Sunday 8 January 2012

The Politics of NHS Market Reforms

“All public services have to be based on a diversity of independent providers who compete for business in a market governed by Consumer choice. All across Whitehall, any policy option now has to be dressed up as “choice”, “diversity”, and “contestablity”. These are the hallmarks of the “new model public service”
John Denham, Labour MP and former cabinet minister, quoted in the Chartist in 2006

This remarkable statement by John Denham summed up how market ideology had become the dominant model for delivering public services under a Labour Government. The proposed policies enshrined within the current coalition Government’s Health and Social Care Bill are even more pro-market.

My last two blogs explained how market failure was an inherent problem in healthcare. This clearly begs the question:
Why has the market model become the dominant model for delivering healthcare services not just in England, but all over the globe?

The Neoliberal Doctrine

Neoliberalism has been the dominant political, economic and philosophical doctrine of the last 30 years (see  Harvey D. A Brief History of Neoliberalism). It rose to prominence in the early 1980s after the collapse the Keynesian demand management economic model following the oil shocks of the 1970s, the problems of stagflation, and the collapse of the Soviet Union and the fall of the Berlin Wall.
It formed the basis of Thatcherism and Reaganomics and has continued in varied forms through the Major, Blair, and Brown governments.
Margaret Thatcher was heavily influenced by neoliberal thinkers like Friedrich A. Hayek and Milton Friedman. She famously slammed down a copy of Hayek’s “Constitution of Liberty” at a Conservative Party meeting and said “This is what we believe”.  

So what is neoliberalism?
There is no clearly accepted definition because it has complex roots in philosophy, economics, law and politics, but the central tenets underpinning neoliberalism are as follows: (eg See Rachel Turner’s book)

1.     Maximum market freedom, with minimum Government intervention
2.     Encouragement of entrepreneurial freedom, personal responsibility and self reliance
3.     Rejection of collectivism
4.     Protection of private property rights
5.     Public choice theory. A branch of market economic theory that views public servants as rent seeking utility maximisers, who aim to grow their own roles and the roles of Government.

The key policy levers of the neoliberal doctrine are as follows:
1.     Deregulation of trade and finance
2.     Supply side economic policies. Low taxation, especially corporation tax. Price stability i.e defeat of inflation by monetarist policy and minimising wage inflation by anti-union policies
3.      “Rolling back the state".  Privatisation of state owned premises, industries, and public services. Private finance initiative/Public Private Partnerships. Residualising welfare systems
4.     New Public Management (managerialism) i.e  Introduction of private sector management practices to the public sector
5.     Use of Social Capital i.e voluntary sector to provide public services. The Big Society is an example of this.

Despite the global financial crisis, which has been largely blamed on the failure of the neoliberal doctrine, the current coalition government is continuing to adopt neoliberal policies because it is natural territory for David Cameron and modern conservatism. In addition, the dominant Orange Book wing of the Liberal Democrats is also a proponent of neoliberal ideology. A very interesting article by Simon Kovar called The Neo-Liberal Democrats puts all of this into context.

I therefore believe that Ed Balls was accurate in his analysis of the current coalition Government in his candidacy statement for the Labour Party leadership in 2010:
"This is a new neo-liberalism for the 21st century – a merger of Thatcherite neo-Conservatism and Orange Book Liberals which believes that getting the state out of the way is the road to a stronger economy and fairer society"

In summary, neoliberals believe that free markets with minimal state interference are the best way to organise our economic system and society. Thus much of the public sector should be "rolled back" and/or replaced by the private sector. In theory this should shrink the size of government and reduce public expenditure levels, permitting lower taxation to allow the wealth creators more capital to invest in growing the economy, as well as more money for citizens to consume goods at lower prices. The least well off in society should then benefit from the "trickle down" effects of economic growth. Well, that’s the theory!

Some of the key policies introduced by Thatcher were aimed at abolishing capital controls and trade barriers, which was also strongly advocated at a global level by the World Trade Organisation, the OECD, the World Bank and the World Economic Forum. One of the most significant events was the deregulation and computerisation of the foreign exchange markets in the City of London in 1986 - known as "the Big Bang". The resulting massive increase in global financial trading is now widely accepted to have eroded the sovereignty of nation states. This is because governments must retain the confidence of international asset holders and the Bond markets by whatever policy modification is necessary, otherwise they could suffer the consequences of "capital flight", which could lead to severe economic consequences as seen in Greece and Italy, recently.

