Markets or Monopolies?

Adam Smith’s “Saline Solution” for Canada’s Health Care System

Alicia Kardos
February 1, 2024
That Canada’s health care system is ailing is no longer news. That it is not only victim but perpetrator – killing patients through indifference and neglect – is also increasingly understood. But is Canada’s publicly funded and operated monopoly health care system an economy of sorts, a set of relationships that can be understood in economic terms, and one that might lend itself to reform by applying economic principles? In the second of three prize-winning entries from the 1st Annual Patricia Trottier and Gwyn Morgan Student Essay Contest to be published by C2C Journal, Alicia Kardos answers a resounding “Yes”. Drawing on key ideas and principles of the genius from Kirkcaldy, Scotland, Kardos envisions an overhauled health care system in which incentives are rational, self-interest is rewarded and the consumer – the patient – is king.
Markets or Monopolies?

Adam Smith’s “Saline Solution” for Canada’s Health Care System

Alicia Kardos
February 1, 2024
That Canada’s health care system is ailing is no longer news. That it is not only victim but perpetrator – killing patients through indifference and neglect – is also increasingly understood. But is Canada’s publicly funded and operated monopoly health care system an economy of sorts, a set of relationships that can be understood in economic terms, and one that might lend itself to reform by applying economic principles? In the second of three prize-winning entries from the 1st Annual Patricia Trottier and Gwyn Morgan Student Essay Contest to be published by C2C Journal, Alicia Kardos answers a resounding “Yes”. Drawing on key ideas and principles of the genius from Kirkcaldy, Scotland, Kardos envisions an overhauled health care system in which incentives are rational, self-interest is rewarded and the consumer – the patient – is king.
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Canada’s health care system is on life support, but many of its patients are still waiting to be as they languish on waiting lists, getting slowly sicker and in many cases simply dying, untreated. With more patients than beds, decades of mismanagement and resource misallocation have left many health care facilities threadbare. Canada-wide, our hospitals are burdened with staffing shortages, budget barriers and administrative antagony. Our sick are frequently subjected to poor care – if they get care at all – while our frontline health care workers are subjected to overwork. We are stuck in a continuing negative feedback loop.

How to break it? Smithian synergy. That’s Adam Smith, the famed 18th century Scottish economist and moral philosopher. By shaking Smith’s “invisible hand”, the Canadian health care system could finally tap into the power of market forces to drive efficiency.

The system is in dire need of a jolt in that direction. In 2023, the average waiting time from the moment a Canadian patient received a referral from their general practitioner to the time they saw a specialist and then actually received treatment was 27.7 weeks, according to the recently published study Waiting Your Turn: Wait Times for Health Care in Canada, 2023 Report, by Mackenzie Moir and Bacchus Barua (with Hani Wannamaker).

Canada’s health care system subjects patients to wait times that are not merely inconvenient and stressful, but medically inexcusable; in some parts of Canada it takes less time to create a human being than to treat one. (Source of table: Fraser Institute)

According to Moir and Barua, Ontario came in with the shortest average waiting time of 21.6 weeks, followed by Quebec at 27.6 weeks and British Columbia at 27.7 weeks. Nova Scotia made these already ridiculous times seem positively enviable, with a staggering 56.7 weeks – a full year plus one month – with the other Maritime provinces nearly as bad. In some parts of Canada, it takes significantly less time to create a human than to treat one. And all these figures leave out the initial waiting time from when a person first contacts their family doctor – if they’re lucky enough to have one – to when they receive a referral to a specialist.

Our waiting times are not merely inconvenient and stressful, they are medically indefensible. Research conducted by the Fraser Institute for the above-mentioned study, which surveyed medical specialists for their professional judgment regarding medically reasonable waiting times, concluded that in 90 of the 109 categories of specialization examined, actual waiting time is much longer than the medical “clock”.

Patients’ health is deteriorating too fast to wait, but wait they must. Canada has been transformed into a gigantic waiting room with annual casualties in the many thousands. An investigation by the research and advocacy organization SecondStreet has shown that at least 11,581 Canadians died in 2020-2021 while waiting for appointments, diagnostic scans or surgery. Canada’s new national headline should be: “Homicidal Health Care”.

