Maoists, education tax, and private schools

Here is an article written by NYU professor Jonathan Zimmerman, who first narrates his teaching experience in a “Red” district in Nepal and then argues that Maoists’ decision to ban private schools is unjust.

In Pyuthan, the district where I taught, Maoist attacks forced private schools to close in 2001. Four years later, amid another round of violence, private schools across the country shut down. They reopened two weeks later, following a concerted campaign by parents, students, and human rights organizations.

Now these same groups are protesting the new Maoist government, which entered electoral politics two years ago and won a parliamentary majority this spring. Tired of Nepal's endemic corruption and inefficiency, voters wanted something new. They also hoped that legislative politics would moderate the Maoists, who would now have to compromise with other parties.

It hasn't worked out that way. Turning a deaf ear to protests, the Maoists are moving ahead to ban private investment in primary and secondary schooling by 2011. The goal, they say, is to reduce inequality in education.

But, there's every reason to believe that the ban would reduce education, period. At least 1.5 million Nepali children attend private schools, which now account for almost one-third of the country's 41,000 schools. If their schools are closed, where will these students go?

Some will stay home, just as they did during the first Communist attacks. Others will flood into the strapped government schools, which are already so crowded that they often hold classes outside.

So far, I don’t know if the Maoists have put out a statement saying they are planning to ban investment in private and secondary education. This might be an internal policy of the Maoists-affiliated teacher’s union and its education bureau, which is extremely is ideological and pretty much inconsistent with the advancement in science and technology in recent decades.

In this year’s budget the left-wing Finance Minister Bhattarai imposed a 5% tax on all private schools. This is a horribly bad policy. I think the main reason why he taxed the private schools was to increase sources of revenue to fund populist development projects outlined in the budget. This is how Bhattarai justifies this bad redistributive policy:

Bhattarai said the tax would be paid not by parents and students, but by educational institutions from their profits. "The operators of educational institutions have a responsibility to pay the tax from their profits. The money collected will be utilised for the welfare of children in remote areas" said Bhattarai.

The finance minister is categorizing the private education sector as a “for-profit” sector. To some extent, some private schools do act like for-profit business sector. Using this as a pretext as to impose a flat tax rate on all private schools is a misguided policy move. Also, consider the following paragraph from a commentary:

Dr. Baburam Bhattarai´s education tax policy can be relevant to those schools, which choose to pay taxes as "profit" organizations. But his call for all private schools to consider for investing in other area than education is nothing but thoughtless syndrome of totalitarian dream for state control. Dr. Bhattarai has to understand the fact that the "non-profit" organization provision of the democratic government is one of fundamental factors of mixed economy system.

The Maoists have been against the private schools because of the exorbitant tuition fees. The waged a war on the private schools and had bombed several of them. The quality of private school education exceeds the public school’s by a wide margin.

This is not the end of the story. The Maoists government has also decided to give academic credentials to all former-rebels who left school to join “people’s war”. One of my friends termed this as “Bachelor of People’s War”. No where in the world (save Nepal) you can find a finance minister who promises a degree to former-rebels based on the number of years they spent fighting against security forces! More here.

Bhattarai further stated that those without academic credentials would also receive the certificates. Why? Apparently because they possess sufficient skillls and knowledge but could not go to school because of financial or other problems.

Put another way, when this degree-for-experience (D4E) plan is carried out, the path to earning a degree will not be the old-fashioned way of studying hard to fulfill the requirements, but of having a political leader vouch that you were in the jungles of Rolpa toting a gun at a time when you should have been at school in Tulsipur.

Assuming that the D4E is not a new rung placed on the career ladder of ambitious young Maoists, it is destined to be a corruption-ridden plan. It won't help anyone in the job market. And there is a better way to teach the former rebels how to fish for themselves.

Weekend video: Inside North Korea

Interesting video about North Korea and how a Nepali doctor led team reveals what’s going on inside the reclusive country ruled by a tyrant!

