THE ‘NEW LABOUR PLOT AGAINST THE NHS’
Part three: MORE ON THE ‘INTERNAL MARKET’
by Peter Brooke
THE DEVELOPMENT OF BUSINESS MANAGEMENT SKILLS
In my last article I discussed the Griffiths Report of 1983 which began the process by which decision making passed out of the hands of doctors (who had been jealous of their power when the NHS was set up in 1948 but who had already been obliged to share it to a great degree with other health professionals, nurses among them, in the 1974 reform) into the hands of professional managers, but I wonder if I attached sufficient importance to it. According to Darren Williams’ book Clear Red Water (showing how Wales managed to keep clear of many of the reforms introduced later under New Labour) the numbers of this ‘new stratum of general or senior managers … in England grew from 1,000 in 1986 to 16,000 in 1991 and then to 26,000 in 1995.’ Where did they all come from? Surely we can relate this to the revolution that has occurred over the past fifty years in the development of business studies as an academic discipline.
According to a report on UK Business Schools: Historical contexts and future scenarios (Evolution of Business Knowledge/Advanced Institute of Managerial Research, 2016):
‘Business schools developed late in Britain, but grew rapidly in the latter part of the twentieth century. There were no business schools in British universities before 1965, but by the beginning of the twenty first century there were approximately 120. Whereas in 1961 a university professor could confidently assert that “management has not yet passed the test of being a study discipline in the universities”, by 2004 the business and management subject area accounted for one in seven of all students in British universities – and one in five of all postgraduates. In a rapidly growing HE [Higher Education] sector no subject discipline has undergone a more remarkable rise than business and management.
Another account (a review of Allan Williams: The History of UK business and management education – https://www.bl.uk/business-and-management/editorials/book-review-the-history-of-uk-business-and-management-education) ‘in 2010 there were more than 250,000 full-time equivalent students studying business and management at foundation, undergraduate and postgraduate levels in publicly funded UK universities, and another 20,000 in private institutions: 15% of all HE students in the UK. There are also over 11,000 academic staff – compared with fewer than 10 in 1945. So that Business and Management is now the largest discipline in UK Higher Education.’
This seems to correspond rather neatly to the explosion of management roles within the NHS.
Those of us who supported the Bullock Report on Industrial Democracy in the mid to late 1970s may remember that one of our arguments was the general incompetence and weakness of British management. We thought that the workers, having a lively interest in the wellbeing of the place where they were working, could do better. But we of course were not the only people who had noticed the problem, and we could be impressed by the energy and commitment shown by the ideological supporters of free market capitalism. I am not in a position to provide a good account of the history of the development of business studies in Britain but if I rely on my memory of what I observed at the time it was happening I would say that the initiative came largely from individual businessmen. It could hardly have come from the Universities, torn as they were between Trotsky and Althusser nor, whatever encouragement they would soon get from Mrs Thatcher, from government in the 1970s. It was, it seems to me, the initiative of determined and intelligent wills with a better idea of their own interests and what to do about them than was being shown at the time among the supporters of the working class.
THE DECLINE OF PUBLIC SERVICE MANAGEMENT SKILLS
By contrast I don’t know of anything much being done in the field of public service administration. There is an academic discipline called ‘Public Administration’ but it seems to be concerned with studying how public administration works rather than training public administrators. To quote an academic article published in the early days of the post-2008 crash policy of austerity: ‘In the United Kingdom academic endeavour in Public Administration has the reputation for being an old-fashioned backwater, restricted [! – PB] to pronouncing on the functions of institutions like the ‘civil service, local government and nationalised industries.’ (https://research.aston.ac.uk/portal/files/586481/Introduction_to_special_edition_final_post_acceptance_version.pdf). The article refers to ‘David Cameron’s claim that there is no public service that cannot be run by the private sector.’.
