The Indian Economy Blog

June 1, 2007

The Indian Education System — Part 6

Filed under: Education — Atanu Dey @ 10:22 am

Incentive Matters

Alistair Cooke in his weekly radio broadcast on BBC Radio 4, A Letter from America, once explained the theory of public choice to his listeners as “the homely but important truth that the politicians are after all just the same as the rest of us.” It is an accessible, though incomplete, definition of what public choice is about. You could read James Buchanan, who in 1986 won the “The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel” (popularly known as the Nobel Prize in Economics) “for his development of the contractual and constitutional bases for the theory of economic and political decision-making.” But Cook’s version is adequate for our needs to explain why the Indian educational system is a disaster.

Politicians and bureaucrats are motivated by self-interest, and the will to power and control is deeply ingrained in them, perhaps more so than in the average person. Monopoly control of any market or institution is heady power. Controlling the educational sector is gives them an enormously powerful lever for controlling the economy. It is therefore quite understandable that the opposition to relinquishing that power would be formidable. The greatest challenge that India faces in reforming its educational system arises from this, not perhaps so much from a lack of understanding of what needs to be done, or how it is to be done. It is hard to overestimate the power of vested interests amassed against doing what is rational in education.

Here we look into what needs to be done, and leave aside for the moment the question whether it will be done, and if so how it is to be done. What needs to be done can be stated in one word: liberalization. The system is in chains.

In a socialistic economy, the state controls everything with the stated objective to reach the commanding heights of the economy, as the Indian leaders have always loftily boasted of achieving. What actually happens is that the state commands and controls and flies the economy into a very deep ditch. Remember USSR? It’s gone. A land lavishly gifted with natural resources and industrious smart people reduced to rubble. We have not fully learnt from their failures of the shackling of their economy. But there is a small possibility that we could learn from the successes of the limited unshackling of our own economy.

It is of course possible for governments to efficiently produce goods and services. The question rather is whether it is probable. The evidence is strong – at least in the case of the Indian government – that it is highly improbable. The list of government failures is too lengthy to list here. But a few instructive examples which illustrate the general idea are worth considering.

Telecommunications was the government’s sole preserve. The waiting times were measured in years, the prices were high, the quality poor. When the private sector was allowed entry, the prices dropped, quality improved, demand soared, supply expanded, and best of all, the public sector incumbents started performing as well. The same story can be told about the air transportation sector.

It is important to stress that the problem is one of government control of the sector, not whether it is served by private firms or not. Even if there are no public firms in a sector, government can control the sector by restricting entry (think license) of firms into the sector, thus limiting competition. The resulting low quantities (think permits and quotas) support high prices – therefore high profits. The competition for acquiring licenses is part of the rent-seeking game that is played by the politicians, bureaucrats and private sector firms. It is a nice little game (racket?) where all the players win, and the only losers are the poor consumers and the economy.

Let’s continue to look at the education sector against this backdrop.

[Previous post: Part 5. Continued in Parts 7 & 8.]

17 Comments »

  1. [...] May 31, 2007 « The Indian Education System — Part 4 The Indian Education System — Part 6 » [...]

    Pingback by The Indian Economy Blog » The Indian Education System — Part 5 — June 1, 2007 @ 10:24 am

  2. But if the same game is repeated in education sector, it’s impact will lead to high cost of basic education. Then the purpose of getting universal education will be lost.

    I beleive, the problem lies in “Pseudo Democracy”. The basic “adult franchise” system has failed in Indian context since a common uneducated layman get lured into attractive tangibles/ intangibles at the time of elections. As a result, the mandate that emerges leads to a low quality representative set. As suggested, due to continued vested interests, I do not foresee any development for acheivement of universal education in near future.

    But if the “adult franchise” is changed to “educated adult franchise”, the mandate thus received will be a qualitatively better representative set, as far as managing a large developing country like ours is concerned. Although, it is very difficult to acheive this, again keeping in mind the vested interests but it not impossible.

    Comment by Sandeep Kriplani — June 1, 2007 @ 10:43 am

  3. Sandeep writes above, \”But if the same game is repeated in education sector, it’s impact will lead to high cost of basic education.\”

    This is as astonishingly contrary a statement about the nature of our economic world as can be ever made. That statement implies that competition actually increases costs. That is both theoretically and empirically false. It is the sort of statement that makes an economist see red (as I unfortunately do now.)

