The challenge of building rights–based social protection systems in a crisis-prone world

The urgency of mobilizing domestic resources: the limits of ‘methodological nationalism’ ²

It is widely understood that domestic resource mobilization must remain the foundation for building universal social protection systems, working in tandem with employment policies and investments in essential public services, as a core element of a social contract between states and their citizens. Taxes and social security contributions constitute the lifeline of sustainable and equitable social protection systems that can provide adequate protection to everyone.

However, in a highly globalized world, it is misleading to see domestic resource mobilization efforts disconnected from the global economic and financial architecture within which developing countries are operating. Over the past 20 years, domestic resource mobilization efforts of developing countries have been eroded not only by the extensive informality of enterprises and employment and their smaller tax bases but also by declining tariff revenue due to trade liberalization, competitive pressures to lower corporate taxes and rising debt service burdens, among others (UN DESA, 2024).

‘In the age of neoliberal globalization’, a recent UNRISD (2022) report concludes, ‘fiscal contracts have been undermined alongside social contracts with big corporations and high-income earners reducing their contributions’ (p. 297). Taxes with a stronger potential for redistribution, like corporate taxes, have declined based on the belief that lowering tax rates will attract more foreign direct investment, and higher tax revenues. However, evidence from the G20 shows that countries that have cut corporate tax rates have actually seen a decline in revenue from these taxes. At the same time, regressive taxes on goods (e.g. VAT), which place a greater burden on lower-income groups, are on the rise in many countries. In addition, illicit financial flows by multinational corporations are estimated to deprive developing countries of between USD 50 billion to USD 200 billion a year in fiscal revenues, while other estimates suggest that the combined global revenue losses from cross-border tax abuse by people with undeclared offshore assets and of multinational companies amount to some USD 483 billion a year (UNRISD, 2022). The recently concluded agreement on a globally aligned minimum tax rate of 15% on multinational corporations (Organisation for Economic Co-operation and Development [OECD], 2024), despite some loopholes, could serve to retain domestic resources in the countries where firms are operating. Another proposal, already presented to a finance track meeting of the Group of Twenty (G20), seeks to negotiate an international agreement to impose a 2% wealth tax on the 2500 billionaires in the world today. ³

At the same time, with global interest rates at a four-decades high in inflation-adjusted terms, the alarming surge in global public debt, driven by cascading crises, has meant unsustainable debt servicing costs for developing countries (UNCTAD, 2024). Twenty-five developing countries allocate more than a fifth of their total revenue to servicing their public external debt alone, crowding out financing for the Sustainable Development Goals (SDGs), and more than half of all least developed countries and other low-income countries are assessed as either at high risk or already in debt distress (UN DESA, 2024). As a result, numerous countries now find their interest payments on debt exceeding what they spend on social protection (UNCTAD, 2024). In Latin America and the Caribbean, for example, the rise of interest payments between 2012 and 2021 curtailed spending on key public services and contributed to a decline in public investment (ECLAC, 2023).

Last, but not least, many developing countries have less access to contingency financing during crises, which limits their ability to respond to and recover from shocks and be able to uphold the right to social protection at a time of great need. This became evident, once again, during the COVID-19 pandemic. While many high-income countries were able to put in place massive fiscal stimulus measures to protect their population and enterprises, alongside aggressive monetary policies, most developing countries were constrained in their response. The fact that International Monetary Fund (IMF) financing through the special drawing rights (SDRs) ⁴ were in proportion to countries’ quotas meant that developing countries received only around one-third of the 2021 SDR allocation. This means that they are effectively in a much weaker position to use their social protection systems as a counter-cyclical measure when they are facing a crisis.

In other words, the solution lies not only in domestic spheres of governance and domestic resource mobilization efforts but in addressing the disabling global financial and development institutions in ways that can support social protection system-building and the realization of SDG targets on social protection, especially in low-income countries. As the UN Special Rapporteur on Extreme Poverty and Human Rights puts it, to achieve the national social protection floors that are recommended by social security standards, ‘requires international solidarity to allow beneficiary countries to come up with a solid and credible plan to build capacity for strengthened systems and then to gradually increase the mobilization of domestic resources’ (De Schutter, 2023).

Yet the world is falling short when it comes to international solidarity. Official Development Assistance (ODA) has remained at levels below the internationally agreed goal of 0.7% of gross national income of the high-income donor countries (in 2023, the average rate was 0.37%). Furthermore, despite some increase in the share of ODA allocated to employment and social protection in the context of the COVID-19 pandemic, ODA allocations to social protection remain very low (Cattaneo et al., 2024). Nor does ODA constitute a guaranteed, stable, and long-term source of finance that countries need, given that it is often short-term, pro-cyclical, and reflecting the priorities (including geo-political) of donor countries.

