Costa Rica and Its Social Protection System

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A social protection system is broadly a network of national programs that aims to create a minimum standard of living for all citizens. In addition, they aim to lessen the impact of and risk associated with economic shocks and recessions, and to promote social and political inclusion. This system, also known as a social protection floor, is often borne out of a nation’s desire to lift their poorest citizens out of poverty and to decrease inequality. A network of systems is usually built over many years as it must contend with different political ideologies coming into power, available fiscal space and institutional infrastructure. Programs within the network will focus on ensuring access to basic necessities like health care, education, housing, water, sanitation, food security and nutrition. This is typically achieved through interventions such as direct income support, conditional cash transfers, free public schooling, vocational training, universal healthcare, food stamps or vouchers, subsidized housing and more.

Social protection systems are different from ‘safety nets.’ Safety nets are short-term and “tightly targeted to the ‘extreme poor’ and often conditioned on prescribed beneficiary behaviors” (intro CITE). Social protection systems are long-term or permanent programs, less likely to be bound by conditions, and more universal in nature. Although the idea of a welfare state is not new, for the past two decades the idea of a social protection system has been gaining traction throughout the world. In 2012, the ILO adopted a formal Recommendation underlining their support for and belief in the efficacy of national protection floors (intro CITE). Social security has increasingly been viewed as a human right by many international organizations, such as UNICEF, the World Bank, and the World Health Organization, to name a few. It is now a widespread belief that nations should attempt to lay a social security foundation for their citizens to stand on.

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Many nations in Latin America were quick to adopt formal social security programs in the early 20th century, before most of the world. According to the ILO website, the social security schemes present in the region vary widely in their design. This includes, “contributory schemes; social assistance policies; non-contributory benefits; universal or targeted; fully-funded, partially funded or pay-as-you-go; publicly administered or privately run; and mandatory or voluntary affiliation schemes” (CITE AMERICAS). Every country in the region offers a contributory pension and twenty-six countries have a non-contributory pension, twenty-one countries support a conditional cash transfer program, more than 60-percent of Latin Americans have access to health care (Schwarzer et al, 2014). In general, the Americas are open to social protection programs and have developed many successful programs in the face of economic crises and poverty.

Costa Rica is no different from her neighboring nations. Modern social protection policy in Costa Rica dates back to the nineteenth century, when primary education was universalized (CITE). Since then, the nation has made great strides in the development of social policies. This paper will briefly describe the evolution of Costa Rica’s social security policies since the 1940s, giving special attention to the current suite of social protection schemes that operate in the country today, as well as the international organizations that lent a hand. Costa Rica is a standout example of how a country can find creative and pioneering ways to grow its economy and raise the minimum standard of living for all citizens.

In 1941, Costa Rica’s newly elected president, Dr. Rafael Angel Calderón Guardia, wanted to implement social insurance law. As a physician he had first-hand knowledge of the health status of his nation’s poor communities. Under his advisement, a few of his advisors worked on developing social insurance law in secret. One of the advisors traveled to Chile and took notes on how they ran their social security program and brought back what he had learned. After the law was written, the Calderón Guardia administration rushed it through congress without ever alerting the public. Once it was passed his team began attempting to implement it, but without skilled technocrats, movement on the project was slow. Finally, they formed a partnership with the ILO who offered advice “on social insurance theory as well as practice” and “skilled actuarial advice on the latest social insurance techniques and procedures” (CITE Rosenburg). Without the ILO’s help, Costa Rica’s social security program would have taken longer to implement and likely would have been less successful without accurate cost and risk assessments.

The new social insurance law established the Costa Rican Social Security Fund (Caja Costarricense de Seguro Social, CCSS), which was responsible for overseeing social protection. CCSS was funded by collecting income taxes from “workers, employers and the state to provide health and disability insurance” (CITE Morgan). However, by the time this idea was implemented, they had been whittled down to a health care program narrowly focused on sick and maternity leave for the formally employed. Politicians feared upsetting major players in the world of privatized health care. The new law also originally listed plans for a robust pension program, but it’s first iteration included only the elderly and the disabled. The law also intended for these programs to be available to “those white- and blue-collar public and private employees” making less than “300 colones a month (approximately $54.00)” (CITE Rosenburg). But initial benefits were paid out to mostly middle-income, formally employed urban workers, leaving both the rural and urban poor unprotected. CCSS would eventually expand its pensions schemes to include poorer citizens, but health care remained low on the list of priorities for many decades.

