William Krehm
It was approximately thirty years since economists had shown any interest in systems theory. There was a passing flicker of attention to it in the early seventies when Jay Forrester had been commissioned by the Club of Rome to forecast the adequacy of oil supplies at the going rate of consumption increase. Working with data that could only be supplied by the petroleum corporations, his predictions of a relatively short-term oil crisis turned out to be on the pessimistic side. That had its part in the disappearance of economists’ preoccupation with systems theory. A bum prediction based on the only statistics of available supply was misrepresented as a convincing proof that the “pure and perfect market” would continue to provide the world’s oil needs.
There was a far deeper factor at play: systems theory is the polar opposite of economists’ ploy in declaring non-market factors “externalities.” That simply shoved non-market subsystems of the economy – the ecology, households, the public sector, health, education, and so forth – out the back door. Obviously this negates the very essence of systems theory – that the ability of a system to go on functioning depends on all its subsystems being in working order. No subsystem must be allowed to devour the resources essential for the operation of another. Hence no subsystem can be seen as an externality; no market – including notably our financial market – must be allowed to embark on a course of exponential increase. For that would imply pillaging everything in sight, including all non-market subsystems.
So remote is this constraint from the established concerns of economists, that it is going to take some exercising to get used to. However, it may be helpful to note that good investigative journalists do examine such abuses, and expose false claims by identifying an important public interest being violated. That is the very building block of systems theory. Expand it to take in all non-market subsystems and check to see whether the market – or any other subsystem – is not encroaching on essential resources of another, and you will have a fair notion of systems theory.
Let us try this out on some current examples. Right on the front page of The Wall Street Journal (12/11) there are three stories that fill the bill.
“An Unusual Pitch from French Giant: Nukes are Green” by John Carreyrou: “Paris – Blackouts this year in the US, Scandinavia and Italy were a stark reminder that the world has yet to figure out how to meet its energy needs.
“Areva SA, a large but little-known company owned by the French government, thinks it has the answer: nuclear power.
“The world’s biggest builder of nuclear reactors and recycler of nuclear waste, Areva, aims to go public next year. It is pitching itself to potential investors on the controversial premise that nuclear power is making a comeback – and that the industry that spawned Chernobyl is actually good for the environment.”
Applying High Fashion to Nuclear Power
“To make its case, Areva is embarked on a global marketing campaign that takes as much from the fashion industry as it does from the grubbier world of electricity production. Areva CEO Anne Lauvergeon hired a former top executive from fashion house Hermes to gussie up nuclear power’s image. She sponsored a yacht in the Ameri¬ca’s Cup race. She’s run television ads with the slogan: ‘We’ve got nothing to hide. Come see.’
“To prove that point Ms. Lauvergeon had cameras installed at a nuclear-waste recycling plant in Normandy, the largest repository of radioactive material on Earth. They piped live shots of the plant’s interior to a Web site for public viewing. The French government ordered the cameras turned off for security reasons after the Sept. 11, 2001, attacks.”
In short, the immense dangers of human error and terrorist theft of nuclear materials had simply been declared externalities. The French government stepped in to stop some of the more scandalous aspects of this misrepresentation. Systems theory seeks to catch the sources of social catastrophes by establishing routine defences of the public interest.
In the same issue of WSJ one column to the left of the article on French nuclear enterprise, is another item that can serve as a useful exercise in limbering up our minds: “Costs of Trucking Seen Rising under New Safety Rules” by Daniel Machalaba).
“The first major changes in truck-driver work hours since 1939
are expected to reduce highway fatalities, but also contribute to the biggest
increase in
trucking rates in two decades.
“The changes, mandated under new federal safety rules that take effect in January, are designed to reduce fatigue among truck drivers, a major cause of accidents. The new rules increase the time truck drivers must set aside to rest in each 24-hour period to 10 hours from eight. The total time a driver can be on duty will fall to 14 hours from 15. Drivers also will be required to include as work hours time spent waiting at loading docks and fueling their rigs.
“Wal-Mart Stores Inc., which unsuccessfully opposed the new rules, believes the more stringent 14-hour rule will reduce the drivers’ daily work time by 6% on the average and cause it to add 275 new drivers and 300 new trucks to handle the same amount of cargo. ‘The rule will impose serious costs on society, not only on motor carriers but on shippers and receivers as well,’ the company said in a regulatory filing.”
Proclaiming Highway Deaths an Externality
That should be an easy misrepresentation to see through. Road accidents, fatal and otherwise, have simply been proclaimed by Wal-Mart as an externality. Internalize it into society’s costs, and Wal-Mart’s argument is exposed as self-seeking nonsense.
