Wednesday, 14 March 2012

We're doomed

I watched the first ever episode of Dad's Army recently. This opens with an "I'm Backing Britain" dinner, attended by the platoon in contemporary 1968, at which the keynote speaker is Alderman Mainwaring. He harks back to their finest hour, at which point we are transported to the defiant reality of 1940. Arthur Lowe's character was a dead ringer for his northern alderman in the film, O Lucky Man, a few years later. From prawn cocktail to chocolate sandwich.

The dinner also featured some characters who appeared to have hardly aged, such as Godfrey and Fraser, an inevitable problem when actors in their 60s were playing characters in the 1940s, who now had to appear as if they were still around in the late 1960s. The addition of an NHS hearing aid to Fraser seemed to be the solution. There was poignancy in the presence of Walker, as the actor James Beck died after 5 series of the comedy.

As Dad's Army was getting into its stride in the early 70s, the BBC produced Doomwatch, a sci-fi series in which a shadowy government science agency battled threats to humanity. I still remember the first episode, The Plastic Eaters, in which a plane crashes after the plastic controls melt. While Dad's Army played it for laughs, "we're all doomed, doomed I tell ye", Doomwatch was a more sober affair that combined Doctor Who-style entertainment and thought-provoking "what ifs" about ecological and technological trends.

On last night's Newsnight, they introduced a Doomwatch-style debate on "the bigger black hole" of future welfare spending. The wilful misuse of a scientific metaphor bore the hallmark of Allegra Stratton, Newsnight's current political editor and formerly of the Guardian. She has previous in the political abuse of science. In a piece last December she airbrushed McKinsey's lobbying for private sector access to NHS scientific data (asset stripping a public good) as a bona fide of the Tories earnest commitment to science. This led her to misinterpret Karl Popper’s theory of falsifiability as “ideas only remain true until they are falsified”. As we all know, there is a Nazi base on the dark side of the Moon.

The black hole of the title was defined by Stratton as "a void that sucks stuff in". As any fule kno, a black hole is an object whose mass is so great that nothing, even light, can escape its gravitational pull. It's metaphorical role is generally as a malign influence, irresistibly sucking us beyond the event horizon to our doom. This negative register can be heard in her explanation of the substantive issue: future welfare costs go "way up", while our "means to pay shrink". In reality, both costs and revenue are adjustable: there is no event horizon. We also have the advantage that welfare spending is well understood. A black hole by definition is mysterious, as no information can get out.

The basis for the doom was the OBR's Fiscal Sustainability Report, from July last year, which projected public expenditure and GDP for the next 50 years. This showed spending on health increasing from 7.4% of GDP to 9.8%, pensions from 5.5% to 7.9%, and social care from 1.2% to 2%. This will produce year-on-year deficits, leading to public sector net debt growing from 60% of GDP in 2011 to 107% by 2060. This is deemed to be unsustainable, though debt was over 230% at the end of WW2 and didn't fall below 100% until 1962. The difference now is we're on an upward trend, not a downward one.

The central assumption is "that spending on different public services is held constant as a share of GDP for people of particular ages" (FSR, pg 55). In other words, as older people use more services than younger ones (i.e. health, care and pensions), an ageing population will result in public sector demand increasing faster than general population growth, and thus tax revenues, all other things being equal. According to the OBR, in 2011 17% of the population were over 65. By 2061, that cohort will be 26%.

The other side of the OBR equation is weak revenue growth, only up from 38.4% to 39.3% of GDP over the next 50 years. To reinforce the scariness, Andrew Haldenby of the centre-right Reform think-tank talks of "the biggest challenge we have ever faced, which is our deficit". Methinks Alderman Manwairing might have something to say about that.

The OBR's assumptions about tax highlight a number of areas where technological and social change will reduce revenue, such as fuel efficiency and lower levels of smoking, but exclude the possibility of new revenue streams, i.e. tax on goods and activities that haven't been touched or invented yet (though they do note the need for government to find these). Their brief includes extrapolating current tax policies, but does not include opining on tax composition. For example, a point they make in passing is that one of the biggest areas of revenue growth over the period will be inheritance tax, because there will be many more old people with capital. They do not comment on additional taxes such as a mansion tax or a land value tax. This is unbalanced and highlights the key problem with the analysis, which is a variation on the classic Malthusian fallacy.

Thomas Malthus, writing in the early nineteenth century, believed that any rise in prosperity would lead to more children and thus more mouths to feed. This would then cancel out the rise in prosperity and lead to famine, which would in turn correct over-population. This is an example of a univariate model, in which one variable changes but all others are assumed to be constant. In the event, advances in agricultural productivity increased the carrying capacity, while the industrial revolution increased the demand for labour. What is important is not merely that other variables may have a positive and thus countervailing influence, but that the negative variable may trigger those other positive variables. Thus a growth in population was one of the drivers for the industrial revolution, as it created more customers as well as more labour.