Tony Blair summed things up well in a speech to the Chicago Stock Exchange in 2004:
"Every day, £1 trillion is traded in the foreign exchange markets in the City of London. Any Government that thinks it can go it alone is wrong. If the markets don't like your policies they will punish you".

Gordon Brown also described how he felt at the mercy of the financial elite in a recent article for the Telegraph
I was under, and Britain was under, relentless pressure from the City that we were over-regulating. All through the 10 to 15 years, the battle was not that we regulated too little, but that we regulated too much.”

The pressure from the global bond markets was a key reason why Labour became New Labour. Key policy makers like Peter Mandelson had accepted the "new reality" of financial globalisation, and that "Old Labour's" social democratic policies were no longer viable and had to be jettisoned in favour of policies in keeping with a neoliberal variant of Thatcherism - the "Third Way". (See "Losing Labour's Soul" by Professor Eric Shaw). Mandelson said, "We are all Thatcherites now".
Thus in opposition, the Labour party went on what was known as the “Prawn cocktail offensive” to woo city financiers and the markets. This prompted Michael Heseltine to famously state in a House of Commons speech:
“All those prawn cocktails for nothing. Never have so many crustaceans died in vain”

The abolition of the Labour party’s constitutional Clause IV further appeased the City, by denouncing nationalisation and emasculating the power of the Unions and the policy making ability of annual Labour party conference. For many commentators, this symbolised the end of Old Labour and the start of New Labour. In his Mansion House speech in 1997 Gordon Brown said that in order for a Government to succeed it had no option but "to convince the markets that they had the policies in place for long term stability".

Writing in the New Statesman in 2007, two Labour MPs, John Cruddas and Jon Tricket, provided a succinct explanation of New Labour’s approach:
 “After years in opposition and with the political and economic dominance of neoliberalism, New Labour essentially raised the white flag and inverted the principle of social democracy. Society was no longer to be master of the market, but its servant. Labour was to offer a more humane version of Thatcherism, in that the state would be actively used to help people survive as individuals in the global economy - but economic interests would always call all the shots”

Lady Thatcher, when asked what was her greatest ever achievement, famously replied:
"Tony Blair and New Labour. We forced our opponents to change their minds."

Thus New Labour instituted policies to suit the needs of international investors and the bond markets. These included granting independence to the Bank of England to remove it from state control - "depoliticisation", the defeat of inflation, prudent fiscal policy (the "Golden rules"), keeping corporation taxes down (including use of stealth taxes), promotion of the PFI (which kept public sector borrowing of the balance sheets), continued privatization of public services (raising revenues to keep taxation low and delivering investment opportunities for city financiers) , introduction of market forces and expanding choice in public services, remodelling state bureaucracy along business lines (New Public Management), and further deregulation of trade and finance.

In a speech to financiers in 2000 about opening up public services to private sector involvement, Gordon Brown stated that they would be investing in:
"core services, which the government is statutorily bound to provide, and for which demand is virtually insatiable. Your revenue stream is ultimately backed by Government. Where else can you get a business opportunity like that?" BBC File on Four

Other evidence for this approach includes other statements as follows:

A reform agenda of choice and the use of competition and greater contestability , involving the independent sector, must be driven forward for public services

Alan Milburn in the Guardian:
“Unless Labour made public services more like the market first, the Tories would just do it on their own terms”

Roy Hattersley, Labour MP quoted in the Guardian, 7th November 2005
“The commodification of public space has now become an aggressive Blairite objective”

Stuart Hall, Emeritus Professor of Sociology at the Open University, argued that whilst the Labour Government retained its social democratic commitment to maintaining public services and alleviating poverty, its “dominant logic” was neo-liberal: to spread “the gospel of market fundamentalism”, promote business interests and values and further residualise the welfare system.

The consequences for NHS policy

Conservatives (1979-97)
The Conservative Government under Margaret Thatcher introduced the internal market into the NHS, as well as managerialism (New Public Management) through the Griffiths report. However, Thatcher understood that the NHS was a “Sacred Cow”, and the political consequences of more radical reform would be dire. Thus, Thatcher never got close to privatising the NHS. In a letter to Hayek, she alludes to the problem. (This is well worth a read)  

New Labour (1997-2010)
Labour’s initial health policy was opposed to privatisation of clinical services within the NHS. The 1997 White paper “The new NHS: Modern, dependable” watered down the “internal market”. The idea of patient choice was also off the menu, with Alan Milburn stating in June 2000:
“we are not prepared to trade off being free and fair, for efficiency and responsiveness to the demands of patients”

