Has the sun set on New Zealand’s health reforms?

Like the Scandinavian countries, New Zealand had in the post-war
years been viewed by the world as a model of social democracy.

Our welfare state, largely built under the first Labour
Government of 1935-1949, was being strengthened even in the 1970s
with the addition of a no-fault accident compensation scheme and
universal income support for students and sole parents.

People like me were invited to conferences like this to talk
about the successes of the welfare state not, as is the case
today, to raise a siren of warning.

But if it is a warning that is needed here I will
certainly give it.

Here is our story.

A Labour Party Government elected in 1984 began a process of
reform in 1984 that was consistent with the programme of structural
adjustment promoted by the International Monetary Fund.

The recipe is now familiar to many countries:

  • Financial deregulation
  • A narrow focus on inflation rather than a broad focus on
    employment and economic development
  • Deregulation and privatisation of strategic infrastructure
    including telecommunications, the national airline, banks and
  • The removal of tariff protection for local industry

The result?

  • Sudden death for provincial New Zealand, and much of the
    manufacturing sector
  • A dramatic rise in unemployment
  • Massive windfall profits for overseas investors, who took
    around 80 per cent of the huge increase in the value of the
    privatised companies
  • The Labour Government added to its unpopularity by introducing
    the first fees for university and other higher education, and a
    charge for prescription medicines. These had previously been

In 1990 it lost the election, only to be replaced by a National
Government that began work spreading the reform agenda to social
services and industrial relations.

Until the early 1990s, the health system itself had been largely
protected from the market madness. Changes had occurred but they
had been gradual. Locally elected Area Health Boards were
responsible for their local health services.

But in 1991 those who had been pushing for radical health sector
reform found a receptive government.

As with all neo-liberal public sector reforms, the aim was to
replace democratic planning and co-operation with competition in
the market place.

The democratically elected local Area Health Boards were
abolished and replaced with 4 Regional Health (funding) Authorities
and 23 private sector style Boards to run the hospitals along
business lines. Just to make sure that we all understood the nature
of the reforms, the hospitals were renamed «Crown Health

At the heart of the reforms was the separation of the funding
and the providing of health services.

Hospitals would compete with each other and with non-government
organisations and private health companies for the funding held by
the Regional Health Authorities.

Rather than fund a local health body to provide for the health
needs of its local population, as had been the case with the Area
Health Boards, the Crown Health Enterprises became businesses whose
job it was to deliver health treatments and operations according to
the contracts they negotiated with the Regional Health

The reformers believed that competitive hospitals would deliver
more with less.

In fact, hospital waiting lists, which had been increasing
before the reforms, kept growing during them. Hospitals were made
to introduce booking systems, which meant that if the hospital
couldn’t treat you, you did not get a booking and you just vanished
from the waiting list.

Because different areas have different capacity, how sick you
have to be to get a booking varies.

The public hospitals were required to make a profit every year.
This was to be achieved by spending less providing the service than
the amount the regional Health Authority, paid for it. It also
meant that private hospitals would not be disadvantaged in winning
contracts because both the public and private sector had to make a

This was, of course, nonsense.

After the first year of the reforms public hospitals were
spending 11% more than they were earning and the government had to
write off $300 million worth of debt. The following year they had
to put over $600 million more in to cover hospital debt.

For the first time ever, public hospital charges were
introduced, although these did not last long. Public opposition and
boycotts led to the scrapping of the in-patient hospital charges a
year after they were introduced.

Most people lost their right to subsidised GP care. Those on the
lowest incomes were made to apply for a Community Services Card,
which became known as the «poor card», to qualify for a

The government broke its promise to maintain the level of public
health spending, and the reforms led to a significant shift in
favour of private spending on health, particularly through the
growth of private health insurance. This led to the development of
a two-tier health system, where those who can afford to go private,
and others waited, sometimes dying on waiting lists.

Between 1991 and 1993 the government’s share of health spending
dropped from 82% to 76%. Meanwhile, by 1995 55% of New Zealanders
had taken out private health insurance.

At the same time, the introduction of new industrial legislation
did further damage to the system.

Under the 1991 Employment Contracts Act national awards were
replaced by a fragmented system where every group of workers in
every service had to bargain separately.

The legislation became an added incentive for business-focussed
boards to contract out services to cut costs. Services such as
cleaning, laundry and food catering are almost all now in the hands
of private contractors. Laboratory services were also privatised in
many cases.

The combination of so-called business efficiency and the general
decline of provincial areas under the new right’s economic policy
led to the centralisation of services and hospital and service
closures around the country.

Almost all long-stay older person’s care has been privatised and
is in the hands of some of the country’s meanest-minded

All of these changes were in the hands of a massively increased
health bureaucracy.

From 1993 to 1998 the number of health bureaucrats doubled. One
of the largest public hospital services began the reforms with one
accountant and finished them with seventy people designated as

At least some of those new business minded managers discovered
that you couldn’t run a health service as if it was a business. One
private sector manager who was brought in to run the biggest health
board left in disgust, criticising the bureaucrats and praising the
health professionals:

«[The health professionals] have nowhere to go. They see
politicians, bureaucrats and administrators as a passing parade.
They carry on looking after the patients – and thank God they
do. I’ve not been captured by them, just amazed by them.»

Just as one director of intensive care at a large urban hospital
described the ideologues behind the reforms:

«The architects of these ‘troubles’ are not unlike religious
fanatics: they have an irrational belief that they – and they
alone – are right»

Cost cutting in hospitals has had a very serious impact on the
wellbeing of the health work force.

Workforce planning was an early casualty of the health reforms.
Leaving it to the market has made shortages in all professional
groups much worse. The removal of a central workforce planning
function and reliance on «competition and market forces to drive
the sector» failed to provide for workforce needs.

