Dr Owain Williams By: Dr Owain Williams
Lecturer in IR and Human Security
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02 May 2020 : Neoliberalism and Privatisation: Background to Market Failure and COVID.

As with many of the commentators on Twitter, social media and on this site, I am having what could be described an angry day (a COVANGRY day as someone put it recently), one of many over the last few months. For many of us involved in Global Health, from whatever disciplinary take, these days bubble up and you just can’t help but seethe at the waste and stupidity of the politicians, and the crumbling messes that dot the landscape of global health, whether these be vaccine development, hospitals, or absurd supply chains. I am sure even those not in Global Health know that rage too.

So I am trying now to direct it all to good purpose. This will be the first in a series of diary posts on the same theme, building one the one written about vaccines last week. I want to further unpack how COVID has interacted with four decades of neoliberal economic governance and liberalization in health to produce a crisis far greater than it should have been. COVID has further exposed neoliberalism as toxic for health, just as this crisis could signal the final head shot that kills the zombie of neoliberalism.

Just how harmful its true pathogenesis has very visibly been laid bare for all to see by series of high-profile market failures. This is therefore first on a series of posts on market failure, health and COVID. We have seen market failure across the spectrum of weak health systems and private aged care, in the health international workforce (and decades long huge need for millions of additional staff), in medicines and other health technologies, and in terms of the failures of private healthcare providers and the general marketized system of health.

One of the reasons for my anger is that these various market failures have been monumental and global in reach, and all entirely predictable. Like many others I firmly believe that ideological underpinnings and governmentality of neoliberal market fundamentalism are almost as dangerous to health as the virus itself. The interaction of the virus with neoliberalism and the market has at least multiplied the disastrous effects of the pandemic many times over.

Today, I will start with some of the reasons why health is in the mess it is in so many countries. I want to start from the beginning and focus on why we have markets in so many areas of health.  The focus of today’s entry is therefore on neoliberalism and privatisation, providing a short history of a multifaceted four decades process of bringing markets and private firms back in. Neoliberalism in health as in other areas is not a static phenomenon, but like viruses has mutated and shifted how it infects the body politic and the health system. Overall, we have witnessed what Matt Sparke would describe as a dual process of rolling back the state in health, most often in the windows of opportunity provided austerity and debt measures, coupled with a latter phase of rolling out the market. The most recent phase of this process has involved the financialization of various areas of the healthcare sector. I will start with the series of posts with the necessary historical background as any self-respecting historical materialist should.


Privatisation and health

Privatisation is a very socially contested set of processes that involves governments and firms, the latter agents entering into an area of social, financial or economic activity traditionally undertaken by governments. In the case of health, governments in many countries started to provide systems of social insurance for health and instituted national health systems in the middle decades of the Twentieth Century. Some countries had mixed systems of public and private health providers, but the vast the majority of nations had evolved a bedrock of publicly provided health built on taxation and risk pooling by the 1950s. Other social and public goods were also provided and controlled by the state, such as transport, energy and phone networks, education, roads and natural resources. Health’s existence as a state controlled and provided service is actually very brief, with the earliest models of social protection and national health systems coming on stream in Scandinavia in the late 1930s, in the UK and Western Europe shortly after the WWII, and in the decolonising world as part of the new social and political economic settlements that many countries made. And many sectors and services in health were not nationalised and continued to operate as parallel systems, as is the case with primary care in Australia, pharmaceutical production in most OECD countries, or for a great deal of private healthcare insurance, private hospitals and allied health services almost everywhere.

As a social and economic process, privatisation can manifest itself in a wide array of modalities. It can be by means of corporate takeover of a government service or public good, or can appear via outsourcing, commercialization, private sector participation, financing, or by means of public-private partnership arrangements. The civil society economy has also become very much part of the steady privatisation of health, with organisations involved in healthcare service delivery tendering for shrinking pots of government money in a form of contained quasi-market. Often these organisations work with or contract to private agencies. In short, they have been assimilated into a privatisation game.

