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Two ways of overcoming government failure

Shanta Devarajan's picture

Everyone seems to agree that most, if not all, policy problems have their roots in politics. 

That is why you often hear that a particular policy will not be implemented because there is no “political will.”  Seemingly anti-poor policies and outcomes—untargeted and costly fertilizer vouchers in Tanzania, 99 percent leakage of public health funds in Chad, 20 percent teacher absenteeism in Uganda, 25 percent unemployment in South Africa—persist.  Yet these are countries where the median voter is poor.  A majority doesn’t vote in favor of policies that will benefit the majority.  Why?

The explanation lies in the large number of “political market failures” in these democracies—situations where for various reasons, such as ethnicity or lack of information, people vote along lines that are different from outcomes such as health, education, agricultural productivity or jobs.  Knowing these voting patterns, or indeed feeding them, politicians campaign on other issues (or on platforms that perpetuate these policies)—and get elected. 

What can be done in these situations?  One is to take these political market failures as a constraint and work around them.  For instance, South Africa is piloting wage subsidies to young people as a way of stimulating employment without violating labor regulations or union-negotiated wages. 

These are examples of what Jim Robinson calls “politician-proof public policy.”  They don’t always work.  An attempt to reduce health-worker absenteeism in India by introducing time-date stamp machines to record attendance failed when, the night before the program was to start, all the machines were vandalized.

An alternative is to address the sources of political market failure directly, through non-partisan interventions.  For instance, if the problem is that voters are poorly informed—they don’t know that political inaction or corruption affect their daily lives—why not help them become better informed?  Why not publish data, in accessible form, about the health and education outcomes of each politician’s constituency, and how the government is performing in improving these? 

This approach may not lead to the precise, desirable policy reform, but it will improve the system so that poor people are more likely to vote for a politician who advocates policies that are in their interest.

 

Comments

Submitted by Aceman-MicroMegas on
It is often easy to blame government for our failures. How often do we wish to be a victim. The one thing we can do when it comes to blaming governments is for Westernized nations to stop giving money to poor, oppressed African countries who are lead by dictators and scam artists. And yet, everyone has their fingers in the pie of money that goes directly to governments in Africa. How is it possible for 25% or greater unemployment in South Africa? Only with the government's support I suppose.

Submitted by Deryck Brown on
I read your blog with interest and wanted to offer a comment. I wondered whatever happened to the notion of "bounded rationality"? In ethnically divided or tribal societies, people vote on the basis of considerations that may not appear rational to a rational (outside) observer, but which are entirely rational to them. So achievements (or lack thereof) in health, education, employment creation, social protection, human development may have little influence over voting patterns because these are not the main issues for voters. We must remember what we learnt in Introduction to Politics 101: that politics is about who gets what, when and how. And as long as it is "our group" which is in power, we know there may be a chance - however slight - that we might benefit. But when it is the "other" group in power, we know that there is no chance. We may lament or regret this practice, but we cannot ignore it. Politics is a deeply emotional and hardly rational business for most participants/voters. The question is: Can we in the development community accept this?

Submitted by Zelalem on
Dear Sir I appricait what you comment say. But at any time if there is market faiulre we have to feed our people. in this situation you can directly supply money to local unemployed people. what do you think sur????? Zelalem International Research Institute Director

Submitted by Deryck Brown on
I read your blog with interest and wanted to offer a comment. I wondered whatever happened to the notion of "bounded rationality"? In ethnically divided or tribal societies, people vote on the basis of considerations that may not appear rational to an outside rational observer, but which are entirely rational to them. So achievements (or lack thereof) in health, education, employment creation, social protection, human development may have little influence over voting patterns because those are not the main issues for voters. We must remember what we learnt in Introduction to Politics 101: that politics is about who gets what, when and how. And as long as it is "our group" which is in power, we know there may be a chance - however slight - that we might benefit. But when it is the "other" group in power, we know that there is no chance. We may lament or regret this practice, but we cannot ignore it. Politics is a deeply emotional and hardly rational business for most participants/voters. The question is: Can we in the development community accept this?

