How to Spend $50 Billion to Make the World a Better Place
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How to Spend $50 Billion to Make the World a Better Place Other interventions, such as targeted programs (provision of school meals, for example) or conditional cash transfers, can also have a significant impact on enrolment. The cost-effectiveness of such measures depends on the details, but cash transfers are primarily a poverty-reduction tool, and making them conditional upon school enrolment carries no additional cost.
The fifth element: Systemic reform to create
performance management and producer accountability
In its 2004 World Development Report, the World Bank
argued that public provision of schooling has in-built, systemic failures to deliver quality education. It believes that institutional conditions create a lack of incentives to produce performance-oriented management.
In non-authoritarian societies, accountability is achiev-
ed by citizens expressing their demands via the political
system, thus sending clear signals to the public sector
suppliers. An equally viable proposition is for resources
to be transferred directly to citizens to allow them their own choice of schooling (within an appropriate regulatory
framework). This is not to suggest that public provision of education cannot work well: Some of the world’s best educational systems are public.
No simple overall system provides universal high qual-
ity education. Reasonably effective systems differ widely, from extreme decentralization in the USA to tight centralization in France. Also, both Singapore and Nigeria have
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Toward a New Consensus for Addressing
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schooling systems based on the English model, but with
diametrically opposed outcomes. There are also a number
of credible alternative approaches to direct public provi-
sion.
Whatever the system, it must address four challenges at
once:
r Clear objectives must be established, and performance must be measured against them. Schools are not
machines for teaching facts: they are the mechanism
whereby societies replicate themselves.
r Sustained adequate financing.
r Autonomy to manage for results: Accountability for performance means that schools must have the freedom to
act independently.
r Accountability must be assured via a centralized (for comparability) system of measuring and publicizing
school performance.
Combining opportunities in an international program;
Education for All/Fast Track Initiative (EFA/FTI)
This initiative is the cutting edge approach to tackling the challenge of lack of education. Donors will provide increasing amounts of aid to countries that provide “credible”
plans for meeting the EFA targets. In particular, it encourages more efficient expenditures. Analysis of spending in
countries that have successfully attained primary educa-
tional goals is used to generate indicative ratios for teacher wages/GDP and class size. If a country has high unit
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How to Spend $50 Billion to Make the World a Better Place costs for education, the extra cost to meet Millennium
Development Goals would not be funded without at least
some attempt to reduce the unit cost. The FTI also expects countries to use a coherent, integrated approach, which
should incorporate the various opportunities described in
this chapter.
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THE CHALLENGE OF LACK OF EDUCATION
OPPONENTS’ VIEWS
Two quite different views of Lant Pritchett’s challenge paper have been put forward. One – by Paul Schultz – is very critical, whereas the other – by Ludger W ößmann – is broadly
supportive.
In Schultz’s view, Pritchett advances no concrete evi-
dence in support of his view that systemic reform of the
education system is the essential way forward. The pro-
posals are entirely hypothetical, and take no account of
the powerful entrenched interests that would take considerable political and economic resources to overcome. Without some estimates of these costs and the benefits that would
accrue, it is not possible to decide whether this is truly a high worthwhile opportunity.
Schultz also objects to Pritchett giving his main con-
sideration to the most efficient (that is, least costly) delivery of education of a given standard. He believes that the private and social returns on education and the effects of public subsidies are equally important and should have
been included in the challenge paper. The prevailing view
among international agencies has been that education is a
social investment, with returns highest at the primary level.
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How to Spend $50 Billion to Make the World a Better Place This is the view that Pritchett has also adopted, concentrating on cost-effective provision of primary education to maximize social returns and reduce inequality of earnings
within a society.
However, Shultz refers to more recent evidence that the
individual benefits of education are often greater at more advanced levels. So, a public education system designed
to reduce inequalities, by focusing on primary schooling,
may not be the most effective for individuals or the econ-
omy. This conflict between the goals of social equality and economic efficiency has to be resolved before it is possible to decide what truly are the best opportunities for
improving education.
