Macro economics and health development

1
Macro economics and health development

• David Legge
• School of Public Health, La Trobe University

2
Conflicting interpretations of the links between
health and economic development

• Virtuous cycle (World Bank, 1993 and CMH, 2001)
• economic growth creates the conditions for better
  health (improved living conditions, better health
  care)
• better population health contributes to economic
  growth (eg hookworm in the Southern states)
• therefore give priority to economic development
  (growth) and improved health will follow
• Health consumed in generating profit (Engels,
  1852)
• profits maximised by externalising the costs of
  production to the household, the environment, the
  municipality
• peoples health is converted into profit through
  occupational illness and injury, environmental
  degradation, loss of livelihood, tobacco disease
• therefore the composition of economic growth and
  the distribution of costs and benefits need to be
  regulated

3
What are the questions that health policy
analysts need to ask?

• Clearly patterns of economic development have
  major implications for population health
• Clearly the links between population health and
  economic development are complex

4
Questions for health policy analysts

• How shall we make sense of the relationships
  between economic regimes and peoples health?
• How shall we understand the links between policy
  and power in shaping economic regimes?
• How shall we engage in the shaping of economic
  policy and economic regimes for better health?

5
What is the economy?

• A conceptual system comprising
• the sum of the production, distribution, exchange
  and consumption of goods and services and
• the sum of savings, investments and speculations
• The flows of materials through production,
  manufacture, consumption, disposal (and the
  reverse flows of money)
• The accumulated stocks of wealth and capability
  (investment, manufacturing base, research, human
  capital)
• The social relations associated with these
  material (and financial) flows including work and
  play, family, ownership and regulation, privilege
  and obligation

6
The global economy as stocks and flows of real
stuff

• Wheat (production, import, export)
• Steel (production, import, export)
• Cars (production, import, export)
• Computer chips (production, import, export)
• People (age, education, etc)
• Foreign Direct Investment (incoming outgoing
  intra corporate extra corporate)
• Intellectual property payments (IP imported IP
  exported)
• Insurance business (trade in new policies
  imported, exported)
• Total cash flows

• Manufacturing capacity
• Human capital
• Research and development capability

7
Economic models simplifying the impossibly
complex

• Two industry models
• the farmer produces food for the blacksmith who
  makes tools for the farmer
• the better the tools the more food some of which
  can be sold in return for clothes
• Single country models
• capital plus technology (including energy
  sources) enables increased productivity which
  creates more profit, enables more innovation and
  frees labour to do more things
• Two country models
• England sells cloth to Portugal who sells wine to
  England
• Global models
• England buys cotton from India which it
  transforms into textiles and clothing which it
  sells to Europe and America
• England buys opium from India which it sells to
  China to generate currency to buy silk and tea
  which it sells to Europe and America

8
The fetish of economic growth obscures the
workings of the international economy

• Economic reporting and commentary in mass media
  preoccupied with economic growth (GDP)
• for proprietors growth means sales and profit
• for investors growth means dividends
• for labour growth means jobs
• for government growth means revenue and political
  stability
• But to understand the health implications of
  economic regimes and policies need to understand
  the composition of economic activity and flows
  and the distributive dimensions

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Economics as story telling

• Economic models are the building blocks of
  economic interpretation, policy making and
  scenario testing
• But economic models are themselves partial and
  simplifications there is no single comprehensive
  picture of the global economy to which we can
  refer to answer our questions
• We put together such pictures (narratives) for
  particular purposes at particular times drawing
  upon different theories (models) about how things
  work to suit our purposes
• The truth or otherwise of such narratives and the
  theories they incorporate is tested in their
  usefulness in addressing the purposes for which
  they are constructed

10
Method

• Tell a story about the global economy over the
  last 60 years
• a story that helps to make sense of patterns and
  developments in population health over that time
• a story that draws on different theories as
  needed to make sense of the major transformations
  of this period and to sketch likely scenarios
  associated with current policy options
• Review major policy interventions which have
  shaped this trajectory and the accompanying
  changes in population health
• derive some principles and lessons about what
  works in international health policy and action

11
An economic history of the global economy since
the end of WWII

• 1945-1975 the long boom
• 1975-80 stagflation
• 1975 looming threat of over-production (post
  Fordist crisis)

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The long boom (1945-1975)

• The post-WW2 environment
• need for reconstruction (huge demand reflecting
  needs plus household savings)
• huge productive capacity built up and then
  released by the end of the war
• technologies increasing productivity (motor
  vehicles and cheap oil)
• The boom
• capital and labour brought together to make
  things and services that people need and are able
  to pay for
• increasing productivity (associated with new
  technologies) frees up labour to make new things
  and to recycle wages as consumption
• some trickle down to the poor and to the Third
  World

