Friday, 25 May 2012

Professional Services, Markets and the Poor 1: What if the world’s poorest obtain most development services from the ‘market’?

Much energy is spent on debating whether services such as health, education and veterinary medicine, should be provided by the public or private sectors. But the answer to this question turns out to be irrelevant for most of the globe’s poorest.

Who pays for services in Low and Middle Income Countries?
Most of the severely disadvantaged people in the world live in poorly governed states in South Asia, China and Africa. In these and many other Low and Middle Income Countries (LMICs) formal and informal user-fees are pervasive in the public as well as the private sectors.  

True, much of Latin America, Taiwan, Malaysia, Thailand, Sri Lanka and Botswana have established effective government-run systems for health and other services that are not reliant on market relations, but these are not the places where most of the ‘poorest of the poor’ live.
Generally, someone who needs curative medical treatment, education, or veterinary care in most other LMICs will have to pay someone for it. For example:

  • In India less than 25% of rural health services are provided by government (and even with the latter usually involves informal payments). Likewise the non-state sector provides the overwhelming majority of curative services in Bangladesh.

  • Animal health services in tropical Africa moved from overwhelmingly free government provision before 1980 to almost universally compensated services by 1990, as is also true in India. Even when ‘free’ primary education is found in these countries, most often it involves payments for uniforms, supplies, and instructor tutoring.
So the distinction between ‘public’ and ‘private’ is more one of ownership and supervision, not of whether money is being exchanged. A market is present in both the ‘government’ and ‘private’ service sectors in these countries. It is more useful to look at variations in the market than in the formal attributes of the providers.

Are the poor getting what they are trying to pay for?
None of this is to say, that the poor don’t deserve subsidised services; they do. But sometimes subsidies benefit civil servants, rather than the poor. For example, government veterinary staff in India actually charge informally the same prices as private practitioners. 

And even when the subsidies do reduce the costs to the poor, almost always payments by the recipients are not eliminated. Given this continuing reality, it is important to ask if the poor are getting what they are trying to pay for.

The poor living in poorly governed LMICs can and do invest modestly in the purchase of needed services and can be seen buying from higher cost providers. This is particularly true in the face of catastrophic events, especially if they have land or some other collateral asset. Nonetheless the quality of services offered to the poor in poorly governed LMICs is frequently seriously deficient.

Tackling inequality of information on quality of services
The poor have more knowledge about the quality of the services on which they rely than is generally recognised. But in the purchase of professional services, those who are selling their expertise know more than their customers. When institutions are available to help overcome this information inequality, people are able to get better value from their purchases and are willing to buy more. This is called solving the problem of ‘information asymmetry.

In poorly governed societies a development priority is to build a set of institutions that enable quality in competence, effort and accountability to be rewarded in providers and signalled to consumers. In societies with high levels of governance, the state usually plays a central role in providing institutional solutions to the problems of information asymmetry.

In most countries with low levels of governance and poorly developed paths for public sector improvement it is unrealistic and counter-productive to expect government to be the sole provider of individualisable (‘private’) health and development services for the poor.

Granted, even in these settings the state will often want to play a role in planning institutional solutions by non-governmental actors to ensure the provision of services that have important ‘externalities’ (such as disease prevention, surveillance and control) with collective benefits.

But what might those solutions to the ‘information asymmetry’ problem in the delivery of essential individualisable services be? In a subsequent blog post I will scan the development literature for the lessons that emerge. 

For now, I stress that the world’s poorest are having to buy key development services from markets in both the public and private sectors and that those markets are unlikely to disappear any time soon. We therefore need to make those markets work to improve the quality and utility of what the poor are going to purchase. 

This blog draws on a paper currently under consideration with WORLD DEVELOPMENT -- Institutional Solutions to the Asymmetric Information Problem in Services for the Poor by David Leonard, Gerald Bloom, Kara Hanson, Juan O’Farrell, and Neil Spicer.


  1. It is really an interesting article. But the question is 'who are poor'? In India time to time discussions are held in this regard. If we look at the genuine poor they cannot afford a single penny for health services in India, Pakistan, Bangladesh, Afghanistan etc.First of all poorest/poor people in the world require money than they can afford to pay. so I do not agree with the author when lastly he says," We therefore need to make those markets work.......poor are going to purchase".
    Dr Shankar Chatterjee, India

    1. Professor Leonard responds:

      Thank you for your comment Dr. Chatterjee. My apologies for taking two days to respond to it. IDS has been closed for a two day holiday.

      Your comment really raises two issues, one of fact and one of prescription. On the matter of fact, you say that in South Asia the "genuine poor ... cannot afford a single penny for health services." Our paper is based on a review of a very large amount of research done in the poorest countries in the world. The definitions of poverty employed by the authors of these studies vary. At a minimum, we used the concept 'poorest of the poor' to apply to the poor in poor countries. There are numerous studies that show that very large percentage of those classified as 'poor' in South Asia actually are purchasing educational, health and veterinary services. But are these the 'genuine poor'? It is not difficult to imagine people who could not make any such purchases under any conditions whatsoever. But I at least do not know what percentage of the total population such people represent -- and it is not always easy to know. Sometimes people with no resources themselves have services purchased for them by relatives or neighbors or local charities. These people then are in the market, despite their personal lack of resources. In a study done in Cameroon the concept of 'poorest' was defined as the bottom 25% of the rural income distribution and these people were paying for at least some of their health services. On the other hand, the poorest African farmers do tend to have access to land and in the post I did say that we could be confident of purchases only when the people in question have access to land or some other collateral resource (to which emergency remittances by relatives might be added). You might well not consider these people to be 'genuinely poor'. Nonetheless, whatever way we answer this factual question it is clear that there are very large numbers of quite poor people in very many poor countries who actually are purchasing professional services -- at least when their needs are serious.

