Thoughts from a Canadian on the Canadian Socialized Medical System

A subscriber and friend, Laurence Hunt, who lives in Canada, as do I, made some comments to the effect that the Canadian socialized medical system is better than a free market medical system.

This is a very prevalent attitude in Canada. Here was the main thrust of his argument:

“The Canadian system delivers world class healthcare at half the cost due to disintermediation. The system is run like infrastructure, like the highways, and is more economical. I’m still an advocate of government running infrastructure, as there has to be a method of collective participation. I do think that without government, the bullies would be in charge (they are hard to restrain under any system). Nothing is perfect, including freedom.”

The following is my response:

Laurence, I respectfully disagree with your comment.

First, we would hope that healthcare is ultimately not run like “infrastructure”, especially not like the highway system. A warlock of Austrian Economics, Walter Block, who wrote a book lobbying for a return to private roads and highways, notes:

“If the highways were now commercial ventures, as once in our history they were, and upward of 40,000 people were killed on them annually, you can bet your bottom dollar that Ted Kennedy and his ilk would be holding Senate hearings on the matter.  Blamed would be “capitalism,” “markets,” “greed,” i.e., the usual suspects. But it is the public authorities who are responsible for this slaughter of the innocents.”

Aside from your comment on “infrastructure”, if you are going to compare the Canadian system to the US system we need to first recognize the difference.

In Canada there is a state monopoly in the provision of medical care (though not in the provision of essential goods to the medical system monopoly).

In America they have had increasing state intervention into the medical industry starting with the AMA who in 1904 limited the number of doctors entering the field and closed down a bunch of schools. This was done in the name of protecting the consumer, but in reality the doctors got together and did it to raise their incomes.

They essentially created a labor monopoly within a private system. This is typical, by the way. In Canada the state likes to control the industry; in the US monopoly power is doled out by the state but usually vests in private hands — so up here you have state monopolies and crown corporations while down there you have antitrust and cronyism…or “state capitalism” (or corporatism) — in Russia you have oligarchs.

Progressively, over the years, the US government eventually forced employers to contribute, then granted the power of licensing to the states, and began to underwrite (subsidize) medical care demand a few decades ago.

Economics teaches us that when you restrict supply and subsidize demand you will get shortages and higher prices — and that’s even before we throw the Fed into the mix. The so-called free market medical system in the US has been progressively sabotaged over the past century. The universal coverage — Obamacare — is just a final straw.

So the high price of medical care has nothing to do with it being relatively more private in the US than in Canada — in fact economics teaches us also that prices would fall if the industry were free from government. So make sure to put the blame for the high cost where it belongs: on government regulation and subsidy, as usual.

As for Canada’s healthcare system costing half as much, undoubtedly the figures do not account for the lower ‘quality’ and the greater shortages we get here. So in reality you are getting half as much too.

As the US system is more socialized you will find that our medical costs not only start to rise more, but also, their quality/availability will fall. Like it or not Canada has been a big beneficiary of the innovations of the relatively freer market down south in this industry. I can attest to that personally. If you slow down those innovations, because, say, the system is totally socialized, then our state monopoly system will suffer as well.

That is, costs will rise and quality will fall.

The soviets were the first to try out universal medical care. As one of Gorbachev’s economists pointed out, the system basically deteriorated to the point where a black market developed based on bribery — outside of which the doctors would quip that their patients “pretend they are paying us and we pretend we are working”. And if you were dying, they pushed you out the door so that the hospital statistics wouldn’t look bad.

The only reason this hasn’t happened in countries like Canada that have adopted a similar system is that the rest of the economy here is not centrally planned. Thankfully, there is a relatively free market in the goods that supply the medical provider monopoly. And the state is loosening its grip on some provisions lately.

But the main point is that it is a matter of economic law that a private system in medical care would result in lower prices and better quality. After all, all we want is to allow competition. It’s a ridiculous argument to say that we are better off because our government restricts competition. Effectively, that is what our system is.

In regard to your comment that “nothing is perfect, including freedom”, of course you are correct.

Undoubtedly nothing is perfect. Let’s not put that stick man up. The socialists are always criticizing the imperfections of the market but the idea is not to achieve perfection.  Neither Jeff nor I nor von Mises would claim the market is perfect. Far from it.

It is a matter of what is better — a state monopoly service or free market competition.

The socialists will decry the quality of movies produced by Hollywood or the books written in a capitalistic society. No doubt that in many cases they can produce better quality stuff — even better quality goods — if it were planned. But the market may not want the “best” quality goods. In a free system it gets what it wants.

People get what they want.

I hate what Hollywood produces personally, and it does show that the majority of people (the market) has bad taste, etc. That doesn’t mean that I would favor a centrally planned movie industry. It would produce movies no one would want to watch even if by someone’s standards they would be considered perfect.

I’m sure that a centrally planned body could build better cars than we have on the road —but would everyone get one? Would it be as cost effective without any competition? In a market economy you would have goods that are near perfect that only a few millionaires could afford – like the Lamborghini — and you would have goods like the Hyundai that everyone could afford. You would have a full range for everyone. This is just not possible through a state monopoly.

We’d all either be driving the Yugo or only the despots would be driving their perfect autos.

But one thing is for sure — apodictic — competition ensures that the costs of providing goods are lower than they would be otherwise.

In regard to your comment about the Government needing to intervene or we’d all be taken over by bullies. How ironic to say that bullies would take advantage in a voluntary society so let’s replace voluntarism with a coercive apparatus that prevents free competition. Whenever the state controls an industry it is the coercive apparatus that is used instead of voluntary decisions that are being made.

This stuff about a “bully” is another socialist tactic. They’ve been using it on essential services since time immemorial.  It’s almost as bad as the first stick man you used above!  But it’s okay. We’re indoctrinated that way up here in Canada. Unless you have read von Mises and Rothbard you’re defenseless against the socialists.

In order to discredit the myth about bullies in a free market system one of my favorite authors, Frederic Bastiat, used to say: “In war, the stronger overcomes the weaker.  In business, the stronger imparts strength to the weaker”. This is 100% true. It is pure irony to say that the state protects the weak from bullies.

The state is the biggest bully of all.

It’s this simple. If you would not put the state in charge of providing electronics goods why put them in charge of providing ESSENTIAL goods? Explain to me how anyone is “bullied” in any other industry that we’d agree was a free market industry. I don’t see it. I see that businesses are accountable to consumers. I also see that government is not. I pay FEDEX for any important mail. The post office is a great example of how government does things.

Sure, it all looks great as long as there is no free market alternative.

Free market medical care would be cheaper and it would be better. It would be better all around. I don’t expect anyone to agree. No one agrees, after all, that we could eliminate recessions altogether by going to a real gold standard. They don’t buy it because we’ve had a gold standard but we still had recessions. For the same reason, people won’t buy that a true free market would be 100 times better than what they call free medical care!

They don’t buy it because they see the so-called private system in the US costing more.  But they fail to credit the state with that problem, just like they failed to acknowledge that the gold standard of old was rigged too.

For every story about a private doctor not treating someone, say, because the customer has no money, there are a dozen such stories under universal medical care systems where patients in dire need are either shoved out the hospital door or discharged by a death committee or otherwise mistreated. There are many stories. I can tell you from experience with markets in general that if I had a heart attack and no money I’m confident that the doctor in a free market system would still help me even if he wasn’t going to get paid.

Charity is something only a free market system can afford.

Ed Bugos
Whiskey & Gunpowder

April 18, 2011

The Daily Reckoning