Corruption in the health sector

Salaries

The purpose of this section is to survey the existing literature on salaries and pay reform, and to discuss how donors supporting health service delivery can take these concerns into consideration to reduce opportunities for corruption.

CONTENT ON THIS PAGE:

•   Pay reform in the context of civil service reform
•   The importance of salaries in fighting corruption
•   The problems in the health sector
•   Project examples and some lessons learned

Pay reform in the context of civil service reform

The relationship between pay and corruption in the health sector needs to be seen in the context of broader civil service pay reform because public salaries in the health sector are generally ruled by fairly rigid civil service codes that make it legally and politically difficult to change salaries for health workers without changing salaries for everyone else in the public service. In countries where private providers are contracted to provide public services, payment mechanisms and fees mayb be relevant policy instruments for addressing corruption, in addition to salaries.

Civil Service Reform has been an accompanying component of structural adjustment programmes in the last couple of decades. In a World Bank 1994 report it is argued that low pay has been a major issue in the reform of public services in most countries.

Reform of civil service pay is especially vital for the rehabilitation of Government, particularly in terms of realizing improvements in capacity and the delivery of public goods and services. At a meeting between bilateral donors and representatives of five African countries in London (2002) the successes and failures of the reform efforts and the impact of outcomes were discussed. Among the emerging features were:

•  The need to reduce overstaffing
•  Address low pay
•  Improve service delivery, and
•  Bolster moral in the civil service.
•  The lack of political support was identified as one of the main constraints.
  

The DAC/OECD Governance network group in Oslo in June 2004, discussed a draft report on "Pay Policies in Sub-Saharan Africa". The report covers eight countries and offers a useful definition of "pay" including four different elements: salary, retirement or post-employment benefits, allowances and in-kind benefits. It is observed in general that an increasing usage of allowances and in-kind benefits to compensate the staff in public services in these countries often indicates a budding crisis in the management of pay policies and practices.

The case that low pay demotivates personnel and stimulates corruption in the public service is confirmed in a recent survey by the Ugandan Inspectorate General of Government. Public officials were asked about the extent to which their salaries affect their job performance and as a possible consequence encourage corrupt practices. 70% of the respondents reported that their performance is affected negatively by low salaries while 29% claim not to be affected negatively. It should however be noted that the sample included only a small minority of police, teachers and health workers who have seen only minimal increases in their remuneration packages, which were reported to be below subsistence.

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The importance of salaries in fighting corruption

The importance of adequate remuneration to ensure an honest civil service is widely debated. Some see raising wages as sufficient to reduce corruption, while others see raising wages as only a necessary but not sufficient condition. Finally, there are those that consider raising wages to be unimportant (or difficult) relative to other policies.Most researchers see complementary mechanisms as necessary.

When government positions are paid less than comparable other jobs, the financial incentives to act corruptly are increased, and public employees find it easier to rationalize their actions. Poorly paid public officials might find it less reprehensible to accept bribes than officials receiving a comparatively fair salary.

Simple linkages between pay and corruption can however be misleading. A study from Indonesia, comparing government pay at different salary ranks to compensation offered by a sample of private establishments, showed that public officials are sometimes comparatively well paid at the lower end of the scale (close to three-quarters of all civil servants).

These results dispute the commonly held view that Indonesia has a "low pay" civil service, which is responsible for the widespread corruption in government. A study on Venezuela showed that higher wages for purchasing managers at public hospitals were positively correlated with their index of corruption. Similar results were presented in a study on purchasing managers in Colombia. Higher income was associated with more corruption in cases where purchasing was done without bids but with less corruption where purchasing was done competitively.

According to Rafael Di Tella, raising wages to fight corruption is possible primarily at the very low level of bureaucracy. Once subsistence levels are guaranteed, high wages will deter corruption only if the official is under auditing. Findings by Di Tella and Schargrodsky from a Buenos Aires´ study confirm that the degree of audit intensity is crucial for the effectiveness of anti-corruption wage policies. The main challenge seems to be to sustain a high level of auditing over time. Exposing acts of corruption may be a positive move for a new government but exposing corruption can become damaging in the long run, indicating failure and mismanagement of public funds.

Recent World Bank studies on governance issues argue that the commonly made inferences about policy based on simple correlation (e.g. salary to corruption) can be misleading. According to Daniel Kaufman and colleagues, undue emphasis may have been given in previous work to a number of conventional public sector management variables such as civil servant's wages, internal enforcement of rules etc. They are of the opinion that more attention should be given to external variables such as citizen voice (e.g. public participation and scrutiny) and transparency.

Studies on absenteeism in the health and education sectors also question the importance of higher pay to reduce absence among public servants. What seem to be more important are

1. more frequent inspections
2. improved work environment and
3. measures to increase accessibility such as housing nearby or good transport facilities.

It is critical to note that "technical solutions to public sector service pay policy without due attention to a country's political context are not sustainable". According to McCourt donors need to take the following factors into consideration;

• political will versus political feasibility
  
• political priorities
  
• trade unions as stakeholders
  
• donors are also political actors .

