Health & Development Towards the Millennium: Re-inventing Government, or the Demise of Community ? - Issue Papers

Health & Development Towards the Millennium: Re-inventing Government, or the Demise of Community ?

Chan Chee Khoon - People's Health Assembly - Issue Paper

Paper presented at:
USM/MMA/CAP National Conference on
Privatisation and Health Care Financing in Malaysia : Emerging Issues & Concerns
April 5 - 6, 1997

Universiti Sains Malaysia

Health and Development: Emergent and Re-emergent Perspectives

... when moral suasion fails, reach for the economic argument...

In the 1950s, the prevailing wisdom among technocrats and development theorists, embodied in the Harrod-Domar growth model (Todaro, 1989) held that investment in physical capital was the essential and most important ingredient in a recipe for increasing productivity and rapid economic advancement. Expenditures on human services, grudgingly acknowledged as being socially (and politically) necessary, were nonetheless seen as consumption items which reduced savings, i.e. an otherwise investible surplus.

This ambivalence was attenuated in the 1960s by human capital theory (Schultz, 1961; Becker, 1975), which held that investment in human capacity, no less than investment in physical productive and supportive assets, was crucial to a society's prospects for economic growth. It is worth pointing out that in both cases, the rationale is framed in terms of its impact or contribution towards economic growth, in contrast to say, a Health-for-All or basic needs approach which regards satisfactory health as an end in itself requiring no further justification. To paraphrase Rashi Fein, when moral suasion fails, reach for the economic argument, a telling commentary on our times (Fein, 1971).

Inasmuch as these ideologies find or lose favor depending on social and historical conjuncture, it should come as no surprise to us that these formulations emerge and re-emerge in various combinations and guises within our own national discourse and articulation of policy.

Thus we note that the Economic Planning Unit, in line with its emphasis on productivity-driven growth in the 7th Malaysia Plan, considers that investment in human capital (health, education, skills, organisational re-structuring and such like) would improve human productive capacity and thereby accelerate the process of economic growth (Zainab, 1996).

At the same time it is asserted that Government expenditures on human services (including health-care and education) have become financially onerous and cost-ineffective to the point that major policy shifts such as corporatisation and privatisation are required (EPU, 1985).

In truth, if we descend from the realm of ideology, it was probably the case that the post-colonial state, more so even than the colonial state, was driven primarily by considerations of political legitimacy in formulating and implementing its health policy (Manderson, 1987). And on the whole, a very decent job indeed was done, and at quite modest cost (Chan, 1996). As a proportion of the Gross Domestic Product (GDP), our expenditures are among the lowest in Asia, and yet our vital health statistics are among the best (World Bank, 1993), indeed not far behind those of richer industrialised countries. The infant mortality rate for Peninsular Malaysia for instance is approximately that of the United States. In other words, we are getting quite good value for money.

At 2.3% of GDP in 1995, it is hard to accept that our public expenditures on health care constitute a crushing financial burden. In view of the recent and ongoing privatisations in diverse areas such as power generation and distribution, postal services, telecommunications, airlines and railways, seaports and airports, highway construction and maintenance, and water and sewerage services, we should be reaping the dividend of a decreasing burden on the public purse. Aside from one-off injections of funds into the Treasury from sales of Government assets and from stock market listings, there will be reduced operational outlays that the Government has to contend with, if indeed these are not abolished forthwith. Furthermore, Government revenues in this buoyant national economy are at least stable, more likely rising. Or are they ? Jomo KS has pointed out that the prime candidates for privatisation would have been the more profitable public enterprises, leaving the Government with the less profitable and loss-making ones (Jomo, 1995). On the other hand, the Government remains the substantial shareholder of many privatised enterprises, Tenaga and Telekom being examples.

Whatever the case, it appears the Government has other plans for our public financial resources, in particular for the massive investments in infrastructure, strategic industries and other mega-projects that it considers important to our future wellbeing. These, we are told, would not be possible under a regime of mounting welfare commitments and entitlements such as are characteristic of more mature industrialised societies.

Observant commentators have already noted that despite our continuing obligations to pay taxes and other public levies, we are also now paying (or paying more) for privatised social services which in the past had been financed or subsidised out of public revenues (see for instance New Straits Times, 21/3/1997 on the proposed extension of highway toll charges). More and more, privatisation appears to be an expedient de facto tax to finance our thrust into a hi-tech 21st century, in the same way that our high-priced imported and domestic cars are a de facto tax to subsidise the national car industry. In short, notwithstanding our concern with human capital, we need to squeeze "social consumption" in order to finance even more ambitious physical investment.