A specific example of this fallacy was Allegra Stratton noting mournfully that "we'll all be drinking and smoking less", which means lower tax receipts. She failed to point out that this would also mean healthier lives (unless we all start sniffing glue instead), which would have a positive impact on health. The OBR's central scenario makes two key assumptions about health costs.

First, it assumes that health sector wage growth stays in line with productivity growth, which it estimates at 2% per annum. However, the report also includes a "worse case" scenario in which health sector wages increase by 3% per annum in real terms. This pushes the share of GDP spent on health up to 15% and causes the debt to GDP ratio to pass 200% by 2060. It is this "worse case" scenario that was presented by Newsnight.

Second, the OBR assumes the single biggest factor in the growth of health service demand is increased longevity. The report "assumes that projected increases in life expectancy will be spent in poor health – an expansion of morbidity" (op cit, pgs 77-78). The OBR includes a more optimistic scenario, assuming healthier lives and thus lower demand, that would see the debt to GDP ratio grow to only 90% by 2060.

The panel discussion that followed the "presentation" accepted most of the statements made at face value. In current BBC fashion, it sought balance (and unenlightening argument) by assuming the central debate was between Keynesian stimulus and Thatcherite privatisation. The antique nature of this was exemplified by their decision to wheel out Robert Skidelsky and Nigel Lawson. The fact that the BBC are only making a big deal about the report now, fully 7 months after publication, is no doubt due to their realisation that the Health and Social Care bill will now make it to statute. De facto NHS privatisation is now up for debate.

Paul Mason did slip in the point made by the OBR that if immigration were maintained at levels seen in recent years, that "would solve things for about a century", i.e. we'd see debt as a proportion of GDP stay around 60% (op cit, pg 76), but we'd have another demographic hump further down the road as today's immigrants join the elderly cohort. For some reason, this topic was not addressed by the panel.

In summing up, Mason noted that the future may be a conservatism that is either very small state or high tax, and a social democracy that promises only limited welfare. Stratton noted that modern Tories (her chums) and some Labour (curmudgeonly Charles Clarke to the fore) are unembarrassed about charging for services. The Tory choice is no choice at all, so the consensus across left and right will be less welfare, which means more charging and more private provision (both pseudo-state and independent of state). In other words, the same policy that we've had in weak and strong forms since the turn of the millennium.

I would draw three points from this.

First, the gloomy predictions are likely to be wrong, if only because almost all predictions beyond a couple of years are unreliable. Not only will shit happen (Nazis on the Moon), but there will be unexpected positive outcomes (we acquire their advanced technology). The OBR's brief means it cannot make any assumptions about anything that is not a direct extrapolation from current policy. This means its projections on future tax revenues are incomplete. A land value tax could radically alter the landscape at a stroke. It was noticeable that the only real discussion of new taxes in the programme centred on Andrew Haldenby advocating the imposition of VAT on food, a measure that would disproportionately hit the poor and undermine public health further. A tax on salt, like a minimum price for alcohol, would both raise revenue and lessen the burden on the NHS.

Second, the projected consequences of an ageing population are suspect. The reason why we are living longer is because we are becoming healthier. The OBR's decision to assume increased longevity and simultaneous increased morbidity looks plain weird. There is no reason to believe that we will each of us use more health services in the future, either proportionate to our lifespan or in absolute terms. You can only have one terminal illness. The improvement in diet, the reduction in air pollution, and the decline in smoking mean the yoof of today are already healthier than those born during the baby boom, let alone those born and raised in the hungry 20s and 30s (today's geriatrics).

An ageing population does require a change in the pension age (or an increase in pension saving rates), but it does not make state pensions "unaffordable" any more than it necessarily means the future old will spend more time in hospital or in care. We just have to adjust. A good start would be changing tax relief to encourage pension contributions by the less well off and abolishing relief altogether for the better off.

Third, the assumptions about health sector productivity are questionable. The belief that health sector wages will grow faster than productivity is based on the premise that the health sector is relatively labour-intensive. As most productivity gains come from capital investment, this means the sector tends to improve at a below average rate, while the pressure on wages seeks on-average increases. However, the past is not always a guide to the future. It is just as reasonable to anticipate future productivity gains coming through greater preventative care and more investment in technology, both of which could result in proportionately lower labour growth. It's worth noting that the one thing that will ensure excess headcount growth is privatisation, as that will add new managerial and commercial roles.

None of this is intended to imply that we don't face a challenge. Clearly we do, though this is just the nature of historical change. Every era must adjust. My concern is the way the debate is being framed along the lines of "we can't afford this", with the implication being that "this" is the NHS. The oleaginous Claire Perry prefaced her contribution on Newsnight with "I love the NHS", before she went on to claim that it was unsustainable. Presumably she's planning some tough love.

