The balance of payments is a tricky thing
Larry Elliott takes us through the balance of payments and why the UK is dependent upon oligarch money. Sadly, it’s not quite and wholly correct.
There was a time – many decades ago – when trade deficits were a big deal. Politicians used to fret about them. They were front-page news. Famously, a bad set of trade figures was supposed to have cost Labour the 1970 general election (although they probably didn’t). But since the early 1980s, Britain’s trade deficit has got bigger and we have worried about it less.
There’s a fairly obvious reason for us worrying less these days - we have a floating exchange rate. Back then we had a fixed exchange rate - well, until events proved too much and it had to be changed, as it was several times. The advantage of these markets things being that if the deficit does become impossible to finance then the exchange rate - without planning or government action - simply does change so that the balance of payments does balance.
In a fixed FX system you have to worry about the trade deficit because having the FX rate fixed means you’ve just lost your automatic stabiliser.
But there’s a deeper problem with the analysis:
The point about the balance of payments is that it has to balance. Countries such as the UK that run permanent trade deficits have to sell assets to foreign buyers to raise the cash to balance the books. Over time, Britain has run a cumulative trade deficit in goods and services of £1.3tn. But in the pink book that outflow has been matched by financial surpluses – cash – of the same amount. Money we got selling British assets to foreign buyers.
Entirely correct.
The structure of our economy is simple. For decades Britons have consumed more than they have produced.
Tht’s not, or that’s not necessarily so. Because those assets that are sold on that capital account, to finance the deficit on the current account, they’re also things that are produced. If we build a house and sell it to a foreigner then that’s on the capital account. But it’s still making something and selling it to a foreigner, it’s an export in its way. Building a company which is sold to a foreigner - capital account again but it’s the selling of something made in Britain to said foreigner again.
Warren Buffett described the extreme outcome in his Squanderville essay. If you keep selling all the capital assets then the foreigners own the country. But this depends upon the rate at which those assets are sold as against the rate at which they are created.
For the American economy, to switch instances, that sale of capital assets is around the $500 billion a year mark in order to finance the trade deficit. But in recent years the US has been creating wealth (we’re using household wealth as our measure here, perhaps not exactly right but a good proxy) at $2 trillion a quarter. The US is progressively selling off that capital base to the foreigners and the foreigners are ending up owning an ever smaller fraction of the American capital base.
So, the UK has run up that cumulative £1.3 trillion in trade deficits. Or, a £1.3 trillion surplus on the capital account. How much has the stock of wealth in Britain risen over that same period? With household wealth at £15 trillion and counting currently we’d insist that the stock of wealth has grown more than the portion we’ve sold to foreigners.
The British economy produces capital assets and sells some of them to foreigners. Yes, this finances the trade deficit but that’s something of a phantasm of national accounting. Flogging things we’ve made to foreigners is still flogging things to foreigners whether we record it as a current or capital transaction.
Houses, companies, football clubs, they are things that are made - they’re manufactures. Selling them to foreigners is an export and don;t let the accounting fool you into believing otherwise.
Some ancient wisdom for modern society
The online magazine Vice is terribly excited by some archaeological news:
The Secret to This Ancient City’s Success Was Collectivism, Study Says
Well, there are collectivisms and collectivisms:
Archaeologists Linda Nicholas and Gary Feinman suggest that the secret of Monte Albán’s success and longevity was a collectivist governing approach and relatively low levels of social inequality, an argument that is supported by multiple lines of evidence from its ruins, according to a study published on Tuesday in Frontiers in Political Science. In this way, Monte Albán rose to power with a “bottom-up” political structure, in contrast to its more autocratic contemporaries, which makes it a useful case study, even for modern societies.
Well, OK, we’re listening:
“When we say this was a relatively collective governance, we're not saying this was utopian or entirely egalitarian, and everyone was equal in a commune,” he noted. “There were clearly people who were somewhat better off than others and there were clearly people who were office holders or leaders or coordinators even from the outset, because he could not you could not have that many people making a decision without some kind of leadership. But our view is that the power was not concentrated in one individual or even one family; it was more what we would call distributed power.”
