Central Planning in Health Care
By David Henderson
President Obama has repeatedly given us his vision of how to lower the cost of health care and raise its quality: Find out what works; then get everyone else to copy it. Toward that end, the administration is making millions of dollars available for pilot programs and demonstration projects. Will any of this work?
Ask yourself this question: Can you think of any other industry where low-cost, high-quality production has been achieved by the government running pilot programs? No? Well, if that approach doesn’t work anywhere else, why would you expect health care to be different?
This is from John Goodman’s latest health care post, “Why Pilot Programs are a Waste of Time and Money.” I don’t totally like the title because some pilot programs, as commenter Linda Gorman points out, could be good. But I like the spirit of his piece, which is that it virtually never makes sense to have government figure out what works and then try to get everyone to follow it. Simple reason: many things work. Does Wal-Mart work? Does Whole Foods work? Does anyone maintain that they have the same business model? More complex reason: not everything, as economist David C. Rose points out in a comment, is scalable.
His piece reminded me of how I began my “The Myth of MITI” article in Fortune, August 8, 1983, my first article of about four dozen. (I can’t find it on the web.) Here are the first two paragraphs:
Early in the 1950s, a small consumer electronics company in Japan asked the Japanese government for permission to buy transistor-manufacturing rights from Western Electric. Permission was necessary because at the time foreign exchange was controlled by the tax and trade ministries. The Ministry of International Trade and Industry refused, arguing that the technology wasn’t impressive enough to justify the expenditure. Two years later the company persuaded MITI to reverse its decision and went on to fame and fortune with the transistor radio. Its name: Sony.
In the mid-1950s MITI exhorted a Japanese industry to develop a prototype “people’s” model of its product so MITI could designate the winning firm as the single producer. In the 1960s MITI tried to force this industry’s many firms to merge into just a few. Both times the companies rebuffed MITI, and today they’re doing very well, thank you. Their product: autos.