 So, good afternoon and thank you for coming to the session. Let me first begin by congratulating Wider. It is a major achievement to be doing this for 30 years, and we're very pleased to be here. And also thank you for inviting me to the session, and I'm happy to share this session with Miguel. So, as Lisa said at the beginning, I'll speak mostly about Latin American experience, but I probably will begin with some methodological remarks that may be useful to other parts of the world. So, I'll speak a little bit about objectives and instruments of social protection, then a little bit about social insurance, I'll speak about poverty programs, and then some remarks at the end. So, whenever they ask me to speak about social protection, I sort of don't like it, because I never know really what to speak about. Social protection is such a wide concept. Different people have very different things in their mind. Some people think about poverty alleviation, some think people are thinking about social inclusion, some people have in mind social assistance, the other one is talking about social security. So, we're using the same word to denote very different things, and it's difficult to have a precise dialogue because everybody interprets the word social protection in a different way. I'm sometimes, this is going to sound strange, but I think the word social protection should be eliminated from the language, and we should be much more precise in the concept that we use. The vagueness actually translates into some vagueness in policy. The way I like to think about this is to sort of separate the issues of objectives and instruments. First, to speak about objectives is recognize that individuals have difficulty managing risks. That because markets are incomplete, or because the preferences of individuals might be different from the preferences of the government. You know, particularly health insurance markets credit markets. Individuals have difficulty with consumption smoothing, have difficulty with buying health insurance, have difficulty buying longevity risks and diversifying longevity risks because there might not be annuities, because there might be markets for these annuities. They might have difficulties diversifying employment and output shocks because there's not a market for an employment insurance, or because there are no markets to protect themselves against natural disasters. So one objective is to help individuals manage risks. A very different objective altogether is to redistribute income. And you might want to just have equity and income redistribution as a good in its own right because you think from an ethical perspective it's just wrong to have individuals that are poor. But you might also make an equity and efficiency case for redistribution to the extent that credit markets run badly and in fact some redistribution would actually not only be equity enhancing but also be efficiency enhancing. So you might make a case for that. So there are two separate objectives altogether and I think there are two instruments that we have to think about. Social insurance programs and you know, it's very linked to labor regulations in Latin America and separately from that poverty alleviation programs but don't forget that many countries in Latin America and I think other parts of the world also mix in fiscal policy and they actually use fiscal policy as a redistribution instrument and what happens in many of the cases is a mess of incentives and a confusion of instruments and policies. So if you look at the right side there that's the typical list of the sort of things that you'll find in the Latin American country. There might be a CCT, there might be a school breakfast program and then maybe they distribute milk and then distribute distribution and they subsidize LP gas and the social electricity and maybe the tortilla subsidizes as well but of course we have a temporary employment program we have minimum wages there might be severance pay and then they have non-contributive pensions and health programs and some goods are exempted from VAT and this list changes from one country to the other and if you ask yourself the question if I have the two objectives one redistribution the other one is insurance what is the objective population of one? Clearly for redistribution it can only be poor households because a country cannot redistribute income to itself so you cannot have the target population of the distribution be everybody it can only be from one to the other whereas separately insurance is something that you want for all households because the market failures that we talked about before actually apply to all households but the mapping of instruments to objectives and to target populations is very very confused so an important point that I sort of think the simplest possible world and this is obviously oversimplifying things a lot is to think about the world divided in quadrants and you want to think about if the objective is insurance against risks and you think about everybody the distinction between poor and not poor is not relevant and actually in Latin America and I think this is also true in Africa as far as I know the distinction between being in the formal market and being in the formal market matters a lot but if you think about the objective of redistribution clearly what really matters is whether you're poor or not poor and your status of formal and informal is relevant except to the extent that one might be endogenous to the other and that the instruments might actually make the populations in the different quadrants endogenous to each other but this distinction between objective and instruments I think is really important to think about so that said let me make some remarks about social insurance when we think about social insurance I think is fundamental to think about in two dimensions and most of the literature and social protection I think focuses mostly on the third dimension but I think we have to sort of think about the two dimensions in parallel one dimension is what is the efficacy of social insurance programs are they actually helping population households manage risks health risk, longevity risk, disability, unemployment risk are they actually reaching their populations but an equally important aspect of social insurance programs particularly in the context of Latin America and this