Unhealthy central planning

My new CIS paper (pdf) on mismatches in the graduate labour market is getting off to a rather slow media start (only the Courier-Mail so far, though a couple of other papers requested opinion pieces as well). The Australian and The Age are however running different stories on foreign doctor recruitment – and there is no better illustration than these of the problem I am talking about.

In fact, doctors provide a double tale in what goes wrong when governments intervene. This story starts in 1984, when the then Hawke government introduced the Medicare system, and in so doing ensured that the government picked up most of the tab for visits to the doctor. This in turn led to concern about escalating costs, on the (plausible) theory that if you charge people nothing or very little to go to doctor they will be more likely to do so.

In the early 1990s, the government formed the view that an over-supply of doctors was part of the problem. According to one report (no. 12 in the link)

doctors in an oversupplied market may be more inclined to comply with patient expectations of referrals, prescriptions, and other health services, in order to reduce the likelihood of patients going to another practitioner.

They also thought that doctors were encouraging repeat visits rather than longer consultations, in order to maximise their bulk billing income. Note that few of these problems would have developed except for the fact that there were no price signals, except in lost time, for patients.

Because the federal government also controlled the supply of new doctors, ie the universities, they decided to cut medical school intakes (see figure 11 in this report). From 1330 commencing students in 1992, it went down to 1304 in 1993, 1217 in 1994, 860 in 1995, before starting to recover again. It’s only in the last few years – after it was realised what a huge mistake had been made – that comencing numbers have been above 1992 levels.

All this was going on while other arms of government were aware of demographic trends toward an ageing population and reacting to them, such as the major extension of superannuation in 1992. You don’t need a medical degree to work out that an ageing population will increase demand for medical services.

The consequence of this failure to provide enough local doctors is a reliance on doctors from overseas. As this report (pdf) on skilled migration shows, our net importation of medical practitioners has averaged nearly 1,000 a year since the mid-1990s.

While doctors from overseas are keenly welcomed, thousands of Australians who want to be doctors are every year rejected by medical schools (see figure 5 in my paper). This includes many with good school results (see table 7 in my paper).

Though the Australian higher education system is centrally controlled, it is generally not centrally planned. For the most part, history guides the allocation of places. But the medical workforce has been centrally planned, and this produced far worse results than the benign neglect applied to other professions. It’s been good luck in being able to recruitment so many medical professionals from overseas, rather than good management by government, that has avoided a shortage of doctors that would have had disastrous consequences for the health of many Australians.

75 Responses to “Unhealthy central planning

  • 1
    Club Troppo » Missing Link
    March 26th, 2007 13:19

    […] provides specialist economic advice as part of his dayjob. Still on policy-wonkery, Andrew Norton digs up some interesting factoids on the (artificially created) shortage of medical practitioners in Australia. He generously […]

  • 2
    March 26th, 2007 13:44

    “But GWB has precisely the kind of education you advocate, an arts education at Yale (plus later business education at Harvard).” – a good example of what goes wrong when money can buy a degree.

    “you want to impose your preferences on others, I am happy to let people make up their own minds.” – nothing wrong with improving those minds first ……
    Could it be that when we decide collectively we make better decisions, in some areas, than when we just decide for ourselves?

  • 3
    March 26th, 2007 14:07

    “Just because graduates don’t exactly slot into matching careers doesn’t mean there’s a problem”

    Russell: Now I can ask you also what you think the baseline levels are for (a) useless people getting bits of paper; (b) people wasting their degrees through no fault of their own; and (c) people working in areas where therr degree is useful but you don’t neccesarily need a degree as entry. Just the numbers for your initial suggestion of Asia studies would be worthwhile.

  • 4
    March 26th, 2007 14:16

    a. As many as might otherwise be getting into mischief?
    b. Wasted?
    c. Over their whole lives – in and out of work?

  • 5
    March 26th, 2007 14:19

    Oh and for Asian Studies – heaps. Because if every child at school is to be taught Indonesian, CHinese or Japanese (I’m open to suggestions here: Hindi ?) we’ll need to train an awful lot of teachers.

  • 6
    James Simpson
    March 27th, 2007 01:09

    Andrew, when did your blog get overrun by Lefties?

  • 7
    March 27th, 2007 02:43

    “Could it be that when we decide collectively we make better decisions, in some areas, than when we just decide for ourselves?”

    Any evidence of that? Who decides WHAT is better?

    I grew up in a society where this idea was indeed dominant. All decisions were made collectively. Which means by people in power (Politburo) on behalf of and for the good of all of us. The result was there for everyone to see.

    Another error in your argument is that people most people who attended university have acquired some useful knowledge, even if it is not used in their jobs. You talk about GWB as a bad example where money can buy a degree without much study effort. But in this country you can now do a degree without either much money or indeed effort. In fact the knowledge acquired by many people at university simply cannot be useful because it is quite close to zero (or is reduced to zero a few years after graduation).

