Annual Conference on Effects of Social Policy on Domestic Demand
The ADBI Annual Conference on Effects of Social Policy on Domestic Demand was successfully held in Tokyo on 4 December 2009. The conference covered three thematic areas: (i) impact of social protection on domestic demand; (ii) impacts of other factors on savings and demand; and (iii) regional impact of social protection spending; discussed in three separate sessions, and capped by a panel discussion.
Three papers were presented in the first session which discussed the theoretical perspectives surrounding household savings and its relation with social protection policy across countries. The first paper identified and explained considerable and stable differences among countries in their household saving rates and social benefit ratios. The second paper used the case of the People's Republic of China's (PRC) to illustrate the dynamics between public expenditures and social programs and its relation with household consumption. The study underlined plausible benefits of expenditure reforms that expanded social investments to address large external current account surplus and global imbalances. The third paper revealed that social protection provisions varied across the Asia and Pacific region where virtually, every country has a social insurance system. However the informal and rural sectors which employ most of the region's population were generally excluded from the social protection system. It did not help that the current economic slowdown further threatens the level of coverage and quality of social protection provisions.
The second session had two papers which examined the impacts of income distribution and demographic factors on spending and savings. The first paper looked into the relationship between consumption, income distribution, and state ownership in the PRC. Corporate savings accounted for nearly a fourth of the 2007 national income; believed to be due to the monopolistic powers of state-owned enterprises (SOEs). The paper argued that collecting dividends from the SOEs to fund social welfare systems would reduce savings rate, boost consumption, and mitigate social inequality. Paper two examined the influence of demography on savings using the data of Organization for Economic Cooperation and Development member countries and Asia-Pacific economies. The study revealed that old-age dependency rate was likely to adversely impact private saving. Meanwhile, increases in the old-age dependency ratio tended to boost social spending while rises in the young-age dependency ratio would have the opposite effect. Findings in this study reflected the strong influence of the old-age dependency ratio on old-age pension spending.
Finally, the third session talked about the regional impacts of social protection spending. The first paper highlighted the complexity of the PRC's high household saving issue and revealed, how overtime, social protection policy failed to bring adequate social benefit provisions and reduction in inequality. The study stressed the importance of setting the right policy goal and design to avoid repeating the failure. Paper two focused on the Association of South East Asian Nations (ASEAN) member countries; the paper found that ASEAN countries were heterogeneous in terms of level of savings and that consumption shares were, in fact, already high for some member countries, suggesting little room to further increase domestic demand. Nevertheless, the need to improve and reform social protection policies also applied to the ASEAN, with its ever-growing socio-demographic pressures, such as aging population, urbanization, and fraying household informal support. But careful consideration in weighing the tradeoffs should be taken into the process of introducing social policy reforms.
The panel discussion session concluded the conference, which reiterated the need to strengthen the social protection sector. Panelists agreed that the socio-economic impacts of the recent global financial crisis added to the existing roles of social protection policies and that the issue of global imbalances required Asia to increase local demand. To do so, a comprehensive social protection policy would be needed to reduce households' precautionary savings. Moreover, the diversity of countries in Asia would prompt unique approaches by individual governments to strengthen their respective social protection system. An expanded social protection policy would be expected from the PRC while ASEAN member countries should focus on what they have been doing best, in terms of their social protection policies, to support inclusive growth. Panelists believed that by focusing on the right goal of social protection program—increasing people's welfare instead of merely focusing on economic growth—, would eventually increase domestic demand.
The ADB Institute has organized a series of conferences on the global financial crisis that analyzed its impacts on Asian countries, developed scenarios for growth rebalancing away from exports to developed countries, and developed recommendations on macroeconomic policy, regional integration, and financial reform. This year’s Annual Conference pursues the same objective of formulating appropriate long term responses to the global financial crisis, focusing on social policies and their impact on domestic demand. The key question is: can improved social protection policies help reduce savings in Asian countries with very high saving rates and induce a long-term increase in consumption spending?
Aims of the conference include:
- analyze the theoretical and empirical relationship between social protection, household savings and income drawing from the experiences of various countries.;
- analyze the relationship of other related factors such as quality of public governance, demographic developments, and income distribution between labor and capital on savings and demand; and
- examine the potential impact of increased social protection spending on savings in countries in Asia, especially China.
The conference will review evidence and analysis of the relationship between social protection policies and household income and savings to draw conclusions for rebalancing growth in Asia. The main areas included in this conference are:
- Experience of social protection policies in developed and emerging economies;
- Demographic impacts on savings, especially population ageing;
- Labor market policies and income distribution effect on spending;
- Implications for savings and consumption of social protection policies
This activity will produce:
- Completed conference papers;
- ADBI Research Policy Brief;
- Some ADBI Working Papers; and
- A book.