This presentation was made by Steve Wright, WHO, at the 2nd Health Systems Joint Network Meeting for Central, Eastern and Southeastern European Countries held in Tallinn, Estonia, on 1-2 December 2016

1. 2nd CESEEC Health Systems Joint Network
Meeting, Tallinn, 1 December 2016
“The financial sustainability of health
systems – improving the dialogue”
Spending on health: when is it worth it?
Stephen Wright, INTEGRATE

2. PowerPoint: can you be inoculated against
death by sound-bite?…
…I’ll use PPT anyway, but try to avoid the oversimplification traps

3. Signposts
• Introduction (me, recessions & health)
• The Great Recession
• Health expenditure: time framing
• Conclusions

4. This presentation
This presentation is a trial balloon for a forthcoming
paper for WHO: “How should health decision-
makers (MoH) develop the dialogue with economic
decision-makers (MoF) about maintaining or
increasing resources for health?”
Keypoint: the Great Recession changes everything
My credentials:
• An economist (though not macro…)
• A 20-year career at the European Investment Bank, with a
decade running health analysis
• Steering Committee of the WHO Observatory
• Two think-tanks, one on health facilities & financing, & the
second on fostering social sector investment

5. An aside: what about the impact of
recessions on health?
• 1% rise in unemployment is
associated with mortality
+0.8% suicide/homicide, &
-1.4% traffic accidents
• No effect on all-cause
population mortality
• Maybe a very-long lived
recession will be different!
• Effects vary by country &
social group, & across
time
• Studies at individual-level
usually show worse effects
• Unmet healthcare need
rises?
Source: Stuckler et al, Lancet, 2009

6. Signposts
• Introduction (me, recessions & health)
• The Great Recession
• Health expenditure: time framing
• Conclusions

7. Great: Depression vs Recession
Monthly industrial
production indices
(June 1929 & June
2007 = 100)
Source: Parejo & Sudrià, Revista de
Historia Industrial, 2012)
On a world scale,
this is less bad
than the 1930s. But
(forgetting the
BRICs) the West
isn’t doing well
This is not a typical
post-war business
cycle

8. Maybe even a “Secular Stagnation”?
This is the idea that economic growth is low because:
• Long-run productivity growth has stalled (demography,
education, inequality, debt…); or
• Demand has tipped below long-term potential & is stuck
(very low interest rates); or
• With an unemployment shock for whatever reason,
‘human capital depreciates off the job’, &
unemployment ratchets up
Potential
output
growth
Source: OECD,
Oct 2016

9. Debt & the Great Recession
• The volume of debt is classically regarded in
economics as net irrelevant – my debt is your credit
• However, for the private sector (household, firms):
• Asset prices will have been driven up in a Ponzi cycle
where - for some period - taking debt was rational
• The rise in the debt stock feeds into current demand
• When the carousel stops turning, many players seek
simultaneously to “deleverage”, & the outflow from
demand causes a crash (a “Minsky moment”)
• Inability to repay will be concentrated, & contagious
• If government can step in to support economic
activity, OK – but its debt load then increases pari
passu
Massive imbalances built up in the “Great Moderation”
Unwinding this “balance sheet recession” is proving
utterly laborious

10. It needs a significant effort to reduce stock
of government debt back to previous levels
Source: Cecchetti BIS Feb 2010 from IMF World Economic Outlook & OECD Economic Outlook; own calculations
It is difficult for single countries to run surpluses, but they
must be 2-5% of GDP, for a decade+, in many countries
Required average primary balances to stabilise public debt/GDP at 2007 level (% GDP)
Over 5 years Over 10 years Over 20 years
Austria 5.1 3.0 2.0
France 7.3 4.3 2.8
Germany 5.5 3.5 2.4
Greece 5.4 2.8 1.5
Ireland 11.8 5.4 2.2
Italy 5.1 3.4 2.5
Japan 10.0 6.4 4.5
Netherlands 6.7 3.7 2.3
Portugal 5.7 3.1 1.8
Spain 6.1 2.9 1.3
UK 10.6 5.8 3.5
USA 8.1 4.3 2.4

