) (1.6) (2.0)
Log of secondary school –0.02 0.25 – –
enrolment (0.0) (0.5)
Log of population growth –0.22 –0.55 – –
(0.6) (1.1)
Log of social capital 0.62*** 0.57** 0.63*** 0.42***
index (2.6) (2.0) (2.7)
Log of real GDP per –0.32* –0.70** –0.30*** –0.41***
capita in 1970 (1.9) (2.5) (2.9)
Openness of the economy – 0.00 – –
(0.2)
Four-item values index – 0.25 – –
(0.7)
Confucian statist – –0.39 – –
(0.8)
Social corporatist – –0.38 – –
(1.3)
Communist government – –0.83* – –
(1.9)
Adj R2 0.37 0.29 0.40 0.40

F ratio 4.16*** 2.35** 6.54*** 6.54***
Normality ␹2 test 28.0*** 29.6*** 27.9*** 27.9***
Heteroscedasticity test 1.49 1.64 1.98 1.98
Note: T ratios in parenthesis * p < 0.15, ** p < 0.05, *** p < 0.01
11 account. Similarly, when human capital and investment are both included
in the specification, population growth is not a statistically significant
predictor of growth, although the negative sign of the effect is in line with
expectations.
Since the variables are all measured in natural logarithms, the coefficients
are elasticity coefficients. Thus a percentage change in investment produces
a nearly 50 per cent larger percentage change in growth. Similarly, invest-
ment in human capital has a significant influence on economic growth, with
a 1 per cent change in primary school enrolments producing a more than
11 2 per cent increase in economic growth. It is noteworthy that the social
capital measure is a highly significant predictor of growth.11
It is very clear that strong convergence or catch-up exists in this sample
11 of countries, since a country with a 10 per cent below average national
income in 1970 grew about 3 per cent faster than average during the
period. This finding is consistent with the predictions of the neo-classical
model of economic growth, as the earlier discussion indicates. Overall,
widespread trust in a society stimulates economic growth, over and above
the influence of catch-up and investment in physical capital and in human
capital.
111 There are various statistical tests included in the table, to test the reli-
ability and robustness of the findings. The normality ␹2 test in Table 6.3
was developed by D’Agostino et al. (1990) and is based on the skewness
and kurtosis of the residuals. The test statistic is highly significant, which
indicates that residuals deviate significantly from a normal distribution,
suggesting that there could be problems with the model. In contrast, the
Breusch and Pagan (1979) heteroscedasticity test is non-significant, indi-
cating that there is no need to correct for this problem in the model.
Model B includes the additional control variables mentioned earlier.
None of the additional variables are significant, with the exception of the
111 communist government dummy variable, which has the effect of reducing
economic growth. It is also noteworthy that the catch-up effect is strength-
ened somewhat in this extended model, as is the effect of investment in
physical capital. The effect of social capital has weakened slightly, although
it remains highly significant as a predictor of growth.
It is interesting that, once social capital is taken into account in the four-
item value index, the measure of Confucian statist traditions and the social
corporatism variables are not statistically significant. Thus, their underlying
theoretical motivation, the idea that social values influence growth, is
adequately captured by the measure of social capital. Model C is the most
111 parsimonious version of the growth model, with all the non-significant vari-
ables excluded, and model D is the same as model C, but with standard-
ized coefficients.12 Model D shows that investment in physical capital is
111 easily the most important factor in explaining economic growth. But it also
140 Paul Whiteley
indicates that human capital, which was mentioned earlier as the main focus
of research on endogenous growth theory, is rather less important than
social capital. The latter has about the same impact on economic growth
as the catch-up variable. This attests to the importance of generalized trust
in influencing cross-national economic performance.13
Given that the most parsimonious model has been identified, it is
important to assess how robust these findings are, and how much they can
be changed by a sensitivity analysis of the model. This is particularly true
given the evidence that the residuals of the model are non-normal. This
is done in Table 6.4, which also addresses the question of causation in the
model, whether growth influences social capital, rather than the other way
round.
The robustness of the most parsimonious model in Table 6.3 is tested
in three ways in Table 6.4. First, a robust regression analysis of the model
is carried out, using an iteratively weighted maximum likelihood procedure
(see Hamilton 1993: 125–32). On each iteration the procedure estimates
the parameters and calculates the residuals, and then down-weights those
cases having large residuals. The exercise is repeated until the weights show
no significant changes between iterations. This procedure corrects for the
effects of any large outliers in the sample.
The second approach to investigating robustness is to carry out a Monte
Carlo bootstrap regression analysis using 1,000 samples derived from the
most parsimonious model, C. The basic idea here is to construct the
sampling distribution of the estimates empirically, rather than by assump-
tion, in view of the fact that the residuals are not Normally distributed.14
The third approach is to calculate the Cook’s D statistic for the residuals
of each country in the model. This measures the extent to which each
residual influences the overall regression estimates. A leverage plot showed
that two residuals were particularly important in this regard: Argentina
and India. Accordingly, the model was re-estimated with these two cases
omitted.
The results in Table 6.4 indicate that, while different procedures
produced differences between coefficients, all the variables remain statisti-
cally significant and with the correct sign in each case. It is also apparent
that the large reduction in the normality test statistic in the subset regres-
sion compared with Table 6.3 indicates that the deleted cases were
responsible for most of the non-normality in the residuals in that table.
The fourth model in Table 6.4 deals with the issue of causality. This
arises because it is possible that measures of trust taken from a survey in
1992 may be unreliable predictors of economic growth over the period
1970–92, since the effects may be partly or wholly attributable to reverse
causation.15 This issue is addressed using data from the 1981 World Values
Surveys, together with data on economic growth, population changes and
11 Table 6.4 Economic growth models, 1970–92 (dependent variable is log of mean
growth rate 1970–92, except for 1981 regression where it is the log of
the mean growth rate 1981–92)
Predictors Robust Bootstrap Subset 1981

regression regression regression regression
(N = 32) (N = 20)
Constant 6.68** –12.82** –14.18** –112.9***
(2.5) (2.5) (3.2) (4.2)
11 Log of investment 0.84*** 1.66*** 1.26*** 2.90***
(5.2) (2.9) (5.4) (2.8)
Log of primary school 1.49*** 2.36** 2.76*** 18.84***
11 enrolment (2.8) (2.4) (3.4) (5.2)
Log of social capital 0.25** 0.62*** 0.43*** 1.66*
index (2.3) (2.6) (3.0) (1.8)
Log of real GDP per –0.20*** –0.28*** –0.18*** 1.32**
capita in 1970 (4.1) (2.6) (2.5) (2.6)
Log of population – – – –1.68**
growth (2.6)
111
Adj R2 – – 0.53 0.61
F ratio – – 9.88** 6.8***
Normality ␹2 test – – 15.87*** 0.60
Heteroscedasticity – – 0.95 9.3***
Note: The robust regression model weights observations as a function of their outlier status,
with the largest outliers being assigned the smallest weights. The bootstrap regression is derived
from a 1,000 case bootstrap re-sampling of regression model C of Table 6.3. The reduced set
regression excludes Argentina and India from the model, the former having a Cook’s D of 0.59
and the latter 0.39 in model D of Table 6.3. The 1981 regression uses average growth, invest-
ment and population change data from 1981 to 1992, together with mean scores on the trust
111 in other people variable of Table 6.1 measured in 1981. The log of GDP per capita in 1981 is
used in this equation instead of the log of GDP per capita in 1970 to measure catch-up.
investment over the period 1981–92. Clearly, economic performance over

the period 1981–92 cannot influence trust measured in 1981, so there is
no reverse causation in this model. Unfortunately, the 1981 World Values
Surveys omitted the family and national trust questions, so the model includes
only trust in other people as a measure of social capital. In addition, the
earlier survey covered significantly fewer countries than the later one, so
111 the model can only be estimated for 20 countries.
The 1981 regression in Table 6.4 shows that social capital continues to
be a significant predictor of growth even when it is measured at a time
111 point prior to that of economic growth. In fact the magnitude of the effects
142 Paul Whiteley
of social capital on growth are roughly the same in this model as in model
C of Table 6.3, despite the fact that only one indicator is used to construct
the social capital scale.16 However, it is also clear that human capital is a
much stronger predictor of growth in the 1981 model in comparison with
the later model, and relatedly, population changes are a significant
predictor of economic growth in the 1981 model too. This suggests that
comparisons of the effects of human and social capital on economic growth
have to be made with care. Overall though, these results indicate that social
capital is a robust and highly significant causal factor in explaining
economic growth.
Another perspective on the causal mechanisms at work can be obtained
by examining the stability of social capital over time. If the measures of
trust are rather volatile and change significantly over time, by implication
they are open to influence by other variables, including economic growth.
On the other hand if trust is very stable, then there is much less scope for
reverse causation to operate between economic performance and social
capital. Further analysis indicates that interpersonal trust appears to be
fairly stable over time in this sample of countries. The correlation between
the generalized trust measure in 1981 and the same measure in the 1990–3
surveys in our sample of countries is very high (r = +0.90) indicating that
the responses to the trust measure were very stable at the aggregate level,
for the 20 countries in the regression in Table 6.3. The proportion of the
population who trust other people does not appear to change greatly
over time.
Discussion and conclusions

It is clear that social capital, defined as interpersonal trust, is an important
factor in explaining cross-national variations in economic growth. When
the variable is incorporated into a modified neo-classical growth model, it
is a highly significant predictor of growth in a diverse set of countries, and
in the presence of various control variables. Moreover these results are not
dependent on the fact that a country has a democratic government or a
market-based economy, since a number of authoritarian and communist
countries are included in the sample.
On the other hand, the model is not as successful as Mankiw, Romer
and Weil’s in terms of goodness of fit, although their model was much less
successful in explaining cross-national variations in growth in 22 OECD
countries (see Mankiw, Romer and Weil 1992). The key feature of the
model is the interaction between human capital, social capital, physical
capital and catch-up, and this is strongly supported by the evidence.
Social capital is ultimately a set of social values and we have argued
that it originates in primary groups, principally the family, rather than in
11 secondary groups such as voluntary organizations. However, it should be
said that voluntary groups clearly help to facilitate the diffusion of trust
throughout society. Overall, these findings support the idea, found in the
work of several researchers, that values play a key role in explaining cross-
national variations in economic performance, and they cannot be ignored
in any properly specified model of economic growth.
Notes
11 1 This prediction is conditional on the requirement that the savings rates and
the growth rates of populations in different countries are the same. Since in
practice savings and population growth rates vary across countries, so do the
rates of economic growth, and convergence is not perfect.
11 2 See Romer (1986); Lucas (1988); Grossman and Helpman (1991); and Kremer
(1993).
3 Measuring the variables in logarithmic form linearizes the multiplicative model.
4 Levine and Renelt (1992) examined this variable, also used by Barro (1991),
in their evaluation of different growth models, and they did not find it robust.
But it is important to examine this measure again, given that we have intro-
duced a number of new political controls into the model.
5 The data is taken from The Penn World Table, mark 5.6, published in November
111 1994. It was accessed from gopher://nber.harvard.edu:70/11/.pwt56.
6 This was accessed from http://www.unesco.org/general/eng/stats/index.
html. Primary and secondary school enrolments in 1980 were used as the
indicator of the stock of human capital, since this is midway through the
estimating period.
7 The smaller loading on the ‘trust in people’ indicator is in part explained by
the fact that the variance of this measure is restricted.
8 The factor scores for each respondent are calculated from the following
expression:
Individual score = 0.523 (trust in family members) + 0.632(trust in
111 fellow nationals) + 0.215 (trust in people in general)
The national scores are then the mean of the individual scores for all respon-
dents in that nation.
9 The correlation in Figure 6.1 (+0.56) is slightly larger than the correlation
between national income and interpersonal trust estimated by Inglehart for
23 countries in the period 1981–4. See Inglehart (1990: 37). The correlation
would be higher if it were not for China, the outlier in the bottom right-hand
side of the diagram. It is worth noting that there is an oral tradition among
users of the World Values data that the Chinese survey had some serious prob-
lems of reliability and validity.
10 The relationship between trust and income is also apparent at the individual
111 level of analysis as well as at the aggregate level. In the World Values Surveys
some 31.7 per cent of individuals in the lowest income category in the pooled
survey trusted other people, in comparison with 51.4 per cent of individuals
111 in the highest income category.
144 Paul Whiteley
11 The codings of the variables in the World Values data have been reversed so
that a high score denotes a high level of trust.
12 The variables are measured in standard deviation units, so that the size of the
coefficients can be directly compared with each other.
13 The communist dummy variable did not remain significant in this version of
the model.
14 The estimated values of coefficients are chosen to be the OLS values of the
coefficients and errors used for repeat sampling are chosen from the residuals
of the original model. See Peters and Freedman (1984).
15 This was a criticism levelled at Granato, Inglehart and Leblang (1996a) by
Jackman and Miller (1996).
16 This can be inferred from the standardized coefficients which were 0.45, –0.45,
0.40, 0.42 and 0.83 for investment, population growth, social capital, gross
domestic product in 1981 and human capital respectively.
Appendix A: The evolution of the economy in a

neo-classical model of economic growth
In the Solow–Swan neo-classical growth model it is assumed that aggre-
gate growth can be modelled by a Cobb–Douglas production function of
the following type:
Y(t) = K(t) ␣ (A(t) L(t)) 1–␣ 0 < ␣ < l (1)
where Y = income; K = physical capital; A = the level of technology;

L = labour. As mentioned previously, both technological change and the
growth of population are assumed to be determined exogenously, and
to grow at a constant rate over time:
L(t) = L(0) e nt (2)
A(t) = A(0) e gt (3)
Thus the number of effective units of labour, A(t)L(t), grows at rate n+g.
It is also assumed that investment, or the rate of change of physical capital,
K, with respect to time is given by:
∂K/∂t = spY(t)
which implies that a constant proportion of income s is invested in physical

capital. Or:
∂K/∂t = s(K(t) ␣ (A(t) L (t)) 1–␣) (4)

11 This is the time path for investment which ensures that effective labour
(AL) is fully employed. It is also important to find the time path for invest-
ment which ensures full employment, given the rate of growth of the
effective labour force. To do this means examining the capital/effective
labour ratio. Let pK/AL or K = pAL. From (2) and (3):
K = pL(0) ent A(0)e gt
Differentiating this with respect to time:

11
∂K/∂t = np L(0)e nt A(0)e gt + ∂p/∂t L (0)e nt A(0)e gt + pg L (0)e gt A(0)e gt
11 so that collecting terms gives:
∂K/∂t = (np + ∂p/∂t + pg) (L(0)e nt A (0)e gt ) (5)
Now (4) is homogenous of degree one, so that it is equal to:
∂K/∂t = s(L (0)e nt A(0)e gt )[{K(t)/(L(0)e nt A (0)e gt )}␣

111 {A(t) L (t))/(L (0)e nt A(0)e gt )}1–␣]
or:
∂K/∂t = s(L(0) e nt A(0)e gt ){p (t) ␣ }
Equating this expression with (5):
(np + ∂p/∂t + pg)(L(0)e nt A(0)e gt ) = s (L(0)e nt A(0)e gt ){p (t) ␣}

111 Dividing throughout by (L (0)e nt A(0)e gt ) and rearranging gives:
∂p/∂t = sp (t) – (n + g) p (t)
or:
∂p/∂t = sy (t) – (n + g)p(t)
where y = Y/AL; p = K/AL, or the ratio of income to effective labour and

the ratio of physical capital to effective labour. Thus the change in the
111 capital/labour ratio depends upon savings and also the rate of growth of
effective labour.
111
146 Paul Whiteley
The steady-state or long-run value of investment p* is defined by:
sp*␣ = (n + g)p*
so that:
p* = [s/(n + g)]1/(1–␣) (6)
In other words the steady-state capital/labour ratio is related positively

to the rate of savings and negatively to the rate of growth of the population
and technology. In short, the higher the rate of savings the faster the rate
of economic growth, and the higher the rate of growth of the effective labour
force, the slower the rate of economic growth (ignoring depreciation).
If we substitute equation (6) into the production function (1) and express
it in logarithmic form, the steady-state income per capita is:
ln [Y(t)/L (t)] = ln A(0) + gt + [␣/(l – ␣)] ln (sp)

– [␣/(1 – ␣)] ln (n + g) (7)
In neo-classical theory factors of production are paid their marginal

products, and so the model predicts both the signs and the magnitudes of
the coefficients of savings and population growth. This implies that the
elasticity of income per capita with respect to the savings rate [␣/(1–␣)]
is 0.5, and the elasticity with respect to population growth is –0.5.
Mankiw, Romer and Weil make some simplifying assumptions in order
to be able to estimate the model. They assume that the growth of tech-
nology g, is constant across countries, which reflects the fact that advances
in knowledge have partly the characteristics of a public good, implying that
countries can benefit from technological innovation even if they do not
significantly invest in R&D themselves. This constant is added to the popu-
lation growth variable to produce a measure of the growth of effective
labour. They also assume that the starting value of the level of technology
is the same, but that country-specific shocks in innovation exist, so that:
ln A (0) = a + ␧ (8)
where a is a constant reflecting technological and resource endowments

across countries, and specific country differences in technology are captured
by the country specific shock term ␧. Finally, they assume that rates of
saving and population growth are independent of country-specific factors.
Given, this log income per capita at time zero is:
11 ln [Y/L] = a + ␤1 ln (investment) + ␤2 ln (population growth
+ constant) + ␧ (9)
which is their basic empirical specification. The model takes into account
the dynamic interrelationship between investment and income by estimat-
ing a steady-state version. Our own model is simply a generalization of
this which incorporates catch-up, human capital and social capital into this
basic specification.
11
Appendix B: The definition of the variables and
sample of countries
11
The Penn World Table variable names were to be found in PWT6.ASC
at the website cited in note 5. They are included in the following list, as
are the World Values Surveys variable names (ICPSR 1994).
• The log of mean growth rate variable (lgrowth) is real GDP per capita
in constant dollars (Chain Index, expressed in 1985 international prices,
111 Penn data variable RGDPCH), calculated as follows:
lgrowth = ln (mgrowth + 1)
where the constant term adjusts for countries experiencing negative

growth, and:
mgrowth = 兺{[(RGDPCHt – RGDPCHt–1)/

RGDPCHt–1]*100}/22
111 from 1970 to 1992.
• The log of investment is the logarithm of the mean share of invest-

ment as a percentage of GDP in 1985 prices (Penn data variable CI),
over the period from 1970 to 1992.
• The log of primary school enrolments is the logarithm of the gross

enrolment in primary school in countries in 1980, taken from the
website cited in note 6.
111 • The log of population growth (lpop) (Penn data variable POP) is calcu-
lated as follows:
111 lpop = ln (mpop + 1)

148 Paul Whiteley
where the constant term adjusts for countries with negative population
growths and:
mpop = 兺{[(POPt – POPt–1)/POPt–1]*100}/22

from 1970 to 1992.
• The log of the social capital index (lsocap) is derived from a factor
analysis of v94, v340 and v341 in the World Values dataset. The codes
of these variables were reversed so that a high score denoted high levels
of trust. Thus, lsocap = ln ( facscores + 1), where facscores are the factor
scores from this analysis, scaled up by a constant term of one to deal
with negative values.
• The log of real GDP per capita in 1970 is ln (RGDPCHt ) from the
Penn database, where t = 1970.
• Openness of the economy is the mean (exports + imports)/nominal

GDP from 1970 to 1992, Penn data variable OPEN.
• Four-item values index is (v232 + v233) – (v234 + v236) from the

World Values dataset. See Granato, Inglehart and Leblang (1996a: 628).
Confucian statist scores 1 for China, Japan and Korea, 0 otherwise.
• Social corporatist scores 1 for Austria, Denmark, Finland, Norway and

Sweden, 0 otherwise. See Swank (1996: 671–2).
• Communist government scores 1 for Bulgaria, China, Czechoslovakia,

East Germany, Hungary, Poland, Romania and the USSR, 0 other-
wise.
• The countries used in the sample were Argentina, Austria, Belgium,

Bulgaria, Canada, Chile, China, Czechoslovakia, Denmark, Finland,
France, West Germany, East Germany, Hungary, Iceland, India,
Ireland, Italy, Japan, Korea, Mexico, Netherlands, Nigeria, Norway,
Poland, Portugal, Romania, South Africa, Spain, Sweden, Turkey,
United Kingdom, United States and the USSR.
• The countries used in the 1981 regression were Belgium, Canada,

Denmark, Finland, France, West Germany, Hungary, Iceland, Ireland,
Italy, Japan, Korea, Mexico, Netherlands, Norway, South Africa,
Spain, Sweden, United Kingdom and the United States.
11
7 Defining the limits of a
discourse
‘Social capital’ in Africa
John Campbell
11
11 ‘Social capital’ is a buzzword in contemporary development. Associated

with political reform, a central argument is that social capital – anchored
in trust, shared norms and cooperation – facilitates collective social action
and provides a basis for economic development. In this view, associations
are a key to development and to accountable government. However, I step
back from such arguments to explore the rich anthropological literature
on associations that are widely believed to be the institutional basis for
111 social capital.
The first section begins by looking at research on associations in Africa
to understand something about the different types which exist (i.e. their
memberships, functions, objectives, systems of representation etc.), their
relationship to one another and to society, and the scale at which they
operate (e.g. local, national, transnational). To carry out their activities,
all associations establish relationships with a host of secular, religious and
political organizations (including government) which are influenced by, and
in turn influence, the operation of the association.
The limitations of existing research on association are discussed in the
111 second section, which outlines two complementary forms of analysis in an
effort to explore the internal dynamics of associations and the external
factors that influence their formation, organization and operation. In the
third section the focus shifts to associations that have been engineered1 to
facilitate economic development. Such hybrid associations operate in nearly
every sector and include re-engineered burial societies, small landholders’
associations, women’s groups, religious organizations etc. The change in
objectives, scale and the level at which hybrid associations are expected to
function exacerbate problems of accountability and leadership. This section
examines ‘hybrid’ development institutions in particular pastoralist associ-
111 ations – to assess the interrelation between structural and cultural processes,
and contextual factors, for an insight into their sustainability. The final
section examines recent work on social capital in the light of lessons from
111 research on associations.
150 John Campbell
Voluntary associations and social change

Anthropological interest in voluntary associations reflects the expansion of
fieldwork in the 1950s and the concern to understand processes of social
continuity in conditions of rapid social change. In West African cities this
manifested itself in the study of how migrants adapted to urban life.
Banton’s pioneering study of Freetown, Sierra Leone (1957) was the first
to systematically examine the link between rural–urban migration, urban
administration, and the role of ‘immigrant social institutions’ – i.e. tribal
headmanship, voluntary associations and the household – in urban life.
Banton’s work was followed by Little’s study of the urban voluntary asso-
ciations in West Africa (1965), which argued that the creation of new urban
voluntary associations helped to integrate migrants into the social and
political system of rapidly urbanizing towns.
The central focus of research was on ethnic associations, typically one
segment of a network of affiliated ‘satellite’ associations of co-ethnics (or
people of ‘common origin’) who had emigrated to distant towns. Though
a much wider range of voluntary associations was identified – trade and/or
occupational groups, unions, entertainment societies, social clubs, religious
organizations, rotating savings/credit associations etc. – research was con-
cerned with understanding how illiterate, unskilled rural Africans adapted
to the rapidly changing and radically different urban milieu. Ethnic volun-
tary associations, it was argued, were created by rural migrants to help
members adapt to urban life (for mutual aid and defence, and to improve
life back in the village); they were organized on the basis of recognizable
principles of social classification (i.e. ethnicity; Little (1973)).
In his survey of research on voluntary associations, Kerri observed that
most studies were ‘couched in functional terms’; largely descriptive in char-
acter, they were of an illustrative nature because they failed to develop
models which could be used for cross-cultural comparison (1976). While
Kerri accepted the conclusion of earlier studies that ethnic associations
had an adaptive function for migrants, he argued for the need to analyse
associations as part of a wider social and political context.
Two subsequent studies attempted to address such shortcomings through
comparative research. Barnes and Peil studied voluntary associations in
five cities in Ghana and Nigeria in the early 1970s and concluded in part
that:
Because studies carried out earlier . . . concentrated on the associations

themselves rather than on the general population, it is difficult to specify
whether the attracting power [of associations] has changed consider-
ably in the intervening years or the researchers were misinformed as
to the extent of membership. It seems likely that both are true.
(1977: 84)
‘Social capital’ in Africa 151
11 Barnes and Peil found that:
1 The proportion of the urban population that belonged to associations

varied considerably between cities (membership appeared to be directly
influenced by the structure of the community, e.g. the provision of
housing).
2 The socio-economic status of individuals (income, occupation and
education) strongly influenced participation in associations and, in
particular, while the elite are selective in their participation, it was
11 the middle- or lower-status residents who provided the bulk of mem-
bership.
3 The relationship between participation and income is most evident
11 in work, recreation and ethnic associations in which men are the prin-
cipal office holders, whereas women are more involved in religious
societies (reflecting gender roles and women’s more limited income and
autonomy).
4 Membership in ethnic/kinship or hometown associations had been
seen as an index of the ‘continued attachment of a migrant to his
origins and lack of assimilation into a national community’, yet their
111 survey found low levels of membership among recent migrants.
The authors hypothesized that membership in this type of association was

more an index of settling down in the town, with low levels of participation
reflecting ‘the existence of alternative political, social, or religious outlets’
(ibid.: 92).
Barnes and Peil concluded that levels of participation in associations
seemed to be specific to particular towns. They argued that:
the reason this high level of diversity has not been given due attention
is primarily attributable to methodology . . . . [A]ssociations themselves
111 have been the focal points for investigation, while the contexts in which
they operate have been overlooked. If we are to achieve a satisfactory
explanation for the existence of voluntary associations in West Africa,
a host of contextual factors . . . must be examined.
(Ibid.: 97–8)
The authors identified contextual factors known to influence group

formation – individual and group dynamics, ‘external’ constraints, the back-
ground of residents and structure of community – as well as changing
demographic factors. They concluded that ‘in general, associations in West
111 African cities of the 1970s do not play a prominent role in integrating
new migrants’ (ibid.: 102). The study drew attention to the internal
dynamics of associations and to the impact of the wider urban and national
111 system on associations.
152 John Campbell
In a subsequent study of three ‘hometown’ associations in western
Nigeria, Barkan, McNulty and Ayeni (1991) sought to analyse associations
which mobilized and transferred resources between urban and rural areas,
in part by brokering relations with the state. The authors observed that,
while not all ethnic groups form ‘hometown’ associations (indeed, forma-
tion appears to be inversely correlated to the rigidity of stratification of the
migrants’ society of origin), they are unique in two respects:
First, their express purpose is to provide needed services to all residents

of a single specified locality. Second, a significant part of the leader-
ship and financial support for the activities undertaken is provided
mainly by men (rarely women) of relatively high education and status,
who have emigrated from the locality . . . but who continue to iden-
tify with their ‘hometown’ while at the same time also belonging to
nationwide professional bodies, trade unions, political parties.
(Ibid.: 463)
Nearly 50 years of operation had resulted in established routines through

