The Taxpayers Alliance have recently published a report on productivity in the healthcare sector. It is a subject on which, despite its salience, we know remarkably little. In most other sectors, productivity is simply the total volume of goods and services multiplied by their market prices, and divided by the number of workers or working hours. Output divided by input. Healthcare services, however, are provided by the state in the UK. They are not bought and sold on markets, and consequently, they do not have market prices. We simply do not know how much customers would be prepared to pay for them in a voluntary exchange. So all we can do is measure physical volumes, such as the number of medical procedures performed. We can even, very crudely, adjust for differences in quality, but we have no way of knowing whether these are the right procedures, performed on the right patients at the right time.
Nonetheless, volume measures, and productivity measures derived from them, are not uninformative. The productivity level at any given time may not tell us much, but changes therein do. If the system treats a lot more people with a given quantity of inputs, that it probably a good thing. If inputs massively increase while outputs barely do, that is probably a bad thing. With that in mind, it is concerning that notional healthcare productivity dropped sharply during pandemic, that it has still not returned to its pre-pandemic level, and that it is lower today than it was ten years ago.
Internationally, the UK is below the OECD average when it comes to the volume of medical procedures performed, sometimes just marginally, sometimes significantly. To what extent is this because it is less well-funded than other systems (the conventional wisdom), and to what extent is that because it is less productive?
That depends on what we mean by “productive”. When it comes to translating medical input factors (manpower and equipment) into activity, the NHS is actually remarkably good. So when we say that the NHS is “unproductive”, this does not mean that doctors and nurses are sitting around twiddling their thumbs, or that medical equipment is gathering dust. If anything, the NHS might have the opposite problem on this front: it might be overexerting its workforce and overusing its equipment. The former, in particular, risks burnout, low staff morale, high turnover and low retention rates.
At this stage, a proponent of the conventional wisdom might feel vindicated. “See, just like we’ve always said! The NHS is doing the best it can with the limited resources it has. But it simply doesn’t have enough of them. Because the Tories, including the fake-Labour red Tories, have systematically defunded it. They are doing this on purpose, so that they can privatise it. That’s always been the plan.”
But the report’s author, Shimeon Lee, also shows that UK healthcare spending per capita is above the OECD average, and that, while there are some countries that spend considerably more, these also tend to be considerably richer than the UK. The issue here isn’t a specific “underfunding” of this one sector – it’s the fact that NIMBY Island has been economically stagnant for so long.
So, to recap, the NHS is not underfunded, but it is, in important ways, underresourced. How is that possible? Are “underfunded” and “underresourced” not just different ways to describe the same thing?
They are not. Lee shows that the NHS is bad at the process of converting financial resources into medical input factors. A pile of cash does not magically convert itself into a doctor or a nurse. That conversion is itself part of the medical production process, and a system which struggles with that process is, in an important sense, unproductive.
While there was a never a “defunding” of the NHS, Lee shows that there was a sharp drop in healthcare-related capital spending in the early 2010s, and while it later recovered, the NHS remains an under-investor compared to other health systems. Health-related investment only accounts for a little over 0.4% of GDP, nearly a third below the OECD average, and less than half the level of Australia or Norway. In Germany, it is nearly three times higher than here.
The conventional wisdom is that marketised sectors of the economy are prone to excessive short-termism, because everyone is just in it for the quick buck, while the public sector acts (or at least, could act) in the long-term interest of the nation. The history of Britain’s nationalised industries suggests otherwise, and when it comes to healthcare, Lee’s paper suggests otherwise too. There is no strong correlation either way, but by and large, investment spending tends to be higher in more marketised health systems.
This should not be counterintuitive. Over the past seven years, Britain has had seven different Health Secretaries. If you are a health policymaker in an NHS-type system, especially in a policy environment with so much rotation, you can be forgiven for not being that bothered about long-term investment, and for focussing more on day-to-day spending.
The issue is not that politicians in other countries are more far-sighted than British ones. It is that in more market-based health systems, investment decisions in the health sector are less of a political issue.
So what can be done?
If we want the system to get better at converting money into inputs, we need to establish something resembling a medical labour market. Up to a point, this can be done even within the current system: it does not require a revolution. The Blair reforms have already created an internal market within the NHS, so it would just be a matter of extending that principle to the labour market: phase out national contracts, and treat each individual NHS provider as an employer in its own right.
When it comes to the system’s short-termism, though, we ultimately need to question our overreliance on the state as a near-monopoly medical provider altogether. Previous attempts to “take the politics out” of the system have not amounted to much. If we truly want to “take the politics out” of something, we have to take the state out of it, and put something else in its place.
