Ritchie\’s quite lovely argument about why the NHS must be a monopoly

There are, without doubt, certain conditions that must exist before any market can operate, even imperfectly. The first condition is that there have to be willing buyers for the products. Without such buyers there is no chance of selling products, let alone at a profit. Second, if abuse is to be avoided as a result of monopoly profits being made there has to be competition in the marketplace.  If there were, for example, to be only one commercial supplier of an essential service, such as healthcare, then the opportunity for price abuse would be enormous.  This is especially true when purchases of healthcare frequently arise in situations of high stress when the opportunity for finding an alternative supplier is limited (or to put it another way, the purchaser is almost invariably at a disadvantage to the supplier at the point when they must buy because they are in pain and far from being able to make an objective decision).  Only competition and informed decision-making can, to some extent, limit that opportunity for abuse of the consumer and even then only if what is called oligopolistic behaviour can be avoided.

Because monopoly is bad therefore we must have a monopoly.

Genius, eh? But there\’s more!

However, this means that to be effective competition is dependent upon all market participants always working at less than full capacity, which means that competitive markets must always (whatever the theoreticians may say) be inherently inefficient in practice because all participants in the market must be underutilising the resources that are available to them if the consumer is to get the choice that they desire.

He seems to miss the implication of this. Which is that if competition is inevitably efficient (and there\’s no reason at all in his logic why such applies only to health care) then we should obviously do away with competition altogether.

However, we actually have evidence that, over time, competition is not inefficient. We in fact have very good evidence that competition is efficient in fact. And what is that evidence called?

The 20 th century.

Take as our example the non market economies versus the market economies. Efficiency is an increase in total factor productivity (yes, this is what efficiency means). As Paul Krugman points out, the decidedly non-market economy of the Soviet Union managed not to increase total factor productivity at all during its entire ghastly existence. All growth came from the consumption of more resources.

During the same century some 80% of growth in the market economies came from tfp improvements, only 20% from increased resource use.

The largest natural experiment in economics therefore shows that markets are not inefficient. Quite the contrary, they are efficient, much more so than monopolies.

The Murphmeister is therefore spouting nonsense. Again. And it\’s for the same old reason. He\’s trying to do all this economics stuff without knowing what other people have done before him in this economics stuff. He doesn\’t realise, for he\’s ignorant of the subject, that his arguments have been considered, then rejected, already.

Or, if you want it simply put, in 1963 Trabant introduced the 601. About the same time that BMW introduced the 3200 CS. By 1991 the Trabant was still the 601. BMW had moved on just a tad to to the E36.

I\’m sure we\’d all love to have such a stunning rate of innovation in health care as well, wouldn\’t we? State planned monopoly as in the Trabbi, competitive markets as with the BMW?

53 comments on “Ritchie\’s quite lovely argument about why the NHS must be a monopoly

  1. Don’t you ever tire of correcting his stupidity? You’ve spent years doing it, and he still spouts the same nonsense. Will you ever call it a day or do you consider it your civic duty?

  2. And there is the usual “NHS must be fossilised in amber” assumption that competition = profit-making. Competition = allowing people to benefit from having different ideas about the best way to do things. Note – ‘best’ not ‘cheapest’. Although for exactly the same service / product, cheapest is indeed likely to be best. Commodity markets and all that jazz.

    And, although profit is an important motivator for people to take the risk involved in moving away from the current comfortable norm, it isn’t the only one.

  3. I wonder if he thinks that the NHS uses resources efficiently. Has he never been a customer of the almost infinite waiting times at major hospitals?

  4. I think your 80/20 figure is out of date. I’m sure it has been updated more recently to a less flattering figure, not sure where it is though. Just a note to a pedant.

  5. “Has he never been a custoer of the almost infinite waiting times at major hospitals?”

    Probably not. I see Ritchie as being more of a carrier.

  6. His second bit is odd. Everyone is going to work at less than capacity to give choice? Surely that’s a static argument? Surely as tastes change the competitive market supplies more of what is popular?

    I still say trying to introduce competition to the NHS isnt simple – because we dont actually have prices – we mainly have guesses about prices/costs.

  7. I can spot 2 inefficiencies right now, and I’m not even part of the system.

    1) Most hospitals have no SMS reminder system, despite the fact that they work, cost almost nothing to send each SMS and have a good rate of success (my private dentist has one).

    2) The choose and book system still relies on calling people, despite the fact that every airline and hotel chain does bookings on the internet.

    That’s not even stuff where you need someone to look behind the scenes.