Health policy at this stage was about continuity and incremental changes, not radical reform - a Fabian approach. However, two major polices were neoliberal in nature.  Firstly, the Private Finance Initiative (PFI) was embraced by New Labour as a broad and long term political strategy.
PFI enabled public capital spending projects to be undertaken without adding to the Public Sector Borrowing Requirement (PSBR), thus keeping public borrowing “off balance sheet”. This allowed continued public service investment whilst still conforming to the Treasury’s strict fiscal rules, a key part of the Government’s “prudent” economic strategy. It also helped New Labour to win the confidence of the financial and business institutions. The NHS Private Finance Act of July 1997 removed the last doubts that the private sector had about the PFI and paved the way to billions of pounds worth of contracts.
Secondly, in keeping with strict fiscal policy, the first 2 yrs also saw Labour keeping to tight Tory spending plans.

However, the continued chronic underinvestment resulted in the Winter crisis of 2000 and prompted Tony Blair to appear on the BBC’s “Breakfast with Frost” show and famously promise that UK health spending would match the EU average within 5 years. The highly ambitious 10 year NHS Plan was announced soon after and Gordon Brown commissioned Derek Wanless to report on the financial state of the NHS. The report concluded that between 1972 and 1998, the cumulative underspend on the NHS compared to EU average spending was £267billion. A massive injection of money was delivered to the NHS increasing GDP spend from 5.6% to 9.4%. This came with strings attached - The subtitle of the NHS Plan, “A Plan for Investment, a Plan for Reform”, is important because it suggested that the government wanted something in return for its money (“Investment”) i.e significant changes to the way the NHS operated (“Reform”).
A pivotal moment came when Alan Milburn signed the NHS Concordat with the Independent Healthcare Association in November 2000 that stipulated that the private sector should be considered alongside NHS bodies as potential providers of clinical services. At the time Milburn, explained to the Guardian (30th May 2001) that private sector would only be used to increase the capacity of the NHS and this was “not about introducing a mixed economy into healthcare”. However, by 2002, the plans for a market driven approach to healthcare delivery had become clear. In the document Delivering the NHS Plan: Next steps on investment and reform, it was stated that increased patient choice was to be accompanied by a market for healthcare. Moreover, Alan Milburn told the Health Select Committee that as long as care and treatment were freely provided by the NHS, whether it took place in a private sector hospital or a NHS hospital was frankly a secondary consideration.
Since then, the private sector has played an ever increasing role as the government took to the mantra of “what matters is what works”. There would be “no ideological barriers” to NHS modernisation and this was born out with publication of the NHS Improvement Plan in 2004, which prompted former Director of Strategy for the DH, Professor Chris Ham to state in an interview with the Financial Times:
“The foundations have been laid for the complete transformation of health care delivery. We are shifting away from an integrated system, in which the National Health Service provided virtually all care, to a much more mixed one, in which the private sector will play an increasingly major part. The government has started down a road which will see the NHS increasingly become a health insurer”

Choice, competition and diversity were the key policy levers to create a patient led consumerist healthcare market in the English NHS, resulting in the most radical departure from previous Labour policy.
Choice, accompanied by Payment by Results (PbR), is the main driver for market-driven healthcare and privatisation, and is seen as a mechanism to increase institutional efficiency, overcome producer/provider interests and empower the public. PbR was described by the Financial Times’s Nick Tmmins as the reform “which makes everything else possible”.

A detailed discussion of the full range of New Labour initiatives and policies promoting the marketisation and privatisation of parts of the NHS is outside the scope of this article, but the following list provides plenty of examples:

1. Independent Sector Treatment Centres (ISTCs). Please refer to BMJ article by Pollock and Godden for a detailed analysis.
2. I(CATS) - ((Integrated) Clinical Assessment and Treatment Services) – These units act as intermediate steps between Primary Care and Secondary care, but importantly have power to refer on to ISTCs
3. Privatising GP services through Alternative Provider of Medical Services (APMS).
4. Darzi Polyclinics
5. Unbundling of Primary Care. Services broken up into saleable commodities. GPs provide core services, which can be “topped up” either by GPs or private providers
6. Privatisation of NHS logistics (sold to DHL (Novation)), Oxygen supplies, pathology services (£1 billion over 5yrs), ambulance services, and offshore medical secretaries
7. Advertising of health services
8. Independent sector use of the NHS logo. Private companies providing services as part of the Extended Choice Network can now use the NHS logo
9. Patient held budgets.
10. Top up fees for new drugs and technologies. The recent Richard’s review has suggested that patients should be allowed to top up their NHS care in the private sector.

