Thursday, 14 May 2009

If it ain't working, fix it

In the real world, if something doesn't work it is abandoned. It might have seemed a good idea at the time and its intended outcome might have been a great boon to mankind and to fluffy bunnies, but if it doesn't work it doesn't work so we say "nice try, bad luck" and we move on. Abandoning an unsuccessful experiment can be very expensive for those engaged in the project. History is littered with many thousands if not millions of "greatest inventions since sliced bread" that never got anywhere near the toaster let alone were buttered and consumed. Countless inventors and investors have lost every penny pursuing an idea which either failed to meet its potential or failed to find a market. Because that's what real life is like - someone has an idea, it seems like a good idea so it is tried. If it seems like a really good idea initial failure might justify further attempts. Always, sustained failure results in abandonment. The money required to continue the experiment can no longer be justified so the tap is turned off.

This illustrates one of the many fine qualities of money. Money allows us to measure success or failure of every commercial project. We can tell from a profit-and-loss account whether it has been a financial success to date, if it hasn't yet made a profit we can tell by the level of loss incurred whether it has a decent prospect of becoming profitable within a reasonable time. Money not only allows us to measure how successful a commercial enterprise is, it also provides a means by which we can assess whether a commercially unsuccessful venture should be continued (through private or public subsidy) because it provides a benefit that is perceived to be affordable. For example, a local council might operate a swimming pool and choose to spend up to £100,000 of taxpayers' money subsidising it each year; once running costs exceed entry fees by more than £100,000 questions will be asked about whether it should stay open. The mere fact that the swimming pool has been built and provides a benefit can never justify limitless spending on it. Some would say no such subsidies should ever be given, others might argue that £200,000 is the correct maximum figure, but whether a subsidy is given and if so how much it should be are decisions taken with an eye to money - the universal means of measurement.

Some areas of government expenditure cannot easily be assessed in monetary terms. The armed forces, the police, prisons and the fire service can only be effective if they have a certain number of front-line personnel and the equipment necessary for them to do their work. The level of necessary service determines how much must be spent, it is not possible to say "we can afford half a billion for the police and that's that". Of course countless arguments can be had over what level of service is appropriate, how it should be organised to get best value for money and whether there is a sensible role for the private sector, but at heart these services must be funded according to need (however you wish to define that) and cannot or should not be limited by purely financial considerations. The central point about these services is that they are protective services, they exist to prevent trouble and to protect us when trouble brews.

Other so-called public services are not protective in nature, they are intended to provide a positive benefit rather than to protect us from a threat. Health, education, refuse collection, laying and maintaining roads, providing street lighting and many other things are essentially commercial activities being carried out by one arm of the State or another. Some of them are usually provided by private sector businesses but paid for from taxation, road maintenance and refuse collection being perhaps the most widespread examples of this.

Not so long ago refuse collection was manged by local authorities and performed by people employed directly by them. In many areas the task has now been contracted-out to private businesses who are paid less than it cost the local council to run it's own service and are subject to a contract requiring them to provide a service at least as good as the one they replaced. As far as I am aware, no council has chosen to revert to the old system once a contract with a private provider has expired. No doubt one reason for this is that a council would incur a substantial cost in buying or hiring the necessary lorries and installing managers on its payroll but the more compelling reason is that the work is a service which is best left to the private sector because only that sector is subject to market pressures to keep its costs as low as possible, not least because they do not have to battle against the monopoly public-sector unions. The provision of refuse services is a normal commercial exercise. Local authorities specify the service they require, price is a matter for negotiation and the result is a binding contract. There is an important public health element to the work but so there is in the supply of all sorts of goods and services, appropriate contractual terms and general legal obligations on suppliers ensure (insofar as you ever can) that health is not adversely affected by the identity of the supplier.

The effectiveness of private-sector delivery of services such as refuse collection can be measured by money. Once the standard of required service is defined it is a matter for competitive tender who can give the purchaser (the council) the best price. That these tenders will be pitched at a level that allows the supplier a profit does not mean that the state sector could provide the same service at a lower cost in particular because working practices in the state sector are not subject to the same constant pressure to be efficient as the private sector because the provider is also in charge of paying the bills.

When it comes to health and education is there any reason to believe the private sector will provide an inferior service? After all, non-state schools and hospitals have to provide what their customers want or they lose business. MRSA infections don't happen in private hospitals because a single occurrence could cost the business millions in lost custom. Indiscipline and a failure to teach to a high standard can have the same effect in private schools, so it just doesn't happen. It doesn't happen because the system is designed to deliver a service not to deliver a political agenda.

