Wednesday, February 25, 2004

Shoddy Reasoning About Outsourcing

Via a post by Edward Hugh, I came across this BBC article on the Indian state of Maharashtra's attempt to position itself as a low cost centre of medical services catering to patients from the developed world. The article was interesting in as far as it demonstrated that the potential gains from international trade in services extend even to areas the naive might have thought immune to foreign competition. Nevertheless, it was something said in the course of the argument that paticularly caught my attention.

Many people from the developed world come to India for the rejuvenation promised by yoga and ayurvedic massage, but few consider it a destination for hip replacements or brain surgery.

Yet that's exactly what the government in the Indian state of Maharashtra hopes will happen soon.

Together with the state's business sector and private health-care providers it recently launched the Medical Tourism Council (MTC) of Maharashtra.

Its aim: to make India a prime destination for medical tourists.

At its swish offices in central Bombay, also known as Mumbai, members of the council explain the concept.

Bombay, they argue, has private hospitals on a par with the best in the world.

Many of the surgeons at hospitals such as the Hinduja are leaders in their field, working with the best equipment available.

But they can provide their expertise at a fraction of the price that comparable surgery would cost in Europe or the United States.

[...........]

For the MTC, its plans are the next chapter in globalisation and the outsourcing of work to India.

As Sanjay Agarwala, the Hinduja's chief neurosurgeon, says: "Wherever you can offer better services at a more competitive price, that is the place that is going to win in the end."

But others question who the winners will really be.

Dr Rama Baru is a health academic in Delhi.

She believes that the marriage between the interests of Western medical tourists and a handful of private hospitals is at "a very superficial level as far as the medical care industry in India is concerned".

Contrary to the claims of the council, Dr Baru believes there will be no trickle down of money to the impoverished public health system, which currently receives just 0.9% of India's gross domestic product.

The MTC's plans may well benefit the doctors and patients involved, but it is currently unclear how a country that still suffers from malaria and TB will reap the rewards of a new wave of medical tourists coming to India.
(emphasis added)

That highlighted bit was so chock full of economic ignorance that at first I was at a loss as to where to begin. One would think the benefits of this trend would have been obvious to both Dr. Baru and the BBC, but apparently the economic sophistication of both of these parties extends no further than the concept of a static cake, with any gains for one group only possible at the expense of another. The emergence of healthcare providers catering to the international market ought to be applauded, even if it brings no immediate dividends for the public healthcare system, as more affluent Indians will be in a better position to pay for any healthcare they desire out of their own pockets, regardless of what the government does; in addition, the foreign demand will stimulate domestic demand for more doctors and hospitals, from which Indians also stand to benefit. Even if one buys into the notion that healthcare and public healthcare are necessarily identical, which I certainly do not, it is still true that a larger economy means larger government revenues, which means more money to spend on healthcare, even without raising the percentage of India's GDP devoted to the public healthcare system.

What I do have a problem with is not the prospect of patients from overseas flying into Maharashtra to get cheaper hip replacements and heart bypasses, but the notion of any sort of "public-private partnership" to bring this about - such initiatives all too often turn out to be covers for the coddling of particular private sector interests at the expense of others. Private Indian medical services providers ought to be able to make the business a viable one without public assistance, while I'm sure the Maharashtra state government has more than enough difficulties as it is catering for the very basics of good government, like enforcing the law and guaranteeing an efficient, impartial judicial system.