Against Centralization

Why not create a government board to centralize decision-making for medical innovation?  TNR‘s Jonathan Cohn makes the case:

All of them would establish independent advisory boards, staffed by leading medical experts, to help decide whether proposed new treatments actually provide clinical value.

…Of course, the idea of involving the government in these decisions is anathema to many conservatives–since, they argue, the private sector is bound to make better decisions than a bunch of bureaucrats in Washington. But, while that’s frequently true in economics, health care may be an exception.

This comes at the end of a long article arguing that private companies don’t do as much for innovation as some argue.  And it’s true, I think, that conservatives tend to downplay the role played by government funding of medical innovation through institutions like the NIH.  But other than some general funding stats, most of Cohn’s argument centers around a series of anecdotes in which private companies chose to make sub optimal decisions.

But this doesn’t disprove the private sector’s ability to innovate.  Instead, it just indicates that single institutions and groups of people make mistakes. That’s true of companies, and it’s also true of government boards. The difference between the market and a centralized system is that the market, by having multiple institutions working on the same problems independently, responds to failures far more efficiently.

Here’s something Megan McArdle recently wrote in a discussion about school vouchers:

Failure, to put it bluntly, works. Failure is nature’s way of telling you “Hey, that doesn’t work!” The American economy is vastly strengthened by the fact that companies are allowed to fail–and also by the fact that our crazy culture encourages us to try things that don’t work.

In the first few iterations, this often looks inferior to a centralized system. Look, the critics say, they sat down and planned it all! Compare that to our messy, fragmented market where half the stuff doesn’t work!

…

At a conference last year, I saw an incredibly compelling presentation from the guy who does usability for Treo. He talked about design philosophy, and showed slides of a project he does where he goes into various institutions, divides people into groups, gives them spaghetti and some tape, and asks them to build the tallest self-supporting structure they can. The worst-performing group, you’ll be unsurprised to hear, was MBA students; they spend all their time arguing about who will be boss. Engineers do okay. But the best performing group? Kindergarten students.

The students don’t plan anything. They just try stuff, and if it doesn’t work, they try something else. The presenter’s argument was that if you want to do something quickly, and well, you need to have a lot of failure. Failure is the quickest way to learn.

Centralizing decisions about innovation and development means that recovery and response times to failure are far, far longer. A market, with multiple independent actors approaching the same problem in different ways, is, in the end, going to provide solutions far faster than the decisions of any single, flawed group of bureaucrats.