“If we’d asked people what they wanted, they would have said faster horses”, Henry Ford is famously quoted as saying.
And this week we have news reports about the car insurance industry being subjected to further “market reforms” in order to deliver cheaper end-consumer prices.
But this is a fundamental misunderstanding of the markets.
If you look at the résumé of our first appointed chair of the General Dental Council [GDC], Bill Moyes, you will see that he has led several market-driven initiatives in various roles, and it wouldn’t be a leap of the imagination to consider that he has been appointed into the GDC to fulfil a “market-driven” reform. Dentistry has long suffered an image problem; consumers feel that prices (and pay) are too high, that dentistry delivers poor value to the consumer and that there is a conspiracy of the profession against the public – it is only necessary to have the briefest of reads through the comments section on any newspaper that publishes a dental article to see that the accusations of “rip-off” rear their head at a very early stage.
But this premise is entirely wrong. The problem with a free market is that the results are entirely unpredictable. Economic journals are full of perfectly logical explanations as to why markets behaved in a certain way – crucially, behaved and not behave. That is, the analysis of the markets and the rationality of them is done post hoc.
One of the most fundamental problems I can see with the approach of trying to manipulate markets in order to deliver a specific outcome is that it rarely works, or often, even where it does work, often this is not what the consumer demands or buys, although they may insist at the outset that that is what they want.
In our particular dental industry, I would hazard a guess that many people (of a non-dental nature) believe that market reforms will deliver cheaper dentistry, through increasing the supply of the dental workforce. I would suggest that this is unlikely to work for a variety of reasons. Firstly, costs represent some 60-70% of the price that the patient pays. Given that the average pay for dentists has been declining in real terms for some time, if we were to cut pay for dentists by 10%, then this can translate into only a 3-4% price saving for patients. And I don’t believe that we can cut pay much further without running into another economic problem – that of a shortage. If you pay too little for something, you create a shortage. In this case, how many dentists do you think would leave the profession if average pay drops below a certain point? (I would suggest £50,000 for associates, on average, and £75,000 for principals)
So if cost savings are to be made for the end consumer prices, this will have to come from reduced costs. And here we already have an idea of what happens from another industry – the British car industry. Throughout the 60s and 70s, the British car industry suffered a slow and agonising death over many years, selling outdated cars, with poor workmanship and a reputation for declining quality, and in some cases, with cars selling at less than the cost of manufacture. Do these problems sound familiar?
Of course the British car industry eventually collapsed, superceded by German and Japanese competitors who were operating on free market conditions, and produced innovation and rapid improvements in delivering things people wanted rather than what they told government-led focus groups that they wanted. The eventual death of Rover marked a turning point and renaissance of the British car industry, and now we have world class manufacturing and design, but for this to happen we had to see the government leave the industry and several companies to go under.
I sincerely hope that dentistry has its “Rover moment” soon. I believe in the free markets, but a belief in the free markets also means accepting when they don’t deliver quite what you thought they would. And that doesn’t always mean that what will be delivered will be cheaper: sometimes, what is delivered is “better” rather than “cheaper”. I believe that health and dentistry falls into this camp.
After all, when was the last time you saw a car maker advertise how cheap they’d made the braking system?
Free markets tend to deliver better healthcare, by and large, which is often but not always cheaper. I would therefore issue a challenge – if this is truly the purpose of Mr Moyes’ appointment, I would suggest that he can best serve the public by completely withdrawing any government interference in the market, but only on the proviso that he and they MUST accept that prices will almost certainly rise, but also must accept that this may result in longer term reduction of cost. Otherwise we run the risk of delivering the cheapest horses in the world when the rest of the world has moved onto cars.
Image credit - Coen Dijkman under CC licence - not modified.