    First, there is the common mixing up of the two very distinct concepts of \”cost\” and \”price.\” Worth keeping the distinction in mind. The price, in competitive markets, closely tracks costs. If the costs come down, so do the prices. In non-competitive markets, prices can be maintained above costs. That is why monopolists make economic profits while firms in a competitive market make zero economic profits.

    Fact: One of the preconditions for competitive markets to exist is that there has to be free entry. Anyone should be able to enter, and exit, the market.

    Fact: Firms in competitive markets single-mindedly reduce costs. Also, they are forced to reduce their price due to competitive pressures. Note they don\’t reduce prices voluntarily. They are forced.

    Fact: There is no free entry into the Indian education market.

    Fact: Indian education is costly because firms don\’t have an incentive to reduce costs.

    Fact: Indian education prices are arbitrary and don\’t track costs.

    Enough said. The rest is left as an exercise to the interested reader, as they say.

    Comment by Atanu Dey — June 1, 2007 @ 11:07 am

  4. The worst scenerio is the public transport sector. govt monopoly plus
    ‘permit holders’ control this vital sector ; there is a crying demand
    for buses in most areas. vested interests block all attempts to decontol this sector, while the poor public travel jam packed in rattling tin cans..

    In my area (Coimbatore, Erode dts) ‘bus routes’ are sold for
    2.5 crores and above, in black money, of course. like art works and
    real estate, bus routes are a safe and best form for stashing black money. and an excellent hegde against inflation.

    In TN, the free market is operating somewhat better in engineering
    collage scene. more than 260 collages and the bad ones are drowning
    while there is a huge demand for the better collages..

    Comment by K.R.Athiyaman — June 1, 2007 @ 11:12 am

  5. Again, I’m a bit confused.

    Can you please provide examples of anywhere in the developed or developing world where education is *not* highly regulated?

    How is it that Kerala has near 100% literacy while even the neighbours are struggling to reach 60% literacy? Kerala has just as regulated an education industry as any other state in India.

    I understand that the free market in general provides better returns and a more efficient process than a non-free market. But there are certainly areas where the free market will not provide sufficient benefits to all concerned – WITHOUT REGULATION.

    For instance take health care, or education. The proliferations of degree mills, is of no benefit to society. The availability of ineffective drugs will actively harm society. Society must guarantee health care and education to all people – and this may not be possible through private enterprise.

    In the specific case of India, hoping that privatisation will solve the problems posed by corruption seems a bit optimistic to me. However, given that the current state of affairs is miserable, any change looks to be for the better.

    W.r.to price/cost – cost for one is price for another. Perhaps Sandeep is referring to removal of subsidies in education, which would increase the cost of education for the poor.

    Comment by Prasanna — June 1, 2007 @ 4:05 pm

  6. Prasanna,
    interesting points there (and pretty widespread misconceptions)


    Can you please provide examples of anywhere in the developed or developing world where education is *not* highly regulated?

    The US higher education market is absolutely unregulated, particularly compared to the European higher education market. But most of the top 5′s in any discipline is entirely dominated by the American universities. Yeah, Europe has good universities (a handful), and US has very good state schools; but the competition from the private schools keep the quality high. Where the European (and our) socialistic model really hurts is in the provisioning of middle level schools. In Europe, from what I can see, the univs are really elite (few of them), but if you don’t get in there it’s just technical schools, which are pretty bad. There is not a lot of churn either: schools tend to stay in similar places in objective rankings, which is fairly typical of a socialistic set up. In the US, by comparison, rankings undergo fairly major upheavals with startling regularity. Take CS, the field I am more familiar with. In the early nineties USC was basically a small local school, without much (inter)national impact. Then they decided to invest heavily in recruiting good faculty in systems, and now rank among the top 10. (At least did so a few years ago). I don’t see that happening in Europe or India. The competitive pressures just aren’t there for the schools to improve. This is the biggest evidence in favour of capitalism in education providing positive value to society at large.


    How is it that Kerala has near 100% literacy while even the neighbours are struggling to reach 60% literacy? Kerala has just as regulated an education industry as any other state in India.

    1. Kerala started from a higher base of literacy, due to a centuries’ worth of work in the field.
    2. Given it’s fairly prosperous “get money from uncle in the gulf” economy, people could probably afford the higher costs of education.
    3. Even with a high literacy, Kerala has been just as much of a dismal failure in creating an innovative economy as any other part of the country. That should tell you something about the quality of the education imparted.


    I understand that the free market in general provides better returns and a more efficient process than a non-free market. But there are certainly areas where the free market will not provide sufficient benefits to all concerned – WITHOUT REGULATION.

