Social risk management (SRM) is a conceptual framework developed by the

World Bank The World Bank is an international financial institution that provides loans and grants to the governments of low- and middle-income countries for the purpose of pursuing capital projects. The World Bank is the collective name for the Inte ...

, specifically its Social Protection and Labor Sector under the leadership of

Robert Holzmann Robert Holzmann (born February 27, 1949, in Leoben, Austria) is an Austrian economist1 and the current Governor of Austria’s central bank, the Oesterreichische Nationalbank (OeNB).2,3 His term of appointment runs from September 1, 2019, to Aug ...

, since the end 1990s. The objective of SRM is to extend the traditional framework of

social protection Social protection, as defined by the United Nations Research Institute for Social Development, is concerned with preventing, managing, and overcoming situations that adversely affect people's well-being. Social protection consists of policies and ...

to include prevention, mitigation, and coping strategies to protect basic

livelihood A person's livelihood (derived from ''life-lode'', "way of life"; cf. OG ''lib-leit'') refers to their "means of securing the basic necessities (food, water, shelter and clothing) of life". Livelihood is defined as a set of activities essential t ...

s and promote

risk In simple terms, risk is the possibility of something bad happening. Risk involves uncertainty about the effects/implications of an activity with respect to something that humans value (such as health, well-being, wealth, property or the environm ...

taking. SRM focuses specifically on the poor, who are the most vulnerable to

and more likely to suffer in the face of economic shocks. Through its strategies SRM aims to reduce the vulnerability of the poor and encourage them to participate in riskier but higher-return activities in order to transition out of

chronic poverty Chronic poverty is a phenomenon whereby an individual or group is in a state of poverty over extended period of time. While determining both the implicit poverty line and the duration needed to be considered long-term is debated, the identification ...

Motivations

Social protection Social protection, as defined by the United Nations Research Institute for Social Development, is concerned with preventing, managing, and overcoming situations that adversely affect people's well-being. Social protection consists of policies and ...

has been a part of

OECD The Organisation for Economic Co-operation and Development (OECD; french: Organisation de coopération et de développement économiques, ''OCDE'') is an intergovernmental organisation with 38 member countries, founded in 1961 to stimulate e ...

economies for a long time but it has not played much of a role in development work because the imitation of these measures in developing countries is criticized based on equity and efficiency trade-off arguments. This view changed as a result of the following policy, conceptual and institutional triggers that led to the creation of SRM as a new social protection framework: * The East Asian economic crisis in 1997 revealed the volatility of high growth rates in the face of negative economic shocks. Moreover, informal

social safety net The social safety net (SSN) consists of non-contributory assistance existing to improve lives of vulnerable families and individuals experiencing poverty and destitution. Examples of SSNs are previously-contributory social pensions, in-kind and fo ...

arrangements and public support programs were shown to be inadequate under those circumstances. *

Globalization Globalization, or globalisation (English in the Commonwealth of Nations, Commonwealth English; American and British English spelling differences#-ise, -ize (-isation, -ization), see spelling differences), is the process of foreign relation ...

has led to higher

income Income is the consumption and saving opportunity gained by an entity within a specified timeframe, which is generally expressed in monetary terms. Income is difficult to define conceptually and the definition may be different across fields. Fo ...

variability, which together with

marginalization Social exclusion or social marginalisation is the social disadvantage and relegation to the fringe of society. It is a term that has been used widely in Europe and was first used in France in the late 20th century. It is used across discipline ...

and

social exclusion Social exclusion or social marginalisation is the social disadvantage and relegation to the fringe of society. It is a term that has been used widely in Europe and was first used in France in the late 20th century. It is used across discipline ...

leaves major groups like women and ethnic minorities highly vulnerable. Also, higher mobility of

factors of production In economics, factors of production, resources, or inputs are what is used in the production process to produce output—that is, goods and services. The utilized amounts of the various inputs determine the quantity of output according to the rel ...

has reduced

government A government is the system or group of people governing an organized community, generally a state. In the case of its broad associative definition, government normally consists of legislature, executive, and judiciary. Government is ...

ability to raise

revenue In accounting, revenue is the total amount of income generated by the sale of goods and services related to the primary operations of the business. Commercial revenue may also be referred to as sales or as turnover. Some companies receive reven ...

