Health and wealth: what are governments for?

1. Health and wealth: what are governments for? Martin McKee London School of Hygiene and Tropical Medicine & European Observatory on Health Systems and Policies Gastein, October 2005

2. How I got interested • “European welfare states are spiralling out of control and dragging down economic growth. Europe must either dismantle them or erect tariff barriers against the US” Source: OECD Steel tariffs

3. Measuring wealthA few problems • Conventional measures are simply the sum of monetarised transactions in the economy • So increased expenditure on burglar alarms, security guards etc. increased GNP, but not necessarily human happiness • It takes no account of future problems • So it is increased by activities that deplete natural resources and destroy the environment • And we can’t even measure it accurately anyway • Uncertain estimates of the informal economy

4. Wealth and employment: a paradox • Imagine two single mothers living together, each with one child • Scenario 1 • Each stays at home to look after their own child • Scenario 2 • Each stays at home but pays the other to look after her own child • With scenario 2, employment and GNP both rise • But does the sum of human happiness also increase?

5. But in the real world …. • We may agree that we should focus our attention on promoting population health • But we are unlikely to change the politician’s emphasis on wealth • After all, it is measured wealth (not health) that can be taxed! • Can we convince politicians that it is only by increasing health that we will increase wealth?

6. Ill & uneducated healthy & educated Capital Labour Economic growth: the basics Health for all = Wealth for all Quality & quantity

7. The evidence • Historically, health (and education) has been a major determinant of economic growth in industrialised countries • Better health increases: • wages • labour force participation • later retirement • … and not just for the sick but also their carers • However further gains may require raising the retirement age Suhrcke, McKee, Sauto Arce, Tsolva, Mortensen The contribution of health to the economy of the EU

8. Assertion 1: Surely Europe is lagging economically far behind the USA • It depends how you measure progress • It is not as simple as it seems at first

9. How are we doing?The US is clearly the winner Annual population growth: USA 0.9%, EU15 0.3%

10. How are we doing?… or is it? Annual population growth: USA 0.9%, EU15 0.3%

11. Working longer, working better? Source: Turner 2001 Figures indexed to UK = 100

12. And why do Americans work so long hours? In 2000, 6.4 million Americans in work were living below the poverty line “… the very idea of the “workingpoor” has no place in our America.” John Kerry

13. It’s just that they are usually invisible Call centres – the new sweat shops?

14. But sometimes they become visible

15. Shame on anyone that makes this tragedy political, socio-economic or racial. … in the land of opportunity and personal responsibility the individual is ultimately accountable.Robert Buckley, Decatur, USA BBC web site …the federal government's lethal ineptitude wasn't just a consequence of Mr. Bush's personal inadequacy; it was a consequence of ideological hostility to the very idea of using government to serve the public good. For 25 years the right has been denigrating the public sector, telling us that government is always the problem, not the solution. Why should we be surprised that when we needed a government solution, it wasn't forthcoming? Paul Krugman (NY Times 5th Sept 2005) A crucial question: government and the individual Medicine is a social science and politics is nothing but medicine writ large ” Rudolf Virchow

16. The state of nature • "For the laws of nature (as justice, equity, modesty, mercy, and, in sum, doing to others as we would be done to) of themselves, without the terror of some power, to cause them to be observed, are contrary to our natural passions, that carry us to partiality, pride, revenge and the like. • ‘No arts, no letters, no society, and which is worst of all, continual fear and danger of violent death, and the life of man solitary, poor, nasty, brutish, and short.' Thomas Hobbes, Leviathan, 1651

17. Surely the USA should be doing even better? • Low marginal cost of land • especially in the SW where growth has been fastest • Rich in natural resources • especially oil • Massive, ongoing subsidy from the rest of the world’s education systems • the USA only trains about 2/3 of the doctors it needs • Massive inward investment • Mainly because oil is priced in dollars • and the Chinese need somewhere to invest their soaring income • a massive pyramid selling scheme?

18. Assertion 2: welfare states grow more slowly? • The theory • High taxes reduce incentive to work more • High benefits increase incentive to work less • Intuitive, but WRONG • Key research is flawed • Micro-studies look only at a few variables, in cross-sectional studies in one country (usually the USA) • Simulation studies suggest effects on GNP that are never observed in reality • Available international econometric research fails to capture transfers or education and measures outputs In terms of inputs! Source: Lindert 2002

19. Why welfare states do not reduce economic growth • Welfare states adopt pro-growth tax policies • emphasis on income and consumption taxes, not taxes on capital • income taxes designed to reduce marginal rates at top and bottom • welfare benefits encourage least productive to leave the workforce (early retirement, unemployment) • they also encourage highly productive women with families into the workforce Source: Lindert 2002

20. Assertion 3: economic growth will lead to greater welfare for all • National income is highly correlated with life expectancy • “The benefits of economic growth with trickle down to everyone” • Yet when income levels of the poor and public expenditure on health are included in the model, GNP per capita has no additional explanatory power (Anand & Ravallion)

21. What are we trying to achieve?Measuring the progress of nations • Wealth? • … or something else “wealth is evidently not the good we are seeking; for it is merely useful and for the sake of something else” Aristotle Nichomachean Ethics

22. The economics of slavery • Measured in terms of consumption, the economic resources available to former slaves in the 1870s were little different to what they had when they were slaves • From one perspective, they were no better off • … as long as you place no value on freedom

23. Development as freedom • Political freedom • The right to decide one’s rulers (and criticise them) • Economic facilities • The ability to use one’s resources to derive benefit • The ability to borrow to invest • Social opportunities • The ability to benefit from education and health care • Transparency guarantees • The ability to trust others • Protective security • The right to be spared destitution “I believe that health deprivation is really the most central aspect of poverty.” Amartya Sen None of these freedoms mean anything if you are dead