Like ‘Business Studies’, ‘Public Administration’ was largely developed as an academic discipline in the US and in its early – inter-war – days it seems to have been genuinely concerned with the idea of public service. But the Wikipedia entry on ‘Public Administration’ informs us that
‘In the late 1980s, yet another generation of public administration theorists began to displace the last. The new theory, which came to be called New Public Management, was proposed by David Osborne and Ted Gaebler in their book Reinventing Government. The new model advocated the use of private sector-style models, organisational ideas and values to improve the efficiency and service-orientation of the public sector …
‘Some modern authors define NPM as a combination of splitting large bureaucracies into smaller, more fragmented agencies, encouraging competition between different public agencies, and encouraging competition between public agencies and private firms and using economic incentives lines (e.g., performance pay for senior executives or user-pay models). NPM treats individuals as “customers” or “clients” (in the private sector sense), rather than as citizens.
In this context the Wikipedia entry on the ‘Royal Institute of Public Administration’ is interesting. It was founded in 1922 ‘through the society of Civil Servants’. Its first President was Viscount Haldane – the Liberal Imperialist who, as we know from Pat Walsh, played such an important role in planning the Great War, and subsequently, after the war, joined the Labour Party. The ‘Society of Civil Servants’ was a union founded in 1918 to represent ‘intermediate class clerks.’ By 1963, as the Society of Public Servants, it had 46,000 members, more than 90% of those eligible to join it. The Institute of Public Administration launched a highly respected academic journal – Public Administration – in 1923 and in 1929 it organised a Diploma of Public Administration in conjunction with the University of London. Those were the days when there was some degree of intelligence and a sense of purpose within the union movement. It obtained a royal charter in in 1954. But
‘In 1992, against a difficult economic background including public expenditure cuts, RIPA experienced severe financial difficulties and negotiations were initiated to dispose of the International Division as a viable commercial enterprise. Two new companies were formed by the International Division’s staff. The Institute itself was subsequently wound up and two new companies were formed by its staff. Public Administration International Ltd (PAI) which was incorporated on 14 February 1992, continues to operate as an independent company providing international consulting services and study programmes. The International Division was acquired by Capita Group plc and later transferred to the Strategy Group and rebranded British Expertise International. The Institute itself was wound up.’
THE PURCHASER-PROVIDER SPLIT IN THE NHS
In my previous article, commenting on the introduction of the management structure in the NHS proposed by Griffiths I quoted several commentators saying that the immediate impact was not great – that the clinicians often proceeded as before, regardless. But that would have come to an end with the introduction, in the early 1990s, under legislation prepared by Kenneth Clarke, of the ‘internal market’ or at least, since it was not a real market, of the purchaser-provider split. Very broadly speaking, the purchasers were the District Health Authorities, the providers were the hospitals, but the ambition of the Conservative government was that GPs would agree to be the purchasers. In other words that they, instead of the District Authorities, would receive money directly from government which they would then use to purchase equipment and hospital services on behalf of their patients.
Obviously the ideal for this line of thinking would be that the patients themselves would become the purchasers. The 1979 Conservative manifesto had floated the idea of turning patient into fundholders/consumers through the introduction of an insurance-based scheme on the US (and European) model but this was, in the event, considered politically impossible. The purchaser/provider split was still a very radical rethinking of the British culture of public service management but thanks to Griffiths and, I am suggesting, the rapidly expanding culture of the Business Schools, there was in place the beginnings of a network of managers with some knowledge as to how such a system would operate. One can imagine them being a bit lost in the informal, non-commercial structure of the 1980s, but now they were coming into their element.
