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Social Policy Beyond Neoliberalism: From Conditional Cash Transfers to Pro-Poor Growth* 2223



This article offers a political economy critique of the fastest-growing modality of social policy in the world: conditional cash transfer programs (CCTs). CCTs allocate small conditional tax-funded sums to the " deserving destitute " as part of a strategy of moderation of inequality, poverty management and containment of dissent. This article argues that, while this modality of social policy can improve the circumstances of the poorest in the short-term, it also subsidizes low wages and supports the reproduction of poverty. CCTs are, then, the social policies naturally associated (" best fit ") with neoliberalism. A pro-poor alternative is outlined that can lead to faster improvements in living conditions, expand citizenship and break the reproduction of poverty and inequality under neolibera-lism.
Journal of Poverty Alleviation and International Development, 7(1)
©2016 The Authors. Published
the Institute for Povert
Alleviation and International Develo
under open access license CC BY-NC-ND 3.0.
Social Policy Beyond Neoliberalism:
From Conditional Cash Transfers to Pro-Poor Growth*
Alfredo SAAD-FILHO**
Abstract: This article offers a political economy critique of the
fastest-growing modality of social policy in the world: conditional
cash transfer programs (CCTs). CCTs allocate small conditional
tax-funded sums to the “deserving destitute” as part of a strategy of
moderation of inequality, poverty management and containment of
dissent. This article argues that, while this modality of social policy
can improve the circumstances of the poorest in the short-term, it
also subsidizes low wages and supports the reproduction of poverty.
CCTs are, then, the social policies naturally associated (“best fit”)
with neoliberalism. A pro-poor alternative is outlined that can lead
to faster improvements in living conditions, expand citizenship and
break the reproduction of poverty and inequality under neolibera-
Key w o rds: Neoliberalism, Poverty, Inequality, Social policy, Condi-
tional Cash Transfers
* This is an open-access article distributed under the terms of the Creative
Commons license Attribution-Noncommercial-NoDerivs 3.0 Unported. Dis-
tribution and reproduction are permitted, provided that the original author and
JPAID as the source are credited.
** Professor, Department of Development Studies SOAS, University of London.
68 Journal of Poverty Alleviation and International Development
This article has two complementary goals. First, it offers a political
economy analysis of the achievements, limitations and alternatives to
conditional cash transfer programs (CCTs). Second, it contributes to the
evolving dialogue between heterodox economists and scholars working
on and around social policy, in order to support the development of
analytical as well as practical alternatives to neoliberalism.
CCTs are among the most significant innovations in social policy in
the last two decades, especially in developing countries. These programs
currently reach tens of millions of families in several continents. In what
follows, the origins, conceptual foundations, key features, impact and
limitations of CCTs are examined. The article recognizes the contribution
of CCTs to the amelioration of poverty and the reduction of extreme
inequality. However, these achievements are limited by the neoliberal
context in which CCTs have emerged and must operate. Several of these
limitations can be addressed through the implementation of pro-poor
universal social policies as key component parts of a broader pro-poor
development strategy. The combination of pro-poor macroeconomic
policies and universal and strongly distributional social policies can
deliver faster and more significant gains against poverty and inequality
than neoliberal policies in general, or CCTs specifically.
The article includes this introduction and five substantive sections.
The first departs from a critical review of the dominant mainstream
(neoclassical or neoliberal) approach, which presumes that poverty is
caused by exclusion from labor or commodity markets, and that market-
led growth spontaneously tends to eliminate poverty; distributional
outcomes are merely incidental. In contrast, political economy analyses
of poverty and distribution suggest that capital accumulation simul-
taneously creates and eliminates poverty, and it generates as well as
reduces inequality. The overall impact of growth on poverty and inequality
depends on the structure of the growth process and the mediations of
social policy.
The second section reviews the principles underpinning CCTs and
their rise to global prominence since the mid-1990s. Examination of
Social Policy Beyond Neoliberalism 69
CCTs suggests that they are the typical social policy for neoliberalism,
since the provision of public goods and services tends to become
individualized and take place either through private markets (education,
transport) or private insurance (health), supported, if necessary, by
private loans and capital markets. The state steps intypically through
CCTsonly in the last instance, to support the destitute.
The third outlines the limitations of CCTs. These programs bring
the very poor into the market as residual buyers of commodities and as
borrowers. However, CCTs are limited for cost, efficiency and equity
reasons. Even though they can assist the target groups at the margin, they
are, by design, insufficient to transform the economic, social and
political structures perpetuating poverty. CCTs also introduce commercial
mediations and arbitrary limitations to the rights of citizens, manage
poverty only within narrow limits, and provide subsidies to capital that,
ultimately, reproduce poverty rather than supporting its elimination.
The fourth outlines a pro-poor policy alternative. This approach
draws upon heterodox economics traditions in order to offer a compelling
case for economic policies focusing on the basic needs of the poor and
the improvement of the distribution of income, wealth and power. These
policies and their outcomes can contribute to the achievement of demo-
cratic and distributive economic outcomes in many countries. This can
be done optimally through the combination of rapid, sustainable and
employment-intensive growth with the distribution of income and assets.
The concluding section summarizes the main findings and their
Poverty and Distribution under Neoliberalism
In the mainstream (orthodox, neoclassical or neoliberal) economics
tradition, market integration is the driving force of economic growth, for
example, through entrepreneurship, employment or consumption,
funded by profits, wages, (micro-)credit or transfers. Conversely, poverty
derives from exclusion from labor, commodity or financial markets
70 Journal of Poverty Alleviation and International Development
because of (generally arbitrary) limitations to voluntary exchange.1 In
this literature, poverty is both defined and measured by the inability to
reach arbitrary income or expenditure lines, for example, the World
Bank’s US$1.90 per day. Distribution is incidental, since it presumably
reflects each agent’s contribution to social wealth; consequently, deterio-
rations in the distribution of income or wealth are either self-correcting
or market responses to productivity or other structural economic shifts.
In either case, policies aiming to reduce inequality would likely be futile
and might create inefficiency-generating distortions.2 It follows that the
“trickle down” effect of growth can eliminate poverty in the long term; in
the short term, targeted social programs can supplement incomes, create
the “correct” incentives, and support the reduction of poverty at low cost.
Social protection, then, is either a temporary safety net to assist the poor
while they seek permanent insertion into the market, or a response to
random shocks creating temporary vulnerabilities to some households.
