![]() ![]() ![]() The wider private sector has, meanwhile, seen transformative productivity growth. And yet in the highly commercialised and competitive hospital sector, productivity growth has been essentially zero since 1995 (figure 1). It is a system in which strong commercial incentives to innovate and deliver quality care at lower prices are overwhelming, with multi-billion-dollar prizes on offer to those best able to build a better mousetrap. Treatment is provided by the private sector, with different blends of private insurance and public programmes picking up the tab. ![]() The US healthcare system is a hideously complex affair. Source: Bureau of Labor Statistics, October 2022 Labour productivity and hourly compensation in the US nonfarm business sector, and hospital subsector, 1995-2021 Is this the dead hand of the state in action? Might putting public services entirely into the private realm deliver productivity improvements that are so desperately needed? Data from the United States does not suggest that this is the case.įigs 1-2. Outputs have lagged the rising input costs across the aggregate public sector over the past twenty years, and particularly so in childrens’ social care, adult social care, and education. When we look to the Office of National Statistics’ estimates of productivity growth in the public sector, the results are depressing. ![]() And while more resource-intense versions of these public services are available through private channels, the universal floor is one that could not be afforded by all if not provided through the public sector. This is the result of a political choice: as a society we have decided that there should be some universal floor for human dignity. In the United Kingdom, high-touch human sectors for which productivity gains have been most elusive – social care, childcare, healthcare, education – are concentrated in areas dominated by public provision. But, as James Plunkett explains, Baumol either missed or underplayed the ability of institutions and of government to get in the way of his ‘iron law’ holding true. In this way Baumol might be regarded as the godfather of trickle-down – or at least trickle-across – economics. In other words, workers in less productive sectors will enjoy real wage gains despite productivity growth being so hard to achieve in their sectors versus others. To attract and retain workers in these less productive sectors from leaving to join more productive ones, something close to the real wage growth seen in the broader economy needs to be offered to them. Some sectors are harder to make more productive than others. More productive economies enable higher living standards, not only in those sectors or firms delivering it, but for everyone. That’s why lifting productivity growth has been a central ambition of every government in the post-war era. “But in the long run”, he went on, “it’s almost everything.” Getting more output for each unit of input sounds great. “Productivity isn’t everything” wrote Paul Krugman, Nobel prize-winning economist in 1990. This blog is part of a collaborative Joseph Rowntree Foundation project examining and exploring ideas we need to advance Social Justice in a Digital Age. ![]()
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