On the eve of the millenium then, we find ourselves in the midst of a sea change, with privatisation lapping at the shores of the health care sector. Currently a public-private mix, the health care sector has performed creditably since Merdeka in ensuring access for the vast majority of the population (Heller, 1982). It is now on the threshhold of quite profound change, with major realignments taking shape and new constellations of emerging and colliding interests. In essence, what is at stake is whether demand, as opposed to need should increasingly be the future basis for health policy, as manifested in this struggle to defend the meaning of efficiency as understood by the mainstream of public sector health planning :

[Need, or the] capacity to benefit, rather than expressed demand (ability and willingness to pay), [is] the yardstick [for efficiency] against which the allocation of resources should be assessed. This means that the...patterns of morbidity and mortality [and] their causes [and] the effectiveness of health care technology...are factors which should be taken into account in assessing whether any particular configuration of health resources is socially efficient or not..... A situation in which...health resources is concentrated on a population which is willing to pay for them, but will have little or no measurable health benefits for them, is less economically efficient than a situation in which the same resources are devoted to people with conditions for which medical science has interventions which are effective, and which are at low cost. The choice between need and demand as allocative devices is a fundamental one : either the market determines the financing and consumption patterns for health care, or overall health status is pursued as the object of policy. In this respect WHO's Health for All commitment is a clear statement of concern with the health status of the population as a whole. The fact that the poor...tend to have greater health needs/capacities to benefit from modern health technology means that the direction of care to them should be a priority on economic efficiency grounds as well as on grounds of social justice.

Health care services in Malaysia and its financing has been under review by the Federal Government since the mid-1980s. The backdrop to this of course was the policy of privatisation in national development inaugurated by the Mahathir administration in the early 1980s. Partly dictated by an unsustainable expansion of the public sector (Asher, 1989), and further exacerbated by a prolonged global recession at the time, the pace of privatisation has accelerated in the last decade and has gone far beyond what might initially have been a contingency required of a state in fiscal crisis.

This shift in policy has particular significance in the Malaysian context where the state's role in restructuring society had hitherto made it a dominant economic presence. The sustained, aggressive policy of privatisation represents a watershed in national development, and brings with it enormous social significance. (Arguably, it signals the emergence of a confident Malay business class).

The resurgence of free market ideology was of course worldwide, and in Malaysia too the rhetoric of privatisation stressed the financial and administrative burden of government and the superior efficiency of the market in resource allocation (EPU, 1985). Conveniently, it also provided an ethos for the divestment of state assets hitherto held in trust for the bumiputera community to individuals and privately-owned corporations.

An integral part of this policy shift was the proposed privatisation of a range of social services hitherto organised and delivered by Government and statutory agencies. The Privatisation Masterplan of the Economic Planning Unit (EPU, 1991) laid out a policy framework, action plan, and a timetable for the implementation of this policy. One-hundred and forty-nine existing agencies with a total paid-up capital of MR 6.4 billion were identified as potential candidates for divestment. Among them were twelve general hospitals in peninsular Malaysia.

In the last several years, power generation and distribution, postal services, telecommunications, airlines and railways, seaports and airports, highway construction and maintenance, and water and sewerage services have been corporatised or privatised. In contrast, privatisation in the health care sector has been relatively modest-paced but the trend is nonetheless clear. Hospital support services have been contracted out in what was billed as the world's biggest-ever healthcare privatisation (New Straits Times 29/10/96), and corporatisation of the public hospitals may be a way-station along the route to full privatisation. The Government has commissioned a number of studies looking into alternative schemes of health care financing, but the lack of information and open discussion has led to much public anxiety. Meanwhile, the corporate private sector, including not a few state-linked interests, has forged ahead with ventures in hospitals, pharmaceutical manufacture, formulation, distribution and retailing, rehabilitation and extended-care facilities, and medical education, in addition to hospital support services (Chan, 1996).

The general trend now seems clear -- services essential to the cohesiveness, resilience and reproduction of society and its institutions (social reproduction), once the preserve of the public sector (and the family), is increasingly perceived as offering opportunities for profitable investment by the private sector.

