Appendix to Chapter 9 of The Commercialisation of New Zealand
Keywords: Governance; Health;
A central notion of the New Zealand reforms of the 1980s and early 1990s was that an able manager was capable of managing any agency in the private or public sector. This has two implications. First, it suggests that all economic activities are broadly the same, or may be treated so for policy purposes, since the required management skills and approaches are not sector specific. Second, it encourages the replacement of specialist managers, who had typically developed in the sector, with generalists who had not, but who would be loyal to the managerialist philosophy and anxious to impose it on the institution.
It might seem that this issue is marginal, except perhaps to those who were promoted or made redundant as a result. However, the consequences are widespread, and potentially destructive. For example, the theory says that the same skills are needed to run a hospital as manage a brewery: that ultimately the production of health services is not fundamentally different from the production of beer. Put so bluntly, the theory now seems laughable, even absurd, but it is a matter of record that the first chief executive officer of New Zealand’s largest Crown Health Enterprise (CHE) was previously involved in brewery management.
Arguing the fallacy of generic managers is not to argue an uncritical case for specialised managers. It is certainly not an argument for inbred management where senior managers enter the firm at the bottom level and work their way up, without any other sectoral or firm experience. A successful senior manager is likely to have had a range of experiences in a variety of agencies. Neither does rejection of the fallacy mean that a senior executive should never come from outside the industry. Rather it suggests that if a new manager comes from a sufficiently different industry, he or she will take considerable time to settle in.
Nor does the fallacy deny the existence of generic management skills which the MBA, for instance, provides to students. A good MBA graduate should be able to go into almost any junior management position. As the manager progresses, industry specific skills add to the generic ones. The fallacy of generic managers applies to senior managers.
Like most such misconceptions there is just sufficient truth in the fallacy of generic managers to deceive the unwary. A senior manager may be able to move successfully between what appear to be quite different products or firms. As an aside we should not make too much of these shifts. A misunderstanding of their nature led in the 1980s to mergers between firms of very unlike characteristics in the name of `synergies’. Typically these mergers came unstuck, and the firms – if they survived – later sold the disparate activities.
The fallacy, however, is concerned with a broader issue. While some products or services have sufficient similarities for the same skills to be broadly applicable for a senior manager, many do not. That a foodstuff CEO may make an admirable hardware CEO, does not mean that inevitably he or she will make as competent a health services CEO.
Moreover, there will always be managers, generic or otherwise, who have the talent to rise above the limitations of their training and background when placed in a new situation. Undoubtedly some of the new managers in the health services have done well. The concern is with the average level of performance, not a few isolated peaks.
The Rise of Generic Managers
There are a number of economic products and services whose characteristics are so different from the general run of commodities, that they have typically been treated quite differently from those conventionally supplied by private enterprise. Indeed the raison d’être of the public service was because its `outputs’ were so different from market ones that they required different management styles. (Chapter 10)
By the 1980s this view was under attack. The rise of managerialism reminds one that the phenomenon is not peculiar to New Zealand, although the country may well have experienced one of the most intense applications of the theory.[1] When faced with a problem of institutional reform Treasury tended to solve it by converting the institution as closely as possible to a private enterprise firm. While this may make sense for public enterprises which are functioning in a competitive market with (at least nominally) profit objectives, the extension of the model to traditional social services is more problematic.
Certainly Treasury despaired of the old public service ways, but the selection of the business alternative was a little like awarding the prize to the second singer in a competition after having only heard the first. Few Treasury officials had real private business experience (if any it was in the finance sector), so they were attracted to an idea with which they had little familiarity. Ironically Treasury is one of the few public sector organizations which has not been affected by generic managers. All its senior executives had experience as junior Treasury officials, and few have outside public sector experience, other than perhaps graduate school.
There is an evident process of the application of business management procedures starting in those public activities where they were most applicable, and moving out to steadily less applicable areas. The return of a National Government in 1990, led to managerial reforms in social services sectors, of which the health reforms are a good example.
The Health Reforms
The debacle of the health reforms is described in the main chapter. Their underlying premise was that health services were just like any other economic commodity could be supplied the same way, and ideally should also be funded privately. As Chapter 2 explains the provision of health services is very different from the standard commodity. The main strengths of normal market transactions simply do not apply to the standard health service exchange.
