On why we really do want a market inside the NHS
I know that this brings fits of the vapours to the more maiden auntish of the British left but there really is a very good reason why we want to have a more market orientated health care system in the UK:
The NHS was criticised as having among the slowest processes in the world in dealing with new drugs and clinical trials, scientists and experts said at a conference in London organised by Novartis, the Swiss pharmaceutical giant. A source at the meeting of more than 100 clinicians and scientists said a key conclusion was that “NHS environment needs to embrace new medicines more rapidly, not as at present more slowly, than other countries.” In addition NHS “trusts and clinicians need to be supported to be able to carry out research, for example by freeing up senior consultant time to do research or by incentivising investigators to do research.”
The other way of describing this is that the NHS is slow at innovation: the process of actually using nerw inventions to do things rather than that creation of new inventions in the first place. And there's good economic research on this very point too.
William Baumol has been pointing out for years that either planned or market based systems can do that invention. But planned, centralised, systems are very bad indeed at getting that innovation going. People actually using those inventions to do new things, or old things better, faster or cheaper. Market based systems do that innovation vastly better.
Thus, given that we'd rather like new treatments, new drugs, new and better ways of doing things, to percolate though the NHS thus we'd like there to be a market structure there.
Note that this doesn't, necessarily, mean that the government has to stop financing it. But it does mean that we want to have competing suppliers: of any ownership structure you like. Co-ops, charitable, for profit, mutuals, that part of it really doesn't matter for this point. But we do want people competing in a marketplace, even if it is competition for tax funding. For that's what drives innovation, the existence of the market. And given that the NHS seems to be worse at this than everyone else, as well as being just about the only health service with no market at all in it, that all seems to tie up logically doesn't it? Introduce markets in order to make the NHS of tomorrow better than the one of today.
70 years on, it's time to dismantle the welfare state
This week sees the 70th anniversary of the Report of the Inter-Departmental Committee on Social Insurance and Allied Services, commonly known as the Beveridge Report, which is often credited as the underpinning of the welfare state in the UK (and several other countries which emulated the UK approach). To some extent this is an exaggeration as several aspects of the welfare state existed before 1942, especially in the area of education. Thus Beveridge represents a major expansion of an already existing shift away from private and philanthropic welfare and towards state provision.
It is salutary to note the timing - in 1942 Britain was in the midst of the greatest expansion of state activity it has ever witnessed. Government reached into and controlled nearly every aspect of socio-economic activity, allocating and planning resources, prices and labour to a minute degree. This philosophy, which proved highly successful for fighting a total war, was retained in peace time and employed as a mechanism for providing goods and services which had hitherto been privately provided. Many industries were nationalised and those areas of the economy which were left 'private' were heavily controlled. It was this state of affairs which promoted Hayek to publish The Road to Serfdom in 1943.
Without tracing the history of the past 70 years, it is clear that whilst some aspects of the World War II legacy have been rolled back - for instance the denationalisation of many industries during the 1980s - much of the philosophy of the Beveridge Report remains essentially intact. Whilst the nature of the welfare state has evolved, the mechanisms for provision are broadly identical to those introduced in 1945. For instance, the NHS remains a 'free-at-the-point-of-delivery' system in contrast to the Netherlands which dropped this approach and switched to a 'Bismarckian' one (nonetheless retaining the third-party payer problems inherent in all major health systems including the US one).
