I've been tweeting a fair amount on the NHS this weekend. I've hardly been alone! The issue of NHS reform is now firmly back on the table - but certainly not in the way the government wants.
No one denies the NHS needs reform. Not because, I hasten to add, of the reasons the government gives. The NHS crisis is not an ageing population or healthcare inflation: those are things we have to afford come what may. The NHS crisis is that for over twenty years now politicians of all hues - and I make no exception for Labour here, some of whose Secretaries of State were disasters (starting with Milburn but with Reid running a close second) - have believed markets were the answer for the NHS. They've all been wrong. Markets cannot ever be the answer for the NHS, as I explain in the Courageous State, where I say:
There are, without doubt, certain conditions that must exist before any market can operate, even imperfectly. The first condition is that there have to be willing buyers for the products. Without such buyers there is no chance of selling products, let alone at a profit. Second, if abuse is to be avoided as a result of monopoly profits being made there has to be competition in the marketplace. If there were, for example, to be only one commercial supplier of an essential service, such as healthcare, then the opportunity for price abuse would be enormous. This is especially true when purchases of healthcare frequently arise in situations of high stress when the opportunity for finding an alternative supplier is limited (or to put it another way, the purchaser is almost invariably at a disadvantage to the supplier at the point when they must buy because they are in pain and far from being able to make an objective decision). Only competition and informed decision-making can, to some extent, limit that opportunity for abuse of the consumer and even then only if what is called oligopolistic behaviour can be avoided.
Oligopolistic behaviour happens when there are just a limited number of suppliers in the market and they can, whether explicitly or otherwise, cooperate to ensure that they can collectively earn monopoly profits that are exploitative. Precisely because informed decision-making on issues such as healthcare or pensions (for example) is very hard to achieve the private supply of these services will always be open to considerable abuse, as the failings of pension privatisation have already proved.
But even if competition could help when informed decision-making was possible it is also true that competition also has a downside. This downside is that, by definition, competition requires that there is excess capacity in a market. There can be no such thing as effective competition if every single supplier in a market is operating at full capacity: in that case, there is no opportunity for choice (whether informed or otherwise) on the part of the consumer. That consumer is left, if all suppliers are operating at full capacity, having to take whatever opportunity might be available to them at the supplier's convenience, and at the supplier's price. However, this means that to be effective competition is dependent upon all market participants always working at less than full capacity, which means that competitive markets must always (whatever the theoreticians may say) be inherently inefficient in practice because all participants in the market must be underutilising the resources that are available to them if the consumer is to get the choice that they desire.
In other words, because we cannot afford duplication in health care and because we are bound therefore at the very least to have oligopolistic suppliers however health care is organised if we have a market for it and because consumers of health care (who I much prefer to call patients) will rarely make informed decisions so called health care markets are bound, inevitably, to deliver sub-optimal outcomes.
In which case we're better off kicking any pretence at market supply out of the NHS and instead organising it to ensure best quality health care is supplied.
That requires wide regional coordination covering all of health and social care under one management for a large population. How large? Probably 2 million or so to allow several hospitals with non-competing areas of expertise, widespread dissemination of bets practice and as far as possible elimination of post code lotteries and variances between local authorities - who would none the less need to be well represented in the process alongside medics from across the NHS and not just GPs.
And if the focus is on care and cost is reduced by cutting out the vast amount of wasteful trading for internal costs which has inflated NS admin ridiculously then we have the basis for a viable, coordinated, health care system that works from cradle to grave, from place to place and from need to need.
That's what Labour has to demand now. But it too has to drip its fixation with markets to deliver this. Because only then can we afford what we want.
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How I agree with you on this, Richard, both on the minor point of the “Ugly contest” of New Labour disasters, but more importantly in the substance of your argument.
Milburn was indeed the absolute pits, obsessed with markets, and well to the right of many “one Nation Tories”, who, as the so-called “junior” Health Minister under Frank Dobson, (too “old Labour” for Tony, so was shuffled off in the hopeless quest to become Mayor of London, leaving Tony’s golden boy, Milburn, in charge) closed Edgware General Hospital on May 19th 1997, a mere fortnight after New Labour stormed to power, despite the well-researched “Hands Off Our Hospitals” campaign, of which I was an active part, and which established the need for two General Hospitals in the Barnet Area.
