Tuesday, November 17, 2009

Competing for Government Largess

In past posts I've argued that the role of competition in the free market has been way over played. "Freedom" is the operative word of the free market. Free people choose will compete and cooperate on multiple levels through their lives.

For example, health care is an act in which a doctor and patient engage in a cooperative effort to improve the patient's health. Different doctors might compete for the patient's business. The patient will often choose a doctor based on which doctor is the most cooperative.

A multidimensional free market system has greater substance than simple competition. The free market excels because it tends to create a mix where the competition exists at levels that tend to improve service.

Government regulation and financed industries add a political dimension to markets. This political dimension tends to throw the system off kilter.

When government is involved, the players in the market compete on who is best at getting the government cash, or they compete on who is best able to game the regulatory regime.

Government tends to have a diversionary effect which transforms a market from a system optimized to the needs of the individuals to one optimized to the state's political concerns.

The proponents of government controlled health care often use the term "competition" in their rhetoric; however, improvement does not come from the mere existence of competion, but from the form of the competition.

As health is an attribute of the individual, the private market for insurance has a strong track record for improving care because the system hones competition to the needs of the patient.

NOTE: The introduction of third party insurance appears to have had a negative effect similar to government control as doctors are forced to compete on their ability to please the insurance company and not on the needs of the patient.

Using the fact that insurance is a bad model for health care does not really justify creating an even worse system.

The form of the competition matters more than the existence of competition. We would see the greatest improvement in health care if created a structure where people self-financed their care.

Making the government the primary player in health care will lead to stagnation even if there are token competitions that make health care providers compete for government largess.

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