Why Nations Fail: The Origins of Power, Prosperity, and Poverty

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 actuallyaround—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. It seems unlikely, then, that ignorance of such a simple incentive scheme was what stopped its being used in the first place. What occurred during the program simply confirmed this. Health administrators sabotaged the program because they were in cahoots with the nurses and complicit in the endemic absenteeism problems. They did not want an incentive scheme forcing nurses to turn up or reducing their pay if they did not.
    What this episode illustrates is a micro version of the difficulty of implementing meaningful changes when institutions are the cause of the problems in the first place. In this case, it was not corrupt politicians or powerful businesses undermining institutional reform, but rather, the local health administration and nurses who were able to sabotage Seva Mandir’s and the development economists’ incentive scheme. This suggests that many of the micro-market failures that are apparently easy to fix may be illusory: the institutional structure that creates market failures will also prevent implementation of interventions to improve incentives at the micro level. Attempting to engineer prosperity without confronting the root cause of the problems—extractive institutions and the politics that keeps them in place—is unlikely to bear fruit.
T HE F AILURE OF F OREIGN A ID
    Following the September 11, 2001, attacks by Al Qaeda, U.S.-led forces swiftly toppled the repressive Taliban regime in Afghanistan, which was harboring and refusing to hand over key members of Al Qaeda. The Bonn Agreement of December 2001 between