which support and resources were mobilized from satellite associations.
Consensual decisions are reached in weekly meetings and annual business
meetings by an executive. Contributions are solicited from associations for
specific projects, and funding is complemented by levies paid by local resi-
dents who will benefit from the service. In recent years a younger, more
highly educated group of emigrant ‘hometown’ men have emerged to take
control, in the process reinvigorating the association.
The roles which ‘hometown’ associations play varies considerably. In
the 1920s and 1930s associations struggled to obtain basic services and
infrastructure from the colonial state. For this reason, participation affirmed
attachment to one’s home community and defined one’s identity in the
wider political context in which other associations and ethnic groups
were also organizing for developmental, social and political purposes. After
independence the hometown ‘elite’ who led local associations used their
membership in national or statewide bodies to lobby government (and
sometimes international donors) for assistance. Over the past four decades,
national policy has shifted control over government revenue and expendi-
ture back and forth between federal, state and local government, creating
and constraining opportunities for associations to lobby for assistance. Just
as important has been the shift in federal policy that has alternately
embraced or banned party politics, and supported or controlled local
associations. In the late 1980s the federal government sought to create
hundreds of new community development associations in areas where none
had previously existed, a policy which increased competition between
associations for access to resources.
11 While it has frequently been observed that not all emigrants organize
ethnic associations in urban areas, the methodological limitations of studies
that focused on a specific group/association meant that it was impossible
to generalize from a case study. In addition, the limitations of such studies
stemmed from: (1) their urban focus; (2) limited research on other types of
associations or on the full range of associations of one ethnic group; (3) the
absence of longitudinal studies; (4) the absence of information on the
internal dynamics (and leadership) of associations; and (5) the absence of
information about the impact of the wider context on associations.
11
The analysis of ‘local’ associations
11 To avoid the problems identified in the last section, research could adopt
a political-economic perspective to analyse associations and/or it could
undertake longitudinal research to identify the relation between national
politics/policy and local associations. I address each possibility in turn,
though they are not mutually exclusive.
Some time ago A.L. Epstein addressed ‘the problem of variation in
urban social systems’, in which patterns of migration, urban growth and
111 urbanization were far from uniform across sub-Saharan Africa (1967).
While not intended as a means to examine associations, he suggested three
key determinants of urban social structure that shaped the pattern of urban-
ization and urban life. These determinants of urban development were:
(1) the ‘industrial structure’, that is the organizational framework

through which the town seeks to achieve those economic aims and
purposes that brought it into existence or which gives it its present
importance; (2) the ‘civic structure’ which derives from the policies and
practices of its administration; and (3) the ‘demographic imperative’
that affects in a variety of ways the social composition of the town.
111 (Ibid.: 277)
Thus the dominance of administrative towns in West Africa with their

laissez-faire policy towards immigrants (which sought to integrate migrants
into the administration through their associations) contrasted sharply with
the role played by industrial/company towns in southern Africa that
attempted to control urban Africans (e.g. through pass books, the allocation
of urban housing).
There are definite advantages to be gained by building on a model of
comparative urbanization that recognizes the influence of urban economic
111 and administrative policies and the effect of national/regional policies and
politics on migration, investment and development. For example, in the
cash-crop exporting economies of West Africa, where administration
111 dominated urban development, there was an explicit attempt to govern
154 John Campbell
indirectly through African ‘tribal’ authorities. Thus, in 1950s Sierra Leone,
tribal headmen were recognized in town and given administrative respon-
sibility over members of their own ethnic groups (Banton 1957). In
Tanzania, where cities were ‘administrative’, government attempted to
pursue a policy of labour stabilization, partially through a system of direct
rule by appointing local headmen to administer justice and collect taxes
(Campbell 2000). In contrast, on the southern African Copperbelt, urban
residence was tied to possession of a waged job, and African urban courts
were created to deal with disputes under ‘customary’ law.
The analysis of local associations is further advanced by distinguishing
between host and migrant ethnic groups in particular cities (Southall 1975).
Thus Freetown, with its laissez-faire policy towards urbanization, was
strongly associated with resettled Creoles but, as a new administrative
centre, it did not have a dominant/host ethnic group. The result was a
proliferation of ethnic associations of immigrants and belated efforts to
incorporate popularly elected headmen into the lower level of the urban
administration. In contrast, while Dar es Salaam was founded in the 1880s
and its initial character was coastal and Muslim, by the 1930s upcountry
migration quickly displaced the indigenous population. This led the colonial
administration to appoint tribal headmen whose principal responsibility
was to bury the dead and report deaths. Most importantly, racial segre-
gation and the absence of a host ethnic group correlate with the absence
of urban ethnic associations. As Southall observed, most Tanzanians
had clan and cross-cousin joking relationships that enabled them to access
inter-ethnic patterns of reciprocity and mutual aid in town (1975: 273). A
further contrast is found in Copperbelt towns where host ethnic groups
did not exist; here the mines provided housing, took responsibility for the
death of employees, and generally administered all aspects of urban life.
The result was that there were no ethnic associations in Copperbelt towns
at that time.
The formation and activities of voluntary associations are not only
influenced by urban policy and the availability of employment, but also
by changing regional demography and national policies. For example,
migration has altered fundamentally over the past 50 years from short-
term cycles of movement between town and country (Mitchell 1973), to
long-term migration and permanent urban settlement. Indeed, in certain
cases where urban livelihoods and incomes have been sharply compressed,
urban residents may leave town, re-establish connections with rural
communities, or even split the urban household so that some members
work and reside in town and the village (Campbell 1995). Structural adjust-
ment has significantly affected migration by altering the relation between
rural and urban areas. The effect of changing demographic patterns
and changes in migration must have influenced not only the pattern of
11 participation in associations, but also the roles which associations play for
their members. Unfortunately, little information exists about this.
Alternatively, associations could be analysed by undertaking longitudinal
studies. One possibility would be to conduct a comparative, longitud-
inal study of several ethnic groups (some of which do not form urban
ethnic associations).2 Unfortunately such studies do not exist. A second
possibility would be a longitudinal study of one association to analyse the
impact of wider changes and processes.3 I offer the following vignette to
indicate the advantages of such an approach.
11 The Guraghe of Ethiopia are a segmentary, patrilineal society of agri-
culturists who have a densely settled homeland with limited opportunities
for earning cash. Many Guraghe were moved to Addis Ababa at the
11 end of the nineteenth century as ‘free’ labour for the imperial court, while
others emigrated to Addis. Most lived a highly encapsulated urban life
involving restricted social interaction with non-Guraghe (Shack 1973).
Between 1945 and 1960 a number of unsuccessful efforts were made by the
Sebat Bet Guraghe tribal association to construct a road from their home-
lands to Addis Ababa (125 km away). Finally, in 1961 the Guraghe Roads
Construction Association was founded (later becoming the Guraghe People’s
111 Self-Help Development Organization, GPSDO) to build the road.4
Two distinct processes shaped the association. On the one hand,
customary practices, social values and traditional forms of organization
dominate the way the association is organized and functions. Initially this
involved the local clan organization at district level; a council of elders and
local committees at village and district level (‘for persuasion and control’,
including the use of oaths and social pressure to ensure conformity) and
a general assembly (of 17 autonomous clans) which decided policy by
consensus. At the same time, traditional forms operated alongside a modern
constitution, election of executive committee members, and reliance on
111 professional, urban-based members (Gadamu 1966). The association was
based almost exclusively in the western or Sabat Bet section, one of the
three sections of the Guraghe people.5
In the first half of the nineteenth century, Guraghe migrants were stig-
matized by the dominant Amhara as poor, unskilled labourers who came
from a homogeneous ethnic group. The Guraghe progressed economically
from petty trade to commerce, while at the same time they maintained
strong ties to their homeland and exhibited considerable solidarity helping
Guraghe migrants – regardless of clan, language or religion – obtain shelter,
employment and assistance. As Markakis noted:
111
it was advantageous to assert the image of a large, unified ethnic group,
especially on the part of those who emerged as spokesmen of the
111 migrant community. . . . It was a time when identity contours were
156 John Campbell
broadened to encompass a pan-Guraghe universe. The urban migrants
accepted an ethnic identity, i.e. Guraghe, which had no currency in
their homeland. Its function . . . was to ease the economic adaptation
these people were obliged to make to Ethiopian rule.
(1998: 134)
By the 1960s urban ethnic segregation broke down as migrants settled

in town and basic services were established. Up to this point the majority
of urban Guraghe were regulated by ‘dual systems of authority and social
control’; the authority of the Ethiopian state regulated their lives in town
while Guraghe customary law and tradition regulated relations among
tribesmen (Shack 1974: 273). This dualism eventually gave way to
new forms of urban association and Guraghe involvement in a range of
‘polyethnic’ associations (Gadamu 1974). At the same time, however,
tension between the different sections of Guraghe led to the creation of a
second road construction company.
The objectives of GPSDO reflected rural concerns, namely the need for
self-help and the construction of a road to ease labour migration and
promote transport, trade and development. Reliance on traditional forms
of organization were shaped by the wider political environment. In par-
ticular, the imperial state ensured that all associations remained apolitical
and restricted to self-help. In addition, Amhara dominance reinforced the
commitment of the majority of Guraghe to their own culture. This was
partly a result of the way that non-Amhara ethnic groups were incorp-
orated into the state (as second class citizens with no formal political
representation) and of the history of urbanization which linked ethnicity
and occupation to settlement in specific urban areas.
A 1974 coup d’état dismantled Amhara dominance and created a
stronger, more centralized state which, in turn, was overthrown in 1991
by an ethnic-based liberation movement. The change of government
politicized ethnic identity – e.g. through lifting the ban on ethnic languages
in print and radio, promoting cultural associations, and defining language
as the basis for recognizing cultural/ethnic groups – creating pressure to
recognize new ‘ethnic’ groups.
In 1988, and partly in response to changing political circumstances,
GPSDO sought to modernize by adopting new by-laws to provide support
for the volunteers whose work underwrote the development programme.6
Following the coup in 1991, the Guraghe Council discussed the approach
they should take to the new government to establish a dialogue about devel-
oping the Guraghe homeland. However, the government rebuffed them
and created a system of regional/ethnic administrative units.
Due to the growing politicization of ‘culture’ and to demands for devel-
opment, an increasing number of ‘ethnic’ political parties emerged from
11 among the Guraghe, a process which mirrored the increasingly parochial
(i.e. clan, territory and religious-based) manner in which people were
relating to each other in Addis Ababa. In the face of government policy
to devolve political power to definable ethnic groups, ‘Guraghe’ identity is
dissolving and rival associations are developing to compete for resources
and political office.
In the face of constraints imposed by the state, and growing organiza-
tional requirements involved in coordinating and facilitating development,
the GPSDO executive hoped to restructure the organization using paid
11 professional staff. While refraining from involvement in politics, the associa-
tion brokered deals to obtain government assistance. However, the demands
placed on professional urban Guraghe are increasingly onerous and they
11 are chafing at imposed social obligations and the constraints of working
through traditional forms of organization. The problems confronting the
GPSDO are, in part, related to the level at which they must operate. From
a single-issue focus with broad support, they now deal with a variety of
developmental, management and political-representative tasks which tradi-
tional forms of organization are ill-equipped to perform. Furthermore, the
growing fragmentation – on ethnic, linguistic and religious grounds – means
111 that the association’s membership is declining.
Phrased in terms of the problems with earlier research, a longitudinal
study illustrates the influence of urban ‘industrial’ and ‘civic’ structure and
of host/migrant relations which affect work, residence, and shape social
interaction, and which affect the formation and role played by ethnic asso-
ciations. The principal features of the association – its urban–rural link,
strong attachment to ‘traditional’ culture, an elite/professional leadership
– have remained despite dramatic changes in association membership. The
growing politicization of ethnicity and the potential access to resources
implied under decentralization have contributed to the fragmentation of
111 Guraghe identity and to the formation of new associations that compete
to establish links with the state.
Hybrid development institutions

Before turning to the associations of East African pastoralists which have
been subjected to considerable social engineering, it is important to note
two points about local-level organizations. Uphoff has argued that the
‘collective action’ sector, which he distinguishes from state- and market-
driven institutions, operates at three levels – the locality, the community
111 and the group. Interaction is characterized by a principle of voluntarism
based on bargaining, discussion, accommodation and persuasion which
reflects the fact that people at this level ‘have face-to-face relationships and
111 are likely to have multi-stranded connections’ (1993: 609).
158 John Campbell
Second, Uphoff distinguishes between ‘institutions’ and ‘organizations’,
such that:
Institutions, whether organizations or not, are complexes of norms and

behaviors that persist over time by serving collectively valued pur-
poses, while organizations, whether institutions or not, are structures
of recognized and accepted roles.
(Ibid.: 614)
Uphoff argues that:
Institutionalisation is a process, and organizations can become more

or less ‘institutional’ over time to the extent that they enjoy special
status and legitimacy for having satisfied people’s needs and for having
met their normative expectations over time.
(Ibid.)
The failure to draw this distinction7 may result in supporting and legitimating
organizations that are not institutions. Normally, legitimacy is conferred
on an organization based on its ability to meet members’ expectations.
However, if processes of accountability are altered such that material contri-
butions, labour, ideas etc. no longer originate from the locality, community
or group, then the organization may loose legitimacy.
Throughout the developing world social change has had a dramatic
impact on local institutions and organizations by undermining local
decision-making and transferring control to state institutions. In addition,
socio-economic differentiation has polarized local communities making it
difficult to mobilize labour and obtain social cooperation (Berry 1989).
The commoditization of rural labour and resources has caused significant
levels of common property resources to be privatized and/or made in-
accessible to poor households. Finally, rising demographic growth places
heavy pressure on limited resources (Little and Brokensha 1987).
These processes not only affect local institutions, which are based upon
social identity and status, they also affect the relation between local institu-
tions and the state such that the state becomes more important as a source
of capital, status and power. Growing social differentiation, poverty and
state intervention in local affairs tend to go hand in hand. The increasing
role of the state and efforts to reshape local organizations reflect the inter-
ests of the elite rather than the needs of local people. This occurs because
local autonomy is undermined by the state, and because the socio-cultural
factors – one major component of social capital (Uphoff and Wijayaratna
2000) – intrinsic to the way that local organizations operate are not
understood by those seeking to ‘improve’ them. For instance, changes are
11 engineered without taking into account the wider social and cultural context
in which an organization functions. The result is that the values and ethos
that underpin the mutual interests of members are ignored and, in an effort
to maximize individual interests, local accountability declines. The shift
to broader social objectives is also accompanied by an emphasis on the
accumulation of property or money, petty corruption, and by elite capture
(Hamer 1981).
11 Pastoralist associations
Overviews of East African pastoralism repeatedly highlight the failure of
development programmes based in part on policies which seek to
11 discourage or eradicate cattle pastoralism (Goldschmidt 1980; Galaty and
Bonte 1991). The effect of such policies – together with policies that benefit
agricultural populations – is the loss of pastoral land and the marginal-
ization and impoverishment of pastoralists. In effect, pastoralists become
increasingly dependent on the state and outside agencies for their liveli-
hoods, drought relief and for access to the range.
It appears that pastoralist societies have reached a turning point: either
111
it is time to abandon pastoralism, or efforts should be made to restore and
protect pastoral society by recognizing their rights to water and pasture,
recognizing their knowledge and supporting traditional livelihoods (Fratkin
1997: 252). In Wajir, north-west Kenya, an international NGO has
attempted to pursue the latter option by creating and supporting Pastoral
Development Associations (PAs), which function as participatory commit-
tees responsible for managing local development (United Kingdom 1997).
Among the concerns raised about the project are the slow institution-
alization of the associations, the need to widen access to, and participation
111 in, PAs, and the need to improve their capacity to plan and manage local
and district-wide initiatives. An economic impact assessment (Odhiambo
et al. 1998) undertaken in the fourth year of the project concluded that:
1 Households in project sites required less food aid.

2 Household milk consumption in project sites increased, as did house-
hold expenditure on food.
3 There was less peri-urban destitution in project sites (primarily through
better access to, and availability of, water).
4 Animals in project sites were less likely to die (which translated into
111 substantial financial gains for households).
5 Water supplies at project sites were more reliable.
6 There was less conflict in the region, at least partly because of local
111 peace initiatives by PAs.
160 John Campbell
7 Destitute pastoralist families and women enjoyed more income-earning
opportunities (500 formerly destitute families now derived their liveli-
hood from livestock and were reintegrated into pastoral society, and
1,500 women were assisted with credit and were meeting the needs of
their dependants).
Project success hinges crucially on developing the capacity of the asso-

ciations – which are based on customary norms, expectations and local
knowledge – to perform new development tasks. The study found that PAs
organized supplies for members, acted as an effective vehicle for com-
munity consultation and collective decision-making (particularly with
respect to common property resources like dry-season pasture), made
good use of income to maintain communal facilities, and helped to target
food aid (they also increasingly met local development costs). Significantly,
the study found that ‘even under the most conservative assumptions’, insti-
tutional capacity development ‘makes the greatest contribution to the
package of economic benefits that accrue to pastoralists’ (ibid: 21). Most
importantly:
the pastoralists only started to realize economic benefits during the

second year of the project and . . . the greatest benefit will only be
realized from the sixth year . . . . It is [therefore] . . . necessary to
consider the amount of capital investment needed to establish and/or
strengthen local institutions before they can . . . deliver the necessary
services.
(Ibid.)
In short, though hybrid pastoralist associations are delivering undeni-

able benefits (through supporting local livelihoods and customary practices)
to households and communities, the task requires long-term institutional
support based upon an explicit recognition of traditional roles, rules and
procedures and respect for cultural norms, values and beliefs.
The viability of local associations depends upon a stable policy and socio-
political environment (in the context of drought and political unrest).
A major contributor to pastoralist impoverishment was the failure, and lack
of capacity, of state and local institutions to deliver basic services and to
respond to pastoralist needs. The extent to which these ‘institutional’ prob-
lems were redressed is unclear. While five PAs were created in four years,
little information is provided about the membership (its number or social
composition) or about how members participate in PA decisions. Also of
concern is the role played by PAs at district and state level: evidence
concerning the emergence of stronger institutions is ‘inferred’ from
improved service delivery based in large part on higher local incomes and
11 improved communication. At the same time, while there is some evidence
to suggest that PAs developed links with district institutions, there is little
to suggest that linkages with central government exist.
Social capital: limitations of a discourse?

The concept of civil society derives from a discourse that hypothesizes a
causal relation between democracy and development (Hyden 1997).
Putnam’s work on social capital gave this discourse additional currency by
11 linking the performance of regional government to differing levels of socio-
economic development and the role played by associations (1993, 1995a,b).
However, the usefulness of the concept is limited by insufficient attention
11 to differences of culture, history and politics between western and non-
western societies (Krishna 2001). In effect, the term operates as a metaphor
rather than an analytical construct.
Many writers using the concept of social capital tend to assume its exis-
tence (i.e. as a value or norm, as something that inheres in particular social
actions or institutions, and as a prerequisite for specific social and economic
transactions), and/or they see it as conceptually equivalent to solidarity,
111 participation, cooperation or trust. Few studies define the term with suffi-
cient clarity that might allow social capital to be observed or measured,
with the result that research findings are contradictory and policy analysis
is confused.
For example, the World Bank seized upon the idea to see if it might
be possible to construct social capital to engineer development. Thus Voices
of the Poor (Narayan 1997) sought to measure social capital – seen as
participation/membership in village associations – and to correlate it with
development and household income in rural Tanzania. Data was quanti-
fied on association membership and weighted in favour of associations with
111 a mixed composition – a proxy for social inclusiveness – to create an overall
index of associational life (i.e. of village-level social capital).
In fact the index is a measure of the density of a particular type of
association defined in terms of its formal characteristics (i.e. inclusive vs.
exclusive membership, kin heterogeneity, income heterogeneity, ‘group
functioning’ etc.) rather than the norms, ideas, values or behaviour of
association and/or community members (Narayan and Prichett 1997).
In short, the presence of an arbitrarily defined type of association is
correlated with quantitative economic data to create an index of social
capital. The study concluded that ‘associational activity, as a proxy for
111 social capital and trust among households . . . is associated with at least
20 percent higher expenditures per person in each household in the village’,
as large as an equivalent increase in non-farm assets or tripling the level
111 of education (ibid: 34; see Whiteley, Chapter 6, this volume, for a similar
162 John Campbell
argument). The argument regarding social capital is, therefore, somewhat
confused since a key concern must be to understand the cultural norms,
values and beliefs that underpin the structural forms of social capital,
namely the roles, rules, procedures and relationships necessary for parti-
cipation in associations. Second, it is important to carefully examine the
issue of ‘participation’ and how it is affected by informal/formal rules
concerning who joins an association and how decisions are taken?
Without an understanding of either the cultural or structural forms of
social capital, or of issues of participation, Narayan’s argument is prob-
lematic, not least because she neglects the historical dimension. Not
only has the impact of national politics on social cooperation and rural
poverty been ignored (a phenomenon widely commented upon by observers
of Tanzania, e.g. Sender and Smith (1990) and Mercer (1999)), but so is
a discussion of the interrelation between associations and their horizontal
and vertical links to other organizations and institutions. On a related
note, policy attempts to promote ‘social capital’ privilege existing formal
organizations over individuals; policy concern should be to meet the needs
of individuals (which change over time) rather than maintaining organ-
izations8 (Cleaver 1999) In addition, while it is accepted that social
capital may inhere in particular institutions (e.g. the family, kin-groups and
associations), analysis needs to demonstrate and measure the manner in which
social action is deployed within and across institutions, localities, social
groups and socio-economic activities (independently of shared kinship,
ethnicity, class, gender etc. interests; Aggarwal (2000)).
If we return to Voices of the Poor, the attempt to create an index fails to
address the significance of social structure, culture and perception (e.g. of
danger and risk), and the impact of the wider context.9 To argue that
membership in a particular type of association produces social capital – or
indeed that the values/attitudes that people profess are a reliable indicator
of how they behave, pace Whiteley, this volume – is to assume what needs
to be demonstrated.
Other efforts to measure social capital are similarly flawed. Thus Widner
and Mundt failed to find a ‘clear relationship between social capital and
the performance of local institutions’ (1998: 2). Their study, which
attempted to compare the performance of local government in Uganda
and Botswana used a survey to assess the relation between social capital
(defined as individual beliefs, attitudes, norms and practices) and institu-
tional performance. The study raises similar issues to that of Narayan (1997)
in that it is necessary first to disentangle the different processes that
contribute to social cooperation, a task that is compounded by focusing on
one type of association and one measure of institutional effectiveness.10
Such a task requires that social capital should be conceptualized in a
manner that allows it to be observed and measured. The variables that
interact to produce social capital – various types of associations and their
11 interrelations; questions about membership, participation and leadership;
the extent and nature of institutional development and state intervention;
the contribution of collective action in the production of economic benefit
(Uphoff and Wijayaratna 2000); the impact of the wider socio-political
context; poverty and social differentiation; rural/urban differences; histor-
ical and cultural differences (Krishna 2001) etc. interact in a complex
manner. Without careful empirical analysis the manner in which such
factors interact to produce measurable collective economic benefit is un-
clear and, for precisely the same reasons, so too is the usefulness of ‘social
11 capital’ as an explanation of complex socio-economic processes.
To conclude, how are we to understand the different meanings attached
to social capital? Do all associations foster trust and cooperation? What
11 particular social, political or economic factors are conducive to the
formation of associations? Do such factors contribute in equal measure to
meeting individual needs? In short, it seems unhelpful to talk of social
capital as a norm (Fukuyama 2001), a by-product of history (Putnam 1993)
and as something organizations11 and individuals do? What are the impli-
cations for development/poverty reduction and ‘pro-poor’ policies if
‘the poorest of the poor’ and many others do not form associations?
111 As one critic of social capital has observed, the mechanisms by which asso-
ciations work to engage government and bring about democratic politics
are left unspecified, because the concept fails to address issues of social
differentiation and power (Harriss and DeRenzio 1997). Indeed, the
emphasis on trust, cohesive communities, shared values etc. suggests a
preference for the consensual resolution of political problems. In contrast,
what is needed is a careful examination of the concept of social capital
that addresses its problematic place in contemporary development and
which provides an empirical examination of the concept in different social,
cultural and historical contexts.
111
Notes
1 The following discussion also applies to the ‘creation’ of new associations using
small groups, a process that has seen a phenomenal growth (Pretty and Ward
2001).
2 See Little (1973: 408–9) and Epstein (1967: 283).
3 Ranger (1975) focused on the element of popular culture of one type of asso-
ciation, the Beni ngoma, that was based on European military brass bands in
Mombasa in the 1880s. The association spread to Tanganyika and the
Copperbelt where it took a very different form and meaning.
4 Unless otherwise indicated, information comes from an interview with Ato
111 Yirga Gabre Derete, Chairman of the GPSDO, Addis Ababa, April 1996.
5 Each section differed linguistically, on the emphasis given clan versus territory
as an organizing principle, and by the importance of traditional religion,
111 Christianity or Islam.
164 John Campbell
6 It constructed 420 kilometres of tarmacked road and five high schools, provided
clean water, created an electricity supply for three subregions, provided PHC
and constructed a hospital. In addition, a fleet of 25 vehicles transports goods
and people, generates income for development projects and employs 80 persons
(GPSDO 1995).
7 This is also the basis for his argument concerning the structural and cognitive
forms of social capital, namely the interrelation between the roles, rules, pro-
cedures and precedents (including social networks) that establish social
interaction and the norms, values and beliefs that predispose people to
cooperate (Uphoff and Wijayaratna 2000).
8 Putnam’s critics (e.g. Harriss and DeRenzio 1997; Putzel 1997; Fox 1997) have
failed to note that a focus on associations reintroduced the problems of earlier,
static forms of structural functionalism, recognition of which gave rise to the
distinction between actors, agency and structure.
9 See Luhmann (1988) for a similar argument about ‘trust’.
10 As opposed to the contribution of policies that alleviate poverty, reduce vulner-
ability, or encourage citizen participation in policy and planning. A major
improvement in the lives of local people might be less government.
11 See Samji and Albee 2000.
11
Part III
The globalisation of
poverty discourse
11
11
111
111
111
111
11
8 Who gains and who loses
from globalisation?
New challenges for anti-poverty
action North and South
Fran Bennett
11
11
Introduction
There were several reasons why Oxfam GB (henceforth ‘Oxfam’) began
to develop an anti-poverty programme in the UK in the mid-1990s.1 In
part, it believed it had something to offer, in particular a holistic approach,
bringing together strengths from many different disciplines; and it tries to
work at all levels, from exploring shared global trends to encouraging
111 participatory ways of working and gender awareness in programme activ-
ities ‘on the ground’. It can bring knowledge of the international context,
from concepts such as social development to instruments such as human
rights treaties. And Oxfam’s view of poverty as powerlessness and lack of
‘voice’ leads to an emphasis on the participation of people with direct
experience of poverty in defining problems, proposing ways forward, and
evaluating progress, as a crucial element in creating and implementing
anti-poverty strategies and challenging underlying inequalities of power.
One specific catalyst for developing a UK Poverty Programme, however,
was pressure from some of Oxfam’s ‘southern’ partner organisations asking
111 what it was doing about the poverty in its own backyard (which, in an
interesting example of the shrinking globe, they could see on their tele-
visions). The rationale for creating the programme therefore relied in part
on the perception of increasing divisions between haves and have-nots
within, as well as between, countries in both ‘North’ and ‘South’. While
not wishing to give the impression of arguing that poverty North and South
is the same in either depth or extent, Oxfam’s analysis suggests that the
causes of increasing divisions, and the consequences of poverty and
inequality for individuals and communities, were similar in many respects.
This continues to be a difficult and challenging message for much of the
111 British media and general public, however.
Oxfam’s work both in the UK and overseas is based on an analysis of
globalisation – and, crucially, liberalisation – and on proposals for change
111 to create a fairer future for all. However, while Oxfam’s aim is to integrate
168 Fran Bennett
its UK work with its overseas work, to become a ‘global agent of change’,
there are many thorny issues to grapple with along the way. This chapter
describes some of these issues, and is focused on work in the UK. Its argu-
ment is that, as Oxfam increasingly engages with a UK (and wider
‘northern’) perspective, this brings difficulties with it – but also complexity
and richness, and ultimately more sustainable solutions to poverty both
North and South.
Globalisation
In line with the rest of this book, this chapter will not focus on debates
about definitions. Oxfam has defined globalisation as:
a process of rapid economic integration driven by liberalisation of

trade, investment and capital flows as well as by rapid technological
change and information revolution.
It recognises that progressive forces in the UK can choose from amongst

several different approaches to globalisation on offer. First, it is possible to
deny that globalisation is happening, or at least that it is anything different
from what has gone before; some commentators, for example, argue that
the amount of trade, or capital circulating as a percentage of GDP, is the
same as it was at the beginning of the last century. Second, there is
the possibility of retreat to a Gandhian version of Utopia – injunctions to
turn the clock back and participate only in local markets etc. Third, some
go for a Third Way, arguing that globalisation is inevitable (and, for some,
desirable as well); but that citizens must be equipped to cope with it,
especially via the provision of education and training to improve skills for
living in a ‘knowledge-based economy’.
But there is also a fourth way. Oxfam does not believe that it is possible
to turn the clock back. Instead, the process of globalisation must be
managed; and the rules which are developed to govern it must be changed,
in order to deliver growth with equity and economic justice on the local,
national and international levels. If this is not successful, however, the
inequalities generated both within and between countries by the onward
march of globalisation will prove unsustainable.
Policies for a globalising world

