Archive for January, 2012

Is Ham right – is it time to move on from opposing the NHS Bill?

January 27, 2012

I practically cut my academic teeth reading Chris Ham’s wonderful work, but I was a little confused by his piece in today’s Guardian (http://www.guardian.co.uk/commentisfree/2012/jan/27/polarised-debate-nhs-bill?CMP=twt_gu) calling for people to move on from opposing the NHS Bill, and instead to find ways of implementing it as well as possible. I’m afraid I think he’s wrong.

I’ve argued elsewhere in this blog that we may be stuck with the Bill – but that’s not at all the same thing as moving on from the debate, or from working out the best way forward. Before I work through that muddle however, I want to look at Ham’s argument more closely.

Ham starts by saying what a mess the government has got itself into over the NHS, and that it has made a major strategic error in putting in place a lengthy and complex piece of legislation rather than an evolutionary change. He suggests, however, that critics of the Bill are mistaken in claiming that the Bill heralds the end of the NHS ‘as we know it’.

He goes on to claim that competition can bring benefits in elective care ‘where may patients welcome the opportunity to choose which hospital to use’, but also notes the need for integrated care for older people and those with long-term conditions, which require closer working between GPs and hospitals, and between health and social care.

Ham then says that there should not be a complete halt to change because of the financial pressures on the NHS, and so it is time to move on and ‘focus on what really matters to patients’, which he takes to be maintaining the quality of services in the face of the £20bn in productivity requirements required. This will mean it will be difficult to hold onto already established gains, and that there is a danger, especially as we cut managerial posts, of us having major organisational failures such as those at Mid-Staffordshire.

He concludes that the ‘time for grandstanding about the bill has passed’ and that the challenge now is ‘to carve out a path to implementing the reforms that beings about necessary improvements in patient care at a realistic pace’ and that if ‘this means modifying the direction and speed of change in response to legitimate concerns, then it will be a small price to pay to deliver an outcome that is good for patients’

So, to summarise – the government have made a significant error in proceeding with the reforms in ‘big bang’ legislative fashion (as Rudolf Klein once described this kind of effort), and that they risk causing problems with respect to integrated care (even if competition in elective care will improve things). However, the productivity savings required risk causing organisational failures, and the gains of the last few years risk being lost, so we must get on with trying to prevent this from happening.

What is odd is that Ham’s article is almost entirely negative about the reforms – he talks them being introduced terribly through cumbersome legislation, about dangers to integrated care, productivity savings (let’s stop calling them that shall we – they are cuts) leading an increased risk of organisational failings. The one thing he is positive about is patient choice – and if you look at the entries here you’ll see I think that is a mistake as well (I’m not alone in this – Steve Harrison, who is far cleverer than me agrees http://www.sochealth.co.uk/news/7fallacies.html)

So if Ham is so negative, why should we get on with it? Well there’s an argument for saying we need to accept the reforms because otherwise patients will suffer. But that supposes that clinicians will behave less professionally if they get reforms they don’t like. I don’t think that is the case – but I do think that the reforms risk making their jobs a great deal harder. Why ask GPs to commission services when they are trained to look after people – that’s like asking airline pilots to buy aeroplanes – it makes superficial sense but not with much scrutiny. We are presently throwing out all the expertise we’ve acquired about commissioning services as PCT staff are made redundant or find their views less valued than those of consultancy firms who know less than nothing of value about the realities of buying care services.

Ham is right in saying that we need to make improvements to the Bill, but perhaps the right time to do that is before it becomes law rather than trying to implement really crap legislation (take a look at the nonsense of the failure regime, for example, if you think that word is too strong) now. We need to oppose this Bill to have any chance of making the government see sense.

The more noise we make now, the greater the scope we have of pointing to the government and holding accountable for the mess it makes later on.

Finally, I think Ham is wrong in saying that this is just one example, over the years, where scaremongers have pointed to the imminent demise of the NHS, and so we should not take this seriously. This time is different – the increased role of the private sector is unprecedented, and probably irreversible. The scale of involvement planned will undermine publicly provided healthcare right into the future – with potentially dire consequences as I’ve written elsewhere in this blog. We are playing for much higher stakes this time.

So I’m sorry, but I think Chris Ham is wrong. I will continue to admire his work, but in this case I think he’s making a considerable error.

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We are wrong to want a benefits cap.

January 27, 2012

We find ourselves facing a number of social policy problems at the moment – the government’s bungled NHS reforms, the scandal of social care for the elderly, the confusion over public sector pensions, and, most recently, the plans to put in place a £26,000 limit, per family, on benefits.