Two former New Labour Secretaries of State for Health provided further evidence for New Labour’s increasing privatisation and marketisation agenda. Patricia Hewitt said that “no arbitrary targets should be set for limits on one provider or another”. Following placement of an advert in the European Journal by the DH Commercial Directorate inviting expressions of interest in managing the purchase of clinical services from health care providers (through the Framework for procuring External Support for Commissioners (FESC)) Frank Dobson said:
“If this is not privatisation of the Health Service, then I don’t know what is”

Coalition 2010 –
The current Health and Social Care Bill is a blue print for a full blooded external market and a radical extension of the above polices. It will lead to increasing privatisation and marketisation of the NHS and the demise of the NHS as publicly provided service. Over time, we will see a move towards a mixed funding system of healthcare with only selected NHS core services provided by the state - a minimal safety net.
According to Whitehead, Hanratty, and Popay from the Dept of Health Inequalities and Social Determinants of Health, University of Liverpool, the current reforms are:
"ideological with little evidential foundation. They represent a decisive step towards privatisation that risks undermining the fundamental equity and efficiency objectives of the NHS. Rather than “liberating the NHS”, these proposals seem to be an exercise in liberating the NHS’s £100 billion budget to commercial enterprises." Lancet. 6th Oct 2010


According to Professor Rudolph Klein, the NHS is “A unique example of the collectivist provision of healthcare in a market society”.
That is precisely why those who are driven by neoliberal ideology want rid of the NHS -  collectivism is the antithesis of neoliberalism because it hampers the efficient functioning of the market. (Plant R. The Neo-liberal State. OUP 2009)

All three major political parties have adopted much of the neoliberal doctrine, which explains why they have all been guilty of undermining the founding principles of the NHS in favour of market principles.
However, they should all listen to the words of the BBC's Newsnight economics editor, Paul Mason:
"A deregulated banking system brought the entire economy of the world to the brink of collapse. It was the product of giant hubris and the untrammelled power of the financial elite. Basically neoliberalism is over: as an ideology, as an economic model. Get over it and move on. The task of working out what comes after it is urgent . Those who want to impose social justice and sustainability on globalised capitalism have a once-in-a-century chance". Mason P. Meltdown. The End of the Age of Greed. Verso. 2009 

Unfortunately, this opportunity was not grasped the first time around because the financial elite proved too powerful a global lobbying force. However, the ongoing second global financial crisis could sound the death knell for the neoliberal doctrine. This could result in less of a focus on market driven policies in public services like healthcare. We should remember the original purpose of the NHS was to sweep away the failed “market” of voluntary sector, private and municipal hospitals, through nationalisation. It was based on the idea of pooling of risks with everyone covered - “Universality” by a “Single payer” system. It recognised the importance of a healthy society, social solidarity and the social contract between doctors and patients. Surely now is the time to protect these principles against the Health and Social Care Bill which is indoctrinated with failed neoliberal ideology.
It would be tragic to see the NHS fall, just as its long time tormentor is dying. 


  1. An eloquent explanation, Clive.

    I remain baffled, however, by the motives of politicians. Why do so many, of every hue, espouse neoliberalism?

  2. "a merger of Thatcherite neo-Conservatism and Orange Book Liberals which believes that getting the state out of the way is the road to a stronger economy and fairer society"

    Where 'fairer' = keeping what you gain in market activity - justification of polarization of wealth.

    Neoliberalism serves the interests of those with economic power - it is an ideology not simply an economic programme - hence the huge increases in inequality since late 70s.

    Why do politicians espouse it? Where do they go when they retire?

  3. Thanks for comments. The issue of why the political class has promoted this ideology is complex in my view. I strongly recommend Colin Crouch's book "The Strange non-death of neoliberalism". He explains that in the post war period the state controlled the market, but when Keynsianism was rejected in favour of the neoliberal doctrine, the market began to control the state. This led to situation of th financial and corporate sector enjoying huge profits and power. So more recently, the state and the market is now controlled by this plutocracy. The political class has been captured by plutocratic class. This has resulted in more and more wealth going from poor to rich. A scandalous situation tha has brought the world economy to its knees.

  4. My favourite aunt regarded the NHS as part of the alternative to a revolution in the UK after the Second World War.

    She was there, and it sounds plausible.