OK
“We know, based on this dense settlement pattern, that these adjacent households were like a neighborhood where they were mutually interdependent,” Feinman said. “We also know from excavations of those households that they were economically interdependent, because different households tended to engage in different craft activities.”
“There must have been some economic interdependence that bound together the houses at Monte Albán, and even houses in the region around Monte Albán, because the city may have had a hard time feeding itself in very dry agricultural years, which are not that rare in the Valley of Oaxaca,” he continued. “Whether you look at the bottom up or the top down, the picture on governance suggests that it was relatively cooperative and collective.”
These days we call that the division and specialisation of labour and trade in the resultant higher production. It’s the pin factory all over again, with that basic human economic unit, the household, as the economic and market participant.
So, what is being said is that an economy based on mutual interdependence, that itself being the result of the division and specialisation of labour, the trade that follows it, leads to a flatter power structure and a more egalitarian society? As opposed to the more authoritarian type of society where an aristocracy or clerisy tells everyone what to do?
Hunh. Colour us surprised there.
The lesson for our modern society of course being obvious. Get rid of the clerisy telling us what sort of houses we may live in, where, the size of our gardens, how we may heat them, cook in them, and we’ll be freer, that’s obvious. But more of just this voluntary cooperation, rather than enforced, also produces a more egalitarian society with a flatter power structure? Free markets produce a free society?
Who would have thought it? Well, everyone except that clerisy that rules us perhaps although perhaps they do know and just don’t want to give up that power, eh? After all, what’s the point of being High Priest of a religion that no one cares about any more?
The only thing wrong with adult social care is government
The government published two contrasting adult social care papers on 22nd February 2022, responding to the House of Lords and Lady Cavendish’s report. The government’s response, though it does include some benefits, fails to address the core problems. The government’s muddle has five main components:
There is no central adult social care HQ equivalent to the NHS, i.e. there is inadequate central direction and they do not even provide the funding.
Total funding is inadequate and central government tries to micromanage with dribs and drabs instead of letting the 151 local authorities who actually manage adult social care do what is most needed. The primary target for funding should be the professional carers. Underpayment, lack of empowerment and too little professional recognition are causing a shortage of carers, likely to reach 35 percent by 2025. The second priority should be making care affordable for those self-funding. The least important is yet more spending on bureaucracy. Central government’s priorities are the reverse.
The Department of Health and Social Care (DHSC) is unbalanced. Apart from health overall and the Care Quality Commission (CQC), it is almost entirely concerned with the NHS and only minimally with adult social care. Yet the numbers employed in the NHS and adult social care are about the same (1.5M) and the need for improvement is probably greater for the latter.
The CQC causes data duplication, waste and fails to learn from the private sector. It needs reform.
The White Paper’s “10 year vision” is idealistic but also unrealistic, bureaucratic and the numbers fall far short of the rhetoric.
The DHSC only got around to responding to the Lords’ report two and a half years after publication. The fifth is probably the most important of its 25 recommendations: “around £8 billion a year in additional funding will be required for adult social care. More will be required in subsequent years as the population of older and working-age people with care needs continues to grow. Roughly half of all public funding for social care is spent on the working-age population.”
The DHSC response was a bit devious:
“...the Social Care Grant, worth £1.7billion in 2021-22 for adults and children’s social care.” Is this extra or just the usual?
“...an increased Better Care Fund of £6.9bn in 2021-22”. The Better Care Fund publishes no annual report showing objectives or achievements; it appears to be a fund for closer working of NHS and local authority bureaucracies with no benefits for front-line carers or those who should be cared for. It is bureaucracy.
Covid subsidies. Necessary but transient.
“...new investment totalling £5.4 billion between 2022-23 and 2024-25 to reform and transform the adult social care system.” In other words, £1.8bn per annum on “investment”. If that means recruiting more carers and rewarding them better, why not say so?
“Beyond 2024-25, an increasing share of the Health and Social Care Levy will be spent on social care in England.” Unspecific.
