JOURNAL HIGHLIGHTS: Roads I Have Traveled... Excerpt #3 Ukraine and Atlanta, 1997

by Dr. James W. Jackson

Founder, Project C.U.R.E.
Author, The Happiest Man in the World: Life Lessons from a Cultural Economist

(continued): Ukraine/Atlanta: January, 1997: Dr. Mark not only got the right Ukrainians lined up to make the trip—even on such short notice—but was also able to raise almost $7,500 in twenty-four hours to cover the airline tickets from Kiev to Atlanta. In addition to Dr. Ballantyne, we were able to secure Dr. Michael Tanner of the Cato Institute, a prestigious, conservative think‑tank organization from Washington, D.C., and Mark Litow, a consulting actuary from Milliman and Robertson in Brookfield, Wisconsin. We are going to have a powerhouse symposium!

Dr. Mark was relentless on the phone, and I was tempted to buy some stock in AT&T as I watched his international telephone bill escalate. But everyone was amazingly available, and all the speaking participants were willing to come and charge no fee at all!

Friday, January 10

I arrived in Atlanta about 3:00 this afternoon and checked into the Sheraton Gateway Hotel. Before long the rest of the group began arriving. Our chosen group from the Ukraine includes Dr. Fedir G. Burchak, head of the Committee for Legislative Initiatives and the personal confidant of and legal advisor to the president of the Ukraine. Accompanying Dr. Burchak is his wife, Raisa, a very intelligent Ukrainian lady and editor for an encyclopedia company. Also attending the symposium are Dr. Alexander Korotko, the deputy minister of health for economic affairs, and Dr. V. G. Nicolaev from the R. E. Kavetsky Institute of Experimental Pathology, Oncology, and Radiobiology. He is also head of the academy of artificial organs and biomedical engineering as well as a member of the board of directors for the National Academy of Sciences of Ukraine. Additionally, there are three Ukrainian translators.

The speakers for the symposium include Dr. Paul Ballantyne, head of the economics department of the University of Colorado, Colorado Springs; Dr. Michael Tanner of the Cato Institute, Washington, D.C.; Dr. Mark Litow, consulting actuary for Milliman and Robertson in Wisconsin; Dr. Miguel Faria, editor of the Medical Sentinel and author of Vandals at the Gates of Medicine; and yours truly, Dr. James W. Jackson, representing Project C.U.R.E.

It is absolutely a miracle to have arranged for all these important people to get together in one place in the world. It is an even greater miracle to have gotten them all together on such short notice. Who would have dared to think it was possible.

Saturday, January 11

This morning we all met together and hit the ground running. Tape recorders were set up to capture the audio portion of the symposium.

Dr. Ballantyne had the responsibility of handling the first session of the symposium. His assignment was to explain the basic principles of economics in terms that can not only be understood but can also be conveyed to members of the Ukrainian Parliament. It will probably be the first time anyone has ever taken the time to explain the basic concepts of free-market capitalism to the Ukrainian delegation.

I was so confident of Dr. Ballantyne’s ability to share the simple, basic rudiments of economics that I found myself relaxing and thoroughly enjoying the presentation. He began by talking about wealth versus poverty and the importance of production factors like land, labor, capital, and the entrepreneur. He explained the gross domestic product (GDP) concept and asked why it is possible for the United States to produce $25,000 per person per year in output while the Ukraine produces only $1,600 per person per year. He went on to explain how the market system works as it does and how people benefit through voluntary exchanges.

He then explained the economic trilogy of scarcity, choice, and cost and drew a graphic of the supply-demand curve, discussing how to determine “just the right price” for a commodity or service. Dr. Ballantyne, as usual, was nothing less than brilliant in his presentation. He has always had the ability to take complex concepts and make them extremely easy to understand and remember.

When Dr. Ballantyne finished laying the economic foundation for the free market system, Dr. Michael Tanner took over. He began to slowly build on the foundation Dr. Ballantyne had formed. I could see where he was going and chuckled inside. He methodically presented the concepts of health care as they relate to basic economics. He explained logically why long lines of people wait in the Ukraine to receive health care. He also showed with simple economic graphs why their system pushes people into criminal activities on the black market. He then presented the three necessary elements of a successful health-care delivery systems: (1) the recognition of the self‑interest factor, (2) the need for encouraging competition, and (3) the absolute necessity of including and honoring freedom of choice. He pleaded with them to allow into their new health-care system the right for patients to legally contract with the doctors of their choice so that there would be an accountable relationship established between the doctor and the patient rather than the doctor and the government, which would ultimately leave out the consideration of the patient. 

