Evolutionary economics

From Wikipedia, the free encyclopedia

https://en.wikipedia.org/wiki/Evolutionary_economics

Evolutionary economics is part of mainstream economics as well as a heterodox school of economic thought that is inspired by evolutionary biology. Much like mainstream economics, it stresses complex interdependencies, competition, growth, structural change, and resource constraints but differs in the approaches which are used to analyze these phenomena.

Evolutionary economics deals with the study of processes that transform economy for firms, institutions, industries, employment, production, trade and growth within, through the actions of diverse agents from experience and interactions, using evolutionary methodology. Evolutionary economics analyzes the unleashing of a process of technological and institutional innovation by generating and testing a diversity of ideas which discover and accumulate more survival value for the costs incurred than competing alternatives. The evidence suggests that it could be adaptive efficiency that defines economic efficiency. Mainstream economic reasoning begins with the postulates of scarcity and rational agents (that is, agents modeled as maximizing their individual welfare), with the "rational choice" for any agent being a straightforward exercise in mathematical optimization. There has been renewed interest in treating economic systems as evolutionary systems in the developing field of Complexity economics.

Evolutionary economics does not take the characteristics of either the objects of choice or of the decision-maker as fixed. Rather, its focus is on the non-equilibrium processes that transform the economy from within and their implications. The processes in turn emerge from actions of diverse agents with bounded rationality who may learn from experience and interactions and whose differences contribute to the change. The subject draws more recently on evolutionary game theory and on the evolutionary methodology of Charles Darwin and the non-equilibrium economics principle of circular and cumulative causation. It is naturalistic in purging earlier notions of economic change as teleological or necessarily improving the human condition.

A different approach is to apply evolutionary psychology principles to economics which is argued to explain problems such as inconsistencies and biases in rational choice theory. Basic economic concepts such as utility may be better viewed as due to preferences that maximized evolutionary fitness in the ancestral environment but not necessarily in the current one.

Predecessors

In the mid-19th century, Karl Marx presented a schema of stages of historical development, by introducing the notion that human nature was not constant and was not determinative of the nature of the social system; on the contrary, he made it a principle that human behavior was a function of the social and economic system in which it occurred.

Marx based his theory of economic development on the premise of developing economic systems; specifically, over the course of history superior economic systems would replace inferior ones. Inferior systems were beset by internal contradictions and inefficiencies that make them impossible to survive over the long term. In Marx's scheme, feudalism was replaced by capitalism, which would eventually be superseded by socialism.

At approximately the same time, Charles Darwin developed a general framework for comprehending any process whereby small, random variations could accumulate and predominate over time into large-scale changes that resulted in the emergence of wholly novel forms ("speciation").

This was followed shortly after by the work of the American pragmatic philosophers (Peirce, James, Dewey) and the founding of two new disciplines, psychology and anthropology, both of which were oriented toward cataloging and developing explanatory frameworks for the variety of behavior patterns (both individual and collective) that were becoming increasingly obvious to all systematic observers. The state of the world converged with the state of the evidence to make almost inevitable the development of a more "modern" framework for the analysis of substantive economic issues.

Veblen (1898)

Thorstein Veblen (1898) coined the term "evolutionary economics" in English. He began his career in the midst of this period of intellectual ferment, and as a young scholar came into direct contact with some of the leading figures of the various movements that were to shape the style and substance of social sciences into the next century and beyond. Veblen saw the need for taking account of cultural variation in his approach; no universal "human nature" could possibly be invoked to explain the variety of norms and behaviors that the new science of anthropology showed to be the rule, rather than the exception. He emphasised the conflict between "industrial" and "pecuniary" or ceremonial values and this Veblenian dichotomy was interpreted in the hands of later writers as the "ceremonial/instrumental dichotomy" (Hodgson 2004);

Veblen saw that every culture is materially based and dependent on tools and skills to support the "life process", while at the same time, every culture appeared to have a stratified structure of status ("invidious distinctions") that ran entirely contrary to the imperatives of the "instrumental" (read: "technological") aspects of group life. The "ceremonial" was related to the past, and conformed to and supported the tribal legends; "instrumental" was oriented toward the technological imperative to judge value by the ability to control future consequences. The "Veblenian dichotomy" was a specialized variant of the "instrumental theory of value" due to John Dewey, with whom Veblen was to make contact briefly at the University of Chicago.

Arguably the most important works by Veblen include, but are not restricted to, his most famous works (The Theory of the Leisure Class; The Theory of Business Enterprise), but his monograph Imperial Germany and the Industrial Revolution and the 1898 essay entitled Why is Economics not an Evolutionary Science have both been influential in shaping the research agenda for following generations of social scientists. TOLC and TOBE together constitute an alternative construction on the neoclassical marginalist theories of consumption and production, respectively.

Both are founded on his dichotomy, which is at its core a valuational principle. The ceremonial patterns of activity are not bound to any past, but to one that generated a specific set of advantages and prejudices that underlie the current institutions. "Instrumental" judgments create benefits according to a new criterion, and therefore are inherently subversive. This line of analysis was more fully and explicitly developed by Clarence E. Ayres of the University of Texas at Austin from the 1920s.

A seminal article by Armen Alchian (1950) argued for adaptive success of firms faced with uncertainty and incomplete information replacing profit maximization as an appropriate modeling assumption. Kenneth Boulding was one of the advocates of the evolutionary methods in social science, as is evident from Kenneth Boulding's Evolutionary Perspective. Kenneth Arrow, Ronald Coase and Douglass North are some of the Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel winners who are known for their sympathy to the field.

More narrowly the works Jack Downie and Edith Penrose offer many insights for those thinking about evolution at the level of the firm in an industry.

Joseph Schumpeter, who lived in the first half of the 20th century, was the author of the book The Theory of Economic Development (1911, transl. 1934). It is important to note that for the word development he used in his native language, the German word "Entwicklung", which can be translated as development or evolution. The translators of the day used the word "development" from the French "développement", as opposed to "evolution" as this was used by Darwin. (Schumpeter, in his later writings in English as a professor at Harvard, used the word "evolution".) The current term in common use is economic development.

In Schumpeter's book, he proposed an idea radical for its time: the evolutionary perspective. He based his theory on the assumption of usual macroeconomic equilibrium, which is something like "the normal mode of economic affairs". This equilibrium is being perpetually destroyed by entrepreneurs who try to introduce innovations. A successful introduction of an innovation (i.e. a disruptive technology) disturbs the normal flow of economic life, because it forces some of the already existing technologies and means of production to lose their positions within the economy.

