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Human development and public finances Servaas van der Berg Dept of Economics, University of Human development and public finances Servaas van der Berg Dept 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, 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 Accountability in service delivery Need to strengthen weak accountability relationships, set appropriate incentives (principal-agent problem) – Accountability between clients and providers (“shortroute”) – Accountability between citizens and policymakers, and policymakers and providers (“long-route”)` Based on: World Development Report 2003

Public spending health outcomes Public spending on health Composition of spending Public provision of Public spending health outcomes Public spending on health Composition of spending Public provision of effective health services Total consumption of effective health Health outcomes services Strength of all links combined determine whether inputs translate into outputs Similar in all social services Based on: Filmer, Hammer & Pritchet

Bromberger, Government policies affecting the distribution of income, 1940 -80, p. 167: “. . 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) SACMEQ Grade 6 Reading scores (SACMEQ mean 500, standard deviation 100)

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

Lowess regression on schools’ average maths score, SA vs. other SACMEQ countries • Poor 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 (Do. E) 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 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 % 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 & scatterplot Not a single school tested in one of the African Lowess regressions & scatterplot Not a single school tested in one of the African languages reached the low international benchmark of 400 Random guessing?

African Eng / Afr Coefficient on SES 16. 5 80. 6 R-squared 0. 03 African Eng / Afr Coefficient on SES 16. 5 80. 6 R-squared 0. 03 0. 30 “Belgium” “Indonesia” Gap 104 Gap 168 This gap explains middle class black flight to historically white schools Gap 232

Black matriculants, 1982 to 2007 (’ 000) 1982 1992 2007 Growth rate p. a. Black matriculants, 1982 to 2007 (’ 000) 1982 1992 2007 Growth rate p. a. 1982 -1992 Growth rate p. a. 1992 -2007 Endorsements (University exemptions) 7 34 Other matric passes 27 117 Total 51 241 292 17. 1% 15. 8% 16. 1% 2. 7% 4. 9% 4. 5% 34 151 Potentially holds back economic growth and black social mobility

Improving school quality More resources are less important than using existing resources better, i. 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 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