Speakers:

Wim Naudé - Co-editor of book and Senior Research Fellow, UNU-WIDER

Amelia Santos-Paulino - Co-editor of book and Research Fellow, UNU-WIDER

Discussant:

Tim Conway - Senior Advisor on Social Protection, DFID

Chair:

Caroline Harper - Programme Leader, ODI

1. Caroline Harperopened the meeting by recommending the framework presented in this book for discussions of policy responses to vulnerability and highlighting its relevance to chronic poverty research; from natural disasters to economic crises.

Presentation 1

2. Wim Naudégave the first presentation. After giving thanks to ODI for hosting this launch and to ODI researchers Kate Bird and Martin Prowse who contributed a chapter to the book, he started by addressing the question: who is vulnerable and what are they vulnerable to? He focused on:

• financial crises
• natural disasters
• food and fuel price rises, and
• climate change.

3. Critically, he highlighted that the impacts fall disproportionately upon developing countries. Although not universally true, e.g. some are net exporters of food so in fact benefitted from food price rises, these shocks do tend to exacerbate global inequalities. A relationship between vulnerability and the fragility of states can also be clearly seen. Battle deaths have intensified with correlations to financial and natural disasters. Moreover, fragile states often lack the institutional capacity to respond to disasters, a prime example being famine deaths in North Korea which could have been prevented if better policies had been implemented.  Climate change too is predicted to have very divergent impacts – with countries in the North set to be agricultural beneficiaries whilst yields in the South fall. It is important to note that the impacts of financial and natural crises are severe and long lasting, far beyond the reach of emergency humanitarian responses because malnutrition, infant mortality and unemployment have profound effects on the formation of human capital and long term growth.

4. He did not dwell on the recent global financial crisis since ODI has already done so much work on this topic , but did point out that it had caused an extra 50,000 deaths in the developing world and reiterated Oxfam’s finding that the $700bn spent to stabilise financial systems could have eradicated poverty for 50 years. Ultimately, there are massive disparities in vulnerability since countries in the North have many more mechanisms for managing crises.

5. Wim moved on to questions of measuring vulnerability. First, what is vulnerability? Vulnerability is a function of exposure to risk and resilience i.e. how likely you are to be affected by a shock, and, how well you are equipped to deal with it. For example certain small Caribbean islands are highly exposed to natural disaster and have neither the strong institutions nor reserves of capital to protect themselves and enact effective coping mechanisms, therefore they are vulnerable. Risks leading to vulnerability can occur at macro and micro levels:

·         Macro level: the risk that a system, such as a country, will be adversely affected by a shock or perturbation which includes natural hazards, macro-economic shocks or political or conflict shocks. 

·         Micro level: risk of households falling in or remaining in poverty due to idiosyncratic hazards or covariant hazards.

6. The book looks in much more detail at how people cope.  Wim briefly summarised the research and findings in some key chapters:

·         Chapter 3 focuses on micro finance schemes in China and shows that a lack of financial institutions hinders growth in some parts and limits coping mechanisms due to the lack of credit and insurance facilities.

·         Chapter 4 looks at the transitional state of Tajikistan moving from a low income, centrally planned, rural system, to a growing, urban, market based economy. In this volatile environment households often cycle in and out of poverty and coping strategies are key.

·         Chapter 5 written by ODI’s Kate Bird and Martin Prowse explores coping mechanisms identified in qualitative research from Zimbabwe using life histories of 5 people. They find that vulnerability often leads to ‘adverse coping strategies’ which have a knock-on long term negative impact such as dropping out of school or overusing land to the point of degradation.

·         Chapters 8, 9 and 10 focus on small island states. These special cases are particularly at risk to both macroeconomic and natural shocks due to their geographical constraints and narrow economies heavily reliant on international trade. However their high exposure to risk can be mitigated with the correct policies and sufficient institutional capacity, Singapore being a prime example.

7. Wim ended his presentation by summarising the various forms of vulnerability and by highlighting means by which households cope. He demonstrated that ex-ante households attempt to diversity their income whilst ex-post they rely on various forms of insurance. On this point he drew attention to the work of Stefan Dercon Wim also highlighted the important role of women; being especially vulnerable but also playing a key role in reconstruction that should be supported by post disaster assistance.

Presentation 2

8. Amelia Santos-Paulino gave the second presentation focusing on natural hazards, shocks and fragility in small island developing states, a topic which largely inspired the book. These states tend to be geographically constrained, have an un-diversified economic structure and high trade openness which means reliance on volatile import and export prices. Moreover they often lack institutional capacity and consequently they are very vulnerable to natural disasters and economic shocks.