Present state of discussion

One of the major contributions to the emerging field of evolutionary economics has been the publication of An Evolutionary Theory of Economic Change by Richard Nelson and Sidney G. Winter. These authors have focused mostly on the issue of changes in technology and routines, suggesting a framework for their analysis. If the change occurs constantly in the economy, then some kind of evolutionary process must be in action, and there has been a proposal that this process is Darwinian in nature.

Then, mechanisms that provide selection, generate variation and establish self-replication, must be identified. The authors introduced the term 'steady change' to highlight the evolutionary aspect of economic processes and contrast it with the concept of 'steady state' popular in classical economics. Their approach can be compared and contrasted with the population ecology or organizational ecology approach in sociology: see Douma & Schreuder (2013, chapter 11). More recently, Nelson, Dosi, Pyka, Malerba, Winter and other scholars have been proposing an update of the state-of-art in evolutionary economics.

Milton Friedman proposed that markets act as major selection vehicles. As firms compete, unsuccessful rivals fail to capture an appropriate market share, go bankrupt and have to exit. The variety of competing firms is both in their products and practices, that are matched against markets. Both products and practices are determined by routines that firms use: standardized patterns of actions implemented constantly. By imitating these routines, firms propagate them and thus establish inheritance of successful practices. A general theory of this process has been proposed by Kurt Dopfer, John Foster and Jason Potts as the micro meso macro framework.

Economic processes, as part of life processes, are intrinsically evolutionary. From the evolutionary equation that describe life processes, an analytical formula on the main factors of economic processes, such as fixed cost and variable cost, can be derived. The economic return, or competitiveness, of economic entities of different characteristics under different kinds of environment can be calculated. The change of environment causes the change of competitiveness of different economic entities and systems. This is the process of evolution of economic systems.

In recent years, evolutionary models have been used to assist decision making in applied settings and find solutions to problems such as optimal product design and service portfolio diversification.

Evolutionary Growth Theory

The role of evolutionary forces in the process of economic development over the course of human history has been explored in the past few decades. Oded Galor and Omer Moav advanced the hypothesis that evolutionary forces had a significant role in the transition of the world economy from stagnation to growth, highlighting the persistent effects that historical and prehistorical conditions have had on the evolution of the composition of human characteristics during the development process.

Galor and Moav argued that the Malthusian pressure determined the size and the composition of the human population. Lineages whose traits were complementary to the economic environment had higher income, and therefore higher reproductive success, and the inevitable propagation of these traits fostered the growth process and ultimately contributed to the take-off from an epoch of stagnation to the modern era of sustained growth.

Evolution of predisposition towards child quality

Galor and Moav hypothesize that during the Malthusian epoch, natural selection has amplified the prevalence of traits associated with predispositions towards the child quality in the human population, triggering human capital formation, technological progress, the onset of the demographic transition, and the emergence of  sustained economic growth.

The testable predictions of this evolutionary theory and its underlying mechanisms have been confirmed empirically and quantitatively. Specifically, the genealogical record of half a million people in Quebec during the period 1608-1800, suggests that moderate fecundity, and hence tendency towards investment in child quality, was beneficial for long-run reproductive success. This finding reflect the adverse effect of higher fecundity on marital age of children, their level of education, and the likelihood that they will survive to a reproductive age.

Evolution of time preference

Oded Galor and Omer Ozak examine the evolution of time preference in the course of human history. They hypothesize and establish empirically that agricultural characteristics that were favorable to higher return to agricultural investment in the Malthusian era triggered a process of selection, adaptation, and learning that increase the prevalence of long-term orientation among individuals in society. They further establish the variations in these agricultural characteristics across the globe are associated with contemporary differences in economic and human behavior such as technological adoption, education, saving, and smoking.

Evolution of loss aversion

Oded Galor and Viacheslav Savitskiy explore the evolutionary foundation of the phenomenon of loss aversion. They theorize and confirm empirically that the evolution of loss aversion reflects an evolutionary process in which humans have gradually adapted the climatic shocks and their asymmetric effects on reproductive success in a period in which the available resource was very close to the subsistence consumption. In particular, they establish that individuals and ethnic groups that descended from regions that are characterized by greater climatic volatility tend to be loss-neutral, whereas those originated in regions in which climatic conditions are more spatially correlated, tend to be more loss averse.

Evolution of risk aversion

Oded Galor and Stelios Michalopoulos examine the coevolution of entrepreneurial spirit and the process of long-run economic development. Specifically, they argue that in the early stages of development, risk-tolerant entrepreneurial traits generated an evolutionary advantage, and the rise in the prevalence of this trait amplified the pace of the growth process. However, in advanced stages of development, risk-aversion gained an evolutionary advantage, and contributed to convergence across countries.

Evolutionary psychology

A different approach is to apply evolutionary psychology principles to economics which is argued to explain problems such as inconsistencies and biases in rational choice theory. A basic economic concept such as utility may be better explained in terms of a set of biological preferences that maximized evolutionary fitness in the ancestral environment but not necessarily in the current one. In other words, the preferences for actions/decisions that promise "utility" (e.g. reaching for a piece of cake) were formed in the ancestral environment because of the adaptive advantages of such decisions (e.g. maximizing calorie intake). Loss aversion may be explained as being rational when living at subsistence level where a reduction of resources may have meant death and it thus may have been rational to place a greater value on losses than on gains.

People are sometimes more cooperative and altruistic than predicted by economic theory which may be explained by mechanisms such as reciprocal altruism and group selection for cooperative behavior. An evolutionary approach may also explain differences between groups such as males being less risk-averse than females since males have more variable reproductive success than females. While unsuccessful risk-seeking may limit reproductive success for both sexes, males may potentially increase their reproductive success much more than females from successful risk-seeking. Frequency-dependent selection may explain why people differ in characteristics such as cooperative behavior with cheating becoming an increasingly less successful strategy as the numbers of cheaters increase.

Another argument is that humans have a poor intuitive grasp of the economics of the current environment which is very different from the ancestral environment. The ancestral environment likely had relatively little trade, division of labor, and capital goods. Technological change was very slow, wealth differences were much smaller, and possession of many available resources were likely zero-sum games where large inequalities were caused by various forms of exploitation. Humans, therefore, may have poor intuitive understanding the benefits of free trade (causing calls for protectionism), the value of capital goods (making the labor theory of value appealing), and may intuitively undervalue the benefits of technological development.