Statistics don’t tell the full story, however. We are talking about an ever-lengthening roster of individual human tragedies. Such as new mother Emer O’Toole’s baby boy, who nearly died of respiratory distress – a top triage category – while waiting in a succession of Montreal emergency rooms. Or Alison Cox, who accompanied her 66-year-old husband to Winnipeg’s Concordia Hospital after he began experiencing severe pneumonia symptoms, only to be left waiting in a cold, fume-choked ambulance bay for six hours before finally being taken to an examination room. Thankfully, he recovered. Or Karen Totten, who was left to hunt for her blind 88-year-old mother, eventually finding she’d been relocated inside a supply room due to space shortages.

Homicidal health care: At least 11,581 Canadians died in 2020-2021 while waiting for appointments, diagnostic scans or surgery. At times, hospitals leave people to suffer while waiting to be seen; Alison Cox (right) and her husband (left) were left in a cold, fume-choked ambulance bay for six hours before being moved into an examination room. (Source of photos: Alison Cox/CBC)

Not to mention the other 631,527 Canadians who were waiting for surgery last year. What are their stories? How much are they suffering? Better yet: when will we start doing something about all of this terrible service, incompetence, neglect and needless suffering? As the World Population Review notes, Canada has the world’s tenth-largest economy yet, among the approximately 40 countries that make up what is known as the “developed” world, we come eighth-to-last in hospital bed availability, with only 2.5 per 1,000 inhabitants.

That brings us back to Adam Smith. His economic principles are applicable to any system that involves the exchange of goods or services for economic consideration – even a publicly funded, publicly operated monopoly health care system. The antediluvians who still believe health care and competition are an incompatible if not unimaginable combination should consider boarding the Smith ship, and fast, because Canada’s current health care system is about to go under. To call our health care universal is to satirize it.

How can we pride ourselves on the notion of “free”, when the opportunity cost becomes a matter of life and death? More and more of us don’t. As shown in a poll by Angus Reid, three out of every five Canadians consider our health care system poor, with one-in-three agreeing that increased privatization would improve health care delivery. These findings suggest a dramatic amount of potential, currently unmet demand for privatized health care. If Adam Smith were a Canadian living today, he would unquestionably contribute to that statistic.

More to the point, Smith’s ageless ideas can contribute in a real-life fashion today, by being applied to Canada’s health care system. Born in Kirkcaldy, Scotland in 1723, Smith today remains the summum bonum of modern economics: a founding father of modern capitalism. Smith’s 1776 magnum opus, An Inquiry into the Nature and Causes of the Wealth of Nations, has placed him in the pantheon of enduring figures in moral philosophy and economics. The Wealth of Nations provided much of the philosophical framework for free markets. The book and its ideas have undoubtedly passed the test of time. But can they still last long enough to get a kidney transplant in the Canadian health care system? Let us find out.

Adam Smith’s masterpiece, The Wealth of Nations, provided much of the philosophical framework for free markets. Might his ideas be applicable to a publicly funded, publicly operated monopoly health care system like Canada’s?

In his book The Essential Adam Smith, Professor James Otteson of the University of Notre-Dame describes the three major themes of Adam Smith’s political economy (using the term’s traditional definition). The first is the “Economizer” argument, the proposition that every person will naturally seek out the most economical use of their expendable means to achieve their objective, whatever it may be. Some have said this suggests people are essentially slothful (the “human laziness argument” in economics) while others say this demonstrates that people have the good sense to avoid wasted effort. The Economizer argument, Ottewell summarizes, “Holds that [one] will assess the limited resources available…[and use them] to look for ways to reach [their] goals in the surest, fastest, most complete ways or with the least cost to any other goals.”

Consciously or not, then, we are always looking for the best return on our investments. We want efficiency to equal elation. And what could be a better deal, what could make us happier than free? When it comes to health care, that is a problem; the Economizer principle leads us astray. Here we come to the key economic concept of “opportunity cost”. Its details occupy whole chapters in economics textbooks but, in brief, it reflects the hard fact that because resources are finite, if we expend some on one thing, we can’t expend those same resources on any number of other things. Those other things, the ones not done, are the opportunities we forego: and the best foregone opportunity is known as the opportunity cost.