, pursue independent economic policies, and to have national policies to help the poor when they need them the most. * Fulfillment of World Bank's mission to reduce poverty requires a deeper "understanding of the nature and characteristics of poverty" itself. Research in this area exposed the long-term negative consequences of seemingly transitory shocks and suggested the need for a preventative view of poverty based on

vulnerability Vulnerability refers to "the quality or state of being exposed to the possibility of being attacked or harmed, either physically or emotionally." A window of vulnerability (WOV) is a time frame within which defensive measures are diminished, com ...

. *

World Development Report The World Development Report (WDR) is an annual report published since 1978 by the International Bank for Reconstruction and Development (IBRD) or World Bank. Each WDR provides in-depth analysis of a specific aspect of economic development. Past r ...

2000/01 presented social protection as a key element in attacking

global poverty Poverty is the state of having few material possessions or little

income

. * World Bank's Social Protection and Labor Sector is one of its youngest units established in 1996. Analysis of past experiences in this area for a future policy proposal in the sector's strategy paper revealed the need for a new framework of social protection that shifted its focus from instruments to objectives

Source of social risks

There are three important categories that aid in the classification of sources of risks: # Catastrophic vs. non-catastrophic shocks: Some events occur with low frequency, but have severe income effects like old-age, death in the family, and disabling accidents or illnesses, permanent

unemployment Unemployment, according to the OECD (Organisation for Economic Co-operation and Development), is people above a specified age (usually 15) not being in paid employment or self-employment but currently available for work during the refere ...

, and the technological redundancy of skills. These catastrophic events can hit households hard and may require a continuing flow of transfers to the affected household if it cannot acquire sufficient assets. On the other end of the scale are high frequency events with non-severe income effects like transient illness,

crop A crop is a plant that can be grown and harvested extensively for profit or subsistence. When the plants of the same kind are cultivated at one place on a large scale, it is called a crop. Most crops are cultivated in agriculture or hydropon ...

loss, and temporary unemployment. Protection against these non-catastrophic events need not require long-term net transfers to the afflicted

household A household consists of two or more persons who live in the same dwelling. It may be of a single family or another type of person group. The household is the basic unit of analysis in many social, microeconomic and government models, and is i ...

. If appropriate mechanisms are available, households may use

savings Wealth is the abundance of valuable financial assets or physical possessions which can be converted into a form that can be used for transactions. This includes the core meaning as held in the originating Old English word , which is from an ...

loans In finance, a loan is the lending of money by one or more individuals, organizations, or other entities to other individuals, organizations, etc. The recipient (i.e., the borrower) incurs a debt and is usually liable to pay interest on that de ...

with no net transfers from others over time. # Idiosyncratic shocks vs. covariant shocks: Some sources lead to losses in only some households in a community like noncommunicative illness or frictional unemployment whereas others hit all households at the same time like

drought A drought is defined as drier than normal conditions.Douville, H., K. Raghavan, J. Renwick, R.P. Allan, P.A. Arias, M. Barlow, R. Cerezo-Mota, A. Cherchi, T.Y. Gan, J. Gergis, D. Jiang, A. Khan, W. Pokam Mba, D. Rosenfeld, J. Tierney, an ...

inflation In economics, inflation is an increase in the general price level of goods and services in an economy. When the general price level rises, each unit of currency buys fewer goods and services; consequently, inflation corresponds to a reduct ...

financial crisis A financial crisis is any of a broad variety of situations in which some financial assets suddenly lose a large part of their nominal value. In the 19th and early 20th centuries, many financial crises were associated with banking panics, and man ...