  8. “I wonder if he thinks that the NHS uses resources efficiently. Has he never been a customer of the almost infinite waiting times at major hospitals?”

    If it was truly possible to educate the idiot, maybe clubbing together to buy him a day trip to France would be the answer. Get an ever helpful french taxi driver to run him over in Calais town & let him experience an alternative system first hand.

    But as his playing the tune the piper payer pays for…………….

  9. “All growth came from the consumption of more resources.”

    Yet I suspect most greenies would favour Socialism/Communism over Capitalism. Not all, but most.

    No wonder they want stagnation and zero growth.

  10. However, this means that to be effective competition is dependent upon all market participants always working at less than full capacity, which means that competitive markets must always (whatever the theoreticians may say) be inherently inefficient…

    Jesus, this is century-old Marxism being wheeled out here.

  11. Your last two paras switch arguments. The NHS provides health care so doesn’t necessarily provide innovative technologies. There are plenty of external agencies that drive innovation.

  12. “to be effective competition is dependent upon all market participants always working at less than full capacity”

    Right. So as it happens the company I work for is presently running at full capacity and has discovered a terrific new business opportunity.

    A new opportunity??? What bad luck!!! Just horrible luck!!!

    Because now, of course, our CEO must go to the division VP’s and shut one of them down so we have capacity to pursue the new opportunity.

    Efficiency on Mr. Murphy’s planet is SUCH a bitch.

  13. roym,

    Innovation isn’t just about the technology you buy in, it’s also about things like process.

    Tesco, Dell and Toyota are all successes because of internal processes. Toyota actually deliberately eschew cutting-edge tech – their innovation comes from improving their processes.

  14. Frank Ives Scudamore. Bet you’ve never heard of him, even though he is one of the most important men in British history. He was almost single-handedly responsible for nationalisation of the telegraph system (in 1868), which set the precedent for nationalisation of all significant communications in Britain. He beat a certian Anthony Trollope to the Secretaryship; the latter was so disappointed, he went off and wrote novels instead.

    Anyway, although the nationalisation was generally supported by “radicals” and various special interest groups, the actual driving force was Scudamore, who produced the “proof” that it would be more efficient than inefficient profit-driven private enterprise; he did the (wildly optimistic) costings and profit projections; the inaccuracy of which (costs almost immediately skyrocketed of course) nearly brought down the Gladstone government.

    Anyway, his arguments were virtually identical to those still peddled by Ritchie and others of his ilk to this day; firstly that there is insufficient competition which can only be cured by government monopoly, and secondly that the private companies were wasteful by over-provision of facilities (e.g. two telegraph offices in one district from different companies).

    Bollocks then, bollocks now.

  15. I am trying to understand why Ritchie, in assuming there might be a free market, then says…”If there were, for example, to be only one commercial supplier of an essential service, such as healthcare…”

    The whole point is there won’t be just one commercial supplier, there will be several.

    Whilst some people will require urgent, immediate attention, many will not and so will have time to make informed choice. Anyway most people know from family and friends whether a particular doctor, dentist or hospital is good or bad and where they would prefer to go in an emergency.

    As far as working to capacity is concerned, in my business experience the main problem for companies successful in generating sales, is not trying to fill capacity but to add it on to cope with demand.

    He, Ritchie, also overlooks that the NHS with its static budgeting is intrinsically motivated to doing less not more so as not to use up budgets too quickly.

    Private enterprise grows out of increased activity.

    As a consequence, free market healthcare does risk doing “too much” that is there is an intrinsic motive to increase the number of tests, treatments, consultations as this increases revenue.

  16. in 1963 Trabant introduced the 601

    Jolly good – I’ll pass that on to ambulance control.

    The fact is: whilst you effuse about the beauty of competition, much of this Bill will do nothing to empower patients. Services are being fragmented for the sake of dumb platitudes.

    The prognosis for the likes of Circle and McKinsey, however, is excellent. So that’s alright.

  17. Your comparison of the BMW 3200CS with the E36 is very interesting. The E36, in 3ltr form, may well be a better car in the eyes of the mass market.
    However, the 3200CS V8 of 1962 is, today, much more valuable. E36 are two-a-penny, you would need many pennies to land a 3200cCS. Just shows what can happen to an item when it changes from a commodity to a piece of art.

  18. bloke in spain, just out of interest what’s your opinion of healthcare in Spain as compared to the NHS? The expats I’m acquainted with prefer Spain to the NHS.

  19. The fact is: whilst you effuse about the beauty of competition, much of this Bill will do nothing to empower patients.