This last proposal, the benefits cap, is said to be very popular amongst the British public, and so the Prime Minister is relaxed about the House of Lords voting against the reforms earlier in the week, as he knows he can force the legislation through in the Commons. Of course this is all a bit odd – the chamber made up of a bunch of Bishops and Peers supporting the poorest in society while the ‘Commons’ is in support of it, but we live in strange times.

Intuitively as well, there’s something in the idea of a benefit cap that is appealing. Why should families receiving benefits get paid more than the average wage (that’s the £26,000 figure)? Why expressed this way, it seems to make a lot of sense.

However, perhaps we’ve lost sight of why we are paying these benefits in the first place. Why do we pay them?

I’m very struck that in philosophy texts, social policy is regarded as being something that is made towards people who are not fully competent. Strawson, for example, talks about situations where normal interpersonal expectations breaking down putting us in an ‘objective’ attitude towards others where they are unable to meet our normal expectations of them. Social policy is the means of supporting them if they are unable to ever meet those expectations (in the case of physical or mental disability) or if they are temporarily falling short.

This argument has a great deal in common with that made by Anthony Giddens around the ‘social investment state’, where social policy is used to support people between periods of worklessness, to enable them to get themselves back on their feet and back to normal. I think this is also very much the view of both New Labour and the Coalition Government – the norm is work and independence from the state. If this is your starting point, then it’s not much of a leap to saying that you want to limit benefits, not only in terms of the amount paid out or the duration you can receive benefits – benefits are meant to be there until you can get yourself back to work. If you have a disability, equally, benefits should be paid permanently, but not to put you in a position better than that of the average family. There is a logic to all of this.

However, I’m not sure the logic is quite right. If we go back to Strawson we can find the first problem. If we all had the same opportunities at birth, and we were all conscious of the need to work hard at school, then there would be grounds, perhaps, for saying that the state should provide only temporary support. But this simply isn’t the case – I was lucky to have parents (but don’t tell them this) who left me to my own devices, but also made clear the costs of not doing well at school. I’ve also had a safety net from them in case I mess up – I know there is always a bed for me if everything else goes wrong. I don’t think for a second everyone else had this – I was lucky.

If we think about this in terms of equality of opportunity, then I didn’t lose out too much as a result of coming from my family. I didn’t go to a posh school or have links to the rich, famous or powerful, but had enough security to make my own way. Some people have a great deal more than I had, but many people had an awful lot less.

If social policy is about supporting people unable to find work and be financially independent, then it seems to me we must first have offered them some degree of equality of opportunity. We (as a country) try and provide this by providing free education up to a certain point, and free access to healthcare, and some kind of access to housing in case of an emergency, but also, by supporting families through paying benefits. But this isn’t enough to approach equality of opportunity – there are families with vast amounts of inherited wealth, access to schools which have the very best results, faster access to high quality healthcare than the NHS is able to provide, and lots of safety nets in terms of money so family never have to worry about where the next pound is coming from.

If we fail to provide some degree of equality of opportunity – and we are an awful long away from doing this – then it’s not fair or reasonable to withdraw benefits from people, most of whom will have had few chances to become independent and autonomous in their lives.

If work is the arbiter of success and independence, then we have another problem. It isn’t as if pay always seems to make a great deal of sense. We give financiers who do little or no social good millions and pay teachers, nurses and social workers often derisory incomes. It’s pretty hard to argue that such highly qualified people should get paid so badly, especially when they are trying to do social good. It is also no accident that the very highest paid jobs tend to be made up on people who come from backgrounds of considerable wealth – another barrier to social mobility.

What should we do? If the key to this is equality of opportunity, then we need genuine lifelong learning where people are able to access education at any point, paid for by the state. We can set a limit on this (I think one PhD is probably enough) but we must give people the chance to retrain at any point in their lives. And we must pay them living support while they do so (is this really worse than paying benefits?). We must target support at the families which have the fewest opportunities – we can’t possibly expect them to be independent of the state where there are no jobs, no training opportunities and no expectations of ever participating fully in the economy. If people unreasonably refuse sensible opportunities there might be grounds for us suggesting that benefits be capped, but surely not before then.

We also need to take a big gulp and tax inheritances properly. Inherited wealth has to be a massive source of inequalities in outcome. Why on earth do we support families retaining advantage within their own members? There is something instinctive about wanting to give your own children the best possible opportunities, but if we all do this through inherited wealth rather than through their individual merits then we restrict social mobility and fix inequality. This can’t be right.

