Saturday, 3 March 2012

Am I right, or am I right?

Watching the re-run of The Singing Detective has been a reminder of a time when imaginative TV drama was a local speciality. Today, we're expected to get excited about derivative and preposterous US imports like Homeland or Scandinavian coppers. Meanwhile, British television has been reduced to honeyed heritage for the cardigan classes, cheap tat for da kidz and lifestyle bollocks for everyone. Most of the money spent on original drama appears to go on the wardrobe and set design.

Dennis Potter's masterpiece makes great use of contrast and incongruity, the fish out of water being the common feature of most of his work. One contrast that has acquired a new resonance is that between selfish desire and the social instinct, specifically financial greed and the NHS. The cupidity of Marlow's wife and her lover, trying to get Marlow to sign away his rights to a screenplay, are thrown into relief in the setting of a hospital ward where care is the hard currency. This is sometimes grudging, such as when the grumpy nurse insists on the patients saying "please", or the night nurse grumbles when disturbed from her snooze. The social exchange involves gratitude, officiousness and deference, but there is no suggestion that care is not an entitlement, or that it can be bought and sold.

The last couple of weeks has seen a shift in mood with regards to the Health and Social Care bill. Andrew Lansley may have seemed like a gonner when confronted by an angry old lady from central casting, but the fact that he is still in the job is evidence that the bill will be passed.  Erstwhile supporters are now admitting that most of the apple pie and motherhood elements (prioritising primary care and GP commissioning) can be achieved through existing mechanisms, which raises the question as to what exactly the bill is for and why so much political capital has been expended on it.

Lansley refutes the claim that the bill is a cover for privatisation, however the core area of contention that remains, as the noise over bureaucratic specifics recedes, is competition and the invitation to service commissioners to make greater use of the private sector. There is no doubt that creeping privatisation is the fear that fuels most opposition, and equally no doubt that the growing private sector anticipates taking a larger slice of the fiscal pie in the future.

All the evidence indicates that the NHS is effective and efficient, so there is no obvious utilitarian argument for radical reform, let alone privatisation. The success of the NHS has been down to two features: a national monopoly and rationing. The deficiencies look like conscious trade-offs, namely toleration of relatively long waiting times and limited patient empowerment, both of which probably keep costs down. (Bizarrely, the 'long, healthy productive lives' criterion in the linked analysis shows a correlation of ranking and the alphabet, though I wouldn't suggest moving to Albania any time soon).

So if the NHS is such good value for money, what motivates the private sector? Some critics have claimed that private providers will cherry-pick the profitable bits, like day surgery, leaving chronic (expensive) care to a rump public service. There is probably some tactical truth in this, inasmuch as a private provider will naturally gravitate to where the margins are greatest, but this doesn't look like the big strategy. Is the opportunity all about stripping or sweating assets? Given that the NHS has now had decades of efficiency improvement and capital investment, I doubt it constitutes an easy opportunity in the sense that an injection of private management could quickly produce major productivity gains, plus most of the asset stripping (selling off facilities etc) has already happened.

A more sobering explanation is that health and social care are seen as economic sectors with high growth potential. In other words, the rate of profit is less attractive than the growth in the quantum of profit. Many economists have noted a long-term dearth of investment by business since the mid-80s, which has been exacerbated by companies sitting on large cash balances since the credit crunch. Some of that will dissipate when confidence returns, but the underlying trend still looks worrying.

A couple of years ago the American right libertarian economist Tyler Cowen published an influential book called The Great Stagnation. This explained the negligible real growth in US middle incomes since the 70s as the result of three factors: the end of cheap land after the 19th century; the end of the historic growth in the number of college graduates in the 60s; and the slowing rate of major technological breakthroughs (we've picked all the low-hanging fruit).

The last of these is also held to explain the dearth of investment. There is less whizz-bang stuff to invest in, and the new opportunities that have arisen have produced relatively few jobs compared to earlier innovations. I'm dubious about the methodology of the study that underpins this, as it relies on subjective assessment (we're relatively blind to recent inventions - e.g. the Internet was a marginal concern before WWW) and the number of US patents issued per year (a measure of intellectual property, not innovation). This also harks back to an old-fashioned model of industry, with easily identifiable concentrations of labour and suppliers. The current model is much more diffuse due to outsourcing and globalisation.

A good critique of Cowen's book by Steve Waldman makes a wider point about the impact of technology on work:
In (non-terminal) democratic societies, technological change must always and everywhere be accompanied by the growth of institutions that engender economic transfers from the relatively few who remain attached to older productive enterprises to the many who require purchasing power not only to live as they did before, but also to employ one another in novel or more marginal activities that were not pursued before. Inevitably those institutions develop in state or quasi-state sectors (which include the state-guaranteed financial sector and labor unions whose “collective bargaining” rights are enforced by the power of the state).
In other words, we create pseudo-productive jobs to soak up enough of the workforce to maintain reasonable levels of consumption in the economy. Where I disagree with Waldman is his assumption that such growth inevitably occurs in state or quasi-state sectors. Much of the service economy is a form of economic rent, and the number of supernumerary management roles created in the private sector is far greater than the number in the public sector. The significance of the latter is simply that it is so much bigger an opportunity because it is (usually) a legislated monopoly.

Any part of the economy that is expected to grow naturally, as a result of factors such as an ageing population, will be attractive to investment as this will produce more jobs and therefore more turnover, which in turn means a growth in absolute profit, regardless of productivity gains. A public monopoly with guaranteed growth will be doubly attractive.

The pressure for the privatisation of the NHS, along with the apparent desire to now privatise much of the police service, can therefore be seen as the result of a lack of investment opportunities elsewhere. The bottom line is that we have too much cash on corporate balance sheets.

The fear is that if Lansley & co have their way, we will (ironically) be in danger of over-investing in health, creating a bubble that will eventually burst when future spending cuts threaten profit flows. This will probably lead to the "renationalisation" of a rump NHS (chronic care and paupers) and the full independence of a private health sector along US lines. In 2008, the UK spent 7.2% of GDP on public health and 1.5% on private health. The US, in comparison, spent 7.4% and 8.5% respectively (see slide 3).

The solution is not to open up the NHS as an exciting new investment opportunity, but to increase corporation tax and recycle the funds into more socially beneficial investment. Just think of all the wind turbines we could build.

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