13
1975-80 - Stagflation and the failure of national
Keynesianism

• Recession (cyclical slowdown on top of structural
  over-production)
• Emerging inflation (increasing price pressures
  associated with monopoly power)
• oil (OPEC)
• labour (strong unions)
• business (monopolies associated with brand names
  and protected technologies)
• Resistance to Keynesian counter-cyclical policies
  contributes to inflation
• slow down due to structural rather than cyclical
  factors
• Keynesian policies less effective at boosting
  employment and local business but contribute to
  inflation
• Ascendancy of monetarism
• strong business antipathy to inflation (because
  of the costs of uncertainty) leads to fight
  inflation first policies
• monetarism argues for sole reliance on interest
  rates to control the business cycle (as opposed
  to fiscal tools)
• but increased interest rates also used to control
  inflation (at a time when the economy was in
  recession!)

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The debt trap sprung

• 1973 OPEC price rise oil producers flush with
  cash deposited in banks
• Banks send salesmen around the world lending
  money at low and negative interest rates
  (negative after taking inflation into account)
• lending to corporations (but with government
  guarantee) in South America
• lending direct to governments in Africa
• 1980 interest rates escalate (peaking at 17 in
  the US in 1981) imposing repayment and servicing
  burdens that many poor countries could not carry

15
From 1975 to the present

• Two parallel dynamics
• the continuing dynamic of the long boom
• the rising threat of post-Fordist crisis
  (structural over-production)

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Fordism the continuing dynamic of the long boom

• Investment and employment in the
• Sustainable production of useful goods and
  services which
• People need and are able to pay for leads to the
• Accumulation of capital (through profit, savings
  and tax) for
• Continuing investment in RD and productive
  capacity (and ....)

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The threat of over-production (and
post-Fordist crisis)

• Where expanding (capital intensive) productive
  capacity (with stagnating employment growth)
  exceeds demand (because of stagnant purchasing
  capacity) owing to
• saturated markets and/or
• markets with real needs but limited purchasing
  capacity
• Compensatory mechanisms which exacerbate the
  damage from over-production
• understood in the corporate world in terms of
  reduced profitability
• understood in the policy world as falling growth
  rates
• eliciting a range of corporate strategies and
  policy responses
• many of which exacerbate the risk of crisis

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Reduced profitability compensatory corporate
strategies

• Search for new markets, new products and better
  marketing (including commodification of family
  and community functions)
• Externalise costs (including to labour and to the
  environment)
• Consolidate production and increase market share
  through mergers and acquisitions,
• Increase market power (and capacity to increase
  prices)
• Reduce wages
• Replace well paid labour with technology
• Many of these strategies will further reduce
  demand by reducing purchasing power

19
Slowing growth compensatory policy responses

• Cut taxes (in particular, reduce corporate and
  executive tax burden) to compete for new
  investment
• Outsource and privatise public sector service
  provision (new market opportunities)
• Labour market deregulation (union busting) to
  reduce labour costs
• Deregulate environmental controls (converting
  natural capital into recurrent revenue,
  externalising cost of production)
• Force repayment of debt from TW countries
• Force TW countries to open their markets and
  economies (under the slogan of free trade and
  open markets)
• Many of these strategies further reduce demand

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Corporate and policy responses

• Exacerbate the over-hang of productive capacity
  over effective demand?
• Other unintended adverse consequences
• destabilise the environment
• increase unemployment and inequality
• weaken family and community
• degrade social infrastructure
• transfer value from South to North

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So what prevents the crisis from engulfing the
economy globally?

• The situation is already critical for millions of
  poorer people (in rich and poor countries)
• However, continued growth globally (albeit
  slower) is supported through the
• growing role of debt in sustaining demand
  (recycling capital as consumption) and a
• trading regime which enforces the flow of value
  from poor to rich countries (terms of trade)
• increasing practice of current account surplus
  (and higher costs of borrowing)

22
Capital recycled as consumption through debt
(private and corporate)

• Increasing size, wealth, turnover and power of
  the financial sector (banks, insurance, etc)
• slowing growth outlook so business redirects
  profit into financial sector (as portfolio
  investment) rather than into new direct
  investment
• privatisation of pensions (superannuation)
  redirects billions from tax into savings held by
  financial institutions
• Increased investments and savings redirected as
  loans
• corporate rationalisation (in particular mergers
  and acquisitions) financed through corporate debt
  
• private consumption supported through increasing
  household debt (recycling savings as consumption)

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Flow of value from South to North

