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Thursday, August 22, 2019

Venezuela’s Health Care System Is in Shambles, but Markets Are Already Responding

Social media and cryptocurrency are helping to unclog the developing Venezuelan barter economy by lowering transaction costs.

Image Credit: Pixabay

Hospitals are supposed to help people, not become a source of their ailment.

Hospitals Work in Many Places

Generally, hospitals do help people. According to the data and graphing tools of Gapminder, rates of child mortality and malnourishment are negatively correlated with the number of physicians per 1,000 people and the number of hospital beds per 1,000 people. Similarly, the percentage of a population surviving to age 65 increases with the number of physicians and hospital beds.

In the United States, for example, we have a relatively well-run health care system.

Despite all of the problems we hear about hospitals and health care in the United States, they do a pretty good job of taking care of us when we need it. According to the American Hospital Association, in 2017 there were approximately 6,210 hospitals in the United States with 931,203 staffed beds, which received over 36 million admissions throughout the year. Rising health care costs might be some reason for concern, wait times in many emergency rooms are bothersome, and some patients might experience worse service than others. Typically, however, these hospitals all perform their primary objective of caring for sick patients.

But Not in Others

Problems with the American health care system, however, could not be more inconsequential than those in Venezuela. Indeed, Venezuelan health care has flatlined and is almost non-existent under a government that continues to centrally plan its economic affairs. This outcome, unfortunately, comes in addition to the ongoing collapse, an estimated inflation rate of 10 million percent, outward migration of more than four million, continuing starvation, and ominous blackouts.

Instead of helping patients, Venezuelan hospitals are barriers to effective medical care.

Medical supplies are in rather short supply. Marcela Escobari, former assistant administrator for the Bureau for Latin America and the Caribbean with the US Agency for International Development, testified on Feb. 26, 2019, to the US House of Representatives Committee on Foreign Affairs that hospitals have less than 30 percent of their required medications. Hospital electricity is in short supply, too. So are physicians. Some hospitals are increasingly deteriorating and filthy, and patients are left to fend for themselves and are prone to infection.

The tragic outcome is that people are suffering and dying in a widening humanitarian emergency. This is especially true for children but also for people in their prime as they acquire infectious diseases like measles, malaria, tuberculosis, and HIV/AIDS. Not surprisingly, the CDC and state departments from the United States, Canada, and the United Kingdom have issued strong travel advisories.

Symptomatic of the larger failures of widespread government interventions into economic and social relationships, there are now more patients than there would have been otherwise. Instead of helping patients, Venezuelan hospitals are barriers to effective medical care.

Different Incentives, Different Outcomes

Why do American hospitals successfully provide health care, while Venezuelan hospitals do not? Whether people are good or bad is not an adequate explanation. Surely there are good people in Venezuela—if they have not already left—who genuinely want to help others; there are also some bad apples in the United States health care system who couldn’t care less about the well-being of others.

Hospitals only emerge when doctors, nurses, researchers, and even construction workers, contractors, and architects all face adequate incentives to offer their services.

If we want to understand these stark differences and perhaps advocate for reversals, one small step forward should be to consider the incentives people face as they provide goods and services related to health care. The incentives people face to build and maintain hospitals, to attend medical school and care for patients, to supply drugs and medical equipment—work in the United States but not so much in Venezuela.

What we commonly think of as a hospital, the place where we go when we are really sick or need emergency care, is a combination of multiple inputs from various markets. These inputs include physical materials, like the wood in the walls and beds in a patient’s room, human inputs like doctors and nurses and their knowledge and experience, and organizational inputs like the staff members and chains of command that coordinate all of those resources, from the triage nurse you see in an emergency room and the janitor who collects garbage to the managing administrator and the chaplain. Hospitals are complex organizations, and they only emerge to form what we typically think of as hospitals when people like doctors, nurses, pharmaceutical researchers and producers, and even construction workers, contractors, and architects all face adequate incentives to offer their services.

Individuals of all shapes and sizes typically only engage in producing goods and services when they expect to earn more than what it takes to produce that good or service. Because of hyperinflation, crime, and a pervasive sense of uncertainty regarding the Maduro regime, people in Venezuela do not have these expectations—or they are fleeting—and the result is that patients, among others, suffer.

A Glimmer of Hope

There is some room for optimism, albeit not much. This optimism does not stem from standard hospitals since they are not functional, and any reform effort seems unlikely given the politicization of health care. Maduro was even touting the quality of Venezuelan health care in March 2018.

As people realize the health care system will continue to fail, they will find alternative methods for acquiring their desired goods and services. Theft and barter are probably common responses. Approximately 45 percent of hospitals reported robberies and shootings. Barter is a feasible option, but as Adam Smith pointed out long ago, it “clogs” commercial activity as people must resolve the difficult problem of a double coincidence of wants.

The Servicio Público Venezuela (@spvzla) is an intermediary for people who are willing to donate or barter medical supplies.

Social media and cryptocurrency, of all things, can help unclog the developing Venezuelan barter economy by lowering transaction costs. In effect, these technologies match people who have medical supplies with people who 1) want medical supplies and 2) are willing to provide other goods and services in exchange.

Twitter is now a source of health care as it eases communication for potentially thousands of people provided they have electricity, a charged phone, and/or have internet access. For example, the Servicio Público Venezuela (@spvzla) is an intermediary for people who are willing to donate or barter medical supplies. Their account has attracted over 51,000 followers since November 2011 and has tweeted more than 37,000 times. Not all of the messages are explicitly for matching people who need medicine, but it gives some indication of the account’s potential reach. Of course, these numbers do not account for direct messages that go unreported.

Cryptocurrency also encourages the provision of relief, food, and, potentially, medical supplies. Casper Niebe, along with students and professors from the IT University of Copenhagen, recently developed PolloPollo—a way to provide charity without the charities. Launched in July 2019, their P2P design is built on the Obyte cryptocurrency, which coordinates producers, consumers, and donors through a digital contract. This service is particularly useful in Venezuela because people can pay producers in cryptocurrency (which they can exchange for other currencies to avoid the Venezuelan bolivar), who will then provide goods to consumers. PolloPollo has completed about 50 transactions so far totaling between $500-$600.

In addition to physical and human capital inputs, hospital systems depend on the coordination of various individuals with different plans and desires. Successful coordination depends on expectations of reward but can quickly become unsuccessful when governments make policies that interfere with those expectations. Continuing such policies makes people poorer and encourages them to search for alternative means of health care, which leaves hospitals anything but a place where people go to get better.

  • Bryon Carson is a Visiting Assistant Professor of Economics and Business at Hampden-Sydney College, in Farmville, VA.