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Hollowing out the State? Some Observations on the Restructuring of Hospital Services in NewZealandAuthor(s): J. Ross BarnettReviewed work(s):Source: Area, Vol. 31, No. 3 (Sep., 1999), pp. 259-270
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Area (1999) 31.3, 259-270
Hollowing out the state? Some observations
on the restructuring of hospital services inNew Zealand
JRoss Barnett
Department of Geography, University of Canterbury, Private Bag 4800, Christchurch, New Zealand.
Email: ross(geog.canterbury.ac.nz
Revised manuscript received 6 November 1998.
Summary This study applies Jessop's idea of the 'hollowed-out' state to an analysis of the
restructuring of hospital services inNew Zealand. Decentralization of responsibility for the
funding and provision of hospital services to regional and local levels has had distinct fiscal
and political advantages for the state and is rapidly changing the geography of hospital
provision.
Introduction
This paper considers the impact of health restructur
ing upon the hospital sector, with specific reference
to recent trends inNew Zealand, where, as inother
developed countries, the welfare state isundergoingsignificant change. Hospital closures, long waiting
lists for surgery and concerns about the overall
availability and quality of services are all symptomatic
of an environment where different forms of rationing
have become the norm. As these examples suggest,
the guarantees of universal coverage and unlimited
access to services can no longer be taken for granted
as they were during the long boom of economic
prosperity following the Second World War.
In recent years, a number of different frameworks
have been offered to describe the transformation
of welfare seen in New Zealand and elsewhere.Foremost among these are attempts by regulation
theorists to provide a conceptual framework for
understanding processes of capitalist growth, crisis
and reproduction. However, although the theory has
yielded useful insights into contemporary restructur
ing processes, there is continuing debate about its
usefulness and robustness. Pinch (1997, 68) sum
marizes its appeal by suggesting that it incorporates
modern influences such as globalization, that it is
less dogmatic than traditional Marxist theories of
change, and that it permits a range of alternative
responses to similar economic circumstances, influ
enced by history, culture and tradition, which do not
need to be fitted into some classical model of
economic relations. Criticisms pertain mainly to its
high level of generalization and limited incorporation
of welfare issues. It takes little account of the specificlinks between accumulation crises and welfare
change (Mohan 1995a) and pays insufficient atten
tion to the way inwhich new modes of regulation
are played out in the public and welfare sectors
(Carter and Rayner 1996).
This study builds on these and other attempts (eg
Pinch 1994; Bradford 1995; Peck and Jones 1995;
Patterson and Pinch 1995) to subject regulationist
ideas to greater empirical scrutiny. In particular, it
seeks to understand the extent to which Jessop's
(1994a, 264) idea of the 'hollowed-out' state is
useful for understanding processes of health-sectorrestructuring, with particular reference to hospital
services in New Zealand. By focusing on centre
periphery tensions in the funding and provision of
hospital services, the study attempts to provide an
empirical response to calls by writers such as Peck
and Tickell (1995), Goodwin and Painter (1996) and
Jones (1997) to spatialize regulation theory. It also
builds on earlier political-economic interpretations of
changes in the hospital sector (Bohland and Knox
1989; McLafferty 1989; Mohan 1991; 1995b;
Salmon 1995) and more cultural (Kearns and Joseph
ISSN 0004-0894 ?) Royal Geographical Society (with The Institute of British Geographers) 1999
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260 Barnett
1997) or traditional welfare concerns (Powell 1992)
with hospital restructuring.
The remainder of the paper, therefore, is organ
ized into three sections. The first outlines Jessop's
idea of the hollowed-out state and a number of
unresolved problems with this concept. This is fol
lowed by a discussion of welfare and health-sector
restructuring in New Zealand with particular refer
ence to the impact of the 1993 reforms on the
devolution of responsibility for the funding and pro
vision of hospital services. The final section then
assesses whether such trends are indeed consistent
with Jessop's ideas of a hollowing out of the state, or
whether more complex processes have unfolded
that cannot neatly be packaged into some 'post
Fordist' logic. Iconclude with a brief discussion of
some possible future lines of inquiry using regulation
theory as a framework for understanding welfare
restructuring.
