Wednesday, November 26, 2003

Free Markets 

Paul Johnson's A History of the American People has a fascinating account of the buyup of land in America in the first half of the 19th century, and how the US Government set it up. The book compares it to the efforts of Britain in Canada, South Africa and Australia. Johnson says that because the British government was worried about land speculators, they tightly regulated the purchase of land, and as a result those regions developed much more slowly than America did. And, ironically, it was the speculators that benefited in the British-run countries- the rules played right into their hands. And it was the settlers that benefited in America. The speculators in America were the ones who were able to get the land developed, get roads and schools built, so that the land they owned would be worth selling. The result was the huge expansion of the country in the 19th century.

Now I compare this to an article in the WSJ (subscriber only link) entitled "Back in the USSR" criticizing the Medicare-strangled state of health care in America:
The U.S. economy has boomed because brilliant entrepreneurs can enter it freely. If they succeed, they are appropriately lionized. A McKinsey report claims that the retailing industry was No. 1 in enhancing productivity, and credits Sam Walton's Wal-Mart for much of that increase. No. 2 was the finance sector, whose productivity was greatly enhanced by John Bogle's dogged insistence on the wisdom of indexed, consumer-driven mutual funds. Yet, had Messrs. Bogle and Walton been forced to rely on government approvals to start their businesses and on government-dictated products and prices to earn their revenues, we might not have benefited from the productivity-enhancing innovations they created. Indeed, they would have been chopped off at the knees if they were in the health-care sector: It prohibits physicians, the health-care equivalent of Messrs. Bogle and Walton, from owning their own facilities. The unattractiveness of these conditions explains why few of the 100 Harvard MBA students enrolled in my "Innovating Health Care" course plan to enter the trillion-dollar health-services sector.

Because government sets the price that Medicare will pay for things, which ends up being the standard that private insurers use, there is no motivation for health-care providers to decrease costs or improve services. Advocates of regulation say health care is too complex and too important to leave to the private sector. But how many complex and important markets have been handled so much more efficiently by the private sector? Land in the 19th century was, and remains today, very complex and extremely important.

It seems that one ought to say, health care is too complex and too important to leave in the hands of the state.

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