Economic Value Of Social Security

There is no debate on the need for social security in a politically and socially dynamic society. However, the nature of the social protection package and the execution of social security policy are important to keep in mind before debating it. As stated in the academic reviews by the scholars, the implementation of the social protection package should be linked to industrial and labour productivity leading to industrial growth as well as social welfare.

Nepal has been operating about 76 social protection packages under various government institutions, and they are getting good response from the political and social sectors. However, are these programms really providing us with economic benefits for society? Are these social protection policies improving the living standards of the people? Are these policies linked to market growth and labour productivity? And are these policies grounded in natural adaptation from an economic perspective? These are some critical questions that need to be answered by the implementing agencies to justify the need for socio-economically appropriate SP programmes.

Economic impact

It is important to look at the economic impact of the social security package and the financial costs associated with it. The government agencies are spending a large amount of money on the social security, but how much is the economic cost of these financial resources? This aspect of observation is lacking and is being ignored, as the impact of those taxed money is spent without considering the economic benefits. Under the social security fund system, Rs. over 30 billion have been contributed by 17,755 institutional and 409,844 individual contributors. However, the claims on the social protection programme are only Rs. 38.6.billion accounting for 12.80 per cent. This statistic of claims on the social security package is quite good. 

But the contributed 87.20 per cent of money is with the Social Security Fund (SSF), and such an amount of money is a big financial pool. Therefore, the use of such a pool of financial resources is important from a resource management perspective and to provide a better return on contributed money given the time value of money. This amount of money management is one aspect of fund management, but equally important observations on the beneficiaries of different social security packages and the link to economic value are also ignored. 

For example, the government provides social security allowances to the elderly, single women, child care, dependents, and recipients of similar other packages. However, are the benefits of such a package linked to economic values and social welfare? If one genuinely looks at these programmes, none of them are economically connected, but financially, they definitely are. The government has to act as a parent in every social welfare matter, and social protection is also an obligation of a responsible government. To do so, it has to spend a large amount of money to meet this obligation. 

Some programmes need to operate strictly for social welfare responsibility without thinking about economic value. But all programmes should not be. They should give at least some sort of economic contribution to society and individuals. By providing financial resources as a social protection allowance, the package does not provide quality of life for individuals, but by connecting productivity and living standards, the package can give us an optimum level of utility and, equally importantly, a rational distribution of resources in socialism-oriented economics.

Providing direct financial resources to the individual can make easily available resources that make recipients lazy and degrade their productivity. On the other hand, this practice wastes the valuable government revenues that were paid by the tax payers. Indeed, tax revenues should be utilised to improve the quality of life for citizens through the development of user-friendly infrastructure and an easy-to-use governing system that reduces procedural hurdles in daily life. Therefore, social security programme operating agencies should think about what value this package would actually create from the economic prospects and how to connect individual benefits to the social benefits. 

These programmes are not only providing financial resources as social security, but other trade-off costs are also associated with the financial resources. But while talking about social security allowance, we are not just focusing on financial matters; equally, there can be other non-financial benefits that actually come at a high trade-off cost in terms of economic values. Now, social security means providing financial benefits, or in hard cash in general understanding in Nepal, but this is the wrong narrative and misinterpretation of the real objective of social security policy established.

None-financial packages

To spread this narrative, old-age allowance and local level-specific social protection packages are mostly responsible. The real essence of this policy is to make people's lives easier and provide support when the target group is in need through financial and non-financial packages. But none-financial packages are being shadowed in front of the financial packages, and the financial packages are more visible among the people. Equally, the governments of different political parties are emphasising a monetary package over a non-monetary one to get quick benefits during election time.

A social protection package should have economic value but not necessarily the financial value to reach out to the beneficiary. Most of them are influenced more by political interests than the real needs of society or affordability from an economic perspective. The trade-off cost of social security is too big for the economy, but socially, it could be favourable. Therefore, the government should go through a scientific reform of the social security policy after a comprehensive study of the existing policy. In addition to this, all the current social security programmes should be integrated into a single framework so that they do not overlap, which can be more effective and reduce costs from an economic perspective.

(The author is a Ph.D. scholar in economics at the University of International Business and Economics, Beijing, China. Email: sudankumaroli@gmail.com )