Precisely because Malaysians currently spend in the aggregate the relatively modest sum of 3.5% of GDP on health care (New Straits Times, 19 Mar 1997), would-be health care entrepreneurs, with encouragement from prominent policymakers, salivate at the growth prospects of this service industry. Fuelled by a rising affluence, the demand for health services is furthermore notorious for its propensity to be provider-driven as well client-driven, especially when third-party payers (such as insurance) are involved (Mechanic, 1978; Fein, 1989). Doctors, as medical decisionmakers, are not known to scrimp on behalf of their patients, and patients (or their relatives) often go to heroic lengths, financially, when faced with life-threatening or even less dramatic circumstances.

Not surprisingly, healthcare is touted as one of the sunrise industries for the millenium (Mohd Ali Hashim, 1990), reliably heralded by the frequency of industry-wide conferences and the size of consultant fees. The example of the United States however should warn us as to what can happen when this potent brew is added to a demand-driven, fee-for-service system (Woolhandler et al., 1993).

We can safely predict that notwithstanding the pro-active efforts of the Ministry of Health in promoting managed care and cost-containment, continued privatisation of the healthcare sector will lead to sharp escalation in health care costs to the consumers, and in the absence of a social safety net, even greater inequity of access for the non-affluent. The United States, more so than any other industrialised country, relies on a market-driven system to deliver health care. For at least the last half-century, the highly-influential American Medical Association and its allies have resisted attempt after attempt to create a more rational, needs-based system, most recently the modest attempt to extend insurance coverage for "managed health care" to low-wage working families, i.e. the Clinton health plan of 1993. Cost-containment wasn't just a concern of the US Federal Government -- individual consumers, private insurers and indeed large employers are balking at the skyrocketing healthcare costs : the General Motors Corporation for instance, found itself spending more on employee health benefits than on steel for its vehicle products.

Despite expenditure amounting to 14% of GDP on health care (the highest in the world), more than 40 million US residents remain uninsured, including one out of every seven children. Of these 10 million uninsured children, nine out of every ten have working parents, two-thirds of whom earn incomes above the federal poverty level (Children's Defence Fund, 1997). Clearly, the affordability of private medical insurance in the US has gone beyond the means not just of the unemployed and semi-employed underclass (Finkelstein, 1997).

The US has state-of-the-art medical technology, but its infant mortality rate is exceeded only by Portugal among the twenty-two OECD countries. The Children's Defence Fund for instance estimates that if the US attained Japanese levels of infant mortality rates, 15000 fewer American children would die of preventable conditions each year. Among adults, the life-expectancy of men in Harlem is now shorter than that for men in Bangladesh (Woolhandler et al., 1993).

It is an unwelcome irony that those of us who have been calling for increased (public) expenditures for health care in Malaysia may indeed see that materialise, but as a result of privatisation, and without the commensurate benefits.

The Government is surely aware that higher costs of living inevitably leads to pressure for compensating wage increases. Could it be that the high-wage, knowledge-intensive economy we aspire to will absorb these (and other) cost-of-living increases ? This is wishful thinking at best, which assumes that such a transformation would spread its benefits equitably. Besides, Bangalore, an important center for knowledge-intensive information industries in India still relies on its labor-cost advantage in the global economy. In our zeal to privatise all manner of social services, do we have sufficient compensating advantages that can offset steep increases in costs of living ? There is as yet paltry evidence that privatisation in Malaysia has resulted in efficiency gains, greater customer satisfaction, or lower unit costs to consumers. The bulk of evidence points to the contrary (Jomo, 1995).

... The arch enemy of an open society is no longer the communist threat but the capitalist one... It is wrong to make "survival of the fittest" a leading principle in a civilized society... laissez-faire ideology has effectively banished income or wealth redistribution... I have made a fortune on international financial markets, and yet now fear that the untrammelled intensification of laissez-faire capitalism and the spread of market values into all areas of life is endangering our open and democratic society...

But sadder than all this is the demise of community that comes along with the privatisation of what are unavoidably communal support systems. This abdication of mandated communal responsibility, euphemistically labelled a "re-invention of government", is surely a very un-Asian abandonment of communal solidarity.

