Thursday, September 20, 2012

The Eds and Meds Sector

There is a fascinating story at newgeography which looks at trends in the education ("Eds") and medical ("Meds") sectors. 

Newgeography focuses on trends in urban affairs and economic geography.  Eds and Meds are of interest to this group because these two sectors have been such a critical part of maintaining or restoring many regions' economic vitality.  Why?  Universities and hospitals generally pay high wages, don't lay people off, and are perceived as long term drivers of growth because more degrees and longer life spans are two trends that will probably continue. 

But the author, Aaron Renn, presents compelling trend data suggesting that America can no longer to afford extra large helpings of Eds and Meds.  As shown in the chart below, these sectors have been growing faster than virtually all other sectors for a long, long time.


Renn points out the healthcare is on its way to consuming 20% of our GDP by the year 2021.  And the growth in the higher education sector has been substantially fueled by student loans.  Unfortunately, even college grads are subject to the pressures of outsourcing and competition with very able professionals from around the globe.  So the ability to repay all that debt can't be taken for granted.  What can't go on forever, won't.

Here is another chart presented by Renn, this one presenting the rates of inflation occuring in Eds and Meds sectors as compared to the overall CPI:

KaplanThere is an opportunity here.  I would be extremely bullish on innovations that produce productivity gains in the Eds and Meds sectors.  I recently listened to this HBR Ideocast discussion with Robert Kaplan, the Harvard Business School professor best know for developing the Balanced Scorecard.  Kaplan is now turning his considerable intellect toward the problem of cost-containment in healthcare. 

What the key insight?  Measuring how much patient treatment actually costs--to date, there has been almost no sophisticated cost accounting in healthcare.  Most of the brainpower has gone to dealing with (and maximizing) third party reimbursements.  Under Kaplan's system, fortunately, we can actually identify the points in the system that cost way too much and thus begin the reengineering process.

ChristiansenThe same thing may soon be happening in higher ed.  Another Harvard Business School professor, Clayton Christiansen, who authored the renowed business book, The Innovator's Dilemma, recently co-authored a letter that called for colleges and universities to quit chasing prestige and start focusing on innovations that improve educational quality without increasing price.  Remarkably, the letter was included in a mass mailing by the American Council of Trustees and Alumni -- going to 13,000 trustees!  See Inside Higher Ed, Distruption's Strange Bedfellow, July 12, 2102.  Another Insider Higher Ed story suggests that this may be the true faultline driving the University of Virginia controversy.  See Disruptive Innovation: Rhetoric or Reality?, June 26, 2012.

The world appears to be changing, even in Eds and Meds sector.

[posted by Bill Henderson]

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There will be tremendous resistance to changes that will benefit the population at large from both sectors. The key players against change will be faculty councils and organized medicine. The new ancien regime consists of a ruling class of bureaucracies and credentialed elites that profit from the creation of artificial scarcities by means of regulated access to educational achievement (or the appearance thereof) and medical care. The net effect of the bureaucratic control of both of these sectors is to limit access and raise prices beyond what a normal and unregulated market would bear. Right now there are few alternatives and these mostly lie outside or at the periphery of established modes of access, and are thus insignificant. Real creative disruption would have to involve either confronting or by-passing the regulatory mechanisms that are in place. However, the ruling classes are watchful for any such attempts and will attempt to halt or co-opt them, thus limiting their affect. I think the only way things are going to change is through legislation, by recognition of the problems and the necessity for change, or, if this is not forthcoming on a timely basis the change will take place via some sort of popular revolution which will involve people taking things into their own hands, either by an extensive black market, which would have to be tolerated by the powers that be, or by insurrection. I have no way to predict what will happen, but that's they way I see it. I live in a med/ed community. The people who run things in these places are fascists at heart.

Posted by: teapartydoc | Sep 22, 2012 7:35:24 AM

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