. The former are known as

idiosyncratic An idiosyncrasy is an unusual feature of a person (though there are also other uses, see below). It can also mean an odd habit. The term is often used to express eccentricity or peculiarity. A synonym may be "quirk". Etymology The term "idiosyncr ...

(or micro) shocks while the latter are referred to as covariant (or macro) shocks. Many more mechanisms are available for coping with idiosyncratic shocks than covariant shocks. The latter can be particularly devastating, leaving households with nowhere in the

community A community is a social unit (a group of living things) with commonality such as place, norms, religion, values, customs, or identity. Communities may share a sense of place situated in a given geographical area (e.g. a country, village, ...

to turn for relief. For poor and isolated households even idiosyncratic shocks might be difficult to cope with. # Single vs. Repeated shocks: A third distinction concerns shocks following one another like drought followed by sickness and death versus shocks that occur as single events. The former are known as repeated shocks and are typically difficult to handle through informal means. The following table lists social risks and their degree of variance varying from idiosyncratic (micro), regional covariant (meso), to nationwide covariant (macro).

Strategies

Risk management strategies fall in three broad categories.:

Prevention strategies

These are introduced before a

occurs to reduce the probability of a down-side risk. Reducing the probability of an adverse risk increases people's expected income and reduces income variance. Both effects increase

welfare Welfare, or commonly social welfare, is a type of government support intended to ensure that members of a society can meet basic human needs such as food and shelter. Social security may either be synonymous with welfare, or refer specifical ...

. Strategies to prevent or reduce the occurrence of income risks have a very broad range varying from small-scale informal arrangements to national economic policies. Examples include: * Avoiding risky

production *

Migration Migration, migratory, or migrate may refer to: Human migration * Human migration, physical movement by humans from one region to another ** International migration, when peoples cross state boundaries and stay in the host state for some minimum le ...

when current residence region is exposed to high vulnerability * Engaging in

hygiene Hygiene is a series of practices performed to preserve health. According to the World Health Organization (WHO), "Hygiene refers to conditions and practices that help to maintain health and prevent the spread of diseases." Personal hygiene refer ...

and other disease prevention activities * Skill training to reduce the risk of unemployment and

underemployment Underemployment is the underuse of a worker because a job does not use the worker's skills, is part-time, or leaves the worker idle. Examples include holding a part-time job despite desiring full-time work, and overqualification, in which the ...

* Increasing

financial market A financial market is a market in which people trade financial securities and derivatives at low transaction costs. Some of the securities include stocks and bonds, raw materials and precious metals, which are known in the financial market ...

literacy Literacy in its broadest sense describes "particular ways of thinking about and doing reading and writing" with the purpose of understanding or expressing thoughts or ideas in written form in some specific context of use. In other words, hum ...

* Optimizing

macroeconomic Macroeconomics (from the Greek prefix ''makro-'' meaning "large" + ''economics'') is a branch of economics dealing with performance, structure, behavior, and decision-making of an economy as a whole. For example, using interest rates, taxes, and ...

policies to reduce the shocks of financial crisis, such as oil price surges or unpredictable market moves on currencies, indices and blue chip stocks. * Improving labor standards to meet international standards including

child labor Child labour refers to the exploitation of children through any form of work that deprives children of their childhood, interferes with their ability to attend regular school, and is mentally, physically, socially and morally harmful. Such e ...

reduction interventions * Putting disability policies in place to prevent further disadvantaging the disabled population * Prevention of pandemic illnesses by implementing

vaccination Vaccination is the administration of a vaccine to help the immune system develop immunity from a disease. Vaccines contain a microorganism or virus in a weakened, live or killed state, or proteins or toxins from the organism. In stimulating ...

and educational public health programs * Establishing community-based insurance schemes to compensate pensioners * Building nursing homes for the elderly and setting up

public housing Public housing is a form of housing tenure in which the property is usually owned by a government authority, either central or local. Although the common goal of public housing is to provide affordable housing, the details, terminology, def ...

for the homeless and

orphans An orphan (from the el, ορφανός, orphanós) is a child whose parents have died. In common usage, only a child who has lost both parents due to death is called an orphan. When referring to animals, only the mother's condition is usuall ...