As regards the substance of your argument, what you say seems almost axiomatic, so I need not repeat it. But your desire to return to calling patients “patients”, and not consumers, or units of consumption, or some other presposterous piece of Orwellian newspeak, captures the essence. It’s the same Orwellian language we encounter with other privatised services: for exmaple, every time I hear myself addressed as a “customer” in a railway station, in best “grumpy old man” mode, I say “passengers, please!”, without beig concerned if people give me strange looks! These days, fewer and fewer people seem to do so.
Labour does indeed need to ask for an NHS which is indeed: –
a) National (ie the optimum operational size you are asking for)
b) a Health service, not a private profiteerers milch-cow and
c) a Service, using your description of “a viable, coordinated, health care system that works from cradle to grave, from place to place and from need to need” – in other words for something that matches the original vision of 1948, updated for present circumstances.
For Labour to ask for anything less would be both a) cowardice and b) misguided – and for the same reason, which is that it is plainly what the voters of this country really want.
Hurrah! Some sense at last. I’ve been trying to make similar arguments on my own blog (t1ber1us.wordpress.com) and academic work for the last ten years. Competition is great, but not in healthcare. We need to find more creative and democratic solutions there.
Just tweeted our blog. Great stuff!
The way most politicians currently finance themselves is by appealing for contributions from the markets you want them to spurn. They need them at the moment so we’re stuck with their influence. Perhaps enforced transparent crowdsourcing of political campaigns might be an answer. Certainly we need one.
So we need state funding of political parties
I draw people’s attention to Krugman blog: June 5, 2011 ‘Canadian Health Care in Perspective’ (look for the UK on the table), June 9, 2011 ‘Kenneth Arrow Was Here’, and June 9, 2011, ‘Our Wasteful Health Care System’.
When John Major’s government learnt that cutting bureaucracy was inefficient was when dying people were left in hospital corridors.
The NHS debate would benefit from, and probably profoundly shift, with information on how it fits into the wider international trade agenda.
It hasnt, so far, because of the lack of trade literacy among journalists and because those who benefit from the ignorance keep it off the screen.
There is a global push by transnational capital for the privatisation and liberalisation of public procurement of which public services like the NHS are a part.
Government spending globally is huge real spending to which transnational investors want unrestricted access.
Liberalising public spending, and especially when liberalisation is committed to trade agreements so it becomes irreversible, allows transnational investors to access govt procurement spending without restrictions. For instance any preference for spending with domestic firms to better benefit the domestic economy is disallowed.
There is a Global Procurement Agreement (GPA) to move things along. This is a plurilateral agreement within the multilateral World Trade Organisation. It is a coalition of the willing governments led by the US and the EU, agreeing to keep open any unilateral liberalisation as a trade commitment – i.e irreversible.
This is the case even when populations have not been informed, as is generally the case in the EU and certainly in the case of the UK.
Although this is a governments’ agreement, the push comes from the global Coalition of Service Industries.
There is a dual purpose to this GPA.
One purpose is to ‘lock-in’ public procurement liberalisations already made, into this trade agreement, which then means that future government changes in those states, including here, can make no difference.
The other purpose is to pressure other countries to join and to liberalise their public procurement. India for instance is not in this agreement but its multi-level public procurement is certainly a target.
The City of London Corporation has a major role in the global Coalition of Service Industries which is behind the GPA, and it also runs our domestic politics.
So this is why Cameron is still pushing for this Bill to go through, beyond Tweedledum/dee poltics. This is what he is supposed to do for the City of London Corporation.
The NHS Bill has global implications for public procurement.
At the same time, the plurilateral Procurement Agreement also has implications of irreversibility here.
This is information that should be presented to the UK public but no one lifts their sights above the national horizon in reporting.
I agree. Political commentators are suggesting Cameron has to abandon the NHS bill because the political fallout will finish him otherwise. I doubt they realise his concerns here aren’t political but financial. It’s inappropriate that they comment at all really, political commentators aren’t broad enough in scope to comment on what’s happening here. It’s an increasingly overt take-over of the country by Big Business, a conquest, if you will. There are no conquest commentators (as you might expect in a country already partly conquered) so what media coverage there is doesn’t properly identify what’s happening.
Linda, you need to shout louder. This is desperate stuff. Push it everywhere, I’ll do my bit. It’s the irreversibility which is so frightening.
Many more of us would join in if only Linda didn’t seek to alienate us all
There are of course many cases where markets fail, or operate suboptimally. We mustn’t fall for the “free markets solve everything” line. But in most of these cases, market mechanisms still play a useful role in resource allocation – so the best response is to fix the market failures rather than abolishing the market altogether.
