The role of policies and finance for human capital development

countries, with the largest number of extreme poor and high projected population growth rates for decades to come (ERD 2013), are likely to experience only slow growth in public expenditure up to 2030. At the same time, international public finance currently accounts for 65% of the resource inflows in countries with public expenditure levels of below $200 per person per year, so ODA will continue to be a vital source for them not least as a catalyst for improving the mobilisation and use of resources (CPAN, 2014b).

Despite the scale of this challenge the ILO’s Advisory Group on Social Protection points out that various populous middle income countries such as China, Indonesia, Brazil, India and Thailand have introduced and expanded large-scale social floor programmes in the last 15-20 years. Even poorer countries such as Ethiopia have done so, albeit with external support (Box 6.14). Examining various costing studies thus leads the Group to conclude that even the poorest countries can afford to implement nationally defined social protection ‘floors’ (Bachelet, 2011). The ILO’s costing studies on a basic package of social protection for a selected set of LICs and MICs in SSA and Asia show that the cost of a cash- benefit package, including old-age and disability pensions and family allowances, but excluding health care, is between 2.2% and 5.7% of GDP (ILO, 2008). Even in the absence of high growth, it is possible to enhance fiscal space if the prevailing political settlement supports this. The debate on affordability has generated significant interest in the international development community.

Affordability is not an absolute but rather a question of political preferences and trade-offs among competing goals in a context of limited resources (Hagen-Zanker et al., 2010; World Bank, 2012).

6.3.2 The role of policies and finance

Micro-insurance

Micro-insurance has been used in health care and social protection in a number of countries for well over a decade. It involves small user payments but on a much more predictable basis than OOP expenditure. It also offers scope to involve the private sector if managed carefully. The literature suggests, however, that it is mainly used as a mechanism to extend the coverage of government social-protection schemes where these do not achieve universal coverage and specific attention needs to be given to making schemes pro-poor.

Often these are community-based schemes for specific groups and/or areas and, particularly if they complement a government scheme, are usually closely regulated. Thus, although micro- insurance schemes can extend coverage when governments lack resources they are often seen as a temporary approach until universal coverage can be established (Wiechers, 2013; Jacquier et al., 2007).

South–South Cooperation

SSC will continue to be important beyond 2015 because of the extra options it offers developing countries, although perhaps not because of its scale which, in grant terms, is still limited. So far there is little information on whether non- DAC donors are likely to channel grants or loans into social spending beyond investment in infrastructure. Earmarked loans can free up budgets for social expenditure. Ecuador, for instance, borrowed some $6 bn from China in the period 2005–2010, during which time around 25% of the budget went on social expenditure.

On the other hand, there is solid potential for South–South policy learning given similarities in implementation conditions and constraints and the fact that some major proponents of SSC such as Brazil, China and India have direct experience of running large-scale social-protection schemes, some with considerable success (e.g. the Bolsa Familia in Brazil or the Chinese Minimum Living Standard Scheme; Bachelet, 2011).

Policies for effective use of finance for human capital

Fee-waiver systems for OOP payments for health services

In the absence of public funding, people have to pay for their own health care (as shown in Figure 6.8), which can be a major burden on poorer members of society. There has therefore been serious analysis of the impoverishment effects of OOP payments – payments made on receipt of a service – which represent between 30%

and 85% of all health spending in the poorest countries. Evidence in LICs and LMICs suggests that direct OOP payments represent 50% or more of total health expenditure and even up to 86% of private expenditure on health (UNTT, 2013; WHO, 2010). Complementary policies to ensure the best use of finance and reduce OOP payments have received considerable attention. Whereas public funding and insurance contributions can be progressive in terms of impact – although this may be true at primary school level but not at secondary or tertiary levels (Mtei et al., 2012) – OOP payments are generally regressive since poorer people pay proportionately more than richer people (O’Donnell et al., 2007; 2008) (see Box 6.11). In Tanzania this was partly because the fee-waiver system did not work well (Mtei et al., 2012). Reducing or eliminating cost-sharing and fees are therefore important UHC objectives. ‘It is only when direct payments fall to 15–20% of total health expenditures that the incidence of financial catastrophe and impoverishment falls to negligible levels’ (WHO, 2010). This is a tough target. ‘The countries in the WHO South-East Asia and Western Pacific Regions recently set themselves a target of between 30% and 40%’

(WHO, 2010).