James Otteson of the University of Notre-Dame has distilled Smith’s philosophy and described how the lack of free-market discipline in any realm creates inefficiency, dampens innovation and fails to serve the needs of the people – or, in the case of health care, the patients. (Source of screenshot: ND Center for Citizenship & Constitutional Gov./YouTube)

Publicly funded and delivered health care, however, has no opportunity cost besides time. Since time technically costs zero dollars, many patients rarely think twice about the opportunity costs of going to the doctor, even if it’s over an issue Tylenol could fix, since there’s no direct cost to them. In doing so, patients effectively divert the precious time our scarce practitioners could spend on more immediate cases. But that is only one of the ways in which hiding the true costs of providing health care – not only from patients, but from the system itself and the people working within it – distorts decision-making in Canada’s health care system. Note that I’m not saying Canadians should have to pay for their own health care out-of-pocket, only that the way things are billed and how the money flows should make it clear to all what things actually cost.

The second of the three big Smithian claims illuminated by Otteson is the “Local Knowledge” argument. Here it must first be understood that people tend to know the shape and boundaries of their own purposes and desires. In addition, only we ourselves know best what opportunities and resources are available to us. Smith, Otteson explains, recognized the critical economic relevance of the seemingly pedestrian observation that each individual’s “personal knowledge of their own situation exceeds that of others.” Because it then follows that the individual is in the best position to decide how they wish to allocate and expend their resources – not another person, agent or organization, and least of all the government.

Take what you’re given: In our monopoly system, Canadian governments rob us of nearly all choice and micro-manage health-care delivery; patients get systemized answers from a centralized authority instead of specialized solutions based on need and circumstance. (Source of photo: Shutterstock)

This should hold true for all matters, including health care. Publicly funded monopoly systems like Canada’s, however, do not permit such decision-making because critical economic connections have been broken and costs are not transparent. Medicare is funded by first confiscating resources (through taxation) from working Canadians and profitable corporations, then allocating some of those resources to the health care system which, in turn, is charged with providing “free” health care to patients, who have little or no control over how anything is done.

In such a system, patients who come in for a medical consultation will tend to get a systematized “answer”. All such answers fall under the same umbrella, the same centralized authority. Of course, a doctor may at times offer several options for treatment, but these all exist based on varying generalizations concerning the individual patient. Such a system discourages specialized responses based on individual needs and circumstances.

This, in turn, dampens innovation in medical treatments, processes and medications. Thanks to our immediate neighbour to the south, we can see how far Canada has slipped behind. Every year, many thousands of Canadians travel to access the newer treatments readily available in the U.S. – expending their own hard-earned savings to do so. But Canada’s health care system, by sticking to outdated and/or less efficient approaches, just keeps on spending money to lose money.

Thus, Smith’s Local Knowledge default is displaced. Individuals should be at liberty to freely allocate their own resources to serve their own ends, because only they (and perhaps a couple of their close loved ones) are intimately familiar with their situation. (There would always be exceptions, of course, concerning cases in which an individual is not capable of handling their own affairs and requires guardianship, just as we have in other areas such as legal affairs.)

Canadians are left alone to make critical decisions in numerous other categories of life: where and how long to study, what field of work to pursue, with whom to form relationships, and whether to engage in risky behaviour and activity that might threaten their health. Yet when it comes to caring for our health, Canadian governments step in, rob us of nearly all choice and micro-manage health care delivery as if we were incapable of engaging with these questions as responsible individuals who understand our own interests and needs.

This brings us to the third key economic idea, the centripetal force of Smithian policy: the “Invisible Hand”. It is the most widely admired, most frequently cited and most heavily criticized takeaway from Smith’s work. And yet he mentions the concept only a handful of times throughout his writing. Here is the key passage from his treatise The Theory of Moral Sentiments:

“Every individual…neither intends to promote the public interest, nor knows how much he is promoting it…he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention.”

A similar notion can be found in The Wealth of Nations, but without the famous reference to unseen hands: “It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our necessities but of their advantages.” The free market’s dynamics encourage the production of the goods and services that are in demand. The combined effect of all this economizing and personal knowledge yields a whole that is much greater than its parts. “The genius of the Smithian market mechanism was that it could coordinate the disparate individual efforts of indefinitely many persons and manage to derive an overall benefit for the good of society from them,” Otteson explains.

The example of the brewer, baker and butcher speaks to the benefits to be had when multiple producers supply the same or similar products. Collectively, each member of a particular trade competes against the other to produce their particular good or service better, cheaper and faster than the others. And so the economy grows and prosperity advances. These benefits go out the window when competition ceases, as in the case of monopolies. A zero competition monopoly is intrinsically handicapped at achieving better standards, because it has few if any incentives to seek better outcomes. This describes Canada’s publicly-run health-care monopoly to a tee.

