The Politics of NHS market
based reforms
All 3 political parties are signed up to a single payer (ie tax funded) system of funding for
the NHS. There is major evidence to support this: (Guillebaud report 1953, Commons
expenditure committee report 1973, and the Wanless review 2001)
Wanless identified a £267 billion underspend between 1972-1998. One of his conclusions
was:
“The surprise may be that the gap in many measured outcomes is not bigger, given the
size of the cumulative spending gap”.
All 3 political parties also support the idea of a market based system of healthcare delivery
based on a purchaser provider split internal market.
The key levers of the current NHS market (New Labour) are the mutually reinforcing
policies of:
•Purchaser-Provider split between primary care (PCTs) and secondary care
•Patient choice to promote competition (Choose and Book, Extended Choice Network)
•Plurality of providers – Foundation Trusts, AWP policy – Private companies (ISTCs,
ICATS), “Third sector” non profit organisations
•Payment by Results (PbR) using a tariff system
“PbR is the reform which makes everything else possible” Timmins BMJ 2005
•Patient held budgets
The market will be expanded under the new legislation to an even more full blooded
system, with over a third of the bill legislating for a new regulated economic market.
However, market failure is an inherent problem in healthcare. The theory of market failure
in healthcare was first described by Professor Kenneth Arrow in 1963 in his seminal paper,
“Uncertainty and the welfare economics of medical care”. Interestingly, Gordon Brown also
addressed this issue in a speech to the Social Market Foundation (SMF).
http://www.smf.co.uk/assets/files/publications/AModernAgendaForProsperityandSocialReform.pdf
The following non exhaustive list gives the main reasons for market failure in healthcare:
1. “Information asymmetry”. Patients are not well enough informed to make choices. Also
primary and secondary care
2. Healthcare is difficult to commodify. Contracts are complex, expensive and require
“double accounting”.
3. Risk of supplier induced demand
4. Excess capacity is needed for market choice to work i.e a plurality of providers
5. Exit is very difficult eg Hospital closures are a political hot potato
6. Expensive to enter market – e.g ISTCs (given 11% extra tariff)
7. Insurance systems will give the cheapest and best coverage to the well, and the most
expensive and least coverage to the sick
8. Doctors control access to the healthcare market. Market theory rejects the publci
service ethos. Professionalism is a problem
9. Markets provide for wants rather than needs.10. Price signals don’t work. Payment occurs after care. Healthcare costs are prohibitive,
hence need for risk pooling
11. Need for specialty clusters and high volume workload
12. First duty of investor owned firms is to their shareholders, not patients – “cream
skimming”
13. The market is a blind power without any social orientation
14. Need to plan for local population needs
Gordon Brown summed up these problems well in 2003 (whilst the Labour party was
busily creating a market driven healthcare system!) :
“Indeed, the case I have made and experience elsewhere leads us to conclude that if we
were to go down the road of introducing markets wholesale into British health care we
would be paying a very heavy price in efficiency and equity and be unable to deliver a
Britain of opportunity and security for all”
“The very same reasoning which leads us to the case for the public funding of health care
on efficiency as well as equity grounds also leads us to the case for public provision of
healthcare”. Gordon Brown, SMF speech 2003
Despite a couple of controversial papers published by Cooper and Propper recently, there
is actually very little evidence to support market based policies in publicly funded systems.
In fact, Professors Himmelstein and Woolhandler from Harvard University have stated the
following:
“Evidence from the US is remarkably consistent: Public funding of private care yield poor
results” Woolhandler, Himmelstein, BMJ 2007
They stated in the same paper that:
“Only a dunce could believe that market based reform could improve efficiency or
effectiveness”!
In view of the inherent nature of market failure in healthcare, why do all the major
political parties support market based healthcare policies?
This is a key quote from John Denham MP, former cabinet minister for New Labour:
“All public services have to be based on a diversity of independent providers who compete
for business in a market governed by Consumer choice. All across Whitehall, any policy
option now has to be dressed up as “choice”, “diversity”, and “contestablity”. These are the
hallmarks of the “new model public service” (quoted in the Chartist 2006)
This was a remarkable statement from a Labour politician, but understanding why New
Labour adopted these policies in public service delivery is the key to understanding the
politics of NHS reform over the last 20-30 years, including the current reforms.
