70 years of public provision of services hasn't worked. Is it hence time to abandon this approach?
Two reasons are commonly given, arguing to abandon certain public services, especially in case of health and education.
One, public provision of services hasn't worked in past 70 years. It's hence argued that it's time to abandon the public provision of services and go for new models. It's pointed that there is a difference between public financing of services and public provision of services, and that wherever it’s necessary, government should finance services but not provide them.
Two, state capacity is scarce in India. Hence, we need to be careful about the activities that the government gets involved in.
(In a TV show, Bibek Debroy makes the first argument. Arvind Subramanian makes the second argument.)
These may sound as reasonable arguments but the there are three problems with these arguments.
1. Such arguments presume that there were efforts and attention paid in past 70 years to provide these services. If there were enough efforts to provide these services and if they didn't succeed despite these efforts, then the above argument makes sense. What if there were no efforts? What if we had something called public school, public hospital but no one ever cared enough for it?
2. The logic of "public sector didn't work, let's abandon it" doesn't necessarily help because if we were to follow this logic, private sector also didn't work in many countries in health and education. Further, many developed countries have strong public health and education systems. (Thomas Piketty's argument in the TV show referred earlier.)
Following these two observations, the option of abandoning public provisions can be ruled out, merely because they haven’t worked. It brings us to the third argument of scarce state capacity. In case of scarce state capacity, should government get involved?
3. The argument of utilizing scarce state capacity by reducing government's role in health and education glosses over many important nuances. It primarily ignores two important aspects - necessity and rivalry. (There's also an issue of feasibility, which we don't need to get into in our scenario. Feasibility is for cases where it is theoretically not possible for any single human or a limited group of people to do certain things, determining the prices or amount of production that should be allowed in the economy etc. No amount of state capacity is enough for such cases.)
Necessity: The necessity of state's involvement in an activity is a debate of both a philosophy and economics. However, we do agree that the extremes aren't a possibility - state getting complete control of every activity in the economy, and state having no control of anything. The question then is to limit the activities of the state. Necessity comes into picture here. Government is expected to have a role in activities that we think are necessary.
When we decide that an activity is necessary, then the argument of abandoning it based on argument of non-performance doesn't arise. For instance, policing in India is in as much disarray as health and education. Does that mean that we should abandon public police services altogether? No, it needn't be. If it's a case of running hotels, then it's a more clear case.
As per this line of reasoning, if something is necessary, even if a particular public service isn't effective currently, the strategy would be to increase efforts and attention paid to it instead of abandoning it altogether. In other words, instead of abandoning public education and health due to scarcity of state capacity, better build the capacity necessary to make these work.
Rivalry: The argument of utilizing scarce state capacity by reducing government's role in health and education presumes that all government functions are rivalrous in nature, i.e. providing education reduces government's capacity to provide health, providing policing reduces government's capacity to provide education and so on. They see governments' functions as zero-sum games.
Such rivalrous conception of state capacity needn't be true in all cases. In order to understand it better, we need to look it from two prisms: nature of government's functions - implementation intensive vs. non-implementation intensive; and inter sectoral rivalry vs. intra sectoral rivalry.
Let's look at inter-sectoral rivalry, to begin with.
Non-implementation intensive functions are those that involve policy design, that just requires a group of people to think and formulate policy. For instance, devising regulations is a non-implementation intensive aspect. In case of such non-implementation intensive functions, there's no inter sectoral rivalry, i.e. getting into designing curriculum of education doesn't necessarily reduce government's bandwidth to formulate standards for health education. It's because these are quite independent.
In implementation intensive functions, the inter- sectoral rivalry occurs mainly at district level, where a single collector manages all services. In such cases, one can overcome it by decentralizating intelligently.
We can thus infer that inter-sectoral rivalry of state capacity isn't a main issue in our context. It would be definitely an issue once the number of governments' functions cross certain high threshold, but we are not near that.
The rivalrous nature of state capacity is mainly visible in intra-sectoral rivalry, i.e. increasing burden on a government department by making it responsible for many things. For instance, if government increases the burden of police by illegalizing many activities, thereby stretching the police force, it can't do justice to all the service. Consider a scenario where Mumbai police has to implement Odd-Even policy, implement alcohol ban, track those not standing during national anthem in the movie theatres, all of this is on a Ganesh festival day when Indian PM and US's President are visiting the city. One of these functions will definitely get affected. Same is the case with education and health care.
Such intra-sectoral rivalry can be addressed in three ways: decentralizing; transferring the implementation intensive aspects to non-governmental entities, and expanding human resources in the public sector. For instance, the task of conducting teacher transfers and recruitment can be decentralized to district levels. The task of providing teacher training can involve private entities too instead of relying only on government functionaries to provide the training. After doing this, additional recruitments can be done wherever it's appropriate to address the capacity constraints.
Conclusion and Way Ahead
It is often argued that public sector provision in certain sectors should be abandoned because it hasn't worked in past 70 years and that we have limited capacity that calls for its careful usage. Such arguments aren't sound because they presume that there's failure despite efforts, whereas the failure could be because of lack of efforts. Further, it glosses over the parameters of necessity and presumes that all functions of state are rivalrous in nature, with respect to state capacity. It isn't necessarily true. Government can't get out of certain activities despite non-performance in the past; improving the performance is the only way out. And, state functions get rivalrous only in case of implementation intensive functions and that too within sectors, not across sectors (inter-sectoral).
It thus calls for a caution in analysis based on arguments of "something hasn't worked in 70 years, hence let's abandon it".
The opposite isn't also necessarily true. Responding to the calls to abandon public provision, some argue that everything should be done only by public sector and private should not be allowed at any cost. Such arguments gloss over the reality. The reality is that we are not building something from scratch now, to have the luxury of this choice. Due to failure of public systems, a large private sector has grown in the country. At this stage, it isn't wise to destroy all the existing private sector, especially when there are no efforts to revamp public sector and when the public sector is in shambles. Shunning private sector completely isn't thus a choice either.
We thus need a careful fusion of both public and private sectors with a laser focus on public well-being. The appropriate role of each has to be decided based on context, convenience, cost, long term outcomes, principles of equity and several other factors. It should not be merely based on ideology or on arguments of non performance in the past and scarce state capacity.