Social protection and small businesses – missing the obvious

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Social protection has risen rapidly up the policy agenda and rightly so, the benefits of “just giving money to the poor” are important.

For example, it helps to mitigate risks which prevent poor people making the most out of their livelihoods and it helps to overcome shocks with otherwise cause them to suffer long-term impacts from short term shocks. Small business owners that CAFOD interviewed to inform its “Think Small” report informed us that they undertook several different kinds of activities because the market was not always good for any one of them (undermining their efficiency and profitability). We know from economic crises that short term shocks can cause losses in health or education that affect economic prospects long-term (as well as human ones). Having something to fall back on can stop these barriers to successful livelihoods for the poorest.

A lack of demand – simply having no one to sell to – was also a barrier to small business owners who didn’t have the skills, connections or capital to sell except locally. Injecting cash into the local economy through social protection helps here too.

Boosting inclusive growth is cited as a key objective in the renewed interest in social protection by policy makers – so why are the needs of small businesses run by poor men and women so little evident in new proposed strategies of the World Bank or G20 discussions?

Most social protection schemes do not help these poor entrepreneurs – because they are in the informal sector which is poorly served by government safety nets and schemes. This despite the fact that these enterprises make up the majority of employment opportunities for poor men and women, as well as provide a de facto safety net for the majority who are not reached by government schemes.

This should be a critical area of review for the World Bank, G20 and other donors as well as national governments.

However, it is also important that the renewed interest in social protection as a means to boost inclusive growth, does not detract from social assistance programmes, such as pensions or benefits to other vulnerable groups. These can help small businesses if they are spent locally, especially if payments are systematic, sufficient and over the longer term.

Analysing the impacts of social protection on local markets and poor people’s livelihoods is important and under-researched. There is too little monitoring of who money goes to or how, let alone how it is affecting the local economy. As well as direclty helping poor entrepreneurs to have the confidence to invest and manage risk directly, we also need to better understand how who we give money to and what instruments are used affect their economic prospects and design interventions bearing this in mind.

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