Following the 1948 Civil War, the provisional government drafted a new constitution, which included a clause for social guarantees, that laid the foundation for more expansive social insurance policies. During the 1950s, the government also nationalized the banks, abolished the army and established key developmental institutions, such as the National Institute of Housing and Urban Development (Instituto Nacional de Vivienda y Urbanismo, INVU) (CITE Vega). Despite these formal commitments the state largely failed to expand any benefits. During this time Costa Rica’s population exploded, which may have made it difficult to expand coverage without first creating new ways to raise more funds.

The sixties saw major social policy changes and increased access to basic necessities. In 1961, the constitution was amended to say that all social insurance programs had to be universal within the next ten years (CITE Martínez Franzoni & Sánchez-Ancochea). This meant that even those who were unemployed, self-employed or informally employed would now have access to a pension and basic health care. Costa Rica relied on aid packages from the United States Agency for International Development (USAID) and the Inter-American Development Bank in order to fund the universalization effort (CITE Morgan). Ten years later, only “51% of the total population had been incorporated into the social security program” (CITE Morgan). Despite failing to achieve universalism in the allotted time, Costa Rica ‘s social insurance laws were now based on a commitment to protect and assist all citizens. This commitment also apparent in their efforts to increase access to clean water and sanitation services across the nation. By the mid-1960s, “67-percent of the population had piped water” and 16-percent had access to septic tanks, allowing the gradual replacement of pit toilets and latrines (CITE Martínez Franzoni & Sánchez-Ancochea). In a short amount of time Costa Rica has vastly improved the lives of its citizens and had outpaced many of its neighbors in the realm of social protection.

The 1970s saw an even greater expansion of social insurance protection and coverage. Originally, high-income citizens were not required to contribute to the social insurance system, but universalizing the program meant that people in all income brackets were not only covered but also required to pay into the system. By removing the wage ceiling, the CCSS fund grew and they were able to “extend coverage to the impoverished and unemployed” (CITE Morgan). This reform also acted as a way to combat growing inequality in the country.

Another major change was that all of the hospitals previously run by the Ministry of Health were transferred to the care of CCSS, who then created a unified health care system. This allowed the Ministry of Health to begin “focusing solely on prevention and primary care, while facilities run by the social security agency were devoted to all curative services” (CITE Martínez Franzoni & Sánchez-Ancochea). Additionally, the Ministry of Health was able to form a health care program targeted specifically at poor, rural and underserved populations. Relying on funds from international organizations such as UNICEF, USAID and the Pan American Health Organization, allowed the Ministry of Health to establish “250 small hospital posts throughout the countryside” (CITE Morgan). Staffers of these clinics would visit people in their homes to administer vaccines, monitor the health status of children and the elderly, and refer people to specialists when necessary. Similarly, CCSS was also able to expand its reach. It opened six new hospitals and twelve clinics after receiving a loan of $38-million from the Inter-American Development Bank (CITE Morgan). Foreign aid was vital in Costa Rica’s plan to rapidly universalize health care, and helped make the country one of the most progressive states in the region.

Just as Costa Rica’s efforts were receiving attention and accolades from the international organizations for their dramatic improvements in life expectancy and universal social security program, an economic recession hit. The combination of rising oil prices and foreign debt had a severe impact on the nation fiscally and socially. The percentage of people living in poverty nearly tripled, and infectious disease and infant mortality rates increased (CITE Morgan, p10). All of the social protection programs in place were dramatically reduced. Before the recession, Costa Rica had every intention of weaning the nation off of foreign aid. But in 1984, health officials “met with representatives of twenty international organizations” and asked for $134-million in health aid (CITE Morgan, p15). Several organizations stepped in to help, including the Inter-American Development Bank, UNICEF, USAID, and the Kellogg Foundation. Although many services had to be dramatically cut back and universalism reform stalled, the exceptional amount of aid offered by international organizations helped alleviate the effects of the economic crisis.

