Unit 13 - Problems & Exercises

When we look at the question why at least professional services liberalization seems to be doing better under FTAs than in GATs, part of the question may be tied to the broader issue whether the traditional picture of the professions (Marcus Welby, MD for medical services, Perry Mason for legal services--  or are the TV references too dated for millennials?) dictates policy, versus the idea that services are now delivered increasingly by larger organizations (so hospital companies for medical services and Big Law and/or AI-based legal services in law student terms).

The economy is changing, also the economy of professional services.  Technology may enable the provision of medical services under approaches like telemedicine, but that assumes an IT department and sophisticated communications and website support on a scale rarely available to individual practitioners (so telemedicine was traditionally an experiment linked to academic medicine, where they already have university IT, etc.).  And how is the average consumer of medical services supposed to know how to find a great medical specialist at a reasonable price in Toronto or Mexico City to call them up on their computer screen?

What do you think, legal services has long been an item in trade negotiations (all those foreign Big Law offices), was that ever aimed at the Perry Mason picture of the profession?  And do you understand what the “Perry Mason” picture might be?  And part of the issue may be that trade liberalization on the basis of existing businesses and institutions may be easier to accommodate in a bilateral or similar negotiation, instead of trying to do a multilateral deal from general principles like economic efficiency.  So services liberalization may be inconsistent with traditional views of the professions, which meanwhile are undergoing consolidation for economic reasons.

Looking to medical services, an established medical tourism industry has existed in Asia for at least 20 years at this point.  Once upon a time, there were famously more Thai doctors in New York City than in Bangkok.  The Thais were there for internship and residency training, and visa laws (J visas) were changed essentially to make sure the Thai doctors in training returned to Thailand at the end of their training.  (They were unlike South Asian graduate computer science students until recently studying at US universities, who traditionally stayed on under H1B visas, looking for postgrad practical training here, and then hopefully over time to qualify for a green card and stock riches in a start-up.)   Meanwhile in Bangkok, there resulted a surplus of US-trained, board certified physicians in practically all areas of medicine, which development underlies the WHO Bulletin article you read.  Medical services of a high quality, delivered by US-trained physicians, could then be purchased in Bangkok at 20-30% of the cost of similar medical services in the US for the past 20+ years.  The Thais’ success coincidentally has subsequently triggered medical tourism wannabe tries in several other Asian countries (Singapore, Malaysia, more recently India, etc.), but typically at the hospital company enterprise level.

Much of the medical tourism actually has been within Asia, so that there are effectively now 3-4 distinct levels of “markets” for medical services in Asia, some more specialized than others.  The WHO Bulletin article mentions cosmetic procedures in Bangkok, but at the moment the South Korean medical market is well known as the plastic surgery mecca in Asia (so that is where the Asian upper middle class may go for face lifts and tummy tucks).  Wealthy Asians and Western expats within Asia over the past 20 years would fly to Singapore for medical care, once the Singaporeans decided to compete with the Thais (the top of the line market).  Well-funded local hospital company start-ups in ASEAN aimed to achieve a reasonable standard of sophisticated local care to attract the upper middle class otherwise flying off to Bangkok, Singapore and Seoul (the middle market;  you see it described in the EY document).  The lowest market was simply better local care, what US students might think of as a local, SE Asian attempt at “medicare for all” (the low-end market, but not to be underestimated as a considerable improvement on traditional medical services available to ordinary working people and retirees–  in much of the developing world, available medical care until very recently consisted largely of over-the-counter medicines, as opposed to traditional herbal remedies).  Next to the domestic participants, where do the foreign market participants come from?

With the background above, I would like all students to prepare in groups the following as discussion problem aimed at understanding the promise and pitfalls of trade liberalization in professional services.  The story was slightly different in Indonesia, which is behind the EY business development effort.  The document portrays an existing middle market, with the promise of lower end growth because of a government program along the lines of “medicare for all,” linked with the idea that the Indonesian government made such promises, but then was compelled to look to the private sector to fund the infrastructure and personnel required for such a program in a large, middle income country (because there was no room for financing “medicare for all” in the Indonesian government’s budget, given more pressing infrastructure needs on the economic side) .  The particular problem was that reasonable quality medical services were available only in perhaps 20% of the country (in major urban areas on Java, and in a limited number of other cities mostly in Sumatra and Bali).  So for the government to succeed in its program, there needed to be a substantial expansion of medical facilities and personnel, both of which could not be financed directly under its national budget.

There was the pre-existing ASEAN-wide program to liberalize medical services, more perhaps inspired by economists’ ideas about efficiency and consumer welfare.  But the undifferentiated ASEAN medical services liberalization program was not particularly successful, probably because the local (Indonesian) medical community in the 20% of the country already receiving good medical services regarded it with alarm as representing potential competitors.  The business problem was whether it made sense to the private sector, foreign and domestic, to develop medical services at the middle and lower end market levels.  They would have been happy to do so in the well-developed medical markets in the 20% of the country which already had relatively good medical services.

Meanwhile, the government was willing to push medical services into the outer islands and rural areas where the level of medical services was lacking, but by the same token it really did not need additional medical services in the 20% of the country which already enjoyed decent levels of medical services.  And at the same time, the Indonesian government faced an internal conflict because the existing medical structure (essentially an underfunded state hospital system) on a nationwide basis was owned and operated by the state.   So there were vested interests on the state side, which resisted any increased private sector involvement in medical services, viewing them in particular as competitors for trained personnel (who might prefer higher salaries and more modern equipment in private sector hospitals).  There were also some reasonable quality flagship state teaching and similar hospitals on Java, for instance, but on a nationwide basis the state hospital system resembled the division between high quality US academic and teaching hospitals located mostly in major urban areas, versus rural county hospitals with very limited medical infrastructure (e.g., no ER, very limited trauma facilities, or expensive CT scanners), accompanied by difficulties attracting sophisticated medical staff to such facilities.

So if you are the Indonesian government, how do you play your cards, do you rely on the local private sector, do you seek foreign investors (and what kind of foreigners), given that you have major political capital invested in making a success of your “medicare for all” type program?  How much of this do you see in the EY document, or in other sources you can find?  How does the story turn out, recognizing that we were suddenly caught up in the Covid Pandemic?  We shall discuss and compare the approaches and outcomes between our groups.  What does this tell you about how services liberalization is likely to proceed under differing circumstances, and what might coalitions in support of potential services liberalization potentially look like?