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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



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



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



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.




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



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




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?



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




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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