So we need strong nation states which are not tempted to use globalisa-
tion as an excuse to renege on their responsibilities. A strong multilateral
system is required, in order to negotiate the conditions of trade between
countries. And a strong civil society is also necessary, in order to create
New challenges for anti-poverty action 169
11 pressure on the relevant institutions at national and international level to
deliver on both of these objectives. Some civil society groups wish to under-
mine the multilateral system of negotiating trade conditions. But in Oxfam’s
view, a situation in which there were no rules for the conduct of trade
would be worse than the current unfair rules which exist; in a situation
with no rules, the powerful would always win. Last but by no means
least, in a globalising world substantial investment in preventative social
policy provision is essential (see Chapter 3 by Arjan de Haan, for more
detail on this).
11
Problems in a globalising world
11 However, to create and sustain the infrastructure for a globalising world
which will deliver economic and social justice is fiendishly difficult.
Engaging with a northern, or UK, perspective on these issues – within a
strong belief in international economic justice and solidarity – can throw
new light on them, in a way which is both challenging and valuable. In
particular, it can counter any tendency within development debates
to render those living in poverty in the North invisible.
111 This can be illustrated by using examples from a few topical issues in
global trade which concern the South, but which also concern the basic
rights of people living in poverty – agriculture, textiles and medicines
(intellectual property and patents). Each of them raises rather different
issues, with rather different resonances in North and South.
To choose these examples is not to suggest that agriculture, textiles and
medicines would necessarily be the key issues one would start from in an
analysis of poverty and inequality in the UK. Neither is it to suggest that
global trade patterns are either the only or even the most significant
issue facing the UK at the moment. Indeed, the extent of their influence is
111 contested; and anti-poverty campaigners in particular are keen to argue
that ‘globalisation’ should not be used as an excuse to let the UK govern-
ment off the hook of its responsibilities towards people living in poverty
in this country. Other influences on the UK’s fortunes, and on the lives of
these people, include competition with other industrialised countries (rather
than just those in the South); regionalisation, or the power of the UK’s
membership of the European Union to shape its future, including the forth-
coming decision about membership of the Euro; domestic macroeconomic
and social policies (including those of the devolved administrations, as
well as the UK government); and the social norms and values of the UK
111 population.
111
170 Fran Bennett
Producers
Oxfam is currently engaged, with other development NGOs and many
other actors, in debates about access for the least developed countries to
European Union markets, including those for agricultural products. In the
longer term, it is also working with others towards the goal of progressive
reform of the Common Agricultural Policy. Development NGOs’ argu-
ments could be characterised as accusing northern governments of
preaching liberalisation but practising protectionism, via trade barriers,
export subsidies and dumping of surplus produce in southern countries.
Fairer trade rules would therefore mean opening up access to northern
markets, abolishing export subsidies and implementing other reforms of
the rules governing trade to create a more ‘level playing field’.
A traditional defence of such a position would counter any protests from
farmers in the UK (or the North more generally) by contrasting their (rela-
tive) northern poverty with the (absolute) poverty of farmers living in the
South. But this argument tends to heighten the contrasts and conflicts
between North and South, rather than drawing out common interests. And
it may ultimately risk undermining support for the case in favour of fairer
trade rules for the South because of the strength of public feeling in the
North.
Adding a northern, or UK, poverty perspective to this debate can throw
new light on these issues, by challenging the stereotype of the North being
made up solely of pampered protectionist producers. This can be achieved
by examining in more detail the fortunes of poorer producers who may
be threatened by the opening up of markets. Oxfam’s UK Poverty Pro-
gramme, for example, is working with hill farmers in the Peak District in
England, to analyse with them recent developments in their markets and
possible ways forward – using participatory methodology developed and
employed especially in the South.
Another case in point is textiles. Here, campaigners for opening up
market access to the South have generally been aware that those employed
in this industry in the North have been amongst the poorest and most
disadvantaged workers – often members of ethnic minorities and women.
But, in the past, Oxfam’s clothes code campaign, which campaigned for
the improvement of labour standards in countries producing textiles in
the South, was nonetheless criticised for not paying enough attention
to the conditions of work experienced by textile workers in the North –
though Oxfam did in fact increasingly incorporate work on such issues,
in conjunction with trades unions and others in the UK. In part,
perhaps, textile workers’ employment conditions and pay are less obvious,
because employer exploitation is less apparent and the workers less visible
because they are often homeworkers (see Chapter 9, by Paul Mosley, with
Jane Tate).
11 Now, a recent publication by Naila Kabeer 2 has shown that starting
from an analysis of the local conditions of inclusion or exclusion can lead
to surprisingly different conclusions about who is more exploited or liber-
ated by their working conditions, those in the South or those in the North;
and that this analysis is necessary in order to ensure that those working
for change in trade rules are working in the true interests of those affected.
One of Naila Kabeer’s conclusions, for example, is that the move into
garment factories in Bangladesh by women workers is seen by these women
themselves as liberating in some ways, rather than exploitative. (Her book,
11 of course, uses the gendered analysis often found in development practice
in the South, but not so commonly used by anti-poverty campaigners in
the North.)
11
Consumers
Development NGOs often appeal to consumers in the UK to support
campaigns for improved labour standards in the South, arguing that they
should (and will) be prepared to pay more for goods which are not produced
by exploited labour. This can result in an alternative stereotype of the
111 North – made up not only of pampered protectionist producers, but also
of consumers with a conscience and cash to spare.
But a focus on poverty in the UK, or the North more generally, can
provide a useful reminder that many consumers would find such solidarity
action difficult if not impossible, however much they might sympathise with
the arguments being made; and that therefore, without action to work for
greater equity within countries in the North, campaigns for trade with a
social conscience will find it difficult to move beyond the margins and into
the mainstream.
In addition, a focus on competition between producers in debates about
111 market access and liberalisation tends to take the spotlight off consumers.
But in fact more emphasis on the interests of poorer consumers in the UK
could add a powerful weapon to arguments about opening up market access
to the South. Some years ago, for example, the National Consumer Council
in England calculated that the additional cost of a weekly basket of
food for low-income consumers caused by Common Agricultural Policy
subsidies was some £13 per week, and in addition demonstrated how
much the Multifibre Agreement was costing people on low incomes in the
UK, especially lone parents. The importance of food and clothing in the
weekly budgeting of poor families in the UK is well documented; the cost
111 of these items is a critical issue, and could be exploited more by develop-
ment NGOs and others as an additional way in to debates about trade
and the South.
111
172 Fran Bennett
North–North, South–South
Last year, a conference organised by the World Health Organisation and
the World Trade Organisation in Norway was debating a proposal put
forward by the European Union for pharmaceutical companies to reduce
the cost of basic medicines for the South. The cost of medicines to people
on low incomes in the North has not been raised as part of this campaign,
although it is a significant issue for those living on low incomes in the
UK. But as the WHO/WTO conference debated the proposal, the
President of the United States declared that, if pharmaceutical companies
were strangled by regulation in the European Union, they were welcome
to relocate in the US, with its lighter touch on the activities of transnational
companies.
The UK, for its part, strongly desires to retain this knowledge-intensive
industry, as part of its aim, within the European Union, of developing the
best knowledge-based economy in the world. This forms a central compo-
nent of the strategy of retaining a competitive edge based on the North
producing high-value-added goods in a globalised market-place, rather
than attempting to compete with the South on the basis of labour-
intensive, low-paying industries in a counter-productive ‘race to the
bottom’. In other words, this is ironically precisely the path down
which development NGOs and anti-poverty campaigners in the UK would
urge the government to travel further. This raises an issue with which
pressure groups and policy workers in the UK are very familiar – the policy
dilemma of regulation versus mobility of capital flows between industrial-
ised countries – and confirms again that North–North competition is
also highly relevant to what initially may seem to be straightforward
North–South issues.
Similarly, within the European Union, if improved market access for
agricultural products is achieved for southern countries, some of the
producers likely to be affected are farmers living in the poorer parts of
the European Union who are producing subtropical fruits and out-of-
season vegetables. Thus, what appears to be a North–South trade issue
also raises issues of equity across the European Union, both in terms of
its agricultural policies and in terms of the Structural Funds which try
to compensate for processes of adjustment. And these dilemmas are likely
to increase with the forthcoming accession of far poorer countries to the
European Union.
In textiles, on the other hand, while Bangladesh (for example) may at
last gain greater access to northern markets in the next few years,
China is coming rapidly up on the outside with its lower wages, in what
is likely to develop into critical South–South competition if there is signifi-
cant liberalisation. This will throw our stereotypes yet further into
confusion.
11 Conclusion
These are some of the issues with which Oxfam is struggling, alongside
others active in the field, as it integrates its thinking on poverty and
inequality within the North (especially the UK) with its more traditional
focus on poverty and inequality North–South. While on the surface there
is often an apparent conflict between the interests of home workers in
North and South, including a concern about northern poverty in analysis
of issues raised by the onward march of globalisation can produce a richer
and more complex picture which is less prone to being distorted by tradi-
11
tionalist stereotypes. In the longer term, there is a common interest between
those living in poverty and disadvantaged by discrimination and inequality,
wherever they live, in preventing job insecurity and ensuring that the better-
11
off all over the world bear a greater share of the costs in the process of
achieving a vision of fairer globalisation. We will have made real progress
when we all stop talking about ‘North versus South’ and instead start talking
about shared global problems and common global solutions.
Notes
111
1 Further information about Oxfam’s UK Poverty Programme is available from
Oxfam’s website (www.oxfam.org.uk) or by writing to: UK Poverty Pro-
gramme, Oxfam GB, 274 Banbury Road, Oxford OX2 7DZ.
2 Kabeer (2003).
111
111
111
11 9 Globalisation and home-
based workers in North
and South
Paul Mosley with assistance from Jane Tate*
11
11 Introduction
In the early stages of the industrial revolution in England, as every child
knows, the leading actresses were home-based workers, for whom a modest
livelihood was first made and then broken by technical changes in textile-
making and its transfer out of the hands of homeworkers into those of
large capitalist factories. Since that time 200 years ago the role of home-
based workers has expanded, diversified and globalised, to the point that
111
it is impossible to understand either the process of technical change, or the
possibilities for global poverty reduction which are the subject of this
volume, without a consideration of that role. In this chapter we examine
the manner in which that role has been transformed by processes of glob-
alisation, its implications for the evolution of global poverty and the policies
by which that poverty can be reduced.
The evolution of homeworking in the UK and

Europe
111
Historically, ever since the initial phase in which homeworkers were
outcompeted by capitalist firms, they have been re-contracted by those
same firms, or by government, as the most flexible form of labour that can
be designed, taken on by the hour or by the piece as and when needed
and laid off when not. In the Second World War, for example, home work-
shops were set up and women were contracted by the hour to contribute
to the war effort with work such as assembly of parts for aircraft. When
the emergence of the feminist movement in the 1960s began to prompt
serious inquiry into the characteristics of homeworking, it exposed home-
workers as indeed performing a range of functions going far beyond the
111
standard (West Yorkshire) stereotype of textile and garment manufacture.
* This chapter was drafted by Paul Mosley mainly from material supplied by Jane Tate,
111 who drafted the paper initially given at the Sheffield conference.
176 Paul Mosley with Jane Tate
In that county in the 1980s, for example, we found homeworkers, mainly
women, engaged in leather work; a range of engineering functions including
making ball-bearings and assembling washers and fruit machines; a variety
of electrical assembly work, for example plugs, switches and computer leads;
packing and assembly work for stationery, greeting cards, nappies, medical
supplies, toys, nails and screws, bath plugs, curtain rails and tights; food
preparation; and a range of services including addressing and stuffing
envelopes, data-inputting, accounts work and word processing, painting
porcelain cottages and making decorative mice (adapted from Tate (1994)).
Since that time, under the impetus of technical change, homeworking
has evolved down two paths. In one model, the homeworker is ‘sub-
contracted’, usually on a piece rate, and is a disguised wage-worker. Often,
at least in industrialised countries, their work is very similar to factory
work, apart from the fact that the workplace is the home – e.g. machining
garments, assembling engineering components, collating printed materials
etc. There is often a chain of intermediaries and subcontractors between
the woman in the home and the ultimate employer – it is often difficult
to identify the employer, but in this model there is always one somewhere
along the chain.
In the case of the second model, own-account workers, there is no
employer – as in the case of craftswomen who produce garments not
knowing who their purchaser will be. Such own-account workers may be
very dependent, for example for product specifications, on traders, but the
distinction remains that nobody, in this model, offers an employment
contract.
Almost always rates of pay are far below those available in the formal
sector, especially that part of it which is unionised.1 Homeworking is
almost always informal, in the sense that it is not registered, not regulated
and lacking a written employment contract and social security rights.
Homeworkers have never, in spite of one attempt at reform of the law in
the 1970s,2 enjoyed the same rights at law as those in organised work-
places, and established trade unions have shown hostility towards attempts
by homeworkers to unionise in their own right or to demand the work-
place rights granted to workers in the formal sector.3 Since the 1980s, as
the unions’ position has weakened, they have adopted a friendlier attitude
towards homeworkers, but always within the approach that homework was
something that needed to be regulated rather than promoted. In the case
of SEWU (South Africa) and SEWA (India), discussed on pages 183– 4, a
new type of union developed, working exclusively for home-based women
workers. In West Yorkshire at any rate, few homeworkers are members
of unions (Tate 1994: 207) and it is precisely this which makes them a
valuable resource from the point of view of the employer, as it enables
him or her to negotiate directly with the homeworker in what may be –
Globalisation and home-based workers 177
11 or appear to her – as a monopsony (single-buyer) situation. It used to be
thought that home-based work (of both types described above) would die
out as economies modernised, but the opposite has proved to be the case,
as multinationals have discovered the cost advantages of a home-based
labour force with no ‘quasi-fixed costs’ of national insurance, union rights
etc. added on. Essentially, echoing the ‘fragmentation thesis’ on the effects
of globalisation presented in Chapter 1, homework should be seen not as
a historical throwback but as a thoroughly modern and expanding phenom-
enon, the most flexible form of labour in a whole spectrum of part-time,
11 casual and temporary employment relationships, and the very spearhead
of the ‘active labour market’ policies often enjoined on European govern-
ments as an instrument to raise productivity and keep down unemployment
11 (Blanchard and Wolfers 2000).
Most homework is done by women, and in this case, is combined with
childcare and housework on a far greater scale than homework done by
men.4 There is evidence that this circumstance interacts with low self-
esteem to reduce women’s bargaining power both in relation to other,
and especially adult male, members of their household, and also in rela-
tion to their employers, causing many of them to see their work not as
111 ‘real’ skilled work deserving market wages, but rather as a pastime fitted
into the intervals of domestic unpaid work.5 In the absence of support from
orthodox trade unions, an important counterpoise available to restore
solidarity and bargaining leverage among homeworkers has been the
formulation of voluntary groups, offering advice, legal support and skills
training. In Britain, important solidarity groups of this kind have formed
in West Yorkshire (described further on page 181 below), in Leicester
(amongst textile workers) and in London, until the formation of a National
Homeworking Unit in 1987. But, in organising, strategies have tended
to vary according to circumstance: the obvious example is that there is no
111 point in formulating demands on employers for rights or job security in
those cases where there is no employer.
A recent survey of six European Union countries reports similar general
tendencies to those observed in the UK, but in addition begins to provide
a picture of the manner in which homework is subdivided between different
countries by component; e.g. a pair of children’s shoes made partly by
homeworkers in Italy being sold in the UK by one of its biggest retail-
ing companies; a pair of tights, manufactured in southern Europe, packed
by homeworkers in England and sold in chain stores; a pair of shoes
handstitched by homeworkers in Portugal and sold by a big retailer in
111 France; and a pair of shoes made in a family workshop in Athens for a
big German company. Often, even if production remains within national
boundaries, retailing and distribution have been internationalised (Tate
111 1996: 70).
The Working Group on Homeworking found that, in many member
states of the European Union, homework was on the increase, as a conse-
quence of decentralisation of production, often made possible by new
technologies, growing flexibility of the labour market and, often, increasing
importance of small and medium-sized companies.6 As the ongoing
crisis in European manufacturing bites deeper – particularly so at the time
of writing (March 2002) – so increasingly mobile manufacturers have
responded by outsourcing labour to married women homeworkers who
represent the least mobile part of the labour force. Car manufacturers in
Britain, Germany and Holland, for example, have subcontracted functions
such as the making of wiring assemblies and seat covers to homeworkers
on a large scale, thereby avoiding paying the ‘quasi-fixed costs’ associated
with the hiring of permanent labour;7 within the context of a ‘just-in-time’
system where factories do not keep stocks, homeworkers are in addition
often better able to supply small orders at short notice than orthodox
factories employing unionised labour.8 In exceptional cases, homeworkers
in Europe have been able, in spite of the limitations on their ability to
organise and bargain collectively, to conduct coordinated industrial action:
for example, the case of a strike by garment outworkers in western France
in 1984 is related by Tate (1994: 208). The most notable example of
organising homeworkers in Europe is that of the Union of Embroiderers
in Madeira, an autonomous region of Portugal. Since the 1970s that
union has included in its organisation the majority of the workforce in the
embroidery industry, who are rural women doing hand embroidery.
The work comes from factories in the capital city, Funchal, where designs
are drawn on the cloth and the finished embroidery is cleaned and packed.
The union has ensured that pay conforms to minimum wage norms and
that homeworkers have social security protection. It claims that they are
the only workers in Europe who are better off when retired and drawing
a pension, than when working.
Nonetheless, data on the extent and conditions of homeworkers remain
poor, to the point that until recently they could be considered as part of
a hidden economy. Only occasional sample surveys such as those reported
here have been able to shed light on their condition. We still lack global
data on their representation, and the Global Mapping Project (see page
182) is intended to fill in some of the key gaps.
The global context of homeworking

The extension of homeworking to developing countries is the natural conse-
quence of a widespread, and still relatively immobile, labour surplus;
indeed, many of the eastern European producers discussed earlier were
themselves subcontracting the labour-intensive components of garment and
11 shoe production, for example, to eastern Europe, South and South-east
Asia. In the Australian garment industry, we have a measure of the speed
at which homeworking has been expanding, with the number estimated to
have risen from 30,000 to 300,000 between the mid-1980s and the mid-
1990s (Carr et al. 2000: 131). Global integration privileges those who can
move quickly and easily across borders, in relation to both local firms
and the labour they employ. Homeworkers, in this context, are the most
disadvantaged of all. ‘What greater contrast could there be’, we asked in
our 2000 review (p.125), ‘than that between a large transnational company
11 and a home-based woman producer?’
In that paper, we characterised the global connections between labour,
production and distribution processes for specific products as global value-
11 chains or supply chains; these are an extension of the Europe-wide supply
chains described on page 178. Two kinds of supply chains have been
identified, depending on the nature of the product and the production
process: buyer-driven chains (e.g. in the footwear and garment sectors) in
which large retailers govern production; and producer-driven chains (e.g.
in the car and computer industries) in which large manufacturers govern
the process; an example of one of these chains is given in Figure 9.1, and
111 they are described and pictured diagrammatically in more detail in the
paper by Carr et al. (2000: 128–33). The chains have organisational and
political, as well as economic, implications, since any action taken to
improve the conditions of workers at any point in the chain logically needs
to embrace people working at all points along the chain. This logic has
underlain the extension of a number of homeworkers’ associations from a
regional to a global (or at any rate a ‘chain-based’) mode of organisation,
as we describe in more detail in the next section.
Dependence on home-based work in developing countries is extremely
high (in at least six sub-Saharan countries, over 50 per cent of all enter-
111 prises are home-based (Carr et al. 2000: 127), and even now under-
appreciated, as much of women’s informal paid work is not accounted for
in official statistics). If women’s paid work were to be fully counted,
both the share of women and the share of informal workers in the work-
force would increase. Even on the basis of existing data, three important
dimensions of the informal sector emerge. First, a higher percentage of
economically active women than men are in the informal and, particu-
larly, in the home-based sector. Second, within the home-based sector,
the majority of women are self-employed traders and producers, casual
workers, or subcontract workers; relatively few are employer-owners who
111 hire others to work for them. (The ability of microfinance to change this
situation will be examined in the next section.) Finally, while the average
incomes of both men and women are lower in the informal (especially the
111 home-based) sector than in the formal sector, the gender gap in wages and
Raw materials Textile companies Garment manufacture Retail outlets

Design, Distribution
Natural fibres garment Finishing and
preparation retail
Fabric
manufacture
Garment assembly:
Synthetic fibres (a) Far East
(b) Domestic
Figure 9.1 Value-chain in the global garment industry.

Source: Carr et al. (2000: figure 1), drawing on Taplin (1994).
earnings appears to be higher in the informal than in the formal sector.

This is largely because informal incomes tend to decline with ‘employment
status’, from employer to self-employed to permanent employee to casual
or contract worker. There is therefore an overlap between being a woman,
working in the informal sector and being poor.
As we have pictured the process, homeworkers in the North and South
occupy a similar structural role in one process of globalisation. But there
are significant differences between their positions. First, homeworkers in
the South are absolutely poorer, often unable, unlike their counterparts
in the North, to afford minimum standards of food, clothing and housing,
the more so because the ‘social wage’ is less. Second, they have fewer
choices open to them, being often prevented by religious and social custom,
as well as opportunity, from working outside the home; and ‘financial exclu-
sion’, which is a minority phenomenon in the North, remains – in spite of
the success of the microfinance movement, a majority phenomenon in most
parts of the South. Third, the risks to which they are exposed – ill-health,
accidental injury, disablement, discrimination and inability to get redress
for any of these through bureaucratic or judicial process – are, for a given
income level, enormously greater in the South than in the North, for a
combination of medical, infrastructural and governance reasons. Notwith-
standing this, there are many common points relating to the fact that
homeworkers in both North and South are women, therefore invisible and
not seen as real workers.
In both of these differentiated groups, however, the central question
which arises is whether globalisation has been good for home-based
workers and for poorer women, and whether there exist ways of making
globalisation ‘work better for the poor’. On the one hand, it has put income
directly into the pockets of more of them; and possibly, in the process,
given them a greater share in household decision-taking. On the other
11 hand, however, it may well have taken income away from those previously
employed in the ‘permanent’ wage-labour force. No one has yet sought
to draw up an overall balance sheet for this process in either hemisphere.
But whatever the state of the balance sheet, the question remains of
what can be done in practical terms by means of policies and institutions
not as yet developed, which could enable it to work more effectively on
their behalf. Appropriate strategies for doing this will be examined in the
next section.
11
Policy options in the context of the poverty debate
In the light of the preceding discussion we perceive three distinct channels
11 by which it may be possible to advance the rights and the welfare of home-
workers globally. These prescriptions follow from the previous diagnosis of
livelihoods which are not only, in many cases, inadequate but also insecure
– perhaps increasingly so under the stresses of globalisation mentioned
in previous sections.
Informational and organisational services