This elementary point, which is at the heart of why there exists a specialized subject of health economics, was dismissed by the reformers, by simply ignoring it. It was a matter of practice that none of the New Zealand economists hired by the agencies supervising the reforms were experienced health economists. Rather, generic economists with little health economics experience were employed.
The reform units did hire some overseas health economists, carefully selected for their ideological sympathies (while some of the world’s top health economists – most notably Bob Evans of Canada and Alan Maynard of Britain – who were visiting New Zealand on other business were ignored). Even so, the overnight consultants did not have enough local knowledge to be useful, while the local ones they interacted with did not know enough to give them key information. For instance, New Zealand has the peculiarity that litigation for medical malpractice is all but prohibited (by the accident compensation legislation). Thus, one of the key mechanisms for quality control of a privatised medical system is missing. Yet at no stage did the reformers address the question of quality control in a system becoming more exposed to commercial pressures.
Illustrating the effects of generic professionals by the example of economists is appropriate because the modern economist is often given the role of the ideologist, even high priest, of the managerialist revolution. The debate occurs in terms set by them. But the economists were not the only generic professionals who made elementary mistakes.
The most obvious example was Peter Troughton, the man appointed to head the National Provider Board, who had been chief executive of Telecom New Zealand, who went on to electricity distribution reorganization in the state of Victoria. Telecommunications and electricity are both network industries, so there may be sufficient overlap for a good manager to move easily between the two. But by no stroke of the imagination are health service providers. Trained as an engineer, the man exuded a charming confidence which soon betrayed a not surprising ignorance. For instance, he confused an intensive care unit with a post-operative recovery unit, a misunderstanding which could be fatal for a person suffering a cardiac arrest.
Troughton claimed that under the reforms there would be early productivity gains of 20 to 30 percent. Challenged, he said that whenever he had been involved in industry rationalization he had attained such gains. Systematic measurement of his achievements might find the gains were somewhat less than claimed, since the conventional measures have tended to look at output per person employed, and fail to allow that the redundant labour force often became self employed subcontractors. But even ignoring this the generic manager failed to observe that labour productivity gains in a capital intensive network industry, such as telecommunications, are a very different matter from those in a labour intensive service industry, such as health services.
Pressed further, Troughton cited the example of a particular hospital which was already making such gains, so he claimed. The reader will notice the logical flaw that a hospital already making such gains under the old regime, hardly suggested a new regime was needed. In any case there was no such systematic measure of productivity gains to support the claim. Some of this hospital’s gains as a result of recent improvements were cited. For instance the introduction of a preferred medicines list had the effect of cutting the hospital’s drug bill by the equivalent of a productivity gain of 1 percent.[2] The advocates without specialist backgrounds were unaware of was that preferred medicine lists had been introduced into leading hospitals a decade earlier. The instanced hospital was a laggard, not a leader.
Another claimed performance measure was the substantial reduction in waiting lists at the hospital. True, except this was the result of a special grant from central government which enabled the purchase of more inputs. The non-specialists had no institutional memory.
Generic Managers
The generic reformers appointed non-specialists to the boards of directors who would govern the CHEs according to commercial criteria. The government’s own list identified less than 5 percent of the board members as having medical health services experience. In turn, the non-specialist directors usually appointed generic managers to be chief executives, who in their turn appointed generic managers to other senior management positions. Many managers who were professionally skilled and trained in the area of health services management lost their jobs. Some were appointed to managerial positions overseas, suggesting that it was not incompetence that led to career termination in New Zealand, but incompatibility with the ideology of generic managerialism. The general perception was that the system of reform was so committed to generic management that it was a disadvantage to have health sector experience.
There is only anecdote to report on the new managers, for despite their claims to emphasize systematic management, and to monitor worker performance, there is surprisingly little effort by the managers to monitor themselves. Anecdote has medical personnel reporting that some of the new management teams did not understand the medical issues with which they were grappling, and were wasting resources as a result. It seems almost certain that ongoing efficiency improvements were delayed because the generic managers had to get up to speed in the peculiarities of their new industries. Sometimes the new managers were taken in by latest fashions, having no criteria by which to judge feasibility. At one stage the enthusiasm favoured heavy investment in information technology, a perception encouraged by the not-so-generic managers of the information technology industry.
