 And let me begin by thanking, you know, Wider for this invitation, it's really privileged to be here. Thank you, Miguel, for that introduction. So I was asked to speak on a Mexican program to combat poverty, which is called Precio Opportunidades. I'll speak a little bit about that, but I want to devote an important part of my time to not only speaking about this program in particular, but to speak a little bit about sort of what's next and how this program fits into the broader picture of social policy in Mexico, and there might be some remarks that are useful for Latin America. I'm not really sure to what extent these experiences are useful to other parts of the world because institutions and contexts are different, but perhaps there are some interesting insights that are useful. So I'll begin a little bit with some very quick background on Precio Opportunidades. Back in the 1990s, when, before this program was launched, Mexico had about 30 percent of population in conditions of extreme poverty, and it was not because it was not running programs to combat extreme poverty, in fact, Mexico had had a long tradition of having many programs for food, nutrition, various kinds of support, it's just that these programs had very many problems. They had targeting problems in terms of the rural urban violence or generalized versus targeted subsidies. There were very inefficient programs in terms of what percentage of the budget was devoted for administrative expenses versus actual transfers, run by many ministries and agencies with little coordination, not really focused on the most vulnerable members of the household, and there was very little evaluation. So what changed, what sort of trigger changed, and there are sort of two things that triggered change. One is there was a major shock in Mexico in the mid-1990s, in 1994-95. There was a big crisis, GDP fell by about 6 percent, and it was clear to everybody that something had to be done, everybody was very concerned that this big shock was actually going to have a big impact on poverty. So that was an important political motivation for change, but also during the 1980s and the 1990s there had been some important advances in the analytical understanding of poverty, particularly why food and nutrition and health were complements as opposed to substitutes in consumption, some important research that clarified the role of food subsidies as income transfers, actually a paper that was very influential to my thinking back then, it was actually written by Ravi sitting here, I think it was called Poverty and Food Subsidies with Basically Economic Journal, 1980, something about why food subsidies in a way were equivalent to income transfers, and some important work of people in highlighting the importance of incentives in the design of the program. So all these analytical insights from the literature in the 80s and 90s were tried to be incorporated into the design of the program. The idea was then to replace this very large set of disjointed and unarticulated nutrition, health, food subsidies targeted, directed to substitute all these programs by a single program that would transfer income to the poor, but that at the same time would have more impacts on the health, education, and nutritional status of the poor. And the ideal was that by investing in the human capital of the poor, this was the driving idea, by investing in the human capital of the poor, the program would contribute to breaking the inter- generation and transmission of poverty. So that was basically the idea. Basically what it did is substituted all food subsidies, both in kind and in price subsidies with cash transfer. It actually gave the cash transfer to mothers. It conditioned the transfer partly on behaviors associated with health, partly on behaviors associated with school attendance. We included impact evaluation with a randomized design as part of the program for the beginning. And we tried to break away from some of the political economy considerations that targeted beneficiaries with other criteria by bringing in very objective targeting criteria. And I guess the program was novel because all these innovations were put together at the same time. Briefly, what has happened since then, it's more than 15 years since this program has been in place. There have been many papers written about projects opportunities that have looked at various dimensions of this program. I'm going to summarize about 15 years of research in two slides. On the positive side, what has been found is that the program has had a positive effect of consumption. Food consumption has gone up and general consumption has gone up. There's some evidence that people are beginning to save part of the transfer and turn it into investment projects. This has been a useful instrument to protect household against price shocks because the transfers are indexed to the CPI. There's some positive, there's some indication, you know, there's pretty good research that says that there's positive impact of this program on education, both on enrollment rates, on progression rates, and that actually the impact has been stronger for girls and for boys, which was one of the aims of the program. There's also a lot of evidence that says that this has had a positive impact on the health and nutrition of children and the household. It has changed gender balances within the household and it actually the preliminary that we have it hasn't affected labor leisure choices of adults, but it has affected the allocation of children's time in the direction of less work and more study, which is what was intended. So all these are sort of the positive results of the program so far, but not all the results have been positive. Some results have shown that despite the fact that children are going to school more often, the more deeper impact on learning and cognitive ability has been weak. There's been no impact yet on comprehension tests. We have very little evidence that in fact this is actually reducing anemia and stunting had to do with the fact that some of the nutritional supplements were not done very well. And there's some mixed evidence that in fact it's actually causing obesity and overweight in some of the children. So the balance is clearly positive, but it should be unfair to say that the program is flawless or that it should not be designed differently. We clearly underestimated the problem of the quality of the supply of health and educational services. Yes, children are going to school more often, but the quality of the teachers and the quality of the schools where this children are going to school is not up to the standards and that's why some of the impacts on learning are not as strong as we thought they would be. Yes, children are going more often to health clinics, but sometimes the service that they're getting at the health clinics is not as good as it should be. So there was