9. The risks small islands face from natural disasters and climate change is well known but the book also unpacks their specific economic challenges. Some of the Caribbean islands are exceptionally poor and yet they are often neglected in poverty analysis. As most of these islands are micro states they have no opportunity to diversify their economies so macro-economic policy focuses on trying to stabilise prices for key imports and exports. This can only be achieved to a certain extent however so economic volatility is an inherent characteristic and one which is especially dangerous for the majority of their inhabitants who are below or near the poverty line and therefore have limited coping mechanisms. In light of this, institutional responses must try to stabilise social as well as economic turmoil. An important weapon in this fight is the use of social protection schemes to limit the damaging effects of poverty and unemployment on the human and financial capital reserves of small island states. Due to their weak economies, small island developing states are heavily reliant on international capital flows, primarily aid and remittances, and thus are hit doubly hard in the event of international economic crises.

Discussion

10. Tim Conway responded to the two presentations, putting them in a wider developmental context and raising some useful comments and questions. He noted that the book was an important reminder that we shouldn’t focus too excessively on economic growth and raising average incomes without looking at the large risks of falling back as well as wider factors of wellbeing such as health and the negative psychological impacts of living with vulnerability. He made the following comments:

·         Quantitative measurement of vulnerability is a very important challenge since the sophisticated econometric techniques are very data and skill hungry but also hard to explain to policy makers. The analysis in Chapter 2 is fascinating but is derived from data for the 70s and 80s. We must try to tackle the here and now and remain policy relevant.

·         The books qualitative analysis of vulnerability is excellent; Kate Bird and Martin Prowse’s chapter is a good example and combining this with quantitative work will be very rewarding for policymaking.

·         The book highlights that policies to tackle vulnerability are not the same as those aimed at poverty reduction.

11. Tim also raised some key questions:

·         Is globalisation increasing the level of vulnerability or just changing who is vulnerable?

·         Bearing in mind the importance of fragile states and ideas from Paul Collier’s ‘Bottom Billion’, is there an increasingly acute segment of vulnerable persons outside of any social protection or other safety net policies? International efforts must balance peace building and economic development and in turn this development must balance economic growth against equitable income growth and reductions in volatility.

·         Since the global financial crisis there has been much talk of “building back better” but how do we actually put in place economic systems without all of the previous drawbacks?

12. Wim agreed largely with Tim’s comments, especially the difficulties of measuring vulnerability, the reliance on historical data and fears that there are very vulnerable groups in fragile states who are beyond the reach of national or international support. 

13. Amelia responded to Tim’s question on globalisation makingthe point that while in some regions average incomes have risen as a result and increased resilience to risk, small island economies find it difficult to take advantage of the opportunities globalisation provides due to limited capital and natural resources. 

Public discussion

14. Points raised in the discussion included:

·         Are we primarily interested in vulnerability or development? Since growth and development requires some risk, the aim must be what ODI calls ‘crisis resilient growth’.

Wim agreed and highlighted the importance of institutional support for positive rather than adverse coping mechanisms such as South Korea’s management of the Asian financial crisis – staff took unpaid holiday or wage cuts in order to avoid unemployment which maintained human capital and enabled a quicker recovery when the economy started building again.

·         The importance of energy to poverty and vulnerability. None of the MDGs refer to energy but access to it is crucial in achieving food and water targets.

Wim emphasised the role of fuel prices in the book’s analysis as the impacts of energy. He said their real effect though is on inequality since some countries gain from high fuel prices whilst others suffer.

·         Why have terrorist events such as 9/11 not been discussed as sources of risk?

Wim agreed that terrorism was a major issue and source of vulnerability but hadn’t discussed it in detail here as it was almost a topic in its own right. Conflict is an increasing danger - since the cold war the occurrence of conflicts was in decline but in the last few years conflict has increased and democratisation has fallen – a change which may be a symptom of the global economy.

·         What policy innovations and institutional approaches should we keep our eye on to deal with vulnerability?

Amelia replied that global or local insurance schemes can be good but need to be done on a large scale given the limited resources in developing countries.

Tim put forward social protection and social transfers as the key approach which can not only guard against risk but also help people escape existing poverty traps. He also pointed out that in the North social insurance is the most important tool to prevent vulnerability and this is where innovation was needed in the South since poor households don’t have regular finance for premium payments.

Caroline drew attentionto the gender profile of vulnerability and highlighted the need for more work on gender and social protection.

Wim stated that the final chapter of the book contained an overview of recommended policy responses. He said it was important to integrate analyses of macro and micro vulnerability in order to target interventions. He explained that policy should focus on strengthening household assets and capabilities. Any interventions should be sensitive to the context (i.e. type of risk) and recognise that households are resilient themselves – policy should support this existing behaviour and not enforce new strategies. For example, a common household response is migration and policy often tries to prevent this but perhaps instead it should try to facilitate and manage it.

·         Does the book tackle youth vulnerability?