In other words, the commitment is just a share (half?) of £1.7bn, not the £8bn which the Lords reckoned was needed for carers and the cared for. This inadequate response is consistent with the disappointing December 2021 White Paper: “People at the Heart of Care: Adult Social Care Reform.” The new money was in seven categories: improving social care housing (£300M), IT (£500M), £25M (sweeteners for unpaid carers who certainly deserve whatever they can be given), £30M (local innovation), £70M (local authority admin) and £5M (new website). Social care in England is bedeviled by central micromanagement and the paperwork needed to get any of the funding.
Secondly, the White Paper funding only totals £1.43bn, even lower than the response to the Lords. Then a revised White Paper was published two months later, i.e. 24th February. The DHSC press office was unable to explain what the differences between the two White Papers were. Even the publication date at the beginning remained December 2021 and the url was the same - a bit sneaky that! “Ah ha!” I surmised, they must have corrected the discrepancies noted above. But no, they worsened them: the total funding had further declined to £1.05bn, due to IT dropping to £150M and the £30M local innovation being removed.
The Better Care Fund (£6.9bn more) does not finance carers or the cared for but a bureaucracy issuing instructions and demanding reports. Of course, the NHS and social care should work better together but that should be at the front-line professional level without interminable committees. The best thing the NHS can do is to stick to its last, namely treatment and cure, and leave patient feedback and regulation to the CQC. Front-line professionals can and should liaise directly. The NHS would like to increase its remit to include adult social care but Lady Cavendish rightly endorses the need to keep the NHS and social care (p.6) separate. The tricky issue, to which I will return, is who pays for intermediate care: the NHS or the local authority (social care).
She is quite critical of the CQC, or perhaps of the role of the CQC. For example, it provides no guidance on the training of carers, nor the quality thereof, because “there is no national rating of [training] providers or quality assurance mechanism” (6.4.2). The CQC should be looking at health and care quality as a whole, not nit-picking.
“The [CQC’s] failure to understand business has another consequence: a surprising lack of interest in self-funders who do not rely on government help. About 45% of care home residents pay all their own costs. Overall, around a third of social care is paid for by consumers entirely from their own savings. Yet government has almost no data about this group, and there are few attempts to learn from what choices these consumers make. The CEO of one award winning domiciliary care provider with numerous outstanding ratings from Care Quality Commission told me that he has never received a call from CQC seeking to learn from how his organisation has achieved this performance.” (This paragraph was removed from the second version of Lady Cavendish’s report, published a few days later)
In summary, Lady Cavendish sets out admirable proposals for adult social care (p.12) mostly recognising and paying carers as true professionals and giving them the freedom to do what needs to be done, i.e. empowerment.
Government departments justify themselves by saying they will be “working with” a huge range of other bureaucracies, rather than providing the resources for front-line professionals or taxpayers. For example, the introduction to the White Paper concludes (p.8): “We will also engage with a diverse range of organisations and people, including those who draw on care and support or provide unpaid care, to consider how we can measure success of our 10-year vision.”
Although DHSC is responsible for adult social care, the funding, mostly if not entirely, transits the Department for Levelling up, Housing and Communities. The DHSC’s Michelle Dyson is director general of adult social care but her statistics seem to be just about Covid. It is hard to see how she, and her small team, can be actively managing adult social care nationwide, given the width of the “vision” portrayed in the White Paper.
We are left with the difficult problem of who pays what proportion of the costs of those needing intermediate care, i.e. local authority and medical: the NHS, local authority or the cared-for. Lady Cavendish (pp.9 on) reviews various systems without coming to any simple conclusion. The current system of having NHS and local authority committees haggling for hours over each case is definitely a bad idea. So is the NHS bribing local authorities to get patients into cheaper home-care or care homes.
According to the King’s Fund, the White Paper proposals “add up to something well short of a full picnic”. It aims to be utopian but is unrealistic, bureaucratic and the numbers fall far short of the rhetoric. It can only perpetuate the mess that government has made of adult social care. Responsibilities need to be streamlined and such resources as can be assembled should be directed first towards better training, rewards and recognition for carers, secondly toward helping those who can, fully or partially, self-fund do so in ways that satisfy the cared-for. This includes home and technological improvements. Only then should resources be made available for essential management and bureaucracy. This would reverse what appears to be the government’s current priorities.