might be relevant from other regions of the world is that social insurance programs have an impact in the labor market and that impact in the labor market might affect productivity and might affect growth in dimensions that the designers of the social insurance program didn't have in mind but nonetheless those effects are there and I think this two distinction between what is the social efficacy of the social insurance program and what is the impact on incentives must be clearly distinguished and is relevant for the way we think about social insurance but also for this discussion that is being held today what happens after CCTs, exit doors or exit out of these programs in Latin America the central issue with social insurance is that social insurance is not universal the key defect the original sin is that social insurance was associated with the labor status of the household that work and so from the design this comes from Bismarck in the 19th century from the design you have a system of social insurance that's asymmetric one's what we call contributory social insurance, CSI, contributory social insurance and that is for formal workers and it's always a bundle of benefits and it varies from country to country but it usually has health insurance pensions, retirement pensions, disability insurance life insurance it is usually paid from a contribution that must be internalized by the firm and by the worker so it's called a social insurance it's really an earmarked wage tax and because it's contributed from a wage tax we wrongly call it contributory social insurance the proper name would be contributory social insurance from a wage tax but people just call it contributory social insurance and these benefits are bundled with many other things it's sprinkled with other things that have nothing to do with insurance in some places, for instance in Colombia they add labor training programs as part of that bundle in Mexico we have housing as part of that bundle in other places they have child allowances so the social insurance objective which is associated with managing risks it's sometimes mixed a little bit with other dimensions and then most formal workers are also protected for unemployment risks through not so much unemployment insurance pay or one-time payments at a time of dismiss until about the early 1990s most informal workers were not really covered by any form of social insurance what happened is in the middle of the 90s and throughout the last two decades new programs which are not bundled together in the same way that the contributory programs are have emerged and these programs are paid from general revenues and they have the misname of non-contributory social insurance when the proper name should be contributory social insurance from general revenues as opposed to the upper ones contributory social insurance from wage taxes so the asymmetry is really an asymmetry in the financing which then translates into the effects that I'm going to speak about before most of these programs are targeted on workers that are not covered by contributory social insurance and they're unbundled and usually in the informal sector there are no regulations about minimum wages no regulations about severance pay or social protection this is a very interesting diagram from Peru it's a diagram that says what happened to the same individual workers that black in 2008 were informal in blue what happened a year later it's a panel set of data and it says look of all the individuals who were informal in Peru in 2008 next year 10% have moved to the formal sector another 52% have been in the informal sector 16 have moved to self-employment sorry for the Spanish 4% have moved to unemployment and 18% have left the labor force and of the guys who in 2008 started in the formal in the formal sector one year later 80% continue to be in formal but 10% move to informal sector 4% to unemployment the point I'm trying to make here is there's a lot of shifting of individuals between the formal and informal sector and the more data we have had there for Mexico, for Colombia, for many countries in Latin America what you see is there's a lot of fluidity in the labor market between the formal and informal sector this might be voluntary, they might be involuntary doesn't really matter from the point of view of social insurance what it means is that we speak about formal workers and informal workers the other terminology is that I think those two names should be expurgated from the language the same way as social protection should be expurgated from the language and we should speak about when workers are formally employed and when workers are informally employed because most workers during their lifetime will have a spell of formal employment and a spell of informal employment now if you think about it what does that mean from the point of view of managing risks from the point of view of managing risk well if I'm formal I am covered by a bundle set of protection health insurance, I'm saving for my pension I have disability insurance I'm protected from unemployment but if I'm informal I'm the same guy, I'm the same person I just change jobs and by changing jobs I'm no longer protected from health insurance or I'm not saving for my pension so in a context in which you have a segmentation of the labor market between the formal and informal sector and in which people transit between the formal and informal sector the efficacy of insurance is very much diminished because the same person with the same characteristics and preferences is sometimes covered and sometimes it's not covered think of this, suppose I want to sell you house insurance and I say look this is a great house insurance home insurance and it will protect your home in the winter and in the autumn but it will not protect your home in spring and in summer now how many of you want to buy house insurance like that that's exactly the kind of insurance we're delivering to workers extremely ineffective insurance and of course you're not going to save for your pension because if you're moving back between the formal and informal sector and you're only contributing to your pension during the time of your formal you're going to contribute very little money to your pension because it's happening already in Latin America because of this bad design retirement pensions are going to be very low and replacement