I rather owe Dr. Rant a response and while it’s taken me some time (the exigencies of making a crust) here it is.
We start out with this comment of mine on an earlier piece of his:
I think we need to realise that market mechanisms are anathema to any health service, and increase transaction costs rather than health gain.
Ooops, fallen at the first fence there. Better luck next time, eh?
He has now responded here. I have to say I rather like his use of diabetes as an analogy. I also agree that what are currently called markets within the NHS aren’t really all that much like markets and aren’t necessarily helping matters.
But if I can take a step back and witter on a little about the background?
If you squint at the subject in the right way you can look at modern economics as starting from the assumption that markets do work. Everybody then rolls up their sleeves and tries to find those times and places when they don’t. One example might be George Akerlof who won the Nobel for his work on asymmetric information. Briefly, the seller of a used car knows whether it is a clunker or not. The buyer doesn’t. So the seller will be demanding a high price for the non-clunker while the buyer will value it at the clunker price (yes, it’s more than this but, this is a blog post), meaning that there will not be an agreement on price and thus the market for used cars will not exist. Yet clearly it does exist, even if not as efficient as a market without such asymmetric information.
One answer to which is that many such market failures have their own market solutions: paying £50 to the AA to get them to check out the car is one such.
But certainly, the subject of economics as a whole (certain branches, like the Austrians, not so much) does not insist that markets work perfectly everywhere. There are such things as externalities (pollution, CO2, noise, congestion) which require outside intervention to allow the market to work: at a more basic level we need such things as property rights, contract law and so on to allow any market to work.
One source of much confusion is this idea of "free markets". At the most basic level these have not ever existed, do not now and never will. All markets are constrained by laws: they might be customary (Yup, Fred owns that field so if you pay him you can graze your sheep there), they might be legal (Yup, Fred’s got a piece of paper from the court saying that he owns that field), they might be legislative (Yup, Parliament passed a law stating that Fred owns that field) and so on. But there is no such thing as a market that is not constrained, is truly free, for without a basic agreement on who has what and how they’re going to be exchanged a market simply cannot exist.
So, to go back to the top, when I say that the rejection of market mechanisms is falling at the first fence I’m not suggesting that, in the case of human kidneys for transplant, that anyone turning up at a hospital with a bloodied kidney ripped untimely from its owner and a wedge of cash should be able to have it implanted. I might though, be advocating the restricted market in Iran, whereby the State pays some money (about a year’s average income) to the live donor and the recipient’s family a similar or larger sum. This system does seem to have created a situation where there is no waiting list in that country for kidney transplants.
An example of a market mechanism being of use in a health service?
Without turning this into a book length screed, there’s a few other economic points that might be made. Hayek pointed out that information is local…any medic will understand this. It’s you looking at the evidence in front of you, combined with 10-20 years of training and experience, which makes arriving at a diagnosis possible. It isn’t Patsy in the office in Whitehall. Thus decisions should also be taken locally, as far as is possible. Further, Hayek also pointed out that markets are the only method we have of processing the vast amounts of information available: there’s literally no way of feeding everything about desires, needs, available resources and so on into a system then allowing some central authority to make a decision.
We also need to remember that markets do not solely run on money. This very market we’re in now, blogging, runs on reputation for example.
There’s another strand running through modern economics which builds on the above. OK, so we have times and places where markets unadorned do not work. Now we need to think about the rules and strictures we might put in place so that they do. The biggest one of these at present is that over CO2 emissions. Thousands of people are debating whether cap and trade or carbon taxes are the way to go (no, I’m not going to go into the differences in outcomes of the two here) but all are agreeing that we want to bring that externality of CO2 emissions into the price system and thus into the market process.
(That "all" meaning all the people thinking seriously about the problem. Deep Greens insisting that we all become medieval peasants again I do not take to be serious.)
Which brings us back to the health care system. There are some 1.4 million in the NHS. This is simply too large an organization to be run under central diktat. Yes, while there are economies of scale there are also diseconomies and it is information processing and the subsequent allocation of resources that cause some of them.
We thus want to have some of the information processing capabilities or markets added to that system. Note, please, that I’m not advocating "free markets", for, as above, they don’t exist. I am advocating serious thought about where, suitably constrained by law, regulation, custom or practice, markets might help though.
At the trivial level the abolition of the national pay market would be a great start. If nurses in London or Manchester cannot afford to live in those cities then paying nurses in those cities more would be a very good idea to increase the number of nurses in said cities.
Medical treatment of course suffers from a large asymmetrical information problem. The general public really don’t know what they’re buying. When it’s idiot Greens recycling their fees from The Independent to charlatans this isn’t too much of a problem. When it’s parent being misled by charlatans into not vaccinating their children, it is.
So we might think that an equivalent to our AA man system for used cars could be set up. Well trained people, acting as guides and gatekeepers to the system, pointing people in the direction of what they actually need, based upon valid information. You could, for example, call them General Practitioners.
It’s even possible that they could be the holders of the treatment money. Dr. Crippen has certainly said several times that as and when he’s able to pick and choose where his patients get treated (and make the money follow them) that one local psychiatry department isn’t going to get any of them.
Finally, one little point about transaction costs. There’s a whole economic literature on these, starting with Coase. Yes, it is possible that they make markets not work, if they are higher than the gains received from said markets. But this again depends upon exactly what the costs are and what the gains will be, relying in turn upon how we construct the markets, how we set the rules for them.
I’m not advocating what are commonly thought of as "free markets" in health care. I am stating my belief that the challenge is to create market mechanisms in health care, so that we get the best of what they have to offer. Thus my original point, that rejecting such mechanisms is falling at the first fence.
"Leave it to the market" in all and every circumstances is as insane a comment as "leave it to the Government" is. What we need to do is design the constraints, the incentives, of the market so that it does work for us.
I also admit that there are times and circumstances when this is not possible, also others where it is highly undesirable, but not that health care is one to the extent that market mechanisms are always and everywhere in that field an anathema.
Update: I see that Dr. Rant has this to say about markets:
The market works as follows outside health care:
1. Companies need to make money in a saturated marketplace.
2. They create demand for a product using advertising and other marketing techniques.
3. They sell people stuff that they don’t need.
That’s the market.
Hmmm. I realize that Doctors are required to be intelligent (those four As at A level) and are also highly trained. But would it be fair to say that said intelligence and training is not quite as broad as it might be? That’s the sort of view of markets that would shame a teenage Marxist, would make even Citizen Smith blush in the days before he bought his beret.
Rather than my above pointers to Akerlof, Coase and the rest, perhaps the Good Doctor would be happier with Janet and John?
Anyone know if Ladybird ever did do an introduction to economics?
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