Equally, we must look at pay and work in this country. The market is not some semi-sentient, self-adapting system that is always right. Markets have led to bankers taking away millions while crashing the economy. I have argued elsewhere that responsible capitalism is about reducing the gaps between the richest and poorest. I think this is absolutely necessary – what kind of fairness leads to people going through years of training and education only to find themselves earning less than the average wage? Too often as well the best jobs go those not with the best ability, but because they are like (affluent, white, male, posh schools) those who went before them. Look at the cabinet for goodness’ sake! How on earth can we have representative democracy when these people come from completely different backgrounds to the rest of us. Unfortunately this goes for the majority of those in senior positions in large companies. There are exceptions (which we conspicuously celebrate), but the rule is that to be successful you need to be of a certain type. That’s got to be against the long-term (even medium-term) competitiveness of the economy.

I find myself with mixed views on the benefits cap. It isn’t fair for the state to pay families sometimes considerable amounts where they make no opportunity to give anything back. But it equally isn’t fair to expect people to be independent of the state where they have not had access to the same opportunities as many others. We need to remember what the causes of poverty are, not just treat its symptoms. And that’s why a benefits cap without a far greater equality of opportunity is unfair.

 

Non-market principles upon which the NHS might be reorganised

January 25, 2012

In the furore over the NHS Bill, there are sometimes accusations that those who oppose it have no alternative. This is, of course, nonsense. Roy Lilley (http://library.constantcontact.com/download/get/file/1102665899193-836/plan+B+ver3.pdf) has been doing this for some time, and there are posts here which try and put out the beginnings of an alternative view.

Below is my attempt to being to put some non-market principles by which the NHS be reformed. Not everyone will agree with them all, but I hope they do represent a framework for thinking about a different way of organising healthcare that can secure improvements.

Principle 1: No big-bang reforms – answers don’t come from trying to create magical reorganisations, but from hard-work

The eternal problem policymakers bring to the NHS is to believe that they can somehow reorganise it to success. Can you think of a reorganisation that ever worked in the NHS? Sadly this complete lack of success in the past somehow seems to make politicians even more determined – as if they are thinking ‘just one more try!’. No Secretary of State for Health has EVER gone on to be Prime Minister. It’s time to learn that top-down, expensive reorganisations don’t work. We need alternatives.

Principle 2. Improvement by the use of clinically-informed standards and benchmarks, with discretion how they are implemented locally

The key lesson from the QOF is that improvements can be made, but you need to give local decision-makers autonomy in how to make them, and to base targets not on arbitrary numbers, but instead on clinical targets. There are arguments that the QOF wasn’t particularly evidence- based, but perhaps that’s less important than the fact that a considerable amount of time and energy was spent on getting clinical buy-in, and the practices within the QOF often came to be seen as being ‘quality’ in themselves. There is so much to learn about target setting and quality improvement here – in contrast to the game-driven nonsense that we often saw in hospitals based on what seemed to staff to be arbitrary target-chasing.

Principle 3 – There must be consequences for failing to achieve improvement

If we are to have agreed clinical targets, there must be consequences for not achieving them. Failing or substandard services must have their leadership (managerial and clinical) replaced. Not every service in the NHS meets the standards expected of it. There has to be action where there are problems.

Principle 4: Stronger local democracy – scrutiny but also awareness of trade-offs.

No public service is accountable unless it has a strong democratic underpinning. In the past, the NHS has often seen the unedifying spectacle of politicians blaming local managers for failings, while no-one in the DH takes any responsibility. This is unacceptable.

We desperately need stronger local democratic engagement in the NHS. My view is that local public NHS organisations should become the responsibility of local government, as well as being held accountable to it. I would like NHS performance to be a source of debate in local elections, and politicians be held accountable for their ability to hold it to account. Moving the NHS into local authority control might have the additional benefits of reinvigorating local democracy (as it would matter more) and moving away some of the boundaries between health and social care. It may also raise the level of local debate we get over NHS services – which has to be a good thing. We also have to allow greater local diversity of services – it makes no sense for Clacton to have the same health services as Milton Keynes. There need to be national standards, but we need far greater variety in the provision of local healthcare – and as long as this is linked to local democracy it should be legitimate.

Principle 5: Regional bodies are necessary for strategic priority needs

As well as local health organisations, we also have to have some regional co-ordination to allow service and training planning. These bodies have to accountable to local authorities to ensure that they are being proactive in making sure service gaps are plugged through strategic investment.

Principle 6: The private sector is a partner, not a competitor.

The private sector should be a source of short-term additional capacity for the NHS, not as competition for it. Equally, NHS hospitals should only allowed to use pay beds where they are available to NHS patients when needed (waiting times, capacity). Where the NHS is making year-on-year use of a particular private facility, that justifies strategic investment in that service to make such use unnecessary in the future.