Eight case studies of schemes to cut OOPs demonstrate this results in greater use of maternal health services, with the exception of the community health insurance scheme in Guinea, although it is not possible to explain why protection coverage, lack of social support, limited

middle-class buy-in to a pro-poor development agenda, incomplete citizenship whereby users of public services see themselves as beneficiaries with few rights (Laboratoire Citoyennetés, 2009).

There are dangers, for example, when social spending commitments exceed revenue-raising capacity, perhaps due to demographic changes (commissioned background paper, Brun and Chambas, 2015) or when the design of social- protection schemes fail to take account of additional needs when there are unpredicted co- variant shocks against which the government has to protect the population.

International support for social protection International support for social protection can help to unlock these political or practical constraints in the short term. However, in addition to financing start-up costs, social protection requires sustained financial support over long periods of time, which can be very difficult for donor governments that have electoral cycles of four to five years.

Developing a specific international funding mechanism for social protection (see Box 6.10) could even out these funding cycles and provide more continuity and predictability.

The United Nations Special Rapporteurs for the Right to Food and for Poverty and Human Rights, Olivier de Schutter and Magdalena Sepúlveda respectively, have proposed creating a Global Fund for Social Protection (GFSP) (Canavire-Bacarreza et al., 2012). The GFSP would stabilise and guarantee international support for poor countries to have the maximum available resources to implement rights-based social-protection systems. The GFSP would involve the establishment of:

A support fund to close the shortfall between what LDCs can reasonably pay and what it costs to provide a social-protection floor.

A re-insurance mechanism to provide temporary funding if a crisis or shock causes an increase in the number of people in need of the social-protection support.

Beneficiary countries would need to adopt a set of commitments such as including social protection for informal workers, extending coverage, devoting maximum available resources, taking steps to reduce the dependence on external funding for social protection, adopting policies to reduce the risk of shocks, and committing to the institutionalisation of social protection in national law.

The GFSP could also provide non-financial services (such as technical support) to assist LDCs in strengthening their basic commitments to providing social protection.

Source: Canavire-Bacarreza et al. (2012)

Box 6.10 | Global fund for social protection

Health budget targets

Health ministries need to develop better relationships with ministries of finance, and to help ensure that health is allocated a significantly higher proportion of government expenditure. In April 2001, African Union governments pledged to increase funding for health to at least 15%

of total spending, and urged bilateral donors to increase support. To date, only one African

country has reached that target. Overall, 26 have increased the proportion of government expenditure on health since 2001, but 11 have reduced it. In another nine, there is no obvious trend. Current ODA varies from $115 per person in one country to less than $5 per person in 12 others (WHO, 2011). This illustrates the size of the gap to be bridged in order to bring the political commitment to health into line with that given to education.

people will continue to use the often poor and weakly regulated, but convenient, private services (Genberg et al., 2009; Nayar et al., 2014).

Less aid fragmentation

and more long-term investment.

International financing has radically changed over the past 10–15 years with the introduction of vertical funds and a major increase in philanthropic donations, much of this in response to the MDGs. Looking at the current landscape of health financing from a domestic angle, however, it is important to streamline ODA to avoid absurd reporting requirements: ‘Viet Nam reports that in 2009 there were more than 400 donor missions to review health projects or the health sector.

Rwanda has to report annually on 890 health indicators to various donors, 595 relating to human immunodeficiency virus (HIV) and malaria alone while new global initiatives with secretariats are being created’ (WHO, 2010). The proliferation of vertical international health programmes focused on single or selected diseases has not contributed to developing the capacity of health systems as a whole. For example, the investment in human resources made by the Global Alliance for Vaccines and Immunisation (GAVI), the Global Fund and the World Bank was almost entirely in short in-service training and supplementary allowances rather than systemic improvements.

‘There is relatively little investment in expanding pre-service training capacity, despite large health worker shortages in developing countries... the majority of GAVI and the Global Fund grants finance health worker remuneration, largely through supplemental allowances, with little information available on how payment rates are determined, how the potential negative consequences are mitigated, and how payments are to be sustained at the end of the grant period’

(Vujicic et al., 2012)

Active employment and training policies Obtaining and retaining employment can be critical to overcoming and staying out of poverty (Baulch, 2011). Unskilled work (often casual, intermittent, and performed in exploitative conditions) is often not enough to take a household out of poverty:

having greater and more appropriate skills and qualifications will make a significant difference to the quality of paid work that a person can obtain.

