Why obsession with investment in mass public education and health in poor countries could be less optimal policy
Let me articulate a heresy. I am increasingly suspicious of the obsession by governments in poor countries to invest in “education and healthcare for all” as a strategy to combat poverty. This is not to say health and education do not matter in reducing poverty or its effects. There are economic benefits and welfare dividends that come from a healthy and educated citizenry. But these benefits can be realised without the state being a provider or even financier (as I used to argue) of such services. These can, and should, be funded by families, religious institutions and other charitable bodies.
In attempting to provide education and healthcare for all, poor countries spread their meager resources (both human and financial) too thin. Consequently, what citizens get is often half-baked education and poor health services. Yet to have impact, governments in poor countries need to avoid the political temptation (supported by donors) to be seen to do things directly for people. The most impact can come by doing things indirectly that trigger, stimulate, instigate or precipitate change. Such policies can seek to stimulate private and public investments that drive economic growth and create jobs. Working citizens can use the incomes from their jobs to fund their children’s education and families’ healthcare.
Since 1998 (the year when I have consistent and reliable data on government of Uganda budgets, our country has spent $3.72 billion on health and another $9.06billion on education (all figures adjusted to 2016 dollars). This excludes donor support because I am aware donors impose conditions on their money. This money has done a lot of good; building classrooms and health centers across the country, paying salaries for teachers and medical workers and buying scholastic materials and hospital equipment. Of course in all these activities many people get jobs from which they earn incomes to cater for their families. But is this the optimal way to spend this money in a poor country like Uganda?
The biggest challenge of poor countries is how to sustain growth over a long period of time. One of the main constraints to growth is infrastructure. If the money above ($13 billion) was spent on financing the construction of dams to generate cheap electricity for manufacturers, ports, railways and roads to move goods, people and ideas to markets where they are demanded, wouldn’t Uganda’s rate of economic growth have been much higher?
The other constraint is investment in transformative projects. These require capital investments far in excess of what private entrepreneurs in poor countries can marshal. Besides, foreign investors in whom our people and leaders have so much faith will never undertake such risks. Poor countries need the state to play the role of investment banker by mobilising (or creating) long term funds to finance such investments and by reducing the risks to private capital and thereby make it more attractive to make transformative investments.
In 1999, Harvard University professor, Lant Pritchett, did a study for the World Bank titled “Where has all the Education Gone?” He constructed a series on the growth in human capital (education) and could not find any positive association between growth in education and growth in output per worker. The study actually found a negative and significant relationship in some statistical exercises.
Indeed, countries like Ghana, Sudan, Zambia, Madagascar and Senegal that enjoyed rapid growth in human capital between 1960 and 1987 were growth disasters. Yet countries like Japan with modest growth in human capital over the same period were growth miracles. Zambia had slightly better growth in human capital than South Korea over this period but its growth was seven percent points lower. Growth in output per worker (labor productivity) in poor countries actually consistently declined just as growth in human capital accelerated – from 3% in the 1960s to 2.5% in the 1970s to -0.5% in the 1980s to 0% in the 1990s.
Poor countries need the state to play the role of investment banker by mobilising (or creating) long term funds to finance such investments and by reducing the risks to private capital and thereby make it more attractive to make transformative investments.
We know from history that Western Europe and North America, the first countries to industrialise, did not have “education and health for all” programs until they were rich. The National Health Services (NHS) in UK was established in 1946. Medicare and Medicaid in the USA were established in the mid-1960s. The welfare state was a consequence of development, not stimulant of it.
On health, the founder or social medicine, Thomas McKoewn, drew a series of famous diagrams showing, for a whole series of diseases, that mortality rates were falling before the introduction of effective treatment and continued to fall at very much the same rate after its introduction. McKoewn found that medicine was not very useful. He concluded that the root of health improvement lay in economic and social progress, especially better nutrition and living conditions. If McKoewn is right, then it is economic growth that creates jobs from which people earn incomes to pay for better nutrition and improve the quality of their living.
I am aware that Economist and Historian Richard Easterlin, failed to find a direct correlation between the on-set of economic growth and improvements in health. But having read Angus Deaton’s majestic work, The Great Escape, I believe that improvements in health resulted from control of disease through public health measures especially improvements in sanitation and in water supplies – not hospitals, nurses and doctors. Reductions in child and infant mortality, which explain increased life expectancy in poor countries, were also a result of vaccination against a range of diseases. May be poor governments should restrict their meager resources to such public health actions, not hospitals.
Therefore, the greatest mistake poor countries have made is to try and replicate the spending structure of a welfare state as designed in developed countries. Rich countries fund a large basket of public goods and services precisely because they can afford it. They only began doing so after state revenue per capita, public spending per capita, and income per capita reached a certain threshold.
I am not saying that health and education are not important. They are. But they don’t need to be funded by the state in a poor country. There can be a few exceptions in public health. For the most part, the state in poor countries should aim at growth so that people can find jobs and earn incomes to fund their own education and healthcare bills. Just imagine the $13 billion spent on public education and health over the last 18 years had been spent on financing industries and factories to employ people. Where would we be?