Prices don't lie, they inform
Apparently childcare is expensive:
According to data from the Organisation for Economic Co-operation and Development, the UK has the third most expensive childcare system in the world, behind only Slovakia and Switzerland; a full-time place costs £12,376 a year on average.
That cost doesn’t change simply because different people are asked to pay it. Whether it is parents handing over the money or taxpayers coughing up, it’s still that price. Because moving costs doesn’t change costs.
It’s also true that child care for two children costs around and about the median wage of £25k a year or so. Meaning that half - that’s what median means - of those putting two children into child care to go to work are costing society (again, whoever is actually paying that bill) not adding to the general wealth.
Do note that this is not the end of the story. Of course we can discuss further items - child care requirements are a stage in life, not a permanent feature for decades of it. Perhaps career interruption should be minimised, there are many factors here and the pure and simple cost of child care isn’t the end of it by any means.
But that cost of child care is still information that must inform our decisions. Simply because it is that factual information that prices are telling us. In terms of pure and simple economic value add child care, for many people, makes society poorer.
What matters is what we do with the information that prices tell us. As we say, shifting those costs over to taxpayers doesn’t change the costs nor the information. We ourselves would probably run with the idea that the first thing to do is to reduce - no, not shift, reduce - those costs by deregulating the sector. Then, and only then, start discussing the rest of it.
The NHS: How to make our ‘National Hero’ a National Hero
The NHS paradox: our healthcare system is the envy of the world and our healthcare system is failing. These phrases inherently contradict one another, so why is the UK so adamant they can be true at the same time?
Now that we view the NHS as our hero it is almost impossible to implement the real reform which is necessary for it to actually be the envy of the world.
The IPPR released a paper last week about how the NHS’ failings are driving more people to private options which creates a ‘two tiered healthcare system’. While I accept the premise: that the NHS is performing inadequately; I reject their solution: to pump more taxpayers’ money into the NHS.
The flaws in our healthcare system are too vast a wound to be patched up by cash. We already spend £3,400 per person annually on our NHS. The NHS budget has increased by an average of 1.4% (inflation adjusted) between 2009 and 2019. What reason have we to believe that the IPPR’s suggestion of taking nearly £50bn from taxpayer pockets over the next three years will solve the problem?
Success in healthcare does not always correlate to the amount of funding. Many countries around the world have higher survival rates and lower waiting times while spending less of their GDP on healthcare. Your chance of surviving stomach cancer is over 200% higher in South Korea than in the UK despite healthcare costing them 8% rather than 10% of GDP. The average waiting time for cataract surgery is nearly 3 times as high in the UK than it is in Italy, a country that spends 1.5% less of GDP on healthcare. Singapore is widely recognised as having an incredibly effective healthcare system, while devoting only 4.08% of GDP to it. If countries with less funding can repeatedly outperform the UK, then the argument that the solution is to pump more money into our failing system and cross our fingers falls flat.
Improving our healthcare is only becoming more important with an ageing population, increasing prevalence of mental illness and the vast backlog caused by COVID-19. This is causing the previous structural cracks to form visible structural problems.
Although exacerbated during COVID, with median waiting times for treatment over 19 weeks in July 2020, failures in this area were evident beforehand, as average GP waiting times were already over 2 weeks in 2019. The result is clear: those who can afford it go private and those who can't are left with lower quality healthcare services.
The way to prevent the ‘two-tiered’ system that the IPPR refers to is to allow everyone access to a higher quality of healthcare. A poorly structured state-run behemoth competing with private healthcare will never create this. The differing incentives between private and state-run bodies naturally create disparities in quality.
By changing the NHS funding model we can align the two more closely. Private facilities are paid per service, incentivising them to attract as many patients to receive the service as possible. The result of this is higher quality services. Whereas NHS surgeries are paid per patient meaning regardless of the standard of service the practice receives the same funding.