The Tories (and the well-off generally) have never really "got" the NHS because they fail to understand what non-Tories genuinely love about it. The value of the NHS at its introduction was not that it cured people, but that it gave them dignity in death. The poor could avoid a squalid death in the workhouse (or the council infirmaries in the inter-war years) and the lower middle class could avoid the penury that the doctor's bills brought when a family member died or a breadwinner was seriously ill.

It became hugely popular because of free dentures and glasses, and because of its maternity care during the baby boom. It was then appropriated by the middle classes, who have been a major factor in the demand for high quality "cures" and the resulting tension over expensive treatments. The modern love affair is more complicated, particularly as it has become a substitute for proper elderly care, but at heart there is the belief that the NHS removes worry. It's always there when you need it.

Captain Manwairing may have been pompous and his bolshy platoon borderline incompetent, but they were reliable and they got the job done. Those are very British values. As the great man says in his dinner speech, "the news was desperate, but our spirits were always high".


  1. Dave,

    Thanks for your generous comments on my own blog about Newsnight's Blackhole. I was similarly impressed by your own analysis, and as a regular viewer of the many Dad's Army repeats, appreciated the references.

    I think you are absolutely right about the way people see the NHS as something that is there for them - though in reality, as the reports from Stafford Hospital, and in connection with awful treatment of the elderly in many hospitals shows, it often is not. Some years ago, when I was a County Councillor, I remember a seminar on Social Services, in which I made an intervention along the lines that in Britain, as distinct from say in France, State provision has always been seen as second best, as just a safety net, and commenting that for those reasons, it was no wonder that people felt apprehensive about going into a Residential Home - why given that most people like the idea of being pampered in a hotel - and want to stay in their homes.

    I think that it is a bit like people's beleif in God. They might not really be firm believers, but they want the insurance, just in case. The figures do not show any real great "love" of the NHS. Even at its peak after Labour had trebled spending on the NHS after 1997, satisfaction with the NHS only stood at 66%!

    I'm not sure you are right about privatisation increasing the head count for management etc. That would be true if the whole thing were privatised. When I was Senior Vice Chair of the County Council Health Sscrutiny Committe, I had a discussion with an NHS Administrator at a meeting of the RHA. He told me he had been an Administrator at a large NHS hospital, and at a smaller Private Hospital in the US. I forget the actual numbers now, I've cited them on my blog somewhere in the past, but the basic thing was the number of staff he had for the large NHS hospital, was less than the number of Finance Staff he had at the US hospital.

    It is the nature of private insurance that creates the need for this massive bureaucracy. In Europe, the combination of a largely State run Insurance Scheme, with actual provision by a range of not-for-profit, mutual, Co-operative, and private hospitals and clinics seems to offer the best of both worlds.

    For my own part, I like the approach of Tom Wintringham, who was the Communist Party member who used his experiences in the Spanish Civil War to argue for the establishment of the actual "Dad's Army", and who started the provision of training at Osterley Park. That was part of his beleif in the idea that Socialism had to be built from the ground up, based upon the workers creating their own Co-operatively run businesses, services etc., a policy he advocated with J.B. Priestley via the Commonwealth Party during the 1940's.

    1. Thanks for the kind words. My point about privatised health resulting in increased headcount was based on two observations, and two implicit assumptions.

      First, I'm asuming that a privatised model in the UK would be more akin to the US than the rest of the EU, with multiple private insurance schemes. We already have an established health insurance industry and I doubt they will stand idly by. A (subsidisised) national insurance scheme will no doubt arise, but I doubt this will be made mandatory.

      My observation is that the UK spends roughly 7.5% of GDP on public health and 1.5% on private health, while the US spends 7.5% and 8.5% respectively. Given that the UK produces per capita better outcomes, the relative inefficiency of the US model is clear. I think a lot of that will be down to headcount, rather than just more CAT-scanners.

      My second observation is that as technology increases automation and productivity, we compensate by creating pseudo-jobs to maintain levels of consumption and divide up the spoils. I worked in private business for 26 years (half in upstream oil and half in top-end recruitment, and both within the IT discipline up to board level). The private sector is full of made up jobs and rent-seekers, and the proportion has progressively grown.

      My assumption is that given the long-run dearth of investment opportunities, and given the guarantee provided by demographic growth, the health sector will not only attract a lot of capital when privatised (which will probably lead to an investment bubble and consequent crash), but it will also attract all the footloose middle management and professional hordes. I believe we have already seen this since the mid-90s, as reorganisations have led to a massive increase in expenditure on training, change management, organisational design etc. (Anecdotally, I know many individuals who have benefited from this).