Poverty in India

Here is an article about poverty statistics for India. This is based on a revised poverty estimate by Ravallion and Chen.

The article estimates India's poverty according to both the $ 1.25 a day international poverty line and India's national poverty line of $ 1.00 a day (at 2005 PPP) to find that:

42 percent of the population were living below $ 1.25 in 2005 (24 percent below $ 1.00) as compared to 60 percent twenty-five years ago (42 percent below $ 1.00)

the number of people living below $ 1.25 rose from 421 to 456 million during 1981-2005

the number of people living in the 25 cent interval between $ 1.00 and $ 1.25 rose from 124 million to 189 million during 1981-2005

India's overall rate of poverty reduction during 1981-2005 according to both poverty lines was lower than the average for the developing world

India's share of poverty in the developing world outside China fell by just one percent since 1981

India's trend rate of poverty reduction during 1981-2005 according to both poverty lines is not sufficient to achieve MDG1 - particularly in the context of rising food and fuel prices.

Poverty in Focus#16: All about creating jobs

Here is a new edition of Poverty in Focus#16: Jobs, Jobs, Jobs- The Policy Challenge. The IPC publishes excellent issues focusing on poverty. This issues is about creating jobs in the developing countries and the increasing role of informal economy in reducing poverty:

Eduardo Zepeda first summarises Mexico ’s recent experience, which includes periods of crisis, of rapid growth and of stagnation. These various episodes make for a good case study of employment with relevant policy lessons for all developing countries.

Marty Chen highlights the links between informality and poverty and presents a policy framework for addressing informality in ways that will help reduce poverty.

Denis Drechsler et al. find informality to be mainly due to insufficient job creation in the formal economy and to warped incentive structures, and discuss what policy makers should do about it.

Rafael Ribas and Ana Flavia Machado study employment and poverty dynamics in Brazil and find that the informal sector has helped people move out of poverty more than the formal sector.

Louise Fox and Melissa Sekkel examine the slow job creation in Africa and draw lessons for countries wanting to realise the aspirations of their growing, mostly urban, nonfarm labour forces.

Aziz Khan analyses the linkages between employment and the relevant MDGs and proposes policy interventions to promote job-intensive growth and public investment.

Terry McKinley advocates structural policies for poverty-reducing employment, as illustrated by an IPC Country Study of South Africa.

James Heintz considers an alternative approach to macroeconomic stability that is more cognizant of the performance of the real economy and includes a coherent employment policy.

Janine Berg and David Kucera revisit the issue of labour market institutions and employment, arguing that policy makers need to take on re-regulation as opposed to de-regulation.

Per Ronnås looks at labour migration and the case of Moldova , where poverty fell rapidly thanks to the dual impact of remittances and improved domestic job and income opportunities.

Erik Jonasson considers the role of rural non-farm jobs as a pathway out of poverty; investment in infrastructure and education stand out as the foremost policy measures.

Christoph Ernst highlights the importance of youth employment as developing countries struggle with the challenge of offering decent jobs for the large number of young men and women entering the labour market every year.

Joe Stiglitz on the financial crisis

Nice piece about the reasons of the financial mess, which is threatening the global economy into a recession, from Joseph Stigltiz. In short, it’s because of faulty ideology that rests on “self-regulation” of government!

A unique combination of ideology, special-interest pressure, populist politics, bad economics, and sheer incompetence has brought us to our present condition.

Ideology proclaimed that markets were always good and government always bad. While George W. Bush has done as much as he can to ensure that government lives up to that reputation—it is the one area where he has overperformed—the fact is that key problems facing our society cannot be addressed without an effective government, whether it’s maintaining national security or protecting the environment. Our economy rests on public investments in technology, such as the Internet. While Bush’s ideology led him to underestimate the importance of government, it also led him to underestimate the limitations of markets. We learned from the Depression that markets are not self-adjusting—at least, not in a time frame that matters to living people. Today everyone—even the president—accepts the need for macro-economic policy, for government to try to maintain the economy at near-full employment. But in a sleight of hand, free-market economists promoted the idea that, once the economy was restored to full employment, markets would always allocate resources efficiently. The best regulation, in their view, was no regulation at all, and if that didn’t sell, then “self-regulation” was almost as good.