    Let’s get one thing extremely clear. The amount of regulation that the govt imposes in India is far far higher (and of a far arbitrary nature) than is imposed by governments of even nominally socialistic countries in Europe. By any objective standard, the Indian system is a small perturbation from harsh communism, whereas even Norway/Sweden is a small perturbation from free market capitalist democracy. This is an essential point and the terminological confusion this implies is used by communists and like minded people in India to escape greater scrutiny of what they are peddling and essential reform of the system.


    For instance take health care, or education. The proliferations of degree mills, is of no benefit to society.

    See point regarding mobility in rankings above: these degree mills, in a decade have to distinguish themselves from their competition and that is the point where they will start creating better schools. Case in point, NIIT. Their quality has certainly gone up a lot in the course of a decade and half. Similarly the India-wide IIT-JEE tutorial classes.


    The availability of ineffective drugs will actively harm society. Society must guarantee health care and education to all people – and this may not be possible through private enterprise.

    I agree with the larger point in health. More regulation is needed here than in other fields, primarily because the harms are immediate, irrepairable, and can affect larger swathes of the population (think public health). However, the point remains that even this larger level of regulation is less than what currently exists in India, far less.

    Guarantees are a different matter though. The government has guaranteed a whole lot of things to people in this country and has failed to deliver on any of them. A guarantee is very expensive. A free enterprise system, while providing no guarantees, still manages to deliver a overwhelming portion of these desirable things; while a government guarantee only can succeed in a country that is so over-whelmingly rich that it can afford the gargantuan levels of loss / theft and inefficiency that a monopolistic supplier invariably deliver.

    Some of the corruption is simply people trying to adjust to a callous, unjust and bureacratic system. Think of the myriad government forms you have to buy from the touts (for nothing really, 20 bucks?). Think about it, if you ask your servant (or the peon at the office) to go and stand in line for you, that is not a crime, simply because you pay him/her at the end of the month and not per transaction. That is perverse. The absence of a free enterprise system, and the colonial imposition of government monopoly in most spheres of natural life, and the need to have myriad permits for most others, almost axiomatically implies pervasive corruption in society. People have got so innured to corruption in the small transactions (because of the perverse laws) that non one really cares about the serious, big stuff any more. Remove the small corruptions and the causes of it (free markets) and people will in a few years start questioning the large corruptions

    Comment by Corporate Serf — June 1, 2007 @ 6:13 pm

  7. CorporateSerf:

    My whole point of debate is that conflating corruption with regulation in education does not allow us to proceed further in delivering solutions to the problem. Removing corruption is certainly essential and your opinion that removing corruption in every day tasks is very important to start removing large corruption is one of the better ideas I’ve heard to tackle this proble.

    I do agree that degree of regulation is probably what matters. The USA higher education system is indeed regulated – but perhaps not so much as in India. To award degrees however institutions must indeed have authority from Government.

    W.r.to Kerala: Well at least they’re not starving! And the life expectancy etc are comparable to developed nations.

    India/Communism=Western Europe/Capitalism: Can you back that up? Or is it opinion? I do think that both India and Western Europe aim for socialism. I don’t know what communism has to do with education anyway. The system and processes and promises are similar in both India and Western Europe – just that execution is severely lacking and corrupt here.

    Guarantees: The lack of guarantee in privatised health care has failed the poor in the US miserably. Compared to Canada or Western Europe, where socialism has guaranteed health care for their citizens. Secondly, the socialistic, monopolistic, health systems in Canada/Western Europe get *better* benefits at lower cost than the “free enterprise” system in the USA. The fact is *Free Enterprise* isn’t always.

    Comment by Prasanna — June 1, 2007 @ 7:19 pm

  8. On healthcare

    “The Facts: The one common characteristic of all national health care systems is that they ration care. Sometimes they ration it by denying certain types of treatment altogether. More often, they ration indirectly, imposing cost constraints through budgets, waiting lines, or limited technology. One million Britons are waiting for admission to National Health Service hospitals at any given time, and shortages force the NHS to cancel as many as 100,000 operations each year. Roughly 90,000 New Zealanders are facing similar waits. In Sweden, the wait for heart surgery can be as long as 25 weeks. In Canada more than 800,000 patients are currently on waiting lists for medical procedures. ”

    http://www.cato.org/pub_display.php?pub_id=5871

    Comment by ColomboUnbound — June 1, 2007 @ 11:18 pm

  9. Prasanna,
    I don’t have first hand experience of Kerala; from what I read it is anomalous in several respects, one it’s reported literacy levels are high and two it has no local economy, it’s primary exports are its people. In West bengal, the state I grew up in, communism has been a disaster, for everyone except cpi(m) supporters; all of whom seem to have magically acquired real estate dealerships.

