Canadian Medicare: Doomed from the Start

Mr. Corcoran writes the Report on Business column for The Globe and Mail, Toronto, Canada. This article is from his November 23, 1991, column.

Canada’s health care system is lumbering toward disintegration. Born 30 years ago in Saskatchewan, medicare’s massive bureaucratic and political structure will fall apart unless action is taken. There seems little disagreement on this point, mainly because the evidence is everywhere.

The medicare debate, instead, is building around the salvage operation—how to fix the system and halt its decline, how to control and manage the delivery of health care services to a population that now regards free, socialized medical care as a national birthright. In the words of the British Columbia Royal Commission on Health Care and Costs, “It is a great system, but it needs to change.”

The salvage operation has taken a predictable course. In newspaper commentaries, political debates, royal commission reports, and at hospital association meetings, the common themes of reform are restated over and over again. We need a comprehensive national strategy, a major resetting of priorities, a reallocation of funds, better management.

The problem with this approach to reform of the health care system is that it overlooks an important complication: It won’t work. The best intentions, the most diligent effort, the greatest minds cannot and will not be able to overcome the problem at the heart of the decline of Canadian medical care.

The health care crisis is rooted in the same swamp that leads to the decline of all socialized systems all over the world. Numerous economists long ago pointed out that socialized structures cannot be managed, and are doomed to collapse and chaos, because they suffer from a lack of essential economic information and an inability to make economic calculations and decisions.

The problem of economic calculation is not merely a technical matter that can be resolved with a few more computers or overcome by a more concentrated and dedicated brain trust. The inability to make rational economic calculations—to determine how much money to spend where, when, how, and why—occurs because the system has outlawed the basis for making economic calculations.

Canadian medicare is expected to deliver health care to 25 million people without the three essential ingredients of a workable economic system: prices, markets, and profits.

The arguments against prices and markets are legion. Looming largest in health care is the moral argument. We cannot, critics tell us, leave something as crucial as health care to a market-based system. There’s no denying that the moral issues are important and worthy of every attention. But that is not the point here. The point is this: You can believe that socialized medicare is the most moral system in the world, if you want, but the fact is that socialized medicare will not work.

Another popular argument against markets is to point to the United States. But the U.S. system is not a market-based system. More than 40 percent of the U.S. health care system is paid for by government, the industry is heavily regulated by national and state laws, and evidence of bureaucratic and government-caused waste abounds.

Canadian medical care costs an average of $5,000 a year (in Canadian dollars) for each household. This cost, however, is not paid by consumers of health care, which means that the essential price signals telling the system what services to provide are nonexistent. Since governments own virtually all of the health care system, there are no profit signals telling the owners where to invest and where not to invest.

No Prices, No Markets

Replacing the market are the bureaucrats and the politicians, who must make every decision and calculation—without having the essential information. There are no prices, no costs, no profits, no markets.

The result is the current turmoil and the ultimately insoluble political and pressure-group debates over numbers of hospital beds, doctors’ salaries, service cutbacks, uncontrolled costs, mounting debts, nurses’ responsibilities—all of which will have to be resolved by arbitrary political fiat.

All we need to do, others say, is manage the system better, bring in some good, sound business practices. This is a fruitless exercise. Little pockets of seeming efficiency might be created in some hospitals and in some areas, but the whole economic structure cannot be managed into economic health.

The recent report of the British Columbia Royal Commission is a tragic demonstration of the futility of the current debate. By rough count, there are 650 recommendations and sub-recommendations, the majority of which require the government to expand bureaucratic control through thousands of additional recommendations and regulations.

As the commission said: “There has never been an overall plan, and, quite naturally, the structure that has evolved lacked coherence and, sometimes, logic. It also lacks the ability to assess itself, to objectively judge how just, efficient and effective it is in providing health care.”

Another 650 recommendations will not change the reason the system cannot assess itself—and the recommendations, if implemented, will only make matters worse.