The alternative

All of the above is an alternative way of thinking about the NHS. It is about local democratic, accountable improvement through public services only. The Secretary of State would be responsible for the overall performance of the system, as well as for setting national minimum standards, but have little power to reorganise, instead taking a lead on holding local government to account for their performance. The DH would almost be made redundant as it would be a bottom-up system.

We don’t need markets, which won’t work, and which are just another of the quick-fixes governments have attempted to find magic solutions to the hard work of getting the NHS to work better. We need more local democracy and more local local accountability and scrutiny.

My main problems with the NHS Bill

January 22, 2012

Without wanting to create scare stories, I think it sensible to try and explain the reasons why I think it will lead to problems later on. I’m not alone in foreseeing problems – several other commentators have written about this as well. What I can do is explain my perspective on this, and to try and justify my fears.

I’ve organised the following under three headings: problems about the market; problems about provider failure; and problems about responsibility for the system. I can then end by explaining briefly a different way of thinking about the problem of NHS reform than is in the Bill.

Problems about the proposed market

We seem completely in thrall to the idea that there must be some kind of market for healthcare reform to work. However, I’m not convinced about this at all. I’m very much of the view that the problems of putting in place a viable market in the NHS are insurmountable. Three problems immediately come to mind, although I’ve written about this extensively elsewhere in this blog.

First, what we are talking about here isn’t any kind of sensible market with lots of competition, but instead, for the most part, for most locations, very limited competition amongst a small number (say, less than five) possible providers. Economists call this market structure an oligopoly, and it is rife with informal agreements between firms not to compete, but instead to divvy the market up between themselves. If the aim of these reforms is competition, it must be real. It won’t be.

Second, even assuming we can get competition, we won’t be able to make the right choices, if it is patients that are meant to be making choices, it isn’t at all clear whether they have the information or capacity to choose well. Under these circumstances, in line with Daniel Kahneman’s ideas, we would expect patients to substitute what they do know into the choice, and to pick providers which have lots of car parking, or the newest facilities, or where patients happen to know and like someone who works there. Some groups, such as those with long-term conditions, can make these kind of choices with adequate support. For most other groups, however, the information (and please don’t point me to NHS Choices) or the means by which choices are meant to be made is not at all clear. The best providers won’t necessarily be chosen because patients don’t know how to choose them. And that makes a nonsense of the market.

If it is GPs that are meant to be making the choices (and indeed commissioning decisions) then I’m afraid things won’t necessary fare better. There is good research that GPs don’t have the skills or the information to refer patients to the best providers (I won’t cite it here, but my SDO report on health organisational reform available at http://www.sdo.nihr.ac.uk/projdetails.php?ref=08-1808-245 went into this in some detail). I don’t think this is a slur. I’m rather keen on GPs being good at diagnosing illness and looking after their patients rather than being care commissioners.

If you think about it, putting GPs as commissioners of care is madness. Why on earth put someone through seven years of medical training only to do a job which doesn’t really require it? I think this is likely to lead to an enactment of either the Peter Principle of the Dilbert Principle. In the first, we’ll get really good GPs to do commissioning, asking them to do a job for which they aren’t really trained, and taking them away from looking after patients. We’ll take them away from a job they are good at, in order to do another one. If we use the Dilbert Principle, we’ll get GPs who aren’t very good at being a doctor to do the job as they won’t be missed. However, being poor at being a GP isn’t a very good predictor of being good as a commissioner either. On either basis it isn’t clear to me that GPs spending less time with patients and more as commissioners is a good idea.

In al then, I can see just about no way the new market for care will work – we won’t have much competition, and even if we do, I don’t know how the best providers would be chosen either by or for patients.

Provider failure problems:

A second category of problem is based on the thorny problem of failure (again I’ve written about this earlier in the blog, but can add some new bits here). The main problem here is that we still don’t know what to do with either private or public provider failure. There is no guarantee we can find another provider to pick up patients where this happens, never mind dealing with the disruption it will mean for patients, and the problems it could lead to for medical training.

A first point here is that the private sector (collectively) has no means of taking responsibility if a single provider goes bust. The issues we’ve had about breast implants have shown this problem starkly – the industry as a whole have simply failed to take responsibility for fitting what we can see is a faulty product. While politicians and private providers blame one another, women have been left with all the insecurity of knowing they have a substandard product within them. This is dreadful. Imagine that occurring in any one of the treatments now being provided by the private sector (hip replacements, knee replacements etc….).

What seems to be the case is that it is the public sector that will have to pick up the tab, in the end, for provider failure (privatisation of profits, socialisation of losses, once again).

However, it is also the case that many public providers will be in considerable financial danger in the new structure as well. If new providers enter the market, and get any referrals at all, this undermines the cost base of large NHS providers, who have large fixed costs (especially if they have PFI builds) and so need large volumes to cover them. The combination of budgets effectively freezing in real terms, and more providers in a geographic area, means that public providers potentially face real financial problems.