In the challenge paper, Pritchett, although cautious, sug-
gests that measures to reduce the private costs of school-
ing may be productive. However, Schultz is more sceptical, finding little empirical evidence for the successful targeting of incentives to those families who would not other-
wise send their children to school. Without such targeting, money would be wasted by unnecessarily subsidizing many
other families. Nonetheless, he sees that such an approach could be made to work.
Shultz is yet more sceptical about the vague system-
atic reforms proposed by Pritchett. He supports the con-
cept of school accountability, but does not see how such
basic reforms can be accomplished without broader polit-
ical reform. Even decentralization of education may not
always be the answer, if community schools are effectively run by local elites for their own benefit.
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The Challenge of Lack of Education
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Since basic structural reform is extremely difficult,
Shultz argues for more consideration of second-best par-
tial reforms (for example, use of school vouchers to encourage competition bet
ween public and private schools). He
believes that such small-scale changes could be more effective than the proposed radical reform of the system.
Finally, Schultz raises a very difficult issue for the Copenhagen Consensus. The economic benefits of primary educa-
tion seem to be declining in parts of the developing world (particularly Africa): Do we therefore conclude that there are already sufficient primary educated workers to meet
current economic demands? If so, is the Millennium Devel-
opment Goal for basic education still justified, if only as a way of reducing inequality?
The second opponent paper takes a far less critical
stance. In particular, W ößmann supports the view that institutional reform is clearly needed, in addition to specific resource reforms. However, he feels that there should have been greater justification of some opportunities via cost-benefit analysis.
In contrast to Schultz, W ößmann believes that Pritchett
has been too cautious in his assessment of the opportu-
nity to increase demand for schooling by reducing the cost to households. In particular, he makes the case for waiv-ing primary school fees. Pritchett’s view is that eliminating school fees may cause a substantial drop in revenue, which would need to be replaced from public funds. W ößmann
argues that this is more than offset by the benefits that
accrue from better educational attainment. Nevertheless,
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How to Spend $50 Billion to Make the World a Better Place the funding must be made available some time before the
benefits are received.
Data from Uganda shows that, from 1996 to 2001, waiv-
ing of fees increased numbers in primary education from
3.4 million to 6.9 million, at an estimated cost of $90 million per year. To set against this, someone with an extra
year of schooling receives on average an extra $64 in additional income each year. Applying this to all of the extra 3.5 million children brought into primary schools by waiv-ing fees gives an estimated $3.3 billion in benefits to the Ugandan economy over their working life. This represents
a benefit-cost ratio of 37, which suggests that such an
option would be highly cost effective even in less favorable circumstances.
On the question of systemic reform, (which W ößmann
agrees with in principle), the difficulty lies in defining concrete actions, given the complex nature of the opportunity.
He reports that data from international school achieve-
ment tests shows better performance in schools that have
autonomy in decision making. However, this improved per-
formance is facilitated by use of centralized standard setting and testing to encourage competition and comparisons
between schools.
W ößmann agrees with Schultz that the main cost of sys-
temic reform is political, but takes the view that such costs are probably a prerequisite for introducing effective reforms to meet any of the challenges. He considers it a weakness of the original challenge paper that Pritchett chose not to estimate the benefits of broad reform. By his own reckoning,
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The Challenge of Lack of Education
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these could lie in the range of 3% (for use of externally set exit exams) to 16% (for the greater effects of school autonomy) of the lifetime earnings for all students. This he considers to be an “astoundingly large” benefit, likely to justify costly reforms.