Political ideology – the neoliberal doctrine
Neoliberalism has been the dominant political, economic and philosophical doctrine of the
last 30 years. In the UK it was first introduced by the Thatcher Government and was
continued with some variation through the Major, Blair, and Brown governments.
The central tenets underpinning neoliberalism are as follows:
1. Maximum market freedom, with minimum Government intervention (“free markets,
“rolling back the state”)
2. Rejection of collectivism
3. Encouragement of entrepreneurial freedom, personal responsibility and self reliance4. Protection of private property rights
5. Residualising welfare systems
6. Public choice theory. (Public servants will behave as rent seeking utility maximisers
and therefore seek to grow their roles and the roles of Government. Thus, public sector
employees should be subjected to market forces like the private sector)
Thus the key policies of the neoliberal doctrine are as follows:
1. Deregulation of trade and finance. Independence of the Bank of England (removing
from state control – “depoliticisation”)
2. Supply side economic polices. Monetarism. Price stability i.e defeat of inflation by
monetarist policy and minimising wage inflation by anti-union policies
3. Low taxation
4. Privatisation of state owned premises, industries, and public services. PFI/PPPs
5. New public management (managerialism) i.e Introduction of private sector
management practices within public sector organisations
6. Use of Social Capital i.e voluntary sector to provide public services.
This ideology formed the basis of Thatcherism and Reaganomics and also Blair’s “third
way”. The coalition government are continuing the trend.
In summary, neoliberals believe that free markets with minimal state interference are the
best way to organise our economic system and society. The role of government should be
minimised. Thus much of the public sector should be “rolled back” and/or replaced by the
private sector. In theory this should shrink the size of government and reduce public
expenditure levels, permitting lower taxation to allow the wealth creators more capital to
invest in growing the economy, as well as more money for citizens to consume more
goods. The least well off in society should benefit from the “trickle down” effects of
economic growth. Interestingly, one of the paradoxes of this approach is the creation of a
greater role for Government to manage market failures, and to further protect the interests
of big business.
Some of the key policies introduced by Thatcher were aimed at abolishing capital controls
and trade barriers, which were also strongly advocated at a global level by the World
Trade Organisation, the OECD, the World Bank and the World economic forum. One of the
most significant events was the deregulation and computerisation of the foreign exchange
markets in the City of London in 1986 – known as “the Big Bang”. The resulting massive
increase in global financial trading is now widely accepted to have eroded the sovereignty
of nation states. This is because governments must retain the confidence of international
asset holders by whatever policy modification is necessary, Otherwise they could suffer the
consequences of “capital flight”, which could led to severe economic consequences.
Tony Blair summed things up well in a speech to the Chicago stock exchange in 2004:
“Every day, £1 trillion is traded in the foreign exchange markets in the City of London. Any
Government that thinks it can go it alone is wrong. If the markets don’t like your policies
they will punish you”.
This is the main reason why Labour became New Labour. Key policy makers like Peter
Mandelson had accepted the “new reality” of financial globalisation, and that “Old
Labour’s” social democratic policies were no longer viable and had to be jettisoned in
favour of policies in keeping with a neoliberal variant of Thatcherism – the “Third Way”. (Ref:
“Losing Labour’s Soul” by Professor Eric Shaw). Mandelson famously said, “we are all
Thatcherites now”.A very good explanation of New Labour’s transformation was stated by 2 Labour MPs, Jon
Cruddas and Jon Trickett in the New Statesman in 2007:
“After years in opposition and with the political and economic dominance of neoliberalism,
New Labour essentially raised the white flag and inverted the principle of social
democracy. Society was no longer to be master of the market, but its servant. Labour was
to offer a more humane version of Thatcherism, in that the state would be actively used to
help people survive as individuals in the global economy – but economic interests would
always call all the shots”
Thus New Labour instituted policies to suit the needs of international investors and the
bond markets. These included granting independence to the Bank of England, defeat of
inflation, prudent fiscal policy (the “Golden rules”) to keep corporation taxes down,
promotion of the PFI (which kept public sector borrowing of the balance sheets), continued
privatisation of public services (raising revenues to keep taxation low) , introduction of
market forces and expanding choice in public services, remodelling state bureaucracy
along business lines (New Public Management), and further deregulation of trade and
finance. In his Mansion House speech in 1997 Gordon Brown said that in order for a
Government to succeed it had no option but “to convince the markets that the had the
policies in place for long term stability”.
