Mises Daily Articles
Letter from England: Why Tories Lose
It is remarkable how little discussion of serious ideas there has been in the current struggle for the Tory leadership after their second catastrophic electoral defeat. Conservatives seem anxious to recapture the epithet as the "stupid" party that they once almost enjoyed.
Yet this was not always the case. In the early 1980s, Conservatives were at the forefront of social thinking, the eager recipients of ideas promoted by unworldly Nobel Prize winners. In less than a generation, they had developed an economic philosophy that moved from being eccentric, if not outrageous, to becoming conventional.
In the current febrile debate about the public services, they have done little more than utter the usual empty pieties and anodyne platitudes. There has been no attempt to recall the economic philosophy that tamed inflation, revivified the role of the market, and gave fresh life to the individual in the creation of prosperity. But there is now no Keith Joseph, who was prepared to inquire into fundamental values and take them to their logical, if unfashionable, conclusion; neither is there a Margaret Thatcher (no paragon of the minimal state), who was prepared to try some of them out.
Tory intellectuals have always tended to be backward-looking visionaries, exploring the present and future through the eyes of a Gibbon and Macaulay. This is about as much use as the invocation by Michael Portillo—one of the candidates for the post of Conservative leader—of "inclusiveness" as a solvent of our problems. His idea of policy innovation is to demand that the party open its doors to women, gays, and minorities. The last defender of Thatcher back in 1990 now sounds as radical as a Harvard liberal.
What is required is the hard edge of policy analysis: not "wisdom," but that cleverness that ensured preeminence for conservative thinkers throughout the 1980s. Most people have forgotten that they originated a necessary economic revolution; now, Labour, its beneficiary, is credited with those achievements. But if the current issues are really about the public services, then the same innovative and rigorous theorizing that was applied to the economy in general must now be put to work in health and education.
Questions about health must be posed first, and they must be fearlessly answered. How is it that the fourth biggest economy in the world has such a poor health-care system? The figures speak for themselves: America spends 14 percent of GDP on health; Germany, 11 percent; and France, 10.5 percent. When it comes to measures such as number of doctors per 1,000 population, Britain is almost a Third-World country, having about the same number as South Korea and Turkey.
The explanation of these dire figures is blindingly obvious to any Conservative whose mind is not befuddled by Gibbon and Macaulay: It is that the state is responsible for the bulk of public spending in Britain. Eighty percent of health spending is from direct taxation, with only 12 percent from what is laughably called social insurance, and a derisory 8 percent from user charges. In France and Germany, while the state plays a role, the bulk of spending is from social insurance via workers and employers. Of course, it is not real insurance, but it is better than straight tax financing.
For erstwhile socialists, it is possible to have a state sector alongside a private one. Even America, which has roughly half of medical costs borne by private insurance, still has a state system (Medicare for the elderly and Medicaid for the poor) that spends only a couple of percent less than Britain, which is almost entirely public. In Switzerland, while there is a basic minimum at zero price, the population has a wide range of competing medical insurance companies that provide additional top-class facilities. Once again, it is the absence of a major role for the state that ensures high quality.
The answer to British health problems, then, is not to reform the state sector (which is impossible) but to end its quasi-monopoly powers. People will spend more privately than the state does publicly for them. Furthermore, only a free system allows patient choice of doctors and treatment so that the dangers inherent in a monopolistic profession are avoided. It is true that, despite its high spending, the French system is pretty much centralised, but Germany, which is also social-insurance-based, does permit competition between the suppliers of health care.
The only response of both political parties in the UK to the current crisis is to throw more money at the present inefficient system. But this is just as likely to go to grasping health-sector unions as it is to patients, precisely because consumer choice has been virtually eliminated. In fact, the whole ramshackle system is preserved only by a deadly combination of sentimentality—encouraged by Conservatives, who really do seem to believe that the realistic assumptions they make about human behaviour in familiar markets can be suspended when it comes to the "caring" professions—and trade-union obstinacy and self-seeking.
That sentimentality is sustained by the constant repetition of the mantra, "health care free at the point of delivery." Yet, what the British get there is endless queues and inferior treatment. This is not to criticise the doctors and nurses who work much longer hours than in any other health system of a modern successful economy. But in the long run, there are no "efficiency" gains here, because overworked doctors and nurses inevitably will offer poor service.
One way the French get over the problem of waiting lists is to have user charges for much of the medical work. That does not mean that people are impoverished by medical bills, for 84 percent are privately insured in addition to the compulsory element. In fact, the only problem the French had with health care was oversupply. Until recently, they had too many doctors (which is not possible in a genuine market system; people simply choose it) and have cut back on numbers in medical training.
