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The rigours of the marketplace

  • Published at 12:53 am February 3rd, 2019
public health care
Why is public health care failing? Bigstock

Health care and education work better in a competitive market

The Dhaka Tribune has just pointed out to us why we should sell off everything the Bangladeshi state tries to do. That is, tries to do directly, rather than just administrate or finance. 

For what is being done directly, what is being provided as goods or a service directly, is being provided extremely badly. Even the most appalling of the money-grubbing capitalists would do better than this.

As we are told, “a recent study conducted by the Anti-Corruption Commission (ACC) found that 40% of all doctors were absent from their workstations, while an ACC official’s recent visit to various Chittagong schools found that most of the teachers were absent, with students left unattended to.” This is also said to be an attitude, a performance, which permeates all that government tries to do directly for us. So, instead of paying as we do and gaining nothing from it, why not move to another system altogether?

Why not, for example, choose between to two alternatives? We could have government as the financier of either schooling or health care. Our taxes pay to make sure that all have access to doctors, hospitals, and medicines. We should, obviously enough, make sure that health care is available to all on both moral and practical grounds. But why should it be the government itself which provides the medical care? Why not instead use private medical facilities and just make sure the necessary tax money flows to those who need to be so financed? 

This is, after all, how the majority of the world’s medical care systems work. The National Health Service in my native Britain doesn’t, true, but then that’s long been regarded as the major problem with it. Other systems, from Germany through France to the US all use tax funding to go and buy care in the extent facilities. 

It’s even possible as in Singapore, for the government to own some part of the system itself, but still have to compete against others in the marketplace for access to that tax funding.

The same is true of schooling. Sweden is hardly a hotbed of radical capitalism and yet it has an entirely free market schooling system. The government pays a set amount for any and every child to be educated. That voucher moves with the student. Any two qualified teachers can set up a school and thus cash the vouchers of however many pupils they attract. We still have that guarantee of schooling, tax funding of it, and yet also that competition, which means that the schooling is actually delivered to an acceptable standard.

To be fair here, I should point out that I’m from the Adam Smith Institute. We’re the people who - before my time admittedly - built the theoretical case for Margaret Thatcher’s privatization of much of the British state, a process that still continues, as schools are moving to market freedom within tax-payer funding, the NHS is taking its first baby steps to such. 

So, I’m rather bound to think that privatizing the provision of goods and services is a good idea. And I do indeed believe that sometimes it’s even better if the tax funding doesn’t follow. For much of life, if people want something they should pay for it themselves, directly.

However, our basic argument wasn’t and isn’t that. Rather, the direct provision of goods and services by government falls into this trap of ending up being howlingly bad and inefficient. Schools with no teachers and hospitals without doctors. Simply because there is no mechanism to ensure that they do. Our answer is to force the rigours of the marketplace upon them.

No, not to force that marketplace upon consumers. We agree that some parts of life aren’t going to work that well, if at all, if the costs must be paid out of pocket, out of what might be very small incomes. We’re fine with tax-payer funding of certain things - health care and education among them. It’s that we want the providers to get paid only if they are in fact doing the providing. 

This means that we want private providers to be competing for that tax money. We tax-payers doing the buying by making sure that the services actually are provided. Do patients go to a hospital, do they get treatment? Therefore the hospital gets paid and so the doctors gain their salaries. 

Parents will choose to send their children to schools where the teachers arrive and teach rather than those where they don’t. Thus, schools should be funded according to how many parents send their children there. This way teacher salaries will only be paid to those who do arrive and do teach.

We recommended that Britain sell off the electricity companies, the water ones, because we thought that private sector management would do better. We insist that such things as health care and education work better in a competitive market working on a level playing field. It’s just fine for tax-payers, through government, paying for these things. But that payment should be on offer to any provider, as that’s how standards are improved. And that does mean government not being the direct provider of them, instead, it becomes simply the facilitator, the financier.

Put simply, the reason state provided services are so bad is that there’s no incentive for them to be better. Provide the incentive by paying anyone who delivers them well and the services will get better. Because those who do it badly will get no money at all - a powerful incentive. 


Tim Worstall is a Senior Fellow at the Adam Smith Institute in London.