The NHS doesn't work. It doesn't do what it was set up to do. Part of the problem is that it is not operated as it was intended by its founders to be operated. The original idea was for it to be a universal health service funded by insurance but operated as the best private hospitals and general practices were operated. Instead it has become a perpetual opinion poll, fiddled with by government after government with at least as much of an eye to political advantage as providing a service. There is now about twice as much money in real terms being pumped into the top of the NHS as twelve years ago. It hasn't resulted in twice as good a service at the bottom, despite the efforts of the vast majority of doctors and nurses to do their very best by every patient. The NHS is the largest single employer in the western world and it has the highest rates of hospital acquired infections of any developed country. It simply isn't working.

State schools don't work. They don't do what they were set up to do. Levels of general numeracy and literacy at age sixteen are pitiful. Far too many bright children are not stretched as they should be to develop their analytical powers. Universities have to hold remedial classes for those who have splendid examination results on paper but struggle in real life to construct a sentence. It simply isn't working.

Why have these failed institutions not been farmed-out to the private sector which has a long record of providing a better service for a lower cost? No doubt part of the reason is the desire of politicians to use health and education as measures of the success of their time in government. If they had any sense they would realise they are onto a hiding for nothing in the long term. A system that cannot deliver, cannot deliver. You can fiddle with it to your heart's content but it still won't deliver. You can boast of so many more billions being spent on the NHS or school and, as we have seen, you can win elections, but a system that cannot deliver, cannot deliver.

The central problem is that additional money is pumped in at the top rather than the bottom. Pumping in extra money at the top means, in the mind of government, that there must be additional oversight of how the bit that gets down to the coal face is spent. Ah, but there's more, you can't just pump money in and distribute it to everyone, you have to choose where it goes. That requires committees. Extra committees to deal with the extra money. And if more is getting down to a region the region will need an extra manager or ten to supervise it, and every hospital will need an extra manager or five to report back on how it is being spent. The whole system doesn't work. It's almost as far as it could be from Beveridge's idea of a private system funded by public insurance.

In the real world a system that doesn't work must be replaced, root and branch if necessary. We are seeing at the moment how the public have a taste for radical change where systemic inefficiency, waste and corruption are to be avoided. Today it is MPs' expenses and allowances, this is the perfect time to widen the debate and expose systemic inefficiency in the state delivery of services. Strike while the iron is hot and tomorrow we can spend less and receive more.


Gus said...

Private healthcare is a very, very dangerous can of worms.

Look at last weeks BMJ to get a idea how much they could fleece us for.

Stan said...

Regarding refuse collection. Twenty years ago we put our rubbish - any rubbish straight into a bin outside the front door. The (council) binmen would collect it, empty and return it from whence it came. If you had anything too large to go in the bin you just left it against or by the bin and they'd take that too. They did it weekly without fuss and bother.

Today, we sort our rubbish into different groups in the house then deposit into one of three bins according to its designation - its not always clear which bin an item of rubbish should go in - so sometimes we get it wrong. For which we can be fined and receive a criminal record.

Having done all that, once a week or once a fortnight - depending on your area - you have to wheel your bin out to the street. It must not be done too early or you may be fined. Do it too late and your rubbish won't be collected leaving you having to try and cram two (or four) weeks rubbish into each bin. Leave your bin out too long after collection and you could be fined.

If a bin is slightly too full it won't be emptied. After every collection round my way, the street is left littered with stray bits of rubbish that have fallen out of the bin during the transfer from bin to lorry. The bins themselves are left nowhere near where we left them - instead they are left congregating in large groups like abandoned daleks. We have to go round trying to find our bins and then drag them back to the house. As there are three bins and I only have two hands that means at least two trips.

If you have anything too large to fit in the bin it won't be taken. You have to contact the council who will charge you for removing it or take it to the local tip yourself.

Sorry, FB - I really don't think that refuse collection has improved since being outsourced. I know that's not ALL the fault of the contractors, but I also know that a lot of what happens (such as the requirement for us to place our bins as per instruction) is.

Mark Wadsworth said...

@ TFB, broadly agreed, but refuse collection is in fact a Core Function of the state - you are not just paying for YOUR rubbish to be collected, you are paying for your neighbour's rubbish to be collected (and he for yours). If each household were allowed to decide whether to pay for rubbish collection, there would be some who would do the decent thing and pay up, but there would be some who just chuck it in the street, in other people's bins or store it in their back garden.

@ Gus, agreed, I trust insurance companies even less than the government. But there is a middle way, like in most European countries - private competing providers and taxpayer funded vouchers. It's not perfect, but the least-bad of both worlds.

@ Stan, you can blame the EU for that. If the council sets the parameters wrong, then contractors will deliver the wrong service. One parameter should be "If we get more than x letters of complaint per week, then the contract is null and void" and that would sort that out.

Finally, the education system could easily be fixed with taxpayer-funded vouchers as well, other countries have tried it and it works just fine. We can argue how much the vouchers should be (anywhere between £nil - with a corresponding tax cut for low earners - and the average cost of a state school place of about £8,000) but that's just details.