    Of course it won’t. The entire health service is ideologically opposed to the concept that the patient should have any power in the relationship. Unless they’re prepared to pay to go private – and then only a proportion of the consultants will waver.

    And this, the government has decided not to challenge. Now, here’s an interesting point to argue. If JRandom Healthcare Inc can introduce a new procedure or technology that allows it to make a profit while improving patient outcomes and charging the NHS less than the current whatever, is that

    good for everybody,
    okay but I’d prefer the patient contact jobs to be restricted to government employees,
    permissible but only because the Tories are evil, or
    going to result in the mass murder of babies?

  20. Touch wood, haven’t had to use it & don’t really know how it works apart from being insurance based.
    Did have experience of getting someone to a doctor though.
    “Brrrr…….brrrrrr”
    “Buenos dias”
    “Can you see a patient that only speaks english.”
    “Yes.”
    “When are you open?”
    “9:00 – 19:30”
    “When can they come?”
    “Now.”

    Cost was 70€ for half hour consultation.

  21. Oh & a lot of our ambulances are helicopters. According to the local rag, bloke got the dust-off casevac service for a broken foot from just up the road. Not exactly the high mountains either. More back of the industrial estate.

  22. NHS big on helicopter recovery, lost_nurse?

    Not for picking up people with minor injuries from industrial estates, it isn’t – that’s a bludy stupid use of aeromed resources, but no doubt profitable in its own way. As for the heli-crews here – yes, they are very good.

    SE: it won’t play out like your JRandom healthcare example – you talk as if, say, production line surgery can be entirely isolated from everything else. The likes of Circle are simply profiting off the back of NHS workforce training, infrastructure and acute capacity (useful when simple procedures suddenly go south). They understand the actual value of the NHS, all too well.

    As for the general point: drop by your nearest elderly care ward, and explain how hiving off profitable activity will benefit the more complex end of acute/chronic care – the very stuff that new providers are so keen to avoid.

  23. Incidentally, I am thoroughly aware of the helicopter ambulance service in London at least. Used to have the choppers shuttling off the roof of the London Hospital 1/2 mile away for entertainment.
    Bloody great things. No doubt with 2 pilots, a full medical team & technical support & ideally suited for battlefield evac or yanking stretchers off oil rigs but needing a football field to land on. And costing a small fortune to run. Our ones tend to be small, agile copters but, if you can yank a warm one out a back garden to hospital in 5 minutes……….?

  24. There is a vitally important distinction to be made here between competition in a corporatist environment (i.e. “private” government contractors) and free markets. They really are very different animals.

  25. “…complex end of acute/chronic care – the very stuff that new providers are so keen to avoid.”

    Bloody NHS are keen to avoid it too if the experience with my very old, very ill & to be frank dying father is to be gone by. Can’t wait to clear him out to whatever care solution we can come up with. Even if they do have to readmit him 2 days later.

  26. Our ones tend to be small, agile copters

    Maybe so, but judging by that helicopterossanitarios site, they’d probably spend the flight-time trying to fit in as much over-investigation as they could – ker-ching, roflcopter, etc.

  27. The NHS mindset in action:

    “that’s a bludy stupid use of aeromed resources”

    Why is it? If you have the resource why not use it? Is there some virtue in being bumped around in an ambulance for an hour. Good for the soul?

    Truth is, the NHS is so costly & inefficient it can’t run to the service, so what it does have must be rationed. Better to leave a big expensive machine on the ground collecting bird droppings rather than hazard an administrators bonus payment.

  28. keen to avoid it too

    Then ask yourself this: how is surgical cherry-picking and letting McKinsey get stuck in going to help?

    The opportunity to integrate health and social care is being missed – another flaw of this stupid Bill.

    (on the heli thing: my dad was an MO in 7RHA – and spent much of his time in the back of ’em. I appreciate nimble beauty, but Air should be for the golden hour stuff – otherwise the NHS will have to employ ATC for all the spurious stuff that already clogs up ambulance runs – no condoms, cat up a tree, run out of paracetemol, etc.)

  29. Better to leave a big expensive machine on the ground collecting bird droppings rather than hazard an administrators bonus payment

    Erm, you are aware that many of the AirAmbulance services are pretty much charities?

  30. Er…..lost_nurse, look back up the thread a way. This is an insurance based system we have here. Not your “wonderful” NHS. You call an air ambulance in for a packet of condoms you’re going to be looking at some mighty bill. Insurance company won’t cover it.
    It’s only a system like the NHS gets used for frivolous reasons because the system encourages it.

