Working Papers

The relationship between growth and social policy is complicated. There is opposing evidence to show that social policy incentives have interfered with market mechanisms to retard the growth process and social expenditures are contributing to economic prosperity. Truth lies somewhere else. A mechanism-based approach to investigate how social policy creates an undergrowth for economic growth reveals that both are embedded and integrated. From such a view, it emerges that the connection between social policy and growth is context-specific. Traditionally, investment for social policy objectives and economic growth was perceived to have a trade-off. However, research in recent times (Linkage 4) has shown such trade-off to be artificial. Rather, investment in equity-oriented expenditures is seen to be a key instrument to set the stage for, as well as to sustain, economic growth. Social policya??s role to trigger growth is limited, but is substantially direct to sustain the growth. The linkages identified in this study are very much in congruence with the new growth theories where human capital and innovation are emphasised. Growth is primarily about productivity, and the critical channel for it is investing in education and skill training (Linkages 1 and 7). This generates labour forces which looks for mobility (Linkage 1). A second channel for productivity is the health of the working population (Linkages 7 and 13) as well as child population, through the connection of mortality-fertility. The changing demands in the product market and competition induced growth that demands switching off jobs create risks and informality in the labour contracts which social policy needs to address (Linkages 2 and 15). Social policy could play a significant role to facilitate the market through creation of appropriate rights (Linkages 12 and 11) and through creating demand, even at short term basis (Linkage 16). Natural calamities and personal accidents bring huge threat to human capital and appropriate social policy interventions could limit the impact of such shocks on individuals and bring them back to the economic process (Linkage 15). Sustaining of economic growth requires to provide equity (Linkage 4) as well as equality of opportunity (Linkage 14). Growth that is being achieved in an economy may be scuttled by social groups which may have been marginalised for long. Addressing such initial inequality through social policy is vital. (Linkage 10). Growth requires investment and savings. Social policy has often acted as a negative lever for them (Linkage 5). Growth also requires infrastructure development. Some of the experiments to use public works or cash transfer programmes to create infrastructure are missing the point through artificial combination of economic and social policies (Linkage 6). We also identify that social policy for growth is not purely a national realm. Certain social policies, which could bring regulation of global business strategies to ensure labour standards (Linkage 8), are global social policies. These 16 linkages could be summarised into five meso level arenas through which social policy influences growth: pertaining to jobs and human capital (L7; L14; L1; L8; L2; L15) pertaining to demography and health (L13; L7) pertaining to allocation of resources (L9; L10; L5; L6) pertaining to market facilitation (L12; L11; L3; L16) pertaining to stability and social cohesion (L4; L11; L10) From an international perspective, it is difficult to prioritise which of the linkage deserves more attention. However, national contexts, particularly the stages of social and economic achievements in a country, and budget level constraints could act as important guidelines to prioritise these linkages. As mentioned in the beginning social policy taken out of context becomes ineffective and, therefore, what works in what context needs much more fine-tuned investigation.