    I teach a degree which at the moment viirtually gurantees a job with a high salary. Even though, when I ask a question in year 3 which everyoe is supposed to know, not one knows the answer. When I ask “didn’t you study this in math unit in year 2?” they say, “Oh, but this was last year…”. Conrad can tell you similar stories from Arts degree.

  • 8
    March 27th, 2007 07:21

    I completely agree with you Boris on all your points except for GWB. I recommend that all these people longing for great government control of everything should go and visit a few countries where that has happened. They should also (a) try working there and (b) think about whether it really is better (or just look at emmigration/immigration rates for that matter). Pointing out a single example of even relatively invasive government control that works for some amout of time (e.g., Singapore, Sweden) is not a good argument, because I can point out 100 that don’t (e.g., France, most of Eastern Europe) amd indeed some that become better the less the government does (e.g., China). As for GWB, I personally can’t stand high taxing social conservatives but simply because the guy doesn’t have exceptionally high verbal fluency and I don’t happen to like the guy doesn’t make him a fool. I’m sure he’s exceptionally smart, its just he’s so dislikable to many people that don’t want to admit that.

  • 9
    March 27th, 2007 09:03

    I think you’re spot on Andrew. As a medical student, it seems that there are complaints from hospitals fearing saturation with the inexperienced while the government spends money bribing people to work in the country after they graduate; and the constant demand for doctors is still unfulfilled.

    The system needs to be liberalized. We have the absurd situation at present where, at Melbourne University, full fee places are dished out to (certainly able) people with TERs of 96 whereas a CSP requires around 99.75. There is a shameful waste of talent and motivation in the face of huge amounts of need. Perhaps it’s that doctors don’t want to face wages more like those of real people.

  • 10
    Jacques Chester
    March 27th, 2007 09:10

    Andrew, when did your blog get overrun by Lefties?

    I’ll pretend it was my fault, putting up the nice new theme.

  • 11
    Andrew Norton
    March 27th, 2007 09:27

    Leon – Until the last few years, the government wouldn’t even allow Australian full-fee medical students, though they were permitted in other health professions.

  • 12
    March 27th, 2007 09:56

    Well I didn’t say that all decisions should be made by the government – you should be able to choose a tie by yourself for example.
    Wasn’t there a discussion here about how people like the government forcing them to save by compulsory superannuation. Isn’t it better that the government sets limits to the amount of pollution cars can spew out, even if the cars then cost more, and given the choice people many people would buy cheaper, dirtier vehicles? Some decisions are best made in the public interest, not by individuals in their own perceived best interest.
    Conrad in the paper yesterday it was reported that : “France had more babies in 2006 than in any year in the last quarter-century, capping a decade of rising fertility that has bucked Europe’s graying trend.” – they must be doing something right ?
    As for this blog being over-run by lefties, well the right-wingers all left when it slowed right down. Patience is a virtue (of the left) I suppose.

  • 13
    March 27th, 2007 10:09

    Russell, I think France has done lots of things right, including the government — they have the best train system in the world (thanks to the government), they didn’t invest in stupid roads like the UK (thanks to the government) and Electricite de France is a great company too — they are leaders in uranium recycling (thanks to the government). Alternatively, many of their more recent policies have lead to high unemployment (its almost impossible to imagine hiring people you don’t know due to crazily restrictive laws), lazy young people whose main ambition is to (not) work for the government (like the lazy old people), and tax rates so high that it is hardly worth working in any case. Their univesities are also falling to bits which doesn’t really matter, because you couldn’t imagine a less ambitious younger generation. These are all things that cause you to go broke in the future, no matter how many babies you have, and no matter how many smart policies you thought of in the past (you can look up the date which S&P predicts that their government bonds will turn into junk status).

  • 14
    Rajat Sood
    March 27th, 2007 11:16

    Leon, it’s great to hear from a real live medical student! I’m a bit unclear as to how you think ‘liberalisation’ will change the situation where full fee places have lower cut-offs than CSPs. I think what should happen is that the government offers a uniform subsidy to each medical student based on an assessment of the positive externalities flowing from having an additional doctor in the community. Currently, the highest TER students are over-subsidised and the full-fee students are under-subsidised. Universities could then create as many medical places as they wished and charge whatever fees they wished (with all students receiving the same subsidy). If this led to high prices and profits in the provision of medical training, new medical training institutions would receive a signal to enter the market. Incidentally, I don’t see why saturated hospitals shouldn’t be able to charge their own fees for training more young doctors. After doctors were trained, specific incentives could also be given to doctors to work in remote areas if this was considered a worthy social objective.

  • 15
    March 27th, 2007 16:21

    Conrad, I agree entirely with your comments, including the one about GW Bush.

    Russell, hold on, I did not say that governments should make no decisons. They should act where there are issues that require decisions on the national (or state) level. For example individuals cannot decide to build a railway network (although there are market solutions to this). One of these areas is clean air where individual action can harm others, and it is only logical that goverment step in and legislate enviormental regulations.

