Does Restricting Choice Lead to Better Schools?
In Los Angeles, students and schools benefited from small pockets of competition.
Does Restricting Choice Lead to Better Schools?(upbeat music) John H. Cochrane: So I think the way Uber is revolutionizing taxi services is a really good model and a really good story for how health care and health insurance might also be revolutionized.
For years and years, taxi service has been awful. Just think of trying to hail a cab at 5 o’clock on a rainy afternoon. Now why? Well, the supply was really badly restricted. Taxis were extensively regulated. Cities don’t allow more than a certain number of taxis, and there’s the idea was that the regulation was there to protect the consumer. And Uber came along and undermined that whole business from the outside with both the technological innovation and the business innovation. And now, what do you get?
You get all of a sudden much better quality, much cleaner cars, much nicer drivers, and prices going down like crazy. There’s the standard story that hospitals won’t post prices. They won’t tell you how much things will cost. That is a prime sign of a business that doesn’t have anywhere near enough competition. No airline would dream of trying to say, “Well, just show up at the airport and then we’ll tell you after the fact how much you’re going to pay,” right? The big thing that gives us quality improvements, cost control, all the great stuff we see in other industries is supply. There’s just this huge spider web of regulations in the way of competition—not just federal, state and local are as much of the problem.
In our own state of Illinois, there’s still a certificate-of-need law. So if you want to open up a new hospital or a clinic, or even expand, or buy a piece of machinery, you’ve got to go down to the State Board of Equalization and get a certificate of need. And your competitors can show up and all they have to say is, “This will hurt my profits,” and they can stop you from doing it.
Imagine United Airlines’ joy if they could get the federal government to stop anybody from flying in and out of O’Hare if they would endanger United Airlines’ profits. That’s the way it used to be back when airfares were really expensive. Nonetheless, people tried to undermine the taxi monopoly for years and years, and the taxi companies were very good at getting the city regulators to enforce their monopoly. Uber came in all at once and quickly got, through technology, a base of people who really love their service. And that became then politically difficult for cities to put the genie back in the bottle, because now there’s a whole bunch of people who have sampled what the world can be like in a competitive market.
We don’t have to just hope for free-market economists like me to rant and rave about deregulation and hope it comes from the top. I think there’s good hope that the same kind of technical innovation will undermine the forces strangling supply of health care. There’s all sorts of new apps that can diagnose your diseases and take your blood tests, send your radiology to China, that sort of thing. Otherwise, we have to sit around and wait for our regulators to decide to deregulate, which could be an awfully long wait. But as in Uber, the disruptive forces can work around the existing regulations and undermine them quickly.
In Los Angeles, students and schools benefited from small pockets of competition.
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