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The 2020 Public Services Trust Blog

Wednesday, January 5, 2011

the condition of conditionality

By Henry Kippin

Interesting contrast in a couple of news stories coming from the states in the last few days.  On the one hand, portents in the Guardian of a difficult 2 years for President Obama in the face of a Republican controlled Congress.  On the other, a piece in the New York Times on falling inequality in Brazil.  The articles are interesting in themselves.  But something else seems striking.  For many new Republicans (some Tea Party affiliated), the idea of government spending people’s money – in the form of social security, socialized healthcare, sheer government profligacy etc – is abhorrent.  On one level, this is protest against conditionality – that the public is free to earn, on the condition that some of their cash is held back to spend on the ‘public good’.

The NYT article is about the Bosa Familia initiative in Brazil – which aims to reduce poverty through direct cash transfers to the poor:

“The idea is to give regular payments to poor families, in the form of cash or electronic transfers into their bank accounts, if they meet certain requirements.  The requirements vary, but many countries employ those used by Mexico: families must keep their children in school and go for regular medical checkups, and mom must attend workshops on subjects like nutrition or disease prevention.  The payments almost always go to women, as they are the most likely to spend the money on their families.  The elegant idea behind conditional cash transfers is to combat poverty today while breaking the cycle of poverty for tomorrow.”

Plenty has been written in the international development field on the pluses and minuses of this approach (see here for example), but it seems to be working in Brazil. Similar schemes are up and running in Mexico and Tanzania.  As the article says, ‘if current trends continue, the United States may soon be more unequal than Brazil.’

So what is the relationship between the two articles?  On the one hand, they both show the politics of conditionality in different lights.  The public seems far more willing to impose conditions on the poor, or those who would ‘squander’ the resources given to them (cf perpetual benefit cheats exposes in the UK), than accept conditions on high earnings (wrangling over bankers pay, for example?).  The public are more than willing to impose conditionalities on the behavior of government.  This is a good thing.  But those affiliated to the Tea Party seem less willing to contemplate much conditionality in their own behavior and spending.  Sometimes this is a good thing, too.  But as Matthew Taylor alluded to recently, (and an Economist piece supports), citizens seeing themselves as the ‘passive victims of leadership’ without a sense of its responsibility and compromise is a pretty unsustainable mix.

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Posted by Henry Kippin at 10:33 am
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Friday, July 31, 2009

The Healthy Option?

By Henry Kippin

Obama’s healthcare plans are enduring a slow and painful birth. The President himself has claimed that parties are in ‘broad agreement’ over his proposal to inject a public player into the US healthcare insurance market, but congressional committees are apparently still debating how to structure and fund the scheme.

We have written on this blog before about the potential value of a public sector player in a mixed market – and in this case the government option proposed by Obama has potential to pull down costs for the consumer (see this excellent New Yorker article for info), and set a bar in terms of quality and access. As Paul Krugman spells out today, a wholly private market has the potential to skew incentives away from user interests:

“The key thing you need to know about health care is that it depends crucially on insurance. You don’t know when or whether you’ll need treatment — but if you do, treatment can be extremely expensive, well beyond what most people can pay out of pocket. Triple coronary bypasses, not routine doctor’s visits, are where the real money is, so insurance is essential.

…Yet private markets for health insurance, left to their own devices, work very badly: insurers deny as many claims as possible, and they also try to avoid covering people who are likely to need care.”

It is easy to see why those with a vested interest have spoken out against the scheme, but some on the American right are also arguing from an ideological perspective – that a free (or rather unregulated) market is preferable, and it is actually Medicare and Medicaid that have contributed most to escalating costs.

This is fair enough, but arguing for less regulation in the aftermath of the banking crisis seems a bit foolish. What Obama has developed is a plan that is fundamentally market-friendly, and there is little evidence that a truly free market for healthcare would work anyway. As Krugman argues:

“To the extent we have a working health care system at all right now it’s only because the government covers the elderly, while a combination of regulation and tax subsidies makes it possible for many, but not all, nonelderly Americans to get decent private coverage.”

Policymakers in this country will be eyeing the debate carefully, and especially because real limits on public spending may ultimately be the catalyst for more diverse means of providing public services. Despite being played out on fundamentally different terrain, the US healthcare debate shows that getting the right mix of providers and incentives – and thus being careful about market design and regulation – will be key skills for any future government.

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Posted by Henry Kippin at 9:54 am
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Wednesday, June 24, 2009

Obama, Healthcare & the Hard Choices facing Progressives

By Henry Kippin

Today’s Wall Street Journal carries an opinion piece by Robert Reich on the progress (or otherwise) of Obama’s health care reform plan through Congress.   Ive been meaning to write about this for a while, and this mornings article prompted me into action…. 

 

Obama is effectively trying to re-model a system by inserting a public player into an already (mis)functioning market.  The problem is essentially two-pronged: first, lots of Americans (Reuters estimates 47 million) do not have access to health insurance; and second, the cost of the existing private insurance system is both expensive and variable.  A lengthy article in the New Yorker recently set out the issues at stake here. 

 

So Obama’s intention is to establish a public insurance plan.  This would compete with private providers, providing a new cost and quality bar for private competitors.  The American public would theoretically then be able to purchase their medical insurance from a truly competitive (and thus better value-for-money) marketplace. 

 

This sounds like a good plan.  As Reich suggests, it is driven by tinkering with the incentives that underpin the private insurance market.  Currently, these are quite self-serving, resulting in a steady increase in costs for the consumer.  Reich contests that “those opposed to public opinion should ask how private plans can ever compete (with the public option).  The answer is they can and they should.  It’s the only way we have a prayer of taming health-care costs.” 

