Whither the state? Should we await creative destruction in Europe and are there lessons for healthcare?

Posted by healthblogger on 25/09/11

Map of countries by public debt from CIA 2009 ...

Green is good = lower public debt

Vito Tanzi’s book on the modern state “Government versus Markets” is a mine of fresh perspectives. His subtle challenging of the ability of governments to intervene in market failure is thoughtful — when is market failure simply an excuse for hyperactive civil servants to do something, rather than clear evidence of a problem? And not to speak of motives as we are familiar with the ‘rent-seeking’ behaviour of public bodies/officials which can frustrate efforts to streamline and prioritise public services.

European governments are today the cause of considerable global anxiety with their bloated state bureaucracies, high levels of taxation and disincentivised, but pampered (subsidised) industries. It is instructive to reflect that a large component of state debt arises from their healthcare sectors; that much Greek debt lies in the capital funding of hospital construction, and that rising taxes in France are designed to protect social welfare and health benefits through the regressive social charges (contribution, in French).

Tanzi also challenges the scale of modern governments, as a percentage of the economy.  An article by Neil Reynolds, writing in Toronto’s Globe and Mail started the discussion. (lead article here) A subsequent article in The Globe and Mail listed the following countries as a short list of small state sector countries: (specific reference here):

Hong Kong: Population: 7.1 million. GDP: $302-billion (U.S.). Per-capita GDP: $42,748. Unemployment: 5.3 per cent. Inflation: 0.5 per cent. Five-year compound average growth rate: 3.1 per cent. Percentage of GDP spent by the state: 18.6 per cent.

Singapore: Population: 4.8 million. GDP: $240-billion. Per-capita GDP: $50,523. Unemployment: 3.0 per cent. Inflation: 0.2 per cent. Five-year compound annual growth rate: 4 per cent. Percentage of GDP spent by the state: 17.2 per cent. Singapore requires its citizens to buy their own health and employment insurance – a requirement that has produced an exceptionally high level of savings and one of the richest countries on Earth.

Chile: Population: 17 million. GDP: $243-billion. Per-capita GDP: $14,341. Unemployment: 10.8 per cent. Inflation: 1.7 per cent. Five-year compound annual growth rate: 2.8 per cent. Percentage of GDP spent by the state: 21.1 per cent.

Costa Rica: Population: 4.6 million. GDP: $35-billion. Per-capita GDP: $11,579 (the highest in the country’s Central American neighbourhood). Unemployment: 7.8 per cent. Inflation: 5.8 per cent. Five-year compound annual growth rate: 4.5 per cent. Percentage of GDP spent by the state: 20.9 per cent. (Costa Rica is running a deficit these days – keeping tax revenue as a percentage of GDP to 15 per cent.)

Taiwan: Population: 23.1 million. GDP: $736-billion. Per-capita GDP: $31,834. Unemployment: 5.9 per cent. Inflation: 0.9 per cent. Five-year compound annual growth rate: 2.5 per cent. Percentage of GDP spent by the state: 18.5 per cent.

Now, returning to healthcare, these countries also tend toward healthcare systems that are not social insurance or national taxation based, but are what some authors (see S-Y Lee and C-B Chun, The National Health Insurance system as one type of new typology: the case of South Korea and Taiwan. Health Policy  2008 Jan;85(1):105-13. Epub 2007 Aug 20. Abstract here) are called “national health insurance systems”, characterised by a large government interest through establishing rules and standards, but mainly private delivery, with high co-payments, consideration patient choice, and rising levels of investment. These emerging successful, small state sector economies may also be inventing an affordable and sustainable healthcare system, which could be explored in more detail in European countries as they grapple with public debt. The current financial crisis in Europe, entails the need for root and branch reform of the largest elements of public expenditure — health and social care, university funding, etc. — along with venting the gaseous expansion of the regulatory state.

It will be difficult for European-level policymakers to engage in sensible policies when key drivers of cost are driven at the member state level. An obvious example is Spain, where the debt resides at the regional level, but the policy tools for that debt are owned by the national government. To illustrate, Castille La-Mancha can’t pay the pharmacists for drugs, so pharmacists are asking patients to pay cash. (article here: scroll down to find the specific reference).

Having 19th century sized governments, does not entail having 19th century healthcare.

One Response to Whither the state? Should we await creative destruction in Europe and are there lessons for healthcare? »»

  1. Comment by healthyfood | 2011/12/17 at 20:33:13

    I totally agree that most States are too bg and employ too many people. Of course we don’t want to see unemployment but in the heaight of the Roman Empire there were just over 500 full-time staff/administrators!


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