On the far left column in the same issue of WSJ is yet another article that makes a similar point, “Universal Care Has a Big Price: Patients Wait” by Elena Cherney. “Toronto – In Canada’s public-health system, which promises free equal-access care to all citizens, medical resources are explicitly rationed. For the country as a whole, that works – Canada spends far less on healthcare, yet health outcomes of its citizens are generally as good as those in the US.
“But the trade-offs are steep: Canadian hospitals are slower to adopt the latest technology, meaning patients have more limited access to cutting-edge medical equipment. Health officials may use expensive drugs more selectively. There are fewer specialists for patients to see.
“The riskiest trade-off of all is troublingly long waits. Once patients see a family doctor and get a referral for specialist care, it can take weeks or even months to get an appointment. In some parts of the country patients waiting for admission to a hospital sometimes find themselves waiting for hours and even days on gurneys in the corridor, and receiving treatment there.
“A study this year by the Organization for Economic Cooperation and Development found waiting times for elective surgery are a ‘significant health-policy concern’ in about one half the group’s 30 members, including the UK, Australia, Sweden, Denmark and Spain. Waiting times weren’t a problem in the US, the group said.
“In Canada, the long waits stirred a public outcry and a government inquiry when a 63-year-old heart patient at St. Michael’s Hospital in Toronto died in 1989 after his surgery had been canceled 11 times.
“To tackle this crucial problem, Canada is turning to ‘cardiac-care coordinators.’ Their job: to make sure waiting doesn’t kill patients.
“In Canada, one way hospitals restrain costs is by trying to always run at capacity. It’s more efficient to run a hospital that way, just as it’s more efficient to fly an airplane with every seat full. But running at capacity means lines always form. Waits for certain surgeries in Canada can be up to two years. Health care spending accounts for 10% of Canada’s Gross Domestic Product, while in the US, it consumes about 14%. Canadian patients can choose their own doctors, and they never have a bill for their care. Canadian physicians, who are paid by the government, generally earn much less than their US counterparts. Despite Canada’s lower health-care spending, patient outcomes in a number of areas, including cancers and heart-disease, are similar. Overall, life expectancy in Canada is 79.4 years, compared with 76.8 in the US, the OECD says.
“Many factors affect longevity, of course. Nearly one-third of Americans are obese, for instance, compared with 15% of Canadians. And since millions of Americans are uninsured, many may not get access to the care they need.”
“Some US experts say that waiting lists are a sign that the health-care system isn’t wasting money on unnecessary procedures, equipment or personnel. ‘If you don’t wait in a medical system, there’s a problem,’ says Ted Marmor, a health-policy expert at Yale University. The question,’ Prof. Marmor says, ‘is whether people are waiting inappropriately.’
“In Ontario, the cardiac-care network works to strike this balance. The network consists of 17 hospitals, and 50 surgeons who share heart-patient cases. There are government guidelines: at St. Michael’s, six scheduled surgeries are allowed each day. Cardiac-care coordinators are assigned the task of making sure that waiting doesn’t kill patients. They must juggle the elective and urgent cases so that all six operating-room slots are filled every day – and no one is left waiting more than the recommended length of time.”
Adding New Subsystems to Health Analysis
“Today, most urgent and semi-urgent heart patients are treated within two weeks. Non-urgent patients wait on average for 49 days for surgery. Some patients say that waiting isn’t too bad a price to pay for their free medical treatment.” The problem was brought under control by setting up a neglected subsystem – that of urgent heart surgeries with its own rules and goal.
So far so good. But yet another crucial subsystem has been omitted here. In 1991 a bill was slipped through Canada’s parliament without press release or debate to bail out Canada’s banks from their gambles in gas and oil and real estate. It took the form of doing away with the statutory reserves that banks had to redeposit with the central bank as a modest proportion of the deposits they took in from the public. With great understatement, let us say that total cost to the federal coffers has amounted to another 2% of the GDP. By retracing these deplorable steps – the end of statutory reserves and the deregulation of the banks even to a modest extent, one half of the 4% lesser amount of the GDP spent in Canada compared to the 14% figure spent on health-care in the US could provide spare elbow room in our health system to cut down unreasonable waiting periods.
This would make available for dealing with the waiting problem for surgery another subsystem of the economy – our monetary subsystem as redesigned some twelve years ago. That could be used to reduce any unreasonable waiting periods in our otherwise excellent health system. The eternal question – Where is the money coming from? – needs only an honest ear to the answers that are embedded in our history.
William Krehm
— from Economic Reform, January 2004