    However I am against governement subsidy for things that should be subject to personal choice (eg, where no harm to others is involved). In particular I have difficulty with Classic FM, because it takes a few cents from all taxpayers and benefits a small minority (probably 1%), most of whom are middle class and can afford to pay subscrition rates. However since this is cheap, it is not a big problem for me. But all this support for arts where unelected people make their funding decisions based on personal preferences… I don’t know.

  • 16
    March 27th, 2007 22:09

    Boris you’re such as disappointment as an example of Soviet education. I always imagined the comrades crowding into concert halls every night to hear the latest symphony, and here you are wanting to take the axe to Classic FM.

    The ‘nature of humankind’ (got that from F.Rottles) is that we are fallen and weak Boris, and that’s why bad tends to drive out good (the comrades are probably now watching pornographic DVDs on their plasma screens). So we have to keep making an effort to lift our standards – with Classic FM for example.

    Instead of restricting Classic FM to subscribers (how would I listen in the car?) we should have every school pupil listening to it – maybe 20 minutes in between their Japanese and Hindi classes.

    Boris think of the Sydney Opera House, and then of the Perth Concert Hall – the difference is what art does. Do people in Sydney regret having paid a fortune for their Opera House? Should we not have a National Gallery because most Australians will never see it? (what a genius Gough was to buy Blue Poles). No, you have to keep adding beauty and inspiration, not tear it away. You’re in Australia now Boris – breathe freely, expand your horizons, enjoy the finer things of life the community provides …. what’s a few dollars for the arts anyway.

  • 17
    March 27th, 2007 22:50

    You needn’t have public subsidies for Opera Houses or other artistic buildings/events. Isn’t there a public lottery in the UK which pays for some parts of the arts, amongst other things? (Or am I getting this confused with something else – I’m feeling very tired at the moment – still adjusting to the daylight saving change).

  • 18
    March 27th, 2007 23:03

    Sacha – a slippery slope. How much of Victoria’s budget now comes from poker machines? We in WA have made a decision as a community to save ourselves from the perils of pokies. Maybe we should just decide to give 5% of all mining royalties to the arts and stop haggling over the amount each year.

  • 19
    March 27th, 2007 23:14

    Well, why not fund more govt activities using lotteries? That way, people don’t contribute unless they want to and they can win big if they do!!

  • 20
    March 27th, 2007 23:27

    I just assumed they had already milked the legitimate lottery market for all it was worth. Where’s Yobbo with his gambling expertise?

  • 21
    March 28th, 2007 06:52


    you really need to go to some of these countries. When I was working in Beijing some years ago now, you could go to a whole expensive museum showing paintings of great Chinese soldiers fighting the wicked enemy (you probably still can). There’s a lot of good things you could think of about Chinese culture, but this great waste of money isn’t one of them. I’m not saying we should have no funding for the Arts, but great thought needs to be given to it, and this doesn’t appear to occur too often. If you look at things like the money dished out to Australian film makers and what we get from it, for instance (another feel good movie about white hard luck man or other such culture stereotype from the same old club of dull directors), I’m not optimistic. In addition, if the money wasn’t dished out, one might imagine that we might actually get films people want to watch.
    Also the idea that we should pick languages children learn is crazy. When I went to high school, I learnt that very useful language German (in Year 10), and didn’t even learn anything useful with it like grammar (nein, nicht ein bissen). Oddly enough, I’m one of the comparitively small number of people in Australia that actually meaningfully uses a European language now and then (which I learnt from a teach yourself book), but I don’t see why we should have the government picking them for schools.

  • 22
    March 28th, 2007 11:50

    Conrad, I have been to some of these countries, and many a pleasant afternoon I spent in the Canton “Cultural Park” developing a taste for Chinese Opera (you have to develop it from absolutely zero, gradually …. after 3 years I quite enjoyed it).

    Also I was an assiduous reader, in the 1960s, of a friendly Readers Digest format magazine called Sputnik which showed the delights offered by the ‘cultural palaces’ in the USSR (any other Sputnik readers out there ?). Maybe Boris was more into exercise than culture.

    What do you mean “pick the languages children learn” – are you suggesting the kids could pick any lanaguage and be offered some online course? Otherwise, if we’re going to train teachers we will have to decide what languages we want kids to learn. I think we’re at the very bottom of the OECD table as far as kids learning second languages.

  • 23
    April 1st, 2007 16:18

    Regarding the disastrous cut back in entry to medical schools by Wooldridge, this was the result of recommendations to Wooldridge from a committee dominated by doctors. The technical advice indicated clearly that such a decision was silly given the ageing of the population, and the feminisation of the GP workforce. One can only speculate that the doctors saw an advantage to their profession by cutting numbers so as to give themselves more market power and therefore power to raise prices and hence income. Which is what happened.

  • 24
    Andrew Norton
    April 1st, 2007 16:39

    JohnG – As you can see from the dates, the cutbacks actually happened 4 years before Wooldridge became Minister. The numbers started to climb again during his term.

  • 25
    trends in dentistry and dental education
    February 4th, 2008 02:46

    trends in dentistry and dental education…

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