Independent or not, complying with the president’s demands was the prudent choice for his personal health, even if not for the health of the economy. Not all countries are like Zimbabwe. In Argentina and Colombia, central banks were also made independent in the 1990s, and they actually did their job of reducing inflation. But since in neither country was politics changed, political elites could use other ways to buy votes, maintain their interests, and reward themselves and their followers. Since they couldn’t do this by printing money anymore, they had to use a different way. In both countries the introduction of central bank independence coincided with a big expansion in government expenditures, financed largely by borrowing.
The second approach to engineering prosperity is much more in vogue nowadays. It recognizes that there are no easy fixes for lifting a nation from poverty to prosperity overnight or even in the course of a few decades. Instead, it claims, there are many “micro-market failures” that can be redressed with good advice, and prosperity will result if policymakers take advantage of these opportunities—which, again, can be achieved with the help and vision of economists and others. Small market failures are everywhere in poor countries, this approach claims—for example, in their education systems, health care delivery, and the way their markets are organized. This is undoubtedly true. But the problem is that these small market failures may be only the tip of the iceberg, the symptom of deeper-rooted problems in a society functioning under extractive institutions. Just as it is not a coincidence that poor countries have bad macroeconomic policies, it is not a coincidence that their educational systems do not work well. These market failures may not be due solely to ignorance. The policymakers and bureaucrats who are supposed to act on well-intentioned advice may be as much a part of the problem, and the many attempts to rectify these inefficiencies may backfire precisely because those in charge are not grappling with the institutional causes of the poverty in the first place.
These problems are illustrated by intervention engineered by the nongovernmental organization (NGO) Seva Mandir to improve health care delivery in the state of Rajasthan in India. The story of health care delivery in India is one of deep-rooted inefficiency and failure. Government-provided health care is, at least in theory, widely available and cheap, and the personnel are generally qualified. But even the poorest Indians do not use government health care facilities, opting instead for the much more expensive, unregulated, and sometimes even deficient private providers. This is not because of some type of irrationality: people are unable to get any care from government facilities, which are plagued by absenteeism. If an Indian visited his government-run facility, not only would there be no nurses there, but he would probably not even be able to get in the building, because health care facilities are closed most of the time.
In 2006 Seva Mandir, together with a group of economists, designed an incentive scheme to encourage nurses to turn up for work in the Udaipur district of Rajasthan. The idea was simple: Seva Mandir introduced time clocks that would stamp the date and time when nurses were in the facility. Nurses were supposed to stamp their time cards three times a day, to ensure that they arrived on time, stayed around, and left on time. If such a scheme worked, and increased the quality and quantity of health care provision, it would be a strong illustration of the theory that there were easy solutions to key problems in development.
In the event, the intervention revealed something very different. Shortly after the program was implemented, there was a sharp increase in nurse attendance. But this was very short lived. In a little more than a year, the local health administration of the district deliberately undermined the incentive scheme introduced by Seva Mandir. Absenteeism was back to its usual level, yet there was a sharp increase in “exempt days,” which meant that nurses were not actually around—but this was officially sanctioned by the local health administration. There was also a sharp increase in “machine problems,” as the time clocks were broken. But Seva Mandir was unable to replace them because local health ministers would not cooperate.
Forcing nurses to stamp a time clock three times a day doesn’t seem like such an innovative idea. Indeed, it is a practice used throughout the industry, even Indian industry, and it must have occurred to health administrators as a potential solution to their problems.