There may be a tendency to see the number of available jobs as a zero-sum game with the total number of jobs being fixed which causes people to not realize that minimum wage laws reduce the number of jobs or to believe that an increased number of jobs in other nations necessarily decreases the number of jobs in their own nation. Large income inequality may easily be viewed as due to exploitation rather than as due to individual differences in productivity. This may easily cause poor economic policies, especially since individual voters have few incentives to make the effort of studying societal economics instead of relying on their intuitions since an individual's vote counts for so little and since politicians may be reluctant to take a stand against intuitive views that are incorrect but widely held.

Democratic capitalism

From Wikipedia, the free encyclopedia

Democratic capitalism, also referred to as market democracy, is a political and economic system that combines capitalism and strong social policies. It integrates resource allocation by marginal productivity (synonymous with free-market capitalism), with policies of resource allocation by social entitlement. The policies which characterise the system are enacted by democratic governments.

Democratic capitalism was implemented widely in the 20th century, particularly in Europe and the Western world after the Second World War. The coexistence of capitalism and democracy, particularly in Europe, was supported by the creation of the modern welfare state in the post-war period. The implementation of democratic capitalism typically involves the enactment of policies expanding the welfare state, strengthening the collective bargaining rights of employees, or strengthening competition laws. These policies are enacted in a capitalist economy characterized by the right to private ownership of productive property.

Catholic social teaching offers support for a communitarian form of democratic capitalism with an emphasis on the preservation of human dignity.

Definition

Democratic capitalism is a type of political and economic system characterised by resource allocation according to both marginal productivity and social need, as determined by decisions reached through democratic politics. It is marked by democratic elections, freedom, and rule of law, characteristics typically associated with democracy. It retains a free-market economic system with an emphasis on private enterprise.

Professor of Entrepreneurship Elias G. Carayannis and Arisitidis Kaloudis, Economics Professor at the Norwegian University of Science and Technology (NTNU), describe democratic capitalism as an economic system which combines robust competitiveness with sustainable entrepreneurship, with the aim of innovation and providing opportunities for economic prosperity to all citizens.

Dr Edward Younkins, professor at Wheeling Jesuit University, described democratic capitalism as a “dynamic complex of economic, political, moral-cultural, ideological, and institutional forces”, which serves to maximize social welfare within a free market economy. Youkins states that the system of individual liberty inherent within democratic capitalism supports the creation of voluntary associations, such as labour unions.

Philosopher and writer Michael Novak characterised democratic capitalism as a blend of a free-market economy, a limited democratic government, and moral-cultural system with an emphasis on personal freedom. Novak comments that capitalism is a necessary, but not a sufficient condition of democracy. He also proposes that the prominence of democratic capitalism in a society is strongly determined by the religious concepts which drive its customs, institutions, and leaders.

History

Early to mid-20th century

The development of democratic capitalism was influenced by several historical factors, including the rapid economic growth following World War One, the Great Depression, and the political and economic ramifications of World War Two. The growing critique of free-market capitalism and the rise of the notion of social justice in political debate contributed to the adoption of democratic capitalist policies.

Mount Washington Hotel in Bretton Woods, New Hampshire, the location of the Bretton Woods Conference

At the Bretton Woods Conference of 1944, officials from the United States and the United Kingdom and forty-two other nations committed to trade openness. This commitment was made in conjunction with international guidelines which guaranteed autonomy for each country in responding to economic and social demands of its voters. Officials requested international capital controls which would allow governments to regulate their economies while remaining committed to the goals of full employment and economic growth. The adoption of the General Agreement on Tariffs and Trade supported free trade, while allowing national governments to retain veto power over trade policy. Such developments saw the incorporation of democratic demands into policies based on capitalist economic logic.

A display of the flags of the nations which participated in the Bretton Woods Conference, located in the Gold Room at Mount Washington Hotel

Democratic capitalism was first widely implemented after the Second World War in the Western world, particularly in North America and Western Europe. Following the severe economic impacts of the war, working classes in the Western world were more inclined to accept capitalist markets in conjunction with political democracy, which enabled a level of social security and improved living standards. In the post-war decades, democratic capitalist policies saw reduced levels of socioeconomic inequality. This was synonymous with the expansion of welfare states, more highly regulated financial and labour markets, and increased political power of labour unions. According to political scientist Wolfgang Merkel, democracy and capitalism coexisted with more complementarity at this time than at any other point in history.

Policy makers in Europe and Asia adopted democratic capitalist policies in an attempt to satisfy the social needs of their voters and respond to the challenge of communism. The policies implemented supported the public provision of medical care, improved public housing, aged care, and more accessible education. Guarantees of full employment and the support of private research and innovation became priorities of policy makers. Policy developments were based on the rising notion that free markets required some state intervention to maintain them, provide structure, and address social inequities caused by them. Governments around the world regulated existing markets in an attempt to increase their equity and effectiveness. In order to stabilise the business cycle, the role of government was reconceived by anticommunist leaders in Britain, France, Italy, Germany, Scandinavia, and Japan. An emphasis was placed on supporting economic growth, promoting innovation, and enhancing living standards. This saw the expansion of educational opportunities and public insurance of basic health and aged benefits.

United States

As automated production expanded in the United States, demand for semi skilled workers increased. Combined with the expansion of secondary education, this saw the development of a large working class. The resulting strong economic growth and improved income equality allowed for greater social peace and universal suffrage. Capitalism was viewed as a means of producing the wealth which maintained political freedom, while a democratic government ensured accountable political institutions and an educated labour force with its basic rights fulfilled.

Europe

In the postwar period, free market economic systems with political systems of democracy and welfare states were established in France and Germany. This occurred under the leadership of the Popular Republican Movement in France and the Christian Democratic Union in Germany.

Late 20th century

Following the oil shocks of the 1970s and the productivity slowdown in the United States in the 1980s, politicians and voters maintained strong support for democratic capitalist policies and free markets. Globalisation and free trade were promoted as a means of boosting economic growth, and this saw the formation of the North American Free Trade Agreement and the European Union. Labour market and competition regulations were eased in existing free-market economies, particularly in Anglo-America.