• Channels
• debt repayment
• declining terms of trade (between commodities and
  manufactured goods)
• extra cost of commercial borrowing (associated
  with current account surpluses)
• Flow maintained by
• IMF/WB policing
• projection of US military power and the
• collaboration of local elites

24
Privileged role (and uncertain status) of the US
dollar

• Role of US dollar
• Eurodollars from 1945
• dollar as de factor international currency from
  1971
• global traders holding reserves in dollars
• Role of US economy
• strong US currency despite US trade deficit an
  important driver of global economic activity
• depends on borrowing of international dollars
• availability of international dollars depends on
  confidence in the value of the dollar
• Implications of a shift to the yen or euro?
• could be damaging for exporters to US
• role of US military in maintaining market
  confidence in the dollar
• countries exporting to the US have incentive to
  support continued US hegemony

25
Staving off the threat of over-production

• Currently
• capital recycled as consumption through debt
• enforced transfer of value from periphery to
  centre (from South to North)
• Alternative strategies
• (really) free trade?
• global Keynesianism?
• self-sufficiency and regional trade?

26
Free trade - the key to growth and development?

• Free trade - a catch-all slogan obscuring
  countries and corporations manoevering for
  advantage
• Regulatory framework defining free trade
  discriminates in favour of the rich North
• IP rules compared with barriers to people
  movement
• non-agric. market access compared with agric.
  protection
• declining terms of trade (commodities vs
  manufactures)
• minimal commitment to special and differential
  treatment
• Globalised free trade risks exacerbating the
  crisis of overproduction
• Protectionism, can have important benefits as
  well as drawbacks
• Amin self-sufficiency and polycentric regional
  (South South) trade

27
Method

• Tell a story about the global economy over the
  last 60 years
• a story that helps to make sense of patterns and
  developments in population health over that time
• a story that draws on different theories as
  needed to make sense of the major transformations
  of this period and to sketch likely scenarios
  associated with current policy options
• Review major policy interventions which have
  shaped this trajectory and the accompanying
  changes in population health
• derive some principles and lessons about what
  works in international health policy and action

28
Events, Reports, Struggles

• 1944 Bretton Woods (IMF, WB, GATT)
• 1950s Health development policy DDT, doctors
  and hospitals, population control
• 1955 Bandung Conference and birth of the
  Non-Aligned Movement (more confident TW voice)
• 1964 UNCTAD 1 (and G77) leads to call for New
  International Economic Order in May 1974
• 1973 First OPEC price rise
• 1977 Last case of small pox
• 1978 Alma-Ata Declaration (PHC, reference to
  NIEO)
• 1978 Deng Xiaoping initiates modernisation in
  China
• 1975-80 Onset of stagflation, end of the long
  boom, emergence of monetarism
• 1981 escalating interest rates, debt trap sprung
• 1981 Selective PHC (the response to Alma-Ata)
• mid 1980s onwards IMF develops and imposes SAPs
• 1980s rise of AIDS/HIV
• 1987 Adjustment with a Human Face
• 1989 Break up of the Soviet Union
• 1991 USTR attacks Thai administration over
  pharmaceuticals policies
• 1992 WHO Health Dimensions of Economic Reform
• 1993 WB Investing in Health (virtuous cycle
  story, SAPs compatible with health development!,
  new interventionism)
• 1995 WTO established

29
Events, Reports, Struggles (1944-85)

• 1944 Bretton Woods (IMF, WB, GATT)
• 1950s Health development policy DDT, doctors
  and hospitals, population control
• 1955 Bandung Conference and birth of the
  Non-Aligned Movement (more confident TW voice)
• 1964 UNCTAD 1 (and G77) leads to call for New
  International Economic Order in May 1974
• 1973 First OPEC price rise
• 1977 last case of small pox
• 1978 Alma-Ata Declaration (PHC, reference to
  NIEO)
• 1975-80 Onset of stagflation, end of the long
  boom, emergence of monetarism
• 1981 escalating interest rates, debt trap sprung
• 1981 Selective PHC (the response to Alma-Ata)
• mid 1980s onwards IMF develops and imposes SAPs
• mid to late 1980s rise of AIDS/HIV

30
Events, Reports, Struggles (1987-2000)

• 1987 Adjustment with a Human Face
• 1989 Break up of the Soviet Union
• 1991 USTR attacks Thai administration over
  pharmaceuticals policies
• 1992 WHO Health Dimensions of Economic Reform
• 1993 WB Investing in Health (virtuous cycle
  story, SAPs can be compatible with health
  development, new interventionism)
• 1995 WTO established
• 1995-98 OECD drive for MAI (note role of NGOs
  and internet but continuing push in WTO under
  Singapore issues)
• 1997 Sth African parallel import legislation
  passed, challenged (challenge defeated April
  2001, note role of MSF and other NGOs and
  internet)
• 1999 PRSPs implemented (new and improved SAPs)
• 1999 WTO in Seattle outrageous process
  dramatic protests
• Dec 2000 Peoples Health Assembly and Peoples
  Health Charter