In pursuit of global solidarity

The idea of a global fund for social protection has taken hold over the last decade or so as a potential solution to structural gaps in the global financial and development architectures that have failed to ensure social protection receives an adequate share of development resources (De Schutter and Sepúlveda, 2012). Building on ILO Recommendation No. 202 (2012), and in the wake of the COVID-19 pandemic which demonstrated once again the critical role of social protection systems in protecting people and stabilizing economies, in 2021, the tripartite constituents of the ILO asked the Office to

explore options for mobilizing international financing for social protection (. . .) based on international solidarity and initiate and engage in discussions on concrete proposals for a new international financing mechanism, such as a Global Social Protection Fund, which could complement domestic resource mobilization efforts of countries. (ILO, 2021a)

The call for a global fund for social protection also appeared in the UN Secretary General’s Our Common Agenda.

Yet, the experience with existing funding vehicles is that many are underfunded, with the exception of a handful. Any fund needs to be in a position to enable countries to build a stable social protection system by being reliable and available over time, including in times of crises or external shocks (Yeates et al., 2023). Another caveat is to avoid duplication and competition among funds and to overcome the current proliferation of funds and their fragmentation into many different funding avenues with small (and unpredictable) funds each. Moreover, the risk of another standalone fund is that it will further enlarge the number of already established vertical funds, each competing for the – seemingly finite – amounts of donor finance, amplifying the fragmentation and transaction costs associated for recipient countries. A recent study points to 500 intermediary finance institutions under The World Bank alone (Watkins et al., 2024).

Given these financing challenges, will countries be able to build universal social protection systems in line with international social security standards, or will they succumb to narrowly targeted ‘social safety nets’, the provision of which often depends on external finance? In the context of donor funding, where the level of resources that will be available is fixed, it makes sense to emphasize budgeting skills and delivery capacity. However, the key policy question for many developing countries is not just how to allocate or budget a given/fixed-resource envelope, but also how to expand the fiscal space for social protection. In the context of complex and fast-moving crises, universalism is preferable to targeted approaches, especially where the administrative infrastructure and capacity to target is limited, a very high proportion of the population is vulnerable, and given the compelling evidence that efforts to effectively target some social groups result in serious exclusions of others (Razavi et al., 2022). In countries where more than half of the population is considered to be poor, the merits of targeting a small share of the population is highly questionable (Brown et al., 2018). Targeting may even put social cohesion at risk, increase mistrust of the State and political processes and leave behind most of the poor and near-poor populations who need social protection, not to mention others who are vulnerable to both life-cycle risks and co-variate shocks, be they climate catastrophes, pandemics, or economic crises. The consensus on the need to build universal social protection systems to provide income security and health protection for all was reinforced by the COVID-19 pandemic and other ensuing crises (ILO, 2021b), especially the unfolding existential climate catastrophes.

Universal social protection systems are not built overnight: they require long-term planning and are built progressively over many years. By building a universal social protection system, progressively covering everyone in the event of a life cycle risk or a co-variate shock, governments can avoid the significant exclusions that are rampant in targeted programmes and create a virtuous cycle of revenue expansion that is stronger than what a narrowly targeted approach can garner. Indeed, evidence suggests that more universalistic approaches are far better able to mobilize support from the general public across all income levels within a country and, as a result, redistributive budgets are larger in countries where universal approaches prevail (Gugushvili and Laenen, 2021; Korpi and Palme, 1998). Gaspar et al. (2017: 245) emphasize the importance of a sense of fairness: if citizens believe that sufficient public goods are being provided in return for the taxes they pay and that others also pay their fair share, they are more willing to comply.

Conclusion

International human rights and social security standards, reaffirm social protection as a fundamental human right and an essential instrument to prevent poverty, reduce vulnerability, and promote people’s dignity. These established normative standards provide useful guidance for the design of social protection policies and their implementation through mechanisms that include social insurance, universal/categorical schemes, and social assistance, in coordination with employment policies, and investments in health, education, and care systems. In addition to the strong rights-based obligations of States to invest in social protection, over the past decades, a solid evidence base has accumulated that clearly and convincingly demonstrates in no uncertain terms the pivotal role of social protection in reducing poverty and inequalities, improving access to nutrition, education, and health services, facilitating labour market participation, especially of women, and strengthening consumption and aggregate demand, and acting as counter-cyclical macroeconomic stabilizers.

In a highly globalized and crises-prone world, domestic policy efforts of countries in building rights-based social protection systems and mobilizing domestic resources need to be complemented by an enabling global financial and development architecture. This latter architecture will be the subject of Member State deliberation at the Fourth International Conference on Financing for Development in Seville (30 June to 3 July 2025) aimed at achieving the global sustainable development and climate goals.