However, as noted above, we can’t let public providers fail as we will need them to pick up the pieces if private failures occur. This makes a nonsense of the whole market-based logic again.

So in sum, if private providers go bust, the NHS will have to pick up the patients. If private providers mess up and leave the market, the NHS will have to pick up the pieces. If public providers fail, we’ll end up having to bail them out as we can’t afford to be without them.

Responsibility problems:

Finally, there is the problem of responsibility for the new system as a whole. The logic of Lansley’s reforms is that no-one should be – we are letting a market do its magic. However, this isn’t really much of a market. Equally, in most markets we aren’t dealing in services that, if they go wrong, can kill people, and which involve the spending of £100bn+ a year of public money. It seems to me that there has to be someone prepared to say ‘the buck stops here’.

For me though, this highlights the tenuous relationship between democracy and the NHS. The public don’t want these reforms, the clinicians don’t want it, most of the sane experts don’t want it. And yet we have to wait until the next General Election to do something about it.

Isn’t it about time we took democracy a bit more seriously? I firmly think we need to move the NHS into the remit of local government, and to seek a far closer relationship between the public and the NHS. This will not only prevent central government from putting in place bonkers top-down reforms, but mean it is easier to find ways of integrating health and social care. But that’s another story. The main point here is that the present reforms are a mess. They need to be stopped.

The argument for a publicly-funded and (mostly) provided healthcare system not based on competition

January 22, 2012

This piece argues for a publicly-funded healthcare system that is also mostly provided by the public sector as well. It suggests that competition in provision is wasteful and unlikely to work to improve the system, and alternatives to drive the system to get better have to be sought instead. In short, that the reforms proposed at present are wrong for all manner of reasons.

To understand this argument, I think coming up with a list of propositions that I believe in (and which seem to me to be logical) need to be made clear first, in order to show that the conclusion above logically follows from it.

Proposition one: That access to healthcare is a social issue, and access to it should be based on need rather than ability to pay.

The vast majority of industrialised nations have universal access to healthcare in some form or another, and ruling out citizens from accessing healthcare because they cannot afford it seems inhumane. This leads on to:

Proposition two: That it will always be necessary to have public provision in healthcare, and so imagining that private medicine can replace it is foolish.

To guarantee all citizens access to healthcare in all areas (both geographically and treatment), public provision is necessary. To imagine that private provision can swoop in and plug gaps where set-up costs are so high, and the need to guarantee standards is so important, is delusional. Public provision is necessary in order to achieve guaranteed provision. This need for public provision also leads logically to the idea that the Secretary of State for Health should ultimately be responsible for the NHS, but does not mean that all private provision be removed – it can be a supplement to public healthcare, and even provision healthcare to the NHS to reduce waiting times or provide excess capacity (but not without difficult questions about why public provision is not covering this being asked).

Proposition three: That funding healthcare from the public purse, through general taxation, is desirable because it is both efficient and redistributive.

It is efficient to pay for public healthcare from general taxation because it gives the government considerably leverage in keeping costs down (as well as economies of scale in purchasing). Even senior Conservatives (for example Nigel Lawson) have come around to this viewpoint. I would also regard funding healthcare through taxation being distributive as being desirable because of the increased sense of societal solidarity it will hopefully lead to – and goodness knows we need this at the moment.

Proposition four: That healthcare provision is often complex in terms of both organisation and treatment, and it is therefore difficult for patients to make judgements about how to access services that are based on clinical considerations.

Healthcare provision is complex both organisationally and in terms of the treatments on offer. Expecting patients to navigate their way through local health provision is silly – it needs someone clinically competent who understands local provision and can find the best care for their needs. Where patients are forced to make decisions they are likely to engage in what Daniel Kahneman calls ‘substitution’ and choose on the basis of a factor that won’t lead to clinical improvement – such as car parking spaces. This won’t drive up clinical quality, but might lead to some perverse effects (the logical thing for hospitals to do would be to build multi-story car parks instead of providing better services).

Proposition five: That there are no simple organisational fixes to providing healthcare, and politicians, management consultants or policy wonks who suggest otherwise are ideologues

We have had sixty-five years of the NHS. It’s a big, complex system that is hugely difficult to organise and manage. We’ve tried all manner of fixes in the past – it’s about time we realised that there is no optimal size for commissioning, and that more bureaucracy or more market mechanisms are not going to work. Improvements are going to be a long slog, and depend most of all on clinicians and managers working hard locally to make things better. Imagining there is an organisational panacea to resolve all the competing demands on healthcare systems is never going to work. It’s much harder work than that.