Understanding the 'post-Fordist' (?)'hollowed-out' state
Despite the limitations of regulation theory as an
overarching explanation, several writers (Bakshi et al
1995; Pinch 1995; Goodwin and Painter 1996;
Jessop 1997a) have attempted to develop more
detailed conceptualizations of the crises of Fordism
and the emergence of new geographies of regu
lation. Perhaps foremost amongst these has been
Jessop (1994a; 1994b; 1995), who suggests that
there are two elements of 'post-Fordism' that are
crucial to understanding changes inwelfare. The first
of these is the emergence of a 'Schumpeterian
workfare state', characterized by an emphasis on
innovation and entrepreneurialism, and with the goal
of strengthening the structural competitiveness of
the national economy by intervening on the supply
side, assisted by lessening the financial burden ofwelfare and subordinating social policy to the needs
of the labour market. Jessop's second element, the
hollowing out of the welfare state, involves a com
plex process of power displacement, whereby state
capacities are said to be transferred upward, down
ward and outward to alternative powerbases: to
supranational organizations, to new crossnational
groupings and to restructured regional and local
levels of government. Hollowing out, however, isnot
just a process of devolution; it is also one of privat
ization, since it involves the transferral of govern
ment functions to new forms of governance,
including a wide range of non-elected community,
non-profit and private providers.
So if the workfare state provides the economic
framework and the hollowed-out state represents
the institutional arrangements, are these adequate
for understanding welfare restructuring in the 1 90s?
Although Jessop (1995, 1619) acknowledges that
trends such as hollowing out have an 'essentially
descriptive, synthetic and generalized character', the
hollowing-out metaphor is nevertheless a potentially
powerful heuristic, in that it focuses attention on
actual mechanisms of change and the extent to
which new forms of regulation may help resolve
various crisis tendencies. Nevertheless, a number of
questions stillpresent themselves: first, exactly what
has been hollowed out?; second, what have been the
causes and impacts of the process?; and third, at
what spatial scales has hollowing out manifested
itself?With respect to the first question, Jessop (1994b)
argues that the powers of nation states are being
limited through various forms of displacement. How
ever, it isclear that not all state functions (or powers)
need be hollowed out; for example, states may not
provide services, but remain dominant in terms of
funding and regulation. Although this is recognized
by Jessop and reflected in his more recent ideas
on 'meta-governance' (Jessop 1997a, 575; 1997b;
1998) and in a variety of empirical work (see, for
example, Patterson and Pinch 1995; Peck and Jones
1995), the exact conditions under which certain
state functions and not others have been hollowed
out remain unclear. Although Jessop acknowledges
that theworkfare state can manifest itself in a variety
of ways, geographies of welfare change need to take
the global scale of analysis more seriously inorder to
understand adequately the level of variation and
events within individual states (Mohan 1998).
Writers such as Merrien (1998) and Stoker (1998),
for example, stress that neoliberal policies of welfareretrenchment are less typical of other welfare states
and therefore reject any simple convergence in
welfare forms. Instead it is suggested that itwould be
more useful and more promising to look at the way
in which inherited institutions distribute responsi
bility, and the extent to which such strategies are
influenced by key interest groups and institutional
ized political traditions and cultures. Such trends are
not ignored by Jessop (1994b; 1997a), who, in
referring to Gramsci (1971), draws attention to
possible sources of resistance to capitalist domi
nance and hegemony, especially in traditionally
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Hollowing out the state? 261
non-commercial domains. Similarly, Jones (1997)
notes a need to focus on tendencies toward effective
regulation as well as any countertendencies that
may disrupt the establishment of a new order. Local
political dynamics, struggles and resistances may
therefore serve tomodify any direct correspondence
between globalization trends and the extent to
which hollowing out is characteristic of the structural
transformation of both national and local states.
Secondly, if some confusion remains as to what
exactly has been 'hollowed out', questions also
remain regarding the causes and likely impacts of
the process. For Jessop (1994a), hollowing out is a
process that aims to overcome crisis tendencies in
Fordist accumulation regimes by relocating responsi
bility for accumulation (as well as important
legitimacy functions) to other levels of political
organization deemed to be able to cope more
effectively with the symptoms of Fordist crises. With
respect to the former, hollowing out, via privatiz
ation, is seen as a means of increasing both national
and local competitiveness, since, in theory, a reduc
tion in the social wage enables capital to be switched
into areas encouraging accumulation, and lower
levels of public spending are said to create con
ditions for sustainable economic growth. Similarly,
despite a certain decentralization of economic
policy, central government intervention remains significant in terms of redefining both the institutional
form and policies of local welfare states (Imrie et al
1995; Goodwin and Painter 1996). These themes
have been well rehearsed in a large body of research
on local governance, but numerous questions
remain. For instance, Hall and Hubbard (1996) ask to
what extent have the politics of redistribution been
replaced by the politics of growth? And even if
welfare reductions do take place, to what extent do
such moves create sustainable growth at either the
local or national scale? As Pinch (1994) has noted,
there is still considerable debate over whether thelean and efficient welfare state will provide the
appropriate conditions forwhat regulationists would
call a 'stable regime of accumulation', given the lack
of any strong relationship between welfare spending
and economic growth (Castles and Dowrick 1990).