I don’t think you’ve made a clear case for why healthcare markets are different. Yes, if there are few providers competition is not as effective. So we have anti-collusion rules and we create market structures to improve competition. Yes, consumers are often not well informed. So we inform them, or hire professionals to buy on their behalf, or require less opaque product designs and pricing so that power is transferred from supplier to consumer. In markets from personal finance to food to alcohol to energy, these mechanisms work reasonably well. No doubt they work imperfectly, but we don’t say that markets should be abolished in those sectors, because we believe the alternative (centrally managed and allocated resources) to be worse.
Markets do indeed require spare capacity to work well. This is part of the tradeoff they involve. Spare capacity allows experimentation with new approaches, requires providers to find efficiencies in order to keep up with their competitors and gives companies both the ability and the incentive to come up with better services that make consumers happy. In most markets, we think that the benefits of continuous improvement and new ideas more than makes up for the loss in efficiency from spare capacity. Why wouldn’t this be the case in healthcare too?
I certainly accept that healthcare professionals have their patients’ interests at heart and will want to make improvements in services anyway. But then, so do lawyers, accountants and chefs – yet we still think that markets in those sectors provide an additional mechanism to improve services, over and above the intrinsic motivations of the providers.
Your proposed 2-million-population health boards are one way to organise and allocate limited healthcare resources. They would have their own overheads, their own administrative successes and failures, their own wasted capacity. Markets are another way to allocate limited resources, and they also have overheads. In most walks of life (outside of our personal relationships) we find markets to be an imperfect but good way to solve those resource problems.
Maybe healthcare is so different from other disciplines that markets really wouldn’t work. But you need to more clearly show why that is so. Imperfect competition, spare capacity and imperfectly informed consumers are present in all markets, so just asserting that they exist in healthcare too is not enough.
I should note that Ian Greener’s blog goes into much more detail on these points and provides a sensible response to many of the arguments I have made above. I don’t necessarily agree with all his responses (for example, this post about why a hospital is not like a coffee shop is good, but much less convincing if you use the example of a law firm instead of a coffee shop) – but I would recommend reading them as they do certainly make a reasonable challenge to my claims.
Try funding duplicating NHS resources when we can’t afford one set and you’ll find just why I’m right
In every other market, additional capacity results in lower costs not higher. In the short term, through simple supply and demand, and in the long-term through competition to generate new innovations and greater efficiency of provision. I don’t see a clear argument for why that wouldn’t happen in health too.
You’re quite right that if we had a completely static, well-defined way of providing all services then the most efficient way to do it would be to match quantity of supply exactly to the amount needed, with no spare capacity. But we don’t. We don’t always know what is the best way to provide most services in life, whether healthcare or any other service, and the “best” changes all the time as the world moves on. Spare capacity is what allows people to try new methods, and to see which one is best.
And aside from that, spare capacity leads to a direct improvement in service quality and allows us to provide a greater volume of services – shorter waiting lists etc. It was an increase in NHS capacity after 1997 that now allows the NHS to provide 40% more services than it did then. We could have said no, that extra capacity will be wasted, and we don’t need to provide those extra 40% of consultations, operations etc. But we’re probably better off for having done so, even though that extra capacity cost a good deal of money.
Well it hasn’t happened in the utilities, or rail or anything else
So why in the NHS?
Your ostrich approach to reality is not an argument, it’s putting your head in the sand
Apart from which – are you really advocating a massive further increase in resources for the NHS? And if so are you really saying they’re best used paying people to sit around?
Hi Richard
Thanks for engaging. I am honestly open to the possibility that markets might not work in healthcare – I just haven’t yet seen a compelling argument for it. Let me discuss the points you raise.
On the capacity point, I’m not suggesting a big increase in resources. What I’m saying is that additional capacity (which at the moment would be more likely to be provided by the private sector not the public) does not, largely, result in people sitting around. It provides space for more experiments with new approaches, allows people to be seen quicker and with a higher level of service. That said, it’s clear that new capacity would not in the short term be used as effectively as existing capacity – the principle of diminishing returns makes that clear. My claim is that the spare capacity that exists in a healthy market might look on the surface like it’s wasted, but it’s one of the things that enables medium and long-term improvement to take place. The spare capacity in the sandwich market or the accountancy market results in sandwiches and accountants being better (and cheaper) in the long term – because of experimentation and competition.