Mitigation strategies

Mitigation strategies are also employed before the risk occurs to decrease the potential impact of a future down-side risk. Whereas preventive strategies reduce the probability of the risk occurring, mitigation strategies reduce the potential impact if the risk were to occur. Risk mitigation can take several forms: *

Portfolio diversification In finance, diversification is the process of allocating capital in a way that reduces the exposure to any one particular asset or risk. A common path towards diversification is to reduce risk or volatility by investing in a variety of assets. I ...

to reduce the variability of income by relying on a variety of

assets In financial accounting, an asset is any resource owned or controlled by a business or an economic entity. It is anything (tangible or intangible) that can be used to produce positive economic value. Assets represent value of ownership that can ...

that are not

correlated In statistics, correlation or dependence is any statistical relationship, whether causal or not, between two random variables or bivariate data. Although in the broadest sense, "correlation" may indicate any type of association, in statistic ...

strongly enough to have the same returns. * Formal as well as informal

insurance Insurance is a means of protection from financial loss in which, in exchange for a fee, a party agrees to compensate another party in the event of a certain loss, damage, or injury. It is a form of risk management, primarily used to hedge ...

policies. While formal insurance benefits from a large pool of participants, informal insurance has the advantage of low

information asymmetry In contract theory and economics, information asymmetry deals with the study of decisions in transactions where one party has more or better information than the other. Information asymmetry creates an imbalance of power in transactions, which ca ...

. The characteristics of formal insurance are straightforward while informal insurance arrangements are more difficult to describe as they come in different and often disguised forms. * Hedging losses using financial instruments like stocks, exchange-traded funds,

forward contract In finance, a forward contract or simply a forward is a non-standardized contract between two parties to buy or sell an asset at a specified future time at a price agreed on at the time of conclusion of the contract, making it a type of derivat ...

s, swaps, options, many types of

over-the-counter Over-the-counter (OTC) drugs are medicines sold directly to a consumer without a requirement for a prescription from a healthcare professional, as opposed to prescription drugs, which may be supplied only to consumers possessing a valid prescr ...

and

derivative In mathematics, the derivative of a function of a real variable measures the sensitivity to change of the function value (output value) with respect to a change in its argument (input value). Derivatives are a fundamental tool of calculus. ...

products, and

futures contracts In finance, a futures contract (sometimes called a futures) is a standardized legal contract to buy or sell something at a predetermined price for delivery at a specified time in the future, between parties not yet known to each other. The asset ...

. * Microfinance * Pension systems * Access to financial markets for the poor * Community arrangements that allow for shared

tenancy A leasehold estate is an ownership of a temporary right to hold land or property in which a lessee or a tenant holds rights of real property by some form of title from a lessor or landlord. Although a tenant does hold rights to real property, a l ...

and small-scale

pension plan A pension (, from Latin ''pensiō'', "payment") is a fund into which a sum of money is added during an employee's employment years and from which payments are drawn to support the person's retirement from work in the form of periodic payments ...

s * Mandatory insurance for unemployment, old age, disability, sickness, etc.

Coping strategies

Coping strategies are designed to relieve the impact of the risk once it has occurred. The government has an important role in assisting people in coping, for example, in the case where individual households have not saved enough to handle repeated or catastrophic risks. Individuals may have been poor for their entire lifetime with no possibility to accumulate assets at all, being rendered destitute by the smallest income loss and running the risk of being faced with irreversible damages. The main forms of coping consist of: * Individual borrowing from community members and

bank A bank is a financial institution that accepts deposits from the public and creates a demand deposit while simultaneously making loans. Lending activities can be directly performed by the bank or indirectly through capital markets. Because ...

s * Seasonal or temporary

migration Migration, migratory, or migrate may refer to: Human migration * Human migration, physical movement by humans from one region to another ** International migration, when peoples cross state boundaries and stay in the host state for some minimum le ...