Dr. Tanner recommended the inclusion of three main elements in the new Ukrainian health-care system:

1. Ensure the right of contract between the patient and the doctor.

2. Reform how payment is made (i.e., have the patient pay the doctor rather than having the government paying the doctor).

3. Develop some rational formula for the people to purchase adequate health care.

By that time the Ukrainians were really beginning to understand the benefits of a free-market-system approach to health-care delivery. Dr. Tanner carefully explained the formula Va (actual value) and Vi (value to the individual) = C (cost). When both values (Va and Vi) are equal to the cost, the patient will purchase the optimal health care available. The Va (actual value) could be zero if the Vi (value to the individual) is equal to the cost. For example, if the doctor is very pretty, you may pay for the visit even if there is no actual medical value to you at all. The big problem is when the Va and Vi are greater than the cost, which encourages people to use too much health care. Then the people who really need the health care will be excluded because of the long waiting lines to see the doctor.

Dr. Tanner told them that when the formula for health care has to be reformed, there are really only three ways to do it:

1. The traditional way: The government intervenes and rations health care (e.g., “You can only see the doctor once a month.”)

2. Managed care: The insurance company steps in and says, “You can only come in and see the doctor once a month.”

3. Cost Increases: Take the control away from the government or the insurance company to arbitrarily increase the cost and allow the individual patient to pay with his or her own money for the cost of the service.

Several times the speakers cautioned the Ukrainians not to design their new health-care system after the current US system. The Ukrainians agreed. They had already proven that the centralized system of more government does not and cannot work over the long term. That’s why they are now demanding free-enterprise reform.

Dr. Tanner then patiently taught the group the concepts of insurance. The Ukrainians quickly agreed that they had been thinking of insurance as simply another way to prepay and finance their old centralized government system rather than seeing it as a way to spread out the risk among many people. The Ukraini­ans said they would have used insurance funds to cover known and routine problems rather than uncertain eventualities.

In recapping his session, Dr. Tanner encouraged the inclusion of four factors in the new re­form:

1. Link all the monies for payment of health care in some way to the patient.

2. Allow patients the freedom to establish a contract with the doctor of their choice.

3. For routine care and voluntary care, raise the cost of treatment and have the individual pay for part of it.

4. Develop a private insurance market for spreading out the risk among a large number of people for high cost and nonroutine procedures.

By the time Drs. Ballantyne and Tanner were through with their first sessions, the concepts they had presented were making a world of dif­ference in the minds of the Ukrainian delegation. They began asking questions about the possibilities of including the creation of medical savings accounts for individuals and families. 

Next Week: Changing a nation's health care system. 

© Dr. James W. Jackson   

Permissions granted by Winston-Crown Publishing House

  

www.jameswjackson.com 

Dr. James W. Jackson often describes himself as "The Happiest Man in the World." A successful businessman, award-winning author and humanitarian, Jackson is also a renowned Cultural Economist and international consultant, helping organizations and governments to apply sound economic principals to the transformation of culture so that everyone is "better off."

As the founder of Project C.U.R.E., Dr. Jackson traveled to more than one hundred fifty countries assessing healthcare facilities, meeting with government leaders and "delivering health and hope" in the form of medical supplies and equipment to the world's most needy people. Literally thousands of people are alive today as a direct result of the tireless efforts of Project C.U.R.E.'s staff, volunteers and Dr. Jackson. 

To contact Dr. Jackson, or to book him for an interview or speaking engagement: press@winstoncrown.com

SYSTEMS MATTER Part 10:The Magic of Free Enterprise

by Dr. James W. Jackson

Founder, Project C.U.R.E.
Author, The Happiest Man in the World: Life Lessons from a Cultural Economist

By the early 1990s, I was spending a lot of time in the Marxist/Communist countries of the world: Cuba, Russia, North Korea, Romania, and even the philosophically tainted countries of South America. In the Soviet Union, members of the average household spent nearly forty hours per week standing in lines attempting to procure just the basic necessities for the family.