You’re right to point out that markets haven’t worked well in some of the other industries you mention. Perhaps we can see why, and ask whether that means markets are a bad idea, or if it suggests they should be improved:
Utilities: first, the utilities market hasn’t necessarily failed. Energy companies in the UK make around 10% profit (both as a % of sales and as a return on equity) which I don’t think is excessive. They are less profitable than in most of the rest of Europe. Energy prices are inevitably higher now than in the past because energy production hasn’t gone up in line with demand.
However, the electricity market does have problems. There are only six major suppliers, which means that each of them has a perverse incentive: by opening new generating capacity they will probably lose more from the resulting fall in electricity prices than they would gain from their new production. This keeps us in a trap of having less capacity than is optimal and thus higher prices. The best solution, probably: break up the electricity companies, or make it easier for new companies to enter and sell their power, or provide a firmer long-term commitment to carbon pricing so that investors have good reason to build renewable capacity. To have a thriving market we probably want to have 20 or more competing generators.
Lessons for the health market: make sure there is enough competition, and provide some stability of demand (for instance, the current health bill is probably counterproductive because of the admin and tariff upheavals it involves).
I don’t know the water and gas markets very well but I suspect the lessons are similar to those of the electricity markets. So far we haven’t found a good way to provide meaningful competition in water, so maybe that’s one case where a market isn’t a useful approach after all.
And I certainly recognise that in some utility companies the culture is not conducive to the kind of benefits that I claim for markets: innovation, competition to provide better customer service, and keeping profits in check. There is no doubt that people in many big companies see their role as extracting as much money as possible from the inertia of customers and regulators. Again, more competitors and more new entrants is a good way to combat this – as is greater transparency and a strong cultural focus on how to make the users of the service better off.
Rail: another case where the market doesn’t work all that well. There is not a lot of competition because of the nature of the network. Although where there is competition, such as the non-regulated fares on Virgin and East Coast routes to Scotland, or the Grand Central line to Hull, the system works quite well. I find the experience of travelling between London and Scotland quite a lot better than it was a few years ago, and sometimes (not always) cheaper.
But on most other routes there is no meaningful competition, and I am not sure whether rail privatisation was a good thing overall. The main issue with rail, though, is the cost of investment and the level of subsidy the taxpayer is willing to provide. Whether it runs via a market or not can’t remove that basic tradeoff.
There’s another challenge with the rail market: the nature of a market means that a lot of management focus is likely to be on attracting more first-class travellers rather than improving the experience for standard-class. There is a risk that this could happen in the NHS too, which is a valid objection to market oriented structures.
Also: note that in some other areas which were previously public dominated, markets have worked well. Telecoms used to be a public utility and is now a thriving and competitive market. Of course it’s hard to disentangle the benefits of technological development from the benefits of competition. But we can get some kind of comparison by seeing what happens in countries where landline services are still run by the government – landlines are largely bypassed, in favour of mobile services run by competitive companies. This is not a decisive argument, because in some ways those countries are not comparable to the UK, but it suggests the market might be getting something right.
The courier and package delivery industry is now quite competitive and the Royal Mail-owned Parcelforce no longer has its own way (though Royal Mail still competes successfully in some parts of the market). Individual consumers mostly don’t have to figure out which provider is best – we let Amazon or other suppliers find out on our behalf. I think we’re better off with competition in this market than without it.
None of these arguments are decisive, but I think they suggest that markets – when they are competitive enough, and have the right culture – can improve the provision of most kinds of services.
To summarise the arguments, then. Against markets in healthcare, we have:
– markets require spare capacity, which in the short term represents waste
– consumers are not well informed about what they’re buying, so they can’t exercise the full discipline that choice normally provides in a normal market
– markets allow suppliers to fail, and it would be problematic for local people if a hospital or GP failed
– oligopolies reduce the effectiveness of competition
– trading and competition in itself adds an administrative cost
For markets, we have responses to some of those:
– spare capacity provides space for innovation
– consumers can be represented by professionals who are well-informed and can make effective decisions between suppliers
– in many markets, when a provider fails it is taken over by another, and either gradually scaled down or reformed (granted, this does not always happen)
– all complex services require coordination – if this does not happen through a market it must happen in some other way. There is little reason to suppose that coordination via bureaucracy is more efficient than via competition
But fundamentally the argument for markets comes down to: yes, they waste a certain amount of resource in the short term, but in return for that waste we get ongoing improvements in services. We don’t know in advance what is the ideal way to provide healthcare services (or any other service or product) so we need some mechanism to continually try out new approaches, compare them and see what works better for people. Competitive markets – when they are competitive enough, and meet some of the conditions you have mentioned in your original post – are a proven way of doing that.