Proposition six: That trying to get healthcare providers to compete with one another will not work as public provision is necessary, because patients cannot make clinically-informed choices, usually do not want to travel, and duplicating provision in clinical specialties is wasteful. We therefore need alternatives to improving healthcare.

If patients usually can’t choose the services they need, how about getting someone else like GPs to do it? This is unlikely to work either because it implies that there is duplication of provision (and so waste), and is hugely wasteful for GPs as well as it asks them to stop looking after people and commission services instead. Most patients want to be treated locally, so trying to get competition between localities is unlikely to work.

We therefore need alternative ways of driving improvements in healthcare. In any case it’s going to be hard work. Professional bodies need to step up to the mark and do rather more than they have in the past to scrutinise clinical data and improve practice. Managers need to ask harder questions about outcomes as well. Imagining there is an organisational fix that will somehow magically make it work isn’t going to work.

In all then, improving healthcare is a difficult business. Public provision, in my view, is a crucial and necessary component of a strong healthcare system, and assuming private provision can replace it unproblematically is unrealistic. Funding healthcare is both more efficient and more equitable than any other system. Improvements can’t come through market mechanisms as patients can’t make informed choices, and it is surely wasting the time of clinicians to ask them to commission services. Making improvements to services needs to be more robustly dealt with by both clinicians and managers than it often has done in the past, but will be hard work. However, imagining that there are simple organisational fixes is just about delusional. NHS reform based on ideology, as I would suggest the present reforms represent, simply won’t work.

Responsible capitalism

January 20, 2012

There’s been a lot of talk this week from the two main political parties about responsible capitalism. Sadly, so far, it has all been rather content-free – a few isolated points about how we shouldn’t allow bankers to claim bonuses where the performance of their banks is actually getting worse, and how we ought to strip knighthoods from ex-bankers whose governance appears, with hindsight, to have been less than great.

What is absent from these discussions is any idea of the principles of what responsible capitalism might look like. Aside from homilies about wanting to reward good performance and not bad, and to remind business about its duties to wider society, it’s all a bit empty. What follows is some ideas on what we might do if we were to actually try and achieve some kind of responsible capitalism.

First, we need to recognise that is unlikely that any of us, in ourselves, contribute a great deal to productivity or growth or our firm’s performance. We are either fortunate to work in an economy where existing infrastructure (including public services) and business relationships allow us to make our mark, or less-than-fortunate and be born somewhere where we don’t get access to education, or opportunities, or businesses, and so have a great deal more barriers to overcome even to survive. To imagine somehow that it is our own brilliance that makes for good business performance is rather delusional. Some of us make better fists of the hands we are given than others, and some worse. But none of us educates ourselves from scratch, makes the economy from nothing, and builds a business context where we can be successful.

I’m not minimising the brilliance of entrepreneurs and great social figures who have done real good. What I am saying is that, in order for the them to be brilliant, a great number of other things had to happen first. Neither am I saying we aren’t responsible for our lives – we are. To paraphrase Marx, we all make choices, but not in conditions of our own choosing.

Recognising we are all products to some extent of our own environments (even if it is by opposing them) means that we should recognise those that have achieved a great deal, but also that there have to be limits on those rewards. JP Morgan (the banker, not the firm that bears his name today) use to have limits on the multiples allowable between the lowest and highest-paid worker in his firm. This seems entirely sensible to me. Let’s reward those who do well, but also recognise (in Cameron’s words) that we are in this together. Would it really hurt us to have a maximum difference of ten times salary between lowest and highest paid worker (which is actually more than Morgan allowed)? It might focus our attention on the lowest paid as well as the highest, and recognise that everyone in the firm has the potential to make a difference.

A second point is that we have to recognise the perverse effects of allowing corporate lobbying on the scale we now have. Robert Reich argues in ‘Supercapitalism’ that we should throw the lobbyists out of Washington and even goes as far as saying we should abolish corporation tax on the argument that this would remove the right of representation (no taxation without representation, and vice versa). He might well have a point. We need to remember that our representatives are not there to represent businesses, but communities. Sometimes their interests will overlap – many other times not. Governments should be selectively drawing on the expertise they need – not being lobbied by those with the most money and power.

A related point to this is that we should set a maximum size on what we allow corporations to reach. Once corporations reach a particular scale, they have power and influence so great that any idea about free markets goes out of the window. There’s a reason Roosevelt took on the massive corporations of the US a hundred years ago – he believed markets should be free from the dead-hand of massive corporate power, challenging them through anti-trust laws. Sadly, we seem to have forgotten his insights – if there was ever a time we needed to re-establish competitive markets which will work to the benefit of consumers rather than businesses it is now. Once businesses reach a certain scale, they should be split up and forced to compete with one another. The alternative is to see the depressing oligopolies that dominate our high streets and economies. Markets don’t work well unless we make sure those within them are following some basic rules – in order to be free, markets need to have some strong ground rules.