In places like Ukraine I would occasionally stand in lines with my new friends just to see what it felt like to participate in the economic debacle of Marx, Engles, Lenin, and Trotsky. We would line up behind the old faded blue military flat-bed trucks, draped with a swatch of gray canvas, and wait our turn to have a government comrade hand down the loaves of bread or canned vegetables . . . if they still had any left.

Marx and Lenin had not only scoffed at, but had officially outlawed, anything that even smacked of free market, free enterprise, or portrayed the slightest capitalistic nuance. With that stance they negated any advantage of market-generated information that would have helped guide them with their economy.

There was no concept of economic growth or production. They had squelched any intrinsic market signals and had shut off any built-in factors for motivation and incentive to help the economic system run smoothly. They had locked themselves into a system that glorified mediocrity and stymied excellence. That was the price they were paying so that they could retain absolute control over a centralized economic system of redistribution. They really believed that they could figure it all out by themselves and control the attitudes and actions of millions of individual workers in their centralized system. But, they could never get it right.

• The flash of genius regarding the magic of prices had been observed and written down by Adam Smith, and it had been available to the socialists for a hundred years. Its efficiency had been well documented and not hidden at all from the public. Smith had recognized that the prices that emerged from individuals entering into voluntary transactions in a free market could silently coordinate the activities of millions of people almost immediately. Each individual would be seeking the area of his own interest, but his actions would result in an experience of unintended consequences where everybody ended up better off. Those transactions sent silent signals out to the entire economic system. Those signals guided the actions of the other individuals in the economic system so that they could make enlightened decisions on their own without the necessity of any politburo or centralized Marxist Gosplan telling them what to do.

In Milton Friedman’s bestselling book, Free to Choose, he brilliantly explains the three elements of Prices: Prices perform three functions in organizing economic activity. First, they transmit information; second, they provide an incentive to adopt those methods of production that are least costly and thereby use available resources for the most highly valued purposes; third, they determine who gets how much of the product – the distribution of income. These three functions are closely interrelated. (1)

Prices are the nervous system of the free enterprise economy. Individuals like to buy at the lowest price possible, and sell at the highest price possible. At some point there is a mark where the seller is willing to sell his product and the buyer is willing to buy the product, and each feels that he is coming out of the deal better off. If that mark cannot be struck, then the deal fails to be consummated. If agreement is made, then price for the product or service has been established. Additionally, the successful transaction encourages the individuals to pursue yet more transactions in order to feel better off again and again, thus expanding the total economy.

In experiencing the Gosplan in action in the old Soviet Union, I observed that there were constantly surpluses of the wrong things and shortages of the things needed. In Armenia, my new friends at the shoe factory pointed out that the Gosplan would try to figure out how many comrades needed to plant enough hectares in hay to feed enough horses and cattle to provide sufficient leather hides to be delivered to the shoe factory for the making of military boots. They always got it wrong somewhere along the line. They would experience a drought (that was always one of their favorite excuses for failure) where there was not enough water to grow sufficient hay for feed, or they would grow so many tons of hay that it would spoil or mold and have to be discarded.

In a free enterprise economic system we do not observe many incidents of surplus or shortage or inconsistent availability of products. Prices make that happen. That is because prices balance the demand for goods and services with their supply. The quantity that the consumers want to purchase is assured to match the quantity producers want to sell. The balance between supply and demand is no accident. Prices make it come out right each time . . . unless there is interference by some control-seeking government entity. Even in times of economic upset or disaster, goods and services are available at the present market price.

To pursue our shoe factory example, let’s return to the Soviet Union’s Gosplan and see how it differs from an economic system of free enterprise. If a retailer needs to purchase from the open market certain numbers and styles of shoes in order to advertise and sell them from his spring shoe catalogue, he may contact a shoe manufacturer and enter into an agreement to purchase said shoes to be delivered to a certain location by a certain date for a certain price. Each party is free to enter into such an agreement. As soon as the shoe manufacturer commits to fill the order for the retailer, he immediately secures the necessary leather to fill the order.

