The pandemic has increased investments into healthcare, but to what extent is prioritising health in developing nations beneficial?

In developed economies, we assume that growth is a constant, and take it for granted. Yet, in the 1990s, developing countries had a period of zero growth, dubbed ‘the lost decade’. This coincided with the AIDS epidemic, which brought health to the conversation during a time when trade liberalisation was considered to be the driving force of economic development.

Remarkable feats have been achieved in the last 20 years to combat poor health in developing countries, specifically towards the treatment of communicable diseases. This can be seen in figure 1, representing a 40% reduction in DALY (disability-adjusted life years — years of healthy life) lost due to communicable diseases globally. Yet, the discourse regarding developmental investment seems to be shifting away from health, despite the 700 million DALY lost due to communicable diseases in 2016, and the global lateral health inequalities.

Still, the sector is severely underfunded — it is estimated that around $100 is spent per capita each year on health for the poorest 2 billion people, with much of this coming directly from households. Furthermore, there is a significant rise in non-communicable diseases, even in developing countries, which require more complex health systems, posing a challenge to such regions.

Naturally, there is a clear moral impetus for the investment into health, but the investment would have a crucial economic impact. An investigation by McKinsey and Co. proposed that 15% of global GDP is lost through poor health, mainly due to labour lost, or labour inefficiencies due to disease. Decades of economic literature have supported the bidirectional causal relationship between wealth and health, where better health leads to increased wealth and vice versa. On the macroeconomic scale, more recent empirical evidence suggests that 12% of economic growth in LICs and MICs from 1970 to 2000 was determined by reduced adult mortality, and a 2001 WHO study found that for a 10% increase in life expectancy, a 0.3–0.4% increase in annual growth rate is observed, strengthening the claim that good health is indeed a determining factor of economic growth.

Of course, GDP figures do not reveal the whole picture. In addition to productivity gains, substantial improvements in education and human capital can be attributed to health improvements, especially in infancy. Sick children are shown to have worse economic outcomes in adulthood, evidenced by higher wages, due to stunted cognitive development and limited exposure to educational programmes. In an oft-cited survey, height is shown to have a strong positive correlation to wages in both Mexico and Indonesia, indicating that poor health limits the efficiency in progression of human capital through education.

Such cases of morbidity, instead of mortality are the main restraints on development, where diseases such as malaria and waterborne diseases are non-fatal, but severely hamper productivity. In most cases, additive investment into treatments for poor health is required, which, in the case of developing economies, comes mostly from households, perpetuating cyclical poverty and subsistence economies. These financial pressures are estimated to cause 150 million people to fall into poverty annually.

Despite the desirable effects of adequate health in developing economies, the process of directing effective investment towards this end is complex. Conventional wisdom suggests investments into healthcare systems directly yield the most effective results, and this is true to an extent. With regards to healthcare spending, existing literature strongly advocates spending on universal coverage for a limited set of cost-effective, essential interventions, such as vaccinations and antiretroviral medicines. Such “best buys” are scalable approaches that benefit from mass production, increasing effectiveness, without the need for what often is the limiting factor in disease treatment — specialised, highly educated labour and equipment. Totally, these measures cost under $1 per person annually in low income countries, more than enough to cover the costs of welfare lost through communicable diseases. The universal nature of the healthcare system also limits payments ‘at point’, which has an additional effect of incentivising treatment of early-onset diseases.

Treatment of communicable diseases is also cheaper relative to non-communicable diseases and reduces lateral inequality. This sentiment is supported by case studies in Rwanda, where a best-buy approach to communicable diseases, helped by foreign aid led to a revival of the health system. A study conducted by Sayinzoga and Bijlmakers attributed this progress to the HPV vaccination programme, antiretroviral therapy for pregnant women, and a national malaria control programme, which are all examples of “best-buy” approaches. On top of the increase in productivity, the decrease in communicable disease could mean more resources are allocated to tackling non-communicable diseases, making the epidemiological transition along with the demographic transition.

