David R. Henderson  

Central Planning in Health Care

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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.

COMMENTS (9 to date)
John Goodman writes:

Interesting examples from Japan, even as I'm sure we all wish them the best at this very difficult time.

BTW, David, I wasn't all that fond of my title either.

simon writes:

The human body is not a business model.

David R. Henderson writes:


Moshe Sharon writes:

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Simon writes:

Sorry Dave, looks like my comment got cut off on both ends! WHat I was trying to say is that "what works" in medicine doesn't seem to be analogous to "what works" in other sectors of the economy. While there may be many ways to run a business, the body only responds very selectively to exogenous inputs. Maybe I'm misunderstand you though. Thanks for the blog!

dullgeek writes:

Aren't the objects of Hayek another problem?

For example, imagine that the pilot program were run in South Florida. One would expect that the amount of budget allocated to frost bite or hypothermia would be almost zero. If you then tried to apply that budget to northern Minnesota, you'd be in trouble. The local information needed build a healthcare budget for S. Florida is different than the local information needed for a budget in N. Minnesota.

John Papola writes:


The range of "business models" in healthcare are MORE diverse and divergent than in other sectors, not less. Ask any good doctor and they will tell you that every single patient is different. And lets not forget that the scope of the unknown in medicine and treatment is vast. We don't even know how much we don't know. We don't know why people need sleep... or why we yawn... or why yawns are contagious.

Standardization in medicine is destroying the profession. It's replacing something which, if done well, involves a great deal of intuition and art, with robotized check-listed procedure ordering.

Why would ANYONE expect the same organization which still heavily subsidizes and mandates corn-based ethanol to know a good healthcare outcome or approach when it sees one is beyond all reason and accountability. This is the same organization which has defrauded the public with politically-driven "food pyramids".

Obama doesn't believe in anything. These "pilot programs" are surely nothing more than a greedy special interest give-away to organizations which threw in their support for his power grab. Public choice works. The people are in it for the money they can suck from the taxpayer. How else could you justify passing a bill which was unpopular to overhaul a healthcare system where more than 80% of the population is satisfied with their care?

Government. Good at fraud... and... I guess that's it.

Simon writes:

Thanks for the insight John!

Adam writes:

The Internet started as a government pilot program. It was released to the private sector and created billions or trillions of dollars in wealth.

Much of the R&D in the drug industry is based on the building blocks of academic research done by government grant funded researchers.

NASA invented Velcro, Tang, and dozens of other products.

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