But, let’s say the manufacturer is dilatory and waits for a period of time to purchase the leather. And in the meantime there is a drought, (or some other kind of impediment in the leather supply). Immediately information goes out into the marketplace regarding the shortage of leather, and the cost of the remaining available leather supply goes up. But leather is still available at the new price. The cattle growers in Texas receive the free information and may decide to not sell the entire cow to their beef steak market in Japan, but, rather, butcher the cattle in Texas and save the leather hides to sell to the shoe industry, and just send the custom steaks to Japan that year. The cattleman’s neighbor hears of the leather shortage and decides that next year he will switch his ranch operation from growing sorghum to raising cattle, because the selling price of leather has increased sufficiently and he now has an opportunity to make a handsome profit.

The prices of shoes for the spring season are going to go up. There will not be a shortage of shoes, but the potential customers will have to make a decision as to whether or not they want to pay a higher price. Since the company with the spring shoe catalogue has a firm contract with the manufacturer for the leather products at a lower price, he stands to make a better profit from raising his shoe prices, or he has an edge on the market and can afford to sell his shoes faster at a lower price than his competitors who had to increase all their prices because of the increased leather costs.

But the manufacturer now has to scramble and find some leather available at the price that existed when he signed his contract with the retailer, or he will experience a sad loss.

The manufacturer grabs the Wall Street Journal and turns to the commodity price page in search of leather. All this information is free and available in the open marketplace. He locates a leather supplier in Brazil who is willing to sell him the leather at the previous year’s price and even assume part of the shipping costs. The manufacturer has covered his potential losses and can fulfill his contract with the spring shoe catalogue. All that information exchange and human initiative happened almost instantaneously, without needing to be gathered, sorted, and distributed to everybody in the economy. Everyone had access to all the information, but those who did not have a personal interest in the leather or shoe industry could simply ignore the information and go on with their own interests. There is no way in God’s green earth that all that could have taken place under Gosplan!

Of course, all the cattle ranchers who jumped in to raise more cattle and sell the leather at the increased prices, now have the prerogative of going back to raising sorghum. But everybody in the system had the right to pursue his or her desires to become better off. Everybody in the system had instant and pertinent information available making it possible to pursue those free choices.

Nothing has ever been designed to match the efficiency of free enterprise. That is because nobody designed the free market. Nobody manages the free market. Nobody controls the free market. It is a phenomenon that registers thousands of personal preferences in a nanosecond.

It can deliver information that can peg the market value of a million different products all at the same time. It can inform people in every corner of the earth what to produce, when to produce it, how much to produce, and how much to buy at any given time. It can even let you know where to go to search out job opportunities within your scope of interest. If none of that information is pertinent to you . . . you can simply ignore all of it!

All of that instant information is not mined, gathered, filtered, stored and made available by one individual or one big box superstore of technology. All that collaborative wisdom is freely made available and is the result of millions of individuals working in union with one another while seeking to be better off within the scope of their own interest.

The anomaly tagged as free market that operates within the phenomenon of free enterprise just simply exists in all of its sophistication wherever individuals exist who have been granted freedom of choice in areas of culture and economics. Those are the individuals who have a deep desire to end up better off. That phenomenon of free enterprise is a precious gift to the world!

Next Week: SYSTEMS MATTER Part 11: Profit and Loss

•  Profits
•  Losses
•  Wages

          (Research ideas from Dr. Jackson’s new writing project on Cultural Economics) 

© Dr. James W. Jackson   

Permissions granted by Winston-Crown Publishing House

  

www.jameswjackson.com 

Dr. James W. Jackson often describes himself as "The Happiest Man in the World." A successful businessman, award-winning author and humanitarian, Jackson is also a renowned Cultural Economist and international consultant, helping organizations and governments to apply sound economic principals to the transformation of culture so that everyone is "better off."

As the founder of Project C.U.R.E., Dr. Jackson traveled to more than one hundred fifty countries assessing healthcare facilities, meeting with government leaders and "delivering health and hope" in the form of medical supplies and equipment to the world's most needy people. Literally thousands of people are alive today as a direct result of the tireless efforts of Project C.U.R.E.'s staff, volunteers and Dr. Jackson. 

To contact Dr. Jackson, or to book him for an interview or speaking engagement: press@winstoncrown.com