Privatisation has clearly been present in health across the world for some decades, and I will give a little more definition to successive historical waves of it below. It should be said that given the value of the health and medicines market of many trillions of dollars per year globally ( for example, the USA spends 18% of its GDP on health per year year), we should not be surprised that there have long been substantial commercial interests in privatising health. Indeed, privatisation has been aggressively promoted a solution for health and governments in the roughly four decades of neoliberal global governance. Arch supporters have been the IMF and World Bank as well a range of governments influenced by neoliberal ideologies that held privatisation strategies almost like a foundational principle of policy.

The earliest of the block was Pinochet, closely followed by Thatcher, Reagan and a steady trickle of others. Privatisation agendas have clearly piggy-backed on various crises of capitalism, the cyclical crises that followed the oil shock, Third World debt, multiple regional and national financial crises, and most recently the Global Financial Crises of 2008. These events invariable see privatisation as a default policy template that helps correct the wider system crisis and governance and public financing problems. Crises and austerity have proven the windows of opportunity for privatisation.

Privatisation in general has evolved into an ideology of governance and governmentality, with markets and private reified as efficient and natural solutions to the waste and inefficiencies that governments and public services introduce and engender. Competition and the invisible hand not only works to drive down costs and prices by greater efficiencies from competition, but reformulates the role and object of government after privatisation. In this, governments become regulatory agents rather than economic agents, and are removed from unnatural roles that had infringed on the natural order and rights of markets. Through privatisation governments are routinely constructed as being freed up from allocative and distributed burdens to focus on other things that governments could otherwise be doing better, and cost savings and prudent public finances are likewise ritually offered as the end points.

We also see a counterpart ideological reformulation of the public sector, as Mercille and Murphy phrased it, a new managerialism and technocratic function. For the public, privatisation of health has offered the lure lower taxes for social protection and consumer choice in health services and products. Ostensibly, the market for health allows us all to assess our own risks and behaviours, seek health where we want it and when, and punishes those in who do not manage their risks (e.g. smokers and drug users) by transferring the cost of their behaviours away from wider society. We become consumers of health as a commodity and simultaneously ‘responsibilised’ for our own health. The whole thing becomes atomised and this has significant costs in crises.

Privatisation is also promoted by think tanks, and much of a major social sciences discipline, as the technocratic and market-based solution to inefficiencies present in government allocation and distribution of scarce resources. Although national health systems are often stubbornly clung to by the populations they serve, they have nonetheless been incrementally privatised in almost all countries; a piecemeal process in which the state is rolled-back and the private sector allowed in. The first wave of shock doctrine unfolded in health and public services from the late 1970s and through much of the 1980s. Much of the privatisation of health occurred in the developing world, although governments in many countries shrank back from providing allied health services and dentistry, or moved steadily to more mixed systems of services and insurance. Cuts to health budgets were routine, and the state rolled back. Governments were either been forced down this path by loan and debt conditionalities, or have enjoyed political elites that have readily implemented privatisation policies. Austerity measures have also left spaces in service provision or financing that have also let the private sector steadily in.

By the 1990s privatisation had entered into a new phase and gathered pace. Public agencies and bureaucracies involved in health were also becoming more business-like and business oriented, being reconfigured by the rise and rise of New Public Management, another ideology so implicit in the neoliberal story. Internal markets for health were introduced in national health sectors, and new rights of establishment for private health care firms ensured in multiplying bilateral, regional and plurilateral trade deals. Medicines were thoroughly commodified as monopoly good by new globally available patent rights under the WTO rules of 1994. But the rise of privatisation in health really gathers pace after the GFC in 2008, the long crisis of global capitalism that provided so much space for privatisation as an opportunistic and pathogenic process. Cuts to budget and ‘public sector reforms in health and education intensified and shrank public systems. Outsourcing became more visible, and the state retreated further from public health systems and healthcare yet further.

We see also in this period a movement into public-private partnerships (PPP) provisions and private finance initiatives. Health suddenly becomes more complex on twin fronts of marketisation and private financialisation. First states and healthcare providers partner with firms over a range of specialised and ancillary services in the form of contracts and joint-ventures for health. Health also starts to become financialised, an is constructed very publicly investment opportunity for large investors to plough money into the large capital projects that every government seeks in health, new and visible hospitals with enormous sunk and operating budgets. It is often a good investment opportunity, subject to routine recalibrations of cost for delivering, and all guaranteed and under-written.