clearly underestimation of the supply side problem of both health and education. And clearly back then in the time when we designed the program there was insufficient understanding of the importance not only of nutrition, but other elements of early child development which were not incorporated into the program. If the program were to be designed today and begin today from scratch it would be a different program. On the whole, however, the balance has been positive and a program like Progress Oportunidades, Mutatis Mutandis has been put in place in very many other Latin American countries. By last count I think there were 38 countries in the world that had a program with similar features to condition of progress opportunities, the famous CCTs that have been all over the place. What I'd like to do now is to look beyond Progress Oportunidades and devote the rest of my time to ask some questions about what is, how does this program fit into the broader framework of social protection and where is this program going? So the key question is will this program break the inter-generation and transmission of poverty? And for that I think the two conditions are essential. I think the poor have to have increased human capital and the evidence is that it is happening not as much as we would like, but it is happening. But more importantly, they need to have better income opportunities, especially more productive jobs with higher wages. And these two conditions are sometimes conflated, but it's important to understand that these are two separate conditions. And it is important to highlight that Progress Oportunidades is not, is not a job creating program. So unless the second condition is fulfilled, Progress Oportunidades runs the risk of being a permanent program to transfer income to the poor rather than what was the original design, a transitory investment in the human capital of the poor that would contribute to breaking the inter-generation transmission of poverty. And to understand a little bit why the second condition is not being met, it's important to distinguish between two separate objectives that social programs, I'm not speaking now about poverty programs, but social programs were generally need to fulfill. There is the problem of transferring income to the poor, and please look at that matrix along the rows, and if you look at that matrix from the perspective of the rows, you want to distinguish between the population that is poor and non-poor, and you clearly want to transfer income to the poor, and that's the role of Progress Oportunidades. But if you focus on the world from the point of view of the columns, not of the rows, it's clearly that you want to provide all workers with insurance against risks, but in the context of Mexico and many Latin American countries, the labor force is split between a formal and informal component, and as a result, the mechanisms to provide social insurance to the labor force are divided between what I call contributory social insurance, which is what everybody understands as social insurance paid from wage-based taxes, and an array of non-contributory social insurance programs that have been put together for informal workers. Now I want to focus on the columns as opposed to the rows. CCT is focused on the rows, but social insurance focused on the columns, and I want to focus on the columns because I think this is important for what happens to jobs. The key point here is that the bundle of benefits associated with contributory social insurance, T, is a cost that must be internalized in the contract between the firm and the worker, because it's a labor tax. But the cost of the bundle of benefits associated with non-contributory social insurance, health programs, pensions, daycare programs, for informal workers that are present in Mexico are not paid from a wage tax and need not be internalized between the firm and the worker. So there's a big amount of evidence that shows that contributory social insurance to the extent that is undervalued by workers, because the benefits are not as good as the cost, acts like a tax on formal employment. And I'm not going to discuss that because there's quite a bit of accumulated evidence over time that in fact, if you increase contributory contributions, then formal employment will go down. What is less known is that, in fact, the bundle of programs of non-contributory social insurance acts as a subsidy to informal employment, because in the end, informal workers are getting a benefit that they're not paying for, nor the firms that hire them are paying for, conditional on being informal. And the evidence shows that this combination of the way social insurance is structured is actually reducing formal employment. By now there's some empirical evidence that in fact shows that this is the case. An important health program in Mexico for informal workers called Seguro Popular was introduced in the early 2000s. This is work by a colleague of mine at DITB in which he basically exploits the fact that this program was rolled out at different speed in different municipalities and what the graph is showing here is that controlling for everything else in municipalities in which the Seguro Popular program was rolled out, in fact firms responded to the program by not enrolling anymore in contributory social insurance. This difference in the behavior of firms that now can evade social insurance contributions without their workers being left without benefits is actually translating into reduction in formal employment. It's indirect evidence that evasion behavior by firms is increasing as a result of the program. And a couple of colleagues of mine at the IDB have shown that during the time that this program has been in place it has actually reduced formal employment by between 8 to 20 percent of the formal employment that would otherwise have been created in that particular time period and that the effects are actually stronger for low wage workers. Another piece of evidence, this is a health program that was put together in a municipal in Mexico City. Interestingly, from the point of your research, the mayor of Mexico City didn't want to go along with the program being pushed by the president. He was having difficulties with the president so he decided to run his own program at a different time period. So he created a health program for informal women in Mexico City and a researcher in Mexico used the fact that this program was put in Mexico City but not in the two other larger cities of Mexico which are Guadalajara and Monterrey and compared what are the probabilities that women were in informal employment. And interestingly the program for informal women in Mexico City actually reduced the probability that women would find a formal job. So there's also evidence that this was impacting formal employment. The key point here is that there's some kind of an incentive compatibility