All of this isn’t rocket science. Asking firms to narrow the gaps between the best and worst-off, getting rid of corporate lobbying and limiting the size and power of business is all designed to make markets work better, and to recognise that we all deserve credit for firm’s successes. That’s what responsible capitalism looks like to me – harnessing markets for the benefit of us all, rather than for those who are lucky and privileged enough to work for massive banks, exploiting their monopoly positions and paying a select group obscene amounts as a result. That has nothing to do with free markets, and everything to with protecting the interests of those who already have money, interest and power.

Financial illiteracy, responsibility and the financial crisis

January 17, 2012

Over at Stephen Dubner’s website (http://bit.ly/Aimhvn) (and thanks to Tim Harford for pointing this out on Twitter) there’s a piece with two short interviews about responsibility for the financial crisis. The first is from Alan Krueger (who is on the White House Council of Economic Advisors) where he suggests that Americans need to become more financially literature so that they save more. At one point he admits that the middle classes might look to have their incomes improved, but fundamentally, if US citizens were to become more financially literate, they would learn to save more.

The second quote is from Krueger’s predecessor, who makes similar points about saving, but also points to the 2000s as being a period in which the financial rulebook was thrown away, and so financially illiterate people got themselves into mortgages they didn’t understand, which in turn magnified the effect of the crisis.

Now there’s nothing too much factually wrong with these statements. It would be good if people in the US saved more, as they’d have a cushion against unemployment and illness and the expected generally. And it would be good if people hadn’t got themselves into such awful mortgages in the 2000s. The problem is that this grossly over-simplifies ideas about responsibility and financial illiteracy.

First, and in contrast to most economic theories, firms don’t make good profits from operating in competitive markets – they make money by deliberately making their markets less competitive. They launch brands to differentiate their products and massive marketing campaigns to persuade us that very similar goods are, in fact, not substitutes. This allows them to raise their prices and achieve brand loyalty. This is Marketing 101.

In the financial services industry, the situation is even worse. What are intrinsically bland products such as savings accounts and mortgages suffered from massive financial innovation (to give it a charitable name) from the 1980s onwards, reaching a point of sophistication where it was not only those buying the products that did not understand them, but also those selling them (Michael Lewis is good on this in The Big Short, as is Gillian Tett in Fool’s Gold). Now ideally, people would have laughed at the mortgages they were being sold as they were often incomprehensible, and demanded simple, straightforward products, but they were quite often not even offered the vanilla form products because greater profits could be made from selling the more complex versions (or so it seemed). Those who bought products they did not understand have to take some of the blame, but when those who sold them did so in bad faith (as very often appears to have been the case) then their liability is somewhat reduced.

Equally it seems utter madness to blame most Americans for not having any savings. Income inequality has grown massively since the 1980s, with most blue-collar workers seeing their wages stagnate in real terms. Little wonder that the fancy mortgages which promised them new wealth seemed to attractive – what are you meant to do when the world is getting more expensive and your pay is stagnant? Where exactly where these savings meant to come from? Blaming the poor for not saving and grasping what was sold to them as a chance to improve their lot is disingenuous to say the least.

There is one thing that would result from US citizens being more financially literature. They’d be a lot more angry about the lack of financial reform we’ve seen, and a lot less accepting of the ridiculous justifications that have come out of Wall Street for the financial crisis. There would almost certainly be bankers in jail, and a rather different economic plan in place to take the nation forward that regulated financial services more tightly for the future. Equally, some difficult questions about the riches made by financiers in the last thirty years would require answering when the majority of Americans have seen their incomes stagnate. Greater financial literacy would be a good thing – but not for the reasons Dubner seems to be suggesting.

What the PIP breast implant fiasco tell us about the market for healthcare

January 14, 2012

A couple of days ago I suggested that the private sector don’t appear to be trustable to clear up their own healthcare problems, and so it would make sense for the government to step in, but to make sure the private sector end up paying for the extra operations. This still makes a great deal of sense.

It isn’t really relevant that the surgery in this case was cosmetic – a lot of people have got moralistic about predominantly women engaging in medical care for problems that weren’t life threatening, and saying that this means that any problems resulting aren’t a problem for the rest of us. I’m afraid I don’t buy this. It seems to me that if people are in a position where they may face illness in the future, or considerably uncertainty now, then the NHS should intervene. However, this should be at the expense of the private sector, who have been content to take profits for the surgery, but now don’t seem to wish to engage with the longer-term obligations of providing healthcare.