111
As described on page 176, a range of regionally based homeworkers’
associations offering informational and organisational services emerged
in the 1970s, sometimes developing into national or global organisations.
As an example of this tendency, HomeNet emerged during the 1990s from
an informal association of homeworkers in West Yorkshire (the West
Yorkshire Homeworking Group), operating within the trades described
on page 176, providing free information and advice as a basic contact
point, and extending from this into research and lobbying work. The Group
evolved from an approach of working on behalf of homeworkers to work-
111 ing with them, and in 1994 established the global federation, HomeNet
International, to support existing grassroots organisations and represent
them internationally. It uses publications to exchange information inter-
nally and to give visibility internationally. It campaigned for the adoption
of the ILO Convention on Homework in 1996. The present author (Tate)
writes in the capacity of coordinator of HomeNet International. Possibly
under the impetus of the increasing importance attached to poverty
and women’s empowerment during this decade, HomeNet achieved an
honourable mention in both DFID’s 2000 White Paper Making Globalisation
Work for the Poor and in the World Bank’s World Development Report of
111 the same year Attacking Poverty.9 HomeNet International both provides
public information on the working conditions of homeworkers and
facilitates processes by which they can organise in order to improve their
111 working conditions and legal rights. In pursuit of its fundamental aims of
support for, and greater external visibility of, homeworkers, HomeNet in
2000 launched a Global Mapping Project, sponsored by the Department
for International Development, which plots the location, sectoral compo-
sition, working conditions, organisational status and other coordinates of
homeworkers internationally.
Within the category of organisations operating in the developing world,
SEWA, the Self-Employed Women’s Association of Ahmedabad, India,
belongs on its own, as it provides solidarity and information services,
financial services (of a highly original kind) and training, all rolled into
one. Founded in 1972, SEWA now has a membership of about 250,000.
It is, in origin and essence, a registered trade union representing female
workers in the informal economy, including self-employed tradespeople
and manual labourers as well as homeworkers. The original objective was
to organise these women workers in support of their legal rights (including
the state minimum wage) and to achieve greater security of employ-
ment for them. In the process, other functions have accrued, notably the
provision of an Integrated Social Security Programme (further described
on page 184) which embraces health insurance (including a small mater-
nity benefit component), insurance against damage to equipment and life
insurance. As such, it occupies the borderland between microfinance and
social security, and like many microfinance schemes, contains its own
training component. The integration of the three functions on this scale is
unique, but several organisations across the developing world seek to
combine organisational support services for homeworkers with financial
ones. A useful question for future investigation is under what circumstances
this ‘integrated’ model performs better for homeworkers than the division
of support services into specialised parts.
Financial services
In opposition to a widespread previous belief that poor people were not
bankable, a range of financial services collectively known as microfinance
have sprung up over the past 20 years, which supply small loans ($100 is
a commonly-quoted average) to poor people without collateral. These have
spread very widely within the South10 and now from South to North as
well (see Chapter 11 below), have achieved sufficient impact on poverty
for the Microcredit Summit to appeal for 75 million families (about half
of the world’s poor) to be taken out of poverty by this means alone,
and represent an obvious expedient for improving the living standards of
homeworkers, the more so since the instrument is particularly well
adapted to the circumstances of women clients who, on balance, have
higher repayment rates (Holt and Ribe 1990).12 How well can it be expected
to work?
11 Microfinance in its original and traditional form of loans, often provided
to a solidarity group of five or more women who substitute for collateral
by providing mutual guarantees for each other’s loans, augments the stock
of physical capital (sometimes human capital as well, if training is pro-
vided, as in SEWA) available to homeworkers. As such, it represents an
important resource towards improvements in living standards, for those
homeworkers who are able and willing to accept the risks associated with
self-employment – in particular the possibility that, if an individual’s share
of a loan instalment cannot be repaid, individual or communal assets may
11 have to be sold in order to keep the group current on its obligations. In
such a case, an important element in the household’s survival strategy is
removed, and a vicious circle of decapitalisation and impoverishment
11 occurs, of the type vividly described in the World Bank’s latest World
Development Report (World Bank 2001d: 146). Although these cases occur
with a minority of microfinance loans, they remind us that the risks asso-
ciated with initiating and developing small businesses often materialise;12
and the costs of this, for homeworkers or any other vulnerable group, are
more serious the more precarious the household’s livelihood.
An implication of this fact is that types of financial services other than
111 lending may have greater utility to those homeworkers who are poor, risk-
averse or who for whatever reason wish to continue to be employed rather
than self-employed. We refer, in particular, to savings and insurance.
Historically, the development of savings services for low-income people
has been slow in many countries, including some microfinance ‘stars’ such
as Bolivia – notably because the NGOs which supply the bulk of micro-
finance services are often forbidden by law to take deposits.14 However, in
a number of environments these problems have been circumvented (notably
by Bank Rakyat Indonesia’s unit desa scheme, which has over 12 million
savers); and where they have, this has been to the benefit of poor depositors
who have been able to take advantage of an institution which, unlike
111 lending, has a risk level close to zero. Similar considerations apply to insur-
ance, which historically has been something of a disaster area for the
developing world – the World Bank (2000b: 143) exaggerates only slightly
in describing insurance markets as ‘almost non-existent in developing coun-
tries’ – but which is now being reborn as microinsurance, aimed at insuring
risks which mainly attach to poorer people, including health expenses,
funeral expenses, livestock death and climatic risks (Brown and Churchill
1999; Brown et al. 2001). Both savings and microinsurance have the merit,
unlike many loan products, of mitigating the risks associated with home-
working – which, precisely because of the flexibility it offers to the employer,
111 is a particularly risky livelihood from the point of view of the employee.
Members of SEWA can choose whether to become members of the organi-
sation’s microinsurance scheme (at present approximately 14 per cent of
111 all SEWA members are insured). The asset and health components come
as a package and life insurance is an option. The total insurance premium
package is approximately Rs60 (or $1.5) per year for the combined asset
and health insurance package and an additional Rs15 provides life insur-
ance as well. Membership and claim processing are done through the
SEWA Bank, which provides mobile banking services. The design of the
premiums is intended to provide maximum access to the extremely poor.
A fixed deposit of Rs700 secures life membership of the scheme; alterna-
tively, monthly or weekly premium payments may be made, and the profits
on income from (richer) ‘life members’ cross-subsidise the interest rates
paid by poorer clients who pay weekly or monthly.
Training and other support services

Several support organisations provide skill training to homeworkers, some-
times to facilitate their transition from insecure employment into a possibly
more secure self-employment, and often also to facilitate the building of
bonds of solidarity between scheme members.
Overall review
At the time of writing the evolution of support services for homeworkers
appears as somewhat ad hoc: those concerned with promoting their welfare
have responded to perceived need, but as mentioned earlier the data gaps
in this field are particularly severe, and we are far from knowing which
instruments of intervention are most effective at doing which jobs, and how
severe the negative side-effects of some of the interventions may be.14
As a prelude to such analysis, we compare, in Table 9.1, the operational
method and, where known, the results of the alternative methods of inter-
vention we have examined here. Relevant to this comparison is the fact
that, since flexibility in the global labour market is achieved by subjecting
homeworkers to particularly high levels of risk exposure, a criterion for any
intervention on their behalf is what it does to manage that risk, whether
by ex ante prevention and mitigation or ex post adaptation – a theme consid-
ered in many essays in this volume, and in particular by Holzmann in
Chapter 4. Lund and Srinivas (2000) have adopted the following typology
of risks to which homeworkers are exposed:
• Sectoral demand-side risks – derived from sector-specific variations in

demand over time.
• Risks of (small) scale – homeworkers may not be able to transcend limi-
tations of small demand and small-scale operation.
• Risks arising from position in production and supply chains – lack of bargaining
power exposes homeworkers to higher risks of interruption of income
flow.
11
11
11
111
111
111
111
Table 9.1 Interventions on behalf of homeworkers
Strategy type Examples examined here Modus operandi; risk management Evidence on impact
role
Informational/ HomeNet (international, Publicity, training and
organisational UK-based) research. Mitigates risks due
to invisibility in the economy
Other homeworkers’ support
organisations in Europe and
the developing world
Financial services:
Credit Over seven thousand worldwide. Mitigates sectoral, scale and Women generally have lower
Featured in this volume: demand-side risks arrears rates (Holt and Ribe
INTEGRA (Slovakia) 1990); poverty impact low among
Developing Strathclyde (UK) poorest, but above incomes
SEWA (India) c. 80% of the poverty line
positive and rising with income
(Mosley and Hulme 1998)
Insurance Health: SEWA (India) Mitigates socio-economic and Stabilises income for a
geographic risks population often further down
the income scale than
microfinance borrowers
Training:
Free-standing
As part of integrated SEWA (India) Mitigates socio-economic risks In the UK, microfinance
services institutions with training have
higher rates of return than
those without (Mosley and
Steel 2002)
• Risks due to invisibility in the economy – because homeworkers are partly
invisible, their contribution to the economy is overlooked and underes-
timated (including by themselves) and their ability to negotiate reduced.
• Geographic risks – certain regions may be more susceptible to adverse
economic or political shocks, or have fewer risk-management mechan-
isms available.
• Socio-economic risks – newly migrated homeworkers may have minimal
community ties (‘lack of social capital’) and risk-coping strategies.
Table 9.1 seeks to enumerate the interventions we have considered in rela-

tion, in particular, to their ability to manage these various risks.
Tentatively we reach the conclusion that the microfinance option is of
most benefit to more economically secure and enterprising homeworkers,
but that the insurance, training and information components may be of
benefit to all. Each of them mitigates a different type of risk, so at least
in potential they may be seen as complementary.
Homeworking therefore represents one of the oldest and one of the most
modern of North–South interconnections – because the employer
bargaining advantage inherent in the circumstance of individuals working
for powerful companies at home was realised early and has been gradually
extended and globalised. Various aspects of that globalisation and its conse-
quences have been explored here in both northern contexts (notably, in
this book, Yorkshire) and southern ones. It is very clear that in the context
of homeworking, as elsewhere, globalisation both augments and reduces
poverty, and throws down the standard challenge to policy authorities and
non-governmental organisations to ‘make globalisation work (better) for the
poor’ (United Kingdom 2000). The differentiating feature of this particular
context is that its unseen nature and the powerlessness associated with that
increase the likelihood of negative net effects, at any rate until such time
as some of the countervailing measures which we have described can be
put into position.
Notes
1 In a UK-wide sample of four textile homeworkers in 1996, ‘estimated hourly
rates of pay were as follows: for sewing children’s clothes, £2.50; for sewing
blouses, £1.50; and for making skirts, £2.50’ (Tate 1996: 46). This is between
45 and 75 per cent of the national minimum wage of £3.25 per hour imposed
the following year. The kinds of work associated with the lowest rates of pay,
we reported in 1994 (Tate 1994: 199), include: ‘packing tights, bagging toys,
making soft toys, packing and assembling miscellaneous fancy goods, peeling
vegetables; some engineering assembly work and knitting’. Outworkers are
typically excluded from bonus and holiday payments, redundancy and mater-
nity rights.
11 2 This was a Private Member’s Bill put before Parliament by Frank White in
1978.
3 For cases of a more collaborative relationship between unions and home-
workers’ support groups in the Netherlands, see Tate (1994: 209).
4 Many parents, indeed, are forced out of formal employment and into home-
work precisely by problems of securing childcare (Tate 1994: 194).
5 Much home work is done not only by women but by ethnic minority women.
In North London in 1996, according to one respondent, ‘all the factories use
outworkers. Often it’s up to 90% even though the cutting and finishing is done
in an hour. Most of the homeworkers in North London are Vietnamese, Indian,
11 Greek Cypriot and Turkish’ (quoted in Tate 1996: 45).
6 But still operating within a multinational-dominated environment: clothing,
in particular, remains increasingly controlled by a small number of giant com-
11 panies who dominate clothing sales through high-street sales and mail-order
catalogues (Tate 1996: 45)
7 One trigger for this in Britain was a court case in which (unionised) women
machinists in a car factory successfully won the right to equal pay with skilled
men (Tate 1996: 59)
8 Although labour costs in the car industry are typically only 10–15 per cent of
total cost, halving labour costs in such a context can treble profit rates (Tate
1996: 58)
111 9 United Kingdom (2000a: box 3, p. 29) (which interestingly focuses on ‘opening
up markets’ for homeworkers, a theme not stressed in HomeNet’s own
publicity) and World Bank (2000a: 187).
10 In some countries such as Bolivia and Bangladesh they account for some 40
per cent of lending and some 80 per cent of employment (Rhyne 2001).
11 Although most microfinance loans go to women, there is much debate on
whether women or men secure the ultimate benefits – in other words, about
the allocation of resources within households which use microfinancial
services. This issue has been most intensively studied in Bangladesh, where a
recent study (Kabeer 2001) reports that the measured impact of microfinance
on women is much greater if a quantitative method of enquiry is used (exam-
111 ining, for example, the impact of microfinance on women’s consumption or
household expenditure on school fees) than if a qualitative method is used
(examining, for example, women’s statements about their measure of control
over the enterprise).
12 In South Yorkshire about three out of four small business starts fail (Sheffield
Enterprise Agency).
13 There are, however, various ways around this problem; one is for the finan-
cial NGO to convert itself into a bank (successfully achieved, for example, with
BancoSol in Bolivia and with K-REP Bank in Kenya), and another is for the
NGO to take a compulsory savings deposit from borrowers in the form of a
loan insurance premium added to the interest rate.
111 14 For example, the provision of some insurances may mitigate the incentive to
self-insure and adopt prudential behaviour.
111
11
10 Food and poverty
Current global challenges?
Elizabeth Dowler and Geoff Tansey
11
11 Overcoming world hunger is more complex than producing enough food

[. . .]. We also have to fight poverty, encourage political stability, invest in
infrastructure [. . .]. To beat hunger, we have to get at its roots [. . .]. That’s
what I committed this nation to help accomplish when I led the (US) dele-
gation to the World Food Summit in Rome in 1996. 186 countries came
together and set a goal of reducing by half the number of undernourished
people in the world by 2015. And we have added a domestic component
to the action plan that will reduce both immediate hunger and the long-
111 term causes of hunger [and food insecurity] here at home.
(Press release from Agriculture Secretary, Dan Glickman,
in Washington, 26 March 1999, on launching the
US Action Plan on Food Security)
International conferences on food come and go, but the poor and malnour-
ished we seem to have with us always. The Rome 1996 World Food
Declaration and Plan of Action, signed by the 190 or so member govern-
ments, affirmed ‘the right of all people to have access to safe and nutritious
111 food consistent with the right to adequate food and the fundamental right
of everyone to be free from hunger’, and acknowledged poverty as the
major cause of food insecurity throughout the world (World Food Summit
1996). In practice, most countries in the North saw food security and
malnutrition as problems for the South; the US and Canada were unusual
at the time in even acknowledging the existence of domestic food and nutri-
tional insecurity and in releasing national Action Plans. During the last
decade, national governments and regional groupings such as the EU have
increasingly recognized growing poverty and exclusion (exacerbated in
Europe by regional political and economic instabilities, which upset markets
111 and generate migrants). Reform of public welfare systems and reviews of
other challenges to social policy have been high on the policy agenda. Yet
few governments, the US and latterly the UK apart, have recognized the
111 concomitant growth in hunger and food insecurity, despite their increasing
190 Elizabeth Dowler and Geoff Tansey
visibility: more beggars on the streets of European cities, and an expan-
sion of food bank and ‘day centre’ provision to feed hungry people (Dowler
2001; Poppendieck 1997).
This failure to acknowledge the linkages between food and poverty is
partly because those begging or using food banks can readily be labelled
as ‘social failures’: those who have somehow not managed to sustain a
regular income, budgeting and/or food preparation. They are also per-
ceived as visible signs of the fragmentation of contemporary life, such as
the loss of family and household stabilities (since many of the growing poor
are lone parent or single elderly households), or even as the ‘unfortunate
victims’ of flexible, globalized employment structures and/or migrancy
and asylum seeking. Systems of social protection are supposed to meet
their needs; if they cannot afford to feed themselves, it must be their own
fault, rather than a consequence of structural factors. In practice, as we
discuss below, things are not that simple: food is more than a bundle of
calories and nutrients satisfying only physiological needs. It is also usually
the flexible budget item, that which has to be cut back by households
or individuals who need to pay for fuel, water, rent or other essentials
(nowadays often to private companies), and for which defaulting can lead
to fines, family break up or even imprisonment. In the UK at least,
and elsewhere, levels of social protection are too low to enable people to
meet essential needs for more than a short period (Leather 1996). More
important is that poverty in Europe is increasingly experienced by the
able-bodied of working age, some of whom are in the labour market, and
increases in unemployment have produced a growing proportion of un-
employed people not covered by contributory benefits and ever larger
numbers needing a minimum income from social security payments. Social
protection measures and their implementation vary throughout Europe,
but the need to control budget deficits and inflation has led many EU
member states to reduce social welfare programmes when demand for them
is rising, either because social insurance cover has expired, or because
employment records were insufficient to qualify (Dowler and Dobson 1997).
Thus, there are likely to be increasing numbers who cannot afford to obtain
the food they need.
However, despite the food bank proliferation, hunger and malnutrition
experienced by poor households in the North is, in fact, largely hidden
from public view; they are private, even shameful, anxieties, hitherto
meriting little debate and even less action. Evidence that people were going
hungry, or that nutritional outcomes in terms of circulating blood levels of
vitamins or minerals, or inappropriate body size in adults or children, seen
in those variously defined as poor, has for many years been regarded as
due to personal inabilities to budget, cook or parent appropriately. None-
theless, non-governmental organisations, activists and academics, as well
as those experiencing poverty, have continually highlighted the structural
Food and poverty 191
11 and persistent components of food and nutrition problems as aspects of
poverty in European and North American countries, and in Australia and
New Zealand (see Köhler et al. 1997; Riches 1997a; and work by Sustain,
Oxfam and others1). These were rather lone voices during the 1980s and
early 1990s, but the beginnings of a policy shift could be discerned in the
last years of the century, at least in the UK. So, at the turn of the twenty-
first century, as at the turn of the twentieth (Petty 1987), social analysts
and policy reformers have been challenged by the need to construct policy
measures and social protection, and to address structural constraints in the
11 food system, so that households in poverty can afford to feed themselves
adequately for present and future health and well-being.
Obviously the extent and depth of poverty, hunger and nutritional
11 inadequacy experienced in the North is of a different order and intensity
to that of the South, and state welfare provision and/or employment and
other anti-poverty strategies (adequate or not), have long operated along-
side public provision of minimal levels of safe water, reasonable housing,
and the means of obtaining a living (education, training and employment).
But, just as current thinking and analyses of poverty and exclusion have
produced instructive parallels and resonances in North–South approaches,
111 so there are lessons to be shared on the causes of, and policy responses to,
food insecurity and its nutritional consequences. Food consumption data
often contribute to a materialist analysis of poverty, and to some extent,
food poverty experiences are also contributing to understanding of exclu-
sion (Dowler and Leather 2000; Lang 1997). Second, food and nutrition
play a critical role in health and in avoidance of morbidity and premature
mortality throughout the life cycle (Davey Smith and Brunner 1997;
James et al. 1997; Shetty and McPherson 1997). Research into the causes
of and policy responses to the rise in non-communicable diseases, including
cardiovascular disease, some cancers and non-insulin dependent diabetes,
has begun to include recognition of the important role of food and nutrition.
111 Third, food has in itself become a focus of critical social and political
analysis, since its production, distribution and quality are so obviously
affected by, and contribute to, processes of globalization (Tansey and
Worsley 1995). The environmental consequences of the modern food
system, and fallout from the crisis in Europe of BSE/vCJD, and over the
use of biotechnological tools in the genetic manipulation of food, have
generated consumer anxieties and action, and questions about regulation,
control and accountability. These issues are covered in more depth else-
where (Lang 1999a; Lang et al. 2001; McMichael 2001); the relevance
here is in who has access to power and control within the food system.
111 It is certainly unlikely to be those who are poor, whether producers or
consumers, in North or South.
In a short chapter we can merely point to the critical elements in the
111 analysis, some of which need more research and recent data to clarify who
gains and who loses, in current developments within the food system, and
who is driving both change and its regulation. We face the usual problem
of definitions in relation to our topic: meanings and thus contributors to
food poverty, hunger, food security and nutritional adequacy. As Riches
eloquently argues, ‘First World (sic) hunger in the 1990s should be under-
stood both as an attribute of absolute or primary poverty and a key attribute
of relative deprivation’ (Riches 1997b: 64). He cites a definition of hunger,
or food poverty, produced by Radimer, following her work with low income
women in upstate New York, as ‘the inability to acquire or consume an
adequate quality or sufficient quantity of food in socially acceptable ways,
or the uncertainty that one will be able to do so’ (Riches 1997b: 65). This
clearly has strong parallels with definitions of food security, which, in the
North, essentially means people need:
• access to food – to have enough money to meet food and other essen-
tial living costs, and to be able to reach the kind of shops which stock
the foods needed for health at affordable prices;
• to enjoy the choice – the food people can buy has to be safe, and
necessary or appropriate for a healthy life and for their own culture;
and
• to be free from anxiety about whether they will be able to eat properly.
The food security concept is powerful in making clear that solutions to

food poverty go beyond welfare transfers or service provision of food to
encompass issues of basic human rights, sustainable development and social
inclusion. Food should be produced and distributed in ways which are
sustainable, moral and equitable, and people should be able to acquire,
share and consume food in ways that are not demeaning but uphold human
dignity (Devereux et al. 2001; Killeen 1999).
People die early from food poverty – that is its starkest consequence.
But food poverty is much more pervasive in its effects in diminishing or
curtailing lives. It has not just nutritional and economic dimensions but
also social, cultural and ecological dimensions. Paradoxically, perhaps, food
poverty is not necessarily and exclusively an experience of the poorest
people in the poorest countries, although it is felt most keenly by them. It
clearly affects poor people in affluent societies, and arguably has even wider
impact in its social and cultural dimensions.
Extent and causes of food poverty in the North

These unresolved debates on the meaning of food poverty and insecur-
ity have partly contributed to the lack of systematic data across northern
11 countries which can be used to enumerate numbers of individuals or house-
holds at risk. In the US, a validated food insecurity questionnaire has been
administered for a number of years (Andrews et al. 2000). This question-
naire simply asks individuals and households to quantify their experience
of going without food, or of being unable to purchase food, or of being
hungry because they lack the means to obtain food (thus distinguishing
individuals who are food insecure from those who are hungry because
they are trying to lose body weight). In the UK, in 2002, the new Food
Standards Agency commissioned a survey of diet and nutrition in low-
11 income households which included a similar food security questionnaire;
results are expected in 2005. Few other northern countries are using
such an approach in surveillance. Best estimates of those facing food
11 poverty or food insecurity are inferred from data measuring either nutri-
tional or food outcomes in national diet and nutrition surveys where
indicators of socio-economic status are also collected, or national poverty
statistics (Dowler 2001). Few of these surveys or data sources include any
indicators of the experience of hunger, or of how people obtain food. Thus
food poverty or food insecurity, in that they can be measured or under-
stood at all, are constantly reduced back to quantifiable scientific outcomes,
111 ignoring the social, cultural and ecological dimensions entirely in both
defining the problem and exploring potential responses.
In the UK, numbers who claim the minimum state means-tested benefit
can be used as a proxy indicator of households who would otherwise be
in absolute poverty (Howard et al. 2001). There is growing evidence that
benefit levels (whether income support or basic pensions) are insufficient
to cover food needs, particularly where people live on them for more than
a year or so (Parker et al. 1998). The longer people live on benefits, the
less likely the money they receive covers costs; when people are indebted,
food is what they reduce (Cohen et al. 1992; Cole-Hamilton and Lang
111 1986; Dobson et al. 1994; Kempson et al. 1994). For example, a survey of
lone-parent households, who are particularly likely to be poor and to live
where food is expensive or hard to find, found that parents in arrears
for rent or fuel had very restricted diets indeed, with hardly any fruit or
fresh produce at all, and levels of micro-nutrient intakes (vitamins A, C,
iron and calcium) which were nearly half those of parents not living in
such circumstances, even when the analysis was controlled for smoking
patterns (Dowler and Calvert 1997). Thus, households headed by an
individual claiming income support, particularly in the long term, could
also be used as an indicator of households likely to be food insecure or
111 food poor.
A rather different approach is used in the US, Canada, France and
Portugal, where numbers of individuals fed from food banks are also used
111 as proxy indicators of those who are hungry or food-poor ( Join-Lambert
1995; Guiomar 2001; Riches 1997a,b). In practice, few systematic data are
available for either France or Portugal.
Andrews et al. (2000: i), using food insecurity indicators, report some 31
million Americans to be food insecure (approximately 10 per cent of house-
holds) in 1999, and in 3 per cent of all households, one or more household
members were hungry at least some of the time during the year because
of inadequate resources. These rates have declined since 1995. Riches, on
the other hand (1997b: 66), cites approximately 21 million people in the
US having received emergency food in 1994, and 27.4 million people
having participated in the Food Stamp program (means-tested state pro-
vision), indicators which give a different proportion facing food insecurity.
In Canada, he estimated 2.5 million people (8.6 per cent of the popula-
tion) to be using food banks as emergency assistance in 1994, and one in
eight Australian households to be below the poverty line and probably
claiming emergency relief (Riches 1997b: 67). For the UK, nearly four
million households (7.8 million people, or about 13 per cent of the
population) were claiming state benefits in 2001;2 one in five children
(2.67 million) lived in such families and of these, 60 per cent had been on
benefit for at least two years (United Kingdom 2001a). These numbers had
risen rapidly during the 1980s and early 1990s (from 8 per cent of the
population, or 7 per cent of children, in 1979) and are now showing some
decline from the 1994 figure of 9.8 million in claimant households (Howard
et al. 2001: 57).
There are few comparable data on the food insecure in Europe as a
whole. In Europe, those living in households whose income is below 50
per cent mean income (before or after housing costs; known as Households
Below Average Income or HBAI) is used as a relative indicator of inequality
(Howard et al. 2001) and widely interpreted as a proxy – if contested –
indicator of poverty. Using this definition (HBAI), there were almost
23 million poor households across the European Union (12 countries)
in 1993, containing about 57 million people;3 of these, 13 million were
children (20 per cent of all children in the EU). The most common house-
hold type defined as poor contained a single person over 65 years of
age, but the risk of being poor was highest for lone-parent households.
There are no data linking the HBAI indicators to experiences of food
poverty or insecurity. However, a recent review of food intake data by
socio-economic status from 15 European countries, which accommodates
different indicators both of food and nutritional outcomes and of socio-
economic status (Roos and Prättälä 1999), showed a strong inverse
relationship between quality of diet and intake of fruit and vegetables, and
socio-economic status, variously defined (Dowler 2001).
Such cross-sectional surveys do not capture the spatial dimensions of
food poverty. These have emerged on to the research and policy agenda
11 in recent years, although poorer people themselves have been only too
familiar with the experience of living in places from which mainstream
supermarkets and other services (such as banks and post offices) have
withdrawn. One consequence is that the food appropriate for health, and
particularly fresh produce, can be more expensive where poor people
live than where richer people live, if available at all (Dowler 2001; Lang
1997; Leather 1996). Such cross-sectional surveys also do not capture the
long-term effects of living on low incomes, whether from state benefits or
low wages. Further, detailed discussion of quantitative data and qualita-
11 tive information on food intake and usage, and nutritional outcomes in
relation to poverty in the North, are to be found elsewhere (Köhler et al.
1997; Riches 1997a; Dowler 2001; Dowler et al. 2001). Suffice to say here
11 that, even when the resources available to the household or an individual
are limited, the choices people make over what to eat and how to eat it
still reflect a diversity of national, class, gender or age cultures. Nonetheless,
despite these cultural distinctions, there are consistent trends in food
patterns and nutrient intakes by socio-economic conditions across very
diverse societies. People with lower socio-economic status and/or living
in poverty consume nutrients from a less diverse food base: they eat
111 monotonous diets with little variety, and often little fruit. There are few
differences in energy, protein, fat or carbohydrate, but often marked differ-
ences in micro-nutrient intake and nutritional status (blood levels), between
those who are richer and those who are poorer. Also, there is no consist-
ent evidence that those who are poor lack knowledge of what constitutes
a healthy diet, or skill in food preparation, any more than those who are
richer. Indeed, surveys of cooking skills have found that the middle classes,
rather than the poorest, are those spending less time preparing food, and
relying more on ready-prepared dishes (Caraher and Lang 1999).
The explanation for such findings is often constructed in terms of
111 individual agency: inadequate skills in household management and budget-
ing, knowledge (of the ‘right’ foods to eat for health) and skills (whether
people can shop carefully, cook foods from raw ingredients and prepare
appropriate meals). ‘Education’ is a standard policy response (Travers
1995; Deml 1997). The research literature, by contrast, makes clear that
structural factors play a critical role and cannot be ignored either in under-
standing causation or initiating policy response (Dowler and Dobson 1997;
Lang 1999b; Poppendieck 1997). These structural factors include the
amount of money which is actually available for food within the house-
hold, which in turn depends on the total income (wages, pension or
111 benefit levels) and how much can be allocated after rent, fuel and other
essentials are paid; what food is available and what it costs in the shops
people can actually reach; and the quality of institutional and/or welfare
111 provision (through schools, food banks and distribution centres). These
issues are examined in detail for the UK, and contemporary challenges for
policy assessed, in Dowler et al. (2001).
The role of food and nutrition in defining poverty

