Comparing apples to apples: NHS still ranks below average

Most healthcare reporting is deeply biased. From blogs to papers to policy, most people have strong preferences for different kinds of healthcare systems that they believe to be ‘the best’, often based on what they view the role of the state to be. Obviously some beliefs are grounded in more facts and stats than others, but given how complicated healthcare systems are, it’s possible to come up with all different kinds of conclusions that appear, at least on the surface, like they’re grounded in fact. Compare, for example, The Commonwealth Fund 2014 report to the 2014 European Health Consumer Index: two studies that compare international healthcare systems. Both published within one year of each other, The Commonwealth Fund ranked the NHS the best healthcare system out of 11 countries, while the EHCI threw it down the list, ranking it 14th after all your obvious competitors, including The Netherlands, Switzerland, Germany, but also after your less obvious contenders, like Portugal.

Both reports appear to be thoroughly researched and have lots of numbers to back them up. So who do you believe? Well, if you favour single-payer health systems, you're probably going favour the Commonwealth Fund's report, which inherently favours centralised systems. (For example: out-of-pocket costs and insurer rejection of full cost reimbursement were considered a black mark against a healthcare system, regardless of access to treatment.) If you rank results higher than the principles around who delivers healthcare or who makes a profit, you're probably going to favour the EHCI's report, that gives more weight to things like waiting lists.

I personally give more credit to the EHCI report because my primary concern when it comes to healthcare systems is patient outcomes. That’s my bias.

Which is why the OECD’s healthcare efficiency reports are so important. The OECD’s stance is that “there is no “one-size-fits-all” approach to reforming health care systems. Policymakers should aim for coherence in policy settings by adopting best practices from the many different health care systems that exist in the OECD and tailor them to suit actual circumstances.” So while the OECD does make some comparisons of countries across the board, it also intentionally group countries together based on different kinds of healthcare systems in order to compare like with like.

Specifically, they break countries down into six groups to compare the efficiencies of similar healthcare institutions to each other, in an attempt to identify where the most improvement can be made within specific systems:

The UK falls into Group 6, which is characterised as:

Mostly public insurance. Health care is mainly provided by a heavily regulated public system, with strict gate-keeping, little decentralisation and a tight spending limit imposed via the budget process

Seven countries fall into this category: Hungary, Ireland, Italy, New Zealand, Norway, Poland, and the UK. The OECD uses nifty radar charts (click on links) to illustrate how each country compares to both the OECD average as well as Group 6’s average in different areas including efficiency and quality, amenable mortality, prices, resources, consumption, financing and policy. The final chart ranks each country’s to measure its comparative efficiency. The results:

High DEA Score: Norway, Italy Above Average: Poland Average: New Zealand Below Average: UK Low: Hungary, Ireland

The OECD’s analysis: “The quantity and quality of health care services (in the UK) remain lower than the OECD average while compensation levels are higher. Reinforcing competitive pressures on providers could help mitigate price pressures, e.g. by increasing user choice further and reforming compensation systems.”

On Tuesday I noted that the UK is one of the OECD countries that could do the most to improve its efficiency in public healthcare spending . But breaking that down even further, the UK doesn’t come close to topping the charts in its own group.

Perhaps the UK should be looking to make improvements to resemble Norway, which tops the ranks for public health services. Or maybe it should be looking towards other categories that focus on social insurance systems. Either way, it's time for the UK to start looking beyond the NHS.

Economic Nonsense: 14. Government can create jobs by spending

Government can certainly create the appearance of new jobs by spending.  The minister can be televised proudly cutting the tape to open a government-funded business employing 100 people.  The problem is that government has to take that money from the private sector in order to do so.  It can do so by taxation, inflation or borrowing, and the effect is to give the private sector less money to spend.  That, in turn, means lower demand for its goods and services, less economic activity and fewer transactions.  The net result is that jobs are lost in the private sector as a result. Part of the political problem is that the government-funded jobs can be seen, with ministers taking credit.  The private job losses take place quietly, without people realizing that they are the result of government activity.

There has been much discussion in academic circles as to whether the publicly-funded jobs gained are more or fewer than the private sector jobs lost, but there is a respectable literature to suggest that they are fewer, and that 100 jobs created with public money will result in more than 100 jobs disappearing or not happening in the private sector.

Another part of the problem is that government-funded jobs are created in accord with political rather than economic priorities.  The projects sanctioned are those that find favour with ministers, rather than those created to meet demand.  They can be done to court electoral popularity rather than to satisfy economic needs.  Jobs funded by public money often need public money to sustain them afterwards, and risk disappearing if public subsidy is withdrawn at some stage in the future.  Governments are notoriously bad at "picking winners" to support with public funds; it is not their own money they are putting at risk, so they are less likely to do cautious and full accounting.  Private investors tend to be more hard-headed since they stand to incur any losses that come about.

Economic Nonsense: 10. Government spends more efficiently than private individuals

This is not only untrue; it is laughably untrue.  Sometimes supporters of big government spending claim that government is more efficient because it doesn't need to make profits.  Sometimes they say it doesn't need to spend on advertising.  Sometimes they say it can borrow more cheaply than private businesses because it has taxpayer backing.  The facts show that even with profits, advertising and higher borrowing costs, the private sector is vastly more efficient.  The UK's nationalized industries were ailing giants that gobbled subsidies when they were state-owned.  When they were privatized they became profitable private companies that paid taxes instead of collecting subsidies. Private investors are more careful because it is their own money at risk.  The public sector corresponds to the fourth quarter of Milton Friedman's quadrant:  they spend other people's money on somebody else.  The private sector is competitive; it has to attract funds competitively.  It has to anticipate future demand to avoid investing unproductively.  Private projects seek ways to curb costs, to employ people efficiently, and to keep as close as they can to a timetable.