Readers of this website will hopefully already be convinced that the Beveridge inspired welfare state has been an unmitigated disaster for the provision of welfare in the UK, so I won't rehearse the arguments and the evidence. For those wanting a good introduction, James Bartholomew's classic The Welfare State We're In is a sensible place to start. Suffice to say, and despite the pernicious prejudice of many statists, Classical Liberals like myself care deeply for the plight of the poor, sick and needy. However, instead of clinging to failed and bankrupt systems which do far more harm than good to both recipients of welfare and society as a whole and especially to those at the bottom of society, we seek a different approach. Of course, those opposed to the status quo adopt a variety of positions: from those who argue for different modes of provision (school vouchers for instance); to those who desire a much smaller welfare state which only offers aid to the very poorest in society; to those who wish to do away with state welfare altogether
On the one hand, it is quite clear that opponents of the welfare state have - for the most part - utterly failed to convince the majority of the case for radical reform and retrenchment. Some tentative steps have been made in the field of school and higher education reform but healthcare, pensions and social protection remain largely untouched and any genuine and far-reaching attempts to do so would be political suicide. The forces of vested interests so clearly described in Public Choice Theory indicate why this is so - nonetheless the only means to overcome the barrier of vested interests is via the dissemination of ideas and ideological support so we must continue this effort. Moreover, recent years have seen the resurgence of the regulatory and license state - an activity which grew popular with the denationalisations of the 1980s and has been compounded with the recent Banking Crisis into a widespread belief that markets cannot function properly without state intervention. Many of these interventions are logically underpinned by the existence of state welfare provision; e.g. alcoholism is creating a burden on the NHS so should be prevented. Strike at the welfare state and we strike at the root of this approach as well.
On the other hand, we must continue to propose sensible mechanisms for moving from the status quo and towards private provision. As I have argued before, this is probably best done piecemeal. Given that opposition to the welfare state spans a spectrum of opinion, it is also sensible to move from reform of provision towards much greater privatisation and then ask the question of whether we need any state provision of welfare at all. One major area to target would be universality. This was one of the key principles of Beveridge and is one of the most unnecessary and expensive aspects of welfare provision - witness pensioners donating their winter fuel payments to charity. Universality was also introduced in order to engender support for the welfare state amongst the better off, remove it and that plank may also disappear.
Reformers must be careful, however. I would argue that the creation of so-called 'internal markets' and use of private providers in such areas as PPI and the NHS may actually be harmful to the cause of privatisation. Government is a poor customer and its size means it prefers to deal with large, equally bureaucratic companies such as Capita and Serco rather than SMEs - this assists large companies in dominating market sectors and leads to monopolistic outcomes. Bad privatisations such as the railways lead to the discrediting of privatisation in general. Failures discredit attempts to privatise properly as the many PPI scandals and the G4S scandal show. Pseudo-markets are likely to lead to exploitation of consumers by entrenched market-occupants protected by state regulation and intervention - witness the energy market or banking.
Even if everyone suddenly saw sense and decided to tear down the features of the welfare state, it would still take many years of consistent reform to return to private provision in order to build up the necessary markets and charitable endowments which the original government interventions so comprehensively destroyed. There would also have to be sweeping reforms in other areas: radical reform of planning laws to allow housing to become more affordable, large scale tax cuts and endowments funded by sell-offs of state property and - perhaps most critically - a return to sound money to allow people to save sufficiently for their futures instead of being impoverished by government inflationism. The welfare state has taken 70 years to build into its present appalling and oppressive form and it may well take 70 years or more to repair the damage, even if that were the general consensus. Still, there is no time like the present...
Six reasons to reject minimum alcohol pricing
The government will announce today the launch of its public consultation into minimum pricing. These consultations tend to be something of a charade—the Home Office has already said “We will introduce a minimum unit price for alcohol”—but in case you should wish to respond, here is a non-exhaustive list of reasons why minimum pricing is a terrible idea.
It is regressive
All indirect taxation is regressive, but minimum pricing is carefully calibrated to be as regressive as possible by targeting drinks that are disproportionately consumed by people on low incomes. Doctors on six figure salaries can rest assured that the champagne at the British Medical Association Christmas dinner will not be affected and the House of Commons bar will continue to be subsidised. Cheers!
Evidence is non-existent
As we reported on Monday, the excitable predictions about how many lives will be ‘saved’ by minimum pricing are based on a single computer model which uses dubious methods and false assumptions to come to a preordained conclusion. The truth is that nobody has any idea whether the policy will reduce alcohol-related harm. The only certainty is the majority of ordinary people will be out of pocket.
It’s just the start
Even minimum pricing’s most optimistic proponents admit that ratcheting up the price of drink is not a ‘silver bullet’. What they mean is that minimum pricing will merely be the start of a sustained temperance campaign in the mould of the anti-smoking crusade. If the medical lobby is allowed to get its hands on one of the key levers of competition (price), we can expect endless demands for the minimum unit price to move upwards. David Cameron has proposed a 40p unit price but the British Medical Association are already demanding 50p. Others want it to be 60p. Whether alcohol consumption goes up or down, you can be sure that the ‘next logical step’ will be to have a minimum price escalator. Think of the children!