State healthcare and high quality healthcare should not be mutually exclusive. By structuring the NHS to treat patients as consumers rather than burdens, it can remain free at the point of delivery without sacrificing quality.
If we gave patients more freedom by allowing them to seek services from any surgery and funded practices per appointment their incentives would align with that of a private facility. GPs would compete for patients by reducing their waiting times and improving their customer care. This would unlock the benefits of markets without the price of private care.
Let's put patients, rather than bureaucracy at the heart of our NHS.
Happy birthday, Wealth of Nations!
Today — as you will note from The Times Court Circular, no less — is the anniversary of the 1776 publication of Adam Smith’s The Wealth of Nations. It is, as Leo Rosten wrote of it, a “clumsy sprawling, elephantine book”. It’s over-packed with facts, a tenth of it (70 pages!) is a “digression” on the price of silver, its range is vast and its pace is glacial.
And yet, it is one of humanity’s most towering achievements. Today’s anniversary marks the day when modern economics was born.
Remember that when Smith was writing, economic life was nothing like today. There were different weights, measures and even currencies in circulation in different parts of the country. Lending money at more than the approved rate was a criminal offence, even if borrowers were willing. Business was regarded as vulgar and driven by greed. Guilds of manufacturers limited entry to their professions and petitioned the monarch for monopolies and other privileges. Not wealth, but poverty, was regarded as the natural state of most of the nation. Countries subsidised their exports and put tariffs on imports in order to boost their accumulation of gold and silver.
It was into this world that Smith threw The Wealth of Nations. It’s a grand academic treatise, of course. But it was also a polemic. It debunked this trading mercantilism. It argued that regulations and taxes were very convenient instruments which business people could use — and, with the agreement of governments, did use — to keep out competition and keep prices high. But the best arrangement for the great bulk of the population, the working poor, said Smith, would be to sweep all that away and rely on the ”system of natural liberty”.
Just open The Wealth of Nations and stare at the first three paragraphs. He opens by saying that the wealth of a nation is — not the gold and silver in its coffers, but — the productive capacity of its people. Astonishing! In his first sentence, he’s identified GDP, the measure we still use to judge countries’ wealth today. A few lines later he points out that this measure depends of course on how many people there are. That’s it — he’s got the idea of GDP per capita. Then he points out that it also depends on how many people are working and how many are too young or too old to work and suchlike. So that’s the idea of productivity. And we’re not even off the first page yet.
Smith goes on to explain how both sides benefit from trade, not just sellers. That was pretty radical too. The sellers get cash, but the buyers get goods that they value more than the price. What makes a country rich is not the gold in its vaults, but its vibrant trade and commerce. Wealth came from liberating commerce, not restricting it.
The division of labour made free commerce even more productive. Specialist producers can be thousands of times more productive than amateurs. They can produce more than they need, selling their surpluses to buy capital equipment that makes them more productive still. They do this for their own ends, but their actions benefit everyone:
“Every individual... neither intends to promote the public interest, nor knows how much he is promoting it... he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention.”
This commerce automatically steers resources to where they are needed. Where things are scarce, consumers will pay more, so suppliers produce more. When there is a glut, prices fall and producers switch their effort into more profitable lines.
So there you have it. The book that changed our view of economic life in a fundamental and surprisingly modern way. Happy birthday, Wealth of Nations!
There are no solutions, only trade offs - yea, even about rape
The grand lesson of economics is that there are no solutions, there’s only a spectrum of available trade offs. Choices have to be made and it is not possible to do both things that are in conflict with each other. At the most trivial level if we have those plums for tea today we cannot have them again as prunes for pudding some time later.
This does, we’re afraid, matter:
Last year the court of appeal ruled against a group of women’s charities in a case that sought to link the declining number of prosecutions with changes to CPS guidance, which emphasised the importance of securing convictions. Low conviction rates have long been a source of concern to campaigners as well as to prosecutors. But the collapse in the number of reports leading to a trial is even more alarming, and likened by the victims’ commissioner, Dame Vera Baird, to the “decriminalisation of rape”. The number of prosecutions fell 60% in the four years to 2019/20 – a period during which the number of rapes reported almost doubled.
