Capital Goods and Capital

Recently Mr. Romanow has been quoted in various papers across the country talking about the federal government’s latest contribution of funds to the healthcare industry. He was critical of the federal government, saying that more money was needed to fix the industry. He is wrong. No amount of money that the federal government or any other government or entity contributes will "fix" the healthcare industry, and here is why.

When the provincial governments "nationalized" the healthcare industry they eliminated the possibility of new capital being invested by entrepreneurs or investors, because there is no business to invest in and there is no possibility of realizing a profit or a return on capital invested. As with all industries the capital in the healthcare industry depreciates and requires new investment from time to time. Hospitals need maintenance and upkeep, machines need replacement, staff need training, etc. Now that entrepreneurs are not investing new capital, it is up to the government to do so. However entrepreneurs did not just invest new capital, they directed it towards the areas in the industry where it was most wanted. And the only way they knew where resources were most wanted was through the profit motive. Profits direct resources to those areas of business where the demand is the highest and the returns on investment are the greatest. This ensures that resources are put to their greatest possible use and wealth is increased. If capital is not invested where it gets the greatest return, resources are squandered, wealth is decreased and wants are not satisfied. This is an important principle to remember, profits are earned by satisfying peoples wants.

Since the government does not actually have any of its own money to invest in the healthcare industry it owns and controls, and the industry itself is not able or allowed to generate its own profits, the government must seize the required wealth/capital from the taxpayers. This generates its own problems, such as decreased wealth production with income tax, less capital accumulation with capital gains taxes, decreases in economic activity with GST /sales taxes, etc, etc.

Now for the government to "invest" capital into the healthcare industry without a profit motive or price mechanism to direct them, it is if they were at sea with out any navigational equipment. They will have only the vaguest idea which way they are headed or even where they are now. They may know what the final demands of the consumers are, such as how many hips or hearts are diseased, but they will have no idea what production path to follow to provide the best treatment at the least cost for these problems. A socialized system of production simply can not make the economic calculation that is required to solve these problems. They won’t know if they should invest in better diagnostic equipment, or drugs over surgery, or train staff over importing them, etc, etc. Even if by some miracle the healthcare bureaucracy were to get the investment calculation right, they will face the same impossible problem in the near future because the industry is dynamic, not static. Wants and needs change, older people need more and different healthcare, new drugs and technologies come into being, etc, etc. Only the profit motive and the price system can direct resources efficiently.

If this were not bad enough, the government has compounded the problem by setting the cost of healthcare to the consumer at zero. Any student of economics knows that if the price of any useful goods or services goes down, the demand for those goods or services tends to go up. If you set the price at zero, then demand for those goods or services will tend towards infinity. If the cost of healthcare was really free, then this may not be a problem, however healthcare is not free; in fact it is a rather valuable commodity. So now with prices set at zero we have an unlimited demand for a costly service. The government’s solution to this is to ration healthcare services to the final consumer. This has created its own problems. Infinite demand and arbitrary rationing of services masks which services are wanted most and which services are less wanted or needed. Long waiting lists for treatment and surgery of all kinds are prevalent across Canada. We even have to wait for months or years to use a simple MRI machine. This phenomenon is unheard of in countries where the healthcare industry has not been nationalized.

In conclusion this socialization of the healthcare industry does several things. First it requires that the government seize huge amounts of wealth from taxpayers to substitute for the capital that private profit seeking interests would invest automatically in a privately owned healthcare industry. This lowers our standard of living and impoverishes us all.

Second, with the misallocation of capital by the healthcare bureaucracy, we end up without newer technologies and deteriorating facilities and a host of other problems that one sees in industries in decline. But this time it is not the market that has decided to let the industry decline, it is the inability of the government to allocate resources properly. This again lowers our standard of living and squanders our hard-earned wealth.

Third, by implementing policies that result in infinite demand for a costly service and then the resultant rationing of healthcare, the government has denied us of the very service they claim they were trying to provide us all with. This without question lowers our standard of living, and of course, impoverishes us farther.

Canadians will say that at least everyone has access to healthcare and no one is without healthcare insurance. My answer to this is, by nationalizing the healthcare industry we have lowered the level of service to 97% of the people, instead of raising the level of service of 3% of the population. We are all riding bicycles instead of some of us driving Caddies and some of us driving Volkswagens.

Editor