Political economy traditions, including the Marxist, Kaleckian,
Post-Keynesian, evolutionary and other schools of thought, argue that
the mainstream approach is misleading because it decontextualizes
poverty, vulnerability and inequality, and obscures their sources and
structures of reproduction. Recognition of these limitations can help to
explain the tendency of mainstream economics to have over-optimistic
expectations about the impact of growth on poverty.
Radical political economy approaches, centered around Marxist
political economy, claim that capital accumulation and economic growth
1See Voitchovsky (2009) for a detailed review of the mainstream literature
on poverty and inequality. The relationship between inequality and growth
is examined by Dollar, Kleineberg and Kraay (2013); for a critical review,
see Therborn (2013).
2For a mainstream analysis of the relationship between growth, poverty and
political settlements, see the POUM (prospect of upward mobility) hypothesis
presented by Bénabou and Ok (2001). For a detailed examination, including
empirical estimates, see Checchi and Filippin (2004) and Graham and
Pettinato (2000).
Social Policy Beyond Neoliberalism 71
both create and eliminate poverty, and they drive processes that can
reduce as well as generate inequality. This richer understanding of
poverty and inequality departs from the recognition that the patterns of
growth, the dynamics of poverty and the forms of reproduction of
inequality are determined by key social, political and economic relation-
ships. They include the ownership of land, capital and financial assets,
the composition of output and employment, the social and institutional
framework, the structures of competition and the labor markets, the
modalities of international integration and access to basic goods (e.g.,
education, food, health, housing and transport), and how the social
impact of growth is mediated by social policy. In order to capture these
complex determinants, their interactions and the ensuing outcomes, it is
useful to distinguish between absolute poverty and market-generated
poverty (Dagdeviren et al. 2002).
Absolute poverty is due to a country’s low levels of income and
productivity, and it tends to decline as the economy grows (“a rising tide
lifts all boats”). Growth creates new jobs and income generating opport-
unities, and it produces scarcities that lift wages and other forms of
income. Growth also expands markets, sales revenue and consumption
possibilities, offers incentives to improvements in productivity and skills,
and boosts the demand for foodstuffs and raw materials produced by the
poor. Growth can also support poverty reduction indirectly by generating
savings that can support further investment, and creating resources that
can finance public goods and welfare programs.
Market-generated poverty can derive from the loss of access to
productive assets by the poor as the economy develops, or from the form
of integration of poor households into capitalist markets. The former can
include eviction from the land because of changes in property or user
rights; changes in technologies or in the composition of output; environ-
mental shifts undermining livelihoods and productive capabilities; labor
market or demand shifts destroying jobs, devaluing skills, reducing the
scope for informal occupations or curtailing access to credit or markets,
and so on. The latter can include precarious modalities of commodity
72 Journal of Poverty Alleviation and International Development
production or (self-)employment and degrading forms of labor, such as
child labor or indentured labor, that are normally associated with low
productivity, low incomes and precarious living standards. In sum, the
spread of market relations can drive wealth creation, poverty and social
exclusion simultaneously.
If poverty is due both to insufficient development and to the
structural inequalities constituting the economic system, it may not be
eliminated by economic growth. For example, rapid growth in Brazil and
Mexico between the 1950s and the 1970s, in the Gulf economies
between the early-1970s and the mid-1980s, and in China since the
1980s, has been associated with rising inequality and, not entirely
unrelated, the persistence of absolute poverty. In contrast, even lower
growth rates, if appropriately targeted, can reduce poverty and inequality
significantly, as in Western Europe during the postwar “golden age” or in
most Latin American countries in the 2000s. However, low and erratic
economic growth generally fosters the stagnation or deterioration of
welfare standards, as in most Middle Eastern, African and Latin
American countries in the 1980s and in the former Soviet countries in the
The political economy approach also suggests that market-based
growth strategies tend to intensify the asymmetries that create poverty
and inequality even as the economy expands. Since market relations and
growth can create poverty as well as wealth, they must be nurtured as
well as directed. The elimination of poverty can also be supported by
reforms addressing structural inequalities of access to, and control over,
labor, economic assets and political power. In other words, improve-
ments in poverty and inequality are closely inter-related, and they require
specific policies rather than “growth” in general, or social policy
interventions merely at the margin.
Finally, since poverty is more complex than the inability to reach an
arbitrary level of income, it follows that monetary measures of poverty
are deficient. They can distort the perception of poverty especially at the
borders of commercial society and in the poorest countries, where the
Social Policy Beyond Neoliberalism 73
degree of commodification of social provision tends to be lower than in
the advanced capitalist economies. Political economy approaches also
suggest that the poverty-alleviating impact of “trickle down” can be
small, and that the adverse distributional and employment implications
of mainstream development strategies can overwhelm marginal compen-
satory programs. In this case, social policy can become merely a tool of
poverty management, instead of supporting the elimination of poverty
and promoting the distribution of the gains from growth. For example,
Heintz and Razavi (2013:1-3) rightly argue that:
under neoliberalism, macroeconomic policies are detached
from their social moorings...such as protecting people’s
incomes, creating sufficient employment, or eradicating
poverty...[focusing instead] on containing public debt and
inflation. Social policies remain a palliative afterthought to
address the worst social fallouts of economic policies.
Employment and social policies...must be reconnected in
policy design in order to frame solutions to the crisis grounded
in long-term, sustainable, employment-centered growth.
Deeply ingrained structures of reproduction of poverty can best be
addressed through the combination of faster growth and policies securing
disproportionate gains to the worse-off (that is, pro-poor growth),
wide-ranging social and economic reforms, and universal social policies
(see section “Pro-Poor Alternatives”). In contrast, under neoliberalism
poverty alleviation has focused on extreme forms of (absolute) poverty,
to be addressed through (conditional) cash transfers.
CCTs and Social Policy under Neoliberalism
Conditional cash transfers (CCTs) are the most significant innova-
tion in social policy in the last two decades, especially in developing
countries. This section examines their main features, and highlights the
close relationship between the hegemony of neoliberal economic policies
and the emergence and diffusion of CCTs.3
74 Journal of Poverty Alleviation and International Development
CCTs are conditional safety nets comprising small non-contributory
transfers to households that are either extremely poor or highly
vulnerable to deprivation, especially those with children. Benefits are
almost invariably paid to the mothers, both to empower women and
because it is assumed that their behaviors are better aligned with the
intended use of the funds. Essentially, CCTs aim to interrupt the
intergenerational transmission of poverty by, simultaneously, supporting
families and nudging parents to make better choices, especially higher
investment in their childrens human capital. The conditionalities may
include school attendance, preventative health care, and community
work, typically cleaning or rubbish clearance. Lack of compliance with
these conditionalities could lead to the suspension of benefits, fines and,
eventually, exclusion from the CCT (Barrientos 2007: 67; Hall 2008;
Molyneux 2007).