TheFatBigot said...

Hello Mr Gus, nice of you to drop in again. The public-private argument over healthcare is often said to be a choice between the State doing everything and the State doing nothing. It is a false analysis.

The position I take is that the service must be funded out of taxes to ensure it is available to those of modest means according to the central Beveridge principle of an insurance-based scheme in which the premiums are paid by way of tax. Delivery and payment are entirely different things.

Motor insurers pay for repairs but they don't have a network of wholly owned repair shops, the insurer pays but the service is provided as a normal commercial activity. There is no reason why health care should not operate in the same way, indeed in relation to most GP practices it does already.

And it is very true, Mr Stan, that the way the refuse collection service was provided years ago was more sensible and flexible than today. But now we have arbitrary targets for recycling and for the amount we can put in landfill which must be met to prevent a hefty fine from Johnny Foreigner in Brussels.

Once this sort of law is in place refuse collection becomes not just a service provided for us but includes legal obligations imposed on us and, therefore, a potential source of revenue through strict enforcement. The fault lies not in the service being run commercially but in additional obligations being imposed on householders - obligations that arise whether or not the local council has out-sourced collection.

Ah well, Mr Wadsworth, you see the thing about refuse collection is that it, of itself, is not a core function of the State. Setting a legal framework by which refuse must be collected and disposed of is a core function of the State. The actual collection and disposal are physical activities that can be carried out by anyone provided they comply with the necessary legal framework.

These days having laws criminalising the sale of rotten meat could, I think, be called a core function of the State, but selling meat is not; that is a commercial activity that must be carried out in compliance with the State's core function of protecting the populace from a real and significant danger. Refuse collection is essentially the same.

Mark Wadsworth said...

If you want to split hairs, yes, of course the State can (and does) subcontract refuse collection. But doesn't the State subcontract other core functions - like policing to Police officers and defence to soldiers in return for their salaries? Where's the difference?

Dan said...

How would one avoid such a system of healthcare degenerating into the horror that is the railways; a series of largely unaccountable private monopolies with seemingly limitless access to the public purse when they screw up?

The private sector is also a hotbed of incompetence. We have already seen what happens when large parts of the NHS are handed over to the private sector; the botched, hugely late and massively over-budget NHS IT project is a prime example.

Also, I'm not sure that your distinction between health care and the fire service is valid; what, really, is the difference between the fireman who puts out the blaze and the paramedic who treats your burns and rushes you to A&E, which justifies limitless funding of the former and marketising the latter?

The public/private debate is, I respectfully suggest, a red herring. What is needed is health care that is _well run_; whether that happens through the NHS, correctly reformed, through the system you advocate of National Insurance meaning exactly that, or through some other scheme is by the by. I agree that the NHS, as currently constituted, does not work. But to do away with it because it is badly run is, I suggest, akin to doing away with democracy on the back of the recent scandals in Westminster.

Mark Wadsworth said...

Dan, "How would one avoid such a system of healthcare degenerating into the horror that is the railways; a series of largely unaccountable private monopolies with seemingly limitless access to the public purse when they screw up?"Other European countries manage reasonably well with taxpayer-funded, privately-provided health care, yes, it is a balancing act, no, it is not a recipe for disaster.

Mark Wadsworth said...

Dan, the fire brigade is like refuse collection (whether subcontracted or not).

If we left it to everyody to arrange their own fire insurance, then you'd be screwed if your neighbour didn't bother with the insurance and his house caught fire - that would affect your house as well. That is how the fire service developed over the years, AFAIAA, it started off as voluntary insurance, which became compulsory insurance, which then got rolled into the tax system (and rightly so, in my book).

But if your neighbour falls ill, what do you care (except maybe on a human level)?

Dan said...

@Mark: I didn't know that about the Fire Brigade. Thanks. That sounds like a valid distinction.

As to healthcare, I'm still dubious about handing the entire system over to Capita or IBM or some such outfit, which is inevitably what would happen in practice; you only have to open any issue of Private Eye to see how well that's worked out in the past. We'd need to end the PFI gravy train before any scheme like the one you're advocating has the slightest chance of success.

Mark Wadsworth said...

@ Dan (should he ever read this), there is no need to get leeches like Capita or IBM involved (which would be a recipe for disaster), but they don't get involved in e.g. Germany either.

The government decides how much is to be spent on healthcare vouchers and it gets docked as a % from people's earnings. Technically it goes via a state sponsored health insurer, but they have very little leeway.

Clinics and hospitals are run by competing providers. Some are privately owned (like GPs), but most are in fact owned by trade unions, local authorities, charities, the church, universities or the health insurers themselves.

There is then some sort of agreed scale of fees as to how much gets paid for any procedure, and provided a clinic or hospital can meet that price, there is no further payment at point of use.