Profit and the NHS - a comment

****

To paraphrase Adam Smith:

"It is not from the benevolence of the doctor, the nurse or the radiologist that we expect our healthcare but from their regard to their self-interest"

Unless, that is, these people are volunteers? And they're not so they do it - that wonderful, fantastic, caring work - for personal profit. I for one am pleased that they do.

....

In which I agree a little bit with Owen Jones

****

It's OK folks, I've not turned overnight - as if in some Kafka-esque horror - into a socialist. But I think that Owen Jones, Boy Socialist has a point when he talks about the elite and what the Americans would call 'corporate welfare':

Who are the real scroungers? Free-marketeers decry 'big government' yet the City and big business benefit hugely from the state – from bailouts to the billions made from privatisation. Socialism does exist in Britain – but only for the rich

Now our youthful leftie then goes on to spoil his argument a little by missing out on some of the corporate welfare but his points have some merit. Indeed, I would go as far as to say that Owen's criticism of what he calls 'privatisation' also has merits.

The point however relates to a different cause than Owen suggests and the solution lies in less socialism not more socialism. The problem with what Owen calls privatisation is that it is nothing of the sort. Privatisation involves taking a state-owned monopoly and placing it - usually through sale - into an open market environment. We did this with telephones, gas, electricity and water with considerable success (although the state kept its fingers in the pie by fixing all these markets in one way or another - mostly to the benefit of businesses rather than consumers).

Issuing contracts to run trains on a state-owned rail network is not privatisation. Nor is outsourcing the collection of municipal waste or the commissioning of hernia operations. This is just the state opting to buy rather than do itself - for it to be true privatisation you have to change the customer - to have to have a system where consumers make choices in a free (or relatively free) market.

However, to return to Owen Jones, he is wrong when he argues that big business rejects 'statism' but right when he points to the benefits that the grandees of big business get from big government. The switch to a smaller state with more of what we call 'public services' delivered through the market simply doesn't suit those powerful businesses that deliver those public services on contract. Or indeed the equally large businesses that fund those businesses allowing them to compete for large public contracts.

However, the problem here isn't just the fact that public services are outsourced but that the market is, mostly because of regulation and legislation, seriously constrained. Owen points to the big public services contractors like Serco, G4S, Atos and Capita and makes reference to the 'Big Four' accountancy firms. What he describes here is a marketplace constrained by the scale of the contracts and by the specification of those contracts. While the Transatlantic Trade and Investment Partnership (TTIP) would partly open this market - and some of the regulations, its main outcome for public services would be opening up EU 'markets' to large US contractors (and vice versa).

The problem is that, so long as people like Owen insist that services are delivered through a planned system rather than a market, the producers - whether state employed management or the managers in private contractors - will fix the system in their own interests rather than in the interests of the consumer. And while there are areas - basic scientific and medical research, for example - where only the state will invest, in areas where a market can operate there will be more investment under capitalism than in a state-directed monopoly.

Owen Jones is right to identify corporate welfare as a problem but completely wrong in offering a 'solution' that merely transfers the self-interest to the managers of state enterprises. If Owen wants real change he needs a system where the self-interest is transferred to the consumer of the service - you and me, the public. And this system - in most circumstances - is called a free market.

....

Seems I don't own the Royal Mail - but soon might have the chance to...

****

Today, something that has been pretty inevitable since the 1980s will take another step towards happening - the government will agree to sell the Royal Mail. This has, perhaps inevitably, been greeted by lots of people (mostly left-wing people) talking about the evil Tories selling off something they "own". Here's a good example:

It's been nice owning a part of the Royal Mail. Pitty, without asking me, they're selling my bit to some rich dude.
— Adam Ramsay (@AdamRamsay) September 12, 2013

There you have it folks! Except I know that I don't own the Royal Mail, not even a little bit of it. Let me explain. I own a bit of Barclays Bank (just a tiny bit that's not worth as much as it once was). And I can sell this and will get a nice cheque, real cash money I can spend. The same goes for my car, the table in the dining room and the wine in the cellar.