    US higher education system: you are flat out wrong. The only places the government has a say are

    1. The grant giving orgs has some say about how the grants are run, but this is as true of the govt grants as of private grants

    2. The immigration authorities, when they administer the student visa program.

    The US govt does not tell private institutions what degrees etc they can award or not. For that matter nor do state governments.

    India/Communism=Western Europe/Capitalism : This was the meaning of the word “socialism” in India vs the west. Look, this not an opinion. For fifty years we have lived in a system where the government had a monopoly or a licencing/permit requiremnet in commercial transactions of all kinds: even the manufacture of ceiling fans. In the rest of the world, this is called communism. In India this was called socialism/ Nehruvian socialism / mixed economy. The fact is, you needed permits/ were prohibited from doing most things. In Sweden Nokia formed to manufacture cell phones: no govt permits (excepts standard safety etc, the ones that are not industry specific). In India, unless you were BEL, you could not manufacture transistors. By Law. (Not that the transistors worked). Similarly for imports. This system is called communism in the west. When an Western economist talkes of socialism, this is not what he/she has in mind. Socialism, in the west means a free market economy with some govt support for specific things like health care and education. Socialism, in India means govt doing pretty much everything, with some specific companies permitted, on a case by case basis, to take some commercial decisions in certain (determined on a case by case basis) sectors of the economy. After 1991, the first “case-by-case” in the previous statement (one relating to companies) has been somewhat relaxed, but not the second.

    HealthCare: I think the jury is still out on this. On the one hand, everyone knows the horror stories of long wait times and this in socialized medicine; on the other hand government sponsored medicine seems to deliver the regular service at a slightly cheaper rate, at least at an anecdotal level. I don’t think its crystal clear either way, unlike what proponents (of either side) would tell you. Philosophically, I prefer the free market in this case as well, but honestly, I don’t see that empirically one side is clearly a better choice than the other. One problem in this case is there is no unique free market vs socialist model. It’s a hodge podge of dependent choice involving who provides the medical service/ who manufactures the medicines/ who actually administers the medicine / who pays / how the risks are hedged and who bears which proportion of risk and costs. This a very complex dependent choice and each country has chosen a different mix, so it gets very hard to compare different countries.

    http://www.usatoday.com/weather/news/2003-09-25-france-heat_x.htm

    Comment by Corporate Serf — June 2, 2007 @ 2:49 am

  10. The vital matter of work ethics is pertinent here. one of my freind
    is a govt doctor in a primary health centre. he is dedicated and
    sincere, but finds the position tough and higly stressful. absentee
    doctors and para-medics, corruption, nepotism and what not…

    In spite of pouring, billions into the govt health care, the leakages
    and inefficiency drives most to pvt clincs. unlike in west.

    And a study shows, it costs some Rs.1500 per month to educate a
    govt school student, while it is much less in a better pvt school.
    there is a organisation in TN spearheading the motto,’pay the student
    not the school..’; that is gift the money directly to the student and
    close down the education department ! and there is rampant absenteeism
    in rural govt schools.

    so unless the corroded work ethic (thru the decades of ‘socialism’)
    is repared, no use pouring good money into the sytem..

    Comment by K.R.Athiyaman — June 2, 2007 @ 9:13 am

  11. [...] June 2, 2007 « The Indian Education System — Part 6 [...]

    Pingback by The Indian Economy Blog » The Indian Education System — Parts 7 & 8 — June 2, 2007 @ 9:31 am

  12. As I’ve quoted from Cato above, everywhere where there is a government monopoly, be it ‘free healthcare’ ‘free-education’ there is rationing, further there is always a case of Quality Vs. Quantity.

    For example, where i live- Sri Lanka, represents, in terms of social indicators, the best in South Asia. Our Literacy rate stands at 93% , and in terms of other factors female emancipation, infant mortality SL is still ahead when compared with rest of South Asia.

    Sri Lanka practices a ‘Free Education’ Policy as well as a free-health policy.

    Yet, more than 50% of the school-goers fail the basic Ordinary Level Exam, and the dozen or so state university cant even begin to provide for the amount which qualifies for university entry each year. so those who can afford a foreign education, leave the country; into Europe, Australia, the US and a considerable amount to Bangalore, and other places in India.

    those who cant afford, well they languish in second-rate jobs or enroll in the few private colleges available (affiliated to foreign unis) if they can afford it.