It is true that people who are already insured will tend to exploit the system, since the marginal costs of a visit to the doctor are zero. There is probably some truth in the anecdotal evidence about the French always taking pills and being at the doctor; but properly functioning insurance markets develop techniques for discouraging overconsumption. America has stemmed spiraling costs with the emergence of health maintenance organizations and other prepaid arrangements. There is also the scarcely exploited idea of medical savings accounts, in which patients are actually rewarded for not overusing the system.
But these new and innovative schemes for bringing people much closer to the supply of health care and novel methods to make self-interest—a universal feature of the human condition which Conservatives at one time were acutely aware of—productive of the public good have received no mention at all from the candidates for the Tory leadership.
The only cure for the health-care problem in Britain is its complete privatization. If politicians won't take that step, then the people will. They will exit the state sector and take out private insurance, even though that means paying twice. That is still possible in Britain, unlike in Canada. And just as other countries learned from Britain the lessons of privatization in the 1980s, the country could lead a worldwide revulsion from socialized medicine—including Medicare and Medicaid, which will soon display the one feature that has made British medicine famous throughout the world: rationing.
But changes are possible. There is one area of public policy where Britain is way ahead of Europe: pensions. In the major European countries the bulk of the populations are totally dependent on state provision for their retirement; it is validated by a bogus intergenerational contract. But the decline in the birthrate means that the younger-aged cohorts can no longer rely on this "promise" being fulfilled while they still have to pay for the current retirees. So, far from there being a benign accord between the generations, Europe is quite likely to see them in permanent conflict.
Britain avoided these problems in 1986, when the potentially ruinously expensive State Earnings Related Pensions System (SERPS) was significantly reformed—although it should have been abolished—and its future cost was reduced; furthermore, people were given strong incentives to leave it.
Now, nearly 70 percent of the workforce are in private occupational schemes, so that when they retire, they will not depend upon a fraudulent intergenerational contract but will have a fund that is a product of genuine investment. Now the really poor among the elderly are a rapidly diminishing proportion of the population. Had the original version of SERPS persisted, a significant portion of the population would have been dependent on the state for their retirement income. And with the greater propensity of the elderly to vote, an irrational system would have continued indefinitely.
Education is little different from health. The universities are underfunded, and the reason is the same: almost sole provision by the state. They should be allowed to fix their own fees, which will be determined by costs. The abolition of maintenance grants (and the introduction of loans) was a start, but rationality requires that fees should be paid by the consumer. It was suggested by Keith Joseph in the 1980s but instantly rejected by Conservative MPs worried about their middle-class voters. Even the present derisory charge of £1000 has already been undermined in Scotland.
The Conservatives must face up to the fact that the present system is a gift to the middle classes; despite the expansion of the numbers of students in the past ten years, university education is still disproportionately consumed by the better-off. At the same time, standards are declining, classes are getting bigger, buildings are deteriorating, and salaries are too low to attract able people.
The state's withdrawal from funding higher education must be accompanied by reform of the completely statist school system. But here, Conservatives have been backward in suggesting methods for making the school system more competitive or for controlling the power of teachers' unions. None has suggested even the voucher system, let alone proper privatization. The parents are the ultimate financiers of the school system, but they have very little say in the curriculum, standards of behaviour, or the hiring and firing of teachers. Conservatives have done little to free the country from the baleful effects of the producer's monopoly.
But there will be changes in these areas, and from a Labour government. Its members know that there is considerable consumer dissatisfaction with state-supplied services, and, with their newly discovered lust for office, they will be anxious to use any methods to keep power.
The only serious obstacle to the reform of health is the unions. At present, Labour's plans are limited to farming out some health-service tasks to the private sector. This makes little difference to the collectivist (Stalinist) nature of the system, however, precisely because, in the absence of a proper market, consumers are still excluded from the crucially important decisions about finance and the allocation of expenditure. But small reforms are important symbolically, for once the government has defeated the unions on minor issues, it will go further down the road to privatization in pursuit of electoral success. And the Tories will be outflanked again.
It is all very well for philosophical conservatives to revere the past and distrust an abstract "reason," but with regard to public policy, it all depends on which past and what reason. Intelligent and informed conservatives are aware of the ideas discussed here—they pioneered some of them—but, if they are ignored, the past is all the party will have to look forward to.
It is no good for moderates to demand the middle way as a guarantor of electoral success; they tried that in the elections of 1992 and 1997, and look where it got them. Conservatives' idea of public policy is to outspend the statists and outregulate the regulators. They have lost six million votes since 1992, as the party has swung decisively to the "center." There might just be a democratic validation—not something libertarians are normally in search of—of free-market policies, but certainly there are few votes in being an etiolated socialist.