Whatever the courts and campaigners and the CPS say there, there is an inevitable conflict.
A high conviction rate means carefully choosing those cases which will lead to a conviction. A high prosecution rate means accepting marginal cases - or at least cases that are going to be hard to prove and therefore face a lower conviction possibility.
As long as we do maintain the idea that an allegation of rape must actually be proved there is no way out of this trade off. Prosecuting the marginal cases will lead to a fall in the conviction rate, raising the conviction rate will lead to a fall in the prosecution rate.
We agree, this still leaves wide open the question of what is the optimal trade off and we’re not silly enough to insist that the current one - whatever it is - is that correct one. We do though insist that this is the actual problem to be faced here. We face a series of possible trade offs. The choice is which one to we go with, not whether we can have a perfect world.
The DHSC is Structural Lunacy
The Department of Health and Social Care (DHSC) has three responsibilities: personal health treatment and care (the NHS), public health and adult social care. One of its 15 (or so) arm’s length bodies (ALBs or quangos) addresses public health. Local authorities also have responsibility for public health which works well but Covid exposed problems with the DHSC messing up, for example, “Test and Trace” activities which local authorities could have done better. None of the quangos, apart from some quality control via the Care Quality Commission (CQC), address adult social care. That is funded by the Department for Levelling Up, Housing and Communities. In other words, all bar one of the 15 DHSC quangos are focused on the NHS.
That may explain a lack of balance in the attention given by the DHSC. For example, the Health and Social Care Levy Act was packaged for PR purposes as being for both but in reality the extra £12bn, or what was left after HMRC have first helped themselves, will all go to the NHS and social care will get none of it. The Prime Minister’s claim that the money was “hypothecated” in this way is a similar nonsense as HM Treasury does not hypothecate taxes – they all go in the general spending pot. It sounded good though.
The NHS has a voracious appetite for the taxpayer’s hard earned money. “In 2018/19 prices, health expenditure in England increased from £30.2 billion in 1979/80 to £130.3 billion in 2018/19”, i.e. by 4.3 times in real terms. The King's Fund predicts it will grow by another £32.4bn in real terms in the further four years to 2022/3 and that is just in England. The simple truth is that NHS expenditure is out of control and the Prime Minister thinks he can win the next election by throwing ever more money at it.
The NHS is thought to be the fifth largest employer in the world and, with 1.2M staff in England, by far the largest in this country. Only about half are clinical staff, e.g. doctors or nurses. In fact, the CEO of NHS England has just 9,877 staff reporting to her (December 2021 data). That is because both the secondary (hospitals and consultants) and primary care (GPs and their surgeries) service providers are independent contractors, at least in theory. Secondary care is mostly provided by 223 trusts, mainly hospitals, each of which has layers of boards and management.
Almost all organisations have two types of structure reporting to the CEO: line and staff. The line executives are responsible for achieving the organisation’s goals and the staff functions, such as legal, IT, human resources, support the line. In the DHSC, however, there are 12 quangos that should be staff functions within NHS England or the CQC or merged or abolished: Health & Social Care Information Centre (IT department), Health Education England (training department), Health Research Authority (duplicates Medical Research Council), the Medicines & Healthcare Products Regulatory Agency and the National Institute for Health and Care Excellence should merge (essentially the buying department, checking efficacy, maximising value for money and rationing to meet budgetary concerns), the Human Tissue Authority and NHS Blood & Transplant should merge (spare parts department), Human Fertilisation & Embryology Authority (merge with CQC – why should the regulation of this set of treatments be treated differently?).
Monitor and the NHS Trust Development Authority became part of NHS Improvement in April 2016 but no one seems to have told its respective 82 and 1,583 employees (December 2021 data). NHS Improvement was merged with NHS England on 1st April 2019 and are supposedly one organisation, but each still has a separate board, chairman and non-executive directors.