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SUSAN ROSE-ACKERMAN1
5
The Challenge of Poor Governance
and Corruption
Introduction
Researchers at the World Bank estimate that $1 trillion
is spent on bribes annually, some 3% of global GDP. The
impact on economic growth and world income could well
be much higher than this. Corruption is one symptom of
a failure to achieve an appropriate balance between pri-
vate wealth and public power. Ultimately, there is a risk that government will be captured by powerful interests and rendered dysfunctional. Both private citizens and companies
are then drawn into the cycle of bribery, forced to pay corrupt officials to obtain routine services and major contracts and concessions.
Global solutions to this challenge are difficult to find
because corruption and poor governance have a variety
of causes. Solutions are not easy to implement because
they disadvantage powerful vested interests that can block 1 Henry R Luce Professor of Law and Political Science, Yale University.
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How to Spend $50 Billion to Make the World a Better Place reforms. Despite these caveats, carefully tailored policies –
carried out with the personal commitment of those on the
ground – can have large benefits and very low costs.
Research on the causes and consequences of corruption
Before looking at reform proposals, we should examine the
empirical evidence on the causes and consequences of cor-
ruption.
Cross-country comparisons show that, on average, rich
countries have less reported corruption and better functioning governments than poorer ones. High levels of corrup-
tion are associated with lower levels of human development (for example, as measured by the United Nations Human
Development Index, a composite measure of health, educa-
tion, and income). It is tempting, therefore, to think that it may be sufficient to stimulate growth through appropriate
economic policies, with good governance being a natural
but secondary consequence. However, poor governance is
itself a cause of poor economic growth, and so more specific reforms are needed to tackle it.
There are two main indices of corruption published by
Transparency International (TI, an international advocacy
group) and the World Bank. The indices, which are based
on similar underlying data, provide a good indication of the relative difficulty of doing business in different countries (although neither index gives a quantitative measure of the amount of corruption in monetary terms).
Analysis of the data from these two organizations shows
that high levels of corruption are associated with lower levels of investment and growth. For example, if relatively
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The Challenge of Poor Governance and Corruption
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clean and rich Singapore had the same levels of corrup-
tion as relatively corrupt and poor Mexico, the effect on
its citizens would be equivalent to a tax increase of mor
e than 20%. Similarly, an increase in a country’s TI corruption score by one point is associated with an increase in productivity of 4% of GDP and increases net capital inflows of 0.5% of GDP. This implies that if a country such as Tanzania could achieve the corruption score of the United Kingdom,
its GDP would be more than 20% higher and net annual per
capita capital inflows would increase by 3%.
As governments spend more on unnecessary and waste-
ful public infrastructure at the expense of education, health, and the environment, public welfare also suffers. Ignoring the very poorest countries, higher levels of corruption are associated with greater inequality. Government legitimacy
is also reduced, which encourages citizens to avoid paying taxes. This in turn reduces the overall size of corrupt governments, making fewer resources available for potentially beneficial projects: a true downward spiral.
At the level of the individual firm, surveys show that
corruption has a negative impact on sales and invest-
ment growth, and is associated with other factors such
as high taxes and financing difficulties. Similar considerations apply to export levels and foreign investment. As an example, it has been suggested that if government effectiveness in Calcutta could be increased so that the city had the same investment climate as Shanghai, exports from private
industry could rise from 24% to 47% of output.
Ineffective government breeds corruption. In the ex-
Communist states of Central and Eastern Europe, partic-
ularly in Russia and Ukraine, there is widespread hiding
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How to Spend $50 Billion to Make the World a Better Place of sales and salaries from the government, and some firms
exist completely “off-the-books.” This is a consequence of the corruption of government officials. Household surveys
in the region show that most people disapprove of corrup-
tion, although they are often party to it (bribes to hospital doctors, traffic police, and customs officials are the most common). More effective government with reduced incentives for bribery would be popular with most people.
Although poor governance, weak economic conditions,
and inequality all contribute to corruption, cross-country differences also depend on historical and social factors.
Studies have shown, for example, that institutions are generally weaker and corruption greater in countries which
are very ethnically fragmented, have few Protestants, and