And why not? The same dodgy evidence can always be used to justify higher prices. The Sheffield computer model predicts that a 40p unit price will reduce the number of alcohol-related deaths by 10 per cent. At 70p, it claims the number of alcohol-related deaths will fall by more than 60 per cent! The model doesn’t go beyond 70p, alas, but presumably once it gets to 90p all alcohol harm is abolished and at 95p the dead begin to rise from the grave. What are we waiting for?
The moral panic is bogus
Since 2004, Britain has seen the sharpest and most sustained decline in alcohol consumption since the Second World War. The statistics are striking—less than half of 16-24 year olds have had even one drink each week; the proportion of young men who ‘binge-drink’ has fallen by more than 50 per cent; overall alcohol consumption is only slightly higher than it was in 1980. These facts are rather inconvenient for nanny-staters and so they have ignored them and pressed on with a narrative of ‘booze Britain’ that makes for better headlines. Trebles all round!
It is illegal
It’s rare to find the words ‘good news’ and ‘European Union’ in the same sentence, but the good news is that minimum pricing is illegal under European Union law. Previous attempts to limit the free market in this way have been rejected by the European Courts, such as in this judgement from 1978. Referring specifically to proposals to introduce minimum pricing in the UK, the European Commission has said that they “have a problem with the compatibility of the minimum pricing plans under Community law” and that it “causes problems with the compatibility with the EU Treaty”. Several wine-growing countries have already complained that minimum pricing is anti-competitive and, although David Cameron has vowed to fight the European Commission for his right to pick our pockets, if the EU does not stand for free trade between member states it stands for nothing at all.
It won’t help pubs
Winston Churchill said that "an appeaser is one who feeds the crocodile hoping it will eat him last." A few of the pub chains have formed an unlikely, unseemly and unholy alliance with the forces of temperance in the hope that higher off trade prices will drag in some of the punters that the smoking ban drove out. This is a desperate gambit. Minimum pricing will not make beer any cheaper in pubs. It will merely make everybody a little bit poorer so they have less money to spend in pubs. On this occasion, Wetherspoons’ boss Tim Martin has called it right, saying that minimum pricing is “utter bollocks, basically.”
The minimal evidence for minimum pricing
In a new Adam Smith Institute report released today, statistician John C. Duffy and ASI fellow Christopher Snowdon assess the Sheffield Alcohol Policy Model, the basis for minimum alcohol pricing policy. Their findings are summarized here:
1. The Conservative Party and the Scottish National Party have both stated their intention of introducing a minimum floor price for alcohol, levied at around 50p per unit. Advocates of minimum pricing claim that the policy will significantly reduce alcohol consumption and the problems associated with hazardous drinking.
2. Estimates of how minimum pricing will affect health outcomes have overwhelmingly come from a single computer model—the Sheffield Alcohol Policy Model. This paper argues that the model is based on unreasonable assumptions which render its figures meaningless.
3. Amongst the problems with the Sheffield model is its false assumption that heavy drinkers are more likely to reduce their consumption of alcohol as a result of a price rise. Its calculations are based on controversial beliefs about the relationship between per capita alcohol consumption and rates of alcoholrelated harm. Its assumptions about the relationship between price and consumption have frequently been refuted by real world evidence.
4. The Sheffield model provides figures without estimates of error and ignores statistical error in the alcohol-harm relationship. Data is drawn from different populations and applied to England and Scotland as if patterns of consumption and harm are the same in all countries. When data is not available, the model resorts to what is essentially numerology. Insufficient data is provided for the model to be recreated and tested by third parties.
5. The model ignores the likely effects of minimum pricing on the illicit alcohol trade, it disregards the health benefits of moderate drinking and fails to take account of the secondary poverty created by regressive price rises. The decline in alcohol consumption seen in Britain in recent years has not led to the outcomes predicted by the model.
6. We conclude that predictions based on the Sheffield Alcohol Policy Model are entirely speculative and do not deserve the exalted status they have been afforded in the policy debate.
