Economic Reform and Democracy: The Politics of Safety Nets

In the past few years, social scientists have made great progress in understanding the politics of macroeconomic reform. ¹ Much less headway has been made in understanding the role of social “safety-net” programs in that process. Much of the scholarly literature on the politics of adjustment alludes to the importance of compensating groups that are hurt or displaced by economic reform (as well as by preexisting poverty). To date, however, there has been little detailed comparative analysis. To help fill that gap, I will summarize the results of extensive field research in Chile, Bolivia, Peru, Zambia, Senegal, and Poland in hopes of providing an initial basis for the analysis of the political economy of compensation during reform, especially when carried out under democratic auspices.

Two assumptions underlie this essay. The first is that, in most countries, delaying difficult but necessary economic reforms ultimately makes things worse for the poor. Delayed reform exacerbates macroeconomic distortions, entailing higher social and economic costs and requiring more difficult measures than would have been necessary had reform been implemented earlier. ² The second assumption is that reform provides a favorable context for adopting new approaches to protecting the poor that limit the role of centralized solutions and rely on the participation of the intended beneficiaries. Such approaches not only hold more promise for lasting reductions of poverty; they also offer a better chance to enhance the political voice of the poor. Moreover, creating safety nets in such a manner can have positive effects on democratization more generally. By reducing the short-term dislocations caused by market-oriented reforms, safety nets ease the political constraints that such reforms pose for new or fragile democratic governments. Furthermore, encouraging the poor to participate in addressing their own problems and exercise their political voice can give these marginalized members of society a stake in both economic reform and the democratic system.

The success of safety-net programs depends to a large extent on political factors. To begin with, establishing a consistent policy framework within which poverty reduction can take place requires economic adjustments that are often difficult to sustain politically. The implementation of safety nets requires the allocation of scarce public resources and thus entails political as well as technical choices. As the poor are weak politically, in the usual scenario they are unlikely to be the focus of compensation efforts during reform. In addition, while the poor may bear some of the costs of adjustment and have the least margin for absorbing its shocks, they are often not among those most adversely affected. An added dilemma is that the poorest and neediest are often the most difficult to reach. Thus most governments will direct the public resources available for compensation at more vocal and organized—if less needy—opponents of reform, such as organized workers in the public sector.

Yet directing all compensatory resources to vocal opponents of reform, who are likely to be worse off after reform even if compensation levels are generous, is not a cost-effective political or poverty-reduction strategy. It may sometimes be possible to get beyond this trade-off between the “new” and “old” poor, and encourage new proreform coalitions, by focusing compensatory efforts on groups other than traditional recipients of state benefits. If government can manage the challenge from the organized opponents of reform, and if the new compensation plan enlists the active participation of its prospective beneficiaries, it can amplify the political voice as well as the economic potential of previously marginalized groups, thereby expanding the democratic political process.

Largely due to the example of the Emergency Social Fund (ESF) in Bolivia, demand-based social funds—which rely on the articulation of specific needs and programs by target groups and localities—became a primary means for the implementation of safety nets in several countries during the 1980s and 1990s. The ESF pioneered the notion of incorporating the demands of beneficiaries into program design and content, a method that has proven effective at aiding poverty alleviation and local institutional development while enhancing the political voice of the poor.

The widespread focus on short-term, targeted safety...