Despite the apparent invisibility of food problems in poverty discourse in
the North in recent years, nutritional data have long played a significant
part in the construction of materialist data on poverty: minimum levels of
living, which usually depend on costings of basic necessities, are used to
define poverty and sometimes to measure it (Dowler and Dobson 1997;
Dowler and Leather 2000). This process has implications for policy
response. Essentially, a minimal nutrient intake (in the most basic versions,
of calories alone) is defined, usually as an average for a population, and
quantities of foodstuffs to supply such a daily intake calculated. These food-
stuffs are costed, and an allowance is added for additional basic needs.
Alternatively, assumptions are made about the proportion of income spent
on food, and the theoretical cost of minimal food is scaled up accordingly.
The result is a minimal cost of living, or absolute poverty datum line
(e.g. Reutlinger and Selowsky (1976) and Lipton (1982), among many),
which is used to judge the level of expenditure required to meet basic
needs. Seebohm Rowntree was probably the first to use ideas about require-
ments in a systematic way to define a minimal subsistence cost of living or
poverty line, and the results were very powerful. Rowntree did not of course
use this poverty line to identify who was poor – that was done visually and
on a relative poverty basis (Veit-Wilson 1986). The poverty line was used
to separate people identified as poor into those who had insufficient income
to purchase basic survival necessities, and those whose income was suffi-
cient to buy basic necessities but who were unable so to do for other reasons
(not necessarily inefficiency). That his poverty line was based on a dietary
which used contemporary, rigorous science, strengthened the findings and
conclusions. His work and method are still cited 100 years later, in the
World Bank World Development Report (2000a), in accounts of income poverty
measurement.
However, requirement figures are probability statements based on the
likelihood of avoiding deficiency or (less often) achieving health, if a given
amount is consumed, drawn up for different age, gender, body weight and
activity categories. They are socially constructed standards for a given place
and circumstance rather than universal objectively established minima or
optima (Dallison 1996). The Bank sets considerable store by including the
‘voices of the poor’ in its current construction of poverty and its dimen-
sions. Governments and agencies elsewhere have not been so generous:
budget standards and requirements are set by professional panels, chosen
for their scientific expertise, rather than their experience of life lived at the
11 lowest incomes (Smith 1995). Consensual budget standards, drawn up by
a range of individuals in the society in question with relevant life experi-
ence, are beginning to have a place, but they are not necessarily held in
high regard in policy circles (Gordon et al. 2000; Middleton 2000;
Middleton et al. 1994).
Poverty defined in terms of income sufficiency is often used to trigger
access to social welfare payments, where debate about levels of provision
become critical. Failure to live on them can then be taken to signify in-
efficiency or incompetence, as described above (Dowler and Dobson 1997;
11 Leather 1996),4 rather than a recognition that levels have been set un-
realistically low. Even Rowntree never expected people to live on the
dietary he used, nor the poverty line based on it. He was trying to ‘shock
11 the public’ by setting the line so low none could accuse him of not
measuring ‘real poverty’.5 It was, as Woolf argued cogently during the
1940s, and Walker and Church during the 1970s, others who turned it
into that on which people ought to be able to live with prudent budgeting
(Woolf 1946; Walker and Church 1978).
Public policy then readily falls into the familiar role of ‘teaching the
poor how to budget and cook’ (Travers 1995). In practice, the dominance
111 of notions of objective ‘scientific minima’ needs to be challenged more
widely. They are often based on incorrect assumptions about the price of
food in relation to other essentials, and to its physical availability – that is,
problems of access are ignored. The food patterns implied in the budgetary
costings used by Rowntree and subsequent policy professionals also imply
food usage patterns that are unrealistic, and which would effectively exclude
those defined as poor from normal society (Dowler and Leather 2000: 202,
204). Food cannot be used as a device for marginalizing and blaming those
who are poor for their own circumstances.
Indeed, the challenges to policy and social justice are even more funda-
111 mental. Manfred Max-Neef, director of the Development Alternatives
Centre in Santiago, Chile (Max-Neef 1992) argues that food, shelter,
clothing and other items often used in drawing up poverty definitions and
poverty lines are not ‘basic’ needs but ‘satisfiers’ of more fundamental
human needs, of which he identifies nine: subsistence, protection, affection,
understanding, participation, creation, recreation, identity and freedom
(Max-Neef 1992).6 It is these needs that are universal, he suggests, but
how they are satisfied varies. Doing so involves four other core needs –
being, having, doing and interacting. Subsistence, for example, is satisfied
by being healthy, adaptable, having food, shelter and work, doing things such
111 as feeding, procreating and resting and interacting with the living environ-
ment and social setting. These fundamental needs form a dynamic system
in which no one need is more important than another or which neces-
111 sarily has to be met before another. They may be met simultaneously,
complement each other and be traded off against each other. Arguably if
the minimal need for subsistence is not met the other needs may be blocked
and a single intense drive to fulfil it is seen. But, in the main, these needs
are not a hierarchy.
How and with what we seek to fulfil these needs is also important. For
food, this means the social, economic and cultural aspects, as well as its
content (its nutritional value), affect whether it fulfils our needs. And these
fundamental needs can be met in ways which violate or destroy others.
Some satisfiers just address one need, such as food programmes meeting
the need for subsistence, while others have synergistic effects, satisfying one
need and stimulating satisfaction of others at the same time. Self-managed
production, for example, may satisfy the need for subsistence and stimu-
late satisfaction of needs for understanding, participation, creation, identity
and freedom. In a successful food system, food is a satisfier not simply of
the need for subsistence, but of some or all of these other needs. Indeed,
it should have synergistic effects on other needs, rather than inhibiting
or violating them. This is how measures to improve or control people’s
access to food and the system or web of interactions which describe its
production, distribution and consumption should be judged.
Such an approach recognizes that we human beings are multifaceted
creatures that cannot be reduced to a single variable – such as maximizing
economic well-being, or meeting minimal nutritional requirements. When
people talk about what food means to them, whether as individuals, house-
holds or citizens of a local community, national entity, regional grouping
or even one world, these wider dimensions rapidly become apparent. They
are not idealistic luxuries, they are fundamental, to people in all sorts of
conditions and circumstances – even the poorest in the poorest societies.
They draw in concerns about livelihood, health, freedom from environ-
mental destruction, enjoyment, and about participating in decisions and
actions that shape lives. In many ways this approach is then the antithesis
of the consumer culture, which defines people by what they can buy and
assumes all needs are fulfilled through what they consume.
Role of nutrition and food in inequalities in health

These wider dimensions to food beyond the mere meeting of basic sub-
sistence needs are paralled in health: more than the mere absence of disease,
it should encompass social, physical and mental well-being. An increas-
ingly vexed issue now being addressed by the policy community in the
North is that of inequalities in health (Dahlgren and Whitehead 1992;
Gepkens and Gunning-Schepers 1996; Leon and Walt 2001). The problems
have been researched, written about and championed by academic com-
munities and non-governmental organizations for some time – and in some
11 instances, those living in poverty have spoken for themselves – with varying
success in different national settings. The role of food and nutrition as a
component of, and contribution to, inequalities in health, has been acknow-
ledged in Europe, and to some extent in New Zealand, Australia and
the US.
In the UK, for instance, the current government included the role
of food and nutrition in policy documents addressing inequalities, both in
health and social exclusion. The public health policy document (United
Kingdom 1999a), the Acheson Inquiry into Inequalities in Health (1998) and
11 the NHS Plan (United Kingdom 2000c), all highlight problems of money
and food access as components of health inequalities. The Social Exclusion
Unit in the Cabinet Office work on Building Better Neighbourhoods (United
11 Kingdom 1998a) set up cross-cutting Policy Action Teams, including one
on improving food access (United Kingdom 1999b). However, in practice
few policy responses yet exist on a large scale beyond the encouragement
of local food initiatives, whether by communities themselves (such as food
cooperatives, food growing projects and community cafés) or through insti-
tutions (such as school breakfast clubs). Such projects have their place, but
their sustainability is challenged by their dependence on volunteer labour
111 and insecure, short-term funding (McGlone et al. 1999; Dowler et al. 2001).
Three aspects of recent research in particular are important in the
North–South poverty and food debate. The first is that good nutrition
has a critical role in health and well-being throughout the life cycle. The
link between good food and lower morbidity and premature mortality
has long been recognized in the reduced risk of infectious diseases, espe-
cially in childhood. Much work has now been done on avoidance of
non-communicable disease and ill-health, especially from coronary heart
disease, non-insulin dependent diabetes and cancers, whose incidence and
prevalence are rising throughout the world (Shetty and McPherson 1997;
111 ACC/SCN 1999). In particular, some of this linkage is probably trans-
mitted through the foetal experience: undernutrition experienced in the
womb can have long-term health outcomes. Babies who are thinner or
shorter at birth than would be expected, even though they are within
normal birth weight range, have been shown to be at greater risk of devel-
oping, respectively, non-insulin dependent diabetes or coronary heart
disease as adults, especially if they grow poorly in the first year of life and
subsequently become obese as adults (Barker 1997; Wadsworth 1999). Thus
social and biological factors in the adult’s life interact with this very early
nutritional experience to increase susceptibility to ill-health. Poor maternal
111 nutritional status probably plays a critical role in increasing the likelihood
of degenerative disease in subsequent adulthood. But all three: the foetal
environment, maternal conditions and adult risk factors, are strongly
111 socially determined. A mother’s health and nutrition during pregnancy
depend on her previous health and experience throughout her life, which
in turn are strongly influenced by her family and social circumstances. This
is true in North and South; until recently, most policy attention has
been paid to the immediate aftermath of pregnancy and birth: the neonatal
and early life experience. Rather less has been directed to these longer-
term consequences of maternal food access, nutrition and well-being
(ACC/SCN 1999).
The second feature of recent research is that obesity is also important,
and that it is those who are poorest who are most likely to become obese.
Heart disease, cancer and obesity are no longer ‘diseases of affluence’ –
if indeed they ever were – in the North, and will probably not remain such
in the South. Obesity is now inversely related to socio-economic status in
the North; this has long been recognized for women and is increasingly
observed for men and, in the last few years, for children (Sorbal and
Stunkard 1989; ACC/SCN 1999; Kinra et al. 2000). Indeed, those who
are overweight or obese are more at risk of poor health (from coronary
heart disease, some cancers, high blood pressure, non-insulin dependent
diabetes, gallstones and arthritis). It is difficult to disentangle the factors
which contribute, but there is some evidence that children who grow poorly
in their early life and then eat a calorie-dense diet, are more likely to
become overweight or obese, particularly if they do little physical activity.
There are many reasons why children and adults lead more sedentary lives
in the North, and why children are likely to eat calorie-dense diets when
young. Food advertising and promotion through film and product links for
children’s foods is a very profitable business; most is for high-fat, high-salt
and/or sugar-rich commodities (Tansey and Worsley 1995). Increasingly,
urban dwellers in the North use motorized transport, often private cars,
unless governments specifically legislate or otherwise promote walking,
cycling and public transport. Poorer children and adults are the least likely
to take part in sport or other exercise outside school and, if not engaged
in manual labour, are least likely to carry out much physical activity as
part of everyday life (Dowler 2001).
Finally, recent research suggests that foods rather than individual nutrients
seem increasingly to be important, particularly in the avoidance of cancers
(WHO 2001). For instance, sufficient consumption of fruits and vegetables
seems to be what is crucial rather than intakes of individual component
nutrients. This finding has implications for policy response, which has
tended towards fortification or supplementation with ‘missing’ nutrients, or
those thought to be too low, rather than focusing on the rather more diffi-
cult policy challenge of improving availability of, and access to, necessary
produce. In the North, as in the South, it is largely poorer people who are
more likely to suffer ill-health and early death from diet-related diseases;
they have little power within the food system.
11 Responses to food and poverty: challenges of
globalization
We have shown the increasing association between food and poverty in
the North; the links between them in the South are better known and
documented. We have also highlighted the importance of understanding
how food and nutrition have been – and are still being used – within
poverty and exclusion debates, in South and North. Some of the conse-
quences of ignoring the food component of poverty and inequalities have
been described briefly, in terms of contributing to inequalities in health
11 (morbidity and mortality): inequalities which cost countries because of
health care needs and loss of productive members; and inequalities
which cost individuals and their families in terms of suffering and death.
11 But the reasons for intervening in food poverty are wider than health gain
or improved productivity. As we said above, food security is about rights
as well as responsibilities: while world leaders at the World Food Summit
– Five Years Later yet again commit UN member states to recognizing
these fundamental rights and securing the means for all to achieve them,
many non-governmental organizations are talking of food sovereignty.
This encompasses food rights, resource justice involving access rights and
111 ecological production and ecosystem protection (ETC 2002).
Food and poverty have to be tackled in ways which address the broader
aspects of food described above: livelihoods, health, freedom from environ-
mental destruction, enjoyment and participation. It cannot simply be seen
as a material problem to be treated simply by providing people with food,
nor as an individual’s problem to be solved by local food projects alone.
We require an understanding of the dynamics of the food system and the
way it operates in the contemporary industrialized world. But our under-
standing must recognize three fundamental points:
111 • At its heart the food system is a biological system. We depend upon
the living processes that produce food and their ecological sustain-
ability. We must still rely on a well-functioning biosphere for its success.
Human activity, however, is having an increasing impact on the bio-
sphere. In essence, two major views underpin approaches to this.
One seems to believe, but does not explicitly say, that in extremis we
do not need to worry about the biosphere since we humans can invent
our way out of any environmental problem or change we might cause
– in the end we are transcending the biosphere. The other seems to
envisage some idyllic, mythical untouched environment before human
111 hands reshaped it and oppose any interventions in ‘nature’. We should
beware of both.
• Today’s food system has a history – it is not an inevitable, natural way
111 for it to be, but is as it is today due to the interplay of different political
and economic forces. It is one in which globalization – of basic food
crops – has taken place over thousands of years, but especially since
the European conquests, and is now continuing in new forms. A histor-
ical understanding of why the system is like it is, is a necessary base
for looking at future developments.
• Food plays a major role in satisfying our human needs and wants,
physiological and psychological, social and cultural. As discussed
above, these needs are complex, many-sided and interact, they are not
simply for nutrients. And, critically, people have to be actively involved
in meeting them – satisfaction cannot be passively delivered or
consumed.
It is the food system of the North that is being globalized: in essence,

there is a struggle going on between various actors (farmers, input suppliers,
traders, manufacturers, processors and distributors/retailers) for control over
the future supplies of food, for who will have what power over the system,
for which of the different actors will get what and how many benefits
out of it, and for who will carry the risks arising from different activities.
In thinking about how to tackle food poverty we need to recall the global-
izing context of this struggle.
There is also a growing economic concentration of power within any sector
of the food system today. Moreover, the various actors seek, by whatever
measures they can, the means to control the operations in which they are
engaged to minimize or offset their risks, and maximize or optimize the
benefits they can obtain. It is upon this background – of environment,
biology, sociology and history – that the key actors in the system operate.
This mix also gives a great dynamism to the system, with each of the funda-
mental background points above feeding into that dynamism. Different
groups or actors within the food system have different interests, whether
input suppliers, traders, manufacturers/processors, distributors, caterers or
consumers (Tansey and Worsley 1995). Of course, few of these groups are
homogeneous: there are differences of interests within any group (e.g.
between small and large farmers), but these are discussed elsewhere.
There is one further, critical element in the food system as it applies to
the industrialized world: limited demand. Despite the existence of food
poverty, farming faces a central problem of overproduction, and food
processors and retailers face overfed customers who spend a declining
amount of their disposable income on food. For, while people can have
two cars, or three or four TVs, they do not increase their food consump-
tion two-, three- or fourfold and survive. This limited demand – healthy
diets are possible from a relatively limited range and amount of basic
ingredients – means that the main actors in the food system face a number
of pressures:
11 • increased competition for the money spent on food;
• to increase use of technology to generate greater returns to investment;
• to seek increased productivity from labour and capital employed; and
• to diversify their activities.
It also leads the main actors to look beyond their own ‘saturated’ markets
and expand into global markets. And herein lies the rub: they have little
interest in those who are outside the ‘market’, i.e. beyond effective demand.
11
Tools for control in a globalized food market
The various actors use whatever tools they can to control their operations
11 and cope with the pressures described above. Here we briefly look at four:
information; management; laws, rules and regulation; and science, tech-
nology and biotechnology. All are examined in more detail elsewhere
(Tansey and Worsley 1995; Tansey 1999, 2002).
Information
111 Information technology has transformed the critical ability to monitor, use
and control information, particularly in the private sector. It provides a
degree of complexity, immediacy and control undreamt-of only a few
decades ago. Today, retailers depend heavily on turning the raw data from
sales scanning at laser tills into automated stock control procedures, and
grain traders depend on information about growing conditions and price
levels around the world. This information is often very specialized. It is
privately produced, normally kept confidential, and must be expertly
processed to turn it into useful knowledge. Larger actors can purchase and
control what they need; consumers and farmers tend to rely on publicly
111 available information. The capacity of the main actors in the food system
to gather, interpret and use information is huge: people’s needs, wants,
hopes and fears are studied, so sales messages can be designed to address
each but, most crucially of all, sell the product. The spread of global media,
broadcasting similar images across the world, also helps fuel product glob-
alization and reinforce brand images. Consumers in all countries can be
enticed to buy high-cost foods and drinks, which are sold in such as way
that they seem to meet some of the needs food entails – enjoyment, parti-
cipation and sustenance – while perhaps damaging others – health,
livelihoods, environmental cohesion etc. Those who are poor within any
111 given country will be subject to the same advertising and persuasive tech-
niques as the rich – and may have less capacity to resist. For instance, in
the UK, low-income mothers often purchase branded foods and drinks for
111 their children, particularly those that will be consumed in the public domain
of school or among friends, to avoid their children being victimized or
bullied for not having the ‘right’ fizzy drink or snack item (Dobson et al.
1994; Middleton et al. 1994).
Management
The technologies and understanding of people’s behaviour developed in
the past 100 years have affected the way production is organized and
processed and people are managed. Work organization has shifted from
craft-based, small-scale production through a large-scale, mass-production
phase, which is still dominant, to a newer lean-, but still mass-, production
phase, which is likely to dominate in the future. This latter uses just-in-
time manufacturing and stocking techniques, similar practices to those
pioneered in the car industry. The UK multiple retailers, for example,
spent hundreds of millions of pounds in the 1980s to develop the logistical
system to supply most effectively their growing number of sites – which
generally led them to establish a few depots to which suppliers had to
deliver. This has serious, usually negative, implications for small farmers
and small manufacturers, in North and South, who struggle to survive the
dominance of the large retailers’ demands.
Laws, rules and regulations

In each society, the challenge is for people as citizens working through
political processes, to structure the framework within which the actors in
the food system work. This we do through laws, rules and regulations,
which govern the actors, affect how they use the tools available and limit
or permit different activities. In a global market, pressures grow for global
rules, set through some form of international bargaining over the rules.
Some of the current laws, which developed during the Industrial Revolution
to promote investment and innovation, are not necessarily ideal for dealing
with the complexities of the food system as it is today (Tansey 2002).
Science, technology and biotechnology

Historically, technological developments do not necessarily depend on a
correct scientific understanding of why something works. Trial-and-error
invention produced many new technologies before the science behind
them was understood, especially in agriculture. It is still the basis of much
innovation. Those who introduce innovations first stand to gain the most
benefit. However, advances in scientific understanding may underpin devel-
opment of new technologies, as for example in modern biotechnology.
Different actors in the food system finance a wide range of research and
11 use increasingly sophisticated technologies. In recent decades, most re-
search and development has focused on capital-intensive, high-input types
of farming. Whereas, historically, most agricultural research and develop-
ment has been done to produce results that are then freely extended to
farmers – who because of their small size and limited resources cannot
invest in R&D – more recently, the patterns have shifted. For instance,
high-yielding open-pollinated maize could be bred, rather than only hybrid
maize, but developing the former would not be in the interests of private
companies which need repeat sales of hybrid seed each year. In fact, there
11 has been a switch in funding away from the farm level to other areas of
the food system.
The really rapid expansion of private sector interest in agricultural
11 research has been driven by the newest powerful tools of biotechnology.
These offer hopes of major breakthroughs in the ability to control the char-
acteristics of the products produced by farmers and target them to specific
markets. This has drawn new players into the business of seed production,
largely from the chemical and pharmaceutical industries. They have a long
history of using patents as business tools and require some form of control
over their rights to the research tools they have developed and to prevent
111 reuse of their products (such as seeds) without their permission or further
payment. They were important in pushing for changes in the rules to
allow for patenting of living organisms (Drahos 1995). Re-engineering
crops also offers the prospects of linking their structure and properties
more closely to the interests of food processors as well as to proprietary
chemicals that might be used to trigger specific traits or be used without
damaging the crops.
This new technology holds the potential to shift the balance of power
in the food system, provided a suitable set of rules and regulations exist to
permit the actors to secure benefits from it. Pressures grew in the 1980s
111 to revise the international regulatory framework governing biological
resources, partly due to the technological developments now possible and
partly due to the environmental consequences of existing forms of devel-
opment. Three agreements are central to the revision of this regulatory
framework:
• the Agreement on the Trade-Related Aspects of Intellectual Property

Rights (TRIPS) in the World Trade Organisation;
• the Convention on Biological Diversity (CBD); and
• the International Treaty on Plant Genetic Resources for Food and
111 Agriculture (ITPGR), agreed in November 2001.
The CBD is a framework agreement that leaves parties free to imple-

111 ment it through their own legislation. The ITPGR has brought a previous
understanding into harmony with the CBD, to regulate access and benefit-
sharing specifically for plant genetic resources for food and agriculture.
It also covers the ex situ collections of germplasm held in the gene banks
of the international agricultural research centres belonging to the
Consultative Group on International Agricultural Research (CGIAR). The
TRIPS Agreement has globalized minimum Intellectual Property Rights
requirements in this area (Tansey 1999).
By looking at the food system this way, and the complexity that is food
security, we can begin to draw out some of the key questions which
underpin the specifics of food poverty. These go beyond standard welfare
responses and begin to address the mechanisms needed which empower
people, to ensure that they can satisfy their need for food in a way that
positively supports and reinforces the range of needs into which food fits.
To do so we need to understand who benefits, in what way, from changes
in the global and globalizing food system, about who carries the risks, who
is empowered, and who is marginalized. Only by asking such questions
can we seek, as societies, to set our priorities accordingly.
The challenge for policy makers and academics alike is that few are
actively posing these questions, and even fewer trying to answer them. In
the meantime, the proliferation of food banks and charitable food dona-
tions in the North echo the transfers of food aid through surplus donations
to the South – meeting immediate caloric and nutrient needs but little else.
The encouragement to community action and volunteer-based initiatives
is not a solution to problems which are fundamentally structural at global
and national levels. Food is an expression of who a person is, what they
are worth and a measure of their ability to provide for their family’s basic
needs. Food is also a focus for social exchange and a major contributor to
health and well-being. It is a powerful marker for exclusion and inclusion.
Poor people do not normally have power – market or political. They are
not involved in making the rules and indeed may be systematically disem-
powered. But when global rules are set by narrow interests people in general
may be disempowered. We need systems that empower all people’s needs
for creativity, understanding, protection, subsistence and more and the food
system is a good marker for how far that is happening.
Notes
1 For example, the National Food Alliance (merged to become Sustain in 1999)
has had a food and low-income working party since 1988, producing reports
and campaigning; the Food Poverty Network was set up in 1995, with a data-
base of projects, quarterly newsletter and other activities including participatory
appraisal initiatives; the Scottish Community Diet Project was set up in 1996
to promote dietary initiatives in low-income communities within a strategic
framework, addressing practical obstacles and campaigning; Oxfam UK now
11 has a remit to challenge poverty in Britain, and includes activities and
campaigning around food poverty.
2 Income support, job seekers’ allowance: these are the principal, basic, means-
tested benefits available to those who have no other means of living.
3 These figures are produced by Eurostat, using Purchasing Power Parities (PPP)
to convert national currencies into monetary units with the same purchasing
power so that inter-country comparisons can be made. The poverty threshold
used was 50 per cent of average equivalized net monthly income.
4 ‘My Lords, we do not believe there is any reason why people on income
support should not be able to follow a normal, healthy diet. [. . .] people tend
11 to eat different diets whatever their income. Some quite well-off people eat
inadequate diets. Plenty of food is available at reasonable cost and people can
thus maintain a reasonable and sensible diet.’ (Minister of State, Department
of Social Security (Lord Mackay of Ardbrecknich), during debate on reduc-
11 tions in lone-parent benefit, House of Lords, 14 March 1996); cited in Dowler
and Leather (2000: 215).
5 ‘My primary poverty line represented the minimum sum on which physical
efficiency could be maintained. It was a standard of bare subsistence rather than
living [italics in original]. The dietary I selected was more economical and less
attractive than was given to paupers in work houses. I purposely selected such
a dietary so that no one could possibly accuse me of placing my subsistence
level too high.’ (Rowntree 1941: 102; quoted in Veit-Wilson 1986.)
111
6 The next section draws on both Tansey and Worsley (1995) and a paper
prepared by G. Tansey for the South Centre/Insituto Agronomico Oltrmare
expert workshop on ‘TRIPS, CBD and International Undertaking: Mutual
Supportiveness and Food Security’, Geneva, 22 June 2000.
111
111
111
11
Part IV
Anti-poverty instruments
in North and South
11
11
111
111
111
111
11 11 Microfinance, poverty and
social exclusion in North
and South
Paul Mosley and Lucy Steel*
11
11
Introduction
Over the last twenty years, governments in both North and South have
been under major pressure, for rather different reasons, to reduce the cost
of social protection. In the industrialised world, the high unemployment
levels of the late 1970s and 1980s conspired with the more long-term prob-
lems of an ageing population to produce a huge secular increase in the
cost of an already hard-to-control social security budget. In developing and
111 transitional countries, many of them lacking comprehensive state pension
and social security schemes, there was nonetheless serious downward
pressure on various expenditures for the social protection of poor people
– for example, subsidies on food, primary health and primary education
– during the long recession of the 1980s and, in eastern Europe, early
1990s. In both environments, therefore, conjunctural poverty expanded;1
the pressure to control the budget deficit, underlined in the developing
countries by the IMF and other international financial institutions, became
more intense; and the question arose whether there might be any way of
combating that poverty which would avoid the fiscal costs associated with
111 previous anti-poverty measures.
This task of making social protection, in some way, pay for itself has been
attempted through various expedients. In industrialised countries, tax cred-
its and childcare allowances reserved for people in work, ‘active’ (training-
linked) labour market policies such as the UK New Deal, and increased
targeting of urban regeneration policies (see Chapters 12 and 13 of this
book), all tilted the balance of advantage between work and non-work in
* Respectively Professor of Economics, University of Sheffield; Research Associate, Univer-

sity of Glasgow. This chapter draws on the paper delivered by the first author at the DSA/
111 PERC conference on 9 April 2001; on the first author’s inaugural lecture, delivered at
Sheffield on 4 May 2001, and on field surveys carried out in Glasgow, Sheffield and Belfast
between February and May 2002. The latter surveys were sponsored by the Nuffield
Foundation under grant SGS00669, and we are grateful to the Foundation for making this
111 research possible.
212 Paul Mosley and Lucy Steel
favour of working, and thereby (with particular success in the US and UK)
kept the rate of unemployment, and the associated cost of social protection,
down. In developing countries, where the ‘social safety net’ of income
support for people unable to work is a great deal weaker,2 donors have
sponsored social funds for labour-intensive construction, supported various
measures of asset redistribution, and invested heavily in primary health
and education. But microfinance, as a poverty reduction strategy, belongs
apart from all these, because it pays for itself almost immediately, through loan
repayments.
Microfinance (small loans aimed at low-income people without collat-
eral) has developed along three main tracks: solidarity groups (in which small
groups of borrowers, say five to eight people, meet at a defined place each
week to pay loan instalments and transact other related business such as
savings and training); cooperative groups (in which existing savings and credit
associations or other larger groupings, often with 30–100 members, allo-
cate a loan fund between themselves, usually without the obligation of
regular meetings); and individual lending. Although cooperative group
finance, in particular, is of some antiquity in Europe and North America
(Hollis and Sweetman 1998), the recent rapid expansion and development
of microfinance for investment by low-income people in small businesses is
still mainly a Third World phenomenon. As shown by Table 11.1, there
is no industrialised-country counterpart to the giant microfinance institu-
tions of the developing world, such as the BRI unit desas of Indonesia
(with three million borrowers and nearly 30 million savers), the Grameen
Bank or BRAC of Bangladesh (with over two million borrowers each)
or even BancoSol of Bolivia, until recently the country’s most profitable
bank (with 80,000 borrowers). These operate along a range of models –
BRI uses individual lending, Grameen and BRAC use solidarity groups,
and BancoSol uses a mixture of cooperative groups and individual lending.
Many controversies still persist about the right way to do microfinance,
but there is some consensus (Hulme and Mosley 1996) around a technology
consisting of market rather than subsidised interest rates, incentives to
repay, provision of savings and/or insurance facilities and, possibly most
important, frequent loan collection in a manner that minimises the client’s
transaction costs – often, but not always, linked with training. As micro-
finance has spread back into the North, the first three of these design
features have, in general, been adapted into the institutional design, with
the training component being, as we shall see, extremely important.
But the fourth and most crucial part of the story in the South, weekly
on-site loan repayment, is missing; rather clients are required to initiate
bank accounts at the moment of taking their small business loan and make
their repayments in the conventional way by electronic transfer. Other
differences between the pattern of provision in North and South are
11
11
11
111
111
111
111
Table 11.1 Two estimates of the structure of world microfinance, 2001
Number of clients (millions) Average loan size ($) % borrowers, Return on assets % with
female (net operating portfolio at
income/average risk
total assets)
Source MBB** CSFI † MBB CSFI MBB MBB MBB

