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British Labour has to break out of the neo-liberal ‘cost’ framing trap

Summary:
The other day I read a report in the UK Guardian (April 6, 2017) – Jeremy Corbyn: add VAT to private education fees to fund school meals – which appeared to signal that the world has gone mad. Today, I read a story in the Financial Times (April 11, 2017) – NHS looks to hedge funds to finance possible improvements. They both tell us how entrenched the erroneous neo-liberal ‘cost’ framing is. Modern Monetary Theory (MMT) emphasises real resource availability as the demarcation of fiscal space and rejects the way in which ‘costs’ are framed in the mainstream debate. Statements such as the ‘nation cannot afford the cost of some program’ are never made when the military goes crazy and launches millions of dollars of missiles to be blasted off in the dark of the night. But when it comes to public health systems or the nutritional requirements of our children, the neo-liberals have their calculators out toting up the dollars. However, the actual cost of a government program is the change it causes in the usage of real resources. When we ask whether the nation can afford a policy initiative, we should ignore the $x and consider what real resources are available and the potential benefits. The available real resources constitute the fiscal space. The fiscal space should then always be related to the purposes to which we aspire, and the destination we wish to reach.

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The other day I read a report in the UK Guardian (April 6, 2017) – Jeremy Corbyn: add VAT to private education fees to fund school meals – which appeared to signal that the world has gone mad. Today, I read a story in the Financial Times (April 11, 2017) – NHS looks to hedge funds to finance possible improvements. They both tell us how entrenched the erroneous neo-liberal ‘cost’ framing is. Modern Monetary Theory (MMT) emphasises real resource availability as the demarcation of fiscal space and rejects the way in which ‘costs’ are framed in the mainstream debate. Statements such as the ‘nation cannot afford the cost of some program’ are never made when the military goes crazy and launches millions of dollars of missiles to be blasted off in the dark of the night. But when it comes to public health systems or the nutritional requirements of our children, the neo-liberals have their calculators out toting up the dollars. However, the actual cost of a government program is the change it causes in the usage of real resources. When we ask whether the nation can afford a policy initiative, we should ignore the $x and consider what real resources are available and the potential benefits. The available real resources constitute the fiscal space. The fiscal space should then always be related to the purposes to which we aspire, and the destination we wish to reach. British Labour needs to learn those basics fast and to break out of the neo-liberal ‘cost’ framing it is trapped within.

On February 21, 2017, the peculiarly British institution, The King’s Fund, which historically has operated to “allow for the collection and distribution of funds in support of the hospitals of London”, released a report – Delivering sustainability and transformation plans – which examined the so-called Sustainability and transformation plans (STPs).

The STPs are “five-year plans covering all aspects of NHS spending in England” and were introduced in the NHS planning guidelines in December 2015.

Essentially, England has been subdivided into 44 geographic areas (with an average of about 1.2 million population in each although the range is from 300,000 to 2.8 million) and plans, based on identified local needs, were drawn up.

The plans must identify the “key priorities” in the following “headline issues”:

1. “improving quality and developing new models of care”.

2. “improving health and wellbeing”.

3. “improving efficiency of services”.

The plans have been submitted and are now (as of April 2017) competing for so-called “NHS transformational funding”. But while some might see the plans as outlining more effective ways of attending to these headline issues, the reality is that they are cost-cutting plans, which aim to rationalise health service institutions – such as closing the number of acute hospitals in certain areas, reducing face-to-face consultations between doctors and patients, and ‘coach’ patients in treating themselves.

The import of the STPs is that they “represent a shift in the way that the NHS in England plans its services”.

The Tory Government’s 2012 Health and Social Care Act aimed to “strengthen the role of competition within the health system”, which means forcing outsourcing, tendering etc and more competition between units within the NHS.

That model has clearly failed and now a new model is being imposed on the NHS.

This UK Guardian article (September 7, 2016) –
STPs: Radical local modernisation plans or the end of the NHS as we know it?
– provides some criticial viewpoint on the plans.

The STP proponents claim it is a collaborative, integrated approach to increasing efficient use of resources. Whenever I read ‘integrated’ in this neo-liberal era I think rationalisation, closures etc.

The Guardian article presents the view held by many that the STPs “are sinister schemes that will see parts of, or even entire hospitals shut, fewer beds, the number of GP surgeries drastically reduced, NHS land sold to profiteers and private healthcare firms treating more NHS patients”.

There is always special pleading involved from units within the big policy departments of any modern government service. But when I hear neo-liberal managers talking about efficiency and improvements I always suspect the worse – cost-cutting and diminished services and longer hours for staff with less growth in pay.

The UK Guardian article wrote that irrespective of which view one takes of the STPs they:

… are the most important issue in the NHS and the thing that will do more than anything else to decide if it is still a viable and well-functioning healthcare system that can live within its means by 2020.