Moreover, given that hollowing out has been a
strategy encouraging greater flexibility in the provi
sion of public services, questions remain regarding
the extent towhich such strategies (eg via decentral
ized contracting arrangements in internal markets)
have significantly increased the efficiency of welfare
provision (Ranade 1998). Despite some geographi
cal work in these areas, one can only agree with
Goodwin and Painter's (1996, 643) comment
that:
while it is easy to chart a series of changes in theinstitutionsand mechanisms of ... government and to
label them 'post-Fordist' t is less clearwhat part these
changed structures and practices might play inhelping
to stabilize the functioningof any new MOR (mode of
regulation).
Ina similar vein, we could also question the extent to
which 'hollowing out' has been a successful strategy
for resolving legitimation crises, especially since it
potentially provides a means by which central
governments can diffuse discontent. As Mohan
(1995a, 1568) has argued with respect to the BritishNHS,
by decentralizing responsibilities itwas hoped that
controversies over unpopular decisions would be
avoided; as praise (forgrowth inresources)was central
ized, blame (for service reductions)was decentralized.
However, the extent to which such trends diffuse
discontent or are inherently post-Fordist in nature is
debatable. Decentralization has a long history in
many countries, and even where it has taken place,
rather than defusing discontent, it may act as acatalyst to collective action on the part of affected
communities by heightening political awareness of
local issues to a greater extent than before (Kearns
and Joseph 1997; Kearns 1998).
Finally, questions remain about the geography of
regulation, in particular about the spatial scale at
which 'hollowing out' has taken place. Jones (1997,
844), for instance, notes that there is still a tendency
to 'read off' local institutional change from posited
transitions at themacroscale, but suggests that such
views ignore the fact thatmodes of social regulation,
while perhaps articulated at the level of the nationstate, are not exclusively located there. Peck and
Tickell (1995, 27) go further by suggesting that itmay
be possible to distinguish distinctive 'local modes of
social regulation'. This point is developed by Hay
(1995), who posits two models of change: where
local crises are responded to by new patterns of local
governance; and where there may be no local crises,
but a national perception of crisis that results in local
intervention. This suggests that variations in hollow
ing out may be both locally and nationally mediated.
Both trends have been observed empirically. For
instance, much of the work on the entrepreneurial
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262 Barnett
city reflects distinctive local modes of regulation,
especially in the North American context, while
Patterson and Pinch's (1995) study of central con
straints on the pattern of contracting out of local
government services is an example of the latter.However, Hay's models can be extended, since
hollowing out may occur just at the national level
and not locally (eg where local government does not
shed any responsibilities when welfare provision is
largely a central government function). Alternatively,
hollowing out may involve a chain reaction ifhollow
ing out at one scale (eg the national) in turn causes a
hollowing out of responsibility for service provision
at other spatial scales. Such trends have not been
explored within the context of regulation theory, but
represent a fruitful line of analysis given the inter
relationships between central, regional and local
decisions on welfare provision.
In summary then, hollowing out, whether one
views it in economic or political terms, can be seen
as a means by which central (or local) governments
have attempted to resolve certain crisis tendencies in
welfare funding and the provision of social services.
The next section of the paper, therefore, attempts to
examine the extent to which such trends have
characterized recent patterns of hospital funding and
provision in New Zealand. I first provide a brief
overview of economic and welfare restructuring,
before turning to a more detailed analysis of the
1993 health reforms and their impact.
Economic, welfare and health
restructuring inNew Zealand
Since 1984, New Zealand, like other countries that
have been subject to New Right political regimes,
has undergone remarkable economic and social
change. Economic reforms have liberalized a for
merly insulated and highly regulated predominantlyagricultural economy organized along Fordist lines,
and the state has been 'rolled back' as many of its
activities have been commodified (Lewis andMoran
1998). As a result of such trends, the economy and
society, labelled as 'out-Thatchering Mrs Thatcher'
(Economist 1991, 28), bear a strong resemblance
to Jessop's hollowed-out Schumpeterian workfare
state.