These basic principles encompass potentially very different
programs across goals and conditionalities that, in turn, may be imple-
mented more or less harshly. For example, the Mexican Oportunidades
program is notoriously coercive, while the Argentine Asignación
Universal por Hijo (AUH), the Brazilian Programa Bolsa Família and
the Ecuadorian Bono de Desarrollo Humano are comparatively lenient in
case of violation of the conditionalities (Cecchini & Madariaga 2011:
The notion of conditionalities for households mirrors the macro-
economic conditionalities traditionally imposed by IMF- and World
Bank-led adjustment programs. Just as the latter are meant to push
countries to implement “correct” (neoliberal) economic policies, the
conditionalities in CCTs are meant to support the reproduction of
neoliberalism by inducing individuals to internalize neoliberal norms of
behavior that, presumably, can help to reduce poverty and promote
long-term economic growth. These include “good” behaviors, such as
3For a detailed empirical analysis of CCTs, focusing on the Brazilian case,
see Saad-Filho (2015).
Social Policy Beyond Neoliberalism 75
stable wage employment or micro-entrepreneurship, and higher invest-
ment in human capital, including education, health and avoidance of
child labor, while penalizing “bad” behaviors like leisure, begging,
drinking or prostitution. In turn, the conditionalities should help to secure
broad political support to the transfer programs through the reassurance
that no one is given too much money, too easily, or indefinitely. Finally,
in contrast with an earlier generation of social policies, that were often
perceived to be imposed by foreign institutions, CCTs have allegedly
emerged in the Global South in response to these countries’ own needs
and financial and administrative limitations that, ultimately, would pre-
vent the implementation of universal policies.
CCTs have spread rapidly especially in Latin America, with 19 out
of 23 countries implementing such programs in 2013; they have also
been deployed in Bangladesh, Cambodia, Kenya, Pakistan, South Africa
and many other countries.4 Around the world, at least 45 countries
implemented CCTs in 2010, reaching 110 million families, with numbers
continuing to grow.5
CCTs were generally introduced gradually, often starting as limited
programs addressing specific needs or gaps in provision. They sub-
sequently expanded and became alternatives to existing (presumably
flawed or insufficient) universal programs and, eventually, CCTs either
became or were presented as the most important social policy in several
countries (Fagnani 2005: 537). Their expansion was strongly encouraged
4CCTs are reviewed by Ballard (2012), Barrientos (2007; 2013), de Janvry
and Sadoulet (2004), Fine (2012), Garcia and Moore (2012), Heintz and
Lund (2012) and IDEAs (2011). Their economic impact is examined by
Kabeer, Piza and Taylor (2012).
5Ballard (2012: 564). The Latin American experience with CCTs is
reviewed by Bertranou and Maurizio (2012), Campello and Neri (2013),
Castro and Modesto (2010), Cecchini and Madariaga (2011), ECLAC-ILO
(2014), Galiani and McEwan (2013), Gasparini, Cicowiez and Sosa Escudero
(2012), Oosterbeek, Ponce and Schady (2008), Pena (2014), and Stampini
and Tornarolli (2012).
76 Journal of Poverty Alleviation and International Development
by the international financial institutions and many organizations in the
aid industry, including those that had supported earlier poverty-
alleviating fads, for example the privatization of pensions in the 1980s,
microfinance in the 1990s and, more recently, “security” (Ghosh 2011:
850-851; Seekings 2012: 14).
Those initiatives were invariably justified by resource limitations
and the need to improve the market environment, optimize resource
allocation, align incentives with the requirements of “economic effi-
ciency” (i.e., neoliberalism), and compensate the poor for the asym-
metric impact of the neoliberal reforms, particularly unemployment and
loss of property, income, marketable skills and access to public services
(see first section). The close relationship between the spread of CCTs and
the diffusion of neoliberalism has been noted in the literature. For
[N]eoliberalism has created its own social policies: they are
essentially the outcome of the displacement of the matrix of
universal social rights towards welfarist policies...targeting
[only] extreme poverty.... [These policies provide] very
limited and inconsistent compensation for inequality, and fail
to...change the structural [features of] social injustice.
(Coraggio 2007)
The close fit between neoliberalism and CCTs can be attributed to the
(typically neoliberal) conflation between social welfare and self-
improvement, leading to the transfer of responsibility for welfare from
the state to the individual: “Cash transfers have...been enfolded within
mainstream development approaches which locate responsibility for
transcending poverty upon the poor themselves and use grants to alter the
behaviour of the poor.”6
The diffusion of CCTs has also responded to the perceived failure
of previous social policy initiatives to achieve their stated objectives,
6Ballard (2012: 570). See also ECLAC-ILO (2014: 14), Sepúlveda Carmona
(2009: 6, 15), Stampini and Tornarolli (2012: 2), and UNRISD (2010: 3).
Social Policy Beyond Neoliberalism 77
including the Millennium Development Goals (MDGs) and its inter-
mediate targets. CCTs can also be related to the expansion of citizens’
rights in the wake of the democratization of several developing countries
since the late-1970s. While democracy expanded economic and social
entitlements and the duties of the state, the almost simultaneous spread of
neoliberalism drastically reduced the means available to the state to
satisfy those rights in many countries. The rollout of tiny grants to the
desperately needy seemed to square this circle whilst, simultaneously,
leaving untouched the causes of deprivation and inequality.
Evaluations of the impact of CCTs have led to conflicting results.
Advocates claim that CCTs alleviate destitution in the short-run; in the
longer-term, they strengthen the recipients’ position in the labor market
which, eventually, should obviate the need for transfers (Seekings 2012;
see also World Bank 2009: 8-11). In the meantime, CCTs are cheap to run
and easy to manage, as payments are low and targeting is based on
centralized data systems allowing the accurate identification of bene-
ficiaries, preventing multiple claims and limiting corruption (Molyneux
2007: 69; Seekings 2012; World Bank 2009: 8-11). Supporters of CCTs
also claim that the conditionalities are correlated with significant
improvements in the target variables (school attendance, vaccinations,
pre-natal care, and so on),7 especially in the poorest areas. However, it is
also clear that unconditional programs are as effective as CCTs, and that
economic growth, job creation and rising minimum wages have a much
greater impact than CCTs on the welfare of the poor (see below).
