Effects of Social Sector Reforms


Written by Hadia Majid • Cover Stories • September 2011

South Asia has seen the implementation of several social sector reform packages that include education and health services. Interventions by local and foreign donor agencies have resulted in better enrollment patterns as well as lower infant mortality and total fertility rates. Yet, the region still lags behind countries with equivalent income per capita in areas of human development, sanitation, democratic indicators, environmental protection, etc.

The World Bank continues to sponsor reform packages for the region. For example, in 2009 the Bank pledged $350 million for reducing poverty in Pakistan by supporting the government’s Poverty Reduction Strategy Paper. The main goals for this PRSP were to “maintain macroeconomic stability, improve management and effectiveness of public expenditures, and assist power sector reforms.” Similarly in Sri Lanka the Bank has provided assistance since the 1990s to improve the country’s infrastructure, public administration and quality of social services.

A quick look at program evaluation studies for the region indicates that although there has been some headway in improving access to amenities such as clean water and power as well as a general increase in human development indicators, there is still a long way to go. In fact there is consistent evidence of gaps between program targets and delivery. Given the inability of donor agencies to meet stated targets, there are some fundamental issues that require attention. These concern program structures which may be leading to unmet targets and questions regarding continuation of World Bank sponsored programs in the region being beneficial to the socio-economic lives of the people.

The presence of a healthy and skilled labor force is a boon to any business initiative looking to set up its operations in the country. Additionally, a reliable power supply along with an extensive road network is factor that particularly foreign investors take into account when choosing a site. Other factors likely to make it easier for both local and foreign businesses to setup include the extent of red-tape involved at inception along with tax breaks associated with industry. So, the fact that the Bank continues to assist governments in South Asia in programs aimed at improving power supply, infrastructure as well as the stock of human capital while also reducing the extent of paperwork for initiating companies sends a strong signal that the region remains eager to attract investors.

Innovation has a strong association with competition that thrives in a prosperous business community. The interaction of local and foreign enterprises has been shown to result in a sharing of knowledge leading to the transfer of superior technology from one agency to another. As a result, aside from having a positive effect on the region’s GDP and per capita income levels, in the long-run high levels of industrial activity is also important for technological advancement.

As indicated above, a skilled labor force is a primary ingredient for strong commercial activity. The primary argument here is that better-educated workers are more literate which should make them easier to train and increase their capacity to produce. It should also be easier for them to learn more complex tasks and they should have better work habits, particularly awareness of time and dependability. An educated population has also been linked with reduced fertility levels and lower crime rates. All of these factors, along with the higher ability of literate workers to innovate, are essential ingredients for the long-term economic growth of a nation. However, the main caveat is that it is unclear what kind of and level of education contributes most to growth —general schooling, technical formal training, or on-the-job training, primary, secondary, or higher education.
For many, schooling can also be a source of social mobility. Individuals improve their life-time earning potential through investment in schooling. At the same time, it is important to note that education is not just a means to an end but rather an end in itself as well since a person’s sense of well-being and self-worth is strongly associated with his/her schooling achievement.

In order to have quick and concerted effects on the economic growth of South Asia in the near future it is important to understand which level and type of education has the greatest effect on productivity. This is particularly vital given the limited availability of funds faced by donor agencies. However, in the long-run the numerous social and private positive externalities associated with all levels of education dictate that the region continue to work on providing its population with the highest level of education possible, regardless of its immediate payoff.

World Bank-assisted social sector reforms in South Asia have the potential to significantly better the lives of the people of the region. Especially for programs related to education and health, marginal reinvestment into the program has the potential to allow the benefits to increase manifold. Perhaps the best illustration for this relates to the health education of a mother. Considerable research has shown that improving the awareness of the mother about water borne diseases, nutrition and health has an impact on not just the mother’s health but of her children as well. In the presence of such strong externalities associated with health and education and despite the considerable and lengthy presence of the Bank working to improve a broad range of social indicators, why have we not seen greater progress towards achieving developmental goals in the region?

The answer to this is two-fold. The first lies in the inability of the Bank to focus on just a few key areas of social sector reforms resulting in its funds being spread too thinly. This in turn means that it is unable to have a significant effect anywhere. A more serious effect of the Bank’s presence in the region is the crowding out of the government itself. While it is true that Bank has assisted in pointing out the gaps in the region’s social sector agenda, its continued involvement implies that governments have the leeway to slash their developmental budget and pass ownership to the Bank. As long as the onus of the development agenda remains with an outside party, South Asia will not see the long-run benefits of large scale social sector reforms fully realized.