The ‘flattening’ of return on investment, shown in figure 3, suggests that resources invested towards advanced healthcare yields less return on investment, which could be a manifestation of diminishing returns, where the limiting factors are now considerably more expensive. Therefore, following investment into essential, cost-effective healthcare, other avenues of investment should be explored.

National health is far from just a function of the effectiveness of healthcare systems, and the WHO recognises this by recommending “best-buy” measures outside of traditional healthcare sectors. Bednets are an example of such a measure, where scientists estimate that 450 million cases of malaria, and 6.2 million deaths have been prevented. Over 70% of the economic benefits from reducing disease burdens can come from similar preventative measures, and in developing countries, sanitation and healthy behaviour are just as important preventative factors as vaccinations — water-borne diseases kill 500,000 more people than malaria annually, and treatment-based approaches are ineffective at solving the root of the problem, which requires investment into infrastructure. Unlike the scalable, “best-buy” approaches to malaria and AIDS, declining rates of water-borne diseases is a stronger function of income, representative of the fact that improvements in infrastructure, although effective, remain ambitious and expensive.

In light of COVID-19, the world has been reminded of the threat of epidemics. Yet for the developing world, the AIDS and Ebola outbreaks are recent, and recurring, economic shocks that can lead to countries stuck in a “Malthusian state with high fertility and mortality rates”, where income growth alone cannot initiate the transition due to these constant economic shocks, which limit the accumulation of protective human capital. To respond to pathogenic threats, most effective approaches transcend sectors of investment, such as establishing supply chains for testing kits and ventilators, requiring investments in healthcare and infrastructure, as well as changing the public’s behaviour. The success of these investments demonstrate that by just prioritising investments into healthcare, per se, may not be the best measures to promote health

No matter the medium of investment, improving national health remains a crucial goal for developing economies, an idea which is explored by the National Bureau of Economic Research. In this empirical work, they conclude “the value of health capital is very large relative to other forms of capital”, and that improvements in health is a major determining factor of wealth growth. This could be explained through health being a prerequisite factor for education and vocational training, driving the value of human capital, which “enables comprehensive wealth to be maintained”. Educational investments pay off much greater as working lives are longer, and there is an increased incentive for long-term investments. Furthermore, improvements in women’s health allows for greater labour participation, reducing birth rates, concentrating resources for education on fewer children. Another holistic study conducted by Cole and Neumayer found “the impact of poor health on total factor productivity to be negative, significant and robust across a wide variety of specifications”, which reveals the lost inefficiencies from poor health, even when accounting for labour growth rates, revealing the strong causal effect of poor health on per capita underdevelopment. Meanwhile, trade openness and inflation are inconsistent, which suggests that these factors rely on the actuality of other factors, human capital, in order to be effective in promoting development.

We must also be reminded to pursue improved health as an end in itself, and that the social benefits for improved global health could be worth approximately $100 trillion, 8 times its benefits reflected in GDP. The report elaborates that “people typically value good health above everything else”, and practically this value is manifested in reduced inequality, strengthened social contracts, and better relationships. In developing countries, this may be reflected in a reduction in risky and antisocial behaviour.

Health and wealth truly share a symbiotic relationship — health is the primary driver for human capital increase, which in turn is the critical factor for development, whilst increases in wealth allow for resources to be allocated to health. This is to be kept in mind when directing investment — health does not solely benefit from improvements in healthcare systems. Instead, the unifying factor for beneficial measures are cost-effectiveness, regardless of the sector receiving direct investment.

Figure 1

Figure 1. DALY lost from communicable, maternal, neonatal and nutritional disease, World, 1990 to 2017. Reprinted from Roser, M., & Ritchie, H. (2016). Burden of Disease. Retrieved July 23, 2020, from Our World in Data.

Figure 2

Figure 2. DALY lost due to communicable diseases per 100,000. Reprinted from Roser, M., & Ritchie, H. (2016). Burden of Disease. Retrieved July 23, 2020, from Our World in Data.

Figure 3

Figure3. DALY lost by health expenditure per capita. Reprinted from Roser, M., & Ritchie, H. (2016). Burden of Disease. Retrieved July 23, 2020, from Our World in Data.

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