ביטוח לאומי is a set of statutory provisions offering financial protection for the risk of unemployment, sickness and old age. This system is based on the principle that workers contribute through payroll taxes, and are provided with benefits upon retirement or death.
Eurostat’s ESSPROS data divides social protection into 8 broad categories. Figure 1 shows the UK’s expenditure on each of these in 2013 and 2014.
Bismarck’s plan B
Bismarck’s plan would extend social insurance programs to cover all working people. It would include sickness and accident insurance, health insurance, and pensions for the elderly. It would also include basic regulations on wages, working conditions, and the hours that a worker can work. This approach could reduce the amount of redistribution that is built into current social insurance models, which are perceived as taxes on work.
Bismarck had a keen understanding of the importance of domestic political maneuvering. He allied himself with low-tariff Liberals against the Catholic Church in a Kulturkampf, but this strategy failed to undermine his socialist opponents. He was also loyal to the emperor, and he was content to allow the military to dominate foreign policy decisions.
He opposed the acquisition of colonies, arguing that the cost of maintaining and defending them exceeded the potential benefit. He also felt that the diplomatic disputes that colonial possessions provoked distracted Germany from its central interest, Europe itself.
His shrewd, long-term strategic planning was crucial to the success of his unification policy. He was able to create the German state with 39 independent states while retaining control over Germany’s eastern frontier. He was a genius at navigating the complex politics of European diplomacy and avoiding direct conflict with France and Russia. He even shrewdly deferred the war with Austria-Hungary until he had solidified his position as the dominant power in the region.
Expanding social assistance
Social assistance programs can expand coverage to new groups of people and increase adequacy by tailoring the size of transfers to individual and household needs. They can also complement, rather than compete with, other income-generating activities and provide a safety net in case of shocks such as job loss.
To reduce the reliance on pure taxation, they should be combined with a guaranteed minimum income and based on an activity-based definition of work that includes both formal and informal workers. This approach can decouple social insurance from payroll taxes that have come to be viewed as “taxes on work.”
Some countries are already using a more comprehensive approach to support working people, integrating a guaranteed minimum income with social protection and labor market regulations. These policies include promoting progressive formalization for informal workers, which can help manage risks in labor markets while addressing equity concerns and extending the social contract.
Payments can be delivered through a physical or digital payments instrument, such as a voucher, prepaid card, e-money account, token, or passcode, which is then redeemed by the recipient at an acceptance point for goods, services, or cash. This process requires verification of the identity of the recipient with an identification document or a PIN and may be conducted over-the-counter, through an FSP branch, ATM, banking correspondent, or mobile money agent.
Universal basic income
A universal basic income is a government-funded cash payment to all citizens regardless of age or occupation. This is a form of unconditional support that has been proposed as a solution to growing income inequality and disruptions in the economy caused by technological change. Some people see it as a way to insulate households from the risks of globalization and technological innovation, while others view it as an alternative to existing welfare programs that are often complex and difficult to manage.
Several different proposals for UBI have emerged, and many cities are experimenting with it in pilot programs. The idea is that the federal government will divert a portion of its tax revenues to a program that distributes a set amount of money to all residents within the country’s jurisdiction. The recipients would be able to choose whether to continue working or use the money for another purpose.
Many proponents of UBI argue that it is a simpler and more efficient system than current welfare programs, which are complicated and require extensive paperwork. They also believe that it could help to reduce economic insecurity and increase productivity, especially in low-wage economies.
But critics point out that UBI may encourage people to stop seeking work and will perpetuate the falling labor force participation rate. Furthermore, it is unclear how sustainable a UBI would be and how it will be financed. One way to fund it is through a negative income tax, which was popularized by Milton Friedman in the 1960s.
Insurance for the poor
In many countries, pensions and public health insurance are major sources of income security for poor households. But most poor households cannot gain access to these schemes.
The problem stems partly from the fact that most current social insurance models mingle redistribution with risk-sharing functions and require contributions that many view as taxes on work. Decoupling the pure tax element from these programmes would make them more attractive to low-income workers. This could be done, for example, by moving to universal basic insurance that is not financed by payroll taxes.
Other steps that can help expand insurance coverage for poor households include making it easier for poor people to sign up and use their insurance. One example is the Vietnamese Social Welfare Insurance (Vietnam Social Insurance, or VSE). This programme autoenrolls all households with a Basic Identification Card, and does not require cash payments for premiums. The system also offers life and medical insurance.
Other examples of public health insurance that reduces poverty include Medicaid in the United States, which provides low-cost health insurance to all ages and incomes. This programme kept more than 2.6 million people out of poverty in 2010, making it the third largest anti-poverty program after the EITC and SNAP, according to estimates from the Urban Institute. Medicaid’s poverty-reducing effect was larger for children, adults with disabilities, and racial/ethnic minorities.