Publisher: Orient Longman Year: 2008
The authors Santosh Mehrotra and Enrique Delamonica in this book present an alternative model of development, based on the integration of macroeconomic and social policies. Their argument is based around two potential synergies: at the macro level between poverty reduction, human development and economic growth, and at the micro level between various interventions to provide basic social services. By synergy, they mean that all these elements render mutual support to each other. Also, the absence of one has negative impact on the other elements. They also make a strong point about the crucial role of the state in ensuring economic growth, income poverty reduction and access to basic services.
The authors concentrate on the provision of basic social services (BSS) in this book, which will expand what Sen calls capabilities and functionings. They point out that there is a hierarchy of policy in most governments, with macroeconomic policy being determined first and social policy following. They suggest that social conditionality from the international financial instutions could help to bridge this gap.
Part I (Macroeconomic Policies) of this book first critiques the dominant framework and later presents an alternative conceptual framework, drawing from the experience of a number of countries. It also spells out macro-economic policies consistent with achieving pro-poor, employment-intensive growth and achieving the Millennium Development Goals in the next chapter.
The premise of the dominant framework, i.e. self-interested individuals maximizes utility, in authors’ opinion, assumes too simplistic human behavior and hinders redistributive attempt. Tax rates are reduced, which is said to increase revenues and promote efficiency, but another important role of the taxes, i.e. distribution of income, is ignored. Privatization, when pushed without policies to promote competition (which is generally the case) results in monopolies. Deflationary adjustment policies for encouraging funds from international capital markets may be self-defeating, as deteriorating growth sharply reduces investment. The neo-classical explanation of how labor markets work does not quite correspond to reality. The trickle-down hypothesis assumes society to be composed of homogeneous people with equal chances of participating in the market and finding job, which we know is not at all the case. Empirical evidences also suggest that growth has not trickled down.
In all, the orthodox economic policies have failed to encourage growth, promote stability or reduce poverty. The income inequalities have worsened. Somewhat successful nations have been found to follow policies which ‘present a very awkward fit with the orthodoxy’. With this, the authors detail out their alternative theoretical model based on synergies using three algebraic equations. They acknowledge the difficulty in defining causal relationships, but confirm the fundamental importance of basic social services in triggering the virtuous circle between economic growth, income-poverty reduction and enhancement of functionings. Gender equality and women’s functionings are central to triggering the first set of synergies, the authors find out. Also, the experiences of now industrialized countries confirm the importance of the role of state action in the triggering of these synergies.
The authors then move ahead to spell out a number of policies consistent with their approach. They make a point that poverty reduction is more likely to succeed in the presence of policies and institutions conducive to redistribution before and with growth and recommend some policies for the same. They address the inequality in assets first and then go for increased public investment in rural infrastructure. They justify the need of a sound industrial policy citing various reasons. Then they go for the areas in which the orthodox paradigm, they think, needs revision.
Part II (Public Expenditure on Basic Social Services) first takes up the inadequacy of public spending on basic social services (BSS). The authors make a case for state financing and providing the BSS. They explain the synergies and feedback mechanisms existing among various elements of BSS. The system resulting is complex and hence markets alone cannot ensure universal access. Also, as we need simultaneous interventions in various sectors, the state has to play the role of co-ordination among the sectors. Another point they make is that access to the BSS is a fundamental human right and it is the State’s duty to ensure them to everyone. For proper co-ordination, they suggest deep democratic decentralization of powers and responsibilities. Instead of a welfare approach treating people as objects, the authors go for an approach which sees people as active agents of change. The inefficiencies in public spending arise much due to resource scarcity. A minimum level of intervention on each front is necessary for most efficient outcomes and hence we need a minimum level of spending on BSS which is rarely met by developing countries.
The distribution of benefits of public spending on health and education are biased in favor of the rich. The inequities are lesser at the basic level than secondary and tertiary level of services. Hence, for equity and greater impact, a shift away from secondary and tertiary services in favour of BSS is required. The quality of services received by the bottom income quintiles is poorer. Big gender gaps exist in the benefits accrued from public spending.