    2. Professor Leonard, continued from above:

      The second question is one of prescription -- what to do about this fact? I do not dispute that morally the poor should not be forced to pay for professional services for which they have a genuine need. In my own research I have documented situations in which professionals who usually charge for their services offer them at deeply discounted prices or even for free when they are approached by people with genuine needs whom they can see are seriously poor. This is as it should be but unfortunately it is not a universal practice. It would be even better if the government (or philanthropies) were providing professional services to the poorest. But it is obvious from many studies that in very many countries (including in South Asia) the actual delivery of free government services to the poor has gotten worse over the last half century, not better. I cited evidence on veterinary medicine in some parts of India, where government animal health personnel who are being employed to provide free services actually are charging the same prices as their private counterparts. And there is other evidence that in India the quality of free education offered to the poor is so bad that most of the poor prefer to send their children to private schools. The question is what to do about this. I infer from your post that you would like to have governments provide sufficient resources for free services for the poor and then administer them in such a way that services of reasonable quality really are delivered for free. That would be my preferred option as well. But after half a century of watching things get worse instead of better, I am now ready to consider what to do if a market really does exist despite our preferences and to ask what are the ways in which it can be organised so that the poor who already are putting down money get the quality of services they are trying to buy. This question is the one to which I will turn in my next blog.

  2. Sir
    Both of your comments I have gone through minutely. I am quoting from my article published recently in a news paper. "According to 66th Round of National Sample Survey Organisation (NSSO) carried out between July 2009 and June 2010, All India average Monthly Per Capita Consumer Expenditure (MPCE) in rural areas was Rs 1054 and in urban areas it was Rs 1984. By quoting Director General of National Sample Survey Organisation (NSSO) Sri J Dash, it can be said that "In terms of average per capita daily expenditure,it comes out to around Rs 35 in rural and Rs 66 in urban India. About 60 per cent of the population lives with these expenditures or less in rural and urban areas". It is also evident from the NSSO Report that still substantial numbers of ultra poor are there
    in the country. According to the Report,"The poorest 10 per cent of India's rural population had an average Monthly Per Capita Consumer Expenditure (MPCE) of Rs 453. The poorest 10 per cent of the urban
    population had an average Monthly Per Capita Consumer Expenditure (MPCE) of Rs 599", which in per day term comes to Rs 15 in rural and Rs 20 in urban areas.(In the present context 10 % population means 120 million). It is really shocking that huge number of people were earning meager income. Now sir with monthly income of Rs 453/Rs 599 (1$=Rs55) whether the family can afford to eat or send their children in private school. Answer is obviously no. So far my knowledge goes except Tamil Nadu in India in no other states of India poor parents send their children to Government schools.

  3. David Leonard replies:

    Once again I thank Dr. Chatterjee for his thoughtful and informative post. I fear, however, that we are talking at cross purposes. I do not contest either that there is severe poverty in India nor that there are people who must be unable to purchase professional services for which they have need. I also agree that in an ideal world 'genuinely poor' people would receive free, government-provided health and education services of reasonable quality. Our disagreements come instead over whether or not there is a significant portion of poor people (in India and elsewhere) who ARE purchasing such professional services and, then. over what should be done about this.

    Bannerjee & Duflo (2006) cite evidence that less than a quarter of rural health care visits in India are made to government facilities and that even the poor visit higher cost private health care facilities 3/4ths of the time. Tooley & Dixon (2006) provide survey evidence that most urban poor in India are in private schools (and that the rural poor who go to government schools experience very high teacher absenteeism). Balabanova, Mills, & McKee (2011) tell us that in Kerala private health care is now dominant, even for the poor and that in Bangladesh (which is poorer than India) the non-state sector provides the overwhelming majority of curative care. None of this even addresses the evidence we have from other sources that government providers in these two countries (and the others with which my post is concerned) actually are making informal charges for their officially free services. The point then is that there is very clear evidence that the poor are somehow engaged in a market for professional services in many poor countries and that the amount of services that are actually provided outside a market are very modest. I'm sure that it is true that most of the 'genuinely poor' are not engaged in this market, save on rare occasions. But then they are getting few services at all and the market for the poor is going on without them. These facts are not happy but they are the reality.

    For me, the real question is what to do about this reality. I would be delighted if governments would take responsibility for actually delivering free professional services of reasonable quality to the poorest in their societies. But the reality, rather than the rhetoric, is quite different. Until that reality changes, I think it is reasonable to ask what institutional features of markets for professional services would make it more likely that those who are paying actually are getting the quality they are trying to buy. This is the question I will be addressing in my next posts.

    David Leonard, IDS

    David Leonard


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