In the 1990s, Costa Rica made a great effort to restore their social protection programs to their former operational standards, but international political landscape was changing the way it viewed social policy. Economist John Williamson drafted a list of ten policy recommendations that were meant to serve as a guideline for nations facing economic crises and may need assistance from international organizations. Most of the institutions who adopted this reform list were based in Washington D.C., so the list became known as the Washington Consensus. This term became synonymous with the idea that “developing countries should adopt market-led development strategies that will result in economic growth that will ‘trickle down’ to all the benefit of all” (CITE Britannica). Lending bodies like the World Bank and the International Monetary Fund (IMF) were already proponents of these ideals and often attached these policy conditions to the loans they offered countries in need. Criticism of the policy recommendations was often dismissed as being too socialist.

Costa Rica eventually penned two structural adjustment loans with both the IMF and the World Bank, which lead to new policies focused on “trade liberalization, financial deregulation and shifts in the role of the state as employer” (CITE Martínez Franzoni & Sánchez-Ancochea). Countries throughout Latin America received similar pressure from international organizations and were furthermore encouraged to move towards privatized health care and to reduce overall services. Through Costa Rica’s commitment to social policy, they mostly avoided this by maintaining their existing social policy and creating temporary compensatory programs (CITE Martínez Franzoni & Voorend). Their four universal programs – education, housing, health and pensions –as well as some targeted schemes like their family allowances program, remained intact. However, the government did make some concessions and began contracting out some advanced medical services to private companies. Citizens in higher income brackets could choose between private and public health, and poor citizens still had a national health care system to rely on.

According to the World Social Protection Report, published by the ILO, there are several ways for countries to create the fiscal space necessary to generate resources for social protection. Costa Rica employed many of these strategies, including reallocating public expenditure, expanding social security coverage and contributory revenues, lobbying for foreign aid, managing existing debt, and adopting more macroeconomic framework policies (CITE ILO Report). One of the major ways the government was able to reallocate funds was by getting rid of their military and transferring that budget over to their social insurance programs. Costa Rica consistently tried to think of new and creative ways to expand social protection benefits to more of its citizens. The nation did suffer some setbacks, for example non-contributory pension coverage did drop during the 1990s, but the program kept expanding, providing new ways to gain coverage (Martínez Franzoni & Sánchez-Ancochea). By the turn of the century, Costa Rica was one of the most progressive nations in terms of social policy and a strong example of how governments and international organizations can work together to reduce poverty and increase social protection.

From 1940-2000, Costa Rica made great strides in building a social protection floor, even before that term was widely used, through their commitment to protecting and assisting their citizens. They nationalized education, increased access to clean water and sanitation services, offered vocational training programs, employed thousands of people through their state-sponsored administration, and universalized health care. In the next two decades, from 2000 to present, Costa Rica would continue to do something.

In 2000, reports began to surface detailing various social cash transfer (SCT) programs from around the world (CITE Leisering, 2019), and in just a few years most experts agreed that SCTs were a viable option for countries interested in expanding social protections to their poorest citizens. Described as a ‘quiet revolution’ (Hanlon et al., 2010, p. 4) support and interest for SCTs quickly shot to the top of social policy agendas for both international organizations and nation states.

It became apparent that these programs were not only effective at reducing poverty (World Bank, 2018, p. 2), but had many residual benefits. In his book The Global Rise of Social Cash Transfers, Lutz Leisering identifies the five effects SCTs are expected to have: poverty alleviation, the reduction of social inequities, risk reduction for beneficiaries and more stabilized livelihoods, a boost for both human capital and the local economy, and finally, stronger social cohesion (2019, p. 12-13.) Focusing on these goals, different IOs and nations began launching their own cash transfer programs. Over time (after both quantitative and qualitative effects were identified and analyzed) IOs came to consistently support three main models of SCTs: social pensions, family allowances, and conditional cash transfers (Leisering, 2019, p. 9-10). These models were reliable because they had organizational and expert support, a history of success, were related to other policy issues and were popular.

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