rates are going to be very low in fact many workers because they had short spells of formality will actually not even qualify for a contributory pension because they will not have accumulated sufficient number of years in formality to get a pension and most contributory pension systems in Latin America are actually not providing workers with retirement pensions or a main efficient system from the point of view of social insurance I said there were two dimensions the other dimension that is really relevant to take into account is that social insurance is also affecting the labor market so T is the cost of the contributory social insurance LF is formal employment and there's a large relatively well known literature that says that the higher is the cost of the contributory social insurance there will be a negative impact on formal employment and there's in a way, the way I like to label it it's a tax on formal employment because the contract between the firm and the worker has to internalize the cost of something that workers might not fully value and therefore there's an implicit tax and there's some literature I'm not going to quote here that actually shows that that's the case and it's a relevant point the same happens with the tax of non-contrary social insurance except that this is now no longer being internalized because remember this is being paid from the point of view of the firm and the worker from general revenues from the point of view of the firm and the worker non-contributory social insurance is like mana from heaven it comes, nobody pays for it directly in that contract and there's an emerging literature that says that what that is doing in fact is reducing formal employment because think about it you now get some benefits from being informally employed whether you nor your firm have to pay for them and therefore that is in a way turning into a subsidy into informal employment so this is a neat little example of a program in Mexico that provides health insurance for women conditional upon being informal and this program does it in the federal district red line Mexico City but the program was not done in the two other larger cities of Mexico and all you guys know about this control treatment stuff and comparing groups and identification and all that stuff there's a major industry that was around that and basically what this shows is that what you see here is clearly that the probability of formal employment for informal women actually dropped in Mexico City when this program was introduced as opposed to what happened in Monterey and Guadalajara there's a large emerging literature of programs of this sort having some effects in Argentina in Brazil, in Colombia, in Ecuador in Mexico, in Uruguay in many countries. Some of the authors of those papers are actually sitting in this room they've written really interesting papers and really important papers that what they're showing is that the asymmetry in the design of social insurance is distorting initiatives in the labor market on one hand is taxing formal employment which you don't want and on the other hand is subsidizing informal employment which is also used something new so there are many of these papers on contrary to social insurance many of the papers however look at individual programs and I think a methodological challenge looking ahead is okay, there are these set of programs interacting from both sides of the market firms and workers are responding to the whole structure of incentives not to the individual incentive so an important methodological challenge looking ahead and thinking ahead is how do we think about the architecture of the whole social insurance not the individual programs we have a lot of evidence right now that these effects are there we don't have good measurements of the aggregate effects of all this that is going on stop social insurance five minutes on poverty programs the world that I was describing before in that two by two matrix was the world of the columns the worlds of the formal and the informal the world I want to talk about now is the world of the rows the world of the poor versus non-poor so many countries I mean we just heard from Africa before have price subsidies to essential consumption consumer goods they can do it through many ways electricity, gas, whatever they might distribute food stuffs they have price control for price ceilings the plethora of things out there is large at the end of the day at the end of the day what the programs are really trying to do is to transfer income from a set of households to another set of households so their mechanism to transfer income and they might be targeted or not they might be conditional on some behavior or not they might have high initiative cost or a lot of corruption, little corruption they might be fiscally inefficient but they are better than nothing because if you want to redistribute you need some mechanism to redistribute income in Latin America years ago all these mechanisms to distribute income through income transfers electricity subsidies, bad and what not were tried to be changed into a Latin American innovation which was the conditional cash transfer program which was basically an instrument that again was trying to transfer income but it transferred income in cash so instead of giving households a round thing like this made out of maize called tortilla or a liter of something like that with quite liquid called milk they gave households a rectangular piece of paper with a picture of the local hero called cash so they went from transfers in kind to transferring cash and there were some explicit conditions explicit conditions that says look I want some socially desirable behavior like your kids going to school you going to the health clinic you doing something socially desirable because those explicit conditions were trying to build on the human capital the thought was that these conditional cash transfers program would be better mechanism to transfer income because it would be more effective from the transactional point of view administrative point of view because you were trying to modify households behavior in a socially desirable way now the parents would bring the child to the health clinic for the vaccinations and before the parents would not bring the child to the health clinic for the vaccinations and that's a good thing and now the mothers