Health Care and the 'Predator State'

In June 2008, I used this space to call on then-Sen. Barack Obama to add economist James K. Galbraith's book, "The Predator State," to his reading list. As an account of the capture of government by private interests, I thought it would make a far more useful guide to contemporary political economy than the market-glorifying texts that were still in fashion in those days.

I don't know if Mr. Obama ever took my advice.

But Iowa Republican Sen. Charles Grassley apparently did. During a debate last week over two Democratic proposals for a health-care bill featuring a "public option"--a government-run alternative to private health insurance--the senator announced he opposed the idea because, as he put it, "Government is not a fair competitor. . . . It's a predator."

The word "predator" seems to have become something of a Republican talking point. Mr. Grassley's colleague from South Dakota, John Thune, went on the record in July to warn that, when government goes into business, it "becomes not a competitor but a predator."

Have these two august men of the right secretly become fans of Mr. Galbraith, one of our leading liberal economists?

If so, they need to go back over "The Predator State" a second time. Although they have snapped up Mr. Galbraith's catchy title, they have misunderstood his message.

What makes government predatory, Mr. Grassley seems to believe, is its public-mindedness. Were government to offer health insurance to everybody without the industry's many devices for excluding risky individuals, some seem to fear, it might be able to offer consumers a price too fair for the profit-minded sector to match.

This is a curious reversal for a movement that ordinarily celebrates Darwinian struggle and the destruction of the weak by the strong. Just think of the conservative caricatures that must be inverted for this argument to work: All those soft liberal bureaucrats? Ferocious man-eaters. The welfare state? Law of the jungle.

And the actuarial-minded hardliners of the insurance biz, the ones who deny your claim or cancel your policy? A gentle but endangered species that needs our nurturing, sort of like panda bears.

Mr. Galbraith's point was the opposite: That government becomes a "predator" when it adopts the agenda of the private sector, when it comes under the control of business interests. According to Mr. Galbraith's book, these interests seek to "control the state partly in order to prevent the assertion of public purpose and partly to poach on the lines of activity that past public purpose has established."

A good example of this predatory "poaching" is the 2003 expansion of Medicare to include a prescription-drug benefit. "[T]he program was done in such a way as to make payments to drug companies as large as possible," Mr. Galbraith wrote, mainly by denying itself the power to negotiate discounts. Thus it "helped to ensure that a monopoly price on pharmaceuticals would be paid, while shifting the burden of paying it, in part, to the general taxpayer."

I emailed Mr. Galbraith to get his thoughts on Mr. Grassley's novel use of his idea. "[T]he concept of the 'Predator State' is not quite as Senator Grassley describes," the economist replied. "Social Security isn't predatory. . . . Back before they were privatized, Fannie Mae and Freddie Mac weren't predatory. Ginnie Mae still isn't. And a public option for health insurance isn't predatory either."

"The 'predator state' describes what happens when chicken coops are given over to foxes," Mr. Galbraith continued. "When consumer protection, worker protection, environmental protection, and policing against fraud are handed over to lobbyists. And when health care is run for the benefit of private insurance companies, whose business model . . . is to target coverage on the healthy and delay payments to the sick."

That is predation. Public service is its opposite. And thus we come to the subtle part about Mr. Galbraith's theory, the catch that seems to have confused his potential admirers on the right: Government isn't simply "a predator" by definition, as Mr. Grassley would have it. Yes, it has been predatory in recent years, but for much of the last century it wasn't.

However, it is easy to see how a "public option" might be transformed into another opportunity for predation. With a little George W. Bush-era ingenuity, some future administration might decide to install insurance lobbyists at its helm. Future Congresses might require that its duties should be contracted out to existing insurance companies and then sign away their own power to supervise those companies' behavior.

I am happy to report, though, that a solution to such a problem is incredibly simple, and it is largely within the power of Mr. Grassley and his colleagues to deliver it: Don't let insurance industry lobbyists give you advice. Don't take their money. Just say no.