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WHEN MARKETS DON’T DELIVER
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The supposed benefits of privatizing social services are elusive, with inconclusive evidence on efficiency and quality standards in the private, relative to the public, sector. Meanwhile, examples of market failures in private provisioning abound. Clinical services and drugs are essentially private goods, and there is much evidence of failures in markets for them. Limited regulatory capacity compounds the problem. For example, in many developing countries over-treatment is a major problem in private health care. In Brazil caesarean sections are more common among private patients because doctors are paid more for operations than for normal births.

In Mumbai, India, private providers engage in unnecessary referrals and tests — with referring providers getting a cut of referred providers’ fees. By contrast, even though most Canadian and American and many European physicians are private, strong professional regulation ensures that there is no crisis of overtreatment...

In many developing countries costs are rising and technology is accumulating in the private health care sector. Thailand’s private health sector has as much, or more of, some high-technology equipment as the private sectors in most European countries, even though Thailand’s per capita income is much lower and its disease burden is much different...

In developing countries growth in private health care often draws badly needed human resources away from fragile public systems...Public clinics are left to care for the most vulnerable groups — the poor, the elderly, the disabled — with fewer well-trained physicians...

Three issues are crucial in the private financing and provision of education. The first affects demand: high household costs compromise universal access to basic education. The other two are related to supply, affecting equity and efficiency. One relates to the comparative performance of public and private schools, the other to public subsidies for private schools...

Many proponents of private education claim that private schools outperform public ones, are inherently more accountable and help students develop stronger cognitive skills and feel a greater sense of ownership for their education. But little evidence substantiates these claims. Private schools do not systematically outperform public schools with comparable resources...

The main rationale for government support is that private education meets excess demand for education. But in most cases, fee-based private education responds to different demand, not excess demand — particularly in low-income countries, where poor households have limited capacity to pay even public school fees. Thus government support for private education can be inequitable if it is not targeted to poor households.

In the organisation for economic cooperation and development countries, direct support for private primary and secondary schools averages about 10 per cent of government spending on education. By contrast, in India nearly a third of direct education spending supports private institutions — yet the country is home to more than a third of the world’s children of primary school age not in school...

Many developing country governments also pay the salaries of private school teachers, making them less accountable to parents and principals. Such subsidies place even greater stress on already weak public systems, which must provide services for the most vulnerable groups with fewer human and financial resources...

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