    The well-intented policy of a good-hearted leader has lead to education, especially higher education, being limited to a few selected individuals.

    in pursuit of the noble cause of Free-education, somewhere along the line Sri Lanka has lost ‘Freedom’ to educate themselves.

    Deane/ColomboUnbound.

    Comment by Deane — June 2, 2007 @ 10:37 am

  13. And one important aspect :

    many of the high school students in govt schools in rural India
    cannot read or write properly. even the basics are not taught or
    absorbed properly,in spite of good salaries and perks for teachers.
    Work ethics and sincereity are sadly lacking. where as in private
    schools they are deemed much better.

    and syallabus is extremely heavy and learing by rote prevails.
    our syllabus must be the heaviest in the world for a teenager.
    unwise and burdensome policy…

    Comment by K.R.Athiyaman — June 2, 2007 @ 10:54 am

  14. ColomboUnbound:
    Quoting Cato is invoking orthodox Libertarian/Conservative ideology. And if you actually study the report you’ve linked to carefully, some of the arguments are actually quite misleading. For instance he says,
    The Claim: A government-run health-care system would expand access to care.
    And then goes on to say what you’ve quoted above – that there are N people on waiting lists.

    WTF? That’s not a valid counter-argument. It has nothing to do with the claim! If he can prove in some way that N-1 people would be waiting for health-care with private enterprise, then, and ONLY then, would he have a point. What he’s written is mere hand-waving. There are more such gems in that report.

    W.r.to SL, I do not know the scenario there. But I’m not convinced that privatization of education will lead to effective education for all!

    CorporateSerf:
    Kerala is anomalous! Is the anomaly due to communism? Due to education? Due to a few enlightened leaders?

    Education in the US: The State Univs are regulated by the Legislatures – although they do have complete academic freedom. Private Univs. I’m not sure – you’re right on that I guess.

    Socialism/Communism/Capitalism: Given that India was overrun and destroyed by a capitalist organization – the East India Trading Company, there was a well-justified pessimism that a pure capitalist policy would serve India well. You’re right that regulation in every aspect of life has been provably counter-productive.

    HealthCare: I find it funny that you take it as confirmed that Socialist health-care is a failure, but anecdotal that it has benefits. It’ll make a good subject for a future debate.

    But some parting shots:
    http://dgently.blogspot.com/2007/01/health-care-prescription-part-1.html
    has a comment which I found apt:
    “First and foremost, free markets presume rational decision-making in an environment where they have perfect information. Some of the most expensive health care decisions–e.g., how to treat the heart attack victim who’s wheeled into the emergency room unconscious–are made in an environment that is the exact opposite of that in which a free market operates.

    If that doesn’t tell you that markets don’t work in health care, nothing will.”

    Looking forward to more debates.

    Comment by Prasanna — June 3, 2007 @ 6:00 pm

  15. Prasanna,
    It seems rational debates with you is impossible.

    The “Socialism/Communism/Capitalism” thing was merely my observation of the meaning of the word “socialism” in India versus in the West. If you won’t read what I, and others, write, then debate becomes impossible.

    The State governments in the US regulates state universities. Duh! They own them. The thing about free markets is that anyone can start a univ. That’s what we are talking about. You have that freedom in the US. You don’t in India (and I think in Europe, but I am not sure about that)

    HealthCare: I thought I made it clear that my mind was not made up. I understand the reasoning that many libertarians make about the efficiency of the market in the long run, but I am not sure short term inefficiencies can be effectively prevented. I could find nothing in your comments that changed anything. The thing abt “rational actors model” being incorrect is a red herring. People understand that it is a poor approximation at the level of modeling individuals, but there is theoretical evidence that it still is a good model for modeling large collection of actors. The idiosyncracies cancel out.

    Finally, I don’t see how blandly stating that an argument is “orthodox libertarian/conservative” or (in another thread by another poster of your ideological leanings) “neo-liberal” makes that argument any less valid. Reminds me of the time in the mid 1920-s when the communist party of russia considered banning quantum mechanics for being “inconsistent with dialectical materialism and the well being of the proletariat”. They actually started sending physicists to gulags, but Kapitza’s intervention saved the day. (I guess they thought it was too close to religion, and hence challenged the ruling religion of communism; or more likely, some mid-level bureaucrat thought “this is crazy talk” )

    Summary: I don’t see rational debate with you as possible for the reasons described above; so please consider this the last of the series of comments

