Software’s unbalanced diet

I’ve been thinking a bit more about what’s going on in the economy and its relationship with technology. It was Albert Wenger’s post about whether the rise in consumer debt had something to do with technology’s effect on the economy that got me thinking although I’d been wondering for a while whether technology had something to do with the rise in public sector spending.

Marc Andreessen writes that ‘software is eating the world‘ but I’ve started to think that it’s eating a very strange and unbalanced diet which is having nasty consequences. The fact that we’ve used technology to only revolutionise certain industries is a bit like just eating all the fatty, sugary stuff and skipping the healthy parts. The reason we haven’t really noticed that software has avoided making great leaps forward in some of the most important sectors is that they’ve actually been improving without it.

Take education, which in the UK seems to be getting better and better. The statistics are of course a bit controversial, but one example is that 11 year olds have gone from 49% reaching level 4 or above in 1995 to over 80% in 2011. However education is also getting a lot more expensive. It’s doubled in cost since 1997 and some forecasts I’ve seen show it continuing to increase over the coming decades simply because of the increases built into the current system (buildings needing to be replaced, teachers getting more expensive as they get more experienced and qualified etc).

Likewise, healthcare. Between 1997 and 2009, the National Health Service made a 20 per cent reduction in the mortality rates of cancer patients aged under 75 and a 40 per cent reduction in mortality rates of heart disease patients under 75. But, again, it’s getting a lot more expensive. It went from costing £50 billion per year to £120 billion between 1997 and 2011. That increase went into new buildings, new staff and better pay and conditions for those staff. It also went on technology but in such a terrible way that it likely made the system more inefficient overall.

You could blame the increase in cost of both of these on the Labour Government but I think it’s much more systemic than which flavour of politician is in power. Other countries saw similar trends and even in the US where healthcare is run outside of the public sector, the costs rocketed in both real terms and as a percentage of GDP. The truth is that we’ve entered a period of history where we need good education and need good healthcare but compared to the efficiencies that technology has created in other parts of the economy (see Race Against the Machine), healthcare and education remained almost untouched. Even worse, the changes that technology has created in other parts of the economy, left us unable to raise the taxes to pay for the rises in costs.

Now I think if we have any chance of retaining the improvements in quality we need to make public services radically better and cheaper. Some work that Mastodon C did during the BGV programme found over a quarter of a billion of unnecessary overspend in GP prescriptions. Another of our companies, Dr Doctor,  is looking at how missed and cancelled appointments affect the NHS and has found another £900 million of potential savings. The problem is that IT has been seen as a cost in the NHS for the last 20 years whereas we actually should only be using it to save money AND improve outcomes. I think things will get better and I’m bullish about health and education because I know that good people are already working on them and investors are moving into them as areas as well. But there are services that are getting worse and more expensive which I really worry about –  social care, prisons and the courts for example.

Another worry I have is that no matter whether the economy starts growing or not, we’re still going to have a really difficult time creating more jobs. Andrew McAfee and Eric Brynjolffson’s research points to this but this piece for Planet Money is even more stark – economists just can’t find a future scenario where US employment will return to pre-2008 levels. Put simply – society is going to get better but we’re going to have less jobs. On the one hand, that sounds great (we’re going to have to work less). But society just isn’t set up for it (if you don’t work, you don’t count). I can’t pretent I have an answer to the conundrum but for me it means that what your startup does is a much more important decision than it used to be. Software isn’t eating the world, it’s eating the unhealthy bits and unless we rebalance our efforts to use it to make publicly valuable sectors vastly more efficient, we’ll be in even worse trouble than we are now.