The emergence of a neoliberal programme of
restructuring began in 1984 under a Labour govern
ment that moved immediately to deregulate the
economy, open up markets to competition, remove
subsidies and set targets for lower inflation. Itquickly
corporatized and rationalized state trading enter
prises and, despite prior commitments to maintain
ing public ownership, in 1987 began the systematic
sale of state assets. The government also sought torationalize the core public sector, including social
services, with the introduction of managerialist
principles. Particularly important was legislation to
deregulate the public-sector labour market and to
introduce standards of public-sector budgeting and
reporting consistent with those required of private
commercial practice. From 1990 onwards, the newly
elected National Government continued the pro
gramme of economic liberalization with further
privatization of state assets and deregulation of the
labour market. However, its approach to welfare was
more radical,with cuts to benefits, increased target
ing and the introduction of quasi-market arrange
ments into parts of the social services, particularly
health, housing and education (Boston et al 1999).
Moreover, reflecting a neoliberal commitment to the
'strong state', the central strategy of cumulative and
rapid change was profoundly undemocratic. This
was reflected not only in the 'blitzkrieg' nature of
economic and social reform (Kelsey 1997), but also
in a clear shift from government to new modes of
governance in many sectors. As in the United
Kingdom (Jessop 1995), these have limited local
input for decision-making and diminished people's
capacity to influence their communities. Increasingly,
the new state was ordered by least-cost logics,
regimented accountability and tightened lines of
authority. In short, monitoring and accountability
replaced representation and access (LeHeron and
Pawson 1996; Lewis and Moran 1998).
Health-sector restructuring
Health-sector restructuring mirrored these broadersocial transformations and changes in regulatory
practices. Initially, Labour followed a predomi
nantly managerialist course of rationalization and
decentralization, making locally based area health
boards accountable for services and improvements
inhealth status. Inaddition, therewas modest target
ing, the beginnings of deregulation in the health
labour market and tentative moves towards contract
ing, particularly ancillary services (Stubbs and Barnett
1992).However, the predominantly managerialist course
pursued by Labour was not followed by National.
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Hollowing out the state? 263
Like Thatcherism and Reaganomics, the newly
elected National Party had quite a different agenda,
stressing New Right 'solutions' to crisis. Encouraged
by Treasury advice, and despite contrary election
manifesto promises, health reform now embracedthe internal market and elements of corporatization
(ie the commercialization of public-sector enter
prises). Although begun under Labour, such policies
were now extended into the social arena. In restruc
turing public hospitals intoCrown Health Enterprises
(CHEs), as limited liability companies subject to
the Companies and Commerce Acts with a require
ment to return a dividend to their shareholding
ministers (which did not include the Minister of
Health but rather the Ministers of Finance and
State Owned Enterprises), the government chose
a governance model that signalled a preference for
private rather than public solutions and a com
mercial rather than public-service culture (Easton
1997).The goals of these reforms were: to introduce
more competitive processes into the hospital sys
tem; to foster further service integration (primary
care was now included under the purchasing orbit
of the (four) new regional purchasers, or Regional
Health Authorities (RHAs)); and greater account
ability by devolving control from the centre to
the regions. In reality, however, central control
remained, with locally elected area health boards
abolished and replaced by non-elected
government-appointed boards of directors for both
RHAs and CHEs. Many of these directors were
from outside the health sector, with a predomi
nantly business background (Barnett and Malcolm
1997). This was perceived as being a way of
reducing both provider and consumer interests in
formal contracting arrangements. The principal
objective of the CHE boards, like other corporat
ized parts of the public sector (Murphy 1997), has
been to achieve profit ahead of social responsibility;moreover, there have been pressures on CHE
boards from shareholding ministers to increase pro
ductivity. As in the British NHS (Mohan 1995b), the
lack of any formal territorial attachment and local
public input into the governance of CHEs has
accentuated this trend. Local tieswere also severed
by the recasting of the major providers
(ie CHEs) as coordinators of a wide range of
services. Such trends reflected Jessop's (1997a)
idea of metagovernance, given that central govern
ment maintained firm control over these new
agencies.
Contracting in the internalmarket
'hollowing ut' of centralresponsibilityand the plight of the 'public' hospitalsector
While the new governance arrangements signalled
the emergence of a new regulatory environment in
health, the question remains as to the extent to
which health-sector restructuring resulted in a hol
lowing out of other aspects of state involvement. In
terms of the overall level of public funding of health,
it is clear that,while there has been an increase in
real terms since the reforms, this was offset by
increased costs associated with the introduction of
the internalmarket, so in reality decentralization was
associated with a decreased public share of the
overall costs of care (public funding as a percentage
of total funding declined from 82-2 per cent to 76 9
per cent in 1991-95: Cumming and Salmond 1998).
