7 - Safety Nets or Safety Ropes? Dynamic Benefit Incidence of Two Crisis Programs in Indonesia

Summary

INTRODUCTION

Mountain climbers scaling a sheer cliff face, understandably, want protection from falling. One method of protection is to place a safety net at the bottom of the cliff, to catch falling climbers just before they hit the ground. The alternative is a safety rope attached to a set of movable devices anchored at higher and higher levels as climbers ascend, so that falling climbers are caught after falling at most the length of the rope. The “safety net” guarantees against falls past an absolute level, while the “safety rope” guarantees against a fall more than a given distance, irrespective of the original height. For climbers near the bottom the safety net provides reassurance, but for climbers who have already made substantial progress scaling the cliff face, a safety net, which benefits them only after they have lost nearly all of their progress, is much less attractive than a safety rope.

The now ubiquitous metaphor of a “social safety net” conflates two distinct objectives in the design of transfer programs. One possible objective is to minimize a measure of income or expenditure poverty. An alternative objective is to mitigate risk, that is, reduce household vulnerability to the wide variety of potential adverse shocks that they could face (death, accident, fire, crop loss, job loss), whether or not the shocks push households below some absolute threshold. If program targeting is judged exclusively on static benefit (or poverty) incidence, then risk mitigation programs benefiting households that have suffered large shocks but are not “poor” may appear to have large “leakage” when in fact they are simply serving a different social objective — risk mitigation.

The undifferentiated metaphor of “safety net” also confuses thinking about the political economy of transfer programs. Governments may choose to implement “safety net” and “safety rope” programs for completely different reasons. While a “safety net” program might be more popular with the poor the more effectively it transfers wealth from richer to poorer households, a “safety rope” program will be more popular with middle-income groups if it serves an important insurance function in transferring resources from good times to bad times.