Continuing our treat of David Green’s book on civil society, we here present the history of how mutualism was destroyed, first by the medical establishment in 1911, and finally by the NHS reforms of 1948.

Excerpt 1: The role of the medical establishment in destroying mutual aid

David Green:

“The freedom to experiment during the period before the 1911 National Insurance Act allowed consumers to protect themselves from the demands of organised medicine and to encourage higher standards of care. First, liberty enabled medical consumers to organise themselves against the efforts of the medical profession to force up pay and free doctors from accountability to patients for the standard of care. Second, the absence of a public sector monopoly before 1911 enabled different methods of paying for medical care to be attempted and threw up valuable lessons from which others could learn and on which future progress could be based. The 1911 Act led to the dismantling of these arrangements by the state at the behest of the doctors, as Chapter 9 describes.”

From chapter 9:

“The friendly societies were so successful that their arrangements for social insurance and primary medical care formed the model for the early welfare state. But this, ironically, was their undoing. The 1911 National Insurance Act was originally seen by Lloyd George, who charted it through Parliament, as a way of extending the benefits of friendly society membership to the whole working population. But on its way through the House of Commons the original Bill was radically transformed by powerful vested interests hostile to working-class mutual aid. The organised medical profession had long resented the dominance of the medical consumer, and particularly disliked working-class control of medical `gentlemen’. The BMA was equally anxious to obtain more pay and higher status for doctors. No less important were the commercial insurance companies, which had long disliked the competition of the non-profit friendly societies and saw the 1911 National Insurance Bill as a threat to their business. They were organised in a powerful trade association, called the `Combine’.

The BMA and the Combine formed a temporary alliance to extract concessions from the Government at the expense of the friendly societies. The essence of working-class social insurance was democratic self-organization, but amendments to the Bill obtained by the BMA and the Combine undermined it. Doctors’ pay had been kept within limits that ordinary manual workers could afford, but under pressure, the Government nearly doubled doctors’ incomes and financed this transfer of wealth from insured workers to the medical profession by means of regressive flat-rate national insurance contributions.

The friendly societies had for many decades encouraged doctors to improve the standard of their services through competition. In addition, the friendly societies also evolved complaints procedures to keep doctors on their toes.

The government also provided complaints machinery under the 1911 Act, but it was much inferior. As Professor Rudolf Klein has argued, the 1911 Act `marked a giant step forward in the emancipation of the medical profession from lay control’. The complaints machinery of 1911 was introduced `not as an attempt to fortify the position of the consumer but as a salvage operation designed to save something from the wreck of lay control over medical services’. The 1911 deal represents `the first rung in the ladder leading to the syndicalist system of professional control over the health services’.
The friendly society tradition was based on the rules of natural justice. There are two main principles: audi alteram partem, `hear the other side’; and nemo judex in causa sua, `no man may be a judge in his own cause’. Underlying this philosophy was the belief that both sides had an equal right to have their case heard and that essential to the process was the independence of those judging the issue. Friendly society rules therefore provided for the appointment of arbitration committees comprised of individuals with no axe to grind. The view of the doctors was the opposite: no one should judge professional conduct except the professional. Doctors have often asserted that this notion is in the public interest, but without exception it has been accompanied by an ethic of professional loyalty which strongly frowned upon criticism of one’s fellows.”

Excerpt 2: 1948: The Eradication of Mutual Aid

From chapter 10:

The role of the medical establishment:

“The legislation of 1911 had incorporated the friendly societies into the state national insurance scheme. The virtue of voluntarism is that a variety of methods of provision can develop to meet the differing needs of individuals and families. The affiliated friendly societies provided one approach but they were not everyone’s cup of tea and many preferred the different systems of the more centralised societies like the Hearts of Oak or the National Deposit Friendly Society. This very variety, however, became a problem under the state scheme, for voices began to complain that it was unfair that different benefits were received for the same compulsory contribution.