Limitations of CCTs
The optimistic assessments of the impact of CCTs (outlined above)
should be tempered by the recognition of seven systemic limitations of
these programs. First, the rise of CCTs is symptomatic of the contradi-
7See Grosh (2011), World Bank (2009) and the information available at
78 Journal of Poverty Alleviation and International Development
ction between the expansion of citizen’s rights in a democracy, including
the right to a minimum standard of living, and the transformation of
social policies under neoliberalism (see above). CCTs accommodate
these conflicting imperatives through the provision of limited assistance
to narrowly targeted groups: for those with very little, anything extra
regardless of conditionalitiescan help. In exchange, the beneficiaries
must fulfill obligations springing from a combination of common sense,
expert opinion, ideology and political expediency, which are presumably
imposed “for their own good.”
Second, CCTs are designed to be unobjectionably cheap, generally
costing less than 0.5 per cent of GDP.8 They are too small to support
growth and macroeconomic stability, challenge the reproduction of
poverty or transform the life chances of the poor by boosting their assets
or improving their income-generating capacityexcept in the long run,
when the wage implications of marginally better schooling supposedly
kick in (if a compatible job can be found). In other words, neoliberal
states manage deprivation through the conditional apportionment of
tax-funded transfers to the “deserving destitute.” In doing this, the state
assists the wretched while it subsidizes the worst modalities of employ-
ment by “conditionally” supplementing the lowest incomes. However, if
mass poverty is due to the lack of jobs, precarious livelihoods and
adverse modalities of economic integration (see the first section), it can
be soothed but not resolved by such benefactions. Experience shows that
exiguous safety nets and targeted interventions are generally unable to
compensate the poverty-generating impact of neoliberal macroeconomic
Third, targeting undermines social cohesion, validates politically-
driven limits on public provision and compels the poor to manage their
own dispossession, while simultaneously threatening to deprive them of
8The only exception is Ecuador’s Bono de Desarrollo Humano, which reaches
1.2 per cent of GDP and covers 44 per cent of the population (Lavinas
2013: 18-19).
Social Policy Beyond Neoliberalism 79
their citizenship rights if they fail to meet extraneous conditions.9 CCTs
also circumvent collective action, since the transfers bypass the insti-
tutions of collective representation, and the claimants must comply
individually instead of claiming, and demanding, as a group.10 By
design, CCTs exclude the non-poor, which are arbitrarily defined by
extremely low poverty lines. Inevitably, these thresholds exclude poten-
tial claimants both at the margin and inside it because of the costs and
difficulties of program inclusion,11 and because poverty may be driven
by the volatility as much as the low average income of the poor (see first
section). Those thresholds can also alienate the non-poor politically.
Their satisfaction with the good use of their taxes may be tempered by
aggravation towards the “parasitical” destitute, regardless of the condi-
tionalities. In sum, the limited number of beneficiaries of CCTs, given
the stringent financial limitations of these programs, the political weak-
ness of the extremely poor,12 and the hostility of the non-poor can limit
the scope, growth and potential impact of the CCTs.13
9Several studies suggest that poor people tend to prefer public provision of
goods and services rather than cash transfers; in contrast, the latter tends to
be preferred by the better-off (Ghosh 2011: 69).
10 Lavinas (2013: 40) suggests that “arguments in favour of conditionalities not only on their supposed efficacy but also on a logic of control
over vulnerable groups.”
11 For example, “a family in which one of the members is formally employed
and paid a minimum wage, although its per capita income might fall below
the poverty line, is likely to be ruled out [from the Brazilian Bolsa Família
programme] for having some semblance of job security” (Lavinas 2013:
29). In the case of Bolsa Família, between 800,000 and 2.2 million quali-
fying families have not joined the programme (Lavinas 2013: 28).
12 As Sen (1995: 14) rightly put it, “[t]he beneficiaries of thoroughly targeted
poverty-alleviation programs are often quite weak politically and may lack
the clout to sustain the programs and maintain the quality of the services
offered. Benefits meant exclusively for the poor often end up being poor
80 Journal of Poverty Alleviation and International Development
Fourth, CCTs include the poor primarily by bringing them to goods
markets as consumers, while the transfers to their bank accounts draw
them into financial markets as potential borrowers, cardholders or buyers
of insurance policies, with a regular cash flow to offer as collateral
(Lavinas 2013: 37). In doing this, CCTs support the privatization of basic
goods and services and the financialization of social reproduction, while
the welfare state is reduced to a threadbare backstop available only to the
Fifth, the conditionalities in CCTs can be fulfilled only if public
services are available, while the state becomes prosecutor, judge and jury
of the “success” of the poor in satisfying the conditions imposed upon
them in order to receive benefits. This program structure can obscure the
failure of the state to provide basic services, while potentially punishing
the poor for not accessing facilities that may be unavailable to them:
[W]ithin countries, the areas typically inhabited by the most
vulnerable groups are often those where health and education
services are weakest, making them wholly unsuitable to this
kind of approach [CCTs]. Similarly, it is typically the poorest
and most vulnerable who will find it most costly to comply
with any conditionalities, and are therefore the most likely to
13 “As far as basic services are concerned, narrow targeting can have huge
hidden costs...[because] it is often difficult to identify the poor and to
reach them because the non-poormost of whom remain ‘near-poor’
seldom fail to capture a large part of subsidies destined for more destitute
people. Also, administering narrowly targeted programs is at least twice as
costly as running untargeted ones. In addition, the poor must frequently
document eligibilitywhich involves expenses such as bus fares, apart
from the social stigma they generate...Most importantly...once the
non-poor cease to have a stake in narrowly targeted programs, the political
commitment to sustain their scope and quality is at risk. The voice of the
poor alone is usually too weak to maintain strong public support”
(Vandemoortele 2004: 12).
14 For a contrary view, see Ferguson (2015: 138).
Social Policy Beyond Neoliberalism 81
be deprived of benefits if they fail to do sonot the optimal
model for a social protection programme. (Freeland 2007: 77;
see also Slater 2008 & UNRISD 2010: 24).