It is very hard for poor, uneducated people to acquire skills through formal channels: formal TVET can be exclusive and expensive, as well as producing disappointing results unless employers are involved to ensure that the training is relevant.

Examples of successful TVET schemes in China, Colombia and Tunisia are reviewed in Box 6.12 b.

because of limitations in the study design. Some schemes with good benefits had surprisingly low uptake, reflecting the importance of non-financial barriers and issues relating to the quality of the services. At best, there was a significant drop in costs per birth, but they were not eliminated.

None of the programmes had demonstrable effects on achieving greater equity, nor was targeting a strong element in six of them, and few improvements in health outcomes could be attributed to them (Fabienne et al., 2010).

OOP payments are consistently regressive in OECD countries, but progressive in several Asian countries because poorer people simply cannot afford to use services. OOP payments are regressive in Tanzania and Ghana, where they still constitute a large share of total health expenditure. Levels of spending are so much greater in Ghana than in Tanzania and South Africa because of the long history of high user fees at public facilities. Ghana has generated the highest levels of user-fee revenue in Africa equivalent to 15% of total government recurrent expenditure in the 1980s. People who are not yet covered by national health insurance continue to bear the consequences of these high fees. In South Africa, most OOP payments are co-payments made by people with private insurance cover. Although these tend to be among richer groups, such payments can nonetheless be catastrophic and deserve attention. All countries have mechanisms for exempting vulnerable groups from user fees at public facilities, but household survey data suggest that not all eligible persons were exempt (11% in Tanzania and about 25% in Ghana and South Africa). A key factor was patients’ lack of awareness of their entitlements.

Source: Mtei et al. (2012)

Box 6.11 | Out-of-pocket (OOP) payments: Ghana, Tanzania and South Africa

There has been extensive research on extending skilled attendance at childbirth and improving maternal health, with many different approaches tested in a variety of settings. Some have sought to address financial barriers experienced at the household level, while others have looked at complementary policies such as incentives to health workers or aid mechanisms that reward good performance of the health system as a whole.

‘No single strategy is best for all contexts, but some important lessons for implementation have emerged from our case studies. The experience of countries that have seen sustained improvements in maternal health, such as Malaysia and Sri Lanka, show that the key ingredients for the long term are local commitment, perseverance and adaptability over time, a holistic approach that addresses demand- and supply-side barriers, and a focus on universal coverage as the ultimate, if not immediate, goal’ (Fabienne et al., 2010).

Remove discrimination in provision of health services

In addition to continuing to extend coverage geographically and across health services, a number of additional measures will be vital to achieving UHC so that it meets the needs of the poorest. In particular, inequalities need to be addressed; especially the discrimination faced by women and by ethnic and other minorities and migrants in obtaining access to and using health services. Health workers may need to be trained to behave respectfully towards patients whom they may regard as inferior, and affirmative action can be a useful means to recruit health workers from these groups. Services need to be located, scheduled and organised in such a way that people feel comfortable using them. Issues of quality are also extremely important it is often critical to provide a ‘one-stop’ comprehensive service, backed by good and accessible referral services. If these aspects are not addressed poor

The financing for TVET depends on cyclical and structural changes. Social expenditure has been under pressure from austerity policies and has been focused on basic social services, while the quality and relevance of TVET provision have come into question. It is commonly believed that skills training should be financed (at least in part) by the individual who will benefit. The limited funds available can translate into a stimulus for the involvement of the private sector, and the creation of more relevant training institutions (Gomes, 2009).

The big change in the financing of TVET in recent years has been the development of PPPs, with employers, employers’ associations and sometimes also NGOs establishing partnerships with governments, reflecting the necessary interface between the supply and demand sides of investing in a more highly skilled workforce

(Kingombe, 2012; Walther, 2009; Jager and Buhrer, 2000). At the same time, the risk is that private or NGO providers will aim for complete (or significant) cost recovery, which will exclude poor people unless their full costs are met by the government. Box 6.13 describes the experience of Mauritius in financing TVET.

It is also important to understand how finance can support the development of human capital in ways that are relevant for creating jobs. This needs to be done through better coordination between the demand for and supply of education and training. In the coming years, new jobs will increasingly be ‘green’ or in services underlining the close interlinkages between the economic, environmental and social dimensions of sustainable development. For instance, the New Climate Economy report argues that the political viability of a low-carbon transition will depend on In 2009, facing high graduate unemployment, the Tunisian government launched a graduate employment programme to foster self- employment and entrepreneurship. Instead of writing an academic thesis, students could participate in an entrepreneurship track that required them to produce a professional business plan. In order to do so, they received business courses (Formation Création d’Entreprise et Formation des Entrepreneurs) at local employment offices and individual mentoring from their university professors.