Similar trends of public disengagement were, not
surprisingly, also true of the provision of services.
This 'rolling back' of the state obviously had impli
cations for the operation of the internal market in
terms of interactions between regional funders and
providers and overall geographic differences in levels
of access to care.
This was particularly evident in the fate of the
Crown Health Enterprises. CHEs, as provider organi
zations, have been in a near-impossible situation.
The basis for their establishment was that they
should respond to purchaser initiatives.However, in
the absence of other purchasers of health services,
CHEs' contracts have been mostly limited to those
with RHAs. Despite the presence of a large private
sector (Barnett and Barnett 1989), RHAs have in turn
been forced to negotiate contracts with near
monopoly providers, since, with the exception of
geriatric providers, few private hospitals have
entered into RHA contracts. Although RHAs are, in
theory, required to pay CHEs a price that is financially sustainable over themedium term, CHEs have
generally been unable to reduce the costs of services
to the level specified in RHA contracts. As a result,
accumulated RHA deficits of $19 6 million in
1996-97 were minuscule compared to an aggregate
net operating deficit of $788 million for the 23 CHEs
(Table 1; see also CHE 1996-97). On the basis of
'bottom line' commercial criteria, therefore, CHEs
appear to have been remarkably unsuccessful. For
the financial year ending 31 March 1997, all but
three were in financial deficit, prompting concern
from the Controller and Auditor General as to their
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264 Barnett
Table 1 RHA and CHE financial performance, 1996-97
RHA RHAs CHEs
Surplus/deficit % Accumulated Surplus/deficit % Accumulated
(in $M) revenue surplus/deficit (in$M) (in$M) revenue surplus/deficit (in $M)
Northern -2 20 0-14 -14 07 -33 48 3 58 -188-1
Midland -6 84 0 71 3 23 -29 24 5 23 -139-5
Central -3 79 033 5 19 -105-88 14-29 -281-9
Southern -5 57 0 52 -13 94 -59 43 8 89 -1 78-2
New Zealand -18 40 0 39 -19 59 -228 03 7 85 -787 7
Note: In1998, theRHAswere abolished and replaced by a centralized Health FundingAuthority (HFA)and CHEswere
renamedHospital and Health Services (HHS)Sources: Ministry of Health 1998; CHE 1996-97
financial sustainability (Controller and Auditor
General 1997). Without continual equity injections,
public- and private-sector loans and letters of
indemnity from the shareholding ministers, many
CHEs would technically be bankrupt.
This 'funding squeeze' is reflected in the frus
tration of CHEs: 'Pay us forwhat we do' says a CHE
Chief Executive Officer (New Zealand Doctor
1996a). However, contracts frequently may not take
adequate account of increases in inflation or patient
volumes, which may result from cost shifting by
other financially stressed CHEs. Some CHEs have
disagreed with the prices offered by their RHA and
refused to sign long-term contracts. Although all of
the RHAs faced financial deficits in 1996-97, there
has been a general reluctance on theirpart to end up
in a similar financial situation to the CHEs. To a large
extent, this reflects their contradictory account
abilities. On the one hand, RHAs have been subject
to pressures from above in terms of central govern
ment directives and controls over their purchasing
decisions. RHA contracts have been closely
monitored by the Ministry of Health's ContractSurveillance Unit, which was set up to ensure that
cost containment and 'value for money' receives
high priority. On the other hand, RHAs were sup
posed to represent health-service users, on whose
behalf services are purchased. However, with few
exceptions, given the absence of formally elected
representatives in health policy-making, this has
been a one-sided battle. Inevitably RHAs, unlike
many of their predecessors (the area health
boards-Kearns and Barnett 1992), were forced to
manage risk and minimize 'flak' from their political
masters by remaining fiscally very conservative. The
end result, therefore, has been a process of cost
shifting from the regional to the local level.