11. And since 2008, private debt hasn’t decreased
either
(OECD Fiscal Monitor, Oct 2016)

12. What about policy to manage the economy?
Firstly, monetary policy
Traditionally, central banks bought & sold financial
instruments to move interest rates - but we are now at the
“Zero Lower Bound”. So:
• Quantitative Easing to reduce long-term interest rates –
but it worsens inequality, & now is pushing on a string
• Extend this to “helicopter money”?
• “Forward Guidance” – markets, do what you’re told to!
Is that it?!
Yardeni Research, Nov 2016

13. Secondly, fiscal policy
Source: IMF
Fiscal policy is useful, within a time framework (Factors
influencing growth):
(Fiscal limit distribution
function) Countries could,
but aren’t, doing enough
of it :
Source for both: OECD, Oct 2016

14. What conclusions should the health sector draw?
• The debt overhang is a drain on economic growth
• Even if there is some “fiscal space” for many countries to
spend, they’re not doing so
• The effectiveness of monetary policy has plateaued
• Inherent productivity drivers in the economy have stalled
In sum, the prudent expectation from now for many years to
come – perhaps the indefinite future – is of constrained
economic growth & constrained public financial resources
For the health sector to hold on by the finger-tips, in the
hope of better times to come, is not a reasonable option

15. Signposts
• Introduction (me, recessions & health)
• The Great Recession
• Health expenditure: time framing
• Conclusions

16. Government decision-making always occurs in a
time-frame
“The past in a foreign country:
they do things differently there”
The future is also a foreign country. We know the past we’ve
come from, but we don’t know where the future country is,
nor how to get there. Just as important, we need to know
as well the language of Ministries of Finance – an important
pilot on this journey
Time is of course continuous, but arbitrarily we split it up:
long-, medium-, & short-term

17. Long-term (8-30 yrs) dialogues between MoF & MoH
Perhaps surprisingly, having a dialogue with economic
decision-makers about the long-term is in fact easy:
• The Tallinn Charter (June 2008) & ‘health-is-wealth’ are
accepted as valid long-term aspirations & enablers
c.f. a recent Public Health Wales exercise I’ve
been involved in, building on the “Wellbeing of
Future Generations Act” in the country
• Such advocacies are based on the human capital idea,
applied to health. But caution: announcing a ‘rate of
return’ of 3900% for an intervention tells decision-makers
they’re dim enough not to have noticed killer returns!
• Pushing up long-term resources for health needs a
debate, & national compact (c.f. Wanless Report, UK)

18. Medium-term (4-8 yrs) dialogues between MoF & MoH
For this timescale, beyond the immediate concerns of
the current economic cycle & the duration of an
elected government, the script for a dialogue is a bit
sparse!
• Social cohesion?
• Anything else???
This is an important time horizon, where the evidence
hasn’t been developed in an appetising way for
economic decision-makers

19. Short-term (1-3 yrs) dialogues between MoF & MoH
• As a good macroeconomist (JM Keynes) once said: “in
the long-term we’re all dead”. Or for a finance minister,
maybe, “please make me chaste, Lord, but not just yet”
• The health sector has historically relied on arguments
about inequality to address short-term economic
pressures – that misunderstands the problem
• One piece of work has been done on fiscal “multipliers”,
indicating that health gives a better ‘bang for the buck’
than most sectors. This could be a route forward in
advocacy:
Reeves et al, Globalization & Health, 2013

20. 1. The Great Recession will stay around: a prudent
expectation is restricted public expenditure for years
2. Recessions: an ambiguous impact on health status
3. Decision-making on use of national financial
resources always takes place in a time-frame:
A. Long-term. Health sector has good arguments - health-
is-wealth/human capital (but need social compact)
B. Medium-term. Health policy-makers’ evidence for the
sector as an agent of social cohesion?
C. Short term. The health sector arguably is an efficient
tool for creating demand in the economy
My conclusions
A Tallinn Charter (Mark II) will need to be more
multidimensional than the last. Most important,
applying long-term Tallinn Charter ideas to the current
short- (or maybe medium-)term economic problem
misses the target