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Blog

What if the world’s poorest obtain most development services from the ‘market’?

Future Health Systems

BY DAVID LEONARD, PROFESSORIAL FELLOW AT THE INSTITUTE OF DEVELOPMENT STUDIES

[Editors note: This blog post originally appeared on IDS's Governance and Development blog, and has been reproduced on the FHS website with permission.]

 

Much energy is spent on debating whether services such as health, education and veterinary medicine, should be provided by the public or private sectors. But the answer to this question turns out to be irrelevant for most of the globe’s poorest.


Who pays for services in Low and Middle Income Countries?
Most of the severely disadvantaged people in the world live in poorly governed states in South Asia, China and Africa. In these and many other Low and Middle Income Countries (LMICs) formal and informal user-fees are pervasive in the public as well as the private sectors.  

True, much of Latin America, Taiwan, Malaysia, Thailand, Sri Lanka and Botswana have established effective government-run systems for health and other services that are not reliant on market relations, but these are not the places where most of the ‘poorest of the poor’ live.

Generally, someone who needs curative medical treatment, education, or veterinary care in most other LMICs will have to pay someone for it. For example:

  • In India less than 25% of rural health services are provided by government (and even with the latter usually involves informal payments). Likewise the non-state sector provides the overwhelming majority of curative services in Bangladesh.
  • Animal health services in tropical Africa moved from overwhelmingly free government provision before 1980 to almost universally compensated services by 1990, as is also true in India. Even when ‘free’ primary education is found in these countries, most often it involves payments for uniforms, supplies, and instructor tutoring.

So the distinction between ‘public’ and ‘private’ is more one of ownership and supervision, not of whether money is being exchanged. A market is present in both the ‘government’ and ‘private’ service sectors in these countries. It is more useful to look at variations in the market than in the formal attributes of the providers.
 

Are the poor getting what they are trying to pay for?
None of this is to say, that the poor don’t deserve subsidised services; they do. But sometimes subsidies benefit civil servants, rather than the poor. For example, government veterinary staff in India actually charge informally the same prices as private practitioners.

And even when the subsidies do reduce the costs to the poor, almost always payments by the recipients are not eliminated. Given this continuing reality, it is important to ask if the poor are getting what they are trying to pay for.

The poor living in poorly governed LMICs can and do invest modestly in the purchase of needed services and can be seen buying from higher cost providers. This is particularly true in the face of catastrophic events, especially if they have land or some other collateral asset. Nonetheless the quality of services offered to the poor in poorly governed LMICs is frequently seriously deficient.  

Tackling inequality of information on quality of services
The poor have more knowledge about the quality of the services on which they rely than is generally recognised. But in the purchase of professional services, those who are selling their expertise know more than their customers. When institutions are available to help overcome this information inequality, people are able to get better value from their purchases and are willing to buy more. This is called solving the problem of ‘information asymmetry.

In poorly governed societies a development priority is to build a set of institutions that enable quality in competence, effort and accountability to be rewarded in providers and signalled to consumers. In societies with high levels of governance, the state usually plays a central role in providing institutional solutions to the problems of information asymmetry.

In most countries with low levels of governance and poorly developed paths for public sector improvement it is unrealistic and counter-productive to expect government to be the sole provider of individualisable (‘private’) health and development services for the poor.

Granted, even in these settings the state will often want to play a role in planning institutional solutions by non-governmental actors to ensure the provision of services that have important ‘externalities’ (such as disease prevention, surveillance and control) with collective benefits.

But what might those solutions to the ‘information asymmetry’ problem in the delivery of essential individualisable services be? In a subsequent blog post I will scan the development literature for the lessons that emerge. 

For now, I stress that the world’s poorest are having to buy key development services from markets in both the public and private sectors and that those markets are unlikely to disappear any time soon. We therefore need to make those markets work to improve the quality and utility of what the poor are going to purchase. 

This blog draws on a paper currently under consideration with WORLD DEVELOPMENT -- Institutional Solutions to the Asymmetric Information Problem in Services for the Poor by David Leonard, Gerald Bloom, Kara Hanson, Juan O’Farrell, and Neil Spicer.