Martin Hensher is a former executive who has worked for governments in Australia, South Africa, and the UK, and has been researching how economic growth projections might impact healthcare systems.
What would your job look like without economic growth? How would the work of government change if long-term economic growth rates became lower, or even approached zero?
In a recent article published in the journal Health Economics, Policy & Law, we explored the emerging evidence and some possible scenarios on how the future of economic growth might impact healthcare systems. While our focus is on global trends and their implications for healthcare, our findings raise important themes that are relevant to many areas of public and social policy.
Slowing long-term growth
In Australia, we have set much store by our long record of avoiding economic recession. Yet when we compare long-term trends in Australian and global growth rates in Gross Domestic Product per capita, we actually see that we are tracking global trends fairly closely. That’s a long-run decline from high levels of per capita GDP growth in the 1960s and early 1970s that have not been seen since.
Real Per Capita Growth Rates, global and Australia, 1960 – 2018
Our review was prompted by the observation that many economists were perplexed by the weak and slow recovery of GDP growth in many high-income countries after the GFC. Much-heralded growth in the emerging world was, in fact, concentrated overwhelmingly in Asia, and even more so China — whose growth is now visibly slowing. Indeed, much of Sub-Saharan Africa continues to grow at rates significantly slower than those seen in the high-income world. A growing number of economists have begun to suggest that growth rates both in the high-income nations and worldwide are unlikely to rise, and may continue to decline.
Explaining slower growth
These trends have led to the revival of an old economic concept — that we are suffering from a phenomenon known as secular stagnation. For some economists, the post-GFC era of quantitative easing and ultra-low interest rates have led to a world of chronically weak aggregate demand and unproductive investments. For others, it is the failure of the IT “revolution” to translate apparent productivity gains into real growth, alongside structural headwinds such as ageing, diminishing returns to education, inequality, and environmental damage, that have delivered secular stagnation.
Many other economists are more cautious in accepting the secular stagnation hypothesis, but recognise that the policies pursued in most countries in the years after the GFC almost certainly delayed recovery and depressed growth. They suggest that “austerity” policies driven by a focus on controlling public debt were entirely counter-productive, destroying the prospects for recovery and often leading in the long-term to higher levels of public debt.
Other economists are increasingly concerned by private indebtedness and excessive “financialisation” of the economy. Private sector debt levels (both corporate and household) have risen further in many countries since the GFC, leaving the door open for future financial crises. Financialisation occurs when companies (and the economy as a whole) increasingly rely on financial operations rather than real productive activity as the source of their profits. It has increasingly been linked not only to bubble risks, but also as a force directly depressing GDP growth.
Meanwhile, growing income and wealth inequality have meant that the benefits of growth have flowed disproportionately to the wealthy, whose spending patterns in turn drive lower growth than would have been the case if poorer members of society had received a greater share.
Questioning economic growth
We also found a growing body of research which questions whether GDP growth is a particularly effective way of increasing the well-being of society. Above relatively modest levels of GDP, there is little evidence that increased output and growth bring any significant improvements in societal well-being and happiness. Indeed, there is increasing evidence that growth in GDP — which simply counts the financial value of outputs, whether they bring benefit or harm — remains strongly linked to mounting damage to the environment; and that, in a feedback loop, worsening environmental constraints may themselves restrict economic growth.
A vigorous academic debate is ongoing as to whether aspirations for “green growth” — GDP growth that “decouples” economic activity from environmental impacts — is actually possible. If it is not, then achieving ecological stabilisation within safe planetary boundaries may not be consistent with continued economic growth.
Healthcare and low growth
Healthcare spending has, in the high-income countries, long risen faster than GDP growth. The biggest force driving this trend has been the introduction of new drugs, technologies and treatments, and their deployment to ever-larger numbers of patients. A change in the trajectory of GDP growth will impact significantly on health spending, and a slowdown is beginning to be visible in the global data since the GFC.
Current health expenditure as a percentage of gross domestic product: Australia, UK, USA, 1970-2016
We identified a number of important implications for healthcare systems in a low-growth or post-growth future. Growing evidence of financialisation and rent-seeking behaviours in the health sector (especially but by no means exclusively in the US) raise substantial questions about the wisdom of further growing the role of private financing, insurance and provision. In low and middle-income nations, the evidence increasingly shows that government-financed health care is the only mechanism by which to deliver improved access to healthcare in practice. But in a post-growth world, neither private nor public financing can deliver increasing expenditure at the rates health systems have long been accustomed to.
However, growing evidence also suggests that there is currently significant overconsumption of healthcare, with several estimates indicating that overdiagnosis, overtreatment and wider waste of healthcare resources may account for more than 20% of health spending in high-income countries.
Overuse of healthcare exposes patients to harm, yet delivers them little or no benefit; and like all other economic activity, consumes natural resources and generates harmful pollutants along the way. Ensuring that healthcare delivers only high-value care to only those patients who really need it may offer a win-win in a post-growth world. Yet whether this is sufficient to meet a low-growth challenge remains to be seen.
Healthcare is no different from the rest of the economy, where GDP growth has wrapped up both benefits and harms in ways that increasingly need to be disentangled, and where less can sometimes be more.
Rising to the challenge of a post-growth world
Beyond healthcare, our work is relevant to public servants in a number of ways. Our review showed that some significant debates are taking place within the economics profession at present, which are not visible through the lens of the mainstream media. Future-focused public servants might be wise to develop a better understanding of these debates even if they are not economists; the emergence of new economic paradigms has historically tended to rapidly reshape the entire public policy landscape.
Understanding the importance of overconsumption and the harms it causes is relevant to many sectors of the economy and fields of policy, and the environmental impacts of consumption are universally relevant. Beginning to consider the possibility of “too much” and the potential for harm in each sector will be increasingly important.
Finally, adapting to low growth or post-growth conditions will require the state to develop new and more confident capabilities to regulate effectively, and a much stronger ability to discern the difference between growth and profits on the one hand, and real increases in society’s well-being on the other.
There are significant interests who would be happy to ensure that the state does not develop its capabilities in any of these areas, lest their current status be threatened. Effective government for a low- or post-growth era will need a new generation of public servants to leave behind old orthodoxies, and to start work on a project of renewal in public policy as soon as possible, irrespective of the politics of the day.
Martin Hensher is Associate Professor of Health Systems Financing and Organisation at Deakin University’s Institute for Health Transformation. He has thirty years’ experience in health policy and economics, having worked for the European Commission, the South African National Department of Health, as a senior civil servant in the UK Department of Health and Government Economics Service, and a senior executive in the Tasmanian Department of Health and Human Services.
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