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The "reforms", including the "health reforms",
constitute a massive cost-raising exercise designed to
lead to privatisation, not a "costcutting exercise".
The mooted splitting up of Electricorp is a more obvious example
of costraising. It will cost something like a $1billion
capital injection to make the separated units commercially viable.
That represents the cost of going from a more efficient form of
industrial organisation to a less efficient form. The same thing
happened in Health. It is now fully acknowledged that having four
separate RHAs was a grossly wasteful form of administration.
The general issue can be easily understood simply by referring
to the circular flow principle that is central to market economics.
The circular flow is shown in the diagram below. Households benefit
as consumers and incur costs by letting their labour, capital
and/or land to producing firms. In addition to hiring land, labour
and capital, firms buy inputs from each other: raw materials,
fuels, and business services. Primary producing firms supply raw
materials to secondary producers (manufacturers) whose valueadded
goods are distributed to consumers by firms in the tertiary or
service sector.
The tertiary producers are of two main types. Those who supply
services to consumers (who are shown in the diagram), and those
who provide "business and financial services" to other
producing firms. Thus there is feedback in the circular flow that
is not shown in the diagram. The most obvious example of feedback
is when service sector firms sell to other producers in the primary,
secondary or tertiary sectors.
Cost-cutting occurs when the costs - ie the quantity of factors
(labour, land or capital) hired by firms - are reduced. There
is a productivity benefit if consumption is not cut, or so long
as consumption is not cut by as much as factor costs.
Economic growth (as understood by the economics profession) occurs
when the consumption of marketed goods increases, either due to
an increased use of factors, or to productivity increases (meaning
that more is produced without raising factor costs). Typically,
the growth process occurs by new firms entering the circular flow,
and, by transforming the inputs they draw on, adding net value
to the flow. Firms enter the circular flow because there is an
unsatisfied demand for their products.
Costraising of the sort characterised by the reforms is
however, in essence, a parasitic process. New producing firms
- "transactors" rather than "transformers"
- find ways of drawing inputs from the flow without contributing
to the net value of the flow. The transactors profit from the
flow by diverting it to themselves while "crowding out"
transforming activities. More factors are used to produce fewer
consumables than would have been the case in the absence of the
reforms.
The reforms have been a political exercise that has enabled a
number of new and largely parasitic firms to plug into the circular
flow without satisfying the market demands of any consumers or
groups of consumers. ("Firm" is a generic term for market
producer; as such it includes government agencies.) The reform
process has thus been driven by particular groups of suppliers
and politicians, and not by the demand forces originating with
the consumers who are supposed to determine the allocation of
labour, capital and land.
The process works by such firms persuading government agencies
to buy additional transaction services - eg through the political
advocacy of a model that emphasises the importance to production
of supervision, or through the sale of a policy programme that
creates an environment in which firms become obliged to buy financial
and other services that they would not otherwise have bought.
Every cost represents someone's income. Therefore, parasitic costraising
exercises create income streams for those managers and capitalists
who control and own the firms concerned. The greater the cost
incurred, the greater becomes the incomes of those managers and
capitalists. (This is an argument that organised business itself
applies to labour: the greater the incomes to labourers, then
the greater the cost to those who hire labour.)
By definition, parasitic firms do not add to the total consumable
value; rather they change the distribution of value in favour
of their own principals. Once having inserted themselves into
the flow, it is a comparatively easy exercise for costplus
transactors benefitting from what Immanuel Wallerstein calls "relative
monopoly" to gradually ratchet up their charges, thereby
raising the costs that have to be borne by everyone else.
There can be do doubt that parasitism does occur within the economic
flow, just at it occurs in the biological flows that inspired
modern economic thought. The important question is to what extent
has parasitism increased or decreased as a result of the reforms.
The advocates of reform would probably argue that parasitism has
decreased, and they would point to the diminished role of trade
unions. My view is that parasitism on behalf of capital has increased
by a much greater extent.
The health reforms profit the capitalist class - ie organised
business - in two ways. First, as described, by inviting transactor
producers into the circular flow, creating incomes for the capitalist
transactors. Second, by lowering the supply of the consumable
product - in this case, public health care services - a demand
is created for a substitute product; namely private health care
and private health insurance. These are particularly profitable
businesses to be in. Countries which emphasise private health
care over public care invariably use an unnecessaraily large share
of factor resources in the provision of health care services.
In New Zealand, the "Reforms" - the whole commercialisation
process - has been one of creating the political conditions through
which the dominant social strata can profitably (for them) insert
themselves into the circular flow of what was a wellbalanced
economy. Those incursions represent additional costs - "transaction
costs" is the technical term - and the reforms have been
a costraising exercise.
The solution to the problems created by the reforms is not to
add even more labour and capital inputs, but to regulate the circular
flow so as to diminish the extent of capitalist parasitism.
{ This document is: http://www.oocities.org/Athens/Delphi/3142/krf40-cost_cut.html
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This is: http://www.oocities.org/Athens/Delphi/3142/krf40-cost_cut.html