Which sets the ideological slant doesn’t it – “live within its means”. We are talking about a public health system here. In what sense would we talk about ‘living within its means’?

Especially, when the NHS has been given to 2020 to “make the £22bn of savings”.

There is little historical precedent to establish the proposition that a health system saves funds and maintains (much less improves) service scope and quality by closing hospitals, reducing the number of hospital beds available, and outsource essential support services.

There is good research on that issue by the group 38 Degrees.

Think about the “living with its means” comment by juxtaposing it with the additional military outlays that the British government has made in support of various dubious military campaigns.

In 2014, data was published which documented the outlays – the additional British outlays in conflicts since the 1990s

We learn that in addition to the “regular yearly running costs of the military”, the British government spent (in 2012-13 prices):

1. £20,646.4 million in Afghanistan.

2. £9,559.1 million in Iraq (the illegal war based on falsified evidence).

3. £1,541.6 million in Bosnia.

4. £1,064.3 million in Kosovo.

Including other conflicts not mentioned above, the total since the 1991-92 was £34.7 billion.

I do not recall any of the normal pundits crying out “where is the money coming from” at the time of these adventures. In fact, in the last week the US launched 59 missiles onto a Syrian target – each one requires an outlay of $US1.59 million.

That is $US94 million gone up in smoke and flames. Where did the money come from? I haven’t heard the Peter Peterson Foundation asking that question since the launch.

And, one could not say that the outlays have made the world safer, reduced the growth of terrorist groups or improved the well-being of many people – other than the elites who get the bloated procurement contracts etc.

The point is that the “means” that are available to the British health system include qualified staff, bricks and mortar, and consumables.

That is the way we should think about that concept.

Modern Monetary Theory (MMT) emphasises real resource availability as the demarcation of fiscal space and rejects the way in which ‘costs’ are framed in the mainstream debate.
We often hear or read statements such as:

1. Costs to taxpayer

2. The nation cannot afford the cost of that program

If we were to take a public employment program that required government to spend $x billion in wages, capital equipment, administration and oversight, we might reasonably ask about the cost of that program. The conservative frame tells us that the cost is $x (the figure that appears in the annual fiscal documents against the program).

An MMT frame considers the $x in the fiscal papers to be of little interest.

The actual cost of the program is the change it causes in the usage of real resources – more consumption by the unemployed workers, some equipment etc. An additional cost would be the opportunity costs of such a program, which are minimal, given the unemployed are idle.

In fact, in this frame, the increased use of the real resources provides benefits to both the individuals and for society so the use of the term ‘cost’ would be misleading.

When we ask whether the nation can afford a policy initiative, we should ignore the $x and consider what real resources are available and the potential benefits. The available real resources constitute the fiscal space. The fiscal space should then always be related to the purposes to which we aspire, and the destination we wish to reach.

So if the economy is at full employment, then political decisions have to be made about whether the nation needs more real resources being diverted into, say, health care and less into bombing the hell out of Iraq or wherever the bombs are falling now.

The national government is never revenue constrained because it is the monopoly issuer of the currency. So it can buy whatever real resources that are for sale in the currency it issues.

Which means that it the nation determines through the political process to drop bombs and leave sick people sick then it can financially accomplish that goal without issue.

But it also means that if the political force is to have a first-class health system and the real resources are available to accomplish that task then the government can always make that happen.

The NHS is starved of funds because the political process determines that – the support for the NHS and the political voices its musters (presumably within the British Labour Party) have not been strong enough.

In part, this is because the Labour Party has bought the false framing about ‘costs’. It has adopted the neo-liberal frame and thereby has weakened its capacity to argue for the NHS.

The King’s Fund report cited above studied the NHS funding issue closely. It is generally not opposed to the STP process but concluded that:

… lack of funding to support transformation is the area of greatest concern … Without this funding, it simply may not be possible to put in place improved and expanded services in the community and accelerate and spread the development of new care models at the pace and scale needed to transform the delivery of care. Continuing staff shortages resulting from failures in workforce planning will also slow or stymie the ambitions contained in STPs to manage rising demand outside hospitals.

The British Medical Association (BMA) released a press briefing (February 14, 2017) – Capital crisis: STP money fails to materialise – which calibrated the shortfall in funding necessary to ensure the STP are implemented effectively.

The Report said that:

Controversial plans to transform and integrate health and social care services require at least £9.5bn of capital funding – but NHS leaders don’t have the cash and will ask for demands to be ‘reviewed’ and ‘refined’ … vast sums needed just to create the infrastructure to deliver the projects, with costly building projects and investment in community facilities vital to the plans … the process was doomed to failure all along owing to inadequate funding and a lack of political will to transform services properly – with politicians and health leaders instead focused on making savings.

As many who seek to defend the NHS have suspected all along (and it fits my rule of thumb noted above), the STP process has just “become a vehicle for £26bn of covert savings – yet another crippling blow dealt by a Government with a vicious austerity agenda and lacking the gumption to come up with properly funded solutions for a health service in crisis” (in the words of the BMA).