* Selling labor including sending children to work * Reduction of food intake * Reliance on public, private and intra-community transfers. *

Dissaving Dissaving is negative saving. If spending is greater than disposable income, dissaving is taking place. This spending is financed by already accumulated savings, such as money in a savings account, or it can be borrowed. Household dissaving therefor ...

of human capital * Seasonal/temporary migration * Selling of

financial assets A financial asset is a non-physical asset whose value is derived from a contractual claim, such as bank deposits, bonds, and participations in companies' share capital. Financial assets are usually more liquid than other tangible assets, such as ...

* Disaster relief * Social assistance in the form of asset and cash transfers *

Subsidies A subsidy or government incentive is a form of financial aid or support extended to an economic sector (business, or individual) generally with the aim of promoting economic and social policy. Although commonly extended from the government, the ter ...

Public work Public works are a broad category of infrastructure projects, financed and constructed by the government, for recreational, employment, and health and safety uses in the greater community. They include public buildings ( municipal buildings, sc ...

projects *

Government relief Welfare, or commonly social welfare, is a type of government support intended to ensure that members of a society can meet basic human needs such as food and shelter. Social security may either be synonymous with welfare, or refer specifical ...

fund or publicly raised money. * Setting up

unemployment benefit Unemployment benefits, also called unemployment insurance, unemployment payment, unemployment compensation, or simply unemployment, are payments made by authorized bodies to unemployed people. In the United States, benefits are funded by a comp ...

schemes.

Feasibility study: Togo

In coordination with national governments of

Togo Togo (), officially the Togolese Republic (french: République togolaise), is a country in West Africa. It is bordered by Ghana to the west, Benin to the east and Burkina Faso to the north. It extends south to the Gulf of Guinea, where its c ...

and

Yemen Yemen (; ar, ٱلْيَمَن, al-Yaman), officially the Republic of Yemen,, ) is a country in Western Asia. It is situated on the southern end of the Arabian Peninsula, and borders Saudi Arabia to the Saudi Arabia–Yemen border, north and ...

, World Bank conducted two feasibility studies of the social risk management framework. Within the

Africa Africa is the world's second-largest and second-most populous continent, after Asia in both cases. At about 30.3 million km2 (11.7 million square miles) including adjacent islands, it covers 6% of Earth's total surface area ...

Region, Togo was selected as a pilot country to test this approach. The process of application was launched with a workshop in

Lomé Lomé is the capital and largest city of Togo. It has an urban population of 837,437

for key stakeholders from the government and

civil society Civil society can be understood as the "third sector" of society, distinct from government and business, and including the family and the private sphere.independence Independence is a condition of a person, nation, country, or state in which residents and population, or some portion thereof, exercise self-government, and usually sovereignty, over its territory. The opposite of independence is the statu ...

in 1960, the government has provided

social security Welfare, or commonly social welfare, is a type of government support intended to ensure that members of a society can meet basic human needs such as food and shelter. Social security may either be synonymous with welfare, or refer specifical ...

for the privileged minority working in the formal sector and social assistance to a few people or groups conventionally identified as vulnerable (widows, orphans, handicapped). This leaves 95% of the Togolese to rely mostly on informal arrangements through both internal arrangements, which are organized by the prospective beneficiaries and external arrangements, which are organized by agents generally not belonging to the community. In order to improve social protection, the government rethought its social protection policy in the framework of SRM and the following prevention, mitigation and coping strategies were proposed: * Conducting

information Information is an abstract concept that refers to that which has the power to inform. At the most fundamental level information pertains to the interpretation of that which may be sensed. Any natural process that is not completely random ...

