Dear Robert (If I may),
I think your intervention on the potential links between "subsidies" and "long-term investment and productive strategies" appears very much timely since the discussions on subsidies in this on-line forum started dealing with different nature and functions of subsidies, and the relations between subsidies and other forms of policy tools. I think your concern raise at least two important issues we have to think about when discussing "benefits" in general and specifically subsidies. Firstly, when the analysis focuses on the impact of benefits on the poor households or the poor only, (i.e. how much a specific benefit accounts for the consumption of the poor), we often misses out its externality, both positive and negative, in terms of its impact. For instance, a fuel subsidy (particularly a certain form of fuel not much used by the poor) can be regressive in terms of its cost-benefit to the poor, the same subsidy can also have a positive impact if there is a set of institutions creating increasing returns of fuel subsidies to employment. Fuel and energy related subsidies which are in favor of industries as well as the rich and active policy tools to create jobs (such as policies to induce productive investment) can converse the regressive nature of fuel subsidies in terms of overall reduction of poverty and inequality. The experiences in many rapidly industrialized countries including South Korea in the 1960s and 70s are good examples. Increase of employment in formal sector and wage compression between workers combined with fuel and energy related subsidies resulted in the reduction of inequality as well as poverty in those countries. (We have a forthcoming book on the South Korea case dealing with these issues http://www.amazon.com/Learning-South-Korean-Developmental-Success/dp/1137339470/ref=sr_1_2?s=books&ie=UTF8&qid=1392888650&sr=1-2 ) These experiences highlights the importance of the institutional complementarity between redistribution, protection and production functions for poverty and inequality reduction (Please see our Transformative Social Policy Approach http://www.unrisd.org/unrisd/website/document.nsf/(httpPublications)/C77A2891BC2FD07FC12572130020B2AC?OpenDocumen t). Secondly, we need to think about how to link economic policy, or more specifically industrial policy and social policy in various development contexts. Social protection has been brought back into the development discourse as a major tool for poverty reduction but the productive aspect or its relationship with production has been insufficiently highlighted and less rigorously researched. Although the impact of social welfare benefits on human capital accumulation and social cohesion have been indeed emphasized and highlighted, many questions of how various mechanisms to translate a wide range of benefits including education, health care, pensions, housings and so on, into productive outcomes have been remained unanswered . Welfare benefits are not only the ends themselves as often argued by those of human rights based approach, but also the crucial means to enhance productivity. Diverse ways in which social protection schemes are linked with the policies directly related to production such as industrial policy should be researched and explored further.(One of the purposes of UNRISD's new research project on New Directions in Social Policy is to explain this link also. http://www.unrisd.org/80256B3C005BCCF9/search/069C37E36996ED64C1257C1600505C03?OpenDocument ) Deep understanding about diverse institutional configurations of social and economic polices will also help us to assess the nature of diverse subsidy schemes and their impacts on the poverty and inequality in a much broader sense.
Yours,
ILCHEONG YI
Research Coordinator
United Nations Research Institute for Social Development
Palais des Nations, 1211, Geneva 10, Switzerland
Email: yi@unrisd.org
I think your intervention on the potential links between "subsidies" and "long-term investment and productive strategies" appears very much timely since the discussions on subsidies in this on-line forum started dealing with different nature and functions of subsidies, and the relations between subsidies and other forms of policy tools. I think your concern raise at least two important issues we have to think about when discussing "benefits" in general and specifically subsidies. Firstly, when the analysis focuses on the impact of benefits on the poor households or the poor only, (i.e. how much a specific benefit accounts for the consumption of the poor), we often misses out its externality, both positive and negative, in terms of its impact. For instance, a fuel subsidy (particularly a certain form of fuel not much used by the poor) can be regressive in terms of its cost-benefit to the poor, the same subsidy can also have a positive impact if there is a set of institutions creating increasing returns of fuel subsidies to employment. Fuel and energy related subsidies which are in favor of industries as well as the rich and active policy tools to create jobs (such as policies to induce productive investment) can converse the regressive nature of fuel subsidies in terms of overall reduction of poverty and inequality. The experiences in many rapidly industrialized countries including South Korea in the 1960s and 70s are good examples. Increase of employment in formal sector and wage compression between workers combined with fuel and energy related subsidies resulted in the reduction of inequality as well as poverty in those countries. (We have a forthcoming book on the South Korea case dealing with these issues http://www.amazon.com/Learning-South-Korean-Developmental-Success/dp/1137339470/ref=sr_1_2?s=books&ie=UTF8&qid=1392888650&sr=1-2 ) These experiences highlights the importance of the institutional complementarity between redistribution, protection and production functions for poverty and inequality reduction (Please see our Transformative Social Policy Approach http://www.unrisd.org/unrisd/website/document.nsf/(httpPublications)/C77A2891BC2FD07FC12572130020B2AC?OpenDocumen t). Secondly, we need to think about how to link economic policy, or more specifically industrial policy and social policy in various development contexts. Social protection has been brought back into the development discourse as a major tool for poverty reduction but the productive aspect or its relationship with production has been insufficiently highlighted and less rigorously researched. Although the impact of social welfare benefits on human capital accumulation and social cohesion have been indeed emphasized and highlighted, many questions of how various mechanisms to translate a wide range of benefits including education, health care, pensions, housings and so on, into productive outcomes have been remained unanswered . Welfare benefits are not only the ends themselves as often argued by those of human rights based approach, but also the crucial means to enhance productivity. Diverse ways in which social protection schemes are linked with the policies directly related to production such as industrial policy should be researched and explored further.(One of the purposes of UNRISD's new research project on New Directions in Social Policy is to explain this link also. http://www.unrisd.org/80256B3C005BCCF9/search/069C37E36996ED64C1257C1600505C03?OpenDocument ) Deep understanding about diverse institutional configurations of social and economic polices will also help us to assess the nature of diverse subsidy schemes and their impacts on the poverty and inequality in a much broader sense.
Yours,
ILCHEONG YI
Research Coordinator
United Nations Research Institute for Social Development
Palais des Nations, 1211, Geneva 10, Switzerland
Email: yi@unrisd.org
