In light of the shift to active purchasing in internal market and managed competition systems, does there need to be continued regulation of the supply side or can it be largely left to evolve on its own? To use the rowboat analogy of Osborne and Gaebler, does the government have sufficient steering power in a managed competition model that it can leave the private sector to row? 1 Although the rowboat metaphor has the power of simplicity, in the real world, things are often murkier and less clear-cut than policy-makers, economists and other rationalists would like to assume.
First, it is important to note that governments may wish to continue to regulate inputs on the supply side in order to contain total public expenditures, irrespective of efficiency considerations. Although an internal market system or a managed competition system may achieve a level of spending on health that is allocatively efficient, this efficient level may be above that which a government is prepared to fund from public moneys. As Schut and Hermans note in the Netherlands:
the government faces the dilemma that while managed competition may improve efficiency and reduce unit costs, it may not guarantee the realization of macro-economic cost-containment goals. This is because managed competition may not only lead to lower production costs but also to higher productivity and a higher responsiveness to consumer preferences or patient needs. 2
The difficulty is that although distributive justice considerations support financing of health expenditures on a progressive basis, which is generally achieved by financing from general taxation revenues, historical overruns in public sector borrowing mean that expenditures have to be curbed now to compensate for past excesses. Squeezing expenditures on health care goods and services, which citizens value higher than other goods and services, will result in all manner of perverse incentives and costs. It results in creeping privatization of the system as citizens look to have their values satisfied in the private sector. Naturally enough, governments tend to argue that retrenchment of public spending is efficient and will not lead to injustice and that enough money is being spent on