But it doesn't go for the Royal Mail. When that's sold I won't see a penny of the value realised, which tells me that I have no stake in the business, I do not own it. The government owns it and the government will get all the money from selling it off (and, in the manner of governments everywhere will probably waste that money).

Once it is sold, I might get a chance of own a little bit of the business. It just might be possible for me to buy some shares, to invest a little bit of my money in the business. That - not some sort of nebulous and collectivist wibble - is what we mean by ownership.

....

Can we now stop saying town centres are for shopping?

****

‘She kept an antique shop – or it kept her.
Among Apostle spoons and Bristol glass,
The faded silks, the heavy furniture…’

I've felt like something of a lone voice in all this - bashing away at the shiny regeneration on the one hand while pointing out to locovoracious folk that their dream of twee high streets filled with organic independent shops (probably workers co-ops or some other form of trendy model) is just as daft.

Indeed these people - epitomised by Julian Dobson - still bash away at the idea that there's some magical system of common ownership that will change the high street:

What’s broken isn’t just the retail model of HMV or Jessops, or the business rates system, or city centre parking, or any of the individual bugbears blamed for the demise of the high street. What’s broken is our own ability as citizens to share in the ownership, management and use of the spaces we occupy. It’s about the whole place, not just the shops.

 

I agree that it's about the whole place. I agree that it isn't just the shops. But this idea of us "sharing" the ownership is just so much wiffle. I'm not interested in some sort of 'commons' system where I sort of own it but not really and where we get endless rows and scraps about who should be allowed to do what on that common land. Up here in Cullingworth, the council stopped fifty years of moto-cross and scrambling on the Flappit because it wasn't the right sort of use for that particular 'urban common'.

If you want things to work, they have to be owned. And right now the only bits of the town centre that are 'owned' are the shops, which is why we're still talking about retail rather than about town centres as the stage on which we perform. In the Portas Review we read how the high street needs to be run more like a business - more like the out-of-town malls in fact:

 

“High streets should be run more like businesses. And businesses are run on the basis of strategic vision. However, unlike the sophisticated shopping malls or large retailers, high streets aren’t overseen by a single landlord or professional management body.”

 

The retail establishment - the shiny regenerationist - view is that we carry on more-or-less as before - rather as we see in Bradford where the council uses its own funds and Regional Growth Fund to subsidise the business rates of new or relocating businesses. A straightforward bung to businesses will do the trick. Except they don't appear to be flocking to the city.

 

As we see, the trendy place-maker view is all around 'commons' or, as Julian Dobson now seems to want, a public corporation approach. I don't think this will work - either we get the tradedy of the commons revisited or we get another pseudo-political corporation that can be captured by the very town centre interests Julian so dislikes.

 

My view is that we need to be far more radical:

A radical approach would be to transfer all that council owned land – the streets, the pavements, the market halls, the offices and the parks – into a for-profit company. Where, as in many places, the council owns freeholds of retail premises these can be added to the pot. And use that asset to create the excitement, the events and the environment – the “21^st Century urban entertainment centre” that Ms Portas describes. That would be a radical approach rather than the rewarmed versions of existing – and mostly unsuccessful – strategies presented by Ms Portas.

The ownership of the company could vary – maybe co-operative or mutual, perhaps the local council or possibly a combination of these approaches. But it is essential – if the town centre is to be run like a business – the company is for profit. For it is the search for profit that makes the shopping malls and supermarkets creative, innovative and focused on getting the experience right for the customer.

 

Most importantly this approach isn't founded in shopping - for there is no future in retail as the main determinant of the town centre environment.

....

In which we are reminded of the terrors that NHS privatisation would bring...