THE OLD ORDER
Colin Leys, co-author of ‘The Plot against the NHS’, the starting point for this series of articles, has written an account of how the old administrative British culture gave way to the more market driven idea of public service management, in his essay ‘The Cynical State’, originally published in March 2009 in the Socialist Register. Leys had been involved in the early days of the New Left Review but when the NLR under Perry Anderson drifted away from concern with immediate politics to devote itself to pure theory, Leys, together with Leo Panitch (who, as a friend of Ralph Miliband should have been, but wasn’t, mentor to Dave and Ed) parted company to produce the very, perhaps excessively, academic but nonetheless policy orientated Socialist Register. Describing the old regime finally broken by Thatcher and Blair, he says:
‘Britain’s previous liberal/social democratic policy regime combined elements of the Liberals’ state reforms of the late nineteenth century with elements corresponding to the interventionist state of the twentieth. The Liberals created a higher civil service recruited competitively from the cleverest members of the same social class, and educated at the same elite private schools and universities, as the elected ministers they served. The idea was that officials of this calibre and background would be in a position to offer elected ministers honest advice and ‘to some extent influence’ them, in a shared ‘freemasonry’ of public service. Because the emphasis was on social and political status, higher civil servants were, like almost all the ministers they served, ‘generalists’, relying for expertise on the advice of professional and technical civil servants – engineers, public health doctors, biologists, etc. For dealing with big issues of a politically sensitive nature they would recommend the establishment of Royal Commissions, composed of eminent experts with powers to commission research and call for expert evidence (between 1950 and 1980 one was appointed, on average, almost every year). For lesser issues that nonetheless called for additional expertise Departmental Enquiries could be set up, also with powers to draw on outside expertise …
He describes efforts to develop a more Labour, less public school orientated, version of this culture:
‘Thomas Balogh, an economic adviser to the Labour prime minister Harold Wilson in the 1960s, voiced a growing impatience with the higher civil service’s typically humanities-based education and pre-industrial social attitudes, denouncing it as ‘the apotheosis of the dilettante’. In 1966 Wilson created a Department of Economic Affairs to offset what was seen as the Treasury’s bias for financial prudence over economic growth, and a Treasury departmental committee chaired by Lord Fulton (a university vice chancellor) recommended a reorganisation of the higher civil service on technocratic lines. A Civil Service College was established, to emulate the French École Nationale d’Administration, and a Civil Service Department took over the Treasury’s management of recruitment, training and promotion.’
‘Almost all these initiatives were neutralised, largely by the higher civil service itself. The Department of Economic Affairs was closed in 1969 after only three years. The Civil Service Department lasted longer, but was closed by Mrs. Thatcher in 1981. The Civil Service College survives, but only as a provider of short courses, with no prestige.
One wonders how the public-school system, which produced the cadres for the original idea of a civil service could have ended up producing the likes of David Cameron and Boris Johnson.
AND IN THE NHS
The similar relaxed, ‘paternalist’ organisation of the NHS is described by Rudolf Klein, author of a general history of the NHS – The Politics of the National Health Service, 1983. followed in 2006 by an updated version, The New Politics of the National Health Service. Klein, formerly a ‘distinguished faculty fellow’ at Yale University School of Management, is more sympathetic than Leys to the market reforms. In his essay ‘The Politics of ideology vs the reality of politics: the case of Britain’s National Health Service in the 1980s‘ (The Milbank Memorial Fund Quarterly. Health and Society, Vol. 62, No. 1,Winter,1984) he describes the NHS as based on a principle of ‘paternalistic expertise’:
‘It is precisely this emphasis on creating an instrument for the deployment of paternalistic expertise, rather than a system of health care responsive to consumer demands (whether articulated through the political or the economic market), which makes the NHS unique in the Western world. In comprehensive but pluralistic health care systems, like Germany’s or France’s, demands are mediated by a variety of sickness funds. Even in a near-monopoly system, like Sweden’s, control is devolved to local government. But, consistent with its founding ideology, Britain’s NHS is designed to insulate decisions from either individual or political demands so that they may be taken according to rational criteria based on scientific or professional knowledge. Consequently, it divorces political decisions about the NHS’s total budget from professional decisions about the allocation of resources to individual patients. The budget is set annually by central government; the use of resources, however, is determined at the periphery by doctors who are subject to neither audit nor review procedures. While countries like the United States, which have open-ended financial commitments, insist on elaborate exercises in accountability, Britain’s NHS offers almost total autonomy to doctors. ‘
He argues that this ‘belief in paternalistic expertise’ was intrinsic to British culture, bringing together ‘Fabian reformers like the Webbs, Liberals like Beveridge, and Tories like Joseph and Neville Chamberlain’ and characterised by ‘its suspicion of competition, its reliance on a strong civil service, and its belief in elite consensus engineering’.