Denmark admits its fat tax failure
The world’s first fat tax will soon also be the first to be abolished. Denmark has taxed saturated fats since October 2011, and the experiment has been a failure. Danes are worried that the tax has increased food bills (which was the point of the tax) and that it could be threatening the food industry. One poll found that 70% of Danes felt the tax was ‘bad’ or ‘very bad’ and 80% said it had not changed what they ate.
At the same time, fat prohibitionists tell us that what Denmark really needed was a much higher tax to have the desired effect. Multiple studies find that a tax as high as 10% (much higher than the Danish tax) would reduce population bodyweight by less than 1%. Most of us tend not to change what we eat based on a change in price — foods like butter and bacon are relatively price inelastic. To get people to change their behaviour you have to set punitively high rates.
It is a good idea to question why the health-obsessives are going after saturated fats to begin with. Many believe that a good diet includes saturated fats, as they have been linked to increased testosterone, boost the effects of omega-3 fatty acids, and improved immune system function.
Simple economics tell us that when you tax something, like saturated fats, enough to cause a change in behaviour then their consumption will fall in favour of a substitute. In most cases, that substitute will be carbohydrates. The nutritional science is far from settled on whether carbohydrates are worse for us than other macronutrients (protein and fat). Politicians are unlikely to know better. The tax on fat could be making the 20% of Danes that changed their diets less healthy. That the impact of the tax is largely unknown is a good enough reason not to mess with the food on our plates.
Of course, there is a more fundamental liberal point. Why should we be coerced to be healthy? If someone decides that they prefer Danish bacon once a week to the last (probably quite uncomfortable) five years of their life, that certainly isn’t a ‘wrong’ choice. It is hard to coerce ‘healthy’ behaviour, and government should not try to. Sadly, politicians know that they can appear to attack the scapegoat of the unhealthy citizen, while taking more money from our pockets.
Ten reasons to be cheerful, part 8: Health
Some people suggest that people will be less healthy in the future because they lead unhealthy lifestyles and eat the wrong foods. I rather think people will be healthier in future, and I think so because of developments taking place that should bring it about.
8. Health
Vast amounts of government money is spent on making us feel miserable about our health. Advertisements bombard us with messages that treat salt as a kind of poison, and sugar as almost as bad. We are warned off fatty foods like butter and cream, and urged to cut alcohol consumption. Shrill tones blare the dangers of obesity. The message is to treat food as medicine.
All of this probably has the effect of making life more stressful by having people worry about what they are eating and drinking, and stress is undoubtedly a factor in many illnesses. Despite all of these daily dangers we are told about, life expectancy is rising, and healthy life expectancy along with it.
People are healthier than they were. Children are not disfigured by smallpox or polio, and tuberculosis can be treated. Most of the illnesses which were regarded as acts of nature are now avoided by efficient sanitation and hygiene. Typhoid no longer threatens us, and such outbreaks as there are of virulent diseases are quickly contained and brought under control.
It is true that we have faced new ailments such as BSE and HIV, but we have mobilized resources rapidly and developed preventive measures or treatments. I have no doubt that the remaining big killer, malaria, will be conquered and will be made as extinct as smallpox.
Fewer of our children die in infancy, and fewer mothers die in childbirth. The same progress that enabled us to deal with life-threatening conditions is still being made. Indeed, it is accelerating. The decoding of the human genome will being in its wake a new series of tailor-made treatments aimed at specific genetic conditions, and the ability to manipulate stem cells will enable replacement organs to be made and substituted for defective ones.
Along with all of this comes a greater awareness among the population of what it takes to stay healthy. People know the health risks of smoking cigarettes, and alter their behaviour in the light of knowledge. They are beginning to learn the value of exercise.
The future will see more diseases conquered and life expectancy prolonged. People will be healthier for longer, and we can only hope that they worry less about it.
High alcohol taxes are self-defeating
Not too long ago I wrote about the HMRC's 'most wanted' tax evaders list. As I pointed out, most of the criminals concerned were being given an opportunity to exploit high rates of duty and VAT on alcohol and cigarettes by smuggling. Similarly, this very revealing programme by BBC's File on 4 traces some of the types of and scales of frauds carried out in the alcohol trade. Unfortunately, the programme focuses on the types of frauds conducted and ignores some rather more important issues.