Under such circumstances, the options of CHEs,
which are also monitored by a central government
agency and arm of Treasury, the Crown Company
Monitoring and Advisory Unit (CCMAU 1996), are
limited. Apart from central government capital
injections, these include borrowing from public or
private sources, developing other sources of
revenue, identifying and capturing further efficiency
gains, or negotiating a complete withdrawal from
providing services. High rates of borrowing are
unsustainable, and developing other sources of
revenue have not proved particularly fruitful: joint
venture proposals have taken place (New Zealand
Doctor 1996b), but, owing to the presence of a
more moderate Coalition government in New
Zealand (1996-98), have not always been politically
acceptable; and courting corporate capital and
charitable donations has really only been possible for
specialized providers such as Auckland's Starship
Hospital (Kearns and Barnett forthcoming). Improv
ing efficiency and withdrawing from services,however, have received more attention.
'Hollowing out' at the local level-CHE
service rationalization
If one accepts that corporatization has produced a
hollowing out of the state at the national level, then
the cumulative effect of CHE deficits is also resulting
in a hollowing out of services at the local level, and
is changing the geography of hospital care inNew
Zealand. The cost-saving strategy of closing or
downsizing services, particularly peripheral rural
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Hollowing out the state? 265
hospitals, has been one of the most contentious
features of CHE activity.While reductions incapacity
undoubtedly reflect changing patterns of demand
(eg inmaternity care) and technical changes in terms
of increased day surgery and declining lengths of
stay, they also are, to some extent, a reflection of
CHE deficits. While these have been experienced
nationwide, their effects are being felt most
acutely in the southern region, as a result of the
implementation of a new population-based funding
formula that is leading to a south-to-north regional
reallocation of funds (Ministry of Health 1997, 23).
As rural hospitals are important symbols of
community identity (Kearns and Joseph 1997), such
strategies have led to considerable political unrest.
Despite opposition, closures have proceeded and, in
the southern region, with its shrinking share of
population, they appear set to continue. In 1997,
Healthcare Otago, the metropolitan Dunedin-based
CHE, unilaterally announced its intentions to with
draw completely from the provision of rural health
services. Such announcements appear to reflect
both the commercial imperatives of the CHEs and a
lack of local accountability.
Although a hollowing out of CHE-based services
appears to be underway, the criteria underlying the
geography of service rationalization are far from
clear. The Southern RHA, forexample,
was un
prepared for the well-organized opposition to the
possible closure of Ashburton hospital, and was
unable to present reliable evidence in support of its
contentions regarding the lack of efficiency and
safety in smaller hospitals (Barnett et al 1996).
Instead, the authority fell back on somewhat sus
pect arguments relating to travel time, population
thresholds and intraregional equity of access issues
in order to justify budget cuts and centralization of
services.
Also unclear is the extent to which community
participation has been important, since resistance tohospital closures has been effective in retaining the
status quo in some areas, such as the Hokianga
(Kearns 1998), but not in others. Such issues are
important, given the impact of closure upon the
ability of local communities to retain primary-care
providers, upon access to care for the rural elderly,
who are frequently forced to move away (Joseph
and Chalmers 1996) and upon the economic and
social well-being of such communities (Joseph and
Kearns 1996). Despite a requirement of the 1993
Health and Disabilities Services Act for RHAs and
CHEs to consult local communities that will be
affected by closure or downgrading of services, such
procedures have not always been followed. In the
Wairarapa, for instance, despite some initial consul
tation with a voluntary community health committee
on various service options, theCentral RHA declined
to attend a public meeting over the planned closure
of Masterton and Greytown hospitals. More recently,
the Mid-Central Health CHE bypassed the local area
MP in its decision to close Pahiatua hospital, while
Healthcare Otago, the Dunedin-based CHE, also
failed to consult an important local organization, the
Dunstan Health Services Steering Committee, in its
decision to withdraw from rural health services.
News headlines such as 'You declare, we ignore'
(New Zealand Doctor 1995) indicate that consul
tation, when it does occur, is no guarantee that
services will be retained. Such events are reminiscent
of what Bondi (1987) has called 'biased pluralism',
with interest groups sometimes being allowed to
protest, but being misled to the extent to which they
would have an impact on decisions and locational
outcomes. Itwould seem that many CHEs have
already chosen a level of rationalization to conform
with their business plans and that community
consultation, if it takes place, is but a formality.
Withdrawal of CHE services has forced local
communities to form community trusts and to
engagein
local fundraising in order to supportexisting or establish alternative services. While the
Minister of Health may welcome this extension of
community control, trusts have not always been
welcomed by the communities that subsequently
endure the financial and administrative burdens.
