I remember reading this article, “What Soviet Medicine Teaches Us,” by Yuri Maltsev when it was first published as a Mises Daily a couple of years ago. This one is number five of the 30 day reading list and something that struck me when I first read it was: why did it last for so long; how did their horrendous system continue all those years? The full answer is more detailed than I have room for in this essay, but some reasons are given below.
Maltsev begins his piece by noting that in 1918 the Soviet Union became the first country to offer a completely socialized system of healthcare. And he points out that despite having decades to refine the system and work out kinks, “healthcare institutions in Russia were at least a hundred years behind the average US level.”
This is precisely what happens when the government gets into the business of providing services: everything stagnates and innovation dies. In a segment of “60 Minutes” on The Khan Academy, Google’s Eric Schmidt said it perfectly: “innovation never comes from the established institutions.” It can’t because there are no incentives for it to do so. In fact the opposite is true and the established institutions have an incentive to prevent innovation because such change threatens their hegemony. This is why competition must be outlawed and anyone who attempts to break through the monopoly is targeted and shut down.
Another feature of government-provided services is that little to no recourse exists for individuals to pursue recompense. Maltsev describes a case he was involved with where a young girl died as a result of the Soviet health system that denied her basic medicine and her family had no recourse. He explains that “a single-payer system cannot allow any such remedy.”
Even if it could pay out for damages or restitution, the money comes from the people anyway through taxes, so this presents yet another problem with a socialized economic system. It’s no different than a police department being forced to pay the victim of a wrongful arrest or, God forbid, a death. The police department simply collects on an insurance policy that is paid for with taxpayer funds, not privately raised monies, such that no incentive to prevent these problems from arising in the first place exists. The same could not be said of a private firm under pressure from competitors; such occurrences would no doubt be financially devastating, and thus less likely to happen.
Another feature of the government service industry is that two tiers or levels of quality emerge. Maltsev explains that: “while workers and peasants were dying in the state hospitals, the medicine and equipment that could save their lives was sitting unused in the nomenklatura system.” This is also true for the U.S. now, as exhibited by the type of health insurance offered to congress and other high-level officials within the federal government. The rest of us must either pay for it ourselves or be contented with whatever Medicaid will pay for, which is to say mostly subpar.
Of course the VA health system is another great prism through which to view government-provided medicine. It’s reserved only for the “heroes” of society; those who “volunteered to serve their country,” and who “deserve our utmost respect.” They’re treated to such wonderful care as the hospital in Philadelphia that improperly administered treatment of prostate cancer in more than 80% of its patients. Or the 10,000 veterans who were told to get tested for HIV and Hepatitis after they learned the equipment used in their colonoscopies had been improperly sanitized between patients. I could go on, but you get the point.
And of course the sick irony in all of this is that socialized systems always seem to come about as the result of some do-gooder with a God-complex trying to eliminate multi-tiered levels of service in a quest for fairness. The difference between a politically-imposed variation in quality and one that is market-based is that one is done by force and the other through voluntary means. The first is entrenched, and as mentioned above, cannot be innovated away. The second one however is dynamic and naturally improves over time.
Just a hundred years ago the automobile was very crude by today’s standards and yet only the wealthy could afford one. Now virtually everyone in the U.S. owns at least one vehicle and by almost any metric it’s far better than earlier models. The same principle holds in regards to services, provided an unhampered market is allowed to function.
One of the ways these bureaucratic systems remain in place is through propaganda and manipulated statistics to mask reality. Maltsev explains that “the official infant-mortality rate in Russia was more than 2.5 times as high as in the United States and more than 5 times that of Japan.” And he says this was later revised to show a death rate of seven times the U.S.
He goes further, explaining that such numbers aren’t entirely objective anyway, when one considers that the definition of infant mortality is not applied consistently from one country to the next. The United States is ranked highest among the industrialized nations simply because all children who die at birth are included in the statistics, including premature infants. For other countries, notably Cuba, deaths aren’t reported until children reach several months of age.
And this fudging the numbers is not reserved solely for healthcare statistics either. Thomas Sowell drives this point home very clearly in his book Economic Facts and Fallacies
Maltsev then goes on to describe how this medical care must be rationed due to shortages inherent in socialism, which means that the elderly are often denied treatment, and not just in places such as Soviet Russia. He notes that similar problems confront the aging populations of Western nations such as Britain and Canada, where age brackets determine the type of care one receives.
Socialized systems are so often brought about due to perceived flaws in the market-based systems, namely the cost. That the cost is so high in large part because of government meddling in the first place is rarely understood. Maltsev points to “the fact that American healthcare professionals have the highest level of remuneration in the world.” He says that “Another source of the high cost of our healthcare is existing government regulations [including licensing] on the industry, regulations that prevent competition from lowering the cost.”
Everyone understands that monopolies are never good for the consumer. The problem for the consumer is that few understand that monopolies can only come about as the result of the government, which either establishes monopolies directly, such as the Fed’s control of the money supply or socializing medicine, or indirectly by restricting competition and watching the competition wane.
