Polly? If I might have a word?

No cuts? Former Tory health secretary Stephen Dorrell, powerful head of the commons health committee, warns yet again that no country ever attempted a 4% health cut in one year, let alone four years running. So what possessed Cameron to risk such cuts and lie about it, let alone to encourage Lansley\’s simultaneous \”revolution\”? To advertise the NHS for sale to \”any willing provider\”, making Monitor open it to EU competition law, confirms every worst suspicion voters already held against his party.

Why have the cuts, the outsourcing and the revolution all at the same time?

Because the outsourcing and the revolution are what make the cuts possible.

As you yourself, Ms. Toynbee, have continually told us, the NHS has a higher than average inflation rate. And we know why, too: Baumol\’s Cost Disease. Services will increase in price faster than manufactures as real wages rise.

We also know the only way out of this too: innovation. It might just be doing a service better, in a different manner (say, increased division of labour and specialisation). It might be outsourcing it: why not have trained radiographers looking over X-Rays in India? And in the longer term, it\’ll be converting a service into a manufacture.

Take headaches for example: at one point the only available treatment was a comely maiden with a cool cloth to dampen your brow. Now it\’s an aspirin: happily saving us from the dreadful shortage of maidens in the modern world.

And we can go further too. We know very well what mode of economic organisation maximises innovation: a market organisation. The NHS is often described as the last outpost of Stalinism in Western Europe (yes, that is indeed hyperbole but still) and there are those (for example, a recent Nobel Laureate, Paul Krugman) who will point out that the Soviet Union didn\’t manage to raise total factor productivity at all in its entire 70 odd years. Yes, TFP is indeed a measure of innovation.

In the long term we have to increase productivity in the NHS….if it continues to have a faster inflation rate than the rest of the economy in a century it will be the entire economy. And the best way we know of increasing productivity is to havew whatever is is being done by market processes. And thus the revolution and outsourcing: they\’re the only way we can achieve what we must, more bang for our buck in health care.

2 comments on “Polly? If I might have a word?

  1. Good to hear a a favourable mention of the Adam Smith favourite: specialisation of labour.
    Normally this blog boosts business start-ups ,which don’t have much labour to sub-divide.Still the wonder of the markets in asset stripping big old lumbering firms which employed a lot of people but did n’t make much money is also supposed to provide for regeneration by small businesses: total assets one white van and somebody’s girlfriend in a home office.

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