government and monopoly

“Monopolies are not innovative, whether they are public or private.”  ~ Megan McArdle

“One is the loneliest number that you’ll ever do
Two can be as bad as one
It’s the loneliest number since the number one.”  ~ Three Dog Night

A fairly obvious example of government-created monopoly is the public utility.  You likely have one of your own.  Or rather, you have one water utility; one gas utility; one provider of electricity.  You used to have only one phone provider as well.  It was a monopoly known as AT&T, created by the government.

So the gas utility, for instance, is the only game in town.  Its prices are tightly controlled – but if they go up you pay whatever they tell you to pay.  Government “regulates” this, ensuring that they can’t gouge customers too completely, playing the part of “good cop” to some degree.  That is what is seen.  What is not seen is the simple fact that if there were competing gas companies in town and one raised its prices, you could opt for another.  If one did not provide you with decent service, you could move on to another – much like you can do now with your cell phone.  Or your supermarket.

At a friend’s work recently they discovered a gas leak.  The utility shut off the gas for safety reasons and evacuated the building.  A while later the repair guy came in and took a look at the leak and said he’d be back at eight the next morning.  Knowing that he worked for the only game in town, knowing that shoddy customer service hardly mattered when the consumer was at the mercy of the supplier, and that no competitor could profit from their poor customer relations, he did not respond to pleas that it be fixed now so that business could continue.

“I’ll be back at eight,” the gasman told them.  That was that.

Now, this is not to say that all utility workers operate in such a manner.  Some are very responsive, and want to provide quality service because people usually like to be helpful.  But the reality is, relying upon our better nature is a lot like playing roulette.  Good customer service, even in competitive markets, can never be guaranteed, but at least in competitive markets poor service can be met with lost business.  In the non-competitive utility business, not only is their no alternative to turn to, you also can’t walk away from the product or service, because it’s a basic necessity.  Power, gas, water – all heavily price-controlled, subject to anti-competitive practices, with costs that have little or no bearing on the actual value of goods and services, and service that is shoddy and wildly unpredictable.

So, add to this mix of basic necessities, the spectre of government-run health care.

Again, I’m not against a safety net.  In fact, I think safety nets are just about one of the most essential functions of government.  Government ought to provide nets for people who need them regardless of their merit.  The fact is, poor people are often unhealthy, and often this is a consequence of simply being poor.  Often as not, those at or near the poverty line eat cheap, unhealthy food.  They suffer comparatively more from preventable ailments like diabetes.  They often have worse access to information.  Poverty is cyclical, and so the kids of these unhealthy parents are likely to be unhealthy, and they’re not terribly likely to just pull themselves up by the bootstraps and somehow cast off the chains of their parents habits now that they’ve been so socially ingrained.

But that doesn’t mean that the proper way to provide these safety nets is by creating, as only government can, sustained, anti-competitive monopolies, or bloated, self-serving bureaucracies.  The common refrain among liberals is that health care should not be under the jurisdiction of markets, or rather that health care is “too important” to be offered up “for profit.”  (Like gas or electricity maybe?)

The big, greedy insurance companies are only out for personal gain, and they profit off of the healthy while spurning the sick.  Well, maybe so.  But that doesn’t mean that they could operate this way in a truly competitive market, nor does it mean that there couldn’t be possible strings attached to a free market system, much as the Dutch do with their own very free market attempt at health care, that require insurers to provide for the sick as well as the healthy.

The Dutch system requires people to purchase insurance from private insurers and requires those insurers to provide it to everyone regardless of pre-existing conditions.  They then “reinsure” these companies to help provide balance should one company get stuck with a disproportionate number of sick customers.  This is not the perfect or ideal market solution that many libertarians would like, but it is a far cry better than the very cramped, monopolized system we have now.  The Dutch also provide vouchers to people who cannot afford to buy their own insurance, thus subsidizing the demand side rather than only the supply side (though, in all fairness, they do also subsidize the suppliers via reinsurance as I mention above, though not nearly as directly as other systems do, including our own.)

The Dutch system consistently ranks at the top of European health care systems, in quality of care and efficiency, as well as customer satisfaction.

So, this refrain – “health care should not be about profits” – is really very short-sighted.  You see, a public option will still rely on the private sector a great deal, only it will pick favorites.  Who will these favorites be?  Well, probably whoever lobbies best.  Big Pharma will certainly benefit, because while a market-solution is driven by profit, a government-created monopoly or cartel doesn’t need motivation – they are simply given profit.  You think that the gas utility or the electric utility doesn’t make a profit?   They accept some price controls and regulations as a pretty nice trade-off for no competition.  They’re not driven by profit (as in driven to provide a quality product), it’s just handed to them.

The same is true in a government-created health care monopoly.  The more government gets involved, the less competition takes place and the more lobbying, which is a shoddy substitute for a market, influences how decisions are made for people, rather than by people.

On the face of it, you might think this means the players involved aren’t doing it “for profit” because, after all, it’s a public option. But that’s only paying attention to “what’s seen” and not to what’s “not seen.”  The profit motive still exists, only now it’s protected, and benefits only those suppliers who have lobbied the government the most.  Someone still needs to provide the insurance, the drugs, the facilities, and so forth.  The only thing that really protects consumers in the long-haul is healthy competition.  If the public option is captured, which it will be almost by default, then there goes the best, most organic means to protect consumers of health care.  In a socialized system where the supply was also created and delivered by the government you would simply encounter the worst and most bloated of all possible monopolies.

Now, lots of people on the right talk about rationing and other bogey-men.  This is less a concern of mine.  Markets ration, too.  Really, the fundamental flaw with a public option is monopolization and cartelization of health care.  Innovation is a pretty big part of this concern, because as monopoly grows, not only does quality service taper off, so too does the quality of the product.  If big drug companies are pretty much guaranteed business by the government, and all the government wants is to control costs, well the cheapest short term way to do this will be to just stick to the major suppliers and get the most basic drugs.  Innovation starts to tail off because it is no longer demanded.  Competition can’t thrive because all the big money from big government is going to the big, established players.  Then, as choices are further limited and the government is more and more reliant upon specific players and specific drugs (for instance) those companies can begin to push up the costs.  That’s monopoly.

And so it goes.

This is why individual choice is so fundamental to any system and why government health care will only serve to prop up those greedy private players that liberals are always complaining about, not the other way around.  This is why when people say health care shouldn’t be about profit they should look beyond the immediate, beyond the visceral reaction to the idea of insurers attempting to profit off of selling you health insurance and pay attention as well to the profit created by government-sanctioned monopolization and how that hurts individuals and communities.