****

In a blog post on another matter Anna Raccoon describes the experience of France's semi-private health system:

...a chauffeur driven limousine pulled up outside my house, precisely on time, in order to drive me in comfort some 100 miles to the specialist Cancer centre in Bordeaux; the scan was carried out within minutes of my arrival, leaving me half an hour to enjoy a cup of freshly brewed coffee and a fag before the consultant appeared smilingly at his door to greet me by name at the allotted time. I cannot tell you what hell and deprivations I must suffer now that I am safely out of the all embracing  grasp of the NHS.

I'm sure there's a reason why the NHS can't deliver this sort of service. The words "monopoly" and "government" spring to my mind.

....

Privatise town centres? A thought on reading The Portas Review

In her statement of “vision”, Mary Portas gets it about right:

“I want to put the heart back into the centre of our high streets, re-imagined as destinations for socialising, culture, health, wellbeing, creativity and learning.”

OK so it’s a little bit gushing (this is a TV ‘expert’ after all) but above all Ms Portas recognises that the future of the town centre doesn’t lie with retailing. Except that the entire report focuses on retailing, rolling out the same set of solutions that have failed in a myriad of places. “Town Teams” were a feature of Yorkshire Forward’s ‘Renaissance market towns’ projects – arrogantly shoving aside existing groups, town councils, district and county councillors and shipping in ‘experts’ from elsewhere who proposed stupid things that divided towns.

The Panel welcomes the idea of bringing together a fresh group of people to generate ideas for the visioning and Master Planning process. The Panel considers, though, that lead consultants have misinterpreted the flexibility of this approach and this has led to a lack of consistency in how Town Teams are set up and a lack of clarity regarding their role, remit, and how they relate to existing democratic structures. This ambiguity has caused considerable conflict in a number of towns.

All this gets back to the advantage that shopping malls have over town centres – single ownership – and setting up a town team, however this is done, doesn’t address that problem. Yet the reality of most town centres is that most of the land is in a single ownership – the local council. But that this owner doesn’t treat it as such preferring instead to see it as a collection of unrelated activities – roads, parks, markets, theatres, sports halls and office blocks.

Ms Portas wants town centres run “like businesses”:

“High streets should be run more like businesses. And businesses are run on the basis of strategic vision. However, unlike the sophisticated shopping malls or large retailers, high streets aren’t overseen by a single landlord or professional management body.”

Hence the town team, ‘business improvement districts’ and other similar initiatives. This isn’t a radical solution to decline in the town centre (less so when you couple it with proposals for more planning controls on out-of-town developments), it’s just a repeat of using “pseudo-business” structures to try and ape what happens in the mall and the supermarket. Remember the Urban Regeneration Company, what of town centre management companies and a bewildering variety of special purpose vehicles aimed at “regenerating” town centres.

A radical approach would be to transfer all that council owned land – the streets, the pavements, the market halls, the offices and the parks – into a for-profit company. Where, as in many places, the council owns freeholds of retail premises these can be added to the pot. And use that asset to create the excitement, the events and the environment – the “21^st Century urban entertainment centre” that Ms Portas describes. That would be a radical approach rather than the rewarmed versions of existing – and mostly unsuccessful – strategies presented by Ms Portas.

The ownership of the company could vary – maybe co-operative or mutual, perhaps the local council or possibly a combination of these approaches. But it is essential – if the town centre is to be run like a business – the company is for profit. For it is the search for profit that makes the shopping malls and supermarkets creative, innovative and focused on getting the experience right for the customer.

Into this approach can be build structures akin to business improvement districts. Councils can be flexible on business rates. And can no longer use parking as a cash generator for the pothole repair fund.

Town centres are not about retail any more, they are about a place of interest, engagement and excitement – and the best of these places, as Mary Portas demonstrates again and again in her report, are privately-owned, privately-managed and run for profit.

 It's a thought...

....