31
Events, Reports, Struggles (2001-05)

• April 2001 Defeat of big pharma in South Africa
  (note role of MSF and global social movements)
• April 2001 Norway Conference (WHO accepts
  differential pricing)
• June 2001 CMH Report (warning about health and
  stability virtuous cycle story repeated, CTC
  model and scaled up interventionism reliance on
  increased aid (and GFATM) and PRSPs)
• Sept 2001 9/11
• Nov 2001 Doha and the Statement on Public Health
  (especially Para 6 and compulsory licensing note
  rearguard action by US)
• Oct 2002 Bristol Myers Squib defeat in Thai DDI
  case
• Mar 2003 Invasion of Iraq (US unilateralism
  widespread opposition note limits to US power)
• Oct 2003 Negotiations for US Thai FTA commence
  (at risk compulsory licensing, data access,
  extended IPRs)
• Nov 2003 Cancun G21China stands up to G7
  deadlock over agriculture and Singapore issues
  US moves to focus on bilateral and regional FTAs
• Jan 2004 IMF report critical of US twin deficits
• June 2005 Establishment of WHO Comm on Soc Dets
  of Health

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Conclusions the economic environment

• The impact and threat of post-Fordist crisis is a
  major feature of the current economic policy
  environment
• The threat is not acknowledged as such by the
  dominant voices of global economic policy making
• The conventional business and policy responses to
  this threat are in many respects making it worse
• This crisis has impacted disproportionately on
  the developing countries and poorer people
  globally
• including on their health status and health
  service development
• The pressures for neoliberal policy reforms
  (through the IMF) and for continuing unfair trade
  (under the guise of free trade) are part of
  adapting to this post-Fordist crisis and impose
  major costs on the developing countries and
  poorer people globally
• including on their health status and health
  service development
• Helping to shape the outcomes of these debates
  and struggles are important tasks for health
  policy activists at the international level

33
Countervailing pressures

• Alternative voices are resisting the pressure for
  neoliberal policy reform and unfair trade
• There have been some important successes for this
  configuration of countries and movements
• A number of strategic principles which might
  guide global health activists in their work can
  be derived from this history
• Global economic justice (and injustice) are
  integral to international health policy
• A number of specific issues and struggles warrant
  special attention for global health policy
  activists
• Develop and drive a research agenda

34
Entry points which link health policy with global
economic regime

• Debt and poverty
• SAPs and nutrition
• TRIPS, IPRs and access to drugs
• GATS, privatisation and comprehensive PHC
• Health and fair trade (with special and
  differential treatment)
• AoA and small farmers loss of livelihood (and
  health consequences)
• Bilateral trade agreements (WTO, incl BITs)
• Role of WHO and WTO
• AID, charity and sustainable development
  (significance of GF)

35
Need for a clear underlying economic analysis

• Key elements of the economic analysis
• the dynamic of structural over-production
• the stabilising effect of converting capital
  (including capital created in TW) into rich world
  / rich strata consumption
• the significance of the US dollar and the way it
  binds trading countries to US hegemony
• the logic of regional polycentrism as an
  alternative to globalised economic integration
• Project clear narratives linking these processes
  to the disease burden associated with the
  different entry point issues
• Link campaigning around health specific goals to
  global economic reform goals (especially national
  self-sufficiency and polycentric South South
  trade)

36
A research agenda

• Document the implementation of PRSPs and their
  impact on health
• Delineate more clearly the workings of the global
  system linking interests and power to
  institutions of governance to flows of resources
• Delineate the global economic dynamics more
  clearly networks of production and trade flows
  of resources
• Identify ways in which global trading rules could
  be changed to support regional polycentrism
• Document the disease burden associated with
  particular aspects of the regime of global
  economic governance

37
Back to our questions for health policy analysts

• How shall we make sense of the relationships
  between economic regimes and peoples health?
• How shall we understand the links between policy
  and power in shaping economic regimes?
• How shall we engage in the shaping of economic
  policy and economic regimes for better health?

38
Another world is possible!

• We have
• reviewed the interplay of economics and health at
  the global level over the past 60 years
• interpreted the interplay of health and economics
  in relation to a particular story about the
  global economy over this time
• drawn some conclusions about strategy for global
  health policy activists
• Key conclusions
• recognise, celebrate and learn from the small
  victories of the social and popular movements
• keep global economic in/justice at the centre of
  health policy discussion