Submitted by D Rohrbach on
In my experience (from Zimbabwe and Malawi) it is common that village leaders intervene in varied ways. For every village where elites capture a disproportionate share of benefits, there are also villages where leaders work hard to target the poorest, or to promote greater equity in voucher distribution. One common consequence of the latter is that basal and top dress fertilizer vouchers are divided for distribution to larger numbers of households. Whereas a program aims to give each targeted farmer 2 vouchers - one for basal and one for top dress fertilizer - in practice, these vouchers are often shared so that many farmers get only one voucher - either for basal dressing or for the top dress. In Malawi, data suggest that on average, across the country as a whole, better than average farmers are marginally more likely to receive/obtain vouchers. But this hides the variability between some villages where elite capture is common, and other villages where poorer households account for most of the recipients. These data also suggest that farmers themseleves generally strongly prefer greater equity in voucher allocation - or favoring of the poor. We then face the question of how much to invest in improved targeting. I recollect that in Zimbabwe some NGOs spent a tremendous amount of resources in village surveys, meetings and follow-up to reduce the likelihood of elite capture. Bit it was not clear whether the added investment offered a significant payoff. In Tanzania, efforts have been made to improve targeting, and to evaluate the result (data should be available soon). But a larger concern may be that some poorer households still cannot benefit because they have difficulty paying the other 1/2 of the 50% fertilizer subsidy. Some suggest the allocation to these households can still be justified if they sell the vouchers and buy something else. Though I doubt this is an efficient market.

The time voters voted in their interests is since long past. I find it sad, but also in the west, the poor white votes for tea parties and other populists that aim to minimize redistribution towards the poor. In the North, unions were sidelined when everybody believed they would become capitalists. In the south, NGOs too there place and offer paternalistic services instead of rights. Objective information seldom seems to be a match for Fox News and its ilk. Please, to explain to me, how can we make voters again believe that they should analyse their own socio-economic interests and decide their vote on this.

Dear Shanta, I think this is a very important area of concern and I too believe that there no shorter-term answers to this issue, in part because, as many of the comments suggest, the people themselves seem to want different things at different times and astute politicians merely represent them. Enhanced information will certainly be useful I feel but as the work of the Bank's own research group on this shows, that too is not an unmixed blessing and is certainly not a guarantor of "good politics". I tend to believe that there are two other "markets" -- one in which non-government activists play and one in which non-government service providers play. Each of those "markets" have their own internal logic and perhaps, while continuing to work on addressing "political market failure", there may be value to strengthening the workings of the other two markets and maybe first-best solutions may emerge when these three markets interact with each other to discover new equilibria. In fields such as healthcare and financial services perhaps the "service provider" market can play a bigger role; in education the "activist market" may need to be much more aggressively present in helping shape the discussion, given the large proportion of public goods involved. And in benefits / cash-transfer programmes perhaps the three "markets" need to collaborate actively and thereby provide the much needed continuity. Regards, Nachiket Mor

Submitted by Mark on
This post resonated with me because I have just returned from a trip to Ireland where they are reflecting on the political dimension to their economic collapse. There is a growing consensus there that they have a live political market failure and they analyse it as Nachiket has above. Culturally, people in Ireland have only a local view of politics and they vote based on local issues. Most politicians spend all their time on local issues and leave a policy vacuum at the national level which is filled by elites or interest groups. Information is not an issue in ireland, just behavioural norms. This leads me to conclude that 'mechanisms' will fail and only a long term cultural change program will be effective. Mark

Submitted by Tarumun on
Majority of American people may be considered as rational because of the education and standard of living they enjoyed. So democracy must have worked. In reality NRA is still much stronger, although majority of american people favor strict gun control. It means democracy is not necessarily goes in line people aspiration.

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