In a later article – ‘Risks and benefits of comparative studies: notes from another shore’, Milbank Quarterly, Vol 69, No 2, 1991) Klein reflects on the change of culture which has produced the Kenneth Clarke reforms and the extent to which this may be attributed to American influence:
‘One of the triumphs of the NHS, it is conventionally held, is that it manages to provide a comprehensive service both reasonably equitably and extremely parsimoniously. What is much more rarely recognised is the extent to which this achievement depends on the public’s acceptance of the medical profession’s definition of needs: political decisions about resources are, in effect, disguised as clinical decisions. In return for conceding an extraordinary degree of clinical autonomy to the medical profession, the state in fact delegated to it the responsibility for rationing – and thus made it [the rationing – PB] socially acceptable. It is precisely this implicit contract or bargain that is now in question, given the recent changes in the NHS introduced by the Conservative government. In turn, the public’s acceptance of rationing decisions by doctors may well reflect deep-rooted attitudes of deference to professional expertise. These, however, are gradually being dissipated: witness the semantic revolution in public debate that is transforming patients (those to whom things are done, essentially a passive concept) into consumers (those who go out to buy things for themselves, essentially an active concept).’
TOWARDS A NEW ORDER
The most prominent theorist of the ‘internal market’ was the American, Alain Enthoven. Enthoven came to Britain in 1984 to examine the workings of the NHS at the invitation of the Nuffield Trust (at that time the Nuffield Provincial Hospitals Trust, originally established in 1939 to research the problems of hospitals outside London). He gave his conclusions in a highly influential paper published by the Trust in 1985: Reflections on the Management of the National Health Service. It may be a little invidious to evoke Enthoven’s career in military research at the time of the Vietnam War, prior to his developing an interest in health but the temptation is difficult to resist. This is from the account of his career on the Stanford University website:
‘Professor Enthoven holds degrees in Economics from Stanford, Oxford, and MIT. He began his teaching career in 1955 while an Instructor in Economics at MIT. In 1956, he moved to the RAND Corporation in Santa Monica and participated in continuing studies on U.S. and NATO defense strategies. In 1960, he moved to the Department of Defense, where he held several positions leading to appointment, by President Johnson, to the position of Assistant Secretary of Defense for Systems Analysis in 1965. His work there is described in the book How Much is Enough?, co-authored with K. Wayne Smith and published by the RAND Corporation [the book is an insider account of policy making during the Vietnam war under Robert McNamara, 1961-8 – PB]. In 1963, he received the President’s Award for Distinguished Federal Civilian Service from John F. Kennedy. In 1969, he became vice president for Economic Planning for Litton Industries [major military equipment contractors – PB], and in 1971 he became president of Litton Medical Products …
He has been a consultant to the Kaiser Permanente Medical Care Program since 1973. He has served as Chairman of the Health Benefits Advisory Council for CalPERS, the California State employees’ medical and hospital care plans. He has been a director of the Jackson Hole Group, PCS, Caresoft Inc., eBenX, Inc. and Georgetown University.’
In a later paper by Enthoven published, again by the Nuffield Trust, in 1999 – In Pursuit of an improving NHS – he stresses the limitations of Clarke’s reforms but he also expresses himself satisfied with the apparent direction of travel and especially with the continuation of that direction of travel by New Labour, despite its manifesto pledges. He is quite savage in his critique of the NHS as he found it in the 1980s:
‘When I came to study the NHS in the 1980s, I encountered a gridlock of perverse bureaucratic incentives. People found that the best way to strengthen their case for more resources was by doing a poor job with what they had. If they were efficient, they would be forced to subsidise the inefficient. They also knew that if they improved the quality of their services, they would attract more patients but not the additional resources to care for them. In other words, “No good deed goes unpunished.” The best course for one’s career was to please the people in the hierarchy who control one’s budget and career, rather than innovating to make things better for patients. The predominant ethos was to “play it safe, don’t make waves, don’t risk being seen as hard to get along with, and above all, don’t challenge poor performers.” By contrast, the incentives for providers in competitive markets generally are to improve the product or service; reduce the cost of producing it; and produce it in just the right amount.’