NHS Litigation Authority is the legal department and should report to the CEO of NHS England. It is a clear guide to the standards and competence of primary and secondary care. NHS Business Services Authority is the “everything else” department which, apart from central buying (probably its key role) provides a wide variety of other functions, most of them probably unnecessary. They must be very busy as its 3,660 staff have not been able to produce an annual report since 2018/19 and the 3,502 DHSC staff have also been too busy to notice.
Frankly, the DHSC quangos are a shambles. The above listing is based on the December 2021 payroll but other lists they publish differ, e.g. the list updated to 10th February 2022, the same week as the payroll data used above. Is the Health & Social Care Information Centre (3,987 staff) the same as NHS Digital and NHSX? They certainly manage to mess up every major IT project they handle. Contracting the work out must be a better option. The payroll listing of quangos failed to mention that the NHS Counter Fraud Authority (NHSCFA - internal audit) has 166 employees. £54M was saved against a target of £50M, clearly a good result especially in the context of the complexity of the quango. Finding thieves and banging them up is not a complex business (I write as someone who became a Chartered Accountant 59 years ago) but the 130 page NHSCFA 2020/21 annual report certainly makes it look that way.
Rationalising the quangos and turning NHS England into a conventional organisational structure driven by medical professionals apart, there is one further key transformation needed. The NHS thinks it needs ever more money to do ever more things. Pursuing that strategy will make it unaffordable. It needs to focus on what only it can do and leave the rest to others who can do it better (and cheaper). Essentially the NHS hospitals should concentrate only on personal treatment and cure. It does not need to serve as a hospice where death is inevitable nor mess with public health which other parts of the DHSC and local authorities handle.
It needs to turn over responsibility for the middle sector, i.e. between primary and secondary (major hospital) care, to social care, supported as needed by the primary sector. For example, births, convalescence, minor operations and the things that cottage hospitals used to do and some still do. Given a choice between three days in our local cottage hospital and in the major acute hospital 25 miles away, most of us opt for the local unit. The point, of course, is that the cost per stay in a medically supported nursing home is far lower than that in an acute hospital. This is not just a matter of bed unblocking, though that would benefit too, but of tailoring the NHS to maximise value for money.
Anyway, the point of this post is that NHS England is too complex and needs to be streamlined. That conclusion may surprise no one but here are a few actions to take:
We do not need the 15 or so ALBs currently reporting to the DHSC. NHS England, a new body to monitor, improve and represent adult social care together with the Health Security Agency and CQC, i.e. four in total, would suffice and help the DHSC do a better job. That would remove over 150 of the current 213 ALB directors.
With the work all being done by the ALBs, the 3,502 DNSC civil servants could be reduced to about 30% of that number.
There would seem to be little to gain from further messing about with the primary sector. They have had enough of that recently.
The 223 trusts are another matter. Each of them has layers of boards and management. Obviously, these units need managers but they do not need all the modern bureaucracy associated with independent corporate bodies. The reality is that they are part of the NHS, not independent, and do not need all the paraphernalia the government now loads onto commercial companies and partnerships. A commercial company does need to be driven top down but health services should be provided by the clinical staff with managers helping them with what they need and can afford. In other words, the secondary needs to be driven bottom up with minimal management and bureaucracy.
Finally, the DHSC should develop the medically supported nursing home sector to relieve pressure and costs on hospitals which should focus on treatment and cure. This would materially improve the value for money of, and patient satisfaction with, the NHS.
Antonio Martino’s liberal legacy
We regret to report the death of Antonio Martino, former President of the Mont Pelerin Society, former Defence Minister (and briefly Foreign Minister) of Italy, and a good friend of the Institute.
He came from a political family: his father was Foreign Minister in the 1950s — and he would fill the same office many years later. But his first career was in academia. He studied in Chicago in the 1960s, where he met and became a friend of Milton Friedman. He went on to write a monograph on Friedman and a textbook based on Friedman’s monetarism.