Healthcare is not a service the same as cleaning, and does not provide products like DVD players. With cleaning, if I like the service I get from a cleaning company, I pay for it. I’m in a position to judge whether it’s been done to the level I want, and once I’ve paid, the transaction ends. With a DVD player I have consumer rights for the device to work for a reasonable period of time after purchase, and to expect customer service if it does not.

Implant surgery is a service in that someone is doing something for another person, but also a product in that something physical is being put into their body. The key thing is they are not equipped to judge fully the quality of the service (operations can go wrong for reasons which the surgeon was not to blame, or right despite the bungling of the surgeon), or to understand fully the consequences of the product (they have to take it on trust to a large extent that the implant was a good one). In addition, people are not in a position to write-off their loss (as they might do with a DVD player that they don’t like) as getting rid of an implant involves going through the surgery again – with all the problems of last time (not being able to really judge the quality of the surgery or the standard of the new implant).

The reason why it’s a bad idea for healthcare to be dominated by the profit motive is that there are perverse incentives for clinics to try and save money by providing the minimum in terms of surgical qualification, and to find the cheapest implants. PIP appear to have been supplying implants there were much cheaper than the rest of the market – and we now know why – but without adequate questions being asked.

Harley Medical have suggested it was the government’s responsibility to allow PIP implants to be used in the UK, so the government is morally responsible for them being removed. I don’t entirely agree. The people that bought surgery from them could not have been expected to understand the trade offs involved in accepting PIP implants, and, had the product been successful, Harley Medical would have been very happy to take the profits that would have resulted. They presumably have the expertise to judge the quality of the implants they were using (I’m sure their surgeons had views on them), and took a decision to use the cheap PIP ones. Should the government have passed them for use in the UK? Maybe not. But on the best information the government had at the time of approving them, I expect they met the minimum requirements for sale (based, we now know on false information). However, the government didn’t make any profit from the sale of the implants, and the private providers did – so they are responsible.

All of this highlights that healthcare is not the same as buying a service such as cleaning, or a product like a DVD player. The consequences are far greater, and the incentives for providers should not be out of line with giving the best standard of care possible and trying to evade responsibilities afterwards.

The problem is, we are about to enter a period where the government wants to considerably expand private provision in the NHS. I fear this won’t be an isolated case. In the future public providers will be expected to pick up the problems caused by private sector cost-saving or failure again and again. Is this really a good deal for the public?

The politics of PIP breast implants and the NHS.

January 12, 2012

What a mess we seem to be in. We have 40,000 women with breast implants where the likelihood is that the rupture rate is greater than those women would have expected, and where the consequences of rupture or leakage are hard to know because the silicon inside them is non-clinical grade. The government is suggesting that the private sector have a moral responsibility to sort the problem out, and are offering NHS reconstructive patients both removal and replacement. As a backstop, they are saying they will remove implants for patients where private providers won’t do it. In any case, the government wants evidence before the NHS intervenes by women going to see their GPs, and where problems seem apparent, getting scans. The largest private provider, Harley Medical, are saying that they can’t afford to give patients even scans, never mind replacements.
The logic of public compassion would be for the NHS to offer all those women replacements. However, in itself, this doesn’t seem to be quite correct. If we take the cost of replacement surgery to be around £2,600 or so (according to the private sector anyway) that’s around £104M. That’s a lot of money, and we’d need to be sure that this is the best possible use of that money – including taking it away from funding other patients.
The logic of private consumerism suggests that what the women ought to do is form a class-action lawsuit against their providers and demand replacements. Consumer law appears to cover this – the implants were not fit for purpose. Harley Medical are saying that it is the government’s fault for allowing the implants to be sold in the UK, and so the government is morally responsible. Any lawsuit is likely to be long and drawn-out, and the women with the PIP implants are understandably anxious about their situation, both psychologically and physically, now.
I could go off on a rant at this point about how all of this is indicative of what’s likely to happen if the NHS Bill is passed and private provision is expanded further – the horror stories of private surgery going wrong and ambulances being called to take patients to NHS hospitals have been with us for years. However, I’ll try and stick to my topic.
How about a compromise answer here? I would suggest that the NHS ought to replace the implants, but that the government ought to sue the private providers for the cost of the operations. If the private providers go bust, so be it. I suspect some legal shenanigans will result where private companies try and either declare their cosmetic arms bankrupt or file for bankruptcy to reappear after a few days, but suggest that the government make clear it will withdraw licenses to practice if this happens. What we can’t have is a situation where the profits from practicing private medicine accrue to private owners, but the costs of cleaning up the mess fall to the public sector. Haven’t we had enough of that with the banks?