  2. Dave,

    I think its unlikely that the UK WILL go down the route of privatised health insurance. Mutual, Co-operative, and Private provision yes, there is already a considerable amount of that, and the NHS Bill will accelerate it, but Insurance, no. I think we are heading for some version of the European model, and that is because it has proved itself the most efficient way of providing socialised health care. There will undoubtedly be pressure from some of the big Insurance Companis, and others already in that space to move to Private Insurance, but the Government shows little interest in doing that. On the contrary, they are keen to keep control of the purse strings for health Budgets at a global level.

    Moreover, although the insurers may want to move in that direction, the other Big Capitalists will not for the same reasons that the Big Capitalists in the US are trying to move towards more of a European model. Some time ago, I referred to this article by right-wing pundit Matt Miller in Fortune Magazine, which sets out precisely why it is in the interests of US Big Business to move to a European model based on a single National Insurance scheme. The same pressures will be applied by Big Business in Britain.

    A while ago I wrote a blog in which I refered to the survey done by the patients Association, which showed that many people in the UK are not as attached to the NHS, in its present form as many would like to beleive. Another Social Trends Survey I referred to showed that even at its height, and after Labour had trebled spending on the NHS after 1997, satisfaction only reached 66%, which many managers in the private sector would get the sack for. Given what we find out every day about the rel nature of care in the NHS, I don't think we should simply defedn the status quo.

    I beleive the best means of defence is attack. If we want to oppose wholsesale privatisation we have to offer people something better than what currently exists. I beleive the key to that lies in ordinary working people taking ownership and control themselves. We may not be able to take control of the actual Insurance Scheme straight away, but we can set up worker owned and controlled hospitals, clinics etc. We already have GP Co-operatives, and we have the Co-op Pharmacy. All of these things - the Mondragon Co-ops have even now expanded into biotechnology, and so the idea of developing our own Co-operative Pharmaceutical Sector is not out of the question - can be integrated into not just a National, but an Internation - at first European - Healthcare system, that can operate on a rational basis in the interests of ordinary working people.

    Moreover, as I have argued elsewhere, there is £800 billion in worekrs Pension Funds in the UK alone. That is enought to buy up the majority of the FTSE 100 companeis lock, stock. It is enought to buy a majority stake in all of them. If we had control over those funds, rather than that control being in the hands of the Banks and Finance Houses, then we could direct that funding into developing such a sector.

    1. Dave
      A most enlightening analysis and could I add another dimension to the issue of health care provision and funding in the future. This is the question of how we decide who gets the health care however provided and however funded.
      At a macro level it has been commonly accepted by health care experts that the funding for health care can never meet the demand for health care. So some form of rationing has had to exist and will become more acute and obvious in the future.
      In the UK we have been able to fudge this through making access to health care difficult,long waiting lists and de facto rationing at the point of delivery. In other countries notably the US health care provision is rationed by price.
      I would be fascinated to get your take on how we should decided who gets the health care that is available.

    2. Personally, I'd be happy to allow healthcare professionals make that sort of judgement. After all, it's what they already have to do in practice, and while they are not infallible, they have better experience to draw on than I do. I don't think you can fairly draw up rules in advance, as any judgement depends on multiple factors such as survival rates, quality of life, impact on dependants etc. What is important is that rationing decisions are explained and there is some right of challenge.

      Any rationing scheme that is not controlled by healthcare professionals is likely to pursue ends that would be unfamiliar to Hippocrates. If you follow the liberal logic for a national healthcare system, i.e. it's a means of maintaining the productivity of labour on behalf of capital, then rationing should be biased towards the young (as future workers) and those of working age. Refusing care to the unemployed or disabled would be logical but unpalatable, so I suspect the effective bias will be to under-supply care for the elderly. The current push to "reform" care, and get the old out of hospital beds, can be seen in this light.

  3. Dave for once I think that just wont wash as an answer. Leaving these rationing decisions, which will become more and more unpalatable, to healthcare professionals places an unfair and actually impossible burden upon them.
    Yes transparancy is vital, but unless society has reached a common consent about rationing choices the outcry from those at the unfortunate end of unpalatable decisions will deafening.
    This challenge is similar to that of global warming,over population and over exploitation of natural resources in that we are pretty clear that something must be done be but its just too difficult to agree who and how it should be done whether it be on a world, national, or even local level.

    1. It may be an unfair burden, but it is one that healthcare professionals already shoulder, largely because nobody else wants to. Trying to achieve a public consensus on rationing is problematic because, to be blunt, turkeys don't vote for Christmas. We want low tax and a cure for cancer. Tomorrow.

      Any attempt to make value judgements on particular treatments, and by extension particular patients, will result in the sort of moral prejudice that the Hippocratic oath exists to defend against - e.g. smokers and the obese will be biased against, because "they brought it on themselves".

      My point is a pragmatic one: healthcare professionals are the least worst option.