The Pressures of Excessive Do-Goodness

Even though this year's budget contains many giveaways, there are the predictable complaints that it has not done enough - not enough for the poor, not enough for the middle class, not enough for businesses. The responses from some office holders are also quite predictable. Singapore Angle has two rather good discussions about the budget debate (here and here).

There are always some good causes that the government should spend money on, but has not. There are always some arguments for the government to intervene in the market. There is always pressure for the government to do more. But let me pick on one specific episode in this post. The background to this post is as follows.

Hospital for the Rich

Parkway won the tender to build a hospital at a Novena site. Anyone who has been to the site will know that it is a rather small and narrow site. Parkway bid more than a billion dollars for the land and its share price actually dipped since analysts felt that the company has overpaid. The company later revealed that it had put in a high bid because it had wanted to build a A-class only private hospital. On the face of it, it was a fairly straightforward tendering process, but it prompted Dr Huang's criticism of Parkway's business plans and the tendering process (here).

I believe Dr Huang had written the letter with good intentions. However, good intention itself is hardly a sufficient condition for good public policies, or indeed, raison d'etre for government intervention. Before a policy-maker decides to intervene in the market, this is the number one question he has to answer: where is the market failure?*

Why the Government should not Intervene

A a healthcare provider in the marketplace, Parkway is in a better position than any bureaucrat to understand where the demand is. There is really no compelling reason for the government to dictate to a private company how many class-A or class-B wards it should have. Where does the state end and the market begins? Should the government ban luxury apartments since they are large and ostentatious? Should the government ban first-class air travel because only the rich can afford it? Enough of poor analogies already, I am sure you catch my drift.

Secondly, Novena area is beginning to feel like a prime location - the surrounding condominiums are easily trading above $1000 psf. To have class-C wards there is insane from the opportunity cost perspective**. Good healthcare can be provided to the lower-income group irrespective of location. There is really no need to build a class-C hospital smack in the middle of downtown to show that we are taking care of our poor. It is far better to locate class-C wards on cheaper sites in the heartlands, and also where the need is.

Thirdly, the use of the land is not free - Parkway is not pocketing private profits at the expense of the public. A billion dollars flow into state coffer as a result, money that can be transferred to the poor. If the land had come with strings to build a certain number of lower-class wards, Parkway would obviously have bid a lot less for the land. What is the outcome then? The consumer surplus at the high end market is not captured, and there can be no transfers to the lower-income group as a result. From this perspective, the restrictions proposed by Dr Huang - well intentioned as they are - would in fact be detrimental to the interest of the public.

Common Misery

I could go on and on to rebut the letter from Dr Huang but that is really not the intention of this post. We live in a market economy - despite its many shortcomings, the market economy has proven over the past two centuries to be able to generate the most amount of wealth for the greatest number of people. As Churchill once said, "The inherent vice of capitalism is the unequal sharing of blessings; the inherent virtue of socialism is the equal sharing of miseries". We must not let our good intentions create policy misery for every one.

* Even if the government can pin down the source of market failure, it is still not a sufficient basis for intervention. The government must ensure that its actions do remedy the failure without imposing even more cost the society!

** TTSH and the CDC were built there before that area became expensive.