The Beveridge Report of 1942 described what these differences had come to mean by the late 1930s. Under the approved-society system each society was valued at five-yearly intervals and after providing for reserves a surplus or deficiency was calculated. The surplus could be spent on additional benefits for members. The fifth valuation in 1938 allowed societies with 88 per cent of the insured men and 81 per cent of the insured women to pay additional benefits. The surplus was £5,850,000 when total expenditure was about £35m. Of this £5,850,000, £2,200,000 was paid in additional cash benefits and £3,650,000 in benefits in kind, largely dental and ophthalmic care, medical appliances and convalescent homes. Additional sickness and disablement benefits were paid by societies representing 63 per cent of insured men. About £250,000 was spent on maternity benefits.

The Beveridge Report recommended a single contribution and a single benefit agency to administer the scheme. However, Beveridge was keen that friendly societies should be allowed to act as agents for the payment of state benefit and to offer additional services to members purchased with voluntary contributions. To Beveridge’s great disappointment his proposal was rejected by the Government. The result was a monolithic state system for benefits and medical care. The remainder of the chapter is devoted to an example of what this meant in practice for the medical institutes and the medical aid societies of the Welsh miners, which had proved their pioneering worth despite the prolonged antipathy of organised medicine.

It is a detailed case study, but it is worth examination because it reveals the mentality of the period, and in particular it shows how the intellectual leaders of the day failed to understand the value of diversity in allowing room for human progress. Beveridge himself warned in The Times before the second reading of the National Insurance Bill in February 1946, that it would be a costly mistake to refuse the friendly societies a continuing role. To set up an `allembracing State machine will be final’, warned Beveridge, whereas to admit the friendly societies would `leave room for experiment and trial’. But his words were ignored.

Throughout the 1920s and 1930s the medical institutes had exercised a restraining effect on medical fees to the advantage of the consumer. The BMA seized the opportunity offered by the new National Health Service to wipe out the medical institutes for good.”

Excerpt 3: The choice for collectivism:

“Three very closely related, but unspoken, notions seem to have been at the root of the Government’s thinking. The first was a simple faith in the superiority of government provision over market provision. Even though developments in the health-care market outside the government scheme were considerable, and often provided a model for reformers intent on forcing everyone into a single government scheme, freedom from government interference continued to be poorly valued. By the 1930s, after some years of government intervention, all improvements were taken by progressive opinion to be the result of the government scheme and all problems the result of the continuing inadequacy of the market-place or the unsatisfactory (but easily remediable) nature of previous government intervention. Early mistakes were not seen as inherent in government intervention as such, but rather as arising from failures of personnel or programme. No satisfactory effort was made to appraise the market as an alternative to intervention. If the market was compared, it was the market before intervention—as if no change would have occurred without government interference. Nor was there any recognition that government might inadvertently have stifled some beneficial changes.

Enthusiasts for a state monopoly passionately believed that the new scheme was going to be the best, and therefore to allow any other kind of organisation to continue in being was pointless. It was inconceivable that any alternative would be better.

Closely allied to this simple faith in the superiority of government was a second notion which Hayek has called the `synoptic delusion’. The notion is that a single person can hold in his mind all the facts relevant to some social problem.

The third notion was that progress was inevitable. All thought was being directed to creating what was intended to be the best health service attainable. That some institutional structures are more amenable to progress than others was not on the agenda in 1945 and 1946. Even though the pioneering work of the medical institutes was freely acknowledged, it appears to have been assumed that there would no longer be any need for pioneering institutions. The state scheme would take care of progress.”

Conclusion from David Green:

“Before 1948 friendly society medical institutes and medical aid societies provided much-needed competition in the supply of medical care. This helped to contain prices in the non-government sector. Perhaps more significant was the innovative role of medical institutes and medical aid societies. As Aneurin Bevan acknowledged, they had pioneered new services which it was hoped the NHS would make standard. Yet, under the illusion that the political process can provide for innovation as effectively as the market, all alternatives to the NHS monolith were excluded. Due partly to government efforts to satiate professional demands, but also to a misguided faith in the omniscience and organisational capacity of government, the final vestiges of competition in the supply of health care were driven out of existence.”

The full text of the book is available via http://www.civitas.org.uk/pdf/cw17.pdf