Sixth, while targeting saves money by avoiding transfers to the
“undeserving” poor and the better-off, these exclusions inevitably create
administrative costs. Studies indicate that the initial screening represents
0.4%-29% of the value of CCTs, with 9% being a typical figure. In
contrast, self-targeting programs cost around 6% to set up, and universal
programs even less.15 Once the poor have been identified, CCT
management costs can reach 30% of transfers, in contrast with less than
15% for universal programs (Sepúlveda Carmona 2009: 11). For
example, in the Mexican Progresa programme, “costs associated with
targeting and identifying recipients as a proportion of total costs dropped
from 61% in the year of its 3% three years later. At the same
time, the cost of checking conditions rose from 8% to 24%” (Cecchini &
Madariaga 2011: 120). Those costs are lower in the advanced economies,
where state management and communications systems are already in
place and most claimants are literate and already hold the required
These limitations were illustrated by a World Bank study of 122
CCTs in 48 countries, which claims that targeting transfers 25% more to
the poor than universal programs. However, this study also shows that
25% of targeted programs transfer fewer resources to the poor than the
universal alternative, that the median CCT in sub-Saharan Africa
transfers 8% less to the poor than a universal program, and that the
efficiency of targeting is positively correlated with per capita GDP. This
suggests that targeting may depend on institutional capacities that could
be lacking in the poorer countries.
Seventh, CCTs may not empower women. While their partners’
time and income are sheltered, women are normally expected to fulfill
15 See Cecchini and Madariaga (2011: 120-121); Dutrey (2007: 8-9); IDEAs
(2011); Rawlings (2004: 11) and, especially, Slater (2008: 16-19).
82 Journal of Poverty Alleviation and International Development
government-imposed conditionalities while continuing to service their
[C]ompliance with conditionalities requires women to dedi-
cate more time to filing the certificates of school attendance
and health check-ups for their children, which can sometimes
involve transportation expenses and long waits.... Women
also have to spend time in other programme-related tasks (for
example, they are required to participate in information
sessions or training and awareness activities). (ECLAC-ILO
2014: 18n3)
There is no question that CCTs can alleviate critical deprivation and
vulnerability and support the reduction of poverty and inequality.
However, on their own, most CCTs are too small to provide more than
minimum income security, and their initial impact is almost entirely due
to the extremely low level of the incomes of their target group (Higgins
2012: 104-108; Stampini & Tornarolli 2012: 11). The contribution of
CCTs also tends to decline over time as they cover the target population
(“saturation”), and as incomes rise through economic growth. It follows
that CCTs are self-limiting. Even though the immediate gains of these
programs are immensely valuable, further improvements may not be
sustained, and will not spontaneously follow. This raises the question of
what should either supplement or replace the CCTs in order to secure
faster and more decisive gains against persistent poverty.
Pro-Poor Alternatives
It would be utopian to aspire to eliminate poverty and reduce
inequality significantly, efficiently or rapidly through social policy alone:
the resources available for distribution are determined by macroe-
conomic outcomes, and the impact of household earned income upon
poverty and inequality tends to dwarf the effect of transfers. Experience
shows that transformative outcomes require macroeconomic policy
changes and the elimination of the social and economic structures that
Social Policy Beyond Neoliberalism 83
reproduce poverty over time. The most effective arrangement for
neutralizing market-generated poverty and inequality, and translating
expanding production capabilities into poverty reduction, greater
equality, human development and expanding citizenship, is the integra-
tion of universal protection systems and pro-poor economic growth
(Grosse, Harttgen & Klasen 2005). The pro-poor development strategy
that follows almost naturally from the political economy approach
outlined above (see in first section) is based on five principles (Hadnes &
Klump 2008; Klasen 2001; Maier 2004; Whitfield 2008).
First, mass poverty is the most important problem facing the
developing countries, and its elimination should be their governments’
main priority. This aim is not only important in itself; it is also mandated
by the United Nations through the Universal Declaration of Human
Rights, the Declaration on the Right to Development, and successive
“Development Goals.”
Second, pro-poor growth must benefit the poor more than the rich;
alternatively, growth is pro-poor when it reduces relative as well as
absolute poverty (McKinley 2004; Roy & Weeks 2003). The choice of
pro-poor growth strategies is independent of the long-term relationship
between equity and growth for, in the pro-poor framework, policies are
not selected to maximize growth, and equity is not a tool leading to faster
growth. The case for pro-poor policies is based on the intrinsic value of
economic equity, and on their potential to deliver the fastest possible
elimination of poverty and material deprivation.
Third, in order to maximize its redistributive and poverty-
alleviating impact, growth should target the sectors that directly benefit
the poor through their output and employment potential, and that can best
support the growth of productivity and wages.
Fourth, improvements in distribution and social welfare should be
pursued directly. These improvements should not be merely marginal or
conditional on trickle-down, and they must be unambiguous across a
broad spectrum of measures of welfare and distribution. Changes in the
initial distribution of income and wealth (e.g., through land reform,
84 Journal of Poverty Alleviation and International Development
universal basic education, training and pensions and other entitlements
funded by progressive taxation) can promote pro-poor objectives.
However, these outcomes depend on public policy, because “empirical
evidence...consistently indicates that size distributions of income are
quite stable, in the absence of radical changes in institutions and political
power” (Rao 2002: 7). In addition to those ex ante shifts, the process of
income generation also needs to change in order to benefit the poor
disproportionately, for example, through the deployment of industrial
policy to support strategic activities, employment generation programs,
minimum wages and incentives for wage increases for low paid workers.
Fifth, the reduction of poverty must be accompanied by initiatives
to promote equality, because:
In contexts of high inequality, growth is often concentrated
among sectors that benefit the elite [while] the poor...are
likely to be excluded.... High levels of inequality make it
harder to reduce poverty even when economies are growing....
Poverty and inequality must thus be considered as
interconnected parts of the same problem. Poverty is closely
related to various dimensions of inequality, including income
status, gender, ethnicity and location. And inequalities are
manifest across several dimensions, such as employment,
earnings and access to social services. (UNRISD 2010: 5)
In contrast, neoliberal strategies expect that price stability, fiscal
rectitude and improvements in static allocative efficiency will spon-
taneously trigger faster growth and poverty reduction. Experience shows
that these expectations are misplaced, because the emphasis on
short-term stabilization undercuts the sources of long-term growth and
reduces the resources available to reduce poverty. Neoliberal policies
also systematically ignore the need to shift the distribution of income and
wealth in order to achieve distributional outcomes.16 The systematic
16 Mainstream approaches to “broad-based” growth, that benefits most people
regardless of distribution, are examined by Besley and Cord (2007),
Social Policy Beyond Neoliberalism 85
failure of mainstream policies to achieve their stated objectives and their
perverse social and economic implications suggest that these policies
should be abandoned. Pro-poor policies offer a cogent alternative to
those limited and regressive policies, and a viable avenue for the
achievement of socially desirable outcomes (for detailed reviews of
pro-poor policy experiences, see Cornia, 2006; Dagdeviren et al. 2002;
UNRISD 2010; and Wignaraja, Sirivardana & Hussain 2009).
