The political economy of welfare schemes

There are many forms of welfare schemes in modern world. These have emerged over a long period of time. Historians trace these to the nineteenth century Western Europe and North America. Reformers came up with various insurance schemes as well as some institutions designed to boost public health, prevent spread of epidemics and promote public education among others.

However, there is insurmountable pressure on governments proposing to institute welfare schemes. Nevertheless, such schemes are not devoid of political considerations. Indeed, the ruling political class is keen to consolidate their support for political expediency. To achieve this, all inclusive schemes are adopted. This, it is believed, politically unite the poor, the middle class and the affluent. By this, it is hoped that the schemes will be supported by all the classes which could translate into political support and endorsement of the ruling regime. According to political economics, this makes a lot of sense.

Countries that have universal schemes are more committed to financing social security. This can be seen from the higher levels of financing of such social security schemes from taxes. A notable example is Nepal, which spends about 0.5% of its GDP in financing these kind of schemes. Universal social schemes may be quite expensive but they are most efficient as the beneficiary identification criteria is straight forward. Some schemes are likely to benefit the rich and leave the intended poor with no benefit. This is most likely to happen in absence of proper administrative capacity and a good eligibility criteria where extraneous considerations are likely to creep in the process. It has been argued that universal coverage promotes equity, is administratively efficient and does not cost as much to administer especially in old-age schemes and other similar social security schemes.

It should be noted that while social security schemes are designed to promote inclusive development, there is also an aspect of the government wanting to gain legitimacy. It does not matter the kind of government as even the aristocratic ones would like to have a semblance of being legitimate.

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