Dear Nick, competition doesn't mean "flogging off to the highest bidder"

****

When some people speak of ‘privatisation’ they refer to the process of commissioning private businesses to deliver public services through some form of tendering process. And it leads to the Cardhousian contortions of Nick Clegg:

In a speech at a London hospital, the Lib Dem leader will say he supports the use of private providers in the health care service and that they have improved patient choice.

However, he will add: "It's not the same as turning this treasured public service into a competition-driven, dog-eat-dog market where the NHS is flogged off to the highest bidder."

So there you have it – after all the shouting about how the Liberal Democrats will be different, about how they will die in the ditch to protect the beloved NHS from evil Tories what do we get? Just what we have already – a system using private providers but where those providers are accountable only to NHS managers not to those using the service or to elected officials (and don’t give me all that nonsense about accountability to the Secretary of State for Health).

Now I’ve trawled through the collected comments (well perhaps not all of them) of health ministers, have looked at the proposed changes and nowhere in all this can I see any proposal – not even an inkling of a proposal – that the NHS will be “flogged off to the highest bidder”. There is a discussion as to how we improve health outcomes and a debate about the merits (or indeed demerits) of competition in helping deliver these improved health outcomes but that isn’t about selling chunks of the service off, it isn’t about ‘cherry-picking’ and it isn’t really much of a change from the programme of change instituted under the last Labour government.

The idea of ‘any willing provider’ is the central element of these pro-competition policies – this isn’t privatisation any more than using external suppliers is privatisation. What AWP is about is preventing NHS commissioners from closing off the market by saying they have to consider any organisation that is able to comply with the requirements. The result should be a more diverse supply to the system and end of the current situation of bureaucratic inertia.

As competition dawns there will no doubt be many providers, both larger and smaller, seeking to offer so-called integrated approaches in particular communities, which are, in fact, a byword for long-term monopoly. Once the commissioning bodies are dependent on the new arrangements the provider can turn the handle, raise prices and lower quality as much as it wants.

If this happens, it will be an expensive route back to what we have today in most public services: costly, unmoveable, low-quality, low-innovation services. The solution, of course, is for the principle of diversity of supply – allowing no one to become dominant – to be an absolute non-negotiable in local public service markets.

The comment above – from a Liberal Democrat with expertise in health care markets – signals the problem we face. The current situation isn’t good enough and the core solution of pumping ever larger amounts of cash into the service isn’t working well enough (which isn’t to say the cash isn’t welcome, merely to observe that health outcomes haven’t risen in line with that spending increase). However, within that diversity of supply we have to recognise that price must be a consideration in commissioning decisions – this isn’t about simply taking the cheapest but does recognise that price is a driver of efficiency and improved outcomes.

My big worry is that populist considerations fuelled by healthcare producer lobbies and trade unions (and sucked up by an increasingly clueless Labour party) will lead to a big climb down and we will lose the momentum towards using competition to provide accountability for NHS decision-makers and real advances in health outcomes. And it seems more of the evidence points to competition as the most important factor in driving improvement:

This is particularly ironic given the strong evidence now emerging that hospital competition not only works abroad, but also in the UK. Dr Zack Cooper of the London School of Economics and Professor Carol Propper of Imperial College have each produced studies showing that hospitals in more competitive areas performed better on quality and efficiency than those in less competitive ones. The LSE’s Centre for Economic Performance has shown that competition increases managerial quality in hospitals. Dr Nick Black and colleagues at the London School of Hygiene and Tropical Medicine have shown that the much-maligned independent sector treatment centres, introduced by the Blair government to shake up provision of simple elective procedures such as cataract removals and hernia operations, have produced work of equal or better quality than their NHS equivalents.

None of this is about changing the NHS model of free care at the point of need – instead it recognises that there is more than one way to deliver this promise. Breaking away from the hideous monopoly of the centralised NHS – a process begun haltingly under Blair – is essential if we’re to get the full benefit of that “investment” put in over recent years.

