Human development and public finances

Servaas van der BergDept of Economics,

University of Stellenbosch

Presentation to first ERSA Public Economics Workshop, Cape Town,

12 August 2009

Social delivery & accountability• Market process benefits from feedback

mechanisms: “Wrong” decisions punished, “right” decisions rewarded – this automatically enhances efficiency

• Public process lacks feedback mechanisms – efficiency is thus difficult to attain:– Political feedback mechanisms are often weak– Information asymmetry is usual condition, and measurement

difficult: • In market, aggregation of outcomes takes place through

prices• Even measurable outcomes of public services impossible to

aggregate (e.g. vaccinations, Aids information campaigns, heart transplants, ante-natal care)

– Thus need for accountability structures

Accountability in service delivery

Need to strengthen weak accountability relationships, set appropriate incentives (principal-agent problem)– Accountability between clients and providers (“short-

route”)– Accountability between citizens and policymakers, and

policymakers and providers (“long-route”)`

Policymakers

Citizens / Clients Providers

Based on: World Development Report 2003

Public spending health outcomes

Publicprovision

ofeffectivehealth services

Total

consumption

of effective

health

services

Public spendingon health

Compositionof

spendingHealth

outcomes

Strength of all links combined determine whether inputs translate into outputsSimilar in all social services

Based on: Filmer, Hammer & Pritchet

Bromberger, Government policies affecting the distribution of income, 1940-80, p.167:

“...those distributions of income in which we are primarily interested are determined by immensely complex processes in which government activity interacts with relatively autonomous initiatives and adjustments by 'the myriad forces of the market'. There does not exist a well-tested, widely-endorsed body of theory to model all of these processes. But it is clear that governments cannot readily control all of them, and there are limits to what governments may be able to do to change distributions. We must avoid assuming that if there is a change, or no change, government policy is responsible. Nor should we assume that government policies are either coherent or necessarily successful.”

SACMEQ Grade 6 Reading scores(SACMEQ mean 500, standard deviation 100)

582547 546 536 530 521 517

493 482 478451 449 440 429

0

100

200

300

400

500

600Se

yche

lles

Ken

ya

Tanz

ania

Mau

ritiu

s

Swaz

iland

Bots

wan

a

Moz

ambi

que

SOU

THA

FRIC

A

Uga

nda

Zanz

ibar

Leso

tho

Nam

ibia

Zam

bia

Mal

awi

Lowess regression on schools’ average maths score, SA & other SACMEQ countries

Lowess regression on schools’ average maths score, SA vs. other SACMEQ countries

•Poor SA children fare worse than equally poor children in other African countries in this sample•Moloi (DoE) finds most SA Grade 6 children’s Maths competency to be at Grade 3 level or below

Literacy score in PIRLS 2006

Only 22% of SA students reach low international benchmark (400)

% of Grade 4 (in SA, Grade 5) students below the low international benchmark (400) in PIRLS 2006

These are “very low reading achievers”, “at serious risk of not learning how to read” (Trong 2009)

Lowess regressions & scatterplot10

020

030

040

050

060

0M

ean

scho

ol re

adin

g sc

ore

-4 -2 0 2 4Mean school SES

African language schools All schoolsAfrikaans or English African language schools

Random guessing?

Not a single school tested in one of the African languages reached the low international benchmark of 400

African Eng / Afr

Coefficient on SES

16.5 80.6

R-squared 0.03 0.30

0

100

200

300

400

500

600

-2 -1.5 -1 -0.5 0 0.5 1 1.5 2Student SES

Pred

icte

d re

adin

g sc

ore

African language English or Afrikaans

SES gradients by language of test

0.300.03R-squared

80.616.5Coefficient on SES

Eng / Afr

African

Gap 104

Gap 168

Gap 232

“Belgium”

“Indonesia”

This gap explains middle class black flight to historically white schools

Black matriculants, 1982 to 2007 (’000)Endorsements

(University exemptions)

Other matric passes

Total

1982 7 27 341992 34 117 1512007 51 241 292Growth rate p.a. 1982-1992

17.1% 15.8% 16.1%

Growth rate p.a. 1992-2007

2.7% 4.9% 4.5%

Potentially holds back economic growth and black social mobility

Improving school quality

More resources are less important than using existing resources better, i.e. improving school efficiency– Adding more teachers to dysfunctional

schools would not improve learning– Must overcome inefficiency of poor schools

to really address poverty and educational inequality

– Institutions and incentive structures are centrally important to this

Some public finance issues• Principal-agent problem & teacher pay• Public spending incidence versus benefit

incidence• Accountability & discretion of schools and

districts– Testing, terminal exams in primary schools

• Appropriate institutions• Provider absence & incentives (cf. Duflo)• Costing of public hospitals• Perceptions about health quality