In the domain of social policy, pro-poor strategies are related
to universal rather than targeted programs (Esping-Andersen 1990).
Universal programs can comprise public education, training, health,
housing, water and sanitation, transportation, parks and public amenities,
environmental preservation and food security, affordable clothing and so
on. These initiatives can have low managerial costs and they improve the
standard of living of the poor directly:
[Pro-poor] programs meet people’s basic needs, contributing
to the reduction of poverty and to the equalization of the
income distribution.... Many of these programs...[also]
contribute to people’s productivity.... The expansion of social
programs...can be undertaken mostly with domestic resources;
it therefore does not excessively aggravate the foreign
exchange problem.... Often these programs can be shaped in
ways that directly and indirectly contribute to the develop-
ment of democratic participation, which is valuable in itself
and strengthens the foundation of change. (MacEwan 2003:
In many countries, the administrative infrastructure required to
implement universal public goods programs is already in place,
including basic census data, local administrative structures and a banking
including empirical studies of Bangladesh, Brazil, Ghana, India, Indonesia,
Tunisia, Uganda and Vietnam. These studies suggest that mainstream
policies (“the successful implementation of macrostabilization reforms”,
p.6) are the most efficient strategy to deliver poverty reduction.
86 Journal of Poverty Alleviation and International Development
system (or, alternatively, minimally developed cellular telephony and
mass access to the internet), or it can be built without undue expense.
Public goods and social wage programs can also be rolled out gradually
(e.g., one product or service at a time, or in selected regions), making
them more cost-effective. In spite of their universal coverage, they can
incorporate several advantages of targeted programs (“smart targeting”):
they are universal because they are available to all, and they are targeted
because distinct groups will be affected differently by each project or
initiative. For example, India and Brazil have experimented with heavily
subsidized food stores and “popular restaurants” open to all; yet, they
target the poor through the selection of products for sale (staple foods
only) and the limited availability of the outlets (in poor areas only). The
non-poor exclude themselves: a middle-class Indian would not visit a
slum to purchase ordinary rice, while her Brazilian counterpart would
never eat pork and beans with her social inferiors, whatever the price of
the meal.
Public provision can be supplemented by a universal basic grant
(UBG), which can help to integrate the poor into sustainable economic
activities, increase their self-reliance, reduce the poverty gap, promote
social integration and citizenship, expand employment opportunities,
increase the workers’ bargaining power (securing further advances in
distribution), and guarantee a minimum level of income, consumption
and welfare across society. In doing this, social policy can help to
empower the poor and overcome some of the most debilitating aspects of
deprivation. It would also help to alleviate the dependency of the
destitute upon the merely poor, through the latter’s access to (precarious)
employment, (meager) pensions and (conditional) cash transfers.17
Conclus ion
This article has reviewed different approaches to poverty and
17 For a detailed analysis of the South African case, see Coleman (2003).
Social Policy Beyond Neoliberalism 87
poverty alleviation, focusing on the literature on CCTs and their
limitations. It has also examined how social policy can contribute to a
pro-poor development strategy delivering growth and equity simul-
taneously. This strategy offers more promising opportunities for translat-
ing expanding production capabilities into poverty reduction and human
development than the neoliberal approach embodied in CCTs.
Mainstream (neoliberal) social policies are grounded on a narrow
(monetary) conception of poverty, and they tend to rely on meager
transfersaid, micro-loans or CCTsto support market integration
through consumption or micro-entrepreneurship. These strategies lack
the commitment to changing the distribution of assets, which would
increase personal autonomy and improve the distribution of power, and
they also lack a clear strategy for raising employment and improving
wages, even though wage work is the most important source of income
for the poor.
The article has also shown that CCTs are generally small, socially
divisive and non-transformative; that is, they are fundamentally conser-
vative. Despite these limitations, CCTs implicitly recognize that
everyone is entitled to a minimum standard of living guaranteed by the
state. Implementation of this principle suggests that CCT programs could
be expanded through higher payments, the incremental removal of
conditionalities, and their universalization.18 Yet, in most countries there
is limited ideological and institutional support for the transformation of
existing CCTs into universal transfer programs and, more generally, for
the deployment of social policy to support rapid reductions in poverty
and inequality. In those countries, neoliberal policy constraints, including
contractionary fiscal and monetary policies, liberalized capital flows,
floating exchange rates and commitment to ultra-low inflation rates have
narrowed drastically the space for social provision. In addition to this,
there can be strong resistance by governments, the media and other
established interests against (new) universal social programs, especially
18 For a similar argument and approach, see Ferguson (2015: 14, 60, 139).
88 Journal of Poverty Alleviation and International Development
in times of “austerity.”
The continuing hegemony of neoliberal macroeconomic policies
implies that social policy has only limited scope to address poverty and
inequality. Paradoxically, then, even though CCTs are more or less
universally seen as beneficial and the outcome of resistance against
neoliberalism, in reality they are heavily constrained by the neoliberal
conditions within which they have emerged.
Even if CCTs could be dramatically transformed, it is important to
be aware of their limits: social policies and their impact are heavily
constrained by macroeconomic outcomes, which condition the resources
available and modulate the wealthas well as povertygenerating
structures of the system of accumulation. Consequently, social policies
can play only a supporting role in pro-poor strategies aiming to remove
the structures of reproduction of poverty and build more equitable
societies, including the expansion of citizenship, the provision of
universal public services, the transfer of assets to the poor and the
improvement of their position in the labor markets.
The implementation of universal and pro-poor social policies is,
then, to a large extent dependent upon the deployment of pro-poor
macroeconomic policies. In turn, the latter depend upon the broader
social and political balance of forces and the (transformation of the)
country’s institutional framework. In the meantime, CCTs have achieved
some successes improving the conditions and life chances of the poor. In
this sense, they ought to be supported primarily as component parts of a
broader project of expansion of social provision towards universalization
and the removal of conditionalities. These social programs could have
great immediate significance for the poor, and could support the
emergence of a more ambitious pro-poor development strategy in the
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... The targeting used by the State to focalise aid to those characterised as most "needy and worthy" especially in times of crises, not only produces tensions for front-line social workers, but also produces competition between citizens who must demonstrate their eligibility in comparison to others. The individualised nature of aid and the competition it produces undermines social cohesion and political citizenship (Edmiston, 2018 ;Saad-Filho, 2016 ), processes that were energetically and broadly expressed during Chile's 2019 social uprising (Villalobos, 2021 ). Despite these hurdles, one social worker expressed how she has incorporated these processes into her interventions with families: ...