...

Why state monopolies are bad (and I'm annoyed)

***

While standing in a queue at the railway station recently I pondered a little on the contradiction of monopoly (the useless station operator had just three tills open at the busiest time of the year for buying tickets). Not the game but the control of a given industry, commercial operation of service by a single organisation. Why is it that private monopolies are bad whereas public monopolies are good?

The economics books say that the monopoly firm will always set their quantity at the level where marginal cost is equal to marginal revenue. This allows for “monopoly profits” so long as entry to the market is constrained.

So why should state monopolies – like health or education, for example – be better? Is there some special magic that makes them different? Well let’s be kind and assume that the state monopoly is stopped by a benign government from price gouging. That would be alright wouldn’t it?

Well not really – not only do monopolies (however cuddly) tend to set higher prices but they do not pass on economies of scale. So while our cuddly government might control the price a little, it does not stop the build up of inefficiencies produced by a lack of market pressure.

So where does all the money go, you ask?

When we look at most privatisation of monopoly industries – telecoms, gas, electricity, postal services and so on – one of the key initial gains lay in reducing the size of the workforce. This should not surprise us since the state monopoly is at its heart a producer owned and controlled organisation. The gains from economies of scale and the excess profits implicit in monopoly do not go to shareholders – as would be the case in a private monopoly – but to those who are employed in the industry.

Ah, I hear you say, that’s good then? After all the money that in a private arrangement goes into to pockets of fat cat owners is going to the workers!

Again, not really. Firstly the distribution is uneven – pay for administrative and supervisory employees is far higher than is merited by the skills needed to perform the task (or by comparison with similar private sector jobs) whereas the reverse is true for manual jobs within the state monopoly. This imbalance comes about because administrative functions control the distribution of cash within the monopoly organisation.

Secondly, the organisation becomes overmanned. Not only are new bureaucratic processes and systems developed but senior administrators create a culture where self-administration is a sin. PAs, clerical assistants, clerks and policy advisors proliferate – all on good money, all “contributing”, all there because the monopoly provides the cash to allow such indulgence.

Maybe (just maybe) there is a case for so-called “natural monopolies” to be in public ownership. But there is no economic case at all for health and education to be de facto state monopolies. In fact we get expensive, inefficient, overmanned services run for the benefit of bureaucracy rather than for the consumers of those services.

So I’m right to be irritated by “protecting the NHS” – from what? Efficiency? Competition? Its consumers? Marauding killer zombies? If monopolies are a bad thing – and they are – then the NHS needs breaking up. We can’t go on with the current ineffective and inefficient arrangement - it can be owned by government, charity, social enterprise - whatever - but there must be a properly competitive market.

...

A reminder why the private sector is better than the state

In a recent post Tracey Cheetham takes to task a business that wrote to her regarding the delivery of wine and the postal strikes. Now I could take her to task over the position she took - business should use the post office because of its social mission. Sod whether or not that business gets a decent service from said business.

But what really struck me was the nature of the response Tracey received from the business - they'd taken the trouble to read the letter, consider the point she made, examine their business practices and respond accordingly. It looks likely that, through this action, that business has a friend and advocate (albeit not sufficiently for them to be named in Tracey's blog-post) - someone who'll buy some of that there wine!

Does Tracey think that a similar letter to a nationalised industry, a government department or one of those myriad agencies of the state that she loves so much would get such a positive caring response? Does she think that a random e-mail raising a slightly critical point to - say - the Royal Mail would get that kind of response? Somehow I very much doubt it - what Tracey would get (eventually) is a series of excuses wrapped around with a half-hearted apology. The person answering the letter doesn't give a monkeys whether Tracey is happy with the response or not -it's just another letter off the pile or e-mail from the box.

For me, Tracey's post is a timely reminder of why private business - and certainly small business - delivers so much better service than we get from the state. And the reason? Because - unlike the government - they care about having our business.