    Comment by Corporate Serf — June 4, 2007 @ 5:00 pm

  16. For what it’s worth, I’m perfectly willing to continue rational debate with you, Prasanna — although I totally agree with CorporateSerf’s points. Issues of quality and access are obviously very different, and should not be conflated. For example, lots of people in India have degrees in economics (access, availability), but very very few have received training comparable to that obtainable in economics programs in the U.S. (quality). This is not really debatable — all you have to do is look at who the world’s leading economists are, who wins prizes in the field, who receives the most citations, who publishes the most in the most prestigious journals, etc — most of them are U.S.-trained (although by no means necessarily U.S.-born), with a few from the U.K., and tiny numbers from everywhere else. At the same time, if you look at the top 15 programs in economics in the U.S., most of them are in fact run by PRIVATE universities. Yes, UCBerkeley is state-funded (although in fact it has been subject to creeping privatization for over 20 years now, with declining state funding making administrators look increasingly to fundraising from private sources, and the main reason it is still a top school is because over half its revenue now comes from private sources), as are UCLA (again, heavily reliant on private funds) and UMichigan. However, most of the top 20 are private universities: Harvard, Yale, Princeton, Stanford, Chicago, MIT, Columbia, Penn, Cornell, Duke, Rochester, UVA.

    It’s no different in any other field. The most prestigious schools in the U.S., with the very best faculty, top students, most important and innovative research, best job placement, etc, are mostly private: Harvard, Yale, Princeton, Cornell, Columbia, Stanford, Penn, Chicago, Northwestern, Brown, Dartmouth, MIT, Caltech, Duke, Rochester, Northwestern, Rice, NYU, Carnegie Mellon. Virtually all the undergraduate liberal arts colleges, such as Amherst, Swarthmore, Vassar, Middlebury, Grinnell, etc, are also private. The private universities pay higher salaries than their state-supported peers, offer greater resources and more brilliant students, have less bureaucracy and more flexible teaching loads, and are therefore more attractive places for faculty to work in. This is why there is a brain drain of the best professors from both U.S. state schools and universities all over Europe to the U.S. private universities — another fact, just google “German brain drain” or “Oxford brain drain” or “University of Michigan brain drain” and you’ll see what I mean. For that matter, as you may or may not know, most top Indian researchers also leave for the U.S. if they can — as I myself did.

    Comment by Brown Sahib — June 5, 2007 @ 4:08 am

  17. That’s the first time in my (admittedly not too long) life that I’ve been accused of being irrational in my debating.

    Either my writing skills are pathetic, or I fail reading comprehension I guess, or perhaps something I wrote rubbed you the wrong way. Certainly I’d hope to raise my level of debate to, if not correctness, at least rationality.

    BrownSahib:
    Having studied in the US for four years, I realize that there are a lot of private univs, and private schools. And from what you raise, clearly privatizing higher education has led to spectacularly successful results in the US.

    However, there is a strong public-funded primary/secondary school system which is what the large majority of the population goes to. It may not be a ‘success’ in American expectations, but clearly they’re doing much better than our Indian government schools. Again, the whole point that I was trying to debate was whether privatizing the government school system would be beneficial. I guess I myself deviated the exchange and made it less meaningful. I’m sorry for that.

    Thing is, in India, there is no real resource crunch to make rural and urban education through the government successful. It’s the heavy burden of corruption that is bogging things down. Privatizing such a basic thing as education without guarantees for the poorest strikes me as a regressive step. Even in the current setup Dalit children are discriminated against. When the schools are owned by the affluent, what will be their recourse?

    CorporateSerf: I don’t know whether you’re reading this, but how about replying to the point I raised on the Cato report? Do you think that was a valid logical argument in the report?

    I agree I should not have made an ad hominem attack on the origin of the report. I’ll try not to do that henceforth.

    Comment by Prasanna — June 5, 2007 @ 2:55 pm

  18. Prasanna,
    Apology accepted. I still think you are working with some blinders, but I also reacted to the tone of (one of your) your previous posts. Sorry about that.

    Health Care / CATO Institute:

    0. Your point / Dirk Gently blog: I have already responded to the point you highlighted:


    The thing abt “rational actors model” being incorrect is a red herring. People understand that it is a poor approximation at the level of modeling individuals, but there is theoretical evidence that it still is a good model for modeling large collection of actors. The idiosyncracies cancel out.

    More generally, the dgently blog is completely off base. One it conflates access to health care with being insured for health care. Second, it creates a standard that no system can match, government or private. Here is the direct quote:


    By health care, I mean treatment for physical or mental injury, illness, and pain as well as prenatal and maternity care. I include both reactive and preventative treatment, as well as medication and necessary medical supplies.

