Some Suggestions from the U.S. Experience on How to Establish a Social Protection System with Chinese Characteristics

Abstract

Abstract This paper examines the Chinese social protection system within a broader framework. First, it points out some of the valuable U.S. experience. It then discusses policy implications that are relevant to the current reform in China. From the U.S. experience, ten suggestions are proposed on how to establish a social protection system with Chinese characteristics. Specially, this paper suggests that China (1) reform the social protection system gradually, (2) broaden and improve social assistance and welfare programs, (3) encourage the development of private insurance, (4) establish a social protection system with multiple layers, (5) determine insurance benefits based on basic needs, (6) ensure adequate funds for all social protection programs, (7) establish an income record system, (8) establish a poverty-line system, (9) establish a social protection trust fund commission, and (10) unify the management and administration of social protection programs. Introduction The social protection system of the United States has been evolving for many years. It has accumulated a vast amount of experience through path-breaking changes and reforms. Some of this experience is general and broad. Although it has emerged in the design of a social protection system of a developed country, it can be used to help formulate social protection policies for developing countries. Therefore, to the extent that the U.S. experience reflects basic principles of social protection, people in China should be able to learn from this in order to shorten the process of trial and error, and thus save a tremendous amount of time and money. In so doing, we should not ignore the differences in each country s social, political, and cultural backgrounds. We need to examine the development of the U.S. social protection system and selectively recommend those elements that are relevant to the special conditions existing in China. There is a growing literature on the subject of social security reform in China (Deng et al., 1997; Hussain, 1994; Liu, 1991; Liu et al., 1994; Song et al., 1998; World Bank, 1997). However, most previous articles have focused on pension system and health-care reforms. Little has been done in other social protection areas such as social assistance, welfare programs, and private insurance. In this paper, we examine Chinese social protection within a broader framework. First, we point out some of the valuable U.S. experience that can help develop a better Chinese social protection system. We then discuss policy implications that are relevant to the current reform in China. From the U.S. experience, we propose ten suggestions on how to establish a social protection system with Chinese characteristics. Reform the Social Protection System Gradually The U.S. social protection system has evolved gradually over decades. Although politics was involved in the system development and expenditures on some programs at times exerted pressure on government fiscal imbalances, the system has not suffered serious consequences as in many other western countries. This is because the introduction of different types of benefits and the determination of benefit payments in the U.S. have been based on the actual economic status of the country. When the Social Security Act was first promulgated in 1935, for example, retirement benefits were limited to the worker himself/herself. In 1939, the Congress made the Old-Age Insurance system a family program when it added benefits for dependents of retired workers and surviving dependents of deceased workers. Benefits to husbands, wives, and widowers of 65 and over were started in 1950. The scope of the basic national social insurance system was significantly broadened in 1956 through the addition of Disability Insurance. Benefits were provided for severely disabled workers aged 50 or older and for adult disabled children of deceased or retired workers. Benefits to dependents of disabled workers were added in 1958. …