Rapid technological innovation and globalisation brought widespread international economic change. Publicly funded democratic capitalist policies were designed and implemented to compensate individuals negatively affected by major, structural economic change. Implemented beginning in the early years of the Cold War, such policies included unemployment benefits, universal or partially universal healthcare, and aged pensions. Post-1970s, the number of public sector jobs available expanded. Ageing populations in Europe, Japan and North America saw large increases in public spending on pensions and healthcare. In the 1980s, Organisation for Economic Co-operation and Development economies began reducing corporate taxation, though personal income taxes and public spending on social security programs generally remained stable.

Large-scale innovation in production technology throughout the 20th century had widespread economic benefits in many capitalist economies. These benefits contributed to the conciliation of democratic politics and free markets and the widespread acceptance of democratic capitalist policies by voters.

From the late 20th century, the tenets of democratic capitalism expanded more broadly beyond North America and Western Europe.

United States

Ronald Reagan, 40th president of the United States

After taking office as president in 1981, Ronald Reagan advocated for a reduced role of government, while responding to voters’ skepticism of liberal capitalism by maintaining strong public sector spending. Many voters doubted the ability of free market capitalism to provide consistent peace, security and opportunity, and sought improved living standards, aged care, and educational opportunities for youth. The Reagan administration maintained previous levels of government expenditure on Social Security and Medicare as a proportion of gross domestic product (GDP). Total government expenditure levels as a percentage of GDP also remained stable under the Reagan administration.

Europe

From the mid-1980s, European leaders began endorsing neoliberal ideas, such as those associated with Reaganomics and Thatcherism, based on the notion of the interdependence of economic and social policy. In this context, European competition law policy developed as a method of curbing the excesses of capitalism, while aligning the economy of the European Union with the existing democratic ideals of European society. This saw the advancement of democratic capitalism throughout the European region.

South Africa

The South African Competition Act of 1998 prioritised the eradication of anticompetitive business practices and the free participation in the economy of all citizens, while maintaining a pro-free-market economy.

Early 21st century

India

India enacted the Competition Act, 2002 to promote and sustain competition and protect the welfare of market participants, goals synonymous with democratic capitalism.

Implementation

The post-war implementation of democratic capitalism saw the expansion of welfare states and the free collective bargaining rights of employees, alongside market policies designed to ensure full employment.

Under democratic capitalism, an autonomous democratic state enacts of policies which in effect create a compromise between upper and lower classes, while remaining compatible with free-market capitalism. Such policies include the establishment or expansion of a welfare state, as a method of mediating social class conflict and catering to the demands of workers.

The system is characterised by the establishment of cooperative economic institutions. This includes institutions which facilitate bargaining between government bodies and business and labour organisations such as unions, and those which regulate the relationships between employees and management within private firms. The development of institutions to promote cooperation among public and private economic entities acknowledges the benefits of market competition, while attempting to address the social problems of unrestrained capitalism.

Economic security concerns of citizens are addressed through redistributive policies. Such policies include income transfers, such as welfare payment programs and pensions, to support the financial needs of the elderly and the poor. Other policies which promote economic security include social insurance, and the fiscal financing of education and job training programs to stimulate employment.

The right to private ownership of productive property is a central tenet of democratic capitalism, and is recognized as a basic liberty of all democratic citizens, as in a regular free-market capitalist economy. According to political philosopher John Tomasi, democratic capitalism addresses social entitlement and justice concerns through the preservation of citizens’ private property rights, allowing citizens to be “free, equal, and self-governing”.

The robust competitiveness and sustainable entrepreneurship which define democratic capitalism are characterised by top-down policies and bottom-up initiatives implemented by democratic governments. Top-down policies are planned and implemented by formal leaders in an organisation, while bottom-up policies involve gradual change initiated and sustained by lower-level members of organisations. Policies implemented are designed to incentivise public and private sector innovation. Examples include strong research and development funding, and policies which protect intellectual property rights.

Competition law

A characteristic of democratic capitalist economies is the democratic enactment of laws and regulations to support competition. Such laws include United States antitrust laws. Competition laws are designed to regulate private sector activities, including the actions of capital asset owners and managers, in order to prevent outcomes which are socially undesirable according to the democratic majority.

The implementation of competition law is intended to prevent anti-competitive behaviour that is harmful to the welfare of consumers, while maintaining a free market economy. The implementation of antitrust laws was found to be a characteristic of democratic capitalism specifically, and not regular free-market capitalism.

Conflicts between notions of resource allocation

According to economic sociologist Wolfgang Streeck, the capitalist markets and democratic policies that characterise democratic capitalism are inherently conflicting. Streeck suggests that under democratic capitalism, governments tend to neglect policies of resource allocation by marginal productivity in favour of those of resource allocation by social entitlement, or vice versa. In particular, he comments that the accelerating inflation of the 1970s in the Western world can be attributed to rising trade-union wage pressure in labour markets and the political priority of full employment, both of which are synonymous with democratic capitalism.

In Catholic social teaching

Pope John Paul II, author of Centesimus annus

Catholic texts offer support for a form of socially regulated democratic capitalism. The papal encyclical Centesimus annus, written by Pope John Paul II, emphasizes a vision of a communitarian form of democratic capitalism. The communitarian system of democratic capitalism described promotes respect for individual rights and basic workers’ rights, a virtuous community, and a limited role for the state and the market. According to the encyclical, these characteristics should be combined with a conscious effort to promote institutions which develop character in individuals. The encyclical stressed to decision makers the importance of the dignity of the person and a concern for the poor, while acknowledging the need to balance economic efficiency with social equity. The US Bishops’ 1986 Pastoral Letter Economic Justice for All suggested that specific institutional arrangements be developed to support this form of democratic capitalism. Arrangements proposed included structures of accountability designed to involve all stakeholders, such as employees, customers, local communities, and wider society, in the corporate decision making process, as opposed to stockholders only. The letter offered acceptance for the market economy under the condition that the state intervene where necessary to preserve human dignity.