Finally, students had to defend their business plans before a panel and were invited to participate in a national competition. The best plans were awarded start-up capital of between $2,000 and $10,000. Results suggest that some of the beneficiaries of the programme became self-employed rather than seeking wage employment.

China systematically evaluated a retraining programme for workers who had been retrenched due to the reforms of state-owned enterprises (SOEs) in the cities of Shenyang and Wuhan. The results suggest that retraining can increase both employment and real wages, although there was variation between the two locations. In Shenyang, participation in the programme did not result in more employment, but did increase the earnings of those who found work. In Wuhan, participants were more likely to find employment but their earnings did not improve. The variation is explained not only by differences in programme design (with a more practical content in Wuhan), but also by the business environment in both cities.

The government of Colombia subsidised vocational training (Jóvenes en Acción) for disadvantaged adolescents. Training consisted of three months of classroom training and provided the necessary skills for occupations in office administration, IT or trade. After completion of the course, participants obtained internships at local firms to acquire first-hand work experience. There was found to be a significant impact on formal employment and real wages, although women benefited significantly more than men.

Sources: CPAN (2014) based on Attanasio et al. (2011);

Bidani et al. (2009); Premand et al. (2012) governments’ efforts to support and compensate

retrenched workers and communities affected by the declining coal and energy-intensive industrial sectors. These measures may include ‘direct financial assistance, retraining and reskilling, and investment in community economic development’

(Global Commission on the Economy and Climate, 2014). The Indonesian CI identifies the need to support the sustainability transition by improving the skills and capabilities of the labour force (CI, Damuri et al., 2015).

Atchoarena (2009) argues that the ‘impact of globalization and technological change, the concern for flexibility in the labour market and for employability, the ageing of the population and the search for more active forms of citizenship are contributing to a growing demand for youth and adult education and for a new functioning of education systems’. Ever more children are attending school, but the links between education and the labour market, and the availability of jobs, have not kept pace. This mismatch risks creating a backlash against education and suggests that

its provision is not always seen in a transformative context.

Public employment programmes (PEPs)

PEPs are key elements of social-protection strategies and can contribute to building national social-protection floors by providing temporary employment and a certain level of income for people of working age but who earn very little; they can also be used to upgrade or construct social- service infrastructure. PEPs involve governments creating employment in two main forms: public- works programmes, which may offer cash or for food for work, and employment-guarantee schemes or long-term rights-based programmes that offer some level of entitlement to work. In India, for example, according to official statistics, the National Rural Employment Guarantee Act (NREGA), a PEP established in 2006, has provided employment to about 50 million of the poorest households a year. Half of the employees are women, and it has greatly increased public awareness of the national minimum wage, the

Box 6.12 | Examples of programmes to enhance skills for employment Box 6.13 | Financing TVET in Mauritius through a levy–grant system

In the early 1990s, Mauritius introduced a 1% training levy on the basic wage bills of all private companies. This was meant to complement the government’s financial contribution to TVET and to improve productivity. The levy was paid to the Ministry of Social Security, whose system had proven effectiveness. To encourage them to invest in training their employees and to pay the levy, employers could obtain a grant refund of the training expenses incurred. The private sector was involved in all decisions related to the use of the levy and in the review of the grant system. The fact that the employers were paying the levy encouraged them to be interested in the outcomes (Dubois and Balgobin, 2010).

The grant-refund formula was revised on a rolling basis in order to ensure that it continued to be effective. In 1996 the government decided to remove the 200% tax rebate on the training levy and to treat the training costs in the same way as other expenses. In order to maintain the incentives for employers, the ceiling of the grant refund was raised, and costs incurred to study overseas or to bring in external expertise were also eligible for a refund. The existence of the levy helped the Industrial and Vocational Training Board to secure loans from the World Bank and the Agence Française de Développement (French Development Agency), as it was seen to be a sustainable source of funds and served as a warranty for the secured loans. The levy–grant system has allowed over half of the Mauritian labour force to benefit from some form of training. Various factors have contributed to the success of the system:

private-sector ownership, the method of collecting income, and constant M&E.

Source: Dubois and Balgobin (2010)