Edmund Rice Business Ethics Initiative - Good Business Newsletter

http://www.erc.org.au/goodbusiness/page.php?pg=0510infocus149

October 2005

Trust and shared institutions Tim Anderson Disaster management in the US, in the wake of Hurricane Katrina provides an insight into this issue. Public infrastructure had been neglected, early warning systems were inadequate and, in the wake of Katrina, rescue services were slow and uncoordinated. Relief efforts were also enormously expensive. Putting aside possible failures by individual managers, this phenomenon paints a picture of some of the structural weaknesses of a society that has commercialised to a high degree, and has privatised a great deal of risk.

Gillian Calvert, NSW Commissioner for Children & Young People

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Across the Florida Straits sits Cuba, a small socialist country, subject to the same regular hurricane weather. Under a 45 year old economic blockade from the US (the origins of which were in disagreement over the amount of compensation to be paid for nationalised property), Cuba is poor, its cash income a tiny fraction of US income. However Cubans are highly organised and have given a high priority to education, health and disaster management.

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Katrina missed Cuba, but the island is not always so lucky. Hurricane Dennis, in July, devastated parts of Cuba, bringing a massive surge in winds and sea levels. Sixteen people died, and many homes were destroyed. But the preparations and evacuations were well planned, through national coordination and many strong local civil defence organisations. In general, Cuba manages hurricane damage much better than either the US, or the surrounding islands of Jamaica and Haiti.

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Professor Henry Taylor, from the US, observed the "communications, cooperation and efficient evacuation" before Hurricane Dennis. Cuban television and radio led the way, but word of mouth through the local organisations was critical. Windows in Central Havana (a generally poor neighbourhood, with many historic buildings) were boarded or taped up within two hours. About 100,000 people in the most vulnerable areas were then evacuated, within about two or three hours. This is remarkable in a country with few private cars. And many boats were lifted out of harbour waters, with public cranes, in a coordinated effort before the big winds hit. In the US, the substitute for such efforts was generally private insurance.

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It is hard to imagine an effective disaster management regime based on individualism, competition and private insurance. Yet these are commercial themes that often come to dominate our public policy. Some time back, most western societies socialised their police, fire services and (mostly) their water, sanitation and basic health services. It was recognised that these function more effectively and more efficiently as shared institutions. Resources are often saved by sharing; individualised services often end up more expensive. But with liberal emphases on commodification, competition and privatisation, there has been a tendency to run down or neglect these shared services.

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Edmund Rice Business Ethics Initiative - Good Business Newsletter

http://www.erc.org.au/goodbusiness/page.php?pg=0510infocus149

Disaster management, then, is one area of life where shared services trump privatisation. Public health is another. The US has far greater health expenditure than any other country, but relatively poor average health outcomes. At 14.6% of GDP (or US$5,274 per capita) US health expenditure is almost double the OECD average. Yet the US performs much worse than the OECD average on maternal and infant mortality. UNDP figures tell us that the US ranks 28th on maternal mortality, and 36th on infant mortality. Australia's indicators in these areas are better than those of the US, but Australia commits only 9.5% GDP (or US$2,699 per capita) to health expenditure. Health spending in Cuba is only 7.5% GDP (or US$ 395 per capita), yet in 2004 Cuba's rate of infant mortality (less than 6 per 1,000 live births) fell below that of the US (at 7). How does the US have worse public health outcomes with greater resources? Human resources don't really explain the differences. Both the US and Cuba have very high levels of doctors, per population (549 and 591 per 100,000, respectively), while Australia is a bit below the OECD average (at 249). The different split in public and private health expenditure may be significant. Australia's health expenditure is 72% public funds, Cuba's is 87% public, while public spending in the US is less than private spending, at only 45%. This may mean that resources in the US are often captured by expensive private specialists. More significantly, Cuba and Australia (indeed, all of the wealthy countries, except the US) have guaranteed universal access regimes, for health services. This guaranteed access system (whether in place of, or backing up private health insurance) is likely to have a big impact on a range of public health outcomes. Access to health services is important for good health outcomes, but so too is access to good infrastructure, such as housing, water and sanitation. These are all areas increasingly contested by regimes of privatisation and competition policy. But before we go down those roads, we should consider the international lessons in disaster management and public health, and reflect on the trust and social value built up through our shared institutions. Tim Anderson teaches economics at Sydney University

This newsletter is a publication of the Edmund Rice Centre and the Trustees of the Christian Brothers. While all reasonable attempts have been taken to ensure that the information in this newsletter is correct and that opinions and points of view are in accordance with the purpose of the Business Ethics Initiative, the Edmund Rice Centre and the Trustees of the Christian Brothers do not guarantee its accuracy nor should anything contained in the newsletter be treated as professional advice. The Edmund Rice Centre and the Trustees of the Christian Brothers do not necessarily endorse or recommend any opinions, individuals or organisations which are linked to, or mentioned in, this newsletter.

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