National Health Service

From Wikipedia, the free encyclopedia

https://en.wikipedia.org/wiki/National_Health_Service

 

NHS logos

Logo of the NHS in England

 

Logo of NHS Scotland

The National Health Service (NHS) is the umbrella term for the publicly funded healthcare systems of the United Kingdom (UK). Since 1948, they have been funded out of general taxation. There are three systems which are referred to using the "NHS" name (the NHS in England, NHS Scotland and NHS Wales). Health and Social Care in Northern Ireland was created separately and is often locally referred to as "the NHS". The four systems (representing each national region) were established in 1948 as part of major social reforms following the Second World War. The founding principles were that services should be comprehensive, universal and free at the point of delivery—a health service based on clinical need, not ability to pay. Each service provides a comprehensive range of health services, free at the point of use for people ordinarily resident in the United Kingdom apart from dental treatment and optical care. In England, NHS patients have to pay prescription charges; some, such as those aged over 60 and certain state benefit recipients, are exempt.

Taken together, the four National Health Services in 2015–2016 employed around 1.6 million people with a combined budget of £136.7 billion. In 2014, the total health sector workforce across the United Kingdom was 2,165,043. This broke down into 1,789,586 in England, 198,368 in Scotland, 110,292 in Wales and 66,797 in Northern Ireland. In 2017, there were 691,000 nurses registered in the United Kingdom, down 1,783 from the previous year. However, this is the first time nursing numbers have fallen since 2008. Every 24 hours it sees one million patients, and with 1.7 million staff it is the fifth biggest employer in the world, as well as the largest non-military public organisation in the world.

When purchasing drugs, the four healthcare services have significant market power that, based on their own assessment of the fair value of the drugs, influences the global price, typically keeping prices lower. A small number of products are procured jointly by two or more UK healthcare services. Several other countries either copy the United Kingdom’s model or directly rely on Britain’s assessments for their own decisions on state-financed drug reimbursements.

History

Aneurin Bevan, the founder of the NHS

Calls for a "unified medical service" can be dated back to the Minority Report of the Royal Commission on the Poor Law in 1909.

Somerville Hastings, President of the Socialist Medical Association, successfully proposed a resolution at the 1934 Labour Party Conference that the party should be committed to the establishment of a State Health Service.

Following the 1942 Beveridge Report's recommendation to create "comprehensive health and rehabilitation services for prevention and cure of disease", cross-party consensus emerged on introducing a National Health Service of some description. Conservative MP and Health Minister, Henry Willink later advanced this notion of a National Health Service in 1944 with his consultative White Paper "A National Health Service" which was circulated in full and short versions to colleagues, as well as in newsreel.

When Clement Attlee's Labour Party won the 1945 election he appointed Aneurin Bevan as Health Minister. Bevan then embarked upon what the official historian of the NHS, Charles Webster, called an "audacious campaign" to take charge of the form the NHS finally took. Bevan's National Health Service was proposed in Westminster legislation for England and Wales from 1946 and Scotland from 1947, and the Northern Ireland Parliament's Public Health Services Act 1947. According to one history of the NHS, "In some respects the war had made things easier. In anticipation of massive air raid casualties, the Emergency Medical Service had brought the country’s municipal and voluntary hospitals into one umbrella organisation, showing that a national hospital service was possible." Webster wrote in 2002 that "the Luftwaffe achieved in months what had defeated politicians and planners for at least two decades."

NHS Wales was split from NHS (England) in 1969 when control was passed to the Secretary of State for Wales before transferring to the Welsh Executive and Assembly under devolution in 1999.

The NHS was born out of the ideal that good healthcare should be available to all, regardless of wealth. Although being freely accessible regardless of wealth maintained Henry Willink's principle of free healthcare for all, Conservative MPs were in favour of maintaining local administration of the NHS through existing arrangements with local authorities fearing that an NHS which owned hospitals on a national scale would lose the personal relationship between doctor and patient.

Conservative MPs voted in favour of their amendment to Bevan's Bill to maintain local control and ownership of hospitals and against Bevan's plan for national ownership of all hospitals. The Labour government defeated Conservative amendments and went ahead with the NHS as it remains today; a single large national organisation (with devolved equivalents) which forced the transfer of ownership of hospitals from local authorities and charities to the new NHS. Bevan's principle of ownership with no private sector involvement has since been diluted, with later Labour governments implementing large scale financing arrangements with private builders in private finance initiatives and joint ventures.

At its launch by Bevan on 5 July 1948 it had at its heart three core principles: That it meet the needs of everyone, that it be free at the point of delivery, and that it be based on clinical need, not ability to pay.

Three years after the founding of the NHS, Bevan resigned from the Labour government in opposition to the introduction of charges for the provision of dentures, dentists, and glasses; resigning in support was fellow minister and future Prime Minister Harold Wilson. The following year, Winston Churchill's Conservative government introduced prescription fees. However, Wilson's government abolished them in 1965; they were later re-introduced but with exemptions for those on low income. These charges were the first of many controversies over changes to the NHS throughout its history.

From its earliest days, the cultural history of the NHS has shown its place in British society reflected and debated in film, TV, cartoons and literature. The NHS had a prominent slot during the 2012 London Summer Olympics opening ceremony directed by Danny Boyle, being described as "the institution which more than any other unites our nation".

Eligibility for treatment

UK residents are not charged for most medical treatment, though NHS dentistry does have standard charges in each of the four national health services in the UK. In addition, most patients in England have to pay charges for prescriptions though some are exempted.

Aneurin Bevan, in considering the provision of NHS services to overseas visitors wrote, in 1952, that it would be "unwise as well as mean to withhold the free service from the visitor to Britain. How do we distinguish a visitor from anybody else? Are British citizens to carry means of identification everywhere to prove that they are not visitors? For if the sheep are to be separated from the goats both must be classified. What began as an attempt to keep the Health Service for ourselves would end by being a nuisance to everybody."

The provision of free treatment to non-UK-residents, formerly interpreted liberally, has been increasingly restricted, with new overseas visitor hospital charging regulations introduced in 2015.

Citizens of the EU holding a valid European Health Insurance Card and persons from certain other countries with which the UK has reciprocal arrangements concerning health care can get emergency treatment without charge.

The NHS is free at the point of use, for general practitioner (GP) and emergency treatment not including admission to hospital, to non-residents. People with the right to medical care in European Economic Area (EEA) nations are also entitled to free treatment by using the European Health Insurance Card. Those from other countries with which the UK has reciprocal arrangements also qualify for free treatment. Since 6 April 2015, non-EEA nationals who are subject to immigration control must have the immigration status of indefinite leave to remain at the time of treatment and be properly settled, to be considered ordinarily resident. People not ordinarily resident in the UK are in general not entitled to free hospital treatment, with some exceptions such as refugees.