and

education Education is a purposeful activity directed at achieving certain aims, such as transmitting knowledge or fostering skills and character traits. These aims may include the development of understanding, rationality, kindness, and honesty ...

campaigns focused on key preventive measures, especially for

health Health, according to the World Health Organization, is "a state of complete physical, mental and social well-being and not merely the absence of disease and infirmity".World Health Organization. (2006)''Constitution of the World Health Organiza ...

and environment. * Revising

family law Family law (also called matrimonial law or the law of domestic relations) is an area of the law that deals with family matters and domestic relations. Overview Subjects that commonly fall under a nation's body of family law include: * Marriage ...

s and

land tenure In common law systems, land tenure, from the French verb "tenir" means "to hold", is the legal regime in which land owned by an individual is possessed by someone else who is said to "hold" the land, based on an agreement between both individual ...

laws. * Improving the collaboration between government and communities for better access to basic social services. * Supporting risk pooling and creative initiatives for economic shocks and chronic risks. * Discouraging

widowhood A widow (female) or widower (male) is a person whose spouse has died. Terminology The state of having lost one's spouse to death is termed ''widowhood''. An archaic term for a widow is "relict," literally "someone left over". This word can so ...

rituals A ritual is a sequence of activities involving gestures, words, actions, or objects, performed according to a set sequence. Rituals may be prescribed by the traditions of a community, including a religious community. Rituals are characterized, b ...

, harmful traditional practices and conspicuous consumption. * Filling the gaps of informal arrangements. * Reforming social security in the formal sector. * Discouraging the exploitation of child labor and trafficking. * Organizing a more efficient mechanism to provide assistance for disaster relief

Criticisms

There is a lack of

empirical evidence Empirical evidence for a proposition is evidence, i.e. what supports or counters this proposition, that is constituted by or accessible to sense experience or experimental procedure. Empirical evidence is of central importance to the sciences ...

of SRM's practical application. Besides Yemen and Togo, SRM has not been experimentally studied within the development field. This raises skepticism regarding the framework's feasibility in the arena of international development. SRM is sometimes also viewed as a

neo-liberal Neoliberalism (also neo-liberalism) is a term used to signify the late 20th century political reappearance of 19th-century ideas associated with free-market capitalism after it fell into decline following the Second World War. A prominent fa ...

framework that limits the government's role to coping strategies that spring into action only in the case of

market failure In neoclassical economics, market failure is a situation in which the allocation of goods and services by a free market is not Pareto efficient, often leading to a net loss of economic value. Market failures can be viewed as scenarios where indi ...

. Its aim to encourage riskier activities that reap higher returns has also come under fire in light of individual risk-taking behaviors that are determined by a multitude of factors and not just decreased risk vulnerability. Also, riskier behaviors not only hold the potential for higher returns but also for bigger losses making World Bank's encouragement of such activities inappropriate. Lack of risk monitoring and reviewing to maintain an updated inventory of contextually appropriate risks and strategies is another serious deficit of the SRM framework (

fallacy of composition The fallacy of composition is an informal fallacy that arises when one infers that something is true of the whole from the fact that it is true of some part of the whole. A trivial example might be: "This tire is made of rubber, therefore the ve ...

Future implications

World Bank's Social Protection and Labor Sector is under the process of formulating its Social Protection and Labor Strategy 2012 – 2022. Conceptual note for the strategy outlines four indicative strategic directions: * Expanding from improving individual programs to building social protection systems * Strengthening the focus on

low income Poverty is the state of having few material possessions or little

income

and fragile states * Emphasizing promotion of opportunities and

s as a core element of the practice * Continuing to build on core strengths in knowledge, innovation and results. The upcoming Strategy is also aimed at dealing with SRM's operational issues exhibited by lack of sufficient guidance to design and implement effective social protection systems.

References

{{DEFAULTSORT:Social Risk Management Risk management Security Emergency management