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

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”

Public expenditure on health, per capita

0500

10001500200025003000

United States

Germany

France

Italy

United KingdomSource: OECD

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

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?

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?

Economic growth: the basics

Labour

Capit

al

healthy & educated

Ill & uneducated

Quality & quantity

Health for all= Wealth for all

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, MortensenThe contribution of health to the economy of the EU

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

How are we doing?The US is clearly the winner

0

0.5

1

1.5

2

2.5

3

% p

er a

nn

um

USA EU15

Growth 1980-99

GNP growth

.

Annual population growth: USA 0.9%, EU15 0.3%

How are we doing?… or is it?

0

0.5

1

1.5

2

2.5

3

% p

er a

nn

um

USA EU15

Growth 1980-99

GNP growth

GNP per capitagrowth

Annual population growth: USA 0.9%, EU15 0.3%

Working longer, working better?

0

20

40

60

80

100

120

140

Hours workedper capita

GDP per hrworked

GDP

US

Germany

France

Figures indexed to UK = 100 Source: Turner 2001

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 “working poor” has no place in our America.”

John Kerry

It’s just that they are usually invisible

Call centres – the new sweat shops?

But sometimes they become visible

A crucial question: government and the individual

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)

Medicine is a social science and politics is nothing but medicine writ large ”Rudolf Virchow

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

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?

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

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

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)

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”

AristotleNichomachean Ethics

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

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