In October 2019, mass civil protests erupted in Chile questioning the country’s vast and historically rooted inequalities and injustices. These protests, which sought structural changes to Chile’s neoliberal ethos, were abruptly brought to a halt by the arrival of COVID-19 in March 2020. The political, social, and economic impacts of the pandemic have only intensified the country’s historic inequalities and injustices, hitting hardest in areas with higher levels of vulnerability. Increased unemployment, food insecurity, violence, and mental health crises are only a few of the many issues social workers face in the current context. Furthermore, social distancing measures and forced quarantines have caused social programs to rapidly alter strategies to meet the needs of service users, requiring front-line professionals to adapt quickly. To examine and analyse these rapid changes in the delivery of social programs as well as their impact on front-line professionals, a mixed-methods study was undertaken that included the application of an online survey and follow-up interviews with front-line social workers. We found that social workers reported greater workloads and employment precarity within the current context, that programs were changed to meet the immediate tangible needs of individuals and families, and that changes were primarily designed in a nonparticipatory and centralised manner. This chapter analyses the study’s results and discusses the challenges social work faces in the current and future context.
... The dominant power block in Brazil has been led by the bourgeoisie, which can be divided into the national, 'internal bourgeoisie' and the 'internationalised bourgeoisie', following Boito and Saad-Filho (2016) and Saad-Filho (2016). These divisions have disputed hegemony around process of accumulation, with their differences expressed in the 'cleavages between industrial and banking capital, domestic and foreign capital, and large and medium-sized capital, as well as national, regional, sectoral, political, and other imperatives that can generate variegated outcomes in practice' (Farias, 2009;Boito and Saad-Filho, 2016, p. 193). ...
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The AKP came to power in Turkey in 2002 after a devastating economic crisis and has since become a hegemonic party. Despite its neoliberal policies, its votes mostly come from the poorer echelons of the society. This article analyses the AKP as a prime example of ‘neoliberal populism' and argues that the AKP's social policies are the material sources of its neoliberal populism. There are, however, important contradictions in AKP’s social policies. First, they have mostly benefited informal sector workers, but have decreased the benefits of formal employees. Second, some of the social policies are programmatic and universal, but others are particularistic and clientelistic. Third, although social programmes and spending increased, the labour policies of AKP have decreased the power and conditions of labour. These social policy contradictions help AKP target the poor unorganized sections of the society, gain and maintain popularity among them and weaken opposition to its neoliberalism and authoritarianism.
... 9. In practice, none of these policies directly opposes the core of neoliberal thinking. The Family Grant program, created by the first Lula administration, is fundamentally a focused social policy for combating poverty in line with the neoliberal notion of poverty reduction through conditional income transfers (Saad-Filho, 2016). Payroll-deductible credit policies, which help broaden concessions and cheapen the credit supply, also find shelter in a neoliberal view of the economy as combating "market failures" derived from an asymmetry of information, in this case between borrowers and lenders, thus reducing the risk of default and, consequently, the final cost of credit. ...
Evaluation of the growth model of the PT governments based on the contributions of Celso Furtado reveals that the recent growth cycle has alleviated the typical characteristics of underdevelopment by developing a mass consumption market and improving labor market conditions. However, the limitations of the model prevented modernizing the structure of production to sustain changes on the demand side, including labor in sectors with higher productivity, limiting the control of foreign subsidiaries, and reducing the structural vulnerability inherent in specialization in basic commodities exports. The limits of the model were aggravated by the crisis of 2008–2009, revealing the difficulty of incorporating a peripheral economy like the Brazilian into global capitalism. Uma avaliação do modelo de crescimento dos governos do PT a partir da contribuição de Celso Furtado revela que o ciclo de crescimento recente amenizou características típicas do subdesenvolvimento ao desenvolver um mercado de consumo de massa no Brasil e ao melhorar as condições no mercado de trabalho. No entanto, as limitações do modelo não permitiram modernizar a estrutura produtiva de forma a sustentar as transformações do lado da demanda, incluir a mão de obra em setores de maior produtividade, limitar o controle das filiais estrangeiras, e diminuir a vulnerabilidade estrutural inerente à especialização em exportações de commodities básicas. Os limites do modelo de desenvolvimento adotado se agravaram após a crise de 2008–2009, revelando as dificuldades de inserção de uma economia periférica como a brasileira no capitalismo global.
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Περίληψη: Ο εξευρωπαϊσμός, η διαδικασία δηλαδή διαμόρφωσης και μεταφοράς πολιτικών της Ευρωπαϊκής Ένωσης (ΕΕ) στα κράτη μέλη, είναι έννοια επίκαιρη, αφορώντας ολοένα και περισσότερα πεδία άσκησης πολιτικής. Σκοπός του άρθρου είναι η διερεύνηση της έκτασης και έντασης του εξευρωπαϊσμού στο πεδίο της πολιτικής υγείας και η δημιουργία ενός θεωρητικού, ταξινομητικού πλαισίου των μηχανισμών μέσω των οποίων αυτός συντελείται. Τα αποτελέσματα της μελέτης δείχνουν, πρώτον, ότι ο εξευρωπαϊσμός στο πεδίο της πολιτικής υγείας ως θεσμική πρακτική υφίσταται και συνεχώς διευρύνεται και, δεύτερον, ότι, ενώ πριν την εκδήλωση της οικονομικής κρίσης επιλέγονταν κύρια οριζόντιοι μη υποχρεωτικοί μηχανισμοί εξευρωπαϊσμού, κατά την περίοδο της κρίσης παρατηρείται μετακίνηση σε κάθετους υποχρεωτικούς μηχανισμούς, που αυξάνουν την ένταση των παρεμβάσεων της ΕΕ στο χώρο της υγείας. Επιθεώρηση Κοινωνικών Ερευνών 2021;157:63-87 Abstract: Europeanization, defined as the process of designing and transferring European Union (EU) policies to member-states, is a topical issue affecting multiple areas of policy practice. The aim of this paper is to explore the width and depth of Europeanization in health systems and develop a classification framework of the mechanisms of Europeanization most commonly applied in health policy. Our results indicate that Europeanization is a gradually widening institutional practice in healthcare. The most recent economic crisis was marked by a clear shift from horizontal non-mandatory Europeanization practices to vertical and mandatory ones, increasing significantly EU’s intervention in domestic health policies. The Greek Review of Social Research 2021;157:63-87
This article presents a model in which distributional conflict and cross-sectoral interactions between demand and supply side forces determine inflation in developing countries. We show that the standard macroeconomic policy recommendations of inflation targeting and balanced budgets (i) increase volatility by amplifying external shocks and (ii) can lead to premature deindustrialization. The recent Brazilian experience is used to illustrate the argument.
