The Challenge of the Learning Deficit:Presentation to Copenhagen Consensus Expert

Panel

Lant Pritchett

KSG and Center for Global Development

May 28th, 2004

Outline of the presentation

Basics of Cost-Benefit analysis of public sector actions:– Plausible positive theory of the counter-factual

—and “nothing” is not plausible– Plausible positive theory of public sector

intervention—and “perfect” is not plausible

Five opportunities in context

Plausible counter-factual: Sectoral Engineers versus Economists

“Engineers” (doctors, educators)

Economists

Assess the impact of an action on physical outcomes against cost

(cost-effectiveness)—no action is the counter-factual (or more particularly not positive theory of existing outcomes)

Assess the impact of an action on welfare (well-being, utility) against cost (full on CB)—the counter-factual is a positive theory with optimizing agents.

There are substantial (but not spectacular) private returns to education

Is demand for education too low because of

externalites?

• Levels and differences of the Mincer returns completely irrelevant to public policy (directly and indirectly) unless they interact with market failures. (e.g. stocks versus bonds, large cap equity versus small cap equity)

• If there are positive external effects to schooling on output then the aggregate effect (macro) should exceed the sum of the micro-economic effects.

The naively estimated relationship between growth of schooling capital and growth does

not suggest “externalities”

Two basic facts that make it hard to find output externalities to schooling in poor

countries

• The problem with most less developed countries is that economic growth has been too low—not “too high”—the growth residual without attributing anything to schooling is very near zero.

• Nearly every country had enormously rapid expansion in schooling capital—and yet widely varying performance in growth.

Variation in growth of SK (lower case, red) is small (between 1 and 3 ppa) compared to

variation in growth of output per worker

…which is not true of “physical capital” (actually, CUDIE)

The gap in attainment by wealth varies widely around the world

It is not sufficient to contrast the imperfect adjustments of unfettered enterprise with the best adjustment economists in their studies can imagine. For we cannot expect that any State authority will attain, or will even wholeheartedly seek, that ideal. Such authorities are liable alike to ignorance, to sectional pressure, and to personal corruption by private interest.

Pigou, 1920

“Normative as Positive” Theory of Public Sector Intervention

“Normative as positive” (NAP):– There are market failures/equity rationales for public

sector intervention– Nearly everywhere and always the government

produces schooling.– Therefore (as a positive, causal, explanation) the

government produces schooling because of market failures.

• …with mistakes– Deviations from optimality of government action are

technical “mistakes” based on inadequate information.

Alternative positive theory of government production of schooling:

Production for ideological control (PIC)

• Skills learning and “socialization” are jointly produced.

• Skills learning is verifiable, socialization is not (and hence “third party” contracting) is impossible.

• Governments of all types (democratic, non-democratic) are concerned about socialization.

NAP explains nothing, PIC everything: One

NAP PIC

Why “production” not provision

No. Anything production can do provision can do, better.

Yes. Production is inevitable as provision cannot control socialization.

Why all governments produce

No. If “normative” is positive why do rotten governments produce schooling.

Yes. If there is to be schooling (parental demand) even bad governments will want to produce it.

NAP explains nothing, PIC everything: Two

NAP PIC

Why production at all levels (primary, secondary, tertiary)?

No. Allocation across levels cannot be explained.

Yes. Socialization is at least as important for elites as masses.

Why are alternative suppliers to states nearly always religious?

No. (unless religious groups alone incorporate ‘externalities’)

Yes. Joint production of skills and socialization is same motivation—mission schools.

NAP explains nothing, PIC everything: Three

NAP PIC

Why is government production systematically inefficient?

No. Unless mistakes or “add-on” politics.

Yes. Control of socialization (and teachers) is concern, not learning.

What explains the pattern of regulation/subsidy of private sector?

No. (unless variation in beliefs about efficiency?)

Yes. Deviation of government desired socialization from supplier.

NAP explains nothing, PIC everything: Four

NAP PIC

Why governments would ban fees for schools—even in private schools?

No. (Unless some specific models of sorting)

Yes. Eliminate private providers

What explains the variation in schooling intensity?

No. Yes. Differences in the government benefit from socialization--gap between gov’t and population

What is an “opportunity” in the context of a behavioral model?

• Defining and assessing opportunities to address challenges requires a positive model of demand and supply

• Is this “advice” to governments? Why do we think there is a plausible positive model in which they are not already in fact optimizing?

• Is this advice to citizens of how to gain greater control over how their resources are used to educate their children—when governments (and special interests) don’t want them to?

No coherent theory of counter-factual

Market failures pervasive

Few intrinsic market failures

NAP Sectoral engineers

Standard view:

NAP with mistakes.

Let markets rip

PIC Let politics rip—the problem is citizen control of gov’t

The five opportunities

• Physical expansion

• Raise quality

• Raise incomes/demand

• Reduce costs

• “System reform”

No coherent theory of counter-factual

Market failures pervasive

Few intrinsic market failures

NAP Physical expansion of the system

Raise quality (increased spending, directed spending, inputs controllable)

Raise quality--inputs endogenous, change incentives

Raise income/returns

PIC Let politics rip—the problem is citizen control of gov’t--accountability

Experience has led me to focus on improving mechanisms of accountability as the

principal “opportunity” in most countries

Impossible to estimate a single “return” or B/C ratio of an intervention

• Heterogeneity in the returns, private and public.

• Heterogeneity in the degree of “market failure” or “equity”

• Heterogeneity in the location on the production function.

• Heterogeneity in the efficacy with which governments can act.