  31. Not your “wonderful” NHS

    I didn’t describe the NHS as wonderful – it has serious problems. Problems which will not be addressed by this Bill – not least by reforms which actually threaten what it can do well.

    As for helis: I was being ever-so-slightly tongue in cheek. The opportunities for ramping up costs in healthcare insurance systems are rampant – as anybody with a helicopter and an ECG machine can tell you.

  32. “Erm, you are aware that many of the AirAmbulance services are pretty much charities?”

    You do have an amazing ability to destroy your own arguments. So now we learn that the ruinously expensive NHS can’t even run to air ambulances. It’s all down to outdoor relief.
    And this is a justification for sticking with it?
    FFS, welcome to the 21st century. You’ll be telling us you still use leeches next.

  33. You’ll be telling us you still use leeches next

    We do, actually. And (sterile) maggot dressing packs – wonderul, wonderful things… as any vascular surgeon will tell you. You can see ’em wriggling around, clearing that necrotic tissue faster a fat kid in a sweet shop.

    The old ideas are often the best.

  34. than a fat kid, even.

    I have to go, bloke in spain. But thanks for arguing. 🙂

    All the best to your dad.

  35. We are often told that ‘profitable’ services will be the ones that get cherry-picked. In a way this merely states the obvious – if I could choose between running either a profitable or loss-making part of the NHS, I’d take the former. But why are some bits considered inherently unprofitable?

    Some activities in life are obviously inherently unprofitable. My brilliant idea to deliver email by carrier pigeon, or selling squid-jelly-on-toast at motorway service stations. But why, for instance, complex/critical healthcare? Yes it’s a complicated and messy business. Costs must be high. But there are plenty of profitable enterprises operating in complex, challenging, high-cost environments. Because they are capable of generating revenue that makes it worthwhile – profitable – to operate in that sector.

    Why is complex care considered to be an area where this is unviable? Certainly most people would agree that those who provide such services should be well-rewarded. Is it just that they are mispriced? Or not priced at all?

  36. Well, it’s a desired outcomes thing. Most things in life can scale with income. Poor people have small houses and small cars, or take the bus. Or they have regular needs that are not too expensive; food and pre-Huhn energy bills.

    Healthcare is rather unique because it doesn’t scale with income. It costs the same to cure a poor man of cancer as a rich man. Sure, you can give a better peripheral service to rich people- single room rather than ward, edible food, handjobs from the nurses, but you still need to provide basically the same actual medicine to either of them.

    The problem then is that either you ration via a market- poor people die of cancer, rich ones get treatment- or you have some kind of charity, which is likely to mean State redistribution. We’re just in this awkward point in history where we can do shitloads of brillaint things with medicine, but it’s more costly than many people can afford. There isn’t really another market sector quite like it.

  37. IanB, but you are forgetting that the financing/re-distribution bit and the implementation/production bit can be carried out by different people and in various combinations. You know sort of like they do in France, Italy and all those other evil capitalist countries

  38. @lost_nurse: so what are your proposals for giving the individual patient the power over the vested NHS interest (namely you really, and the unions that represent you)?

  39. lost_nurse,

    SE: it won’t play out like your JRandom healthcare example – you talk as if, say, production line surgery can be entirely isolated from everything else. The likes of Circle are simply profiting off the back of NHS workforce training, infrastructure and acute capacity (useful when simple procedures suddenly go south). They understand the actual value of the NHS, all too well.

    It’s irrelevant whether people work for Circle as a trained doctor or whether people work for the NHS as a trained doctor. We train them to work as doctors – they’ll still be doctors whether they’re working for Circle or for the NHS.

  40. Emil, there’s no need for the “evil capitalism” jibe, I’m a libertarian gung ho destroy the government free marketeer rightwingextremist. I’m just pointing out that it’s not a simple problem.

    I just looked up France and Italy, and both have State managed healthcare systems. Do you have an example of a Free Market system from somewhere?

  41. Both France and Italy have a system where GPs are private practicioners and where a lot of the standard type of stuff is carried out by private medics.

    No, I don’t have an example of a free market system and I agree that it is not a simple problem. But I do also note that the UK system is really much more centralised than many other systems and at the same time functions much worse.

  42. Wow. Just, wow. That first paragraph is one of the most stupid things I’ve read yet. It’s like watching a man assume that he is the first person in the Universe to have ever thought about anything and is slowly working his way through things (badly).