OLPC and freedom

Here is a nice piece about how One Laptop Per Child (OLPC) has failed to live up to its expectations of providing free software. OLPC violates the following freedoms, according to the author:

Freedom 0: The freedom to run the program as you wish. Some proprietary software packages come with licenses that restrict even the use of authorized copies.

Freedom 1: The freedom to study the source code—the algebra-like statements that specify what the program does—and then change it to make the program do what you wish. For instance, you could add new features to suit your taste. Or, if the program has malicious features, as Windows and MacOS do, you could remove them.

Freedom 2: The freedom to redistribute exact copies when you wish. We call this the freedom to help your neighbor.

Freedom 3: The freedom to distribute copies of your modified versions when you wish. We call this the freedom to contribute to your community.

OLPC made a big news when it was initially announced. However, frequent news of shifts in software to increase in prices have been costly to its reputation. Also, there was no such enthusiastic response in terms of demand as it was targeted for a large scale, probably government buying tens of thousands of them. Someone needs to do an evaluation of the effectiveness of OLPC program on children’s education and other aspects. I don’t see that much of a connection between having a laptop and a child increasing his intelligence. Again, crude thought!

Does improved health necessarily raise economic growth?

Common belief is that improved health leads to increased prosperity, i.e. a healthy labor force and human resource are assets that contribute to economic growth. Sadly, this seems to be not the case according to two papers, which The Economist cites in its latest edition. The main reason: there is no clear causality between health and economic growth. Regardless of the income level of developing countries, the technological breakthroughs in medicine in the West was made possible there by the WHO, thus improving life expectancy. This has nothing to do with income level of individual countries. Moreover, improved life expectancy amidst stagnation in land and capital resources leads to low per capita, technically.

…the conclusions of two recent papers that improving life expectancy at birth (a common indicator of better health) can depress income per head for as long as two generations may come as a shock.

Beginning in the 1940s, several medical innovations involving penicillin, streptomycin and DDT made it easier to treat diseases—such as tuberculosis, malaria and yellow fever—that disproportionately affected people in developing countries. Because these ideas originated in the rich world and were spread by organisations such as the WHO, any improvements in health they led to would have been unconnected with prior improvements in the economic circumstances of poor countries.

This international revolution in public health did lead to substantial increases in life expectancy in poor countries by the 1950s. However, the researchers found that income per head actually declined when life expectancy went up and did not recover for up to an astonishing 60 years.

Researchers at Brown University reached a similar conclusion…increased population would more than wipe out any productivity benefits of better health. For the first 30 years after an increase in life expectancy from 40 to 60, income per person would be lower than it would have been if life expectancy had not improved. I think looking just at the life expectancy does not capture the whole link between health, poverty, and growth. There are some diseases like fever and cough and cold, which are so common in the developing countries, are not life threatening but helpful medication does improve enrollment rates and less absenteeism from work.

I think transfer of subsidized health services by the WHO from the West to the developing countries acts as a technological shock. The papers are reviving the famous Malthusian argument that increased life expectancy (population) will create shortage of resources and dampen prosperity later on because it assumes that land is fixed. However, given the increasingly globalized world and integration of economies (including labor mobility), technological transfer could offset this effect. The conclusion derived from the papers reminds me of Gregory Clark’s book A Farewell to Alms, where he used the Malthusian argument frequently.

Here is the paper by Acemoglu and Johnson: Disease and Development: The Effect of Life Expectancy on Economic Growth

Here is the paper by Ashraf, Lester, and Weil: When Does Improving Health Raise GDP?

So, what are the policy implications? Does the purpose of investing in healthcare be reconsidered?