Duty on alcohol was substantially increased by March 2008 by the then-Chancellor Alistair Darling who introduced a four year tax escalator due to last until 2014, under which the duty rate on all alcoholic drinks was set to increase by two per cent above the rate of inflation. High taxes on alcohol must be seen as a regressive tax (of about 1.6% of disposable income) on lower income groups as it constitutes a greater percentage of their disposable income than the better off. HMRC reckon that £1.2 billion a year is being 'lost' to the Treasury due to these frauds, up from £400 million in 2001, which points to a significant and growing level of criminal activity. One of the interviewed police officers investigating these frauds, however, suggests that this may be a substantial under-estimate.
Aside from the loss of revenue to the UK Treasury, it would be interesting to know how much the enforcement activities demonstrated in the programme are also costing the police and HMRC, not to mention the costs which they impose on legitimate businesses. Surely this suggests that rates of taxation have exceeded their revenue maximising point (to say nothing of their growth maximising point, although this is clearly a contentious issue where alcohol is concerned) and it is quite possible that a cut in duty would be self-funding, not only from a tax but also an enforcement perspective. Quite simply, lower rates of duty mean lower profits for smugglers and therefore less smuggling.
Contrastingly, the conclusions of Richard Bacon MP given on the programme are - given that rates of duty are unlikely to be reduced - that enforcement should be stricter, which would surely only increase the costs to the taxpayer. Mr Bacon believes that reduction in duty is unlikely because of the UK's parlous fiscal circumstances, but one wonders if this is supportable in view of the Laffer curve effects outlined above. He also suggests that the high rates of duty exist because of the desire to discourage alcohol consumption. This is contrary to evidence that alcohol consumption in the UK is actually declining, except among certain groups who are probably extremely price inelastic anyway or who, one suspects, are actually buying the smuggled booze itself! It is also the case that differential rates of VAT on off-premises versus on-premises sales are helping to encourage people to drink at home rather than in pubs. Availability of cheaper smuggled alcohol may also be a factor in this trend which has so seriously damaged the UK pub sector and is reckoned to have cost about 5,000 jobs here.
However, the programme also makes the point (which it does not go on to explore in depth) that the availability of illicit alcohol is actually pressurising legitimate retailers to drive down the price at which they sell. How much this is a factor in retailers' efforts to sell alcohol at below-cost prices and the resultant emergence of minimum unit pricing policies, which simply represent additional profits for retailers and smugglers, is hard to say. What is clear is that with alcohol, as with so many areas of public policy, government spends a great deal of money and resources attempting to correct the impact of problems is has created itself. It is also clear that rates of tax on alcohol, and much else besides, must come down - even the EU is arguing for that!
Why we want to break up the NHS
The National Health Service is, or at least was, a near monopoly. Monopolies are a bad thing and therefore we want to break up the monopoly.
However, there's long been a school of thought that says that monopolies, while they might not be positively good things, aren't actually all that bad. It might be acceptable to have the teensie, tiny, costs of monopoly if there is some over-arching reason to do so. Like, for example, the much vaunted "fairness" of equally bad access to healthcare for all. This argument rests on the costs of monopoly being teensie. They ain't:
This paper reports on a new literature that takes a different approach to the costs of monopoly. It examines the costs of monopoly and tariffs within industries. In particular, it examines the histories of industries in which a monopoly is destroyed (or tariffs greatly reduced) and the industry transitions quickly from monopoly to competition. If there are costs of monopoly and high tariffs within industries, it should be possible to see those costs whittled away as the monopoly is destroyed. In contrast to the prevailing consensus, this new research has identified significant costs of monopoly. Monopoly (and high tariffs) is shown to significantly lower productivity within establishments. It also leads to missallocation within industries: Resources are transferred from high- to low-productivity establishments.
Thus we want to break up the monopoly. Indeed, we've seen evidence of rising productivity as a result of the limited competition already extant. Two data points: NHS England had limited competition between establishments while NHS Scotland and Wales did not. Productivity (ie, amount of treatment, number of treatments and quality of treatments for the same money) rose in NHS England in a way that they did not in Wales or Scotland. Secondly, we found that when limited competition (on quality not price grounds) was introduced in NHS England that those areas with more competition increased productivity (same measure, more and better treatment for same cost) more than those areas with less.
