My Say: Social protection gaps call for inclusive coverage

Although poverty was thought to be fast becoming history in Malaysia, recent years have seen new concerns about its persistence. This follows adverse international publicity in recent years doubting real progress and alarmed at the impacts of Covid-19 on vulnerable people.

The effects of the pandemic and government policy responses over the past two years have refocused attention on the resurgence of poverty in Malaysia, long touted as a nation on the verge of becoming a high-income country.

Certainly, poverty in Malaysia has come down a lot, especially during the 1970s. In addition to reducing unemployment, government-funded programs have improved access to health, education and basic amenities, thus improving the well-being of many.

During the 1970s, policies targeted certain major occupational groups – for example, small rubber farmers, rice farmers, other farmers, fishers, new villagers and plantation workers – and areas where many were seen as poor.

But it has long been widely assumed that the success was – one way or another – due to the New Economic Policy (NEP). Announced in 1971, the NEP claimed to build national unity by eliminating poverty and reducing inter-ethnic economic disparities.

Despite a much larger workforce, political attention to employee exploitation has diminished since the early years of the NEP. This is evident in the treatment of foreign labor and the depressing conditions of Malaysian workers. Or the resistance of employers to raise the minimum wage from the ten-year-old level of RM1,200!

Officially poor?

After decades of controversy, the government revised its methodology for measuring poverty in 2019. The average absolute monthly household poverty line (INP) income for

Malaysia was RM2,208 including 53% food.

But using the relative PLI – defined as half of the median income, the midpoint of the overall income distribution – of RM2,936, the poverty rate fell from 5.6% to 16.9%, poor households tripling from 0.4 million to 1.2 million!

This implied that 0.8 million households had incomes just above the official absolute PLI, ranging from RM2,208 to RM2,936. Although they are not considered poor, they could easily fall into absolute poverty due to small losses in income. Many people with even higher incomes have also lost a lot catastrophically to the pandemic.

Using official data, the Khazanah Research Institute (KRI) Demarcating Households study found that in 2019, the bottom fifth of Malaysian households were barely able to meet their basic needs, with a further 50% unable to save a lot after doing it.

Thus, despite the low official poverty rate before the pandemic, at least 70% of Malaysian households were considered vulnerable. Many would not have been able to cope with pandemic income shocks without public provision and mutual support from family and others.

Poverty targeting

World Bank policy advice has long encouraged targeting of the poor. Specific policy measures – cash transfer programs, for example – have been touted, with these best practices being promoted as part of one-size-fits-all approaches.

Targeted anti-poverty policies claim to help only the “deserving” poor, that is, those living below the official poverty line. By focusing on the poor, there has been greater reliance on monetary measures to quantify income, poverty and policy effectiveness.

But there are many complications in determining individual and household incomes, for example, in setting appropriate monetary income thresholds for eligibility. Furthermore, such targeting typically suffers from inclusion and exclusion errors.

Thus, many people otherwise deemed deserving may be left out, while some of the less deserving may benefit. Consequently, policies ostensibly targeting the poor have often excluded many who are truly poor while including many who do not deserve it.

The actual targeting procedures and associated costs are usually considerable but rarely acknowledged by advocates. Targeting thus increases the costs of poverty reduction and social protection programs while rarely overcoming errors of omission and inclusion.

Fiscal constraints are frequently cited as a justification for targeting the poor. Unlike universal benefits, which typically enjoy broad public support, targeting reduces public support for government funding, policies and interventions.

Some ministries and other government institutions have useful information for the multidimensional analysis of poverty. But the lack of transparency, harmonization and sharing of inter-ministerial and inter-agency data has prevented a better understanding of poverty, its reduction and its social protection.

Worse, the effectiveness of the various measures put in place has not been subject to rigorous analysis. With few such assessments, there is little real understanding, let alone consensus on how and why poverty has declined.

Improving social policy

Poverty alleviation still dominates too many social protection and welfare measures in developing countries. Therefore, targeting the poor should not be allowed to determine social policy, which already excludes many vulnerable people.

With financialization, contributory social insurance schemes were presented as protecting against unemployment, disability, disease and the risks associated with ageing. But only those who can afford the required regular payments can actually participate, all others being excluded.

Of course, state-funded short-term social safety net programs can be complementary to help deal with extraordinary contingencies. But such social assistance is not a substitute for comprehensive universal social protection.

The recent recognition of precariousness means that almost everyone is at risk of becoming economically distressed. With inclusive and comprehensive social protection, everyone can feel secure – at least to some extent – ​​depending on the availability of budgetary resources.

While formal poverty in Malaysia was low before the pandemic, gaps in social protection coverage remain significant. Broadly inclusive social security coverage was envisioned by second Prime Minister Tun Abdul Razak Hussein half a century ago, in 1972.

Although it has long been part of official Malaysian discourse, it has since been ignored by all its successors. KRI has recently taken up the challenge by offering comprehensive social protection throughout life, from childhood — through working adulthood — to retirement.

Poor benefits for the poor

Following policy advice from the World Bank, supposed anti-poverty efforts have expanded from the officially recognized poor to the bottom 40% of households (B40). But the “B40-M40-T20 percent share” model’s response to demands to tackle economic inequality fell between two stools.

The resulting single-model focus on the B40, regardless of context, failed to adequately address inequalities. While the number of welfare programs has increased from 95 in 2012 to 137 in 2020, total expenditure has fallen by 44%, from RM45.5 billion to RM25.5 billion!

Thus, underfunding has exacerbated undercoverage, unpredictable delivery, and program fragmentation. Worse still, benefits targeting the poor tend to be underfunded. As Amartya Sen has pointed out, “benefits for the poor often end up being poor benefits”.

And contrary to World Bank claims, cash transfers are highly prone to political abuse. His vaunted policies have been widely abused. Worse, such abuses against the most vulnerable in society are largely perpetrated by and for the benefit of the so-called benefactors.

patronize the poor

Price subsidies for goods once deemed essential – sugar, for example – have been largely removed. Instead of sustainable anti-poverty programs, cash donations go to those deemed eligible, broadening political support for the regime in place.

But experience shows that effective public in-kind provision – such as the provision of safe and nutritious meals for all in schools and preschools – has had significantly better medium- and long-term outcomes for beneficiaries and society, but with little political benefit to the ruling party.

Many anti-poverty programs have been run for political ends by incumbent politicians. Many have tried to frequent poor, often rural, but increasingly urban communities. Benefits accrued unevenly, often reflecting varying degrees of political influence.

The selective disbursement of subsidies – in the name of development or well-being – has thus become the key to the clientelism of the incumbent politicians. Of course, some lackey satraps, cronies and crooks have gained far more than others from such patron-client arrangements.

The waste, abuse and corruption currently rampant in the name of development, welfare, poverty eradication and social protection have not only exploited the poor and others, but also tax resources and governments more generally.

Jomo Kwame Sundaram, a former professor of economics, was UN Under-Secretary-General for Economic Development. He is the recipient of the Wassily Leontief Prize for Advancing the Frontiers of Economic Thought.

Joel C. Hicks