Infrastructure and Health Care Reform

As an educator and researcher involved in the theory and application of advanced measurement methods, I am both encouraged by the (June 14) New York Times Sunday magazine’s focus on infrastructure, and chagrined at the uninformed level at which ongoing health care and economic reform discussions and analyses are taking place (as evident in the Sunday, June 21, Times editorial and business pages).

Socialistic solutions to problems in education, health care, and the economy at large are the inevitable outcome of our incomplete implementation and understanding of market capitalism. Take, for instance, the rancorous debate as to whether we should create a new public health insurance plan to compete with private plans. None of the proposals or counter proposals amount to anything more than alternate ways of manhandling health care resources toward one or another politically predetermined end. Accordingly, we find ourselves in the dilemma of choosing between equally real dangers. On the one hand, reduced payments and cost-cutting might do nothing but lower the quality and quantity of the available services, and, on the other hand, maintaining quality and quantity will eventually make health care completely unaffordable.

And here is what really gets me: apart from blind faith in the power of reduced payments to promote innovation, there is nary a word about how to set up a market infrastructure that will allow the invisible hand to do its work in bringing supply and demand efficiently into balance. Far from seeking ways in which costs can be reduced and profits enhanced at the same time, as they are in other industries, the automatic assumption in health care always seems to be that lower costs mean lower profits. We have always thought socialistically about health care, with economists, since Arrow, widely holding that health care is constitutionally incapable of sustaining a market economy. Hope that the economists are wrong appears to spring eternal, but who is doing the work to find a new way?

A new direction shows itself when we listen more closely to ourselves, and follow through on our basically valid intuitions. For instance, issues of sustainability, justice, and responsibility in the economic conversation employ the word “capital” to refer to a wide variety of resources essential to productivity, such as health, literacy, numeracy, community, and the air, water, and food services provided by nature.

The problem is that there seems to be little or no interest in figuring out how to transform this usage from an empty metaphor into a powerful tool. We similarly repeat ad nauseum the mantra, “you manage what you measure,” but almost nothing is being done to employ the highly advantageous features of advanced measurement theory and practice in the management of intangible forms of capital.

Better measurement of living capital is, however, absolutely essential to health care reform, entrepreneurial innovations in education, and to reinventing capitalism.  Instead of continuing to rely on highly variable local efforts at measuring and managing human, social, and natural capital, we need a broad program of capacity building focused on a metrological infrastructure of living capital, and its implementations.  If there is any one single blind spot that prevents us from fully learning the lessons of our recent economic disasters, it is the potential that new measurement technologies offer for reduced frictions and lower transaction costs in the intangible capital markets.

We know where to start, from two basic principles of market economics. First, we know the transaction costs are the most important costs in any market.  High transaction costs can strangle a market as the flow of capital is stifled. Second, we know that innovation, essential to product development, improvements, marketing, and enhanced profitability, is almost never accomplished by an individual working in isolation. Innovation requires an environment in which it is safe to play, to make mistakes, and through which new value can be immediately and decisively recognized for what it is.

How can living capital market frictions be reduced? For starters, we could focus on effecting order-of-magnitude improvements in the meaningfulness of the metrics we use for screening, diagnosis, research, and accountability. We can do whatever arithmetic we want with the numbers we have at hand, but most of the numbers that pass for measures of health, functionality, quality of life and care, etc. do not actually stand for something that adds up. The good news is that, again, the intuitions informing our efforts so far are largely valid, and have the ball rolling in the right direction.

How can better measurement advance the cause of innovation in health care? By providing a common language that all stakeholders can think and act in together, harmoniously. Research over the last 80 years has repeatedly proven the viability of a kind of a metric system for the things we measure with surveys, assessments, and tests. Such a system of universally uniform metrics would provide the common currency unifying the health care economy and establishing the basis for market self-organization. But contrary to our predominant metaphysical faith, scientifically proven results do not magically propagate themselves into the world. We have to invent and construct the systems we need.

Our efforts in this direction are stymied, as Tom Vanderbilt put it in the Times Sunday magazine on infrastructure, to the extent that we have “an inimical incuriosity” about the banal fundamentals of the systems that shape our world. We simply take dry technicalities for granted, and notice them only when they fail us. Our problem with intangibles measurement, then, is compounded by the fact that the infrastructure we are taking for granted is not just invisible or broken, it is nonexistent. Until we make the effort to build our capacity for managing health and other forms of living capital by creating reference standard common currencies for expressing, managing, and trading on their value, all of our efforts at health care reform–and at reinventing capitalism–will fall far short of what is possible.
William P. Fisher, Jr., Ph.D.

We are what we measure.
It’s time we measured what we want to be.

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LivingCapitalMetrics Blog by William P. Fisher, Jr., Ph.D. is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 3.0 United States License.
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