Political Economy

The fact that there are so many voting systems in use around the world implies that the choice of system is more likely to rest on cultural values and context rather than on some scientifically developed, or socially accepted, theory.

The referendum today appears to be heading towards a defeat for the proposal to change to the Alternative Vote (AV) system. If that happens it will be a disaster on two levels.

On the level of national democracy we have been subject to an increasing number of parliamentary seats where the winner fails to win a majority of the votes. That means that the MP has failed to get democratic legitimacy for their position and is entitled to act in any way they wish, no matter how inimical that may be to the majority of voters who voted against them, provided they protect the interests of the minority. Currently only around 200 out of 630 seats in the House of Commons enjoys democratic legitimacy and this figure has been falling for decades. Under the current voting system it will continue to fall.

It is a disaster on the level of the English Democrats whose objective is a devolved parliament and government for England, the achievement of which will have been set back by decades by this vote. This is because under AV the winner has to get more than half of the votes (assuming all candidates are ranked by all voters). Since more than 60% of English voters want an English parliament and since more than 60% of seats currently fail to get a majority,  some, perhaps many, of the candidates would have to adopt support of devolution for England as part of their programme. Or if not devolution a referendum on leaving the EU! What’s not to like about that!

An early move to devolution for England will only happen if one of the major parties takes up the policy. Under AV it is reasonable to forecast that we would have an English parliament within 10 – 20 years. Under first-past-the-post system a better forecast is 60 – 80 years, if ever.

In a rational world all English Democrats would support AV but they do not; all those who say they believe in democracy, in the sense of rule by the majority, would support AV, but they do not; all those who want a voting system whose subtlety allows them to express their choices in an increasingly pluralistic world would choose AV, but they do not.

There appear to be two main arguments against AV. One is the principle of “One man One Vote” and the second is that it is “too difficult for people to understand”.

The first principal appears to come first from the USA where the framers of the constitution were keen to ensure that the number of seats in the federal Congress was apportioned on the basis of population so that equal population numbers gave rise to equal numbers of representatives and so, and this is the key issue, an equal chance to gain resources from the federal government http://bit.ly/kRzW4G.

In this sense the people of England have not had “One man, One vote” since the start of the Goschen formula in 1888 which was the start of systems to give more money to the People of Scotland and we are unlikely to ever have it in England. The “One man, One vote” mantra is in fact an argument for the equalisation of government funding on a ‘per head’ basis through the UK.   That Mr Cameron understands this interpretation is shown by his plan to equalise the number of voters in each constituency. In reality he wants to increase the likelihood of more conservative seats and hence more government resources to the Conservative Party money men. That he will not use the principal in its original form to make funding fairer in the UK is axiomatic – to do so would lose any chance of building up a significant number of conservative MPs in Scotland and Wales.

However most people will understand the slogan as meaning that one person has only one vote in an election. What they do not understand is that meaning in England dates only from the post-World War II period when most, but not all, plurality of voting was stopped http://en.wikipedia.org/wiki/One_person,_one_vote. So Cameron’s claim that “One Man, One vote” has served this country well for centuries is false, and as a student of politics at Oxford he knows it is false.

Could you enhance the democratic legitimacy of the current system? Yes and quite easily. You run the elections in a series of rounds, each round separated by perhaps a week or less and with no campaigning between rounds. At each round if no one has more than half the votes one or more candidates is eliminated and the voting goes through to a second round where once again the electors cast their one vote. No one has more than one vote in the voting ‘pool’ at any one time. This goes on until one candidate has more than half the vote. It is tedious but it ensures democratic legitimacy and it is fair. It is called, in the USA, a run-off system of voting.

But AV is merely an ‘instant’ form of the run-off voting http://en.wikipedia.org/wiki/Alternative_vote. AV ensures that no one has more than one vote in the voting pool at any one time and, like run-off voting, ensures that everyone has one vote in the voting pool all the time, if they wish. So if you like FPTP and you want democratic legitimacy you should like AV!

The second reason that ‘NO’ people go for is that AV is too difficult for some of us to understand (actually they mean “some of you”). In 1963 I became an apprentice in an explosives factory. One of the weekly rituals was placing a bet on the horses (but not by apprentices!). The work of collecting the bets on behalf of the bookie and calculating the odds of the complex bets that were placed was given to the labourer.

Now in the industrial triad of Journeyman-apprentice-labourer the latter was definitely bottom of the heap. Yet the labourer could do more complex calculations of odds than I could then, and probably even now. That was when I learnt that anyone can learn just about anything provided they are motivated to do so and have the time, means and persistence. That was also the time when I realised how arrogant I had been. If you want to see how simple AV is then review the ‘choice of crisps’ analogy in this leaflet

Attending the lectures of Prof. Hans Morgenthau at the University of Chicago I learnt that in a democracy, when the people realise that they no longer have the means to control their state, violence becomes ‘existential’. If violence does occur then the people to blame are the political elites who allowed this situation to arise.

