[Government subsidies to education and medical care have become religious beliefs in the modern world. They are widely given, with little thought and plan, and consequently are often very inefficient. In this column in Business Standard of 10 October 2000, I speculate about how they may be designed better.]
Investing in humans
Ashok V Desai
While holidaying in London, I recently got talking to an Indian doctor from Manchester. He was one of the thousands of doctors who left socialist India and joined Britain’s National Health Service. He was well settled, but was sad about one thing – that patients sometimes abused him.
I put it down to British racism. But then, while I was in America, a child shot dead his teacher. Other children have been less selective; they killed their fellow students, or simply sprayed bullets into a class, killing whoever was available. One teacher told me that he tolerated misbehaviour in class because disciplining a student was too troublesome: the parents might protest, approach his superiors, or file a case.
I have myself wanted sometimes to beat up the linesman who had helped some crook misuse my electric power line, or the Egyptian customs officer who went through every inch of my suitcase because he had nothing else to do, or a man called Chandhok who stole half the things I had stored with him and broke the rest. But I did not. I guess there are customers who beat up sellers and customers who do not; and a supplier tries to attract the better class of customer.
Some businesses are peculiarly susceptible to customer misbehaviour. Obviously, giving credit is a hazardous operation. It has made many a supplier go bankrupt. Some of them adopt suitable strong-arm tactics. After the last car boom in 1996, many who had bought cars on hire purchase stopped paying. It was reported that Citibank employed or commissioned strongmen who had some pretty ungentle ways of recovering the vehicle. Evidently in such circumstances, a businessman would try to choose customers who would give him least trouble.
Now suppose the government offers a free service – say, schools or health care or police. Then it could not choose the customer; everyone who came along would have to be treated, or educated, or protected. Even unsatisfactory customers who beat up their teachers or doctors. No case has been reported of complainants beating up policemen. That is clearly because policemen would beat the pulp out of them. But doctors in NOIDA are taking Karate lessons. No wonder.
But instead of admitting a killer for treatment and then trying hamhandedly to overpower him, it would be better not to take him up at all. Instead of avoiding difficult customers, doctors reduce the chances of meeting them by settling in middle-class areas full of docile middle-class middle-agers.
Where schooling is free, the students as well as teachers are deprived of choice. Children who go to government schools have to attend the one closest to them. It is a principle of modern conservatism that this choice should be restored – for instance, by allowing people to choose which health maintenance organization (HMOs) to join as in the US, or by giving children vouchers which they can use to join any school as in New Zealand.
The results are predictable. HMOs refuse to insure people with prior maladies who pose greater health risks; US Congress has had to pass complicated laws to prevent HMOs from rejecting applicants for policies. Good schools cream off the best students, leaving the stupidest to government schools and making them even worse; so New Zealand has forced good schools to take outside students by lottery.
Are these the correct policy moves? They are solutions typical of politicians – based on minimum analysis, maximum political mileage and hence maximum cost.
In the case of medical insurance, what is being consumed by potential patients is the chance of contracting different illnesses. The probability varies enormously, being from, say, four times a year for a cold to once in a lifetime by a twentieth of the population for a heart attack. It depends on the person’s age and medical history: the chances of arthritis grow in old age, and chances of a diabetic getting hypertension are much higher than average. Hence there must be a premium to insure a person against a particular ailment, which will vary with the person’s age, sex, medical history, lifestyle and environment. An insurance company can thus work out a price list for each person for every ailment. It would be stupid for the government to pay the sum of all the prices for all the people; that is the way to bankrupt the state, and to set the stage for uncontrollable paring of quality of treatment. The thing to do is to give every person a single fixed lifetime subsidy on her health premia, and to let her buy insurance against whichever ailments she wishes at a time of her choice. That way people will be encouraged to live a healthy life so that their subsidy goes further, to treat themselves to save cost, and to use more of the subsidy in old age when they get more debilitating diseases.
Education is more complicated because children are too young and because their family has considerable influence on their aptitude. There are inherent differences in children’s capabilities: some are more intelligent than others. Children’s educability also declines with age: if they do not learn to speak by the age of five, they never will; other skills too are more easily acquired early. Here, the subsidy should go to a child, not to its school. It should vary with the child’s capability: higher subsidies should be given to the more intelligent and the more stupid. But above all, children should be given the choice of more environments: if their families are dysfunctional, they should have the choice of going elsewhere. It may be to stay with relatives, in children’s homes, or in hostels. Institutions should be created for children from families which cannot realize their potential; the children’s subsidy should go to finance the institutions as much as the schools; and the subsidy should be higher for children living away from their families.