People not ordinarily resident may be subject to an interview to establish their eligibility, which must be resolved before non-emergency treatment can commence. Patients who do not qualify for free treatment are asked to pay in advance or to sign a written undertaking to pay, except for emergency treatment.

People from outside the EEA coming to the UK for a temporary stay of more than six months are required to pay an immigration health surcharge at the time of visa application, and will then be entitled to NHS treatment on the same basis as a resident. This includes overseas students with a visa to study at a recognised institution for 6 months or more, but not visitors on a tourist visa. In 2016 the surcharge was £200 per year, with exemptions and reductions in some cases. This was increased to £400 in 2018. The discounted rate for students and those on the Youth Mobility Scheme will increase from £150 to £300.

From 15 January 2007, anyone who is working outside the UK as a missionary for an organisation with its principal place of business in the UK is fully exempt from NHS charges for services that would normally be provided free of charge to those resident in the UK. This is regardless of whether they derive a salary or wage from the organisation, or receive any type of funding or assistance from the organisation for the purposes of working overseas. This is in recognition of the fact that most missionaries would be unable to afford private health care and those working in developing countries should not effectively be penalised for their contribution to development and other work.

Those who are not ordinarily resident (including British citizens who may have paid National Insurance contributions in the past) are liable to charges for services.

There are some other categories of people who are exempt from the residence requirements such as specific government workers and those in the armed forces stationed overseas.

Historic issues

The trade union, Unite, said back in early 2019 that the NHS had been under pressure as a result of economic austerity. A 2018 public survey reported that public satisfaction with the NHS has fallen from 70% in 2010 to 53% in 2018. The NHS is consistently ranked as the institution that makes people proudest to be British, beating the Royal family, Armed Forces and the BBC. NHS staff – particularly pharmacists, nurses and doctors – are the most trusted professions in Britain.

Funding

NHS Spending [1948/49–2014/15]

The systems are 98.8% funded from general taxation and National Insurance contributions, plus small amounts from patient charges for some services. About 10% of GDP is spent on health and most is spent in the public sector. The money to pay for the NHS comes directly from taxation. The 2008/9 budget roughly equates to a contribution of £1,980 per person in the UK.

When the NHS was launched in 1948 it had a budget of £437 million (equivalent to £16.01 billion in 2019). In 2016–2017, the budget was £122.5 billion. In 1955/6 health spending was 11.2% of the public services budget. In 2015/16 it was 29.7%. This equates to an average rise in spending over the full 60-year period of about 4% a year once inflation has been taken into account. Under the Blair government spending levels increased by around 6% a year on average. Since 2010 spending growth has been constrained to just over 1% a year.

Some 60% of the NHS budget is used to pay staff. A further 20% pays for drugs and other supplies, with the remaining 20% split between buildings, equipment, training costs, medical equipment, catering and cleaning. Nearly 80% of the total budget is distributed by local trusts in line with the particular health priorities in their areas. Since 2010, there has been a cap of 1% on pay rises for staff continuing in the same role. Unions representing doctors, dentists, nurses and other health professionals have called on the government to end the cap on health service pay, claiming the cap is damaging the health service and damaging patient care. The pay rise is likely to be below the level of inflation and to mean a real-terms pay cut. The House of Commons Library did research showing that real-terms NHS funding per head will fall in 2018–19, and stay the same for two years afterwards.

There appears to be support for higher taxation to pay for extra spending on the NHS as an opinion poll in 2016 showed that 70% of people were willing to pay an extra penny in the pound in income tax if the money were ringfenced and guaranteed for the NHS. Two thirds of respondents to a King's Fund poll favour increased taxation to help finance the NHS.

The Guardian has said that GPs face excessive workloads throughout Britain and that this puts the GP's health and that of their patients at risk. The Royal College of Physicians surveyed doctors across the UK, with two-thirds maintaining patient safety had deteriorated during the year to 2018: 80% feared they would be unable to provide safe patient care in the coming year while 84% felt increased pressure on the NHS was demoralising the workforce. Jane Dacre said, “We simply cannot go through this [a winter when the NHS is badly overstretched] again. It is not as if the situation was either new or unexpected. As the NHS reaches 70, our patients deserve better. Somehow, we need to move faster towards a better resourced, adequately staffed NHS during 2018 or it will happen again.” At a time when the NHS is short of doctors foreign doctors are forced to leave the UK due to visa restrictions. A study found that a fifth of doctors had faced bullying from seniors in the previous year due to pressure at work.

The NHS is under-resourced compared to health provisions in other developed nations. A King’s Fund study of OECD data from 21 nations, revealed that the NHS has among the lowest numbers of doctors, nurses and hospital beds per capita in the western world. Nurses within the NHS maintain that patient care is compromised by the shortage of nurses and the lack of experienced nurses with the necessary qualifications. According to a YouGov poll, 74% of the UK public believes there are too few nurses. The NHS performs below average in preventing deaths from cancer, strokes and heart disease. Staff shortages at histology departments are delaying diagnosis and start of treatment for cancer patients. In England and Scotland cancer wards and children's wards have to close because the hospital cannot attract sufficient qualified doctors and nurses to run the wards safely. Cancer patients and child patients are having to travel very long distances to get treatment and their relatives must travel far to visit the patients. In wards which have not closed staff sometimes work under stress due to staff shortages. Brexit is likely to aggravate these problems. Due to the shortage of nurses the NHS is relying on less qualified staff like healthcare assistants and nursing associates.

Cancer survival rates in the UK have been rising fast but probably still lag behind the best results internationally, mainly because of late diagnosis. However death rates from breast cancer are falling faster in Britain than in any other of the six largest countries in Europe, and are estimated now to have improved beyond the European average. According to Breast Cancer Care 72% of NHS trusts across the UK do not provide dedicated specialist nurses for patients with incurable breast cancer." Cancer Research UK maintains more NHS cancer personnel are needed to enable the UK to catch up The NHS in England is expanding early diagnosis services with the goal of increasing the proportion of cancers diagnosed early (at stages 1 and 2) from 53% to 75% in the decade to 2028. The NHS was the first health service in Europe to negotiate coverage for novel CAR-T cancer therapy, with agreement reached within 10 days of its European marketing authorisation.