Although community trusts are eligible for grants
from the Community Trust Assistance Scheme,
established in July 1996, this is heavily oversub
scribed and there is no guarantee that loans and
future RHA contracts will be forthcoming. While
trusts may be seen as a flexible model of service
provision, since they can empower local groups andhave the potential for offering more culturally sympa
thetic forms of care, these advantages may pale in
comparison to the financial burdens now being im
posed on communities by the hollowing out of CHE
responsibilities, given thatmany trusts essentially can
be described as 'do-it-yourself health care' (Otago
Daily Times 1997).
Discussion
So, does the recent experience of hospital reform in
New Zealand reflect Jessop's hollowed-out state?
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266 Barnett
I address this question by focusing on the three
questions posed previously, before concluding with
some brief comments on the usefulness of the regu
lation approach to understanding welfare restructur
ing. First,with respect to what was hollowed out, itis clear that hospital restructuring resulted inchanges
in patterns of funding and provision rather than
regulation. Despite the emergence of new forms of
decentralized local governance, in the form of cor
porately managed CHE boards, hollowing out did not
result in a loss of central control. Despite policy
rhetoric to the contrary, the level of health-sector
regulation has increased since the 1993 reforms.
Central control over resource allocation tightened,
with 'ring fencing' of certain funds and close state
monitoring of the economic viability of CHEs and
their investment decisions. Inparticular, CCMAU, theHealth Ministry 'watchdog', has placed great press
ure on CHEs to improve their financial performance
and improve profitability, even ifsuch plans are clini
cally risky and involve confrontations at the local
level with clinical staff and increased risks in terms of
patient safety (Health and Disability Commissioner
1998). Thus, these trends suggest that, despite
a certain spatial variability in service development
initiatives, local hospital restructuring mainly reflected
central directives. However, these did not prevent
the evolution of distinctive local modes of social
regulation as suggested by Tickell and Peck (1995)
and Jones (1997), and regional differences in policy
outcomes were evident both in the hospital (Barnett
and Newberry 1998) and primary-care (Barnett et al
1998) sectors.
Secondly, in terms of the reasons for hollowing
out, it is clear that itoccurred as a strategy of crisis
resolution, in the sense that itwas initiallydriven by
economic imperatives and as ameans of strategically
using decentralization as a vehicle to deflect
questions of state legitimacy. The health reforms
were just part of a broader social agenda that
emphasized hollowing-out strategies including
targeting of benefits, the corporatization of other
social services and the passing-on of financial risk to
providers via contracts. It isperhaps this lastarea that
ismost characteristic of hospital services. Given the
political unpopularity of part-charging for hospital
care, introduced in 1991 during the first term of the
National Government, it was inevitable that such
strategies would be abandoned (in 1994) and that
other means of rationing would become part of
the political agenda. Thus, this would suggest that
government unwillingness to provide the full cost of
CHE services has been deliberate policy. On the one
hand, it has helped central government to 'balance
its books', since CHE deficits do not figure in
government financial statements. On the other hand,
political protests against hospital cutbacks andclosures have, to some extent, been deflected by
central government to the RHAs and CHEs. Thus, at
first glance, decentralization appears to have had
distinct fiscal advantages for the state and also
appears to support Mohan's (1995a) view on the
political advantages of such policies.
However, as in other areas of state activity (see
Tickell and Peck 1995), such policies produced their
own internal contradictions: the reforms increased
rather than decreased health-care costs, and geo
graphic variations in patterns of service rationaliz
ation and access to care became politicallycontentious. In consequence, and in part owing to
the formation of aCoalition Government (1996-98),
we are now seeing a 'retreat from ideology' (Barnett
and Barnett 1997) and a more ad hoc, pragmatic
approach to health policy. This has been reflected in
terms of a relaxation of the commercial requirements
placed upon CHEs (now renamed Hospital and
Health Services), tentative moves towards some
consumer representation on HHS boards, the
abolition of RHAs in favour of central purchasing
and, more recently, the moratorium on the closure of
public hospitals (Ministry of Health 1998). These
trends indicate the increasing extent to which the
transformation of state structures is being driven by
political rather than economic imperatives (Hay
1995). Thus, one can only agree with writers such as
Jessop (1995) orMohan (1995a) thatone should not
mistake extensive regulatory changes for a new
social settlement, when in fact they are often just ad
hoc projects for political survival.