All MFIs 4.3 16.2 466 (350) 62.2 –3.7 2.1
Developing and transitional world

Eastern European 1154 49.8 –5.5 1.1
Latin American 0.4 (1.5) 593 (510) 63.2 5.3 3.1
‘Large Asian’* 3.3 3.5 223 (350) 64.8 –12
‘Small Asian’ 0.3 (7.5) 159 (90) 83.6 –0.2 11.5
(Sub-Saharan) African 0.1 1.2 115 (130) 78.6 –7.5 1.9
Other 0.6 2.0
Industrialised world
UK (source 3) 0.2 (4500) (35.0) (15.0)
Sources: (1) CSFI: Centre for the Study of Financial Innovation, unpublished handout, 1998. (2) MBB: Microbanking Bulletin (Boulder, Colorado), issue no.
2, July 1998, and no. 7, November 2001: tables 2A, 3A, 6A/B. (3) UK: estimate of number of microfinance customers from Department of Trade and
Industry, Small Business Service Investment Directorate.
†
Notes: * BRI, BRAC and Grameen Bank. ** Sample of 56 member institutions (1998 data) (source 2). ‘Very rough estimates’ for an estimated 7,000
institutions (source 1).
apparent from Table 11.1: the emergent microfinance institutions of the
North provide, on average, larger loans than in the South to a clientele
with a larger proportion of male borrowers. In addition, northern (including,
for this purpose, eastern European) microfinance clients, with important
exceptions, borrow much more on an individual than a group basis. They
are also, in general, better educated: low in financial and, possibly, social
capital but often quite rich in human capital, a factor which will be
important when we come to consider the social function of these
institutions.
A particular merit of microfinance, in any country, is its ability to
perform a political balancing act: it appeals to the political right by virtue
of being financially sustainable and capable of nurturing an independent
small-business sector, and to the political left by virtue of its potential ability
to support and empower a range of underprivileged groups: the poor,
families afflicted by AIDS and other chronic illnesses, the adolescent un-
employed, ethnic minorities and perhaps most of all low-income women.3
As a consequence, the expectations generated by microfinance as a tool
for the reduction of poverty and social exclusion in both North and South
have been considerable. In relation to developing countries, microfinance
constitutes a major plank of the strategy by which OECD donors expect
to halve extreme poverty, as the keystone of the Millennium Development
Goals (formerly International Development Targets), by the year 2015
(World Bank 2000a: figure 1.1). Indeed the Microcredit Summit, a lobbying
organisation patronised by a range of donors and developing-country
statesmen, has pledged itself to halve poverty quicker than that purely by
means of this one instrument: it committed itself in 1997 – and in every
year since that date – to ‘take 75 million families’ (i.e. about 500 million
people, or about half of the world’s poor) ‘across the poverty line by
2005’. This promise may well, as we have argued elsewhere, suffer from
serious hype (Mosley and Hulme 1998), but it vividly illustrates the kind
of commitments that have been made. In industrialised countries, also,
quantitative targeting is in fashion, witness Gordon Brown’s promise to
halve child poverty through the life of the UK Labour Government’s
first two electoral terms (Piachaud 2001). How much of this is expected to
be achieved by microfinance is not specified, but in Britain at least it
certainly constitutes an important component of anti-poverty strategy: the
Social Exclusion Unit’s policy action team working on enterprise (United
Kingdom 1999c), building on remarks by the Prime Minister about the
‘need to look at how small amounts of credit and capital can be made
available for promoting business ideas in Britain’s poorest areas’ reported
that ‘market failures in finance are a major cause of persistence of poverty’
(p. l). It also specifically recommends (p. 13) that the government consider
building on existing reforms of the tax and benefits system to provide an
Microfinance, poverty and social exclusion 215
11 ‘income bridge’ for welfare recipients who decide to enter self-employment.
‘Improving access to financial services for low income groups’ is offered as
Key Idea 21 of the subsequent National Strategy for Neighbourhood
Renewal (United Kingdom 2000b).
In this chapter we assess, in a preliminary way, the extent to which it
is reasonable to entertain such hopes, in relation to both parts of the world
but with a bias towards the North where the modern application of micro-
finance, and the impact data themselves, are much newer. The approach
will consist of splicing a new, but small and experimental, data-set on micro-
11 finance institutions in three British cities on to established impact data
for developing countries. The range of criteria in relation to which impact
is measured include, in particular, the risk and uncertainty attached to
11 components of people’s livelihoods as well as wealth and income them-
selves. This reflects the insight of the recent World Development Report
(World Bank 2000a) that uncertainty is a dimension of well-being itself,4
and that the manner in which financial services are supplied to poor clients
will influence the level of uncertainty to which those clients are subjected.
Specifically in relation to industrialised countries, Barr (2001: 1) has argued
that up to two-thirds of welfare state expenditures are caused, not by the
111 need to bring poor people up above the poverty line, but rather by
the costs of insuring the vulnerable non-poor against the risk of falling
below that line. As microfinance offers the promise of taking over, both in
the North and in the South, these functions of social insurance, so a key
criterion of assessment becomes its ability to supply such insurance. We
shall argue that, both North and South of the equator, there are serious
gaps here, which constitute an important priority for future research and
institution-building activities.
Comparative evaluation
111
Criteria and methods of assessment
Whoever seeks to assess the impact of microfinance in any country walks
into a minefield, for three reasons. First, the range of economic and social
targets which microfinance has been expected to hit is large and broad-
ening, as earlier discussed. Second, in relation to each target, there is
a distinction to be made between the impact of financial support on the
individual borrower, or rather microfinance customer,5 and the wider impact
on other individuals in the community (local), regional and national econ-
111 omy; for example in terms of income, income stability, health and inter-
group relations. Third, and finally, the definition of some of the targets is
disputed, notoriously so in the case of what for many is the overriding goal
111 of poverty. Although the complexities involved in the measurement of
poverty (subjective versus objective measures, formal versus informal
methods of calculation, national versus international poverty lines, and so
on)6 are now increasingly well understood, they still can cause friction and
anger, as the first author knows from personal experience, having discov-
ered (Mosley and Rock 2002) that an African microfinance organisation
billing itself as ‘for the poorest’ actually had only a minority of borrowers
below the poverty line. The organisation was outraged; but all that was
exposed was the difference between absolute and relative poverty measures.
Relatively, there was no doubt that the organisation sought out the relatively
poorest within the community; absolutely, most of these people did not fall
below the (national and international) absolute poverty line.
Our approach to these landmines, in Table 11.2, is to set out micro-
finance impact measures in respect of a few indicators of both narrower
and wider impact, including poverty measured at, in general, national
poverty lines. The approach generally used, where the indicator is a number
such as income or employment, is to compare the change in well-being
within a group of clients with the corresponding change in a control group
of non-clients having otherwise similar characteristics, so that the differ-
ence between the two can be seen as the net impact of finance. This
approach has been carried through all the studies in Table 11.2, for all of
which we take responsibility. The big difference between the second column
of the table (the developing-country studies) and the third column (the UK
studies) is that the latter are based on a small sample of only 45 clients in
three cities – Sheffield, Glasgow and Belfast – and are to that extent less
reliable. It is to be stressed that in developing countries, by contrast with
the UK, many investigators have carried out impact studies, not all of them
conformable with our own. Some remarks about robustness are made in
the final columns of the table.
We would attempt to summarise Table 11.2 as follows. In both North
and South, a majority of microfinance schemes have been able to raise
assets, employment and incomes in relation to the performance of a control
group; especially in the case of loan-based schemes, however, the benefi-
ciaries have very seldom been among the very poorest. There are good
reasons for this, since any entrepreneur needs a buffer against the innate
riskiness of enterprise – a blend of physical, human and social assets – and
this by hypothesis the very poorest do not have. The implication is that
some financial services need to be supplied, especially in developing coun-
tries, in risk-minimising, non-loan form, and that for the very poor who
nonetheless wish to embark on self-employment, a gradual progression
from very small-scale ‘protectional’ lending to larger-scale ‘promotional’
lending needs to be engineered, with appropriate injections of human and
social capital along the way. We examine how this can be done on pages
222– 4 below.
11 Indirect impacts: labour markets, social capital and the
wider community
Consideration of some of the ‘wider impacts’ of microfinance extends this
picture. Even if the direct impact on the extremely poor may be small,
nonetheless there may be impacts through channels other than the direct
impact on the borrower. One of the most important of these, given that
the poorest have few things to sell other than their labour, may be that
microfinance enables entrepreneurs to hire people who are extremely poor,
even if few of the entrepreneurs themselves are. This appears to occur
11 (Figure 11.1), and to occur in a very similar form within our southern and
northern samples. In both the three African countries surveyed by Mosley
and Rock (2002) and the three UK cities surveyed by Mosley and Steel
11 (2002) the demand function for ‘previously poor’ labour is kinked: there is
no hiring at all of such labour by low-income borrowers, up to a threshold
around twice the poverty line, and thereafter there is hiring of such labour
broadly proportionate to income. The existence of this kink poses an inter-
esting dilemma for practitioners. Assuming that they wish to alleviate
poverty but are indifferent as to the manner by which it should be reduced
(i.e. through self-employment, through employment or by other means)
111 should the microfinance ventures which they support target the poorest
directly as borrowers (which as we have seen poses problems) or should they
rather, in order to maximise poverty reduction, target those who will
hire most poor people, i.e. those to the right of the kink in Figure 11.1?
The answer turns out to be somewhat complicated, as it depends on the
definition of poverty and on the lending strategy which is used; but certainly
with the African samples considered, headcount poverty reduces more if
the indirect strategy of lending to small and medium, rather than sub-
sistence, enterprises is used (Mosley and Rock 2002: appendix 5).
A second crucial indirect effect of microfinance operates through social
111 capital. The interconnections between poverty and social capital – social
networks from which an improvement in well-being can be expected – are
extensively explored in Chapters 5 and 6 of the current volume. In Chapter
6, Paul Whiteley argues on the basis of global cross-section analysis that
social capital is at least as significant a factor in economic growth as phys-
ical capital, and the idea that poverty and exclusion arise from the
breakdown of community relationships, and hence that community devel-
opment at local level is central to poverty reduction strategy, is key both
to the World Bank’s second (2000/01) World Development Report on poverty
(World Bank 2000a) and to elements of the social policy of the post-1997
111 Labour government in Britain, in particular its National Neighbourhood Strategy
(United Kingdom 2000b).
How can microfinance build social capital? In principle it does so
111 through ‘solidarity groups’, which as we have seen are one of the main
Table 11.2 Initial assessment of impact: UK and LDC institutions
Criterion Sample of LDC institutions Sample of UK institutions Remarks on robustness

Internal efficiency
1 Profitability
2 Arrears rate 2.1% with portfolio at risk (sample Average 15% arrears rate (sample Note relatively large sample base
of 56 institutions reported in of institutions reported in Survey
Microbanking Bulletin, November 2001) of Community Development Finance 2001)
Client impact
3 Financial 65% no previous source of credit 94% ‘financially excluded’ in the UK data based on small sample
exclusion (Hulme and Mosley 1996: table 3.7) sense of being unable to access (45 interviews in 3 institutions)
small business loan from a
commercial bank
4 Employment Access to financial services Average labour hired (2000–2) 4.4,
increases amount of labour hired by comparison with 2.3 in control
by an average of 0.5 persons group
per enterprise per annum (Hulme
and Mosley 1996: table 4.8)
5 Poverty In general, only a small proportion Finding that very few of the
(among of borrowers are absolutely poor; ultra-poor benefit from lending is
clients) but a higher proportion of echoed by Sebstad and Cohen (2000)
savers. Loan impact in general rises
with borrower’s income
‘Wider impact’
6 Employee Many poor employees taken across Percentage of employees taken on
well-being poverty line by micro-credit under (4) above were previously
(Mosley and Rock 2002) unemployed
11
11
11
111
111
111
111
Table 11.2 (continued)
Criterion Sample of LDC institutions Sample of UK institutions Remarks on robustness
7 Social capital/ In group schemes In individual schemes

community Substantial positive within-group Some positive impacts on trust,
building effects of lending on trust and arising especially from group training
confidence, with important gender and mentoring
implications (della Giusta 2000;
Kabeer 2001); but some negative
impacts also in group membership
8 Crime rates No data 3 members of sample had previous
criminal records. No direct data on
impact; but a positive crime impact
can be inferred from the positive
impact on unemployment (Reilly and
Witt 1992)
9 Macro- Microfinance sector a substantial Minor, almost certainly insignificant
economic component of economy in some to date
impact LDCs (c. 20% in Bangladesh,
c. 30% in Bolivia). Microfinance
institutions provided a buffer against
the 1998 global crisis in Indonesia
(Patten and Rosengard 2001)
Sources: In general, LDC data are from Hulme and Mosley (1996), tables or, in the case of African institutions, Mosley and Rock (2002); the former is
a questionnaire-based survey, the latter is a questionnaire-based survey with qualitative follow-up interviews. UK data are from Mosley and Steel (2002),
which is an interview-based survey.
Hiring of low- Hiring of low-
income labour income labour
Poverty Poverty
threshold threshold
Estimated Estimated
demand function demand function
for previously for previously
poor labour: unemployed
LD = 0.018(Y–55) labour:
where Y = LD = 0.014(T–50)
household where T = turnover
income in $ in £ thousand
Borrower Borrower
income income/turnover
Three African samples Three UK samples
Figure 11.1 Demand functions for low-income labour: three African countries and three UK cities.
Sources: African samples, Mosley and Rock (2002), pooled data from Zimbabwe, Uganda and Kenya; UK samples, Mosley and Steel (2002), pooled data
from Belfast, Glasgow and Sheffield.
11 devices by which a substitute for collateral has been provided: the expec-
tation is that such groups can impart not only peer pressure to repay but
also peer support, in the form of mutual encouragement, mutual trans-
mission of business ideas and even emergency intragroup financial transfers
in times of need, after the manner of traditional rotating savings and credit
associations. There is no doubt of the importance of such groups in not
only diffusing business ideas but simply in sustaining morale – an effect
which may be of particular importance in the case of women’s groups. In
the groups run in Lanarkshire by Scottish Enterprise (formerly Wellpark
11 Enterprise Centre), two clients described this function to us as follows:
If it were not for the financial and general support of the group and
11 the then Wellpark we would not have been able to develop our busi-
ness to fill a niche that presented itself. To have such a group such as
ours which gelled so well was a help, as it is comforting to know that
there are others to just turn to for encouragement and guidance.
(memorandum, clients G21 and G22;
quoted in Mosley and Steel (2002: 17))
111 There is no doubt that, both in the North and in the South, borrower
groups fulfil this multiple function of vehicle for technical support, trans-
mission of ideas and for solidarity which enabled clients who would
otherwise have given up to keep going. Formerly the first of these is human
capital, the third is social capital and the second is somewhere in between:
the development of social and human capital are complementary and even in
some places mutually dependent. And the social capital component, we
would argue, is in large part risk-mitigation, the replacement of interper-
sonal suspicion by trust (O’Neill 2002) which is of particular importance
within a gendered context. As Diane Elson has argued, ‘in general, risk-
111 reducing mechanisms (such as trade unions, job security rights, social
insurance benefit, business and professional associations) have been much
more a feature of male forms of market participation’ (1999: 616). It is to
be stressed, however, that group dynamics, in any cultural environment,
are not always benign, and that in some circumstances they may bring
about mutual mistrust and the decapitalisation of particular group
members, as described in Case Study 3 on pages 226–7, from Bolivia.
In addition, some of the most powerful social capital-creating effects of
microfinance have occurred in the context not of group finance, but rather
of individual lending – the more characteristic format in eastern Europe
111 and the industrialised world. The relevant mechanisms include:
• bringing microfinance clients together purely for purposes of training

111 to exchange ideas;
• encouraging clients to buy from one another, and in the process provide
each other with feedback on product quality and marketing strategies;
and
• putting clients in touch with the social environment of a new market.
Case Study 4 on page 228 provides a particularly poignant example
of this effect, in which a new market was created essentially through
social linkage but the enterprise eventually failed for completely extra-
neous reasons.
Both by reducing unemployment and by developing social capital,

microfinance may act, especially in urban environments, as an anti-crime
instrument. Whether it is an effective instrument is yet to be tested,9 but
it is certainly the case that some individuals with criminal records have
created sustainable businesses with the help of microfinance loans, and
Case Study 2 on page 226 describes such a case.
Finally from Table 11.2, it remains to be stressed that microfinance has
grown to the point of having, in some countries, macro-economic import-
ance. In Indonesia in 1999, the worst of the individual East Asian crises
was held in check and then reversed by the continuing growth of the
microenterprise sector, propelled in turn by finance organisations, espe-
cially the BM unit desa system which had managed to retain financial
discipline through the worst of the East Asian crisis (Patten and Rosengard
2001). In Bolivia, by contrast, the continuation of what is essentially the
same global crisis in the East Asian region has pulled the microfinance
sector downward, taking much of the small-business sector with it. The
exact cause of these differing responses is not clear and requires further
research; what is clear is that the wider impacts, in particular, have grown
to the point where the kind of individual-versus-control comparisons that
are used in Table 11.2 no longer give a picture of the sector’s contribu-
tion, for better and for worse.
Microfinance as instrument of risk management

As argued earlier, the response of the individual client to a financial stim-
ulus, and even on some accounts the definition of poverty itself, is
conditioned by risk. As a household’s entitlements decline, the negative
consequences of the risks it faces become progressively more grave, and
its ability to cope with risk – its so-called risk efficacy8 – declines. A major
role for microfinance, as for other anti-poverty instruments, is therefore to
augment risk efficacy, and we now examine the extent to which this is
being achieved in northern and southern environments.
In Figure 11.2, we present a possible client’s-eye view of the low-income
household’s livelihood, and of the possible role of microfinance within it.
11 The variables on the graph are expected household income and risk: they
exist in a positive relationship, so that in general high-return ‘promotional’
projects involving new technology with a good chance of high rates of
return (e.g. in zone C of the diagram) are also high-risk, and by contrast
low-risk projects (such as those in zone A) are in general simply ‘protec-
tional’ of the household’s livelihood and show low rates of return. The two
parallel lines running from south-west to north-east are the upper and lower
11 Income/expected
return on capital
11
Upper boundary
of capital market
I:
Case study 1
II Lower boundary
111 of capital market
B: Case
study 2 Coping
mechanisms
invoked
III:
Crisis
Case studies
3 and 4
A
111 Riskiness/vulnerability
of borrower’s portfolio
Figure 11.2 Risk and yield in microfinance.

Notes: Zones of the capital market and patterns of borrower behaviour: A: low risk, low yield,
very low income and asset levels, financial services demanded as ‘protectional’ services, mainly
in the form of savings or insurance. B: moderate risk, moderate yield, financial services
demanded mainly for working capital with very small fixed capital investment (see Boxes 11.1
to 11.4). C: high risk (unless insurance available), high average yield, financial services
demanded for fixed capital equipment (esp. housing and vehicles) and labour hiring as well
as fixed capital.
Possible outcomes for individual borrowers: I (case study 1): the ‘super-ladder’: yields so high
111 (or augmented by a windfall) as to enable the borrower to dispense with microfinance services.
II: the normal ladder: borrower balances yield and risk through a sequence of loans, with
stable or increasing levels of labour and capital input. III (case studies 3 and 4): ‘the snake’:
coping mechanisms unable to cope with increased levels of risk; borrower quits the capital
111 market.
boundaries of the capital market, which can be seen as a river which the
client household has to navigate;9 it is a river which, as we shall see, contains
a number of hidden eddies and rocks, but what is clearly visible are the
crocodiles on the southern bank, which is marked ‘financial exclusion’. The
evidence, from both North and South but especially from the South
(Sebstad and Cohen 2000) is eloquent that this is an outcome which clients,
having escaped from it by means of microfinance, are determined by all
possible means to avoid. Hence, especially at low levels of income, they
do not necessarily stick to the middle of the river, but rather aim to stick
close to the left bank during its most dangerous reaches, allowing them-
selves to drift back into the centre, and face moderate levels of risk, only
when (physical, human and social) assets – and thence risk efficacy – have
built up to a sufficient point (top right-hand part of Figure 11.2).
We now present, in Boxes 11.1 to 11.4, four case studies (two each of
triumph and disaster, two each from North and South) to illustrate how
these processes occur. These anecdotes, in turn, illustrate some possible
policy lessons to take up in the final section.
These case studies illustrate the interaction of shocks and institutions.
Case study 1 received the positive shock of a suddenly opening-up export
market, took the tide at its flood, and was led on to fortune, eventually
breaching the upper boundary of the capital market (Figure 11.2). But it
was only able to do so because its banker (BancoSol) flexibly expanded
his loan limit on a discretionary basis: this is an approach which a number
of microfinance institutions, with rigid ‘progressive lending’ formulae, are
unwilling to emulate. Case studies 3 and 4 both received two negative
shocks (in each case one of them was an underinsured burglary), but what
undid them, and caused them to be expelled from the capital market, was
not the shock in itself but the failure of the institutional coping mechan-
isms (in the one case the solidarity group and informal recourse to personal
friendships, in the other case a private insurance company) to which
recourse was made. As physical capital was depleted under the stress
of the initial shock, the strain fell on social capital and the institutional
structure, which in this case proved insufficient to meet the demand.
Conclusions: implications for policy and

institutional design
In both academic research and policy discussion, North–South parallels
have become more frequent and widespread, with the increasing percep-
tion of social processes in both parts of the world, including poverty trends,
as arising from the single root of globalisation. These parallels have been
made by statesmen also, most recently with Gordon Brown’s labelling of his
new proposal for an International Development Trust Fund as ‘a global
11
Box 11.1 The ‘triumphs’: microfinance as a ladder
Case study 1: Leather manufacture, La Paz, Bolivia
Married couple, 40s, educated to primary level only. Originally a secur-
ity guard, started to do leatherwork with the help of a BancoSol loan
(value about $200) in 1993. At that stage he and his entire family (one
partner and four children) lived in one room in the suburb of Alto
Obrajes, which also served as a workshop.
11 By January 1999, the family was on its twelfth loan, with a net
family income of $1,000 per month and asset value of $41,000,
including a four-storey house. The workshop, now equipped with
11 specialised cutting and sewing machines, takes up the length of the
ground floor. It has diversified into making leather waistcoats (pecheras)
in addition to belts and bags, and both of the latter have become infi-
nitely diversified through the application of a range of stamps, both
touristic (Mount Illimani, the Tiahuanacu ruins, a pair of adoring
llamas) and imitation trademarks (‘Do you want Nike, Adidas or
Wrangler?’ I was asked before buying a belt). The market is still mainly
in Bolivia rather than overseas, even if it contains a tourist compo-
111 nent, and with high-quality belts selling at $3 in Bolivia and $13 in
Europe, the potential for export expansion is obvious. Two part-time
employees, both below the poverty line before being taken on, have
been recruited since 1996, and this is the enterprise’s real contribu-
tion to poverty reduction.
This is not a story of linear growth along the ‘centre of the river’.
Serious crises have been encountered, notably when the market dipped
in 1994, and it is the success of the coping strategies adopted to deal
with these crises which has made it possible for the enterprise to
continue to grow. These are of three types:
111
• Reallocation of labour within the family: the borrower’s husband
now takes greater responsibility for production, and the borrower
herself for marketing.
• Cost-cutting: in 1994 when the market dropped a casual labourer
was laid off, and cuts were made in the family’s clothing and the
enterprise’s transport budget, before two permanent workers were
taken on when the market revived in 1996.
• Support from the solidarity group: although the borrower has
never had to postpone a loan repayment, members of the
borrower’s solidarity group made it clear in 1994 that they were
111 willing to help in case of need. The arrangement is reciprocal, and
now that times are better the borrower has made similar offers to
other members of her group.
111
Box 11.2 The ‘triumphs’: microfinance as a ladder

Case study 2: Gardener, Sheffield 9
Man in his 40s, left school at 15, with criminal record including a
period in prison, unable to get small business loan on account of
being unemployed. In January 2000, received his first loan of £2,800
from SENTA (Sheffield Enterprise Agency), which he used to buy a
motor-mower. Over the two-year period since then turnover has
expanded to about £15,000/year. There have been three critical
‘upward jumps’ in this process, each of them involving a measure of
associated risk. On the demand side there has been a gradual shift
from the ‘domestic’ to the ‘institutional’ market: from people needing
help with their gardens to institutions such as businesses, churches,
public houses and housing trusts wishing to offer maintenance
contracts. On the cost side, the client took out a framed advertise-
ment in the Yellow (commercial) Pages of the telephone book, and
also took on casual labour: two young men at a wage of £200/week
( just below the legal minimum). This was a disaster: they wrecked
his equipment, which was inadequately insured; and a maintenance
contract with a housing association was lost as a consequence. At this
low point, he experienced a serious hand injury, which at one stage
caused fears of amputation.
How did he get through the crisis? On his account, through cutting
costs (the wage-labour previously mentioned), and through support
from his mentor and a key customer (a former employer who ‘came
up’ shortly after the housing association contract collapsed). Other
enterprises in the same line of business have not been an important
source of support. He is now looking to re-hire an apprentice, and
to supplement his existing push-mower with a tractor-driven one.
Box 11.3 The ‘disasters’: microfinance as a snake