    As did the view from elsewhere that WW1 was a method of dealing with those who would revolt a generation earlier.

  5. Thanks wonderful explanation of what's been happening. IMHO the reason for the attraction of Neoliberalism is that it increases profitability. The cake may get smaller but the rich get a bigger slice.

    If we are to stop this juggernaut we have to get out on the streets in HUGE numbers. I can't think of anything else that will stop them.

    We should be organising now to build for massive resistance. If we can't stop them destroying our most precious institution, then nothing is sacred. Bye bye any welfare state. We are all f-- sorry done for!

  6. I think Keynes once said of Hayek something like: "an extraordinary example of how, starting with a mistake, a remorseless logician can end up in bedlam." Which sums up my feelings on reading much of his work very nicely.

    I'm not at all sure neoliberalism is actually unpopular at the moment, it isn't just politicians who are only tinkering around the edges. The public have some specific things they're angry about, but they aren't expressing interest in an alternative philosophy.

    And it's not enormously easy to express the alternative. Reality is complex, and some arguments are far easier to compress and distill than others. It's easy to compare austerity to the personal moral rectitude of the household, but harder to start arguing about fallacies of composition.

    It's easy to conflate market-driven individualism with 'freedom' and to make it appear empowering, but harder to argue that society has a right and an obligation to assert control and produce boundaries.

    It's easy to say a cat rescued someone from deportation. And on the whole, ideology is often a great deal more pronounced in people's minds than the facts.

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  8. HaywoodsLocalVoice - Do you refer to the BMJ's Food for Thought for Christmas 2011?
    The assault on universalism: how to destroy the welfare state

  9. Clive – I welcome your review of NHS reforms and their ideological basis. But it accepts some misrepresentations of economic developments and does not go deep enough.

    Thus Keynesian demand management did not fail in the 70s. In the UK, the prices and incomes policy failed because trades unions, driven by free collective bargaining, caused huge wage and retail price inflations relying on demand management to maintain growth and full employment. Thatcher abandoned this policy and curbed inflation with weak demand and high unemployment; increasingly blamed on the unemployed.

    Reagan, Major and Bush II used Keynesian fiscal policies to maintain growth despite huge budget deficits. But these are quietly ignored and Brown blamed for doing this optimally.

    In the US, Christian managements of companies that had dominated markets and paid their workers well were taken over by freemarketeer who optimised profits globally. Watch Richard Wolff’s Economic History:

    Free movement of capital allowed this although the principle of comparative advantage used to justify free trade assumes that capital stays home. Keynes understood the threats from free capital and usury when he designed his Clearing Union but the US vetoed it and insisted on Bretton Woods. See my comments as GCAT under Michael White’s How to save the economy:

    The deeper problem is widespread acceptance that people should be free to pursue their interests subject to competition and choice. Over time, this ideal has spread from business to finance and personal life and now to government. But religions advocate restraint, concern for others, cooperation and loyalty to the common weal. These values should be paramount in the naturally socialist NHS. Yet few argue it should be an executive agency with disciplined management respectful of subsidiarity that uses limited revenue and capital fairly and sustainably and cooperation, emulation, O&M and R&D to improve efficiency.

  10. Rereading this blog, I find another way Keynesian demand management is disparaged. Thus Labour did not keep to tight Tory spending plans for 2 years to meet strict neoliberal fiscal policy. Labour kept to this policy because the economy was expanding so fast had it not done so unemployment would have fallen too low and inflation would have taken off again.

    This was the application of conventional Keynesian demand management to the deregulated economy given the recovery that Chancellors Lamont and Clarke had produced under John Major. Gordon Brown confused the situation by saying he was putting the public finances in order when he could either keep the tight policies or risk retail price inflation. The surpluses were incidental though useful to meeting his golden rule.

    Budget deficits are not the only stimulus applied to the deregulated economy. While Thatcher was eliminating them, she promoted economic growth by allowing the levels of the money stocks to increase greatly by keeping MLR low. Brown allowed them to increase more modestly. Now interest rates are near zero, the Bank creates huge amounts of low interest credit that is euphemistically called quantitative easing.

    The inflationary effects of these monetary policies can be countered by lowering demand and raising unemployment. But this depresses growth and may end in a hyperinflation.

    Given the manifest inadequacies of deregulation, how anyone can seriously consider liberating the NHS confounds me. Do freemarketeers believe their own propaganda?

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