Tuesday, July 04, 2006

Welfare State in Britain Moving in a Free Market Direction

Leftists, who have always said that welfare states in Europe are more generous and therefore more humane that the American welfare state, have an unpleasant reality to face.

The direction of reform appears to be in the direction of the free market. In the case of health care, that means more choices and more power to consumers.

In the case of education, that also means more choices and more power to parents.

America, with a massive entrenched public school monopoly, is not nearly so far ahead of the British in education as in health care, but we have pioneered the move in that direction.

From The Times:

TONY BLAIR’S programme for greater choice and competition in schools and health is equitable and socially just, as well as essential if the welfare state is to survive. This claim, which goes to the heart of current Labour divisions, forms the central theme of a powerful lecture last night by Professor Julian Le Grand of the London School of Economics, who was until last summer a special adviser in 10 Downing Street.

For many, not just on the hard Left, people do not want choice; the better off will benefit with the poor being left in bad hospitals and sink schools; while the public sector values will be undermined. These assertions are knocked down by Professor Le Grand in the clearest statement to date of the reform case.

The traditional system of monopoly state provision was poor on innovation and inequitable in favouring the better off. More money has helped. But it is only part of the solution, as shown by the superior performance of the reformed NHS in England compared with the only partially reformed service in Wales and Scotland, where spending per head is higher.

The real question is the kind of reform. Professor Le Grand distinguishes between top-down performance management, the initial Labour approach involving centralised target setting, and choice and diversity. The former can, he accepts, work in the short term, as shown by the cut in waiting lists and post-1997 improvement in numeracy and literacy for under-11s. But targets discourage innovation and distort priorities.

So, in his view, the long-term solution requires “incentives for reform embedded within it”. Some ministers have emphasised the strengthening of “voice”, that is direct communication with providers. But this still limits choice, or rather the power of exit, which requires alternative providers.

Professor Le Grand argues that one of the reasons for inequity within the NHS is that the middle classes have a louder voice, or sharper elbows, than the less well-off. Hence, the need for greater choice by parents and patients, with money following choice and new providers such as independent diagnostic and treatment centres, academies and trust schools. There is already ample evidence that these work in raising standards.

These changes are, however, also socially just. Surveys have shown not only how popular choice is, but also that it is precisely those groups who the critics claim will be disadvantaged who want it most. Support for choice is higher among women than men, among manual workers than professionals and managers, and among those earning less than £10,000 a year than those earning more than £50,000. This is not just a theoretical exercise: the response to patient choice has been positive. People were given advice in pilot health schemes, as is proposed for schools. Moreover, voters do not regard public services as inherently superior to the private sector. All depends on the design of incentives and funding.

At stake in these arguments, as Professor Le Grand concludes, is whether we can achieve “a high quality, responsive and equitable welfare state.” The Tories argue that this sounds fine, but cannot be achieved because of internal Labour opposition. That is what the rest of Mr Blair’s time as Prime Minister is about.

If the left wing of the Labour Party in Britain stands in the way of reform, the Democratic Party here, with its instinctive preference for public sector monopolies and distrust of free markets, is likewise the problem.

It would be nice if the Democratic Party had a leader like Tony Blair. Alas, its activists and elites think like mossback socialists on issues like this.


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