Improving the Delivery of Services

When the state doesn’t have the capacity to deliver services to all and/or its quality is poor, it is inevitable that private players will emerge for some fraction of those services – water delivery, security guards, hospitals, schools etc.

 

Having a mix of private and public service provider makes things murky, says Karthik Muralidharan in Accelerating India’s Development. How? Because the government then plays policymaker, regulator, and service provider. These roles are often contradictory, which creates confusion and accusations of bias.

 

We tend to confuse qualifications with quality. But both the education and health sectors prove this wrong – the private sector qualifications in both are lower, yet they produce better outcomes. Why? The carrot (bonuses) and stick (job insecurity) approach of the private sector drives greater effort. The correlation of effort to outcome is far higher than that of qualification to outcome.

 

The private and public sector service providers improve each other. A state with better public doctors also has better private doctors. The difference in the quality of the two may be similar across states, but the absolute quality of both sets, say, in Tamil Nadu is better than Bihar. Competition raises the level of both private and public groups. This, he argues, is why even those of us who only use private services should want public services to improve – it will drive up the quality of the private service as well.

 

But how can one improve, say, public education? One idea he proposes is that governments split the education budget into two categories: (1) usual activities like building schools, paying teachers etc; and (2) issue school fee vouchers to the poor, which they can use to pay school fees, either private or public. The net amount spent by the government would be the same, but the poor now have a choice of schools. If few choose public schools, then over time, they could be shut down. The possibility of that outcome (with associated job loss) would incentivize public schools to step up and do better.

 

A similar approach could be tried with PDS, the system that delivers subsidized food to the poor. Corruption aside, the quality of food dispensed is often terrible. In this case, instead of a food voucher, cash could be given. The option would empower the poor to go elsewhere and also buy the food items they want. If people stop going to certain PDS stores, they could be closed down. The national cost savings of such closures would extend beyond the store cost to food transportation costs too. The risk of closure may incentivize the store owners to improve what they deliver.

 

The voucher option is very practical today thanks to Aadhar and UPI, whereby money can be transferred directly to recipients accounts directly (without the poor having to go anywhere and fill forms to receive the voucher money).