How we vote is one of the many means we have to preserve out control, but only if the mechanism works. FPTP does not work in today’s England because it cannot deliver democratic legitimacy.

That is why, if the referendum vote today goes against AV, the issue will come back. The fight is not over!

In the past years there has been much research around the world into what creates high quality health care. A seminal event in this field was the publication in 2006 of “Redefining Health Care: Creating Value-Based Competition on Results”, by Michael Porter and Elisabeth Teisberg (http://www.hbs.edu/rhc/).

Whilst being, to a large degree, US centric this book’s core message is applicable to any health system in the world. Indeed, as Porter makes clear, every piece of their recommendations are being used successfully somewhere in the world but in a piecemeal fashion.

The book has put together the work that has been done in the last decades on quality, worldwide, with the tools Porter created for analysing strategy. The outcome is a health system that is surprisingly different from what we are used to today but which is implementable, when there is a will to change for the better. So what is it?

What is value in health care

In business terms value is simply the quality, as perceived by the purchaser, of the service purchased divided by the cost of the service. In health care

Value =     Health Outcomes (or Results)/Cost of the whole cycle of care

The outcomes measured depend on the medical condition and are adjust for the difficulty or complexity they present.

The cost is the cost over the whole cycle of care which has number of stages which, with some possible quality indicators for each stage, is shown below:

1    Monitoring/Preventing – Prevention of illness, early detection
2    Diagnosing – Correct diagnosis
3    Preparing – Early & right treatment for the patient,
4    Intervening – less invasive treatment, fewer complications, mistakes & repeats
5    Recovery/Rehab – Faster & more complete recovery, less care induced illness
6    Monitoring/Managing – slower disease progression, less need for long-term care.

Measuring across the whole cycle is important because choosing the wrong intervention, let’s say the cheapest one, may well increase costs in recovery or rehab or long-term management of the condition with frequent return to A & E to sort things out. These costs may be much higher than the cost saving at the intervention stage. Porter reports that in Taiwan, for example, they have reduced the time (and hence the cost) of a GP visit to 3 minutes, which is just enough time write a prescription. As a result the cost of drugs has ballooned and so have the number of GP visits, to an average of 20 per year per person!

Measuring outcomes is not an issue. Recording cost is not an issue. But doing both across the whole cycle of care, for one patient, for one incident of care is very much the issue as it will require the IT systems to do so – and we all know what happens to government backed IT systems.

How should we organise to deliver exceptional health value?

It will come as no surprise to some in industry that this will only happen when there are specialist units that treat a sufficient number of patients a day to acquire the experience and expertise to improve what they do.
Take the example of severe headaches. Those who get them will know how disabling the are. In West Germany they decided to set up a specialist unit with, in one place, the neurologists, psychologists, and physical therapists all of whom were passionate and deeply interested in curing severe headaches. This unit set up affiliations with an imaging unit, an in-patient hospital unit and with additional neurologists that were all similarly passionate about curing severe headaches.

To begin with costs went up as the centre was established but are now 25% lower for the whole cycle of treatment than they were before the change. This is not because the cheapest treatments or the cheapest imaging services or the cheapest consulting neurologist are used. It is because there are fewer hospitalisations and fewer returns to the specialist centres. The quality of health outcomes has increased whilst the cost of providing them has decreased, because of the increase in quality and not because someone has gone on a cost cutting spree.

Primary Care

The organisation of primary care will also have to change. Sixty years ago when fewer conditions were recognised, fewer effective treatments available and when half of us were dead before we were 70 it was possible to think of the heroic GP who could treat each and every medical condition presented to him/her. That is no longer true. That means that either GP practices will have to develop specialist units within them, and become very big so that consequently there will be fewer of them, or  each practice will have to specialise. This means that we might easily have to go to several GP practices over the course of a few years and not just one, as at present. GPs will be paid according to the quality of their part in the cycle of care, not cording to the number of patients on their list.

So why is Lansley Irrelevant?

Well to begin with he has fallen straight into the trap of believing that value for money is increased by reducing costs. He has gone for the £20 billion reduction in expense without realising that increasing quality of outcomes is the only sure way of reducing cost and the only way of doing this is to measure quality and cost over the whole cycle of care.

Secondly he is irrelevant because fiddling around with who commissions health care will have no effect on quality of health care unless the whole structure of the English NHS is changed to a structure that is designed to, and focused only on, improving quality. The cost reductions will come about because high quality means, in the language of industry, less rework, fewer warranty claims and totally satisfied customers.

Thirdly he is irrelevant because he is pinning his faith on GPs who themselves are going to have to make major changes in order for this higher quality health care to come about.