I accept that there are arguments on both sides and my arguments might not be strong enough to outweigh the others. Perhaps the drawbacks of markets are bigger than their advantages in this case. Maybe I haven’t made my case overwhelmingly, but I do not think the anti-markets case has been clearly made either. At the very least, the question must still be open.
Sorry to put a blog-length comment here and thanks for your patience. I hope I have at least demonstrated that I don’t have my head in the sand and that there are valid points on both sides of this debate.
And you ignore the fact f a) free riding – no one will train doctors b) people do not know how to choose – dammit – they can’t be bothered with electricity which they do understand let alone health care which they do not understand c) free at the pint of supply is not possible in your proposal within current budgets as there would be far too much waste by duplication d) you absurdly assume existing systems do not encourage innovation – which is an insult to all medics who innovate far more as far as I can see (and I do see) than do lawyers, accountants and economists. You clearly have no clue what you are talking about if you deny that. It’s those supposedly imposing the market who hold this back in my experience. e) To claim telecoms is an effective market is laughable – have you noticed BT’s still utterly dominant role?
In fact all you are putting forward is rhetoric and not evidence based argument.
If we want healthcare for all in this country there is no room for a market. All you are arguing for is an opportunity for abuse of the state at cost to the people of this country based on an absurd notion of competition that has not and can never exist and which would be profoundly harmful is tried, as all wise people agree
You also ignore
a) economies of scale that need to be planned regionally
b) the fact that competition will encourage specialisation and division when the human being is an integrated whole needing to be treated medically as such
Competition in health care is this designed to harm the human being
Almost everywhere where market forces have been allowed to infiltrate and feed off the public sector, or take over the public sector entirely as with the utilities, it has been a unmitigated disaster.
You only have to look at the monstrous charges for gas and electricity for a far worse service or the mess the railways are in, or the NHS and prison services to prove my point.
Private companies are leeches and should be kept well away from public utilities.
Precisely, Richard. I’ve posted on my FaceBook. Why do the ConDem’s never get challenged on how their proposed changes will solve what they say is the problem: we’re all living longer? The number of times they trot that one out…
Right! Take PFI, PPP, private contractors and all the rest of them that are systematically bleeding the NHS dry completely out of the equation!
PFI was an absolutely dumb idea amyway and was only introduced through pure neoliberal dogma inherent in New Labour philosophy! Chiefly, it was introduced because it didn’t show up on the public balance sheet and consequently made the figures look good. NHS and other public services were then subject to crippling charges as hospitals were built by private companies and leased back to the government for 20-30 years; charges that have to be paid whether the hospital or school is still operational or not. Also, by the time the lease is up, the cost of the hospital or school is up to double the price it would have cost if the government had opted to build them with public money in the first place!
Time to get the vultures out of the NHS!
PFI was introduced into the UK by the Conservative party, led by a certain Mr Major.
Richard
At last some good common sense views on the Health Service. A refreshing change from the drivel we hear from the Government.
This whole thing though is not only about competition, it is also about giving business to the big industry boys. There is a lot of profit, some very large salaries, huge bonuses and maybe even the occasional political donation to be made in a £100 billion high demand, long term business.
I am worried about what exactly David Cameron is protecting now. The bill must be badly structured after all these amendments and cannot possibly do what it was intended to do. There must however be something still in the detail of the bill as it stands which he really really wants to get in place, not necessarily for use today but maybe for future parliaments when they drive for full privatisation. (This is a long game for them). I only hope those analysing the bill in detail can find it and find a way to neutralise it.
Shirley Williams in the Guardian this evening proposes removal of the contentious clause (relating to competition) in the Bill to enable it to go forward. Practical suggestion to help everyone to ‘win’
One clause won’t change things
The core will remain that Lansley wants to destroy the NHS by setting up competing forces, and is doing so
Leigh Caldwell misses part of your logical fallacy.
It is not necessary to have surplus capacity among the competing providers: all that is needed is the potential to create additional capacity to meet an increase in demand if the superior supplier wins additional market share.
May I refer you to the classical example which was Rugby Portland Cement which progressively gained market share every year for quarter of a century under Halford Reddish when price competition was restrained and cement producers had to compete on service? Suppliers CAN win by providing a better service.
The NHS is free at the point of supply and capacity is already reached in many cases
There is de facto rationing
To create more capacity what are you suggesting – more rationing?
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