    By solution, I mean ensuring that every man, woman and child in the most powerful nation in the world has access to competent, reasonable medical care. If that is not the solution, then there is no problem to address. There are 47 million uninsured in the United States. Of those who have insurance, many will still be driven to bankruptcy or homelessness or hunger to afford non-reimbursed expenses, or suffer in lieu of treatments they cannot afford. Reducing that by half would mean that more than 23 million people would still be in those same situation. If there is a number of people above zero for whom those situations are acceptable, I don’t know what it is.

    So how come, if government provisioned health care is the greatest thing since sliced bread (a private sector invention, btw), that 15000 (yes 15 thousand)people die in a single summer heat wave in France (govt health care) over the course of a couple of weeks, back in 2003?

    You have to answer this if you persist in the line of argument this blog is presenting.

    1. In the long term, CATO institute’s position is correct. Private, free market provision of health care is the only one that will enable practically everyone to live healthy lives. As comparison, take food (even more basic than health care), which used to be provided by the state (kings) through granaries, which were filled by expropriation from the peasants. Still people died. Even in communist workers’ paradise (Russia, China, VietNam, you name it). Private provisioning of food has eliminated famines. I see in the long term, in say 100 years or so, we will be in a similar situation in health care. Once we have a depth of private providers, the uncertainties and market inefficiencies will be by and large removed. My only concern is that, in the immediate future, the market inefficiencies will linger and people will suffer on account of that.

    Education: (the real issue)

    I think one source of misunderstanding might be this: I am not advocating we close down the government schools (at least not immediately; though it might come to that in 20/30 years, one generation). All I am for is a free entry and exit for private players in the field. As is the case in the US, even for primary and secondary education. (You don’t need special permits to establish schools, though practically speaking you might need some sort of validation to attract students; it is not mandated by the government, federal or local.) I believe, that even this small step will exert enough competitive pressure on the government schools to noticably improve service, as happened in India with the post office after the intro of the private couriers back in the late 80′s. In generation or so, people will probably realize that the govt schools are resource sinks and decide to stop paying for them, but that is not my fight for today.

    As far as primary and secondary education in the US; as you have been educated in the US, you must be aware that their quality varies widely from the very best to the very worst. One of the reasons the school voucher issue is important in the US right now, is precisely because it is an issue for those who wish to educate their children privately, but do not want to pay into the local school from which they are deriving no benefit (contrary to what people in India might think, this is usually the poor and the lower middle class; the rich in the US live in high tax places where the schools are good; school vouchers are a poor (wo)man’s issue: those few hundred dollars a month means most to those on the margin)

    Vouchers aren’t ration cards: they aren’t for subsidizing poor children’s education. They are used by poor children’s parents to ensure that they do not pay for the service they aren’t getting. A way of introducing limited competition into a very protected, inefficient market; and a step severely opposed by the entrenched teacher’s unions, who like their cozy well paying jobs without too much accountability. Why do you think school districts are trying to import Indian teachers? Because the unionized teachers’ salaries, and more important benefits are sky high. (Also blame the socialized health insurance systems for the high costs of the benefits package)

    Comment by Corporate Serf — June 5, 2007 @ 5:44 pm

  19. In my post above, the italicization seems is incorrect: the quote from the dgently blog is two paras: One startng with

    By health care and one starting with By solution .

    My comment to that is the para after that, the one starting with So how come

    Comment by Corporate Serf — June 5, 2007 @ 5:48 pm

  20. Also, wordpress really needs a preview feature for people like me who don’t see what they are typing. wordpress, are you listening?

    Comment by Corporate Serf — June 5, 2007 @ 5:49 pm

  21. So how come, if government provisioned health care is the greatest thing since sliced bread (a private sector invention, btw), that 15000 (yes 15 thousand)people die in a single summer heat wave in France (govt health care) over the course of a couple of weeks, back in 2003?

    You have to answer this if you persist in the line of argument this blog is presenting.

    my friend,
    if you wish to present this line of argument, you must answer how private healthcare as it exists in the united states would have prevented those deaths. the answer, i’m afraid, is that it would not have done so, any more than ot prevented the deaths in new orleans after hurricane katrina. more likely, the u.s. government would have declared a national emergency and stepped in – although i will grant that with the current efficiency of fema, it may not have helped much.