Public projects are notorious for cost overruns, for over-manning, and for being completed years behind schedule.  Private projects are undertaken in response to market signals; they are subject to commercial pressures.  The aim is to produce items that will meet future demand and generate profits.  Public projects, by contrast, are subject to political pressures.  They are often undertaken with a view to electoral popularity.  The projects chosen, their scope and their location are often undertaken to secure the backing of various interest groups and localities, in the hope that this will translate into electoral support.  None of this makes for efficient spending by governments.

Local government cuts needn't be the end of the world

Local governments are having their spending power cut by 1.8% in real terms next year. Local councils pay for things like social care, some education, public transport and roads, and some of the arts. So this cut is not so popular in some quarters.

I hate relying on ‘waste cutting’ as a way of making spending cuts, but local councils really do seem to waste a lot of money. Since 2010 they’ve made £10bn in efficiency savings, and a third of councils say they can make bigger savings. I’m sure at least some of the other two-thirds are just being shy. The Local Government Association estimates that local governments can continue making efficiency savings at between 1 and 2 percent per year. So that’s something.

The big spending items are social care and waste spending. Both of these can be reformed so that people who can afford to have to pay for themselves. Waste collection is often contracted out, and there is academic evidence that doing so results in significant cost reductions. (There’s an easy way for councils who do not already do this to save some cash.) But more significantly there’s no real reason that more of the actual payments for this should not be moved to private residents as well, at least those who can afford it. 

Social care is much trickier and, as the population gets older and lives for longer, paying for it is becoming a bigger and bigger problem. Those people who can afford to pay for their end-of-life care should do so, but there is the problem that this disincentivises saving. Nevertheless it is hard to see a case for people who live in social housing and earn low amounts of money paying for the end-of-life care of people who own the big houses that they live in. Reforming this wouldn’t solve problems in the short run, but it might help stave off a bigger funding problem in the medium run.

Normally everyone focuses in on arts funding. In my view, there is no role for government in arts funding at all. I won’t convince you of this here, but Pete Spence might. And there are all the weird little things that local governments spend their money on that could be cut to save even a tiny bit of money. Where I live, in Lambeth, half the adverts I see seem to be thinly-veiled political campaign posters (paid for by me and my neighbours).

And, funnily enough, there’s one way councils could raise quite a lot of money and solve another problem in the process. The country needs a lot more houses, and planning permission is the main thing standing in the way. In some parts of the country, a piece of agricultural land that gets planning permission rises in value by one hundred times. Councils should be allowed and encouraged to auction off development rights for new houses. That would raise money for them and help tackle the housing shortage.

The problem here is that housing demand is not equal across the country, and it’s the richer places like London and the south east that would benefit the most from this. So there’s probably a case for some minority fraction of the money raised being redistributed to poorer authorities. In general I like the principle of council funding redistribution from rich to poor parts of the country, but that does reduces the incentive for councils to improve the economic prospects of their own areas. Though perhaps they lack the powers to do this anyway.

We have a government deficit that most people want reduced, some very large areas of central government spending that most people want increased (pensions, healthcare), and a general consensus that economic growth is a good thing (so tax rises are out). Something’s gotta give and there is almost nothing that can be cut painlessly. But given some willingness to reform alongside cutting, local government cuts could be the right way to go.

Another exercise in rewriting economic history

It is just so fun watching people rearranging the historical deckchairs to make sure that their tribe looks good and that the tribe of their opponents can be portrayed as those nasty, 'orrible, people over there. And so it is with this latest from Ha Joon Chang:

First, let’s look at the origins of the deficit. Contrary to the Conservative portrayal of it as a spendthrift party, Labour kept the budget in balance averaged over its first six years in office between 1997 and 2002. Between 2003 and 2007 the deficit rose, but at 3.2% of GDP a year it was manageable.

Quite: in those first few years Blair and Brown held to the spending limits that had been suggested by the previous, outgoing, Tory government. On the basis that if anyone thought they were the spendthrift Labour party of old then they wouldn't get elected. So there was, in there, a period of a public sector surplus. It's only after the second election that they ripped up that idea of fiscal restraint and became that Labour party of old again. So "balance" over the six years is actually a couple of years of Tory policy then spend, spend, spend.

And a deficit of 3.2% a year might be manageable: except of course it wasn't, was it? But more importantly it is a grave violation of the precepts of Keynesian economics to be having a deficit of any sort at that point in the economic cycle. If we are to take Keynesian demand management seriously (we don't, but let us do so arguendo) then yes, there should be fiscal expansion in the slumps. But the counterpart to that is that in the boom there should be restraint: a surplus, not a deficit. This is not to pay off the previous debt, it's not to create the borrowing room to provide the firepower for that next slump. It's because demand management means that you temper the booms as well as the busts. Given that the middle part of the Brown/Blair Terror was in fact the tail end of the longest modern peacetime boom then the public accounts should have been healthily in surplus. In order to temper that boom.

Chang is doing an edit to history here, to show that his tribe is better than the other one. Given the circumstances of the time Labour really were sailor-type drunken loons going on a spree with the nation's chequebook and don't let anybody tell you different.