were concerned that the kid would go to school because otherwise the transfer would not be there and you were trying to focus on structural poverty and the fundamental idea the fundamental idea of this conditional cash transfers program is rather than being a permanent mechanism to transfer income so I will I make income transfers today and I'm income transfers tomorrow I will transfer income conditional upon the human investments in the human capital of the poor so that now they have healthier lives, no morbidity and they have more education and therefore these households can have better income in the future through their own efforts breaking the intergenerational transmission of poverty through these investments in human capital this started in Latin America about 15-20 years ago and so a really fundamental question from the point of view of poverty alleviation is are these programs helping to break the intergenerational transmission of poverty and I think that you need two conditions you need to increase the human capital which is what these programs are doing but you also need better income opportunities particularly more productive jobs with higher wages the way I think about the CCT is that as opposed to the past when the poor mother is pregnant she's better fed she gives birth to a baby that doesn't have low weight at birth the baby does not suffer under nutrition and then he goes to school and then he ends school and he maybe has a high school degree his parents didn't have that and now the guy is ready he didn't have under nutrition he's well fed he's much healthier, he didn't have morbidity he has his high school degree fantastic and the guy is going to enter the labor market is he going to get a more productive job tomorrow so now I don't want you to think about the rows of the 2x2 column I want you to think about the columns in that matrix these conditions are really separate unless the poor and higher wages with their own efforts the CCT will end up being a permanent transfer mechanism instead of being a transitory transfer mechanism and it is essential to highlight here that the CCTs are not job creating programs nor they should respond to transitory shocks in output nor are they social insurance their objective is to invest in the human capital of the poor and to transfer income while doing that so my way to thinking about social protection policy in Latin America is think of poor and un-poor in the rows think of formal and informal in the columns you now have some individuals at point A that individual at point A this is his earned income that individual at point A can be pushed to point C through a transfer but we don't really want to push individuals from point A to point C through a transfer at least not permanently because we don't want a permanent dependence we want to push individuals from point A to point B because we want them to have more earned income through their own efforts so you want them to move from A to B but I told you before that the architecture of social insurance programs is pushing workers from B to C because it is tax informality and is subsidizing informality so the point I want to make here I'm going to end now is that the design of social protection in Latin America and hopefully this flaws will not be reproduced in other parts of the world is at the bottom in some deep sense deeply flawed because it's a model built particularly on the social insurance part for a labor market that is not the Latin American labor market it was thought about for the European labor market in the 19th century which is fine but this is not Latin America in the 21st century and you have this problem now in which you're instead of shifting people into the more productive part of the economy slightly the opposite so that's the problem I'll conclude now with some remarks first I think we need a lot more precision in the discussion what is social safety net, social assistance we all use these words in a different sense important to distinguish between the objective to provide insurance versus the objective to provide an income transfer we really need to focus much more on the incentives that these programs have and the interaction between the many programs for many of the authors here we all need to move between the analysis of the individual impact of individual programs to the architecture and how all these things interact with each other we have to be clear of what the objectives of the CCTs are they're extremely useful programs and I think a lot has been learned from them and Miguel was speaking about how they're being used in Africa but they are not social insurance programs they are not job generating programs and unless you fix the columns there will be permanent programs and what you will have done is yes, raise people's welfare but you will have put them in permanent welfare as opposed on a path out of poverty through their incomes and through higher productivity my own view is that the deep flaws are in the social insurance part and I think the region needs to move in the direction of universal programs and the only way we could move in the direction of universal programs is if we rethink what gives rise to asymmetric programs the contributor and non-contributor programs so do the following experiment for the next 15 seconds if we were discussing education right now we will be speaking about contributory and non-contributive programs for education and when we think about education do we think about the formal and informal distinction when we speak about education the reason is that education is all funded universally from general sources for revenue there's no distinction in access to education between the labor status of the parents of the child there is a distinction in health, in pensions in disability insurance, in life insurance in social insurance between the labor status of the parents because one is financed from a wage tax and one is financed from general revenues and therefore the physical dimensions of social protection are at the core of the problems that Latin America has not been able to solve because we haven't had states that can do the deep source of taxation that is required to be able to do that and I think where we need to move now is to think about the joint design of social insurance and tax systems at the same time in an integral way stop here, thank you