But in a sense this "abdication" is illusory, perhaps wishful thinking. Robert Evans, health economist at the University of British Columbia properly reminds us that the "government versus market" dichotomy in healthcare financing is misleading (Evans, 1996). Even in that archetype of free-market health care, the United States of America, more than half of national health expenditures is accounted for by public spending -- on Medicare (for the elderly), Medicaid (for the poor), and on other federal, state, county and city government health services. Health care provides one of the more dramatic instances of market failure, i.e. the inability of the market mechanism in contemporary societies to cater to the health care needs of a large fraction of society's members. Short of abandoning all semblance of communal solidarity and civil decency, governments have had to intervene massively, if not in the direct provision of healthcare services, then in the more indirect roles of regulation and financing. No stable government concerned with its legitimacy and its popular mandate can disavow this obligation and responsibility. Indeed, this is acknowledged in the 7th Malaysia Plan thus:

.... the corporatization and privatization of hospitals as well as medical services will be undertaken during the Plan period. The Government will gradually reduce its role in the provision of health services and increase its regulatory and enforcement functions. A health financing scheme to meet health care costs will also be implemented. However, for the low-income group, access to health services will be assured through assistance from the Government.

In the United States, this governmental responsibility takes the form of public spending which procures from the medical marketplace those products and services needed (and sometimes not needed) by its eligible clients. It is instructive that notwithstanding the very substantial Medicare and Medicaid programs, more than 40 million US residents currently remain uninsured, with many more inadequately insured.

The role and necessity for public financing in healthcare is therefore not eliminated by privatisation. There will inevitably be a public-private mix in the financing of healthcare, whatever form the delivery of health care services may take. Medicare and Medicaid, and now the "internal market" in the UK National Health Service (NHS) is predicated on the assumption that a substantial role for public financing is not inconsistent, indeed is necessary with market-based delivery systems.

The real issues therefore are:

I sincerely hope that in the rest of this conference, we will be able to discuss at greater length the experiences from other countries, and to reflect on our own accumulating experience of market-based reforms. For the moment, I would like to end with the following brief observations.

In the United States, Steffie Woolhandler and David Himmelstein at Harvard University together with their colleagues have over many years produced detailed, exhaustive analyses of the performance of the US healthcare system. The result is a terrible indictment of a wasteful, irrational and inequitable system which yields, at higher expense, poorer outcomes in comparison with most other OECD countries. (Woolhandler & Himmelstein, 1991, 1997; Woolhandler et al., 1993).

In the case of the UK, it would be rash at this time to rush to judgement on the performance of the NHS "internal market" reforms. The current, prevalent sentiment however is captured by the following quotes:

.... The British experience with GP fund-holding and hospital trusts is of particular interest in this regard; so far no close observers of that system seem willing to commit themselves as to whether or not it is "working". Its introduction seems to have been associated with a significant increase in system costs, and particularly in managerial overhead. There are very clear warnings from the United States that "more management" may simply mean more money for more managers. Reported declines in waiting lists in the UK may show no more than that with more money, one can buy more services.

.... The first year of the internal market in the NHS has been claimed to have resulted in increased efficiency. These claims, however, are hard to substantiate because the systems for operating the market are not fully in place. Examination of data on tax relief for private health insurance premiums for over 60s, general practice fundholding, and implementation and transaction costs suggest that much of the increased efficiency is not due to the reforms but to increased funding.

And finally, from Malaysia, a collaborative study between the Ministry of Health and the Academy of Medicine of Malaysia on the utilisation of specialist services in the public and private sectors, which highlighted a disturbing finding which could be exacerbated with further privatisation of healthcare, in particular of the clinical services:

[Of the study subjects] ... about 70% of the patients managed by the public sector specialists and about 25% of those managed by the private sector specialists were complex cases that required the expertise of a specialist... This difference in the utilisation of specialist expertise is not unexpected. This is because in the present system, private specialists manage mainly unscreened, walk-in patients whereas the public specialists manage mainly referred patients.... The underutilisation of specialists in the private sector is most marked in Obstetrics & Gynaecology and Paediatrics...

Abu Bakar Suleiman, Wong Swee Lan, A. Jai Mohan, et al. 1993. Utilisation of Specialist Medical Manpower. (Report of a collaborative project by the Ministry of Health & the Academy of Medicine, 1992 - 1993). Kuala Lumpur : Ministry of Health.

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Biodata summary
Chan Chee Khoon, Sc.D.
School of Social Sciences
Universiti Sains Malaysia
11800 Penang, Malaysia
e-mail: ckchan@usm.my