    In the long term, CATO institute’s position is correct. Private, free market provision of health care is the only one that will enable practically everyone to live healthy lives.

    this is certainly not what has happened here. we currently rank #47 (iirc) in infant mortality, while france’s healthcare is rated #1. sorry not to have links off the top of my head, put i’m just passing by and i’m sure you can find them quite easily.

    As comparison, take food (even more basic than health care), which used to be provided by the state (kings) through granaries, which were filled by expropriation from the peasants. Still people died.

    as they did here during the days of the oklahoma dust bowl, before the so called “welfare state” jumped in and started providing a minimal level of availablility of food through welfare, food stamps, government surpluss food distribution, etc. certainly i am not suggesting a totally socialist state – capitalism and its incentives always produce higher quality, greatter quantities, and generally more desirable goods. however, the freem market falls apart on basic necessities because 1) there is little incentive to make bread for the poor when one can make cake for the rich and 2) the law of supply and demand does not work when demand cannot be supressed. as i stated in my blog, the question is whether you accept the premiss that people who cannot afford food or healthcare should go without. if you answer yes, then the free market approach is fine – otherwise, it is a failure as is indicated by the state of healthcare in the u.s.

    Comment by dirk gently — June 5, 2007 @ 8:52 pm

  22. The thing abt “rational actors model” being incorrect is a red herring. People understand that it is a poor approximation at the level of modeling individuals, but there is theoretical evidence that it still is a good model for modeling large collection of actors. The idiosyncracies cancel out.

    in economic theory, perhaps. but when one is the individual in question, one is generally unconcerned with theoretical idiosyncracies.

    The Facts: The one common characteristic of all national health care systems is that they ration care. Sometimes they ration it by denying certain types of treatment altogether. More often, they ration indirectly, imposing cost constraints through budgets, waiting lines, or limited technology.

    i fail to see how this is different with private healthcare. there, the rationing is quite straightforward – you can afford it or not. there are of course limits to any economic model – the difference with nationalized health is that the limits are shared in a larger pool. next time you visit our country, stop in at a private clininc in some wealthy suburb. then go to the nearest city and visit a county hospital. it is the easiest way to see private enterprise hea;th care rationing in action.

    as the disparity between the rich and poor has grown and the middle class disappeared over the past 6 years, the problems have become more obvious but they were always there.

    Comment by dirk gently — June 5, 2007 @ 9:07 pm

  23. Dirk,

    The point is you have to hold government provided healthcare to the same standard as you are holding privately provisioned healthcare. Otherwise your rejection of one and not the other is invalid.

    The general price of food is much lower because of private participation. The argument is that this mechanism would in the case of health care as well and lead to general affordability of health care, even in the absence of absolute guarantees.

    Since you do mention the infant mortality rates in US versus France, please also include the exact definitions of how the mortality rates are defined. The devil is really in the details. (No the positionas aren’t reversed, but the differences aren’t as stark). You do know how they are defined in the two cases, don’t you?

    The disparity between rich and poor area’s hospitals isn’t as obvious as you paint it out to be. For our child, we have visited hospitals in the Bronx as well as in the Bergen county in Jersey; and the Bronx docs and facilities seemed to inspire more confidence; though the wait was smaller in Bergen county. But this is neither here nor there. For better or worse, until we all go live in our personal heavens, health care will need to be rationed in certain fashion, whether by a government bureaucrat or by the pricing mechanism. Why do you claim that the bureaucrat enforced solution leads to greater good. Didn’t work for food in communist countries; why will it work in health care? (Particularly if you ban private health care altogether and remove all vestiges of competition). Shefaly describes a near death experience here. Price signals do convey some information. Namely that some particular may be scarce. Governments don’t have that info without market mechanisms. Elementary economics, no? Since you claim that you still think free enterprise works fine for many things, the onus is on you to explain why the laws of economics would be suspended for health care. Is the cost of non-catastrophic illness greater than the price of a house? If not should we also mandate government supplied housing? The only point that was brought up in the comments was that of the failure of the “rational actors model”. Your counter above does not really apply. Each individual is facing the aggregate of other actors in the economy, so the “rest of the world”, the “environment”, so to say, is still determined by a “rational actors” world. It’s like a “mean field theory”.

    What does the disparity between rich and poor in the US got anything to do with how we need to structure elementary education in India?

    Comment by Corporate Serf — June 5, 2007 @ 10:28 pm

  24. Just saw the part abt the oklahoma dust bowl. That is an example of proper government action. Targeting an immediate emergency, while not subverting the market. Something like what we need for farmer suicides. (Form markets, but also drop money)

    Comment by Corporate Serf — June 5, 2007 @ 10:31 pm

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