[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.