In another speech to financiers in 2000 about opening up public services to private sector
involvement, Gordon Brown stated that they would be investing in:
“core services, which the government is statutorily bound to provide, and for which
demand is virtually insatiable. Your revenue stream is ultimately backed by Government.
Where else can you get a business opportunity like that?” BBC File on Four
Professor Anthony King described the Blair Government “as the first ever Labour
Government to be openly, even ostentatiously pro-business”.
Lady Thatcher, when asked what was her greatest ever achievement, famously replied:
“Tony Blair and New Labour. We forced our opponents to change their minds.”
http://conservativehome.blogs.com/centreright/2008/04/making-history.html
It should be noted that the Liberal Democrats also moved in this policy direction. Simon
Kovar has elaborated on this in an article in The Liberal called, “The Neo-liberal
Democrats”
http://www.theliberal.co.uk/libdems/neo-liberal-democrats.html
As for the current coalition Government, I believe Ed Balls was correct in his analysis of
the current coalition Government in his candidacy speech for the Labour Party leadership:
“This is a new neo-liberalism for the 21st century – a merger of Thatcherite neoConservatism and Orange Book Liberals which believes that getting the state out of the
way is the road to a stronger economy and fairer society”
In summary, from a political, economic and philosophical point of view, all three major
political parties have adopted much of the neoliberal doctrine. This explains why they all
support the use of markets in public services and explains John Denham’s quote at the top
of this article. It explains why New Labour embraced the PFI in hospital building and then
delivered progressively pro-market policies from 2002 onwards. They have built the perfect
platform for Mr Lansley to complete a demolition job on the NHS. According to Whitehead,
Hanratty, and Popay from the Dept of Health Inequalities and Social Determinants of
Health, University of Liverpool, the current reforms are:
“ideological with little evidential foundation. They represent a decisive step towards
privatisation that risks undermining the fundamental equity and efficiency objectives of the NHS. Rather than “liberating the NHS”, these proposals seem to be an exercise in
liberating the NHS’s £100 billion budget to commercial enterprises.” Lancet. 6th Oct 2010
The leaders of medical profession should therefore be doing much more to prevent this
ideologically driven destruction of our National Health Service.
We should take heed of the words of the BBC’s Newsnight economics editor, Paul Mason:
“A deregulated banking system brought the entire economy of the world to the brink of collapse. It was the
product of giant hubris and the untrammelled power of the financial elite. Basically neoliberalism is over: as
an ideology, as an economic model. Get over it and move on. The task of working out what comes after it is
urgent . Those who want to impose social justice and sustainability on globalised capitalism have a once-ina-century chance”. Mason P. Meltdown. The End of the Age of Greed. Verso. 2009
In actual fact this opportunity was not grasped the first time around because the financial
elite proved too powerful a global lobbying force. However, the ongoing second global
financial crisis could sound the death knell for the neoliberal doctrine. This could result in
less of a focus on market driven policies in healthcare. We have an opportunity to move
away from the failed market driven policies in healthcare. At this point, we should all
remember the original purpose of the NHS. It was formed to sweep away the failed
“market” of voluntary sector, private and municipal hospitals, through nationalisation. It was
based on the idea of pooling of risks with everyone covered – “Universality” by a “Single
payer” system. It recognised the importance of healthy society, social solidarity and social
contract between doctors and patients. According to Professor Rudolph Klein, it is still “A
unique example of the collectivist provision of healthcare in a market society”.
That is precisely why this neoliberal coalition government want rid of it – collectivism is the
antithesis if neoliberalism. (Plant R. The Neo-liberal State. OUP 2009)
So, now is the time to put forward the arguments for a publicly funded, publicly provided
and publicly accountable NHS, and not lie down and accept inevitable privatisation of the
NHS. We need some true medical leadership when the NHS needs it most.
Best wishes,
Clive

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