New theory tells us that monopoly is worse for productivity than we had thought. If this were so then relaxing the monopoly should result in an increase in productivity. We have so relaxed and we are seeing increases in productivity. Thus we desire to relax the monopoly.
None of this stops the tax financing of at least some health care of course. It is only an argument about the mechanism by which the actual service is delivered: not by a monopoly please.
Making society friendly again
Imagine a society in which welfare was provided not by the state, but by competing private organisations performing services such as insurance, savings, pensions, primary medical care and unemployment aid, and whose success and continuing function depended on how well they provide these services.
Welfare would be provided at a much more intimate level and would be results-orientated as consumers demanded better services with their wallets. Levels of social capital and community action would be higher, as current taxpayers would no longer feel as if they had already ‘played their part’ by paying taxes — which, in our state-centric system, are distributed ineffectively and often to rent-seekers. Participation in these societies could create a stronger feeling of ‘belonging’ among their members.
This kind of system was a reality before the birth of the welfare state, which began with Lloyd George’s provision of National Insurance in 1911 and set firmly on its path by William Beveridge’s social policy report in 1942. The ‘friendly societies’ that preceded the welfare state provided specialised welfare benefits that directed capital where its members’ values lay, in a pluralistic way that was starkly different to the monolithic approach of the modern state.
The competitive nature of these private welfare societies meant that they aimed to provide top quality service in a capital efficient way. This competitiveness also meant that there was a very large profit incentive to find cheats and strip them of their benefits, which in turn would mean more help could be diverted to the truly needy. In turn, unemployment was dealt with faster and more personally, aided by the inter-member sense of community. Further, members could choose where their money was going and join those societies that were most in line with their values.
Friendly societies still exist today, providing financial services and thriving on an ethos of mutuality, economy and community. However, they are held back from their vast potential by the nanny state that pervades our society under the guise of ‘wealth redistribution’, in reality providing an inferior service than could be achieved privately, increasing our reliance on the state and discouraging charity and community values. Many in the UK and elsewhere see state welfare provision as the backbone of our country and fervently expound its virtues, because they have never known anything else. But a look back into history shows that privately owned welfare societies worked in the past, and could work for us once again.
In praise of packaging
The proposal to require 'plain' packaging for tobacco products has now completed its consultations. The ASI submitted evidence against plain packaging, and we published Chris Snowdon's report on the subject.
The case for plain packaging is weak since it has not been tried anywhere. Proponents claim that glitzy packaging leads people to take up smoking, whereas the tobacco companies say it is about promoting their brands over others. Supporters cite tests in which subjects said they felt 'negative' about cigarettes in plain packs. I myself would feel pretty negative about having to look at other people's packs showing tumours and corpses.
Counterfeiting and smuggling would be easier with plain packaging, reducing tax revenues. Already one cigarette in nine is smuggled or fake. The civil liberties issue makes a strong case against plain packaging. Although proponents tell us that it will only apply to tobacco products, activists in Australia, which took the lead in plain packaging laws, are now campaigning for graphic warnings on alcohol and for what they deem to be 'junk' food to be sold in generic packaging.
Packaging can influence choice of brand by projecting an image that users want to identify with. The feelings that go with a product are part of the intangible value that it adds. Malt whisky in India is seen as an 'aspirational' product associated with success and ambition. Young Indians enjoy feeling part of that world, in addition to enjoying the whisky itself. Similarly tobacco companies like to project an image for their brands. Friends of mine who started Regius Cigars wanted to convey an image of top quality, and designed distinctive packaging in black and gold. Plain packaging would require them to forego the distinctive imagery that marks out their brand and gives it class.
I applaud the New World vintners for the innovative and bold wine labels they have adopted. They brighten up the table, and I doubt they make people drink more wine. I do think that putting disgusting pictures on them would make people 'negative' toward them, however.
It would be a duller world if everything activists thought bad for us had to be sold in plain packaging. It would be less informative, and would deny us the intangible pleasures of associating with images and lifestyles we aspire to be part of. It would be a drabber world and one considerably less free.