We learn that “health bosses” are also raiding “capital budgets” to plug gaps in operational expenses in hospitals to cover the shortfall in government funding.

Over the last two years, the capital budget for the British health system has transferred funds to cover daily operational shortfalls. Around 25 per cent of the 2016-17 capital budget has been diverted in this way (£1.2 billion).

The myopia of neo-liberalism. Cut maintenance and infrastructure spending and sooner or later the whole ‘bridge’ falls down.

I have written about this before in different contexts:

1. Mental illness and homelessness – fiscal myopia strikes again.

2. British floods demonstrate the myopia of fiscal austerity.

3. The myopia of fiscal austerity.

4. The myopia of neo-liberalism and the IMF is now evident to all.

5. Austerity is the enemy of our grandchildren as public infrastructure degrades.

6. We starve the state and public infrastructure development at our peril.

Then we get to yesterday’s Financial Times report that – NHS looks to hedge funds to finance possible improvements.

And at that point you realise that: (a) the whole debate has gone mad; (b) the political Left is bereft for not being miles in front in the polls on these major public interest issues.

The FT Report basically says that:

The NHS is considering borrowing from hedge funds to pay for new buildings and equipment because of public spending cuts.

Apparently, the hedge funds are “keen to lend to the NHS” – of course they would be – they smell big, easy-picking profits. And they have zero concern about the long-term viability and quality of the service.

Recent history is littered with these Private Finance Initiatives (PFI) with respect to essential public sector infrastructure. They typically inflate costs, reduce service scope and quality and in the case of buildings etc leave inferior infrastructure to be dealt with by the public authorities long after the hedge funds have counted their cash and gone their merry way!

Public health is a huge issue and one that the Left typically has more popular propositions. Which makes this on-going health funding crisis in the UK more puzzling – well not really.

While the Blair government certainly was an improvement on the Thatcher public health disasters as she tried to impose the ‘market system’ on the NHS, New Labour never abandoned that flawed model.

Blair allowed the ridiculous and largely unaccountable ‘Hospital Trusts’ to remain in place and the ‘market paradigm’ to dominate.

New Labour also continued to underfund the NHS and where funding growth occurred it was tied to ‘efficiency dividends’ (aka cost cutting and reduced service).

New Labour also continued the ‘privatisation’ agenda within the public health system – allowing private, profit-seeking parasites to access parts of the system in the name of efficiency.

This included the PFI push.

So the political Left was already without impact during the years British Labour was in power.

And now, with the Labour Party being lead by Jeremy Corbyn, one hoped that the New Labour agenda would disappear and that Labour would articulate a differentiated agenda for the voters.

Health and education is a perfect battleground because it goes to core values and affects most people.

But Jeremy Corbyn still operates within a neo-liberal ‘cost’ frame. So the best Jeremy Corbyn appears to be able to do is to announce that

The UK Guardian article (April 6, 2017) – Jeremy Corbyn: add VAT to private education fees to fund school meals – says it all.

The Labour leader announced that he would:

… fund free school meals for all primary school children by adding VAT to private school fees … the policy would benefit children’s health while ending a subsidy for the privileged few.

It might be desirable to have less purchasing power in the hands of parents who send their children to private schools. That case would need to be made because that is the only reason that raising the costs of private education would be reasonable.

But to link that to public health issues and the nutritional requirements of children, especially disadvantaged ones who are particularly challenged in this regard, is to fall into the trap of neo-liberal ‘cost’ framing.

It is clear from all the evidence that:

… offering universal access to free school meals improves pupils’ productivity and enables them to advance by around two months on average.

The British kids are its future. There will be massive returns if correct investments are made in their development – including feeding them properly and providing a sound educational system.

When I lived in Britain, I was particularly impressed with the school meal program. It clearly helps kids from poor backgrounds get at least one decent meal a day.

The ‘cost’ of doing that is really the extra food they eat, the infrastuctures (kitchens etc) that is required to deliver the food etc.

The government outlays to make that happen are not a ‘cost’ in any sensible construction.

So it is sheer madness to suggest that proper nutrition for kids in Britain is dependent on some ‘tax base’ or another.

That is how far the neo-liberal con has evolved.

Decent people like Jeremy Corbyn are totally besotted by it.

And as long as the Left leadership is framing these important social issues in the erroneos neo-liberal ‘cost’ terms the longer the NHS will be starved of funds and poor kids will go hungry.

Conclusion

Madness.

That is enough for today!

(c) Copyright 2017 William Mitchell. All Rights Reserved.

Bill Mitchell
Bill Mitchell is a Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at the University of Newcastle, NSW, Australia. He is also a professional musician and plays guitar with the Melbourne Reggae-Dub band – Pressure Drop. The band was popular around the live music scene in Melbourne in the late 1970s and early 1980s. The band reformed in late 2010.

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