In 1998, accountancy driven restructuring at one hospital led
the independent, government-appointed health watchdog, the Health
and Disability Commissioner to issue a warning that patient safety
was being compromised by the financial requirements.

From 1990 to 1994 nursing staffing levels dropped by 12.4% while
in-patient and day patient numbers increased. Whole layers of
nursing leadership were removed from hospitals, as the ranks of the
general managers swelled.

International research tells us there is a strong relationship
between the organisation of nursing services in a hospital and
patient outcomes and that these changes are likely to have worsened
patient safety.

By 1999, an international survey of public discontent with
healthcare found that New Zealanders were by far the most worried
of the five countries surveyed about their access to health

But change is also possible, and we know from our experience
that the longer you wait to reverse these reforms the deeper the
damage and the greater the struggle to rebuild services.

I am sure that political pride stood in the way of common sense
when it became obvious that the New Zealand reforms were failing.
As the damage mounted the tide started to go out on the reforms
quickly, and under pressure from a populist coalition partner after
the 1996 election, the National Party began some reversals.

The four Regional Health Authorities were amalgamated into one
health funding authority and free health care for under six year
olds was introduced. Plans to allow private insurance companies to
run local health services under a US style managed care system were
abandoned. By the end of the 1990s not a single political party
supported the model that was introduced.

Importantly, communities and unions never surrendered to the
health reforms and reversing them became a priority for the
government elected in 1999. We fought to keep services open through
the eighties and nineties and fight still. Sometimes we win.

Since 1999 a number of steps have been taken to reverse the
direction of the health reforms.

The 23 Crown Health Enterprises and 4 Regional Health
authorities have been replaced with 21 District Health Boards which
have a majority of elected members and are responsible for running
hospitals and planning and organising primary and community health
care services in their areas.

Public hospitals are no longer required to compete with each
other or with the private sector to provide services.

A new primary health care strategy is designed to improve access
and reduce costs to patients.

The Government now sets national health goals and targets to
guide local health planning.

These changes are certainly improvements, but the under-funding
of the health service continues and the legacy of commercialisation
and business management of hospitals remains a barrier to getting
the sort of health service we as citizens and health unions

Nursing services, for example, are run down, and so are nurses.
Heavy workloads and relatively low pay have made nursing a less and
less attractive job.

The New Zealand Nurses Organisation has launched campaigns for
pay increases and workload reductions.

Without adequate resources, no structure will meet the health
service needs of a community. We might have won the battle to
restore democratic control to the health service, but we are yet to
win the funding needed to support it.

The neo-liberal agenda dictated that the state take less and
provide less.

This meant reducing both taxation and public spending.

We in New Zealand are familiar with comments like those made by
the IMF about Norway in March 2002, where you were told:

«(…) to increase the efficiency of public spending through
better pricing, management and incentives structures» and concern
was expressed at «Norway’s high level of public spending and the
high share of its labor force employed in the public sector, and
encouraged – to reduce bureaucracy and increase the use of private
participation in the provision of public services.»

New Zealand, on the other hand, was congratulated by the IMF for
our disastrous reforms.

I grew up in a country that was one of the most equal on

After two decades of new right economic and social reform New
Zealand is now a deeply unequal society where the conditions for
good health have worsened.

The eighties and nineties saw a massive transfer of wealth
upwards. From 1984 to 1998 the incomes of the top 10 per cent of
households rose by 43 per cent, while the incomes of the bottom 50
per cent fell by 14 per cent.

In New Zealand now one in three children live in households with
incomes below the poverty line. This compares to Norway’s reported
rate of child poverty of between three and eight per cent.

Class divisions are increasingly ethnic divisions also. Maori
life expectancy, which had improved to seven years less than
European New Zealanders by 1980, is now ten years less than
European New Zealanders. The blow out in unemployment hit Maori at
three times the rate of Pakeha

There are now «high rates of serious health problems
[including] high infant mortality; (…) low immunisation
rates and epidemics of infectious diseases (…). All of these
diseases and conditions occur more commonly in poor

The new right reforms were also an economic failure. Comparisons
with Australia, which do not follow this extreme course, tell us
that more conventional policies would have resulted in a national
income ten per cent higher than it is now. This would have allowed
a doubling of social expenditure.

So as well as undermining the health services themselves, new
right economic, social and public sector reforms have impacted on
the health of New Zealanders by creating the conditions for poor
health – a widening gap between rich and poor, crowded and
expensive housing, benefit cuts and unequal access to education and
educational resources.

Casualisation of work on the one hand, and the long hours
culture on the other, have reduced time for family life and

Of course, the corporate hunger for a share of public services
does not recognise national borders. The extended GATS agreement
currently under negotiation in the WTO will make commercialised and
partly privatised services even more vulnerable to further
competition, and will make it much more difficult for future
governments to roll back commercialisation of public services.

For example, under GATS New Zealand could not cut funding to
private aged care hospitals in favour of public hospitals.

The solutions to health service efficiency and effectiveness
must be found, but they will not be found in the reports of the
International Monetary Fund or in textbooks on accounting.

They lie within communities and within the health workforce

No one gets more upset when precious public resources are wasted
than those who know what more they could do with those resources in
a well-organised health service.

New Zealand’s experience shows that it is much easier to
dis-organise a public health service than to re-organise it.

I want to finish by endorsing your fightback with the words of
history’s most famous nurse, Florence Nightingale:

«Were there none who were discontented with what they have, the
world would never reach anything better.»

Kia ora koutou katoa, Kia kaha

Thank you and be strong

Bla i arkiv

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