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The Disaster of Government-Run Businesses, Part 1

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Barack Obama defied experience everywhere when he stubbornly claimed he could make a government-run health program work. The standard practice of any government-run business is to provide favored interest groups with something for nothing, forcing other people to pay for it, and there always seem to be complications.

If Obama really wanted to see how nationalizing health care was likely to turn out, all he had to do was look across the Canadian border. Canadian governments gained control of the health-care business so they could give voters subsidized health-care benefits, but that led everybody to want more, which bid up health-care prices, which then led officials to try to control soaring health-care prices with health-care rationing and below-market compensation for doctors.

Not surprisingly, doctors began fleeing the country, and patients formed long waiting lines for the care they needed. In 2004 — more than four decades after a national government-run health-care system was under way —Canadian officials seem to have acknowledged the problem. They introduced a “Wait Times Project … to make timely access to quality care a reality for all Canadians.”

Waiting lines aren’t the only issue, however. Because Canada’s government-run health system is a monopoly financed by taxpayers whether they like it or not, it lacks incentives to provide competitive service. The Vancouver-based Fraser Institute reported, “Canada is currently operating far too many older, outdated, and possibly unreliable medical technologies” — even though “Canada maintains one of the developed world’s most expensive universal access health care systems.” According to the New York Times, many Canadians either seek treatment in the United States or violate Canadian laws by going to a private clinic.

Waiting in the UK

Britain became a pace-setter for nationalized health care in July 1948. Publisher Cecil Palmer recalled that

for months and months prior to the inauguration of the National Health Service [NHS], the government went propaganda mad. The radio, the pulpit, the platform, and the press were all used. The public believed that it was being offered the finest medical service in the world for next to nothing. We were to have more and better hospitals, more and better clinics. Doctor and patient were invited to enter paradise.

Yet from the beginning, the British National Health Service spent more and provided less than promised. The NHS became well known for its long waiting lines. In 1992 the NHS Management Executive pledged that long waiting lines would be a thing of the past. As economist Catherine Pope explained, “Not only would the backlog of patients who had waited for more than two years be cleared, but the right of future patients to be admitted for treatment within two years would henceforth be guaranteed by the patients’ charter.”

The NHS increased staffing only to find that the number of people seeking health care increased. Since people didn’t have to pay directly for health care, naturally they wanted more of it. The Department of Health established a Waiting List Initiative Fund of about £30 million per year to do something about waiting lines, but since that was a comparatively small amount of money, it was used for small fixes, such as making more operating rooms available for knee replacements. That and other initiatives to resolve the waiting-list problem were soon abandoned, apparently because they didn’t seem to do much good. Pope observed, “The emphasis of policy has been on finding out why the queue doesn’t move rather than explaining how it occurred.”

The length of the NHS waiting lines often became a political issue, and the party in power sometimes manipulated numbers to make the situation look better. For instance, the North East Thames Regional Health Authority abolished the most embarrassing waiting lines, such as the one for varicose-vein surgery. Other tricks included making a waiting line for hospitalization shorter by making a line for an outpatient visit longer; suspending a patient’s admission; or directing patients back to a general practitioner (rather than advancing them through a maze of referrals). In 1984, the London-based College of Health, a charity, published a Guide to Waiting Lists (about 50 pages), but unfortunately they gave up the project in 1991 when about a million people were on NHS waiting lists.

Reforms

During the 1980s and early 1990s, Conservative governments reorganized the National Health Service with some market-oriented reforms, but they didn’t go very far. In the late 1990s, Labor governments reorganized the NHS again, reintroducing more central control. According to Julian Le Grand at the London School of Economics, endless reorganizing isn’t likely to help much, since Britain has a shortage of acute-care hospital beds. There’s a shortage of nursing-home beds, limiting the ability of hospitals to discharge elderly patients — and further delaying the admission of new patients.” Britain has a chronic shortage of doctors and nurses — fewer per 1,000 population, for example, than Australia, Canada, France, or the United States. The NHS has tried recruiting doctors from overseas, without evident success. In an effort to control costs, Britain’s National Institute for Health and Clinical Excellence (NICE) has prevented patients from gaining access to life-saving drugs.

When economists Stephen Martin and Peter G. Smith analyzed the NHS in 2002, there were still about a million people waiting. The authors reported,

Although H.F. Sanderson quite reasonably assumed that the length of a wait is likely to be related to levels of resources, others have claimed that there is no relationship between resources and waiting times. Some have interpreted these results as implying that increased funding would ultimately have little effect on waiting times and would merely induce greater demand.

As of March 31, 2009, 916,175 people were reported to be on a NHS waiting list for a first outpatient appointment following a referral from a general practitioner. So a decade after the NHS Management Executive vowed to banish the notorious waiting lists, they were still about as long as ever.

Chronic problems with government-run health care systems cannot be fixed by health-care experts. Problems are inevitable whenever government tries to provide something for nothing by squeezing taxpayers for subsidies — regardless what industry a government-run business happens to be in.

This has been the situation for a very long time. The Industrial Revolution, which ushered in the modern world, was to a significant degree a break-away from government-run businesses. As Harvard economic historian David S. Landes explained,

The state of the seventeenth and eighteenth centuries was incapable of planning development nationally or allocating resources efficiently. The state promoted monopoly, when nothing could have been more harmful for long-run development. State assistance was more often than not an encouragement to laxity and a cover for incompetence. With some notable exceptions, privileged enterprises were sloppily managed and required repeated transfusions of royal capital. Often they turned out an inferior product that could be disposed of only to captive customers, like army regiments.

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    Jim Powell is policy advisor to the Future of Freedom Foundation and a senior fellow at the Cato Institute. He is the author of "FDR’s Folly", "Bully Boy", "Wilson’s War", "Greatest Emancipations", "The Triumph of Liberty" and other books.