China Economy

China's two-in-one fix to improve public health

Tsung-Mei Cheng says happily for its people, China realises that not only does good health and longevity add to wealth, but public spending on health care services can also help to create much-needed jobs

PUBLISHED : Monday, 22 April, 2013, 12:00am
UPDATED : Monday, 22 April, 2013, 1:58am

For the new Chinese government, a task in these times of global economic slowdown will be to match job creation with the growing number of job seekers looking for gainful employment. Here the health-care sector can be of major help.

An economy is basically a set of people doing favours for one another. Some of these favours are done outside the formal market, such as care and support within families, among friends, or as voluntary work within communities. But the bulk of the favours are traded in the marketplace in exchange for money, the store of value. Spending on those favours then counts as part of the gross domestic product.

It is often overlooked that the health-care sector is the setting for some of the most important exchanges among human beings, exchanges that promote better health, or even save lives. Yet, remarkably, many seemingly wise commentators lament health-care spending as a drag on the economy. To any straight-thinking economist, that simply does not make sense.

It is poor health that is a drag on the economy, not spending on improving health, which yields value added and an increase in national wealth, if "wealth" is properly defined and measured. The added wealth that timely and appropriate health care can produce comes in two forms.

First, in the wake of the "reform and opening up" that began in 1978, China's health-care sector was left to fend for itself in a market economy and millions of Chinese citizens fell into poverty due to illness or were unable to escape poverty because of ill health. Workers in poor health are not productive or must stop working altogether. Avoiding that problem through good health care can add directly to China's gross domestic product and monetary wealth.

Second, there is clearly high value in greater longevity and a higher quality of life. Economists have tried to define such value in monetary terms and to estimate how much added imputed wealth can be attributed to greater longevity and health spending. They have come to startling conclusions.

In their book, Measuring the Gains from Medical Research: An Economic Approach, for example, Kevin Murphy and Robert Topel of the University of Chicago conclude that growth in longevity since 1950 "has been as valuable as growth in all other forms of consumption combined" and that medical care that reduces mortality from cancer and heart disease by 10 per cent alone would add roughly US$10 trillion in national wealth in the US, or roughly the value of America's GDP in 2003.

In an earlier paper published in the American health policy journal Health Affairs, Harvard economist David Cutler and Stanford economist Mark McClellan (and subsequently administrator of the US government's Medicare programme for the elderly and Medicaid programme for the poor) had come to very much the same conclusion. Health care is not only a high-value-added sector of a modern economy, it also serves as a major source of jobs.

Health care - even health care delivered with modern technology - remains highly labour-intensive anywhere in the world. As a rough rule of thumb, the fraction of a country's labour force devoted to health care is more or less equal to the fraction of GDP devoted to health care, otherwise commonly called national health-care expenditure.

Clearly, if a country seeks employment for its young, health care is one major ideal setting offering jobs; it offers gainful employment all along the skill spectrum of the labour force, from janitor to specialist and biomedical engineer.

To praise the health-care sector as an ideal source of new jobs is not to make an argument for wasteful make-work - what is sometimes called digging ditches and filling them in again, or building bridges to nowhere. It is well known that, within health care, just as within education, national defence or the civil service, and even many other parts of the private sector, there is a considerable waste of resources.

The argument here is not to accept this waste simply for the sake of creating more jobs. Rather, in a country such as China, there is enormous unmet need for medical interventions that can genuinely add to the country's wealth, if wealth is properly defined as mentioned earlier. Good health as a form of personal and national wealth is a necessary component of a harmonious society, a major goal of the Chinese government.

To its credit, with the major health-care reform that began in 2009, China has made great progress in strengthening its health-care sector, nurturing it to become an important economic sector, just as health care is in all the developed world. In remarks at the Summer Davos forum in Tianjin last September, health minister Chen Zhu emphasised the importance of accelerating the development of China's health-care sector, citing job creation as one important reason.

As China's new government continues the implementation of the five-year plan that began in 2011, it should maintain its policy of strengthening the health-care sector, realising the great contribution it can make to overall economic growth, job creation, and to the health and wealth of the Chinese people.

There is every indication China will do just that. In a recent interview with me, Chen said China will invest even more money in its health-care sector than it did in the 2009-2012 period. That is precisely what the doctor ordered - the economic doctor, that is.

Tsung-Mei Cheng is a health policy research analyst at the Woodrow Wilson School of Public and International Affairs, Princeton University, and co-founder of the Princeton Conference