Income and Influence: Social Policy in Emerging Market Economies

The process of social policy formation in emerging market economies has only recently gained the attention of researchers. In the wake of the implementation of broad reforms based on macroeconomic stabilization, market liberalization, and enterprise privatization, questions arose as to why the outcomes for working people in those nations have been less than hoped for. Poverty, inequality, and joblessness remain widespread. The connection between economic reform and social policy, and why such reforms failed to produce the tide needed to lift all boats, is the subject of this book from Ethan B. Kapstein and Branko Milanovic. In Income and Influence: Social Policy in Emerging Market Economies, the authors argue that the pattern of social policy in developing countries is determined by two key factors: the domestic political influence of formal sector workers (who provide the most substantial roadblock to reform), and the absolute income level (gross domestic product per capita) of the emerging market economy being studied. Kapstein and Milanovic study the implementation of social programs in post-Communist countries (where socialist policies once predominated) and in Third World countries that have only recently found the financial capital necessary to support such programs. Specifically, they examine three major economic crises of recent decades that sparked interest in the process of economic reform, structural adjustment, and social policy; those are: 1) the Latin American debt crisis of the 1980s; 2) the postcommunist transition; and 3) the Asian financial crisis. The authors also focus on what they call "the most influential social policy innovations to emerge from the developing world": Chilean pension reform and unemployment insurance in Korea. The main purpose of social safety net programs in developing economies, say Kapstein and Milanovic, is to help smooth the consumption patterns of those formal sector workers who feared that economic liberalization would reduce their incomes and job prospects. It is these workers, say the authors, who lobbied their governments most effectively for social insurance, and it is their concerns that have been at the top of the social policy agenda in their countries. They spend their political capital on programs that protect income, therefore it is not surprising to see progressive pension reforms and unemployment compensation - two programs that do not benefit the poorest workers or those toiling in the informal economy - being implemented. Kapstein and Milanovic conclude by proposing a set of policy recommendations and priorities for governments and international institutions that would help redirect and achieve the goals of social policy development in developing economies.