Clarke’s reforms were an improvement:
‘The internal market in the NHS was an attempt to introduce some market incentives into a centrally planned, hierarchical system while maintaining universal and free access to health services. It recast the health authorities as purchasers of services on behalf of people in their districts, rather than as higher-level service delivery managers. Each district was to secure the best, most cost-effective services it could for its patients, whether or not those services were provided by the district’s own hospitals. The internal market funded districts on the basis of needs-based capitation rather than historical patterns of resource use. It encouraged hospitals to become separate, self-governing legal entities that would earn revenues from health authorities by providing services to area residents. It encouraged general practitioner (GP) practices that would be large enough to accept responsibility for managing an expanded capitation payment for a range of services beyond primary care, including outpatient services and elective surgery. GPs became resource managers.’
But he is dissatisfied. In particular:
‘reliable quality-related information is virtually nonexistent in the NHS. Many people appear afraid of it. Before reform there were no systematic reliable data on the costs of services … [E]ven today what data are available are quite inadequate. For example, the 1998 NHS Reference Costs cover only about 40 percent of inpatient hospital costs …
‘Authorities also lacked freedom to buy selectively. They often were constrained in attempts to change their source of supply. Market discipline requires that some ineffective providers be allowed to fail. However, no hospitals were allowed to do so …
‘In the end, instead of “money following patients,” as Prime Minister Margaret Thatcher had proposed, patients followed money. That is, they went to where their health authority had contracted … But unless patients can freely change providers, a conflict with equity exists. People who reside in areas served by inefficient hospitals get fewer services than do those living in areas served by efficient hospitals. The principle of fairness suggests that the inefficient hospitals should be paid more money so that their patients are not disadvantaged by the hospital’s inefficiency. But this would reward hospitals for their inefficiency. If patients could switch hospitals, they could move to efficient ones and leave the inefficient to lose business and suffer the consequences. If patients cannot switch, it is difficult to reform incentives for efficiency …
In 1997, Labour came to power promising to end the purchaser/provider split and GP fundholding which they had been denouncing vigorously throughout the 1990s, and, with Frank Dobson as Secretary for Health, it seemed as if the promise would be fulfilled. But Dobson was replaced in October 1999 by Alan Milburn and, already in his November 1999 paper, Enthoven could see which way the wind was blowing:
‘I find it noteworthy that despite its rhetoric about abolition of the internal market, the New Labour government has preserved its main components: the purchaser/provider split; the trust hospitals; and commissioning of secondary care services by GPs, with primary care groups (PCGs) and primary care trusts (PCTs) for all GPs replacing GP fundholding by some GPs. PCTs, with an average of 50 GPs and 100,000 patients, will serve all patients in their assigned areas and hold the full health services budgets for their patients … The White Paper, The New NHS, makes it quite clear that PCTs will commission [i.e. buy – PB] services. PCTs are an extension of the fundholding and Total Purchasing Pilot (TPP) projects of the Thatcher government. This might actually be more effective and overcome some of the weaknesses in the health-authority-as-commissioner [i.e. purchaser – PB] model. So what exists in today’s NHS is an internal market model in a somewhat different configuration. It remains to be seen whether it will be allowed to work’
Which brings us back to the first article in this series, the summary of the book by Colin Leys and Stewart Player, ‘The Plot against the NHS’.[i]
[i] The original article wrongly referred to the book as being entitled ‘NHS for Sale’.