Marketization undermining the welfare system

27 Jun, 2017 at 09:56 | Posted in Economics | 2 Comments

Sweden has during the last couple of decades tried to marketize the public welfare sector. The prime mover behind the marketization has (allegedly) been the urge for cost-minimization, freedom of choice, and improved quality. The results have (unsurprisingly) been far from successful.

In a recent dissertation presented at Uppsala University, Linda Moberg summarizes her findings on the implications of the marketization trend for the Swedish eldercare system:

The overall aim of this dissertation has been to investigate what implications marketization has had for the organization of Swedish eldercare. In particular, it has asked how marketization, in the form of privatized provision, increased competition, and user choice, has transformed the relationship be- tween service users, professionals, and the state …

Previous research has indicated … that municipalities’ ability to write monitorable contracts often is inadequate and that the requirements often are formulated in such a way that it cannot be retrospectively assessed whether the providers have adhered to them … In addition, scholars have also found that few municipalities audit and evaluate their eldercare on a regular basis … Taken together, this indicates that it is not unproblematic for the municipalities to take on the altered regulatory role that the marketization reforms have assigned to them. Furthermore, the lack of direct public control over the quality in the system may result in, if quality differences between different providers become too wide, an undermining of the long standing goal of social equality in the Swedish eldercare system. An apparent risk, given the difficulty in obtaining information about quality differences between provid- ers documented in the dissertation, is that better-educated or more resourceful users gain an advantage in making informed choices and thereby get access to the best services …

The increased reliance on marketization has not only altered the regulatory relationship between the users and the municipalities, it has also contributed to a system where the ability of the staff to control and enforce service quality within eldercare risks being reduced.

Neoliberals and libertarians have always provided a lot of ideologically founded ideas and ‘theories’ to underpin their Panglossian view on markets. But when they are tested against reality they usually turn out to be wrong. The promised results are simply not to be found. And that goes for privatized eldercare too.

The neoliberal argument behind marketization of public welfare systems is that it not only decreases the role of government, but also increases freedom of choice and improves quality. This has not happened. As has proved to be the case with other neoliberal ideas, privatization—when tested—has not been able to deliver the results promised by empty speculation.

No one should be surprised!

Kenneth Arrow explained it all already back in 1963:

Under ideal insurance the patient would actually have no concern with the informational inequality between himself and the physician, since he would only be paying by results anyway, and his utility position would in fact be thoroughly guaranteed. In its absence he wants to have some guarantee that at leats the physician is using his knowledge to the best advantage. This leads to the setting up of a relationship of trust and confidence, one which the physician has a social obligation to live up to … The social obligation for best practice is part of the commodity the physician sells, even though it is a part that is not subject to thorough inspection by the buyer.

One consequence of such trust relations is that the physician cannot act, or at least appear to act, as if  he is maximizing his income at every moment of time. As a signal to the buyer of his intentions to act  as thoroughly in the buyer’s  behalf as possible, the physician avoids the obvious stigmata of profit-maximizing … The very word, ‘profit’ is a signal that denies the trust relation.

Kenneth Arrow, “Uncertainty and the Welfare Economics of Medical Care”. American Economic Review, 53 (5).