The power of the market: Adam Smith described a free-market feedback loop where individuals pursuing their own needs drive producers to compete in delivering goods and services; the economy grows and prosperity advances, a lesson the health-care sector should learn. Depicted at top left, assembly of a Pontiac Firebird at GM plant, 1960s; top right, a busy stock exchange trading floor; bottom left, Airbus A320 aircraft assembly; bottom right, cars leaving a vehicle carrier vessel. (Sources of photos (clockwise, starting top- left): Courtesy of General Motors; CMC Markets; Mercury Auto Transport; Assembly)

Smith also recognized the critical role of the consuming side in powering economic progress. Smith was no lackey of the wealthy, archly noting their “natural selfishness and rapacity”. But in acting selfishly, a curious thing happens: the “invisible hand” leads them to spend their money in such a way that they “without intending it, without knowing it, advance the interest of the society.” Smith thus identified the key element of consumption in a market economy. The positive feedback loop it generates – wherein the end of an action creates more of it – applies not only to the rich but to all consumers. We must make money to spend money and spend money to make money. Consumption becomes an investment – and vice-versa.

But in the unique way that Canada’s monopoly health care system is set up, the most powerful incentive of all – the spending power of consumers – is simply gone. Government-sourced funding that is generally budget-based in nature and thus disconnected from any specific health care-related activity surrenders the usual power of the purse to incentivize performance, quality and operating efficiency. Robbed of this essential economic instrument that in other fields forces providers to serve their customers or risk going out of business, Canadian patients become supplicants, the system free to ignore them – as it habitually does.

While Smith had nothing to say about publicly provided health care, he did explain his thinking on public education in The Wealth of Nations. He thought there was a modest role for government in the provision of schooling, particular to support the “lowest ranks of the people.” But he was against government monopoly. As Otteson describes it, Smith “thought the public subsidy [for education] should be less than half the total cost – the rest borne by the students themselves (or their families or sponsors) – to make sure that incentives were aligned properly. Teachers, Smith thought, would, like anyone else, naturally pay more attention to whoever is paying the majority of their fees.” Should we expect present-day doctors, nurses or diagnostic technicians to be any different?

Clearly, not all of Smith’s free market ideals could be implemented immediately. A mass overnight privatization of all hospitals would almost certainly be infeasible and impractical. But a gradual and continuous increase in the availability of private clinics and procedures would be. These would incrementally alleviate pressure on the public system. Other reforms could also be introduced one at a time or in groups. These would soon begin to project a brighter outlook for the future of Canadian medicine and the health outcomes for Canadian patients.

Without consumer power, Canadian patients become supplicants in a system that is free to ignore them – as it habitually does. Allowing more private service delivery would mean competition, innovation and the opportunity to stop lagging the U.S. in both quantity and quality of medical service. Shown at middle, Stanford Hospital & Clinics in Stanford, CA; bottom, Massachusetts General Hospital in Boston, MA. (Sources of photo: (top) iStockphoto; (middle) Faculty of Medicine; (bottom) Massachusetts General Hospital)

The nature of the demand for health care means that, on the one hand, a system providing “free” health care will always be short of resources, because people will always ask for more than such a system can provide. On the other, this feature also provides enormous potential for health care to become a booming industry – if reformed in the right ways. The more competition that could be introduced to Canada’s health care system, the more the quantity of health care provided could be increased and its quality improved.

A vast amount needs to be done, of course, to start healing the deadly sicknesses in our health care system. But the potential is equally vast. A reformed system that allowed all of its participants to rationally pursue their own interests could, for example, provide far more job openings, especially for skilled immigrants whom the stringent occupational licensing requirements imposed by many provinces have prevented from contributing their talents.

Market principles, once widely applied, could also foster a boom in medical innovation that could become unstoppable. There is no innate reason why Canada’s health care system needs to forever lag the U.S. and many European countries in so many technologies, medications and treatments. Like a wash of saline solution cleansing the burning eyes of health care administrators, Smith’s three key ideas would allow us to think big, seeking efficient delivery, timely attention, more effective medicine, technological advancements – the whole nine yards.

And, who knows, an unleashed Canadian health care sector might finally be able to find the cure to cancer. And not just that, but to actually treat Canadians with cancer in a timely manner. That would be the actual touchdown pass, caught and carried by none other than the Invisible Hand.

Alicia Kardos is a student in economics and political science at the University of Toronto.

Source of main image: “Neutron(TM) Catheter Patency Device” by Calleamanecer, licensed under CC BY-SA 3.0.

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