In 2018, British Prime Minister Theresa May announced that NHS in England would receive a 3.4% increase in funding every year to 2024, which would allow it to receive an extra £20bn a year in real terms funding. There is concern that a high proportion of this money will go to service NHS debts rather than for improved patient care. There are calls for the government to write off the NHS debt. Saffron Cordery of NHS Providers said that hospitals needed help to do their work without being up in deficit, as two-thirds were in the year to 2018. Some expressed doubt over whether May could carry out this proposed increase in funding. The next day, Health Secretary Jeremy Hunt backed the extra £20bn annual increase in NHS funding and responded to criticism by stating that taxation would be used to carry out the funding and that details would be revealed when the next budget is unveiled in November.

The Institute for Fiscal Studies has stated a 5% real-terms increase was needed for real change. Paul Johnson of the IFS said the 3.4% was greater than recent increases, but less than the long-term average. Health experts maintain the money will "help stem further decline in the health service, but it's simply not enough to address the fundamental challenges facing the NHS, or fund essential improvements to services that are flagging." Inflation may erode the real value of this funding increase.

As part of the 2018 funding increase the UK Government asked the NHS in England to produce a 10-year plan as to how this funding would be used. On 7 January 2019, the NHS England published the NHS Long Term Plan.

Staffing

EU workers joining and leaving the NHS in England, annual variation in absolute numbers (2012–2017)

  Joiner

  Leaver

The United Kingdom's exit from the European Union will affect physicians from EU countries, about 11% of the physician workforce. Many of these physicians are considering leaving the UK if Brexit happens, as they have doubts that they and their families can live in the country. A survey suggests 60% are considering leaving. Record numbers of EU nationals (17,197 EU staff working in the NHS which include nurses and doctors) left in 2016. The figures, put together by NHS Digital, led to calls to reassure European workers over their future in the UK.

In June 2018, the Royal College of Physicians calculated that medical training places need to be increased from 7,500 to 15,000 by 2030 to take account of part-time working among other factors. At that time there were 47,800 consultants working in the UK of which 15,700 were physicians. About 20% of consultants work less than full-time.

A study by the Centre for Progressive Policy called for NHS trusts to become “exemplar employers” by improving social mobility and pay especially for those "trusts in poorer places where they can play a particularly large role in determining the economic wellbeing of the local population.” They found the NHS to be " a middle ranking employer in comparison to other large organisations and falls short on social mobility and the real Living Wage", and ranked trusts using a ‘good employer index’. Ambulance trusts were ranked worst.

Performance

A 2018 study by the King's Fund, Health Foundation, Nuffield Trust, and the Institute for Fiscal Studies to mark the NHS 70th anniversary concluded that the main weakness of the NHS was healthcare outcomes. Mortality for cancer, heart attacks and stroke, was higher than average among comparable countries. The NHS was doing well at protecting people from heavy financial costs when ill. Waiting times were about the same, and the management of longterm illness was better than in other comparable countries. Efficiency was good, with low administrative costs and high use of cheaper generic medicines. Twenty-nine hospital trusts and boards out of 157 had not met any waiting-time target in the year 2017–2018. The Office for National Statistics reported in January 2019 that productivity in the English NHS had been growing at 3%, considerably faster than across the rest of the UK economy.

Over 130,000 deaths since 2012 in the UK could have been prevented if progress in public health policy had not stopped due to austerity, analysis by the Institute for Public Policy Research found. Dean Hochlaf of the IPPR said: "We have seen progress in reducing preventable disease flatline since 2012.

British exit from the European Union

There is concern that a disorderly Brexit may compromise patients' access to vital medicines. In February 2018 many medical organisations were planning for a worst-case Brexit scenario because "time is running out" for a transition deal to follow the UK’s formal exit, scheduled for March 2019. Pharmaceutical organisations working with the Civil Service to keep medicine supplies available in the case of a no-deal Brexit had to sign 26 Non-Disclosure Agreements (NDAs) to prevent them from giving the public information. The figures were given on 21 December 2018 after Rushanara Ali asked a parliamentary question. Ali said, "It is utterly unacceptable for the government to use non-disclosure agreements with pharmaceutical businesses and trade associations. By effectively ‘gagging’ these organisations, these secretive agreements are preventing essential information from being shared, are undermining transparency and are hampering businesses’ ability to speak out." As negotiations continue between the UK and the EU as of 1 January 2021, vulnerable people needing treatment when working, living or travelling to the UK may lose out by not having access to NHS Care.

Rising social care costs

Social care will cost more in future according to research by Liverpool University, University College London, and others and higher investment are needed. Professor Helen Stokes-Lampard of the Royal College of GPs said, “It’s a great testament to medical research, and the NHS, that we are living longer – but we need to ensure that our patients are living longer with a good quality of life. For this to happen we need a properly funded, properly staffed health and social care sector with general practice, hospitals and social care all working together – and all communicating well with each other, in the best interests of delivering safe care to all our patients.”

Mental health

Some patients have to wait excessively long for mental health care. The Royal College of Psychiatrists found some must wait up to thirteen months for the right care. Wendy Burn of the Royal College of Psychiatrists said, “It is a scandal that patients are waiting so long for treatment. The failure to give people with mental illnesses the prompt help they need is ruining their lives.” Even patients who are suicidal or who have attempted suicide are sometimes denied treatment; patients are told they are not ill enough or waiting lists are too long. During very long waits for treatment, one in three patients deteriorate, and they may become unemployed or get divorced. One in four patients throughout the UK wait over three months to see an NHS mental health professional, with 6% waiting at least a year.

The National Audit Office found mental health provisions for children and young people will not meet growing demand, despite promises of increased funding. Even if promises to provide £1.4bn more for the sector are kept, there will be “significant unmet need” due to staff shortages, inadequate data and failure to control spending by NHS clinical commissioning groups. Currently one-quarter of young people needing mental health services can get NHS help. The Department of Health and Social Care hopes to raise the ratio to 35%. Efforts to improve mental health provisions could reveal previously unmet demand.

Meg Hillier of the select committee on public accounts said: "The government currently estimates that less than a third of children and young people with a diagnosable mental health condition are receiving treatment. But the government doesn’t understand how many children and young people are in need of treatment or how funding is being spent locally. The government urgently needs to set out how departments, and national and local bodies, are going to work together to achieve its long-term ambition.” Amyas Morse said, “Current targets to improve care are modest and even if met would still mean two-thirds of those who need help are not seen. Rising estimates of demand may indicate that the government is even further away than it thought."

