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Learning from the economic crisis: public health and private ventures
  1. Tom Koch
  1. Geography Department, University of British Columbia, Vancouver, Canada
  1. Dr T Koch, UBC, Department of Geography (Medical), 1984 West Mall Vancouver, Vancouver V6T 1Z2, Canada; tomkoch{at}

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In October 2008, former US Federal Reserve Chairman and “federal market cheerleader” Allan Greenspan told a US congressional committee he made a “mistake” in assuming the self-interest of organisations would not endanger their clients.1 In his words, his years of policy stewardship erred, “in presuming that the self-interests of organisations, specifically banks and others, were such that they were best capable of protecting their own shareholders and their equity in the firms”.

It has been that belief in corporate efficacy and stewardship that has powered the last two decades of policy analysis in healthcare. Over this period the increasingly accepted goal has been to shift the responsibility for healthcare from public agencies to private contractors and insurers. In some cases the result has been a remaking of the “public-private mix” in healthcare, with an emphasis on ever greater corporate involvement.2

Reflexively, the assumption has been that the private sector always does better what governmental agencies do badly: “the market predictably leads to better long-term outcomes overall”.3 It is this assumption, and the libertarian economics Greenspan and others have espoused for 40 years that are now in question, if not wholly in disrepute.

The obvious first lesson of the current crisis is that the unfettered market is not necessarily superior. Without real and stringent public supervision, private corporations may do very badly indeed in providing necessary service. It may be that not only government supervision but also government participation—and here the nationalised banks are an example—is necessary for the common good of corporate and private citizens alike.

The primary goal of any business is to maximise profit and market position, not the welfare of individual clients or the nation. That maximisation is typically defined in terms of short-term growth and profitability—quarter to quarter or year to year—and not based upon long-term service to clients, customers or society-at-large. Were it otherwise, the failed debt instruments that are at the root of this crisis would not have been issued. If issued they would not have been purchased by other institutions.

Health insurers and health service contractors are no different in this than the banks and insurance companies. Their goals are first and foremost corporate, and thus focus on the maximisation of short-term gain rather than long-term, social benefit or the needs of an individual client-patient.

Stark examples abound. In the state of Oregon, for example, where a state law permitting euthanasia is in place, patients have reported health insurers who will not pay for life-prolonging or sustaining drugs but will pay for a physician’s euthanasia service.4 Rather than treating the underlying condition, or the pain it might cause, the “choice” is only premature, physician assisted suicide or living with pain and a worsening health status.5 Corporate goals do not necessarily serve patients, or the society in which they live.

While many health economists and planners have embraced the market ideals of Greenspan they have done so only by ignoring that healthcare is not a box of chocolates, a market good like any other. Health is not an area in which market-driven efficiency will easily be distilled into market place service.

Noble laureate Kenneth J Arrow made this case in a 1963 article that insisted healthcare was not an area in which efficiency and service could be maximised by market competition. That only happens in those arenas where conditions not present in healthcare are in place.6 What we find today, is that the specific cautions Arrow argued for healthcare may have wider applicability in the general economic marketplace.

The unregulated reliance on private rather than public agency has resulted in what Garrett Hardin in 1968 famously called “the tragedy of the commons”, a context in which none will do what is best or right (for clients, for the community) because to do so would be to give competitors an advantage.7 The good-willed person will not do what is best for all because in doing so he or she chooses a position that is economically deficient, even if supportive of a necessary common good.

Today’s broad economic miasma is a tragedy of the commercial commons, one in which international banks and insurers purchased paper based on failing or failed US mortgages or debt instruments. None could afford to be left out of the short-term gains generated by bad debt instruments even if, as now appears to be the case, some worried about their underlying value. For 40 years Harding’s text has been used as a rationale for the growth of a type of corporate economic rationalism whose efficacy is questioned by recent events.8 Now the tragedy is revealed to lie not in the choices of the individual, or the involvement of government in their affairs, but in the choice of the self-interested, corporate boardroom itself.

In healthcare, this general tragedy becomes the inability of private contractors to provide adequate care and service because to do so would disadvantage them (and thus their shareholders) in a competitive marketplace. Why be the only health insurer to provide a critical but expensive orphan drug if no other insurer provides it? Why accept as a client the middle-aged person with a history of multiple sclerosis (or rheumatoid arthritis, etc) whose maintenance will be costly?

Because others will not, one need not, and the tragedy of the commercial commons proceeds apace.

The increasing cost of pharmaceutical products is another example of the problem. Often developed with public monies, either through grants directly to drug companies or indirectly through support of university-based researchers, the cost of the drugs is set by the patent-owner with little concern for public support or individual need.

Instead, the pricing of new drugs is set principally with an eye to corporate profit. Only grudgingly do pharmaceutical companies lower costs on critical drugs necessary for the life and welfare of patients. The struggle to obtain life-sustaining drugs for poor nations and people with HIV has been an often-repeated example of this.

At another scale, the damage done to those with failed mortgages and beggared private pension funds in the economic crisis transposes the general argument to that of the individual. A libertarian would say each person makes his or her choice and must live with it, either in economics or in the arena of healthcare insurance and on treatment. For mainstream bioethicists schooled in moral philosophy, individual choice and autonomy are the summum bonum of their service.

But “individual choice”—by the corporation or the individual—will serve no longer in a context of failed corporate avarice and disinformation. First, there must be choice, as Arrow6 said, based on full information. What has become obvious in this economic crisis is that the dangers and risks of the market place were not disclosed and not understood: homeowners and shareholders alike were not informed. If former Federal Chairman Allan Greenspan was hoodwinked then of course Joe the plumber, Jill the electrician and their pension fund manager were suckered, too.

Corporate goals do not include maximisation of informed choice. Information remains a proprietary resource and information is provided only to the extent that it is either required by law or will serve corporate goals. It is not simply that personal and social choices are minimised whenever service availability and cost are dictated by corporate standards set in an unfettered market. It is also that choice is a chimera when information, and alternatives based on that information, are unavailable.

None of this is to argue for a healthcare system that denies wholly the role of the private insurer or provider. The nationalisation of failing and at-risk banks in October 2008 in a range of countries was not a nationalisation of the banking system-at-large. Nor does this analysis deny the failures that have existed, and been well described, in some national healthcare systems.

But the current financial crisis does insist that public-good demands public-need be foremost in public service. The market-driven ethos that has for at least two decades insisted private companies do best when government does not interfere is clearly challenged by events. In healthcare, the lesson argues for greater and not lesser public involvement and greater, not lesser, public supervision where private, for-profit companies are delegated to provide healthcare for average citizens.



  • Competing interests: None declared.

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