On the one hand, there is the globalized tradable sector — companies that have to compete with everybody everywhere. These companies, with the sword of foreign competition hanging over them, have become relentlessly dynamic and very (sometimes brutally) efficient.
On the other hand, there is a large sector of the economy that does not face this global competition — health care, education and government. Leaders in this economy try to improve productivity and use new technologies, but they are not compelled by do-or-die pressure, and their pace of change is slower.
Hmm. What could be the difference in performance and ethos between the two? Brooks doesn’t say, but it’s not hard to figure out.
For starters, the latter (health care, education and government) are by and large dominated by unions whose very mission is to deter productivity (fewer people doing more work) and instead promote inefficiency (more people required to do less). The pace of change is slower because changes must be negotiated, and employers who try to innovate too quickly or dramatically risk incurring the wrath of the union leadership.
On a regional basis we have seen that right-to-work states outpace states in which employees are compelled to join unions. (“Nine of the nation’s 10 fastest-growing states over the past decade were right-to-work states. Five of those states — Arizona, Idaho, Nevada, Texas and Utah — had increases in job growth since April 2001. The population growth in those states may be a factor.”) It is therefore not surprising that industries that are overwhelmingly unionized should do worse than industries that generally are not.
But the more fundamental difference between the two halves of the economy is that the “globalized tradable sector” is characterized by functioning markets, and “health care, education and government” are not. Most of education and all of government operate monopolistically in which the state compels “customers” and in which there is a laborious, indirect process for registering disapproval (i.e. elections sometimes years after the source of the disapproval create a fuzzy mandate that is blurred by voters’ multiple and contradictory motivations). One need only look at inner-city public schools or the Department of Motor Vehicles to realize that government operations that were actually subject to the rigors of competition would improve or perish.
Likewise, health care is hobbled by the separation of payers (third-party insurance, generally provided by employers or the government) and the customers (patients). Conservatives are arguing to re-create functioning markets (e.g., interstate insurance sales, health savings accounts, equal tax treatment for individually-purchased plans) in order to empower customers and utilize the power of competitive market to improve care and lower costs. Rep. Paul Ryan (R-Wis.) has been at the forefront of this effort. At the Hoover Institution Ryan explained:
At its core, the health care problem is one of inflation, driven by the overutilization of services, dramatic underpayments, and massive inefficiency.
If you look closely, the reason is easy to see: The health care sector lacks most of the basic building blocks of a functioning market.
For one thing, markets require transparent prices, so that consumers can discover value. But in health care, the “consumer” is usually either a big insurance company, or the government. Health care providers have no incentive to provide transparent prices to their patients, because their patients don’t pay directly – it’s the government bureaucrat or the insurance company bureaucrat who pays the bills.
Second, markets do not function well when consumers are insulated from marginal costs. We’re all paying more for health care, through much higher premiums and taxes. But the share we pay at the doctor’s office has plunged. The system that shields us from the cost of services, has actually left us paying much more. . . .
And with regard to health insurance for working Americans, patient-centered reform means replacing the inefficient tax treatment of employer-provided health care with a portable, refundable tax credit that you can take with you from job to job, allowing you to hang onto your insurance even during those tough times when a job might be hard to find.
We should empower patients, not only with resources and choices, but also with information. Patient-centered reform must promote transparency on price and quality – and give patients the incentives to act on this information. By putting the power into the hands of individuals, we can let competition work in health care just as it does everywhere
Rather than try to encourage the portions of the economy that are lagging (health care, education and government) to be more like the sectors of the economy that are working (e.g. with school vouchers, market-based health-care reform), Democrats are intent on making the functioning parts of the economy more like health care, education and government (e.g. with an ever-greater regulatory role for government, with crony capitalistic energy policy). The recipe destined to turn out poorly.
The beauty of the 2012 election match-up is that we have the candidate quintessentially of government facing up against the candidate more versed in the private sector than any presidential candidate in decades. Mitt Romney wants to use markets to improve the lagging sectors of the market (e.g., Ryan-Wyden Medicare reform, school choice) while President Obama wants to maintain and spread the prominence of government in every sector (killing school vouchers in D.C., creating new financial services and consumer protection bureaucracies and running green-energy boondoggles out of the White House). You can’t say the American people won’t have a choice.