The authors suggest that most of the allocation on education in low-income countries should go for primary education. For efficient utilization of funding on water and sanitation, they ask for a more efficient use of ground water for non-domestic purposes, taking care of larger sanitation needs of populated urban areas and cost recovery in water supply from better-off parts of urban areas. For optimization of health outcomes, they explain the need of improving the efficiency and effectiveness of public health services and also of promotion of pooling of resources.
The authors suggest community-provided accommodation for teachers in rural areas, which has a lot more benefits than just cutting costs. Merit pay systems taking team as a unit can also promote efficiency. As regards internal efficiencies of the primary education system are concerned, they recommend a review of the promotion system, adequate and timely provision of pedagogy materials and expansion of pre-primary schooling system. The donors involved in sectoral approaches need to exercise restraint in the volume as well as scope of technical assistance as it results in parallel systems (adding to complexities) and inappropriate outputs.
Owing to sanitation coverage being much lower than safe water in developing regions, sanitation should at least be focused upon as much as safe water. There is a need for an integrated approach for safe water, sanitation and hygienic practices. Local capacity building of the administration and maintenance workers is essential for reducing reliance on maintenance experts which are not available locally at short notice. There is a need to involve the community, especially women in decision making instead of a usual top-down approach.
In respect of health interventions, the vertical disease-specific programmes need to be integrated into a functional health system. Integrating various sectors of reproductive health can deliver better results as per the authors. Enough medical manpower shall be created and evenly placed. Public health clinics should have adequate provision of essential drugs. Malnutrition issue needs to be addressed properly.
The needs of the community should be contextualized at the level of the community only through collective voice and action. Key functions related to service delivery must be decentralized to local governments. Institutions and mechanisms must be in place to enable the collective voice of the community in the jurisdiction of the local government. Local government functionaries must be made accountable (especially for the delivery of BSS) to the community through transparent mechanisms. Right to information is an important tool of deep democratic decentralization and should be placed in the hands of ordinary citizens. Ideally, all information about fund allocation and use should be placed in the public realm openly without being asked for.
Despite the bad experience with the private sector in BSS, there is pressure from all international agencies to promote the growth of private sector in BSS, and where possible privatization of BSS. What we can do is that even if some room is allowed for private providers, they should not be dominant. When state provision is not feasible or pluralism is considered beneficial, state guidelines and regulations will have to ensure universality and equality in access to BSS, which in turn promote social cohesion and individual capability enhancement.
Part III examines the sources of domestic and external resources for achieving the Millennium Development Goals. Evidence shows that intra-sectoral restructuring of resources for BSS, for reasons of political economy and technical reasons, is easier during periods of increasing allocations for BSS as a whole. So inter-sectoral restructuring to increase funds for BSS can result in more resources for priority sectors. The approach of reduction of social spending to limit budget deficit has to be changed. The IFIs must instead provide technical support for improving tax collection and new resources for revenue generation. Earmarking taxes for spending on the BSS can increase funds as well as make them stable. Recurrent expenditures, e.g. hiring of teachers must be stabilized. In the long run, the investments on BSS yield very high returns and can be said to be the foundation of future economic growth.
The bulk of resources for achieving the MDG will come from the nations’ budgets. But the scale of resources required makes the task almost impossible for low-income countries without some official development assistance (ODA) for basic services. Over the years, overall ODA has significantly but ODA for basic services remains low. Its composition needs modification in education and water/sanitation. The aids given to countries must be dynamic and countries must strive to reduce their dependence on aid. Consistency is required between the social goals embodied in the MDGs and the trade policies pursued by the industrialized countries. Coherence is also required between industrialized country domestic policies and aid policy. Achievement of MDGs may only remain a dream if some urgent steps as suggested here are not taken.
This book is recommended for all interested in human development and poverty eradication. It will serve as an indispensable guide to policy makers and development practitioners. Policy makers, the authors rightly point out, have more flexibility than is usually suggested by orthodox writers and international financial institutions. If they try and integrate macroeconomic and social policies, it could lead to expansion of human capabilities and fulfillment of human rights. The analysis of 30 country case-studies provides important evidence as to how much the achievement of MDGs will cost. In that sense, it can prove as a good reference to donors and NGOs who are uncertain about how much is required.
The importance of this book can be that it may mark a shift of the global discourse on economic and social policy away from neo-liberalism. The combination of governance reforms and fiscal and macroeconomic policies outlined in this book can eliminate human poverty in the span of a generation.
