Thursday, January 29, 2009

School & health care fees in developing nations

Last night, Stephen Lewis (former Special Envoy to the U.N.) lectured on "Winning the Battle Against Poverty & Disease in the Developing World".

He covered the eight millennium development goals, lamented the effects that the world financial crisis is having on the developing world, and spoke passionately about the need for policy reform and direct aid to the millions suffering and dying in Africa.

While discussing the education MDG, he briefly touched on an adverse secondary effect of a well-intended policy by the World Bank and the IMF: Tying development aid to the requirement that the recipient nation impose user fees for health care and education. He noted faulty econometric modeling as a cause, but did not go into detail.

This morning I've been doing some research on the issue... why in the world did the World Bank and the IMF think it would be a good idea to charge the poorest people on the planet fees for basic health care and education? After all, public education is free in Beverly Hills California, where median income is around $90,000 and the median house price is well over $2 million.

The policies were enacted as a means of "cost-sharing" or "cost recovery", where the rationale is that by imposing nominal fees for these services, revenue will be generated that can be used to provide higher quality services to more people.

Here is some reading:

Arguments for cost sharing

Arguments against cost sharing

There's a lot more out there. To me this seems to be a question of basic microeconomics. Do you see it? What did the IMF and World Bank assume that turned out to be false? We'll talk about the issue in class today.


  1. Education was already a huge opportunity cost when it was free for these families. When these children go to school they cannot at the same time farm, travel to the local water source, or take care of younger/older family members. The cost in some of these cases already exceeds the benefit of "lower" quality education.

    When you add user fees, it does add the possibility of a future "better" quality education due to investment into the schools. However, these user fees possibly pushed the cost of education too high. Cost is greater than benefit. This seems like a simple case of prices not being at equilibrium.

  2. I definately agree with Danny on the problems with pricing. Another way I think this can be illistrated is a modified PPF graph. The more education is taken advantage of (such as sending a greater number of your kids to school), the less you are able to produce in the way of food and other resources because you have to use the money you make from them to pay for school. The main difference is that there is a lower bound for food on such a function. This lower bound is the limit one reaches in order to survive. With these fees pushing people to that lower limit, it is obviously not sustainable.

  3. This is the best argument against Cost Sharing:

    "Local financing of education might cause feelings of exploitation among parents who feel the government is retaining control while they foot the bill" (Bray, 1996).

    I support the NC public school system and think private schools polarize the educational (academics,athletics,bussing)system
    in a number of adverse ways.

    Applying any domestically gained knowlege to this subject would be too far out of context. South Africa is incomparable

  4. Where does the government spend all the money; or those who have power, where do they let it out at and towards what goal? What reasoning is behind it all? What is there overall objective? Is it for the true good, in which would allow for everyone to benefit as well as taking in account all things outside of our own self?
    How is it that there isn’t enough money to set up schools to teach a population of people who through education and the expansion of their minds; can have the opportunity to understand an array of ideas thus develop the reality they choose to experience in and co-create. Education in principle should always be free; it is merely an exchange of ideas, yet allows for the birth of greater understanding, intelligence, and the ability to transcend obstacles that keep one and us as a collective whole from a better way.

    The idea of having school fees as the means of cost-sharing seems to exemplify that only money will allow the shift in the quality of education. This does not address that once money is involved more people try to have control over the idea of how the best way is. The very need to transact education like business changes completely the dynamic of the quality and goals for education. It seems as if the more money is involved the more structural and systematic the nature of education is, then the more people are trying to meet objectives that are already outlined for them, and in all becomes a less personal experience.
    Allowing freedom to education, allows for true growth and development. Those who truly believe in the message of what is getting known, will practice it as though it is natural to do so because the direct connection of cause and effect is met and the means by which and the end is as optimal as one can wisely choose it to be; Or out of conscious awareness realize that it alone lacks a wider understanding; the apparent message fails to include many more factors and so one chooses to act based on how it seems it should be due to the greater understanding one has grasped. To see it how it should be is to see it how it is because it is essentially what one chooses it to be. Free access to and departure from ideas is essential for development and growth; without it there is restriction to possibilities many of which would have to be better if it can be imagined so.

    I think what the World Bank and IFM overlooked was the opportunity costs of education when it does have a price tag. If one is unable to meet the monetary requirements to go to school, they have to give up the access to the expansion of opportunities that arise out of being more educated. Those in the developing world, when faced with an additional cost of having to pay for school fees does not only increase the cost of going to school but also the opportunity cost of using one’s time to be as productive as possible to help get by, a constant battle with a never-ending cycle if no new advancements or changes are made. School fees should be subsidized not taxed on to the public for it to reduce the opportunity costs associated with the poor, and those who are not in the situation to give up on what has to be done to even live.

  5. The other economic thought I have relating to this has to do with externalities. Goods that generate positive externalities are generally subsidized. Education generates large future externalities in the the form of growth for the country, job opportunities and other such things. Therefore, by charging a fee, you are discouraging the positive externality. Doesn't pass the efficiency test.

  6. Could it be that the world bank falsely assumed that all households desired to send their children to school? When thinking about a developing country, one has to take into consideration the tradition, and diverse cultural components which comprise the individual's way of life. It's very possible that the parents of these kids did not recieve an education, therefore its intrinsic value is not realized by the parents. If there's no value placed on the education, then how can you expect people to pay for it? By adding these school fees, this undoubtedly creates an even greater inventive to keep the kids at home where, as Danny mentioned, they could be of service to the household. Imposing school fees has its upside, mainly providing a higher quality, educational experience,but this is at the cost of poorer families not able to cover the costs which creates lower enrollment rates. As we have seen in some sub-saharan countries, abolishing school fees was the impetus for a large surge in enrollment, with the adverse affect the positive of the aforementioned. If some place no value on education which drops enrollment rates, and no fees at all increases enrollment rates, then subsidizing not charging, as we all seem to agree, appears to be the answer. I guess that's where the proposed 11 billion in aid would come in handy.

  7. Ok, good stuff everyone, but still not exactly what I was looking for. So, here's a bit of a hint:

    The idea behind school fees was that by charging a (higher) fee, schools would increase revenue. This revenue could then be used to finance quality improvements, which would increase demand. The first part didn't happen, so quality never increased.

    Under what circumstances will raising price NOT increase revenue?

  8. Umm...when people can't/don't/won't pay the higher price? But I think Danny kind of said this, so this probably wasn't what you were looking for either.

    I think that is what happened though. Didn't enrollment rates decrease substantially--to the point where the decline in the number of students was great enough to offset the additional money brought in by the remaining students?