    He’s entirely unaware that we have stuff like books or people who’ve done these kinds of things before.

    Alarming that he has such a following.

  43. Both France and Italy have a system where GPs are private practicioners

    That’s amazing. And so different from the UK, too.

  44. Know where you’re coming from but is the implication true.
    GP’s run a nasty little guild system like a lot of other UK professions. Do their earnings have any relation at all to market forces? Is it really that much harder to be a competent GP than a competent motor mechanic?

  45. @UKLiberty

    My direct experience of the Spanish medical system is this, a few years ago I had a minor emergency that needed to be dealt with, so I went to the public hospital as it was closest. The number in the waiting room meant that I would not be seen for at least three hours, so I got back in the car and went a little further down the road to a private hospital where I was able to show my insurance and was dealt with in about ten minutes. All for about 60 quid a month.

  46. @MyBurningEars:

    We are often told that ‘profitable’ services will be the ones that get cherry-picked. In a way this merely states the obvious – if I could choose between running either a profitable or loss-making part of the NHS, I’d take the former. But why are some bits considered inherently unprofitable?

    I guess the unprofitable bits are the ones where the outcomes are more unpredictable than the profitable bits. If someone comes in with an acute infection, you can throw every bit of medical technology and best practice at them, and they can still die anyway. And then their relatives might even try suing for malpractice on top. Now, if only we could find a way of selecting the best treatments and making them more consistently reliable…

    @Ian B:
    Healthcare is rather unique because it doesn’t scale with income. It costs the same to cure a poor man of cancer as a rich man. Sure, you can give a better peripheral service to rich people- single room rather than ward, edible food, handjobs from the nurses, but you still need to provide basically the same actual medicine to either of them.

    Actually, you can provide potentially better core treatment to the rich man too – offer him a chance to guinea pig the latest probably-more-effective-but-less-proven-and-much-more-expensive treatments. In time, we’ll learn which ones actually work, how to make them better, and how to cost-engineer them so we can scale them cost-effectively for the plebs like you and I. Which then, eventually, will bring about the improvements in consistency which we all desire.

    It does, however, indicate that the NHS needs (at least partly) the pioneering of the private market (and, by extension, the US healthcare system) to develop and refine new treatments. Conversely, the private healthcare system needs the NHS has a backstop on care quality – “you must be this good to ride”.

  47. Alex B – I suppose to rephrase my query, why should the people/organizations who perform the tricky unpredictable parts of healthcare not charge more for doing so (to whoever’s funding the system, not thinking individualized bills here) to compensate for the difficulties involved? You’ve identified a cost or uncertainty, but those alone don’t preclude profit.

    (As far as I can see the billing problem is quite serious in healthcare. If you can charge per vaguely-reasonable procedure/drug applied, must be tempting to overprescribe. If you can charge based on patient outcomes, perhaps compared to initial prognosis, it may change the approach taken during initial diagnosis. The way this plays out with ‘car doctors’ is that, if I suspect my mechanic to be overegging what’s wrong, hence what he can charge, I start getting my servicing done at the garage down the road instead. And I can cope with that even if I couldn’t diagnose the car myself. But with medical issues, I don’t think it’s nearly so simple.)

  48. @Jim: as a patient, I sympathise – but if I’m so laden with producer interest, why are you even bothering to ask me?

    I’m just a simple grunt in an emergency surgical admissions unit – if you need operating on (e.g. the alternative being death), you get into theatre pronto, anaesthetic/other risks permitting (and believe me, there are few harder conversations than “you might not survive this – who do you want us to ring?”) . Otherwise, we keep Mk 1 eyeballs on you, till it’s clear as to whether/what kind of intervention is needed. One thing we do not do is market procedures & investigations to the worried well – but give it time, and then we can really get going with the vested interests, eh?

    You may have noticed that Lansley’s demolishing of the PCTs has taken with it a fair amount of clinical/lay public involvement at a local commissioning level. And the nascent (supposedly GP lead) consortia appear to be far more influenced by the greasers at McKinsey than you – the patient.

    @Tim Almond: the point being that Ali Parsa spends his time dribbling about how healthcare should be like telecomms and why the NHS is ripe for re-engineering (see his CiF piece), whilst all the while being totally dependent upon NHS workforce training and critical care capacity – two big overheads, right there. And that’s before you get into the behind-the-scenes finance stuff. The bloke is taking the piss – (welcome) private innovation, it is not.

    Medical training is proving to be a major sticking point for this Bill – and it will be interesting to see what promises the DoH extract from new providers.

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