The Economonster: 2011

A simplistic explanation of the global financial crisis, and one that is ascribed to by many, is that in the lead up to the crisis, city Bankers were greedy, took too many risks, dreamt up extraordinarily complicated methods of hiding their crazed gambling and sharing it's risk around and then were proved totally incompetent when it all went wrong.

This is a convenient explanation for many; it provides an easily-identifiable group to blame, despise and reform.

However, although they definitely can be blamed to an extent, are 'Bankers' totally to blame for the global economic crisis from which the world is slowly crawling?

'Fault Lines' is a critically acclaimed book by a leading economist, Raghuram Rajan, who argues that serious flaws in the economy are also to blame, and warns that a potentially more devastating crisis awaits us if they aren't fixed.

Raghuram Rajan was one of the few economists who warned of the global financial crisis before it hit, and the alternative explanations offered, including income inequality, global trade imbalances and flawed financial incentives to name but a few, are explored with confidence and panache: 'Fault Lines' is a fascinating read.

Read a small preview here. Enjoy.

Cancer Bed Days by Primary Care Trust
(The darker the blue the better [fewer days])

It's 2011, and although the UK has a National Health Service, there are still huge variations in the quality of healthcare across the nation. However, will the coalition Government's latest plans to increase the competition inside the NHS really lead to a more equal, equitable and efficient NHS?

The main objective of the plan is to restructure the NHS, shifting the weight of power and decision-making from 'Whitehall bureaucrats' to the GPs on the front-line. This is intended to improve the efficiency of resource allocation for each region, as spending decisions will be made much closer to each locality, hopefully increasing the information and understanding on hand when these decisions are made, and hence the success of these decisions. Furthermore, this benefit is intended to occur whilst competition is increasing between smaller decision-making authorities, as patients will be allowed the freedom to choose where they receive treatment, and rationally, will choose the best option available to them. Such competitive pressures are intended to increase equality and improve equity across the country. How?

In classical economic theory, the ideal allocation of healthcare is at a quantity where a 'Pareto optimum' allocation is created. This means that welfare of all individuals linked into the market for healthcare is maximised, and more welfare cannot be given to another patient without directly decreasing the welfare of another. Such an output is said to be an 'allocatively efficient' one; resources are being allocated in a way which is maximising the welfare of all, internal and external to the market - hence it is an efficient allocation of resources.

Competition creates the basis for this to happen for a number of reasons. Many small service providers, all with the same ability to provide an equal service, and the freedom of consumers to switch to the service-provider who will provide them with the best quality service with least risk, will create a strong incentive for hospitals and GPs to increase the quality of their healthcare - if they don't, they will be left without patients and their weaknesses will be exposed.

Furthermore, competition may act to drive down costs in the long-run, after the initial 'bedding-in' costs of the new scheme; especially important to meet surging demand and costs from ageing population and technological change in this time of global austerity. This decrease in costs may be caused by increased competitive pressure to minimise costs - the service providers with the lowest costs will be able to use that saved money elsewhere, to improve the quality of the service, thus gaining a competitive advantage, important in a competitive health system.

However, will such a system be fair?

Not necessarily, without a very stringent operating framework, there could be a strong incentive to discriminate against the weakest or higher-cost patients to get unnecessary costs off the books.

Furthermore, how do inexperienced doctors decide how to spend money? Pay expensive administration and consultancy staff, that's how! Hence, it is possible that the transfer of power from Whitehall to smaller localities could simply transfer costs too, from the public to the private sector.

And, will the reforms create real competition between providers on quality? In reality, patients may not switch to slightly better health-care providers if they value the convenience of the service over the small differentials in the quality. Hence, this could cause competition to only really be effective in small areas of similar health-care providers, once again creating differences in quality across regions: back to square one.

As is being said often across professions and politics, these reforms are a big risk. Will they create real competition, or just conditions for competition to take place, without it actually happening as planned? Will they lead to increased differentials in the NHS for different people and different regions? We wait and see....

Speculation: Friend or Foe?

'Blame the Bankers!' ...Should We?

How Up-to-Date Are You?

A Competitive NHS: Fairer, Fitter, Faster?