In response, NHS England has embarked on a major programme to expand mental health services, whose budgets are now growing faster than the NHS overall. MIND the mental health charity responded saying: "We are pleased that the plan includes a commitment of £2.3bn a year towards mental health, to help redress the balance. The plan promises that this money will see around two million more people with anxiety, depression and other mental health problems receive help, including new parents, and 24 hour access to crisis care. The plan also includes a guarantee that investment in primary, community and mental health care will grow faster than the growing overall NHS budget so that different parts of the NHS come together to provide better, joined-up care in partnership with local government. Since the funding announcement in the summer, Mind has been working with the NHS, Government and voluntary sector to help shape the long term plan. This longer-term strategy was developed in consultation with people with mental health problems to ensure their views are reflected."

Surgery

Waiting times for routine surgery have fallen substantially since 2000. As of July 2019, the median wait for planned care in England is under 8 weeks. The number of people waiting over 12 months has fallen from over 200,000 in the 1980s to under 2000 in 2019. However the number of patients on the waiting list has risen recently as constrained funding, hospital beds and staffing growth has not kept up with increasing patient need.

Electronic systems

Twenty-one different electronic systems are used in the NHS to record data on patients. These systems do not communicate well with each other so there is a risk doctors treating a patient will not know everything they need to know to treat the patient effectively. There were 11 million patient interactions out of 121 million where information from a previous visit could not be accessed. Half the Trusts using Electronic Medical Records used one of three systems and at least those three should be able to share information. A tenth of Trusts used multiple systems in the same hospital. Leigh Warren who participated in the research said, "Hospitals and GPs often don't have the right information about the right patient in the right place at the right time. This can lead to errors and accidents that can threaten patients' lives."

Sale of data

Information on millions of NHS patients was sold to international pharmaceutical companies, in the US and other nations for research, adding to concerns over USA ambitions to access remunerative parts of the NHS after Brexit. There is concern over lack of transparency and clarity over the data and how it is used. Phil Booth of medConfidential, campaigning for privacy of health data, said: "Patients should know how their data is used. There should be no surprises. While legitimate research for public health benefit is to be encouraged, it must always be consensual, safe and properly transparent. Do patients know – have they even been told by the one in seven GP practices across England that pass on their clinical details – that their medical histories are being sold to multinational pharma companies in the US and around the world?"

Medicines

In November 2019 unprecedented shortages of medicines patients need developed. Drugs to treat cancer, heart disease, Parkinson's disease, mental health conditions, some eye conditions, antibiotics for tuberculosis and drugs to control epilepsy are among those in short supply. Life saving drugs will have to be rationed and not all patients who need them will get them. Some patients can be switched onto other drugs, though this may increase the workload of hard-pressed medical staff; other patients cannot be switched to alternative drugs. Many problems can impact the supply chain, like IT failure, speculators stockpiling drugs, alterations in regulation and sudden disease outbreaks. Tony O’Sullivan of Keep Our NHS Public said: "The Health Department’s guidance includes an unprecedented list of drugs unavailable or in short supply. Patients and clinicians alike should be on high alert when the advice includes how to ‘share stocks’ to make them last, to ‘prioritise’ patients already on specific treatments including cancer rather than a new patient and effectively how to ration so many vital drugs. Drug companies’ behaviour must be controlled. We must urgently protect the NHS from further risks of loss of control of drug prices and supplies from trade deals with the US and that requires returning it to a wholly public service."

Whistleblowing

In an independent review in 2016 by Robert Francis, it was concluded that some staff in England felt unable or unwilling to raise concerns about standards of care due to fear or low expectations, and that some staff who raised concerns had bad experiences and suffered unjustifiable consequences which the report described as "shocking". There is a culture of bullying towards those who raise concerns. This response may consist of placing the whistleblower on performance review, providing no assistance to them, starting a review process that can take months or years, possibly leading to mental health problems, and bullying and victimisation by other staff. This process rarely ended with being redeployed in an organisation, instead resulting in retirement, dismissal, or alternative employment.

An issue identified by the report was the use of "gagging clauses" involved in settlements surrounding the termination of employment of those who whistleblow. While the report found that all the contracts were legal, it noted that the language used was often complicated and legalistic, a culture of fear deterred public interest disclosures even when they were not in breach of contract, and that the terms were often unnecessarily restrictive, for example by making the existence of the agreement confidential.

Surgeon Peter Duffy wrote about his experiences of whistleblowing following an avoidable death in an independently published book, Whistle In the Wind.

Role in combating coronavirus pandemic

In 2020, the NHS issued medical advice in combating COVID-19 and partnered with tech companies to create computer dashboards to help combat the nation's coronavirus pandemic. During the pandemic, the NHS also established integrated COVID into its 1-1-1 service line as well. Following his discharge from the St. Thomas' Hospital in London on 13 April 2020 after being diagnosed with COVID-19, British Prime Minister Boris Johnson described NHS medical care as "astonishing" and said that the "NHS saved my life. No question." In this time, the NHS underwent major re-organisation to prepare for the COVID-19 pandemic.

On the 5th of July 2021, Queen Elizabeth II awarded the NHS the George Cross. The George Cross, the highest award for gallantry available to civilians and equivalent in stature to the Victoria Cross, is bestowed for acts of the greatest heroism or most conspicuous courage. In a handwritten note the Queen said the award was being made to all NHS staff past and present for their “courage, compassion and dedication” throughout the pandemic.

Hospital beds

In 2015, the UK had 2.6 hospital beds per 1,000 people. In September 2017, the King's Fund documented the number of NHS hospital beds in England as 142,000, describing this as less than 50% of the number 30 years previously. In 2019 one tenth of the beds in the UK were occupied by a patient who was alcohol-dependent.

NHS Music releases

NHS charity songs under various choir names have become a tradition (usually at Christmas time but not necessarily) and various formation carrying the name of NHS have released singles including:

• 2015: National Health Singers - "Yours"
• 2015: NHS Choir - "A Bridge Over You" (being a mashup of "Bridge Over Troubled Water" and "Fix You"
• 2018: NHS Voices - "With a Little Help from My Friends"
• 2018: National Health Singers - "NHS 70: Won't Let Go"
• 2020: NHS and keyworkers - "You'll Never Walk Alone"