Back in Italy, he became a public intellectual, writing simple, accessible and often funny op-eds in major newspapers. He introduced many ideas of Friedman’s, from school vouchers to flat taxes, into his native Italy. He spent his life promoting such proposals and strove to improve the presentation of such ideas in Italy. He created Italy’s first free market think tank, CREA, and wrote frequently for the newspapers. Though a member of the Italian Liberal Party, he said of it and others: “The parties we call liberal in Europe have two things in common. They’re not classical liberal at all. And they invariably lose elections.” In Italy’s case, the Liberals did well in 1963, when they were the only voice against the government’s takeover of the energy industry; but they moved back to consensus thinking and lost their edge.
In 1986, he ended up at a rally of Italians who were fed up with the excessive taxes in Turin. The leader of the Italian Socialist Party, Bettino Craxi, dismissed it by saying that “they’re all tax cheaters”. Martino replied: “it’s like I say all socialists are thieves”. He was ousted from the newspaper La Stampa for that.
Nevertheless, he had an arsenal of quotations and witticisms which helped him easily explain complex economic concepts to any audience. Indeed, he was a better populariser than a politician. Those who were energised by his economic arguments were disappointed by his record as Foreign Minister. He later became Minister of Defence under Berlusconi, and although it was not his natural calling, Italy benefited from his perfect mastery of English, his solid understanding of US politics and his sympathy for the aims of the Bush administration. In that role, he accelerated the transition towards a purely professional (non-conscripted) army — another cause he shared with Milton Friedman. But sadly, he was never put in charge of Italy’s Treasury, a role in which he might have done far more good.
But his honeymoon with Berlusconi was soon over. Berlusconi softened his liberal message and the party oligarchy regarded Martino’s liberalism useful in opposition but impractical in government. Martino did not leave behind his own faction in the Berlusconi party, but he had many admirers, and encouraged many others. One of his protégées, for example, is now one of Italy’s most successful TV anchors and another is an Undersecretary to Prime Minister Draghi.
In a recent interview, he commented that there are now more classical liberals in Italy now than ever — admittedly, the baseline was very low — but they are repelled by politics. One can see his point.
In the early 2000s the Liberty Fund published a collection of Martino’s essays, edited by Dwight Lee, under the title Promises, Performance, and Prospects. Essays on Political Economy, 1980–1998.
A longer version of this obituary can be found on EconLog here.
A little bit of advice - build first, then ban
Apparently we need a system of providing small sums in short term loans:
The Financial Conduct Authority is looking at ways of encouraging firms to lend to the most vulnerable borrowers after the implosion of the high-cost credit industry that the regulator helped to bring about.
Indeed, the regulator did bring it about, driven on by the shrieking about the high APRs on such loans. That APR isn’t a good way of measuring the cost of a small sum and short term loan didn’t hinder the shrieking of course.
As one of the Federal Reserve banks has pointed out, people do in fact want such loans even at those prices:
Except for the ten to twelve million people who use them every year, just about everybody hates payday loans. Their detractors include many law professors, consumer advocates, members of the clergy, journalists, policymakers, and even the President! But is all the enmity justified? We show that many elements of the payday lending critique—their “unconscionable” and “spiraling” fees and their “targeting” of minorities—don’t hold up under scrutiny and the weight of evidence.
Such payday loans - small sum and short term - are expensive when measured by APR because they’re expensive to provide. There was an attempt by Goodwill to provide them on a non-profit basis and their “interest rate” when so measured had to be 252% just to cover those costs.
As is also pointed out if you set the price of such loans below their cost of provision - as with anything else - then the loans disappear. At which point the regulator is scratching its collective head and wondering how to provide these expensive - because short term and small sum - loans that are desired.
At which point our advice for those who would change the world - build before you ban.
If a new and better credit system is desired then work out what it is and go and build it before you ban the old one. As your new system is going to be better - that is the point of the ban anyway, isn’t it? - then people will flock to it and the old one will die.
This also true of many other things. Build that better power generation system which is indeed cheaper and the fossil fuel one will die. If worker owned cooperatives work better than capitalism then they’ll outcompete, won’t they? As, in that particular case, they often do and sometimes don’t which is how we find out which is the best structure for which activity and part of the economy.
In fact, if you build first then there’s no need to ban, is there?