On the last issue donors need to be more aware of how the design of aid can influence the character of pay reform. One particular aspect of donor assistance which has drawn criticism is the establishment of Project Implementation Units (PIU). Civil servants in the PIUs are normally far better paid than their colleagues, and this breeds discontent and low moral among the latter. This problem is also mentioned in the World Bank's World Development Report 2004. Advocates of project implementation units recognize that the arrangements can undermine local capacity building, create salary distortions, and weaken the compact between policymaker and the provider organization. Whether or not PIUs induce corruption through the de-motivation of staff can probably only be judged country by country and project by project.

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The problems in the health sector

In the previous section the general problems of pay and corruption in the context of civil service reform has been addressed. It is also important to consider that some issues of pay and corruption are different in the health sector and that there is room for ways to address corruption and incomes in the public health sector.

Low salaries in the health sector are seen to contribute to corruption in the form of informal payments, absenteeism, theft and other individual coping strategies. Budget constraints in many developing countries make it impossible to raise salaries to competitive levels with the private sector, at least in the short term. The linking of public pay scales in the health sector to other public sectors is an additional obstacle. Improving salaries may also not be enough to break the vicious circle. Other important elements include social responsibility, self realisation, access to medical technology, professional satisfaction and prestige. It is also important to understand the social context in which corruption takes place.

Distinctions are often made between "corruption of need as opposed to corruption by greed". The former (also known as petty corruption) is more understandable in cases where it enables doctors, nurses and other health workers to survive in the wake of decreasing public funds for health. The "privatisation" of the health sector in developing countries could, in this context, be seen as a development by default.

The example from Tanzania below is telling.

In contrast to the Tanzania example, where the Government decided to allow government workers to engage in private medical practice to increase their income, health reformers in Cambodia rejected the idea of allowing private practice by government health workers because "it would mean that health workers are 'competing with themselves,' have a de-facto fuzzy monopoly, and will not be fully dedicated to their work in the public sector." [1] . Instead, policies were designed to charge official user fees and use development bank loan funds to provide additional performance-based staff financial incentives to replace traditional fixed salaries. After three years of operation in five districts, utilization of health services improved significantly, while family health expenditures actually decreased (due to reductions in informal payments).

The situation regarding pay and health worker motivation has been particularly dramatic in Eastern Europe and Central Asia after the fall of the communist regimes. Informal payments have emerged as a fundamental aspect of health financing in these countries, creating an informal market for health care within the confine of the public health care service network. In some countries such as Azerbaijan and Armenia, out-of-pocket expenditures account for 75-80% of total health expenditures.

As to what can be done about salaries to reduce corruption in the health sector the most viable solution seems to be to strategically increase salaries in combination with improved auditing and better working conditions in general. It is also important to raise awareness among politicians as well as among the general public about the overall cost of corruption in the sector.

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Project examples and some lessons learned

The issue of salaries has been addressed by donors in various ways; first through their support for civil service reform processes, and secondly through direct support to pay reform programme and individual key government departments. U4 donor support to these programmes can be found in the U4 project database. Below is a selection of general civil service reform approaches:

• Civil Service Reform and Retrenchment, DFID, 2000, in Kenya includes a study on pay policy.
  

The Government now wishes to refocus the civil service reform and to increase the pace of implementation in order to achieve better control of the wage bill, to further improve the balance of spending between operations and maintenance spending and to promote improvements to service delivery. A medium term strategy will therefore be developed which addresses issues such as controlling the future size of the civil service; the development of realistic and affordable targets for the wage bill and for pay reform; concentration of Government on core priority functions and the divestment or abolition of low priority and redundant activities; improving performance and building capacity to enhance service delivery. (U4 proj. database)

• Payroll management and establishment control project, DFID, 2000-2003, in Zambia is aiming at reducing opportunities for corruption, and releasing recurrent resources to boost operational budgets or contribute to the decompression of salaries.
  
• Uganda Public Service Reform 2002, DFID, 2002 – 2003. Through this project pay structures have been rationalised, allowances monetised and pay levels increased by around 100%.
  
• Personnel Controls and Information Systems Project, phase 2, DFID, 1988 - 2003, in Tanzania. The purpose is to generate bill savings to enhance payroll and to support the improved delivery of public services.

These are some examples of pay reforms in the health system.

MSF in Cambodia. Sotnikum New Deal, the first year
Better income for health staff; better service to the population, May 2001. Staff earns an increased official income, commitment of the field staff has increased substantially, and utilisation by the population increased in parallel. A similar experience is documented in Robert Soeters and Fred Griffiths article [2].

Albania, Tirana Maternity Hospital, 2001, strengthening the formal payment system
The result was increased revenues and increased utilization and some evidence of decreased informal payments [3].

Formalizing under-the-table payments to control out-of-pocket hospital expenditures in Cambodia [4]
This study documents how a referral hospital reduced informal payments by introducing formal user fees and performance incentives for medical personnel. The more transparent pricing system increased utilization. While hospital managers found it hard to actually punish employees for bad performance, they were able to withhold bonus payments from poor performers, thus creating more accountability.

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References