Tag Archives: Economy

A recently released report from the European Observatory on Health Systems and Policies has produced a retrospective on what over 40 European countries did in


Financial policy trumps health policy (Photo credit: Tax Credits)

response to the financial crisis, triggered in 2007. The report “Health policy responses to the financial crisis in Europe” (by Mladovsky, Srivastava, Cylus, Karanikolos, Evetovits, Thomson, McKee) is here.

The report finds that a range of policy responses characterised what European countries did, ranging from doing nothing, spending more to spending less, from increasing benefits to cutting them, from cutting salaries, increasing co-payments, and curtailing capital spending. In many cases, plans to expand were put on hold, while in others, plans in place to drive efficiencies were accelerated. The price of medicines went up, down, reimbursements dropped, co-payments went up, retail prices were capped, prices to the pharmaceutical industry went down, or were modified. The response to crisis in some countries was hampered by powerful stakeholder groups (mainly clinical vested interest groups, e.g. pharmacists, doctors) resisting changes and governments backing down.

The authors note that, in the end, “…little has been done to enhance value through policies to improve public health…” We agree that this was a missed opportunity, though the continuing financial difficulties suggest the crisis is hardly over. My guess is that this will be a generational crisis, as the policy responses still need to feed through the system and lead to either increased ill-health, postponed treatment, or in some cases, simply delaying the inevitable future financial crunch.

Unfortunately, the report is a descriptive study; their assessment of the different policy choices made is based on research conclusions in the literature. What that means is that we don’t know whether the choices made were effective, appropriate, or mere compromise. The appendices provide useful summaries of individual country policy actions. I just wish the authors had assessed these actions.

I would also have liked to have known how individual governments made the policy responses they did; clearly some were unpopular, but that does not preclude making evidence-informed choices and sticking to them. What is evident is that political will in many cases is lacking, and the ability to leverage various policy instruments is seriously hampered by powerful vested interests. Clearly, the financial crisis and the need for austerity in indebted sovereign states, has not hampered the effectiveness of lobbying, only demonstrated that these groups are sufficiently powerful to resist reform even when it is most needed — what hope is there when change is optional?

On pages 28 and 29 the authors useful summarise policy tools that either promote or undermine health system goals, assuming of course that countries have in place strategies for their health systems that correlate with these instruments — it is not unusual for a country to require complex strategies simply to deal with the mis-behaviour of existing instruments — an example is where a country permits balance or extra billing, then needs public funds to cover the costs of underinsured individuals, then needs to have resource shifting policies simply because the co-payment/reimbursement system incentivises inappropriate prescribing or treatment, leading to serious regional variations in outcomes. Situations like this  (there are a number of countries in Europe with this specific problem) illustrate the failure to take a whole system approach to the use of health policy instrument selection. This report does not help either by failing to put the individual country policy responses into the context of the country’s system objectives. That might have produced a more useful report for policy-makers.

In the end, we are left undernourished and want to know whether any of these are likely to have perverse consequences (unintended consequences, perverse incentives, including increase in medical fraud and pharmaceutical crime).

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Tightly coupled systems usually fail catastrophically, and reveal our inability to respond effectively

The challenges facing the UK’s coalition government, and many other governments around the world, point to potentially catastrophic failure of the ways we have thought about problems in the past, with an obvious need to adopt new problem-solving methods going forward.

One cause of the financial crisis, for instance, can be seen as the too-tightly coupled nature of the financial system, so problems in one area were almost immediately exported to other areas; tightly coupled systems mean in effect that you have no redundancy capabilities, but also that no area can easily be insulated from the pernicious contagion from another area.  You want more loosely coupled financial systems.  Is that what we see going forward? To some extent, efforts to decouple high-street banking from riskier investment banking suggest some understanding here, but the continuing dominance of large highly integrated banks is not promising.  Corporate behaviour being what it is, banks will try to recouple in order to ensure that no money is left on the table, as some might say. In the end, it may come done to a combination of loose coupling of systems, real, not Chinese, walls, and different compensation and incentive systems. It also might help if the business schools taught business for the real world, not an idealised fantasy world of private jets and personal fortunes.

Other areas have become tightly wound together too, with one aspect of social benefits creating dependencies on others, so benefits from one area implicate benefits from another. Separating the two and not calibrated criteria might help.

It is the logic of linking together what really needs to be linked, and keeping apart that which should be separate that is important.

The analogy I draw is what I do when my computer malfunctions — I turn it off and then on again — I reboot it.  I also get rid of software than has the effect of making my system work less well.

What would it mean to reboot a whole economy? What would it mean to reboot Britain?

It would mean identifying areas where systems are too tightly coupled. An example has recently been addressed whereby people have difficulty moving to take up employment because of the problems with housing and often social welfare benefits which lock people in.

But we can obviously go further. Re-booting Britain also means ensuring economic capacity is not concentrated in one or two centres, indeed, in London and no where else. The US has highly regionalised economies, and a fairly mobile labour force, with strong regional universities, and labour markets, and excellent transportation infrastructure. This creates redundancy capabilities which can be exploited to avoid the ‘eggs in one basket’ approach to planning.  Developing high-speed rail would help regionalise the UK economically and ensure easy movement of goods and services. Ensuring a strong regional infrastructure breaks down the tightly coupling of systems, so that alternatives become economically viable. As one area falls into economic decline or slump, other areas can respond with capabilities, knowing that infrastructure can accommodate in terms of housing, transportation, schooling and universities. Contrast this with, say, France, where virtually all biomedical research is done in and around Paris, so that none of the regional hubs have any significant impact in this area and so lack the necessary infrastructure.  Lyon, Bordeaux are regional centres but of little research significance and cannot therefore cannot generate economic growth through entrepreneurial activity — Britain is avoiding this in the main on research, but it is useful to see the consequences of getting in wrong.

In the end, the trick is to avoid over-engineering solutions to create systems that are highly interconnected and locked together to form rigid, stable systems — this presents us with a paradox. From a policy perspective, a key goal will be to ensure that solutions are not “one size fits all”, that consumers have choices, even with public services, and that public services need to be more flexible and less formalised procedurally so that they can respond to changing conditions in the real-world.  It means differentiated local economies, incentives which enable clustering, and dissuade economic concentration which rigidifies the ability of systems to respond to shocks.

In the end, the route to social and economic stability may ultimately rest on counter-intuitive factors as flexibility, instability, responsiveness, change. The world after all may be just one giant complex adaptive system, and we as humans aren’t yet smart enough to understand this.

Want to know more?

Thomas Homer-Dixon’s The Upside of Down addresses the problems of tightly/loosely coupled systems. His work is in the same vein as Jared Diamond on the reasons why some societies succeed and some collapse (link to TED video presentation). Annalee Saxenian’s work on regional economic advantage is also worth considering.