Thirdly, it is evident that hollowing out, as it has
occurred inNew Zealand, is a more complex pro
cess than that advocated by Jessop (1994a; 1994b)
or Hay (1995), in that ithas occurred at a variety of
spatial scales. In fact the restructured hospital sector
in New Zealand has exhibited a 'triple hollowing
out', that is,nationally (central government to RHAs),
regionally (RHAs to CHEs) and locally (CHEs to
community trusts).What began as a national crisis at
the level of the state regime became a distinct crisis
of local modes of governance. Such trends reflect
a complex form of cost shifting. In this case, the
costs were not just economic, but also political
and human, since hollowing out shifted problems
of political legitimacy to local governance
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Hollowing out the state? 267
organizations, which became critical, especially
when fiscal cuts to services contributed to patient
deaths and a highly publicized concern over reduc
tions in the quality of public hospital services (Health
and Disability Commissioner 1998). Such costshifting requires a more in-depth theoretical treat
ment than can be forthcoming from regulation
theory and I ould agree with Jessop's (1995) call to
link regulationist concepts to other levels of theory.
In this case, agency theory (Petersen 1993), with its
assumptions of opportunist principals and agents,
would seem to be particularly useful. The hierarchical
structure put in place in New Zealand's health
system involves several levels of principal and agent.
According to agency theory, at each level, both
principal and agent will take advantage of each other
ifgiven the opportunity. The hollowing-out process
discussed above indicates how, in the absence of
adequate resources with which to perform their
function, relatively weak agents at one level could
attempt to cope by behaving as relatively powerful
principals at the next level down the hierarchy.
In conclusion, therefore, although the hollowing
out metaphor would seem to be a relatively useful
heuristic for understanding processes of health
restructuring inNew Zealand, in a broader context
the explanatory power of such regulationist concepts
could perhaps be improved in three ways. First, I
would agree with Mayer (1992, 266) that more
attention needs to be given to 'mid-level concepts' in
order to explain the development of new modes of
regulation and the spatial variability of change. In the
health and welfare sector, agency theory and notions
of cost-shifting would seem to require more atten
tion, especially given the development of new hier
archical forms of governance and the tendency for
both governments or quasi-public organizations to
pass on their costs to others. Similarly, other mid
level theoretical positions such as structuration
theory (Goodwin and Pinch 1995) or regime theory
(Stone 1993) could fruitfullybe combined with regu
lationist concepts to examine the complex evolution
of regulatory frameworks and welfare policy in dif
ferent local contexts (see, for example, Painter 1997;
Ward 1997).
Secondly, given that ideas of uneven development
and local modes of regulation remain problematic
in regulation theory, more emphasis needs to be
paid to examining the interaction between macro
structural change and processes of decision-making
in institutions at the micro-level. Painter and
Goodwin (1995), for instance, have directed atten
tion to the contested nature of social regulation by
emphasizing tendencies toward effective regulation,
and counter-tendencies that operate to disrupt the
reproduction of the capitalist order. The latter are
similar to Light's (1993) idea of 'countervailingactions', which involves a change to the status quo
that is sufficient to alter practices of state restructur
ing. In the present study, the presence of strong state
control did not prevent the emergence of distinct
regional differences in health management and
access to services, and itwas precisely because of
the political sensitivity of such differences that central
control, in terms of the abolition of regional funders,
was strengthened. Other counter-tendencies were
evident in terms of growing resistance to change and
collective action on the part of both physicians
(Barnett et al 1998) and communities (Kearns 1998).
Given that regulationists stress that new modes of
social regulation are the result of struggle and com
promise and are 'chance discoveries' (Lipietz 1987,
15), more emphasis on central-local relations and
how they play themselves out in particular places
would seem to be a promising line of inquiry,
especially given calls for more politically (Jessop
1995) and place-sensitive (Eyles and Litva 1998;
Moon and Brown 1998) analyses of welfare change.
Obvious local differences exist, but the extent to
which local modes of social regulation are distinc
tively 'local' still remains unresolved.
Finally, given that there have been few attempts to
extend regulationist ideas to the geography of the
welfare state (Pinch 1997), more attention needs to
be paid not only to theorizing the nature of welfare
change, but also to comparative research of major
structural changes across a variety of national con
texts. To date, regulationists have been dominated
by the 'British school' and discussions of Thatcherite
hegemonic projects, but the debate needs to be
broadened to a variety of other contexts, as Jessop
(1994b) himself implied in his discussion of possible
neoliberal, neocorporatist and neostatist state forms.
To some extent, such debates are increasingly being
developed in health (Scarpaci 1989; Ranade 1998;
Westert 1997; Mohan 1998), but need to be
expanded to other areas of welfare provision. Only
then can more insightful gains be made in terms
of understanding the implications of welfare
restructuring both upon a global and local scale.
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