problem between the programs that are investing in the human capital of the poor which is Progreso Opportunidades which are trying to create capabilities for the poor by investing in the human capital and a different set of programs that operate more along the dimension of the labor market in which the incentives of firms and workers in the labor market are being distorted in the direction of informal employment because contributor social insurance is taxing formal employment and because non-contributive programs very understandable from a social point of view, from an economic point of view are acting like additional subsidy to informal employment. So the incentive incompatibility problem is turning into labor outcomes that are actually not the desirable which is persistent informal employment despite the fact that the human capital of the poor is increasing and despite the fact that workers are accumulating with human capital. The key point here is that Progreso Opportunidades, a income transfer program that invests in human capital cannot solve the problems in the labor market that are created by the formal informal dichotomy. And that if you think about the amount of budget that is going into these programs, the amount of money that is going into the non-contributive programs far exceeds the amount of money that is going into Progreso Opportunidades so that the distortions in the behavior of firms and workers induced by social insurance are much larger than the investments in human capital that you're taking place. This is a graph that shows this very interesting graph that shows on the right axis what has happened to years of schooling of poor workers. So I define here arbitrarily poor workers as workers in the first two desks of the income distribution and on the right axis what you basically see is that poor workers have increased the years of schooling by about the equivalent of three years over the last two decades. This is important because the amount of time that they have, the amount of schooling is actually increased by about 40%. So this is an important accumulation in the human capital of the poor. I didn't bring here in the case of quality. Quality of schooling in Mexico is low but it's been increasing gradually. So quality has been increasing, quantity of education has been increasing. So it's difficult to argue that human capital has not been increasing. Clearly the human capital of the poor in Mexico has been increasing. But if you look at the blue line on the left axis and you look at the informality rate for poor workers what you find is that actually the informality rate for poor workers has been on the whole fairly stable and surprisingly over the last eight years has been increasing gradually. So it's an interesting question, an important question is why is it that you have workers that are more educated that are gradually ending the labor force with more human capital but that not finding better jobs. And so kind of a useful, simplified procedure of way to thinking about it, I go back again to the quadrant in which the rows is the distinction you want against by income. The columns is the distinction you want by labor status. The poor in some caricature are in point A, poor workers are in some caricature in point A. And ideally, what progress opportunities wanted to do was to gradually shift workers from point A to point B. EI is earned income so you wanted to earn income to go up by delta EI so that their own earned income allows them to be in point B as a result of getting higher wages associated with having human capital. But in fact, the outcome is turning out to be a movement a little bit from point A to point C in which, yes, the income of the poor is higher but it's more a result of the transfer rather than own earned income because they've accumulated more human capital. And that's because they're remaining in their informal status in the labor market and they're not accessing better jobs with higher productivity and higher real wages. And in this caricature that I'm making, you have two conflicting sets of social programs that are incentive incompatible, one that invests in human capital that wants to pull from A to B, but another one that is distorting incentives in the labor market that is pulling things in the direction of B to C. Of course, there are many more of the things going that's complicated, but the deep story is that in social policy broadly, you don't have the coherence that you would like to have. So let me begin to conclude a little bit. Progreso oportunidades is clearly an improvement over the previous disjointed set of nutrition, health, price subsidies, subsidies in kind, transfers of a kilo of tortilla, a liter of milk and all that. It is, you know, on the whole been a positive program, although clearly there's room for improvements, particularly on the supply side, but it should be clear that Progreso oportunidades by itself will not break the international transmission of poverty. The critical question then is whether healthier and better educated poor workers are going to find more productive jobs. And this question is associated with many other things, taxation, you know, many other things, but it's clearly also associated with the structure of social insurance programs and the way social insurance programs are depending, are distorting incentives in the labor market. At present, this incentive incompatibility that I'm trying to highlight, what it's basically doing is it's limiting the returns to the investments in the human capital of the poor that was made by Progreso oportunidades. You have better educated workers that are not earning higher wages. And Mutatis Mutandis, you know, with some nuances and some institutional difference, of course, but Mutatis Mutandis, this is a story in Colombia, this is a story in Argentina, this is a story in many other Latin American countries in which you've reformed part of social policy, the part that has to do with income transfers and targeting on the poor, but you're increasingly distorting the other part of social policy, the part that has to do with social insurance because of the growth of non-contrary programs in the context of an architecture of social insurance that is still benchmarking and that is very ill-suited to the needs of the region. So we need a more integrated view of social policy. I think we need to make a sharper distinction when we speak about social safety nets and social protection. If I had my way, I would eliminate those two expressions from English language and I would, you know, focus attention on speaking about poverty programs or income transfer programs versus social insurance programs by the optimum objective what these programs do. And from this perspective, even though we've moved ahead, Mexico has yet a long way to go to develop a coherent and consistent strategy to eradicate poverty. Thank you.