Market failure – fortunately we have the NHS

Market ideologues are a group that believe in the supremacy of the market. Their belief may be based on what they learnt in Economics 101 or on what works best for them.

Their problem, and a problem for all of us when market ideologues gain power, is that market ideologues refuse to accept evidence of market failure even when it is staring them in the face.

Of course, they find it hard to see it as a failure when market supremacy is delivering a larger share of wealth to the top 1%, so we need constantly to remind them and everyone else by looking at data. The evidence shows that if we define success, as delivering outstanding healthcare and education for all, or tackling climate changes, then the market is hopeless. It is not hard to understand why. The market can only work if there is effective competition, and effective competition, according to the last great Chicago school economist Henry Calvert Simons, requires that no market participant should monopolise more than say 10% of market share. This works great for say real ale where there hundreds and hundreds of producers, so when I look at the selection of real ales on offer in my local pub I am right in thinking “Ain’t capitalism great!” But when I reject the ticket price of the monopoly bus operator on my route to work, and instead find myself sitting in a traffic jam with all the other cars,  I am also right in thinking, “Ain’t capitalism pants!” In one case the market delivers, in the other it fails.

Another classic example of market failure is US healthcare. Health is a public good and a competitive market is not an efficient solution. The market solution – as exemplified by the US – costs more and delivers less than elsewhere. This topic was covered in a recent NY Times, and I show the graph they used as supporting evidence below.


The points show life expectancy vs. spend for a range of countries over time. The US (in black) is exceptionally bad – it spends far more and yet has been unable to match the rise in life expectancy seen in other countries.

Thank goodness that Beveridge laid the plan and Atlee’s government delivered the NHS. We should cherish and fight to the end of time to protect it, our greatest collective asset.




    1. Charles Adams -

      Yes the graph comes from this data – thanks for adding the links.

      The data for the UK in 2015 is life expectancy 81.6 spend 3756 (in 2010 international dollars).

      US is 78.7 spend 8715.

      It’s debatable whether other European countries do ‘better’, e.g.

      Germany is 81.1 spend 4772.

      There are also other reports which say that UK is the best, e.g.

      The questions worth asking is whether it is still getting better and what should be we do about it?

      1. Andrew -

        Yes, the NHS is ranked highly in that report on care process, access, efficiency, and equity. All well and good. Indeed, the NHS is fantastically efficient, doing amazing things with too little money.

        Unfortunately the NHS ranks rather badly in that survey on health outcomes. Which after all is the entire point of a health service, not administrative process. Ignore the US. How are we doing on life expectancy, cancer survival, neonatal mortality, care for the elderly, etc, compared to our European peers?

        There are clearly things we can learn from the ways healthcare is organized in, for example, the Netherlands, Germany, Sweden, etc, even Australia. (The US, not so much.)

        Particularly when we remember the large positive multiplier for healthcare spending. And that is only for the economic outcome. There is also a large and positive impact on quality of life.

  1. Peter May -

    As you say classic market failure – with these statistics how do the Americans ever believe they shouldn’t have more state funded healthcare? Mind you I understand that the (current government created) problems do get well reported in the US media. And the NHS will always have more difficulties simply because once you have a cure you have a queue. Where insurance and greater bureaucracy is involved, that problem is more disguised. The UK is also unappreciative of the ‘postcode lottery’ as it should be if the N in NHS is to mean anything. But other places in Europe seem more respectful of local conditions and differing health outcomes – indeed also of less diligent statistical collection.

    1. Andrew -

      In the US, they don’t seem to have got past “why should I pay for someone else’s healthcare”. I don’t understand why people without coverage (or with inadequate coverage) are not up in arms demanding something like Medicare for everyone.

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