Case study 3: Motor vehicle repairer, La Paz, Bolivia
Was made redundant from the Potosi tin mines and migrated to La
Paz in 1988. He took an initial loan of c. $150 from (the predecessor
to) BancoSol and moved up through a sequence of loans until, by
11
1992, he was on his third loan of value c. $350, which was used to
buy oxyacetylene cutting and welding tools. However, he under-
estimated both capital and maintenance costs on this investment, and
had to take out additional long-term loans from other lenders, which
quickly ran him into debt service problems. He determined to pay the
loan back, and to begin with tried to stay current on his repayments
by taking a short-term loan from his brother; at this stage, he did not
consider approaching his solidarity group, and eventually sold his
11 welding tools to wipe out his debts. At the time of the survey in 1993,
the value of his assets had fallen from $1,200 in 1992 to $750, and his
contact with microfinance had succeeded only in decapitalising
11 him. The fact that he had kept up repayments throughout, however,
entitled him to take another loan at any stage, and in 1995 he took
this option up, borrowing $500, then $700, and finally $1,000 in order
to broaden into a business which combined retail ironmongery with
locksmithing; he did not attempt to reacquire welding equipment.
Repayments were maintained until August 1997, at which point the
borrower was again decapitalised by a burglary: he was under-insured
111 and only got back about 20 per cent of the lost proceeds. Finding him-
self once again with difficulties of repayment, he went this time straight
to his solidarity group: he was disappointed. The other members of
his group accused him of inventing difficulties, although richer than
them, and one of them even accused him of faking the burglary in a
mistaken attempt to claim on his insurance. Consequently the entire
group fell into default, and remains so, banned from borrowing any
more from BancoSol. The value of the borrower’s assets was estimated
at resurvey in 1999 at $900, less in real terms than in 1993. Poverty
impact was nil.
111 The lesson of this story is, in particular, the failure of the coping
mechanisms used to deal with crisis: the formal mechanisms of insur-
ance and the solidarity group, and the informal mechanism of
borrowing from a relative. The borrower is unmarried and has no
alternative businesses to draw on. The solidarity group, set up to
increase social capital, in this case not only failed to build it but actu-
ally reduced it, so that both physical capital and trust declined at the
same time. Microfinance became the borrower’s master rather than
his servant, and although several other reasons for failure came into
play, it was not managed in a way that enabled the borrower to turn
111
it into an asset.
111
Box 11.4 The ‘disasters’: microfinance as a snake

Case study 4: Dressmaker and clothing retailer,
Sheffield 5
Black female single parent, in her 30s, educated to secondary level.
Had taken, at community college, a ‘black access course’ in intro-
ductory business skills including letter-writing and bookkeeping.
Unemployed and on benefits until she received, in January 2001,
a loan of £5,000 from SENTA (Sheffield Enterprise Agency), later
topped up by a further £2,000. Approached and was refused a loan10
by National Westminster Bank ‘on the grounds that she was un-
employed, lacking capital, and lacking business experience’. Was
introduced to SENTA by the David Hall Partnership, the private
sector consultancy which manages the New Deal for Lone Parents12
in Sheffield.
Initially opened, in one of the few ethnic-minority areas in
Sheffield, a shop selling ‘smart street wear’, appealing at that stage
mainly to the black population. Expanded her market through adver-
tising in clothes parties and free sheets distributed through people’s
doors. The business proved unexpectedly seasonal, with slumps in
school holidays; nonetheless it managed, with the help of judicious
advertising guided by the SENTA mentor, to diversify into a broader
market, and at its peak, in September 2001, her market was 60 per
cent white and her turnover at an annual rate of £20,000/annum.
A blend of mentoring and instinct – not, on her insistence, discus-
sions with black traders in a similar position – had enabled her not
only to grow fast, but also to jump the ethnic divide into a new
market sector.
The business was then cut down by two burglaries, in October
2001 and January 2002, the second of which also involved some
damage to the premises. What broke the camel’s back was not only
the second burglary as such – the premises were insured – but that
the insurance company involved has taken, at the time of writing,
four months to assess the claim, and has paid out nothing so far. For
all its fast growth, and its ability to withstand two slumps, the business
did not have the ‘risk efficacy’ to withstand the third.
11 New Deal’ (United Kingdom 2002). We have been concerned, in this
chapter, with one aspect of these parallels only, the spread of microfinance
– a case almost of South–North institutional transfer, with most of the
significant institutional creativity having taken place in the South, and
the northern antecedents of the approach being largely confined to the
third and weakest of the models of microfinance so far operationalised –
the cooperative model (Hollis and Sweetman 1998).
Microfinance combats asymmetries of information which are inherent
in all financial markets, and it is therefore quite reasonable to expect it
11 to make, as governments globally now expect it to do, a contribution to
alleviating the poverty which results from those asymmetries and missing
markets. However, its evolution in the North so far has been on a modest
11 scale, catering for the niche market of those who are financially excluded
but not risk-averse, and in general using the, for the developing world,
atypical technology of individual lending with intensive mentoring and
training support. On the modest comparative evidence so far available,
positive income and employment effects are being achieved, of a type which
appear to commend the approach of targeting small and medium enter-
prises in the same operation as microenterprises. Whether these effects will
111 grow to the point of enabling microfinance to achieve significant economies
in the cost of social protection it is perhaps too early to say; but we have
argued that, even allowing for inevitable diminishing returns to ‘scaling-
up’, a doubling of the scale of microfinance could reduce the numbers of
unemployed in the UK by 3 per cent (Mosley and Steel 2002: 29): not
exactly a headline figure, but still useful.
Examination, by case study means, of the related dimensions of social
capital and risk12 draws attention to a common problem faced by both the
southern and northern microfinance clients – inadequate risk efficacy, some-
times aggravated by a lack of diversity of financial products. In terms of
111 the metaphor of Figure 11.2, poor clients in both North and South have
wanted to move north-westwards and increase their risk efficacy (increase
their assets at a constant or reduced level of risk), but lacked the resources
with which to do so.
We would like to suggest two expedients by which this might be achieved,
both in a northern and in a southern context. The first is microinsurance – the
design of insurance contracts for low-income people, often as an adjunct
to lending operations.13 In the developing world this has made most head-
way in South Asia, where it is being pursued both by private companies
(e.g. Gono Bima of Bangladesh) and by non-governmental microfinance
111 and social welfare organisations such as SEWA, of north-west India and
BRAC of Bangladesh. Outside of South Asia, the claim of the 2000 World
Development Report that ‘there are almost no insurance markets in developing
111 countries’ (World Bank 2000a: 143) is, regrettably, almost accurate so far
as the poor are concerned, and the implications of this for the functioning
of microfinance itself have been made clear by our case studies 3 and 4.
In industrialised countries, there is no microinsurance industry, and the
emergent microfinance organisations have not yet produced a model,
although one innovative UK venture, Street UK, is considering doing so.
On the evidence presented in this chapter, it cannot come too soon.
The second option is the development of equity instruments by micro-
finance lenders (Pretes 2002). Interestingly, the suggestion of increasing the
equity to debt ratio as an approach to chronic financial crisis has been
made at a number of levels right up to that of the international financial
architecture itself (e.g. Rogoff 1999). In transitional countries, some micro-
financial institutions, such as the Russia Small Business Fund (EBRD 2000),
have developed a ‘small equity’ instrument, but this approach is rare in
the developing world. In the UK, the approach of developing ‘community
equity’ that will give the inhabitants of run-down neighbourhoods a stake
in their community is a standard component of urban regeneration
and social capital – building strategies – and is eloquently developed,
for the case of Sheffield, by Jo Henderson in her Chapter 13. In that
chapter, she downplays, as we have done, the role of microfinance organ-
isations as an instrument for assisting the extremely poor, but she does
mention one experimental scheme – the ‘homesteading scheme’ – which
indicates a possible role for microfinance organisations in developing an
equity instrument; the scheme is described on pages 245–6. The essential
approach is to provide a house purchase loan for tenants on ‘problem
estates’ with a high level of crime, vandalism and drug abuse, in the hope
of giving them an equity stake in their community. The loan is conditional
on specified improvements to the housing stock by the tenant, and is often
backed by a buyback guarantee, such that the risk attached to the tenant’s
investment is minimised. The approach thus combines features of equity,
insurance and loan products – and, as related in Henderson’s Chapter 13,
has already helped to turn house values around on the Manor estate, one
of the most deprived areas of Sheffield. On this experimental evidence, we
commend it as a promising risk-minimising instrument into which urban
NGOs, in both North and South, could usefully buy.14
Especially with these supports, we believe that microfinance already
occupies within the South, and potentially could within the North, a distinc-
tive place in the structure of social protection. The essence of this role,
in both North and South, is in assisting those people around the poverty
line, together with a number of the ‘vulnerable non-poor’, to move from
unemployment or employment into self-employment, and to employ others
who in many cases are poorer still. As the social protection role of the state
– in a manner amply documented by many of the studies within this
book – comes under pressure, microfinance provides an important, and in
11 a few institutions even profitable, approach to enabling that role to be
supplemented, in all environments, by the private and voluntary sectors.
Notes
1 For trends in developing countries, see World Bank (2000a: table 1.1), which
suggests large increases in absolute (below $1 a day) poverty in Africa, Latin
America and Eastern Europe, the regions of the world where adjustment has
been most severe, between 1980 and 1998. For trends in Britain, Institute for
Fiscal Studies data (published in the Independent, 17 March 2002) suggest that
11 poverty levels (defined as percentages below 60 per cent of median income)
amongst the total population and amongst children rose continuously from
1982 to 1996, declining gently thereafter.
11 2 Lund and Srinivas (2000: 1) claim that welfare expenditures average less than
5 per cent of national income in developing countries, by comparison with 20
per cent plus in industrialised countries.
3 In many developing-country microfinance schemes, including SHARE of India
and the Grameen Bank of Bangladesh, borrowers are now exclusively female.
Many sponsors and managers of microfinance schemes have reported better
repayment rates among women clients, for reasons which range from their
greater economic vulnerability to their greater awareness of the consequences
111 for family welfare if they do not repay on time.
4 ‘To be well is to know what will happen to me tomorrow.’ ‘Middle-aged
Bulgarian’, as reported to World Bank (2000a: 135).
5 The distinction is more than semantic: the range of services offered in formal
financial markets within the four main categories of equity, lending, saving
and insurance is very broad, and each of these variations can in principle be
replicated within informal financial markets. The general pattern in most emer-
gent microfinance institutions has been to begin with a simple standard loan
product; diversification from here into savings and insurance has often been
difficult for NGOs barred by the regulatory laws from accepting savings
deposits, even though many poor customers would prefer a savings-only
111 product for reasons of risk aversion. In industrialised countries, there are few
limitations for anyone on opening a savings account, but the evolution of
microfinance institutions has been similar, with most institutions offering small
loans only.
6 For a good guide to microfinance impact assessment in face of these complex-
ities – in particular the choice between formal and informal methods – see
the review by Hulme (2000).
7 On some accounts (e.g. Reilly and Witt 1992) the link between unemploy-
ment and crime is so close that any policy which reduces unemployment
automatically reduces crime also.
8 Risk efficacy, formally, is the individual’s ability to cope with risk, often
111 rendered empirically as some ratio of the individual’s assets to the shocks to
which she is subject. In Mosley and Steel (2002) we propose a more opera-
tional definition of risk efficacy which incorporates also the dimensions of asset
111 liquidity and substitutability.
9 Metaphors vary: Rhyne in her account of microfinance in Bolivia (2001: 150)
describes developing a small business as being like ‘trying to climb a soapy
washboard’. The analogy of a game of snakes and ladders is also widely used,
including in Boxes 11.1 to 11.4.
10 She was approved for a savings account, but not for a business loan.
11 A component of the New Deal: the training-linked employment subsidy intro-
duced for specific categories of unemployed (under-25s, long-term unemployed,
over-50s, self-employed, lone parents, disabled) by the Labour government in
the UK in 1997.
12 One dimension of social capital is trust; and mistrust arises from risks related
to people’s interpersonal behaviour. To the extent that interpersonal risks
reduce, therefore, social capital should improve.
13 The Grameen Bank of Bangladesh initiated its health insurance scheme in
1996 on discovering that 44 per cent of its loan defaults were due to its clients
having difficulty in servicing unexpected health bills (Daiyan 2000).
14 The Indian women’s trade union SEWA (Self-Employed Women’s Associa-
tion), interestingly, having developed both a bank and an insurance operation,
is now moving into urban regeneration, and the development of equity instru-
ments for this purpose, through its housing and infrastructure finance scheme.
11
12 Social capital and micro-
enterprise development
Microfinance and urban regeneration
in eastern Europe
Marek Markuš
11
11
Introduction
This chapter is certainly not a result of an exhaustive analytical work, but
more of a personal reflection and practitioner’s observations. Integra
Foundation in Slovakia, where I have the privilege to be an executive direc-
tor, have always had ‘wider’ interests in the context of micro-enterprise
111 development (MED). In Integra, we have therefore naturally become inter-
ested in the working group of the Ford Foundation’s Imp-Act project.1
Integra is a grass-roots initiative, established in Slovakia in 1995.
Seven years ago, founders of Integra did not have much theoretical know-
ledge in recent social theories or development practices. But shortly after
the collapse of communism in 1989 and 1990 they understood that emerg-
ing small entrepreneurs in central and eastern Europe (CEE) need help
and support. They also believed that only growing numbers of small healthy
companies could bring necessary economic and also social transformation
to their communities. The mission statement of Integra Foundation was
111 therefore formulated as follows:
We help people to start and grow their businesses, so that they can
become ‘islands of integrity’ and participate in the transformation of
their communities.
The Integra Foundation, based in Bratislava, Slovakia, has grown since

then into a network of seven agencies in five countries of CEE and the
US. We call this partnership Integra Venture and we are achieving our
mission through three strategic programmes:
111
• SME Development programme – training, consulting and financial serv-
ices (loans of $5,000–30,000 and venture capital investments) for ‘social
111 purpose enterprises’ – small and medium private companies dedicated
234 Marek Markuš
to contributing ‘wider’ non-financial value to their communities (in
social, cultural, environmental, educational etc. issues).
• Micro-Enterprise Development programme – training and loans (up to
$2,000) for people from vulnerable groups, helping them to start and
grow their microbusinesses. Currently we have the two programmes
for women at risk in urban communities of Slovakia and Romania –
five cities in Slovakia and the Oradea region of western Romania. In
2002 we started a new programme for young people in northern
Slovakia and the Czech Republic.
• Business Ethics programme – research and development projects in the
areas of anti-corruption, corporate governance and accountability,
aimed at helping SMEs in CEE to run their businesses ethically and
socially responsibly.
Social capital
Before explaining in more detail what Integra does in terms of community
building, let me make a few comments on the whole concept of social
capital and what we as practitioners feel is relevant in this respect.
I apologise in advance for maybe stating the obvious (especially for this
audience), but I was recently enjoying studying it and discovering the
conceptual framework for what Integra has been, maybe intuitively, doing
since it was founded. I generally think there is nothing much new about
the whole concept of social capital. Most people with common sense would
agree anyway that good relationships and community are extremely
important. What is exciting though for me is that there is empirical evidence
and some people have taken their time to systematically look at it, observe
it, name it and provide some conceptual framework for it.
There is growing empirical evidence that social capital contributes signi-
ficantly to economic development. Social cohesion is critical for societies
to prosper economically and for development to be sustainable. There are
several definitions of social capital, coming from different people who are
involved in the field. One of them (from the World Bank) is this:
Social capital refers to the internal social and cultural coherence of

society, the norms and values that govern interactions among people
and the institutions in which they are embedded. Social capital is the
glue that holds societies together and without which there can be no
economic growth or human well-being.
I mainly like the concept of the glue in this definition. It implies that social
capital is not just the sum of the institutions that underpin a society – it is
something that holds them together. ‘Social capital embodied in informal
Microfinance and urban regeneration 235
11 norms, values and civic networks seems to be a precondition for economic
development as well as for effective government’ (Putnam 1993).
Political scientists have studied two basic expressions of social capital in
societies:
1 Social capital as civic engagement and community activity – reflected in the

people’s membership in voluntary organizations, civic associations,
political engagement, active involvement in faith-based groups, sports
clubs and other collective leisure activities etc. ‘Historical record
11 suggests that the economic welfare of communities stems from their
civic development not vice versa’ (Putnam 1993).
2 Social capital as trust – reflected in the level of trust people have among
11 each other within the community (binding), but also the level of trust
towards those who are outside and who are different (bridging). ‘It is
the level of trust inherent in a given society that conditions its pros-
perity and degree of democracy, as well as its ability to compete’
(Fukuyama 1995).
There is strong evidence that both trust and civic cooperation strengthen
111 economic performance of communities (Knack and Keefer 1997). Law,
contract and economic rationality provide a necessary but not sufficient
basis for the stability and prosperity of societies; they must as well be leav-
ened with reciprocity, moral obligation, duty towards community and trust,
which are based in habit rather than rational calculation (Fukuyama).
Social capital in a micro-enterprise development

context
In my little research of the literature, I was looking for ideas on how the
111 social capital findings relate to micro-enterprise development and specific-
ally microfinance. One of the conceptual frameworks which is helping me
to put it together is the ‘poverty trap’ of Robert Chambers (Institute of
Development Studies, University of Sussex), further developed by Bryant
Myers (Vice President at World Vision International) in his book Walking
with the Poor (1999).
Poverty is not only a lack of material assets – things, money, clothes
and housing. Poverty is a complex web of disempowering relationships, which
don’t work. Households trapped in this spider’s web suffer from material
poverty, vulnerability, powerlessness, physical weakness, isolation and
111 spiritual poverty.
Poverty is not a single-sided problem. You can try to heal one of these
non-functional relationships, but the problem will show up somewhere else.
111 Addressing the problem of material poverty through microfinance services
236 Marek Markuš
Lack of
material assets
Inadequate
housing
No land and
livestock Lack of reserves
Lack of strength No savings
Poor health Lack of choices
Inadequate Easy to manipulate by
Material
nutrition social conventions and
Too many
poverty unproductive expenditures
dependants Difficult climate conditions
Physical
Vulnerability
weakness
Isolation Powerlessness
Lack of access to Lack of influence

services and Spiritual No social
information poverty connections
Remote location Lack of social power
Lack of education Lack of political
Excluded from the participation
system because of Lack of trust Corrupt environment
race, gender, age Broken relationships Lack of bargaining
or political reasons with community and tools
God
Fear of supernatural
powers
Lack of hope, no
belief that change is
possible and good
Wrong choices
Distorted picture of
self and personal
value
Figure 12.1 The ‘poverty trap’ of disempowering relationships that don’t work.
Source: After Chambers (1997).
is vital and critical, but it will not be enough for the poor households to
escape from the poverty trap. Therefore it is not possible to neglect other
aspects of human nature and the multi-sided nature of poverty.
Some claim that the problem of material poverty is all-encompassing,
resulting in all kinds of symptoms, as listed in Figure 12.1. That is possibly
true if humans are purely material, economic beings – which actually is a
very strong school of thought. I am sorry that I am quite ignorant on the
history of philosophy. (Un)fortunately, communism collapsed in my country
11 when I was a student in the second year of university. In the third year
I would have needed to do a compulsory major in Marxism (even with
engineering), and go through his work Das Kapital page by page. I didn’t,
because we had sent all the teachers of Marxism into retirement in
November 1989. But I still remember the basics from high school – para-
phrasing Marx: ‘The problem of poor workers is that they don’t own the
assets. Since the material realm is the driver for the conscious, social and
spiritual realms, just let’s provide workers with assets.’ His tool was to do
it through revolution. We have learned since then that revolution is not
11 a good idea, since people get killed, but we have invented microfinance –
just let’s give many people loans, so that they can buy things and they will
be fine. For me, there are two strong reasons why I don’t believe in this
11 school of thought:
• recent evidence and work of the social scientists on the importance

and role of social capital for economic development;
• our own experience in central and eastern Europe.
One could argue though, that problems of physical weakness and vul-
111 nerability are really consequent to material poverty. Even if that was true
(although I am convinced that all these issues are interrelated in a very
complex way), we are still left with the issues of isolation, powerlessness
and spiritual poverty. Most of these are really the issues of social and human
capital, based on the definition mentioned before.
It is therefore crucially important for development agencies and MFIs
particularly to embrace ‘wider’ aspects of economic development. Other-
wise they will not be ultimately successful in achieving their mission to
address the problem of poverty and to foster sustainable development
of poor communities around the world. I also believe that MED agencies
111 are very well positioned to get engaged in intentional activities aimed at
increasing social capital and not just hope that they are doing it purely
by delivering financial services. At the same time, it is fair for some MFIs
to stay focused on the narrow expertise they have gained in delivering
microfinance services only. In that case they should be part of broader
partnerships and coalitions with those who are able and prepared to address
issues beyond efficient credit delivery. Cooperation with local NGOs, other
development organizations, central and local governments, existing local
private sectors, multinational companies, religious organizations etc. in such
partnerships will be critical in that case.
111 It is not fair though to expect social capital growth without investing in
it. One of the hypotheses put forward is that microfinance programmes,
just through providing physical capital (in the form of micro-loans), are
111 increasing also social capital, on top of the financial returns for the clients
238 Marek Markuš
and provider of the loan as well. In other words, it is assumed that micro-
finance programmes as such have positive economic impact on the client’s
life, but they also have positive community building impact (increased social
capital). There certainly are links and causal relationships between the two
and I believe it should be part of our purpose to discover that dynamics.
But I think we need to be careful, not to look just for the facts which are
supporting this hypothesis, because it is a very attractive hypothesis, let’s
face it. Social capital qualifies as capital, in that it certainly produces return
(Narayan and Pritchett 1997), but social capital requires resources and
it has associated production costs (Grootaert). ‘Investments in physical,
financial, human and social capital should be therefore viewed as comple-
mentary, not competing alternatives’ (Putnam).
Integra’s experience in social capital and community

building in CEE
From our experience, the most critical issues for the poor in CEE are:
• no access to credit
• lack of social power and political participation
• clientelism and corruption
• very low trust
• wrong choices, ease of manipulation (due to inexperience and poor
business education)
• low self-image and lack of hope
• racial exclusion (gypsies).
Having started as an SME development agency in the cities of CEE,

Integra developed several approaches and activities that are addressing the
need for social capital building from different directions.
SME support groups and clusters

Integra has initiated the creation of several support groups and clusters of
entrepreneurs in Slovakia, Romania and Bulgaria. The aim of the support
groups is to create a secure environment for entrepreneurs to talk about
both business and private issues they are faced with and discuss these chal-
lenges. The groups (five to ten people) meet usually once or twice a month
in a club-type atmosphere.
We have also helped to form a cluster of small rabbit farmers around
Jozef Sajben – one of our SME clients. Starting as a rabbit farmer himself,
Jozef gradually developed the whole network of small family farmers, for
whom he is arranging sales and export of the rabbits to western Europe.
11 With our assistance, Rabbitex ( Jozef’s company) is now becoming a service
provider for these farms, running a production of rabbit-feed, organizing
export and distribution, providing training and consulting. What started
as a small micro-lending project is now impacting on a much wider com-
munity. But what made it happen was not only physical capital of Integra’s
investment fund, but also hours and hours spent on coaching and dreaming
together about what could possibly be done.
Integra conferences and networking meetings

11
Held annually, Integra invites all the clients and partners for a conference,
to promote social responsibility and community involvement of the clients.
11 For example, a conference in November 2001 was titled ‘Swimming
upstream – entrepreneur as a community healer’.
Networking meetings for women’s MED programme clients are held
twice a year, also in association with other women’s associations and
networks. Recently we have invited a member of the Slovak government,
a lady who is a minister of privatization, to meet very informally with our
women clients. The purpose of such events is not to increase the profile
111 of our programme in the eyes of clients, but really to make them talk to
the representatives of government or of the mayor’s office and make it a
normal situation for them.
Training and trust group model in the women’s MED

programme
Our trust group model is a combination of self-selected and appointed
groups. Women are forming trust groups of four to six women, during the
initial three weeks’ training. The purpose of the trust group is to back up
the loans in the group-guarantee mechanism, but also to strengthen mutual
111 support and relationships between clients. Trust groups are meeting once
a month, often with the loan officer of Integra. They lend for business
development only – not consumer credit.
Local social networks and their interaction with the

trust groups
In every new city, where the women’s MED project is introduced,
a network of local social partners is developed. We are working in close
cooperation with local labour offices, municipality and local government,
111 local NGOs and churches. We expose our clients to these networks during
the initial training in the form of informal discussion. Sometimes, these are
the first opportunities for clients to talk to their elected representatives in
111 the local government.
240 Marek Markuš
Anti-corruption research
In all surveys, corruption is always listed as one of the biggest obstacles to
economic development in the countries of CEE. We know our clients are
struggling with this problem as well. This is the reason why we have got
involved in the anti-corruption initiatives. After the base-line research about
the problem of corruption for SMEs in Slovakia, we have concluded the
same research in Croatia and we are doing it now in Bulgaria. The research
is showing that the cost of corruption is up to 5 per cent of the annual
turnover of SMEs in CEE. As a result of this research, Integra is now
developing new tools and approaches, to help SMEs to cope with corrup-
tion and promote ethical and transparent corporate culture. These are:
• a code of ethics and social auditing tools for SMEs;

• collective initiatives focused on anti-corruption; and
• dissemination of tried and tested models.
We believe that the success of anti-corruption measures may be a key factor

determining the success of our microfinance programmes – in particular
their broader social impact.
Note
1 The Imp-Act project is a global project, financed by the Ford Foundation and
running from 2001–4, in which the author is a participant.
11
13 Equity versus debt in
urban regeneration
Jo Henderson
11
11
Introduction
I work for the Manor and Castle Development Trust, a locally owned
organisation responsible for delivering a £136 million regeneration pro-
gramme over the next seven years. Although the opinions in this chapter
are solely my responsibility and may or may not reflect the opinions of the
organisation, a number of people have generously given their time to discuss
111 the issues raised and to give the benefit of their experience.
The Manor and Castle Development Trust (MCDT) works in two
highly disadvantaged wards in the south-east of Sheffield, where nearly all
indices of deprivation are at extremely low levels by national as well as
city standards (Figure 13.1). In common with other area-based regenera-
tion initiatives, charged with tackling social inclusion, we experience a
tension between delivering social and economic regeneration.
The ‘risk-minimising equity’ approach