More widely, in the last decade there is much talk of the role of private finance plugging the multi trillion ‘investment gaps’ that blighted public services and infrastructure globally. These gaps ironically are obviously the artefacts of the retreat of the state and shrinking tax pool left by four decades of neoliberalism and austerity. Globally, the World Bank has also moved on from its Structural Adjustment Programme heyday and is now apparently a good player in health, but the pro-market logic for its health programmes and for country advice is still couched in terms of investment gains, best buys for health, and so on. Certainly, the World Bank views greater financialisation as a positive move for health and wider development. In 2017, for example, the Bank launches its ‘Maximising Finance for the Development Agenda’ which champions the potential of finance for reaching the SDGs.

The Bank may have changed its public profile, and the tools are not the same or as blunt, but the underlying market logic and representation of interests is still very much there. The other Banks, the regionals, also took to favouring offering guidelines and regulation as the best means of assimilating private providers into national systems and health goals. Again, the state would interact with markets in terms of legal instruments and contractual arrangements, but the market would be left alone to provide health to whoever chose to use those services rather than what was left of many public systems.

We have clearly a legacy of neoliberalism in its many mutable forms in global health and national systems. Beneath many of the vaunted benefits and privatisation and markets in health lurk the world of real outcomes. Introducing a public service or a public good like health to the market has consequences that are perfectly natural if allocation and distribution decisions are made on the bases of profits and returns on investments.

On the finance side it is clear that the recent spate of PFIs in many regions of the world have proven costly to the public purse when it comes to delivering ‘best buys’ for health. In the UK, for example, the turn to PFI for large health and hospital projects has been a disaster for government funding. The UK Treasury Committee found the cost of PFI for hospital projects 70% higher than what it would otherwise cost if funded publicly. One report on the cost of PPP in education and health provision in Africa, Latin America and Asia were not only born in terms of poor or uneven services, but also in higher administrative and regulatory demand on already often poorly resourced government bureaucracies. And after privatisation of many sectors and assets, cost savings are usually short term, with the can of higher costs invariably born by population and future generations.

For health the upshot is not tenable or tolerable. We are left with weak public health systems, poorly paid workforces, international and localised brain drain drains of expensively trained professionals moving to higher paying countries or private providers, and largely defunded and emasculated public health capacities in many countries. The safety nets started to disappear long before COVID and we are left to fall. Likewise, what is left un-privatised is eroded, downgraded and unprepared, and the function of the reconstructed regulatory state is unable to cope with health crisis and health market failure, the latter very institution that has had so much trust placed in it. COVID has sharply underlined the costs of what has happened over four decades and the real consequences of privatisation and austerity. We have witnessed market failure on a monumental scale these last months, which has also been a failure of neoliberal governance and government.

Even if we ever believed the ideology of efficiency and choice, the cost of not having robust public health systems in place as a public good are simply too great to favour those illusory economic gains over our ability to respond adequately to health crises. Even half-way houses are exposed as failures. All attempts to regulate or assimilate private healthcare into national planning and good service quality by legal arrangements or regulation have not worked. Look at the mess that is aged care under COVID, in almost any country you chose to pick. Look at the mess of private pathology labs drowning in test kits in the US while hospitals have almost none. In the USA and New York many private hospitals have closed their doors, with empty beds and capacities mothballed. Why? Because the services they provide were cherry picking patients and conditions or their business model was not designed to cater for a public health emergency from which there was little money to be made, and only unwanted financial exposure. The firms exited the market.

So in many ways that is how we arrived at this crisis. It is a story of an ideology of greed and neglect. Neoliberalism has become the faith of the faithless when it comes to the need for welfare and public goods and we are presently paying for its aggressive interactions with health and the COVID crisis.

In posts here over the next week I will unpick a number of critical market failures that have exposed these relationships and the fragility they have introduced in the COVID crisis. Sorry if it is depressing stuff or 101 to many of you. When you get angry you can lose sight of the obvious.

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