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Vouchers for social security

19 September 2008
By Swaminathan S A Aiyar

Indians know very little about Scandinavia--the four nations of Sweden, Norway, Denmark, and Finland in northern Europe. Some Indian males fantasize about glamorous Swedish blondes. Others lust over the latest Nokia phone from Finland. Geography enthusiasts know it as the place where the sun never sets in the summer. Old liberals like me remember Scandinavia for its over-regulated, over-taxed, bureaucratic economies that drove away the great film maker, Ingmar Bergman, and the tennis legend, Bjorn Borg.

All this changed, however, after their economic reforms. Scandinavia now combines the best in socialism and capitalism. It has the most caring societies--providing cradle to grave security for their citizens—which are now also amongst the best places to do business. It takes only a day to start a business and a day to close it. You can hire and fire workers with ease. They have cut red tape ruthlessly, almost wiping out bureaucratic corruption. And so Scandinavia is today the envy of the world, with the highest living standards combined with the most caring governments.

The most striking lesson for India is from Sweden’s education reforms in the early 1990s. They decentralized the system--shifting control of schools from the centre to the municipalities—and gave parents a choice to send their children to state or private schools (but paid by the state with a voucher). As a result, many innovative, for-profit schools have opened up, who compete for the vouchers. The number of students in private schools has gone up ten fold, from less than one to over ten percent.

One of the most successful is a chain of 30 private schools, which encourages children to learn in small groups and lets them progress at their own speed. Children spend 15 minutes each week with a tutor, reviewing last week’s progress, and agreeing to next week’s goals. This information goes up on the website for parents’ review. Successful teachers earn bonuses based on the children’s performance. 90% of the parents stated in a recent survey that “school choice” and competition have improved the overall quality of education. The poorest are the happiest for their children can now go to the best schools for free. The ability to exit a bad school gives a poor child the same chance as a rich one to rise in the world.

Sweden’s school model is made for India, where government schools have failed, teacher absenteeism is rampant, and there is no accountability to parents or the community. As a result even the poor are withdrawing their kids from state schools and putting them into cheap private schools (that charge Rs 100-200 per month). If any politician in India were to advocate Sweden’s model--fund children, don’t fund schools—poor parents would be so grateful that the politician would never lose his seat. The poorest child would have the same opportunity as a middle class one, and government schools would improve because teachers’ salaries would be paid by parents’ vouchers. It would be a Diwali everyday!

In Sweden, the Left’s initial hostility has also diminished. Social Democrat politicians do not dare criticise what is popular with voters. Teachers are happier as they have more opportunities to change schools. Government’s budgets have not been hurt by having to finance children in private schools because municipalities have managed to close or cut expenses of the lower performing government schools.

Sweden’s school reforms are a good example of what is attractive about the Scandinavian model. Unlike India, it is not riddled with red tape, nor is it hostile to private enterprise. Yet, it gives the state an important role in setting a socially responsible context within which private enterprise flourishes. In the case of schooling, the Swedish government provides the resources and sets some basic guidelines -- and then lets the private sector go to work. It is the perfect public-private partnership. India may have become a miracle economy in terms of economic growth, but remains a tragedy economy in terms of social indicators. Its ranking in the Human Development Index is a pathetic 128, way behind China (81st) or even Indonesia(107th).

Indian life expectancy may have improved since independence, but remains a laggard at 63.7 years, against 72.5 years in China and 69.7 in Indonesia. Indian literacy is barely 65%, lower than in many parts of Africa. Infant and maternal mortality is shockingly high relative to GDP.

The problem cannot be solved simply by throwing money at it.The quality of government service delivery is so poor that more money means more waste. Teachers in government school are absent half the time, and half of those present are not teaching.

Sarva Shiksha Abhiyan has succeeded in increasing school enrolments, but this means little if children emerge functionally illiterate from school. In a 2007 survey by Pratham, over one-third of children tested could not read a simple paragraph.

In upper primary classes, 22% of children in government schools and 17% in private schools could not read a class II text. Half the children in most states could not do simple division.

As for public health, 40% of doctors and one-third of nurses are typically absent. And fully, half their prescribed remedies are wrong and harmful. This is partly because the doctors spend on average barely one minute per patient.

Lousy service delivery afflicts every other social sector, from nutrition and drinking water provision to maternal mortality and safety nets.

We need revolutionary change in service delivery.

Even remote villages have an adequate supply of shops providing cigarettes and tea. But there is no adequate supply of educational and health, which are more important. Why? Because the sellers of tea and cigarettes are accountable to the consumers they serve, and their income depends on satisfactory service provision.

But government educational and health services are provided by salaried, unsackable staff who are not accountable to those they serve. They are accountable only to their bureaucratic superiors and state capitals, where powerful trade unions ensure there is no penalty for non-performance.

We need new laws and institutions to ensure accountability to consumers. In education, two obvious remedies are needed. In cities and large villages, vouchers to poor families for education, plus easy licensing of new schools, will empower parents.

They will be able to send kids to schools of their choice, and schools with poor services will suffer. Improved accountability to consumers will automatically improve service delivery, even in government schools.

However, for practical school choice you need two or three schools within easy reach. In remote rural areas, the population may be too thin to support more than one school in a radius of 10 km. In such circumstances vouchers — which need competing schools — will not work.

In such areas, panchayats must be empowered to discipline errant teachers and health staff. In China, local governments directly hire and fire such workers. In India, this may not be feasible: qualified teachers and doctors may simply refuse to apply for jobs with panchayats in remote areas. However, panchayats should be empowered to withhold the salaries of absent staff. That will instill accountability.

Vouchers for poor household are needed for health no less than education. Many studies show that the illness or deaths of breadwinners often start a vicious cycle that drives families into poverty. Health vouchers will empower those most in need.

Catastrophic health insurance can help those needing surgery. Only a small proportion of sick people need surgery, but that can save lives of breadwinners. The Karnataka government has pioneered a scheme to provide surgical coverage to people paying just Rs 7.50 per month.

This needs replication widely.

Education is a means to improved income. But high school education does not create sufficient skills for a decent job. We need vocational training on a massive scale, to raise the skills and employability of people.

Industries across the board are complaining that rapid economic growth has created a shortage of every kind of skill. Even the construction industry is facing a labour shortage, and the historical classification of construction workers as 'unskilled' is now proving false. Modern technology also requires new skills in all industries.

The government should offer grants and instruction subsidies to industry associations in every state to set up training institutions for every branch of work, manual as well as non-manual. The government must also permit foreign universities to come in easily, and help expand higher education.

Foodgrains sold through the public distribution system should be fortified with iron, Vitamin D and iodine. This will help reduce chronic anaemia (which ails even the top 20% of households) and other mass ailments.

So many things are wrong today that it is impossible to list all the reforms needed in the social sector. But the suggestions made here can be a good starting point.

Read the report on Economic Times