Fourthly he is irrelevant because, as Porter has noted, health professionals love working in these new structures once they realise that they are now enabled to work at the limits of their ability doing what they went into health care for in the first place – making people well!

Fifthly he is irrelevant because he is planning on bringing in private organisations, ostensibly to improve quality, but in reality to reduce cost based on an old and outdated view of how to produce high quality health care.

Finally he is irrelevant because he has spent 12 months wasting his time, and that of his civil servants, in putting together a 500 page Bill to do something that is not going to give the result wanted instead of seizing the opportunity he was presented with to make a truly significant increase in the quality of health care in England.

The lesson for Lansley, and the coalition government is, in the words of the quality guru Phil Crosby: “QUALITY IS FREE” (http://en.wikipedia.org/wiki/Philip_B._Crosby)

I initially planned to post this in November. However the economic outlook was confused at the time, typical of a turn in the economy, and since I wanted to encourage readers to make their own decision I decided to wait a couple of months.

The Bank of England helpfully provide a pamphlet to explain Quantitative Easing (Q.E.) http://www.bankofengland.co.uk/monetarypolicy/assetpurchases.htm#

In this the Bank explains that its approach to Q.E. is to purchase assets from private sector institutions, banks, pension funds, insurance companies and non-financial firms, for example. They do this to ensure that the risk of banks holding on to the money is ameliorated. If the Bank buys gilts from a commercial bank the money will end up as reserves of that bank and is capable of being lent on, subject to the bank’s desired reserve ratio. If the Bank buys its gilts from a non-financial firm or a pension fund the money will eventually end up in a deposit account in a bank, where it is available for lending on, subject to the bank’s required reserve ratio. The money supply effect will therefore be similar.

In its pamphlet the Bank describes it monitoring process. It will monitor

1. The terms and conditions offered on loans?
2. Are corporate debt markets easier for companies to borrow in?
3. What is happening to asset prices (such as shares and house prices)?
4. Are banks lending again?
5. What is happening to the supply of money?
6. Is household spending increasing?
7. Is company expenditure increasing?
8. What is trend in inflation?

Whilst the Central Bank is buying government securities and lowering the interest rate, the government, struggling to deal with reduced tax revenue as a result of the recession, will be selling government securities and finding it is helped by the central bank buying them in. This is called ‘monetizing’ the government’s debt.

In effect the government is printing money to buy its own debt. There is a risk that the government will become addicted to monetizing its debt, pimping its central bank to buy more and more. The classic case is, of course, Zimbabwe where things went so far that in the end the currency had to be junked. In truth many Central Banks are up to it.

But this is not the only economic stimulation in the UK. There is the matter of the governments deficit budget spending. Currently in excess of £175 bn in the current financial year this provides a huge stimulus. Moreover Prime Minister Gorden Brown is driven not by financial prudence, but by a constant concern for his image and by his reckless desire for reelection  at any cost, to anyone. As a result we are told that this stimulation will go on for years. This season should remind us that after the gifts of the kings there followed the slaughter of the innocents!

This gives the chancellor and the Bank three choices. The first is to stop or reverse Q.E. whilst continuing with the budgetary stimulus. The second is to continue or stop Q.E. whilst reducing the budget deficit by a material amount. The third is a mixture of the two. For example this could mean stopping Q.E. whilst making some adjustment to the deficit by increasing taxes generally or cutting government expenditure. A start on the latter has been made by the recent increase in VAT back to its original 17.5%.

If Q.E. is not reversed there are two key risks. The first is that there will be a large stock of bonds in the Bank’s hands “overhanging” the market. This is likely to lead to higher volatility and possibly higher interest rates as a result. The second risk is inflation, possibly severe inflation, and a return to a credit boom. The risk of cutting budgetary expenditure is increased unemployment and reduced demand in the economy.  It seems that you are dammed if you do and dammed if you don’t!

So, let us get back to basics and see what is happening to the eight indicators of the Bank of England.

1. Loan terms. A recent report in the International Financial Review was entitled “From Famine to Feast – a review of the corporate bond market”. The bond markets were open for the entire investment grade spread
2. In Europe certainly corporate borrowing appears easier.
3. Asset prices are increasing
4. Banks are lending but the government has had to increase its support for SMEs
5. The liquidity preference of corporations and individuals is still high
6. We have seen record retail spending this Christmas
7. The trend of company expenditure is not yet clear.
8. Inflation is increasing.

So, what should the Bank of England do? Is it time to reverse Q.E. or are the hints of the Chancellor, that there will be budget cuts, sufficient to dissuade them from this action?

Why not make your own choice and take part in the polls on the sidebar?

Next post will be on climate and weather and how the government and local authorities could have made better forecasts of the chance of cold weather than they appear to have done. There really is no place for the string of excuses we have been treated to!