An instructive anecdote comes from a meeting which involved presentations by three new CHE chief executives. Anxious to impress the mainly health service audience, each insisted that they had quality staff with whom they would be working to obtain performance gains. One CEO enthusiastically announced that his task was to get his staff `to own the problem’. He was promptly asked what he meant by that, since if someone went into a hospital with a medical condition the staff already worked their butts off to resolve it. The new CEO responded by saying `the problem’ was the CHE profit line, and then his voice trailed off for even he realised that his staff would not be overly impressed by the profit outcome (nor that his salary package included a bonus if he met it).
Without question the effective use of resources by clinicians (doctors, nurses, and health technicians) has been one of the persistent problems for at least a quarter of a century. Slowly clinicians began accepting that they have a responsibility to be efficient in their resource use, and that this need not compromise medical ethics. They have been even more hesitant with the notion, that providing resources to one patient, reduces resource availability to others (who perhaps are not even a patient of the clinician). Their reluctance reflects deep, and not easily resolved, ethical questions. The overall profitability of a hospital may have some connection with these questions, but in practice it is tangential and even irrelevant. In the end we have a clash of culture between generic managers focused on profit and clinicians focused on patients, with the commercialisers ineffectually claiming the two objectives are much the same thing.
The Outcome
Evaluation of the reforms is complicated by that there would have been changes, including productivity increases, even had the old regime continued. However, as the main chapter details, the reforms have been far from successful compared to the promises made. For instance, the official estimates of the gains has been revised to an increment of 1 to 2 percent a year, probably about the rate that was occurring before the reforms.
This does not prove that the generic managers failed. It could be argued that the reforms were so ill-conceived that no class of managers could succeed. Even so, there is no evidence these managers contributing to resolving a difficult situation But recall that the theory of generic managers and the related theory of the management of generic industries was central to the justifications of the reforms. If the generic reformers had not been so seduced that health services were just like any other economic activity, they would not have been so committed to appointing generic mangers.
Moreover, within a couple of years over half of the CEOs of the CHEs left, often citing their reasons as managerial difficulties. They had come to their new jobs expecting to be working in a similar environment to the commercial businesses, they knew about. They were soon disillusioned. Ian Frame, when CEO of Canterbury Health, wrote `[the] professional and commercial cultures have come face to face in a way that has not happened before. … At present there are serious tensions….'[3] He was optimistic that the tensions between management and the medical staff could be resolved. (He thought the academic medics presented a greater problem.) Ironically, or perhaps inevitably, within six months his CHE had a major industrial dispute with clinicians over work practices (as well as pay rates), and Frame had left.
Conclusion
The story told here about managers in the health reforms could be told with similar detail about the changes in a variety of other activities including education, housing, science, social services, and even the core public service itself. Generic managerialism did not lead to marked improvements in the ability of such agencies to carry out their tasks. Not surprisingly we are seeing a return to older management forms, insofar as the reversal can be undertaken without appearing to be an admission of failure. Nevertheless the language of new managerialism dominates the public discourse, even if its practice is in retreat in some places.
All public sector agencies all have a positive impact on the welfare and prospects of New Zealanders. The turmoil of reform, without any evident gains, has meant those who benefit from the agencies have suffered, as has the public purse. Undoubtedly the health of some New Zealanders has suffered too. Yet less than one might have expected. For despite the insecurity and demoralization the reforms have caused staff, they have continued to maintain their high standards of performance in health care. One would not expect generic managers to perform as well under such circumstances. Fortunately for the patients, the culture of the health professionals has triumphed, despite the attempt by new managerialism to override it.
Endnotes
[1] Pollitt (1994).
[2] A preferred medicine list usually involves the hospital doctor being able to prescribe from a limited list. Where it is necessary to go outside the list (to more expensive drugs) agreement is required from a senior clinician or a panel.
[3] Frame (1996).