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This paper presents a model of inflation in developing economies and makes uses of it to evaluate macroeconomic policy in those countries. We see cross-sectoral interactions between demand and supply side forces as central and show that the standard macroeconomic policy recommendations of inflation targeting and balanced budgets (i) increase volatility by amplifying external shocks and (ii) can lead to premature deindustrialization. The analysis applies to economies with marked underemployment, a central feature of developing and emerging countries. The recent Brazilian experience is used to illustrate the argument. JEL codes: E63, O23, O14
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Since the mid-1990s, poverty reduction and the achievement of better living conditions in poor countries have slowly gained a place on the national policy agenda of developing countries, while, following the adoption of the Millennium Development Goals, the achievement of quantitative targets in these areas has become the main goal of international development.
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The current perception that cash transfers can replace public provision of basic goods and services and become a catch-all solution for poverty reduction is false. Where cash transfers have helped to reduce poverty, they have added to public provision, not replaced it. For crucial items like food, direct provision protects poor consumers from rising prices and is part of a broader strategy to ensure domestic supply. Problems like targeting errors and diversion from deserving recipients are likely to be even more pronounced with cash transfers and cannot be eliminated through technological fixes like the UID.
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In this report, the United Nations independent expert on the question of human rights and extreme poverty focuses on non-contributory pensions or so-called social pensions. Social pensions consist of cash benefits received by persons above a given age that do not require prior compulsory contributions from beneficiaries, employers or the State. Social pensions are an important dimension of social security systems. States are obliged progressively to ensure the right to social security and the right to an adequate standard of living to all individuals within the country. These rights are enshrined in the Universal Declaration of Human Rights and several international human rights treaties and International Labour Organization conventions. Considering the vulnerability of older persons, States must take appropriate measures to establish social security schemes that provide benefits to all older persons without discrimination of any kind and ensure equal rights for men and women. Today, large proportions of the population work outside the formal employment sector and traditional informal support systems for older people are changing under the pressure of increased longevity, widespread poverty, the impact of HIV/AIDS and migration. Contributory pension schemes (e.g. employment-based pensions) do not reach all older persons. Therefore, States must recognize that social pensions are critical elements for the progressive realization of the right to social security for older people. Non-contributory pensions can significantly reduce poverty and vulnerability among old people, in particular for women, who live longer and are less likely to benefit from contributory systems. The report provides recommendations on how to ensure that non-contributory pensions comply with core human rights standards. It also addresses the role of international assistance and cooperation in the field of social security.
The partnership between rich and poor countries takes many forms, but its most explicit expression is embodied in foreign aid-formally known as official development assistance, or ODA. Foreign aid is a coin with two faces: one side deals with issues associated with “money changing hands”; the other side addresses the aspects of “ideas changing minds.”
The Programa Bolsa Família (PBF) is one of the largest conditional cash transfer (CCT) programmes in the world. CCTs have been described as a ‘magic bullet’ for development, and PBF is widely regarded as an exemplary programme. Examination of its conceptual underpinnings, features, impact and limitations shows that PBF provides substantial income support to the poorest. However, PBF is also self-limiting and it can offer only limited long-term gains to the poor. More significant outcomes require the expansion of the scope of PBF and other social programmes towards the universalization and decommodification of social provision in Brazil.
Is the emergence and rapid expansion of Conditional Cash Transfers (CCTs) in Latin America associated with the turn to the left in Latin American politics? The paper applies a modified version of the Dolowitz and Marsh (2000) Policy Transfer Framework to successive waves of policy diffusion in nineteen countries in the region. The analysis did not find a “New Left” footprint in the motivations, actors, and lesson-drawing processes that characterised the expansion of CCTs. It concludes that social assistance is at the top of the agenda of governments in Latin America regardless of the ideological leaning of ruling coalitions.
The paper analyses the nature, the determinants, and the impacts of net capital inflows surging in Thailand after the 1997 currency and financial crises. After the crises, the composition of the net capital inflows was changed from the ones dominated by short-term flows to direct foreign investment. However, in recent years, huge net inflows of short-term loans and portfolio investment have returned. While direct foreign investment found mostly in the manufacturing export sector gains from real depreciation of domestic currency, short-term loans and foreign investment in debt and equity were attracted by real exchange rate appreciation together with high returns on investing in Thailand as well as in the emerging Asian region as a whole. As a result of the surge of total net capital inflows, asset prices increased somewhat, foreign reserves grew rapidly as domestic currency appreciated both in nominal and real terms. The study suggests policies which seek to balance the impacts of capital inflows on real exchange rates and the accumulation of foreign reserves. An attempt should also be made to allow for capital to flow out more freely mitigating the adverse effects of the net capital inflow surges. Over a short span of thirty years, Malaysia has made a remarkable transition from a predominantly agrarian to a successful middle-income economy on the threshold of a final push towards "developed economy" status. The financial sector played an important role in facilitating growth - initially as a passive concomitant of the development strategy, subsequently taking on a proactive role as the economy deregulated and grew. Until the onset of the Asian financial crisis of 2007, macroeconomic stability and a gradualist approach to financial liberalization helped insulate the economy from the vicissitudes of global financial markets. Since then the challenges of transforming into a developed economy have manifested themselves. The Malaysian experience appears to epitomize the "middle income" economy trap. Despite several policy initiatives to develop venture capital industry, knowledge based firms are yet to gain traction. The banking sector is still fragmented, with foreign banks demonstrating superior performance. Bank holding companies are yet to realize the benefits of consolidation of commercial banking, investment banking, finance companies and insurance firms. The falling rate of capital formation has stalled growth of capital markets. While there have been improvements in corporate governance, reforms of government linked enterprises is a work in process. Reforms in the political economy of finance, especially portfolio restrictions and directed credit resulting from the Bumiputera policy could yield considerable dividends.