111 Funding organisations want to see resources focused on economic regenera-
tion delivered through new businesses creating new jobs and community
development delivered through financially sustainable community enter-
prises. People living in areas that are the target of regeneration funds,
on the other hand, have a different set of mainly social priorities: decent
houses to live in, schools that equip their children to compete in the (highly
competitive) employment market, safe neighbourhoods and a pleasant
environment. If this results in economic growth, well and good, but
economic growth per se (or the lack of it) is not what keeps people
(in regeneration areas) awake at night. The social/economic dichotomy
111 manifests itself as the mismatch between what programme donors will fund
and what residents need. On the ground, regeneration managers attempt
to deal with the full continuum and in this chapter we argue that delivering
111 economic growth is best done through meeting social need.
(a)
Stocksbridge
Chapel
Green
Nether
South Wortley Southey
Green Shire Brightside
Owlerton
Firth Park
Hills-
borough
Burngreave Darnall
Walkley
Neatherthorpe
Castle
Manor
30% to 41% Broomhill Sharrow
Hallam Park
Nether Handsworth
19.0% to 30% Edge Heeley Intake
Sheffield Average 19.0% Ecclesall
Birley
13.5% to 19.0%
Beauchief
Mosborough
Under 13.5%
Dore Norton
(b)
Stocksbridge
Chapel
Green
Nether
South Wortley Southey
Green Shire Brightside
Owlerton
Firth Park
Hills-
borough
Burngreave Darnall
Walkley
Neatherthorpe
Castle
Manor
16.2% to 20.8% Broomhill Sharrow
Hallam Park
Nether Handsworth
11.6% to 16.1% Edge Heeley Intake
Sheffield Average 7.5% Ecclesall
Birley
6.9% to 11.5%
Beauchief
Mosborough
2.3% to 6.8%
Dore Norton
Figure 13.1 The Manor and Castle wards in relation to urban deprivation indices
in Sheffield: (a) households receiving income support, December
1998; (b) unemployed by ward, January 2000.
Source: Sheffield Trends (published by Sheffield City Council and Sheffield First Partnership),
1999 edition, p. 123, updated from Labour Market Trends, January 2001.
Equity versus debt 243
11 Two contributors to the Poverty and Social Inclusion Policy Workshop
raised this issue in different ways: the first describing a project in Romania
offering financial support to marginalized groups and the second looking
at the effectiveness of regeneration, in terms of delivering ‘economic growth
at the margins’ within the MCDT area.
The first of these papers, by Marek Markuš (Chapter 12 in this vol-
ume) is also by a practitioner. It describes the Integra Foundation’s micro-
credit programme, which the author directs, as a micro-lending and
training programme for socially excluded and vulnerable groups. Currently,
11 the programme is focused on women at risk in Slovakia and Romania.
The purpose of the programme is to help the poor and their families break
free from the cycle of dependency and poverty.
11 This emphasis on enterprise and associated small business credit pack-
ages would resonate strongly with our funding organisations. In spite of
this, it has a very small part to play in our programme. The questions the
Integra programme raises for us are:
• Is micro-credit an applicable tool for combating social exclusion and

building social capital (a common theme for both northern and south-
111 ern contributors to this volume) in our most deprived neighbourhoods,
given the lack of both personal and financial capacity, and the high
failure rate of businesses, apparent in those areas?
• Would the development of personal and community equity represent
a better alternative?
Although the Integra programme has had success with highly disad-
vantaged groups, it is hard to imagine individuals in a similar level of
difficulty in the Manor and Castle area having resources to borrow to
develop an existing business, never mind negotiating business start-ups,
repayments and succeeding in a competitive market. Possibly the South
111 Yorkshire tradition of depending on large paternalistic employers has
played its part in deterring self-employment as a route out of joblessness.
But our experience is that business support loans are more effective with
borrowers who already have substantial work experience, are highly moti-
vated, have good personal support and have developed communication
skills. This view harmonises with that of Rosalind Copisarow who writes:
It should be stressed that not one micro-finance institution that I have

ever visited serves the ‘poorest of the poor’. Below a certain threshold
of energy, determination and morale, a person cannot make use of a
111 commercial interest-rate debt instrument. He or she first needs relief-
type help, such as counselling, food, shelter and donations as well as
other financial instruments for risk protection purposes.
111 (1999: 5)
244 Jo Henderson
So two points arise here: would people experiencing multiple depriva-
tion have the capacity to take on a loan and second, would they be
interested? There is a combination of factors that prevent people from
taking up employment opportunities, and those are the same factors that
would make taking on a loan appear too high a risk. Some of these factors
are poor literacy and numeracy levels (30 per cent of school leavers gaining
no GCSE qualifications) and poverty (in 1997, 47 per cent of children in
the area lived in households with no wage earners). The persistently high
levels of unemployment (nearly 20 per cent in both Manor and Castle, see
Figure 13.1) themselves act as a barrier. If being employed is no longer
the norm then aspirations are damped down and living on benefit becomes
more of a ‘stable state’ to be contrasted with the unstable state represented
by employment and most of all by self-employment. Along with this comes
the full set of stresses associated with living in poverty, one of these being
ongoing levels of debt service which, for many, run to 50 per cent and
more of current income. In such a situation it is no wonder that France
and Hoogvelt have written, with specific reference to New Deal clients in
Sheffield:
The central finding of our research is that for some New Deal clients
the real barriers to work are not the ones officially identified and
targeted. There is nothing wrong with these people’s attitudes or moti-
vations. They all desperately want to work. Rather the big issue for
them is RISK. Living on the very margins of existence, with no safety
net, no rich parents or inheritance to come, no steady income, they are
asked nonetheless to take a great leap in the dark and in doing so give
up even the minimum welfare that keeps them afloat. For policy-
makers and service providers, therefore, this should be the starting-point
of intervention: the management of this risk.
(1999: para. 17.2)
It is certainly arguable that the factors which act as barriers to getting a

job, notably risk and lack of human capital, would equally act as barriers
to being able to set up and manage a small business.
So, is micro-credit a way out? If you were unemployed, and had been
for some time, were suffering from associated poor health and lack of con-
fidence, were unlikely to have any academic qualifications and were strug-
gling to make ends meet with a high level of family debt, would you choose
to take on a loan (even if anyone was prepared to give you one) to set up a
business that even in wealthier areas had a low level of success? (Over 50
per cent of new start-ups, in South Yorkshire, fail within the first two years.)1
A more likely route would be to stay on benefit or to create or join a
project that had grant-aid funding, where there is no personal financial
11 risk, but where the funding organisation is taking the risk. In the MCDT
our preferred approach is, rather than expose already vulnerable residents
to risk, to look at how we can minimise an already inequitable burden
and increase the personal equity, and thereby the equity to debt ratio, of low-
income groups.2 The thrust of this approach is through the provision of:
• human capital, by equipping individuals with the skills they need to re-
enter and compete in the job market and to use grant aid to develop
locally owned and managed projects;
11 • physical capital, in the form of improved housing (see page 246); and
• social capital, in the form of networks which increase productivity. The
Manor and Castle Trust’s Social Inclusion Strategy (MCDT 2000) argues
11 that social capital building is ‘integral to the sustainability of local
development efforts’.
Equity-driven versus debt-driven approaches

This raises the question of the relative desirability of equity-driven
approaches such as these to the debt-driven approaches used by micro-
111 finance organisations such as those featured in Chapters 11 and 12 of this
book. What do the Romanian women borrowers featured in Chapter 12,
for example, live on while their businesses are getting established? Where
are their markets and how do they extend them? Do questions of literacy
and ill-health feature as a problem for their programme? Funding organ-
isations may prefer micro-credit because risk is transferred to the individual,
but we prefer grant-aiding projects that will develop residents’ personal
capacity without exposing them to increased risk of worsening their
personal circumstances. Two examples will illustrate this point:
111 1 The Sheffield City Council ‘Homesteading Scheme’: This scheme seeks to give
council tenants an equity stake in their properties by giving them an
incentive to rehabilitate them. At present there is in Sheffield a large
surplus of properties rented by individuals from the local authority, in
which are manifested (especially in Manor and Castle wards) all the
symptoms of social exclusion: high levels of unemployment, benefit
dependence, crime and vandalism, drug abuse, domestic violence etc.
The council cannot afford to rehabilitate this stock itself; so it has con-
tracted with a local mortgage company to lend the tenant the market
price of the house (typically about £15,000) on a three-year loan, on
111 condition that the tenant puts in a specified amount (average about
£10,000) in specified improvements: typically the installation of central
heating, new windows and doors and an upstairs toilet. Once the loan
111 is paid back, the tenant either keeps the house or has the option to sell
246 Jo Henderson
it. In this way the tenant secures equity in a manner which is made risk-
free by the initial concessional price and the upward drift in the hous-
ing market (some versions of the scheme also provide a buy-back
guarantee); the council minimises the cost of rehabilitation and avoids
the cost of demolishing empty properties; new owners will have an
incentive to maintain by collective means this improvement in property
values; and as a consequence the incentives to crime and vandalism will
diminish. The crux is that, if risk-free equity can be created on sink
estates, tenants become stakeholders in maintaining both individual and
social capital within their neighbourhoods. The scheme has now been
working for about a year in the Halifax Road area of Sheffield, and has
had some success, with the freehold price of rehabilitated houses having
risen in sample locations. The argument has relevance well beyond
Sheffield and well beyond Britain, and indeed systems for financing the
cost of ‘lumpy’ assets through subsidised loans with buy-back guaran-
tees have been quite common in developing countries.3
2 MATREC (Manor Training and Resource Centre): This is a community
college that now has over 500 students going through its doors each
week. It contracts directly with the local college to provide courses
tailored to local need, and is managed by local people. The college
was set up as a training project to address one of the major barriers
to employment, low basic skills. Because it was on the doorstep and
had been set up by local activists, people who would not normally
dream of setting foot inside an education institution became students.
A number of the students went on and, through courses put on at
MATREC, became trainers themselves and were employed as part-
time and full-time workers. Student representatives also became part
of the management committee.
Both these schemes have an additional advantage: not only do they increase
personal capacity but they invest in the locality. They are powerful reasons
for local people to commit themselves to the neighbourhood. MATREC
is also an example of how, by meeting social need, you create sustainable
community enterprises. This is a far less direct way of creating new busi-
nesses, but it is one which allows local people, those most socially excluded,
to develop their capacity and the capacity of their neighbourhood and to
create local businesses that are run and owned by the people they are
designed to help. The Manor and Castle Trust has, in the same spirit,
created a building company which generates profits for the Trust, creates
employment and improves the quality of the local housing stock.
If, therefore, our favoured approach to urban regeneration consists of
the generation of low-cost equity rather than debt, the main threat to that
strategy consists of emigration by the most enterprising beneficiaries of the
11 equity. At the Conference Ankle Hoogvelt (see also France and Hoogvelt
1999, 2000) related the story of a Sheffield councillor, Mick Lyons in
Netherthorpe, who had been so much afflicted by such emigration from
the ward he represented, by people who had benefited from development schemes he
had instigated, that he had lost his seat at the most recent (May 2000) council
elections. And with free migration of labour, there is every likelihood of
leakage in the sense of beneficiaries from urban regeneration programmes
such as those of MCDT reinvesting both the private and the social capital
thus created, not in the locality from which they came, but in that to which
11 they aspire. This tendency is specific neither to Sheffield nor to the indus-
trialised world, but may be seen as a universal symptom of globalisation.
In her remarks to the Poverty and Social Exclusion Conference, Hoogvelt
11 went on to say:
If one believes, as I do, that the present global capitalist system is

systemically excluding, then one has to come to the conclusion that
none of the present social strategies can adequately provide for either
inclusion in the system, or for developing viable local economic alter-
natives in the excluded zones. At best what we see at the present is a
111 reshuffling of the deck of cards giving some individuals better oppor-
tunities to participate, or transferring existing jobs and assets from the
public sector into the third sector, or into declining communities. There
is no evidence yet of growth at the economic margins.
(2001: 15)
At present impact analysis does not allow us to say with precision

whether the inward investment by the Trust, in housing, services and
community education, has been such as to rebut this critique. The hope
is that by focusing on perceived social needs – better housing, relevant
skills and protection against crime, the ‘risk-minimising equity’ approach
111 may at least have reduced leakage precisely through its contributions to
building individual and social capital; the improvements in house values
earlier quoted are an index of this.
Conclusions
The ‘Manor and Castle approach’ of developing low-risk community equity
has been facilitated by various strategies. One of them is designing the
Trust as an accountable body: essentially a socially oriented property
company, acquiring land – for example to set up food shops as a counter
111 against ‘food deserts’ (see Chapter 9) – generating income through its
members’ consultancies and its companies’ profits, and thereby generating
an asset base from which income can be ploughed into developmental
111 activities. In the process it has had to learn imaginative ways of interpreting
248 Jo Henderson
the rules of funding bodies, for example when seeking to acquire land
outside the target area for the benefit of residents within the area.
The major lessons from the Manor and Castle experience for social
exclusion in North and South would appear to be the following:
1 In situations where individuals are poor and therefore lack risk efficacy
(the ability to handle risks efficiently), it is desirable to build up stocks
of low-risk equity both social and individual before debt finance is
taken on. In the MCDT area the European Structural Funds and other
sources have provided low-cost pathways towards doing this.
2 Globalising tendencies are universal, and one of them in Manor and
Castle consists of a ‘leakage’ of such equity out of the ward, as benefi-
ciaries buy into higher-status localities. However, the Manor and Castle
Trust has sought with some success to offset such leakages through
investment in community-level education, housing and environmental
improvements towards crime prevention.4
3 They can also be offset, for individuals who have reached a sufficient
level of economic stability, by microfinance measures – as illustrated
for the case of Sheffield and other UK cities in Chapter 11.
4 The boundaries between public and private are constantly shifting. In
a large number of local authorities, both in the North and in the South,
functions previously treated as public, from the local economic devel-
opment handled by Manor and Castle to waste disposal to transport
to school building, are now handled either by private contractors
or, as in the case of Manor and Castle, by not-for-profit NGOs.
Conversely, many NGOs in both North and South have now got the
state to buy into their activities to expand their scope, as with the links
between the Department for International Development and various
development NGOs under the Joint Funding Scheme, or the recently-
formed links between the NGO/trade union SEWA (Self-Employed
Women’s Association) of Ahmedabad, India, and the Government of
India in the operation of social insurance schemes (see Chapter 9
above). The question of how the division of labour in ‘attacking poverty’
(World Bank 2000a) should be divided between government, volun-
tary sector, private households and private companies is an urgent and
not-yet-resolved question in both halves of the world.
Notes
1 The rate of small business failure in Slovakia is also high and approaching 50
per cent (personal communication, Marek Markuš).
2 This is a basic principle for financial crisis management followed also in post-
East Asia debt workout proposals (see for example Rogoff 1999). For advocacy
11 of a greater role for ‘microequity’ within microfinance see the essay by Petes
(2002).
3 Both with housing and with other lumpy, high-cost inputs such as cattle (e.g.
the grazier schemes of Zimbabwe), the essence of the intervention frequently
consists of a buy-back guarantee which removes risk from the process of accu-
mulating and maintaining equity.
4 Not just environmental improvements; also direct measures such as the Home
Office’s ‘street rangers’ scheme for community policing.
11
11
111
111
111
111
11
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11 World Bank (2000c) Reducing Vulnerability and Increasing Opportunity: a strategy for social
protection in the Middle East and North Africa, Washington, DC: World Bank, Middle
East and North Africa Region.
World Bank (2000d) Risk Management and Poverty: towards a social protection strategy for
South Asia, Washington, DC: World Bank, South Asia Region.
World Bank (2000e) Argentina: managing social risks, Washington, DC: World Bank,
Latin America and Caribbean Regional Office.
World Bank (2001a) Social Protection Sector Strategy: from safety net to springboard,
World Bank (2001b) Dynamic Risk Management and the Poor: developing a social protec-
11 tion strategy for Africa, Washington, DC: World Bank, Africa Region.
World Bank (2001c) Orphans and Other Vulnerable Children: what is the role of social protec-
tion?, Social Protection Discussion Paper, Washington, DC: World Bank.
World Bank (2001d) World Development Report 2001/2, Washington, DC: World
11
Bank.
World Food Summit (1996) Rome Declaration on World Food Security and World Food
Summit Plan of Action, Rome: FAO.
World Health Organization (2000) The Impact of Food and Nutrition on Public Health:
case for a food & nutrition policy and action plan for the European region of WHO
2000–2005, Food and Nutrition Policy Unit, Regional Office for Europe.
111
111
111
111
Index
Number spans in italic indicate a whole chapter is relevant.
ADB (Asian Development Bank) 50, cattle, as buffer against risk 60, 69
62 child benefit 3
Afghanistan 3, 13, 91, 102 child labour 61
aggregation problems 12 children 68, 71; see also child labour;
agricultural wage labour 105; see also schooling
labour markets China 37, 39, 44, 88, 90, 94, 143, 172
AIDS 31, 53, 62, 67–69, 87, 214 civil society 104, 161
Argentina 6, 12, 31, 67, 70–1 closed economies 36
ASEAN (Association of South-east Coase theorem 132
Asian Nations) 29–30 Coleman, James 128
Asian Development Bank (ADB) 52 Collard, David 98, 103
asymmetric information 51 Colombia 69
community 12; see also social capital
BancoSol (Bolivia) 212 community development 74; see also
Bangladesh 72, 90, 107, 115, 172, NGOs; social capital
187 conditionality, by donors 25, 32
Bangladesh Rural Advancement conflict, civil 58
Committee see BRAC convergence 1
Barr, Nicholas 3 coping strategies 6, 55, 60
Bath, University of 83–4, 90, 106 Cornia, Giovanni Andrea 37
basic needs 197–8 corruption 240
Belfast 211–32 Costa Rica 21, 27
benefits see welfare state crime 22
Berlin, Isaiah 92 cross-country regressions 36
Bolivia 183, 187, 212, 222, 225,
227 Deacon, Bob 11
BRAC (Bangladesh Rural ‘decommodification’ 86, 111
Advancement Committee) 13, ‘de-globalisation’ 33
117, 229 Department for International
Brazil 31, 37, 38, 67 Development (UK) 52; White Paper
Brown, Gordon 18, 25 on globalisation (2000) 182
Index 273
11 Dercon, Stefan 68–9 health 42
Development Studies Association health insurance 3; and nutrition 199
(DSA) 5 HIV/AIDS see AIDS
Dollar, David 38 Holzmann, Robert 44, 78
drought 67 ‘homesteading’ scheme 244–5
hometown associations 152
East Asian crisis 73, 85 HomeNet 8, 181–2; Global Mapping
economic growth, and poverty 36, 38 Project 182
education 42 homeworkers 8, 175–87
empowerment (and disempowerment) Hoogvelt, Ankie 10
11 48, 235 housing 71; see also housing subsidies
endogenous growth 126, 133, 138 housing subsidies 71–2
equity, as financial instrument 10, 230, Hulme, David 3
11 241–5 human capital 67, 126, 132, 140;
Esping-Andersen, Gustav 88–9, 92, 98 see also technical knowledge
Ethiopia 68–9, 72, 97, 155–7 Human Development Reports
European Union 18, 24, 172, 177 (UNDP) 94
hybrid associations 149, 160
families 59, 111, 141
FAO (Food and Agricultural India 37, 39, 45, 94, 110, 121
Organisation of the United Nations) Indonesia 12, 102, 183, 222
111 70 inequality 6, 11, 36–7, 41, 99; in
feminism 112 health and nutrition 198–203; and
financial exclusion 224 power 99; relationship with growth
‘food deserts’ 247, 189–201 36; rural 101
food poverty 9, 189–201 inflation 50
food systems, power within 202 information technology 203–4
infrastructure 59
Glasgow 211–32 insecurity 67
globalisation: consequences of 6, institutional responsibility matrix 91,
35–46, 49; effects on migration 100, 104, 108, 115, 121
within UK cities 247; labour insurance markets 24, 51; see also
111 contracts under 3; and labour microinsurance
markets 177; Oxfam approach to Integra Foundation (Slovakia) 233–41
168; and poverty reduction 36; International Labour Organisation
protests against (Seattle, (ILO) 78
Gothenburg and Genoa) 1; risks International Monetary Fund (IMF)
arising from 49; social policy and 62, 75, 211
17–33; and social provision 20, 41; Italy 4, 122–4, 130, 177
and taxation 40; of trade 49
global public goods 18 Jamaica 70
governance 27, 83
Grameen Bank, Bangladesh 232 Kabeer, Naila 171
111 Gramsci, Antonio 104, 116, 119 Kanbur, Ravi 4, 12–13
growth models, economic 125–8 Kashmir 102
GTZ (German technical assistance Kerala 27
111 agency) 78 Keynes, John Maynard 125
274 Index
labour markets 61, 84, 97, 190 nutrition 189–207
land reform 25, 69 Nyerere, Julius 109
legal advice 177
Lipton, Michael 103, 196 OECD 40
literacy 244 old-age income security 2, 61
livelihoods 47–77, 68, 106; see also openness (economic) 20, 36, 40, 134
families; poverty opportunity 48
oxen, see cattle
macroeconomic policy 67, 169; see also Oxfam 41, 167–73, 191; UK Poverty
inflation Programme 167, 170, 206–7
Malaysia 27
malnutrition 190, 192–3; see also Pakistan 97, 111, 113, 117, 122
nutrition panel studies 63
Manor and Castle Development Trust pastoralism 159–60
(Sheffield) 241–8 path-dependency 96
Marx, Karl 98 peasant behaviour 101
Marxism 237 peer pressure, in microfinance groups
marriage 15 221
Maxwell, Simon 5 pension policies, 42, 70
medicines 169 Polanyi, Karl 84
MERCOSUR (Southern Cone Portugal 177–8, 193–4
economic union) 29–36 Poulantzas, Nicos 93
methodological individualism 119 poverty: World Bank diagnoses 1;
Mexico 37–8, 67, 70, 72 among children 2, 13;
microequity 248; see also equity; anti-poverty strategies, 77, 99;
microfinance chronic 2; definitions 26; dynamics
microfinance 4, 12, 117, 182–4, 48, 63; food poverty 189–207;
212–31, 233–41, 243 ‘poverty trap’ 235–6; relationship
microinsurance 62, 183, 229–30 with growth 36; transient 2, 64;
migration 54, 59, 91, 95 151, 247 trends 1; as vicious circle 235
Moore, Mick 42 Poverty Reduction Strategy Papers
Multifibre Agreement 171 (PRSPs) 77
preventive strategies (of social
neighbourhood strategies 199, 230, protection) 55, 77
241–9; see also social capital projectisation 42
neo-classical growth models 146 PROSHIKA 114, 117
neo-liberalism 18 protectionism 22
New Deal (UK) 211, 232, 244 Putnam, Robert 4, 108–9, 123, 128,
new growth theory, see endogenous 163, 238
growth
non-governmental organisations redistribution 46, 52; see also inequality
(NGOs) 3, 51, 60, 89, 167–73, regeneration, urban 10, 241–9
171, 237; international NGOs 19, regressions see cross-country regressions
22; see also BRAC; Integra remittances 91
Foundation; Manor and Castle risk: agriculture-related 58; assessments
Development Trust; PROSHIKA; 50; aversion 105; covariant 53, 104;
SEWA efficacy 222, 228, 231; exposure 66,
Index 275
11 104, 184; idiosyncratic 53, 104; social risk management 50
interpersonal 7; labour market risks social safety nets 60, 62, 73–4;
55; mitigation 4, 50, 60; pooling 54; see also social protection
weather risks 59; see also risk Social Summit 2000 47
management instruments; social social sustainability 63
capital South Korea 27, 120
risk management instruments 4, South–South dialogue 29
47–77, 65, 67, 76 state, role of the 84
Rodrik, Dani 38 Steel, Lucy 9
Romania 234, 243 stochastic processes 65
11 Romer, Paul 126 ‘structuration’ 99
Room, Graham 107, 111 survival algorithms 103
Rowntree, B. Seebohm 196–7, 207
11 Russia 37–8, 58, 63, 72, 88 Taiwan 120
Rwanda 3 Tanzania 154, 162
tax-transfer mechanisms 52
SADC (Southern African Development technical knowledge 132
Cooperation Community) 29–31 textile factories 186
savings, 60; see also microfinance trust 96, 104, 124, 129, 131, 135–6,
schooling 68, 244; see also education 141, 235
seasonality 105
111 Seattle conference see World Trade Uganda 97, 162
Organisation UN Commission on Human Rights 24
security 7, 48 unemployment benefit 61
Seers, Dudley 5 unemployment insurance 71
selectivity, in welfare state allocations 6 UNICEF 24
Sen, A.K. 108 United Kingdom 40; see also poverty
SEWA, Indian self-employed women’s United States 89
organisation 3, 117, 182–4, 229, UN Secretary-General 24
232, 248 Uphoff, Norman 157–8, 164
Sheffield 10, 187, 211–33, 216, 241–9 Uruguay 70
Sheffield Enterprise Agency (SENTA) USAID 50
111 228
shocks 54, 58, 64 value-chains 179
single parents 67, 190 Vietnam 37
Slovakia 233–4 violence 41
social capital 4–5, 10–11, 52, 103, Voices of the Poor consultation/report
128–48, 149–64, 217, 234–5, 247 (1999) see World Bank
see also community; trust vulnerability 3–4, 47–77, 59, 63, 70,
social exclusion 201, 206; see also 72, 77, 105; defined 65
financial exclusion
Social Exclusion Unit (UK) 214 Wade, Robert 43
social funds 62 war 53, 67–69, 110; see also conflict
111 social policy 83, 85, 95, 107 Washington consensus 36, 42
social protection 6, 24, 41, 47–77, 60, weather risks 59
106, 212, 230–1; see also social risk welfare state 4, 17, 54, 89; see also
111 management social protection
276 Index
Wellpark Enterprise Centre (Glasgow) 25; Voices of the Poor consultation
221 (1999) 87, 161–2, 196
White, Sarah 107 World Development Reports see World
Winters, Alan 38 Bank
women: full-time versus part-time World Health Organisation 172
employment contracts 3; as World Trade Organisation 172;
homeworkers 176–84; legal advice Seattle conference (2000) 1
services for 181–2; as microfinance World Values Survey 135–6, 143
clients 182–4, 221, 231; wage levels
179–80 Yorkshire 9, 175–87, 175–6, 186
workfare 71 Yugoslavia 3
World Bank: 1990 World Development
Report on poverty 41, 48; 2000/01 Zakat, Islamic social obligation
World Development Report on poverty 28
1, 4–5, 25, 48, 184, 215; and Zambia 97
NGOs 3; and redistributive politics Zimbabwe 97, 249

Poverty and Exclusion in North and South

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Poverty and Exclusion in North and South

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11

Poverty and Social Exclusion

This important book, written by a respected group of scholars, will be of

Elizabeth Dowler is a registered public health nutritionist and researches

Foreign Trade Reforms and Development Strategy

Adjustment and Poverty

Econometrics and Data Analysis for Developing Countries

The Green Revolution in Africa

The IMF and the Future

Poverty and Social Exclusion in North and South

ISBN 0-203-98782-9 Master e-book ISBN

ISBN 0–415–28577–1 (Print Edition)

11 List of illustrations vii

3 Globalisation and social policy: thoughts for

4 Risk and vulnerability: the forward-looking role of

6 Economic growth and social capital 123

9 Globalisation and home-based workers in

10 Food and poverty: current global challenges? 189

12 Social capital and micro-enterprise development:

13 Equity versus debt in urban regeneration 241

11 Fran Bennett is Policy Adviser to the UK operations branch of Oxfam.

Arjan de Haan, formerly at the Poverty Research Unit, University of

Jo Henderson, born in Zimbabwe, read drama at Shefﬁeld University

Region People living on less than $1 a day (millions)

increases in, speciﬁcally, child poverty.1 Many have sought to decompose

• an increased ratio of unproductive to productive people in most coun-

11 In the face of these shrinkages at both ends of the spectrum of social

• Globalisation does not necessarily have to lead to the residualisation

There are, however, a number of disagreements as to how to proceed with

• Much of the South is understandably suspicious of even progressive

• The World Bank’s continuing belief that governments should only

Are there signs of a shift in the global discourse leading to a reassertion

The report of the UN Secretary-General (E/CN.5/2001/2) on ‘Enhan-

The North–South impasse and beyond

• the suggestion to include a social clause in trade agreements;

• Neo-liberal globalisation does not mean countries have to adopt neo-

In terms of already existing good southern practice it was noted that

The key ingredients to successful social development appear to be

11 These examples of good practice in the South have been reinforced in

• In Asia, Korea because of its extension of labour-based beneﬁts to a

Nonetheless the UNDP conference also noted the signiﬁcant differences

• Coverage by formal social protection schemes in many developing

The social dimension of regionalism

Aspect of regional SADC MERCOSUR ASEAN

The wider signiﬁcance of the social dimension of southern regions arises

There are therefore prospects for equitable social provisioning of North

Gainers and losers – and why?

• Economic growth on average is strongly correlated with poverty reduc-

Box 3.1 Examples of increasing income inequality

According to Cornia, after a period of declining inequality until

Equitable globalisation: the role of national social

11 Introduction: motivation, issues, structure

Social risk management beyond social protection

Social protection and income redistribution

Social protection beyond social risk management and redistribution: social

Sources of risks and their characteristics

Social risk management arrangements

Social risk management strategies

SP as SRM: main strategic conclusions

Social protection as a theme

Insurance • Marriage/family • Old-age annuities • Mandated/provided insurance

Economic crises, natural disasters, and civil conﬂicts

• Since many of these aggregate shocks are man-made, following from

111 Balancing informal, market-based, and government-