 

There are other benefits to establishing a public player within a mixed market like this (as I argued in a New Statesman piece a couple of months back).  As well as potentially reducing entry costs to health insurance, access to the information that a public provider will generate can help re-configure a market around new measures of quality and outcomes. 

 

The obvious question hanging over all of this is cost.  How will a public plan be paid for?  And where will the burden fall in terms of potential tax rises?

 

According to Reich, “no one wants to raise taxes or even be accused of thinking about the subject. But honest politicians have to admit that universal health care will require additional revenues. The likeliest sources are limits on certain tax deductions and a cap on tax-free employer-provided health care.”  So for the plan to be realized, the Obama administration will have to annoy the pharmaceutical giants, US employers and the middle classes.  Good luck. 

 

Whilst we observe this debate from afar, we should recognize that this is a living, breathing example of the ‘hard choices’ spoken about so often – by politicians, and by thinktanks like ourselves.  We should all watch with interest, and hope that a progressive approach in this case can set the benchmark for creative reform in other areas. 

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Posted by Henry Kippin at 8:18 am
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Thursday, April 30, 2009

The Language of Reform?

By Henry Kippin

There’s a short piece in the online New Yorker at the moment – based on a conversation between US economists Robert Solow and Joseph Stiglitz. Faced with an American public petrified by the word ‘nationalisation’, they debated at a recent event some more acceptable alternatives to describe Omaba’s bank bailouts.

‘Pre-Privatisation’ – pretty straightforward, if a bit disingenuous. Implies a rapid return to a pre-crisis mode of operation.

Financial Reorganisation – not really sure what this means. Sounds like something the IMF would have ’suggested’ during the 1980s.

Conservatorship – now I’m definitely lost.

These examples might be tongue-in-cheek, but the idea that we should be softening the blow of the financial crisis with linguistic dexterity is pretty serious.

Part of the problem with the global financial system was its complexity – with impenetrable language providing a real barrier to popular understanding of the system. So if we didn’t really understand what was going on before the crash, we should certainly be pressing for clarity afterwards.

Maybe there are lessons here for public service reform in the UK. We are all now aware of the financial mess we are in. And most of us accept that public service spending as we know it will soon be a thing of the past. So do we call this adjustment? Retrenchment? Creative re-structuring? Does it matter?

I think it does. If our parties are honest about the choices they are facing (and their reasons for choosing them), they might expect a degree of understanding from the electorate. We may not be happy about the behaviour that got us here, but we should at least use the crisis as a means to demand more honesty and clarity from our politicians. And the best word I can think up for that is accountability.

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Posted by Henry Kippin at 8:34 pm
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Thursday, April 16, 2009

To spend or not to spend…

By Ashish Prashar

Since my experience volunteering on the Obama campaign I regularly keep an eye on news from the US and have a subscription to the New Yorker – where I spotted this in The Financial Page. New Yorker financial columnist James Surowiecki discusses the possibilities made available to bold companies that don’t shy away from marketing their products and services during a recession.

In the late nineteen-twenties, two companies – kellogg and Post – dominated the market for packaged cereal. It was still a relatively new market: ready-to-eat cereal had been around for decades, but Americans didn’t see it as a real alternative to oatmeal or cream of wheat until the twenties. So, when the Depression hit, no one knew what would happen to consumer demand. Post did the predictable thing: it reined in expenses and cut back on advertising. But Kellogg doubled its ad budget, moved aggressively into radio advertising, and heavily pushed its new cereal, Rice Krispies. (Snap, Crackle, and Pop first appeared in the thirties.) By 1933, even as the economy cratered, Kellogg’s profits had risen almost thirty per cent and it had become what it remains today: the industry’s dominant player.

You’d think that everyone would want to emulate Kellogg’s success, but, when hard times hit, most companies end up behaving more like Post. They hunker down, cut spending, and wait for good times to return. They make fewer acquisitions, even though prices are cheaper. They cut advertising budgets. And often they invest less in research and development. They do all this to preserve what they have. But there’s a trade-off: numerous studies have shown that companies that keep spending on acquisition, advertising, and R. & D. during recessions do significantly better than those which make big cuts. In 1927, the economist Roland Vaile found that firms that kept ad spending stable or increased it during the recession of 1921-22 saw their sales hold up significantly better than those which didn’t. A study of advertising during the 1981-82 recession found that sales at firms that increased advertising or held steady grew precipitously in the next three years, compared with only slight increases at firms that had slashed their budgets. And a McKinsey study of the 1990-91 recession found that companies that remained market leaders or became serious challengers during the downturn had increased their acquisition, R. & D., and ad budgets, while companies at the bottom of the pile had reduced them.

Recessions come and go, and some are more severe and last longer than others. But history shows that recessions invariably end, and when they do, an economic recovery follows, interestingly, enough Kellogg, the cereal company, established its market dominance during the Great Depression when it doubled its advertising budget, at the same time Post, its leading competitor at the time, cut its own ad budget. Since then Kellogg has become the best selling cereal company in the United States and Europe.

So it seems the worst thing that we could do in a recession this severe is to try to cut government spending at the same time as families and businesses around the world are cutting back on their own spending. While tackling our deficit, the government can’t afford to significantly cut investments in health care and education, which will generate long-term prosperity.

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Posted by Ashish Prashar at 1:48 pm
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