ECONOMIC GROWTH, INCOME EQUALITY, AND POPULATION HEALTH AMONG THE ASIAN TIGERS

Transcription

1 ECONOMIC GROWTH, INCOME EQUALITY, AND POPULATION HEALTH AMONG THE ASIAN TIGERS Arjumand Siddiqi and Clyde Hertzman The Tiger economies of Southeast Asia provide examples of developing nations where economic growth and increasing income equality are compatible and, when occurring together, are associated with superior health trends over time. The degree of income inequality in the Asian Tigers declined during the period of rapid economic growth. Traditionally, economists have viewed economic growth and relative parity in income distribution as incompatible, or trade-offs. This poses a public policy dilemma, since a reasonable propensity to increase a nation s overall economic well-being would mean forsaking measures that increase income parity. The Asian Tigers, however, have shown that this need not be viewed as a trade-off. Economic growth and a simultaneous increase in income equality are possible and, with respect to health outcomes, desirable. The authors propose a variety of mechanisms through which income inequality can enhance economic growth, and discuss policies in education, agricultural land reform, and housing that influence the simultaneous attainment of income equality and economic growth. In this article we explore the possibility that economic growth and increasing income equality within a developing nation are compatible and, when they occur together, produce better health outcomes. This is illustrated using the experience of the Tiger economies of Southeast Asia: Japan, Singapore, the Republic of Korea, Taiwan, and Hong Kong. We discuss the relationship between economic growth and health, the role of income inequality as a mediator and an independent determinant of a nation s health status, and the role of relative parity in income distribution in supporting economic growth. The article concludes with a discussion of some implications for public policy. International Journal of Health Services, Volume 31, Number 2, Pages , , Baywood Publishing Co., Inc. 323

2 324 / Siddiqi and Hertzman HEALTH AND ECONOMIC GROWTH A strong correlation between national income, as measured by gross domestic product (GDP) per capita, and life expectancy has been well demonstrated. Graphical representations show that, on average, nations with low per capita GDP have shorter life expectancies than nations with high per capita GDP (1). The 1993 World Development Report also showed that the strength of this association weakens considerably beyond a threshold GDP per capita approximately U.S.$11,000 (1991 dollars) beyond which the slope of the health-wealth curve flattens and the proportion of variance explained declines. The time course of the Asian Tiger economies shows how increases in GDP per capita correlate with increases in life expectancy for countries whose national incomes begin below the threshold GDP level. During the first half of the 20th century, the Tiger economies grew relatively slowly (1, 2) (Figure 1). Toward the end of the 1960s, these nations began to experience large increases in per capita GDP. In particular, Hong Kong, Japan, and Singapore showed rapid gains, while Taiwan and Korea showed more modest gains (1). Life expectancy, an indicator of the health status of a population, showed a steady increase from the 1950s to the mid-1990s for Japan, Singapore, and Hong Kong, while Korea had a rapid increase in life expectancy beginning in the early 1960s (Figure 2). Data for Taiwan were difficult to locate since it does not routinely report these data independently. Corresponding to the escalation in per capita GDP, life expectancies in the Tiger economies continued to increase through the latter half of the century, though at a less rapid rate, consistent with their emerging onto the flatter portion of the health-wealth curve. Korea, which had the most modest rates of economic growth, also had the most modest gain in life expectancy among the Tigers (1). INCOME INEQUALITY AND HEALTH According to one hypothesis, parity of income distribution within a society is a determinant of the average health status of that society (3). This relationship has been demonstrated among some OECD (Organization for Economic Cooperation and Development) countries (4) and among the ten Canadian provinces and 50 U.S. states considered together (5). Moreover, using data from the 50 U.S. states, the latter study showed that the association between income inequality and mortality could not be explained away as a statistical artefact of an underlying individual relation between income and risk of mortality (6). Income inequality may mediate the relationship between health and wealth beyond a threshold national income level and may also be an independent determinant of health status regardless of the wealth of a society. Thus, the greater the gap between the incomes of the rich and poor, the worse the health status of the [people] (7). Several mechanisms may explain this correlation. Income inequality could be related to unequal investment in human development across socioeconomic

3 Figure 1. Change in per capita GDP for the Tiger economies, , in 1991 U.S. dollars. Sources: references 1 and 2. Economic Growth, Income Equality, Health / 325

4 Figure 2. Change in average life expectancy for the Tiger economies, Sources: references 1 and / Siddiqi and Hertzman

5 Economic Growth, Income Equality, Health / 327 groups; it could lead to social distrust by exacerbating social distances between members of society; it could be associated with a maldistribution of social goods necessary to facilitate daily living and buffer stress; and, finally, it could function through psychosocial anxiety due to stressful social comparisons (7). One scenario related to the above mechanisms is that in societies with high levels of income polarization between rich and poor, the rich tend to buy themselves out of public services. These services then degrade in quality and a vicious cycle results. The rich become resentful of paying taxes for services they do not use and pressure government to lower taxes and reduce investment in public services; reduced investment then further erodes service quality, causing increased disaffection and disaffiliation among ever wider segments of society. The neo-material interpretation is closely related to this. It suggests that income inequality is a marker for the degree of inequality in the resources available to individuals and the investments society makes in human development. That income inequality, in turn, is the result of sociopolitical and economic circumstances that affect resource allocation and development of public infrastructure (8). Another possible scenario is that increasing income inequality widens the social distance between rich and poor and leads to higher levels of mistrust within society. At the national level, this mistrust could lead to decreased trust and confidence in the efficacy of government and less public policy designed to benefit the more vulnerable (i.e., poorer) segments of society (7). It could also have an erosive effect on social trust at the civic level, undermining local institutions and practices that buffer, rather than exacerbate, the stresses of daily living (9). Such a scenario would help explain the finding that the association between income inequality and mortality among U.S. states also involves parallel associations between income inequality and social distrust, and, in turn, between social distrust and health status (10). Finally, exposure to large differences in affluence relative to one s own status has psychosocial consequences. There is a well-documented tendency for individuals to judge their well-being in relation to that of those who live in the same pond (11). Members of a given population recognize a standard of living that represents success and judge their well-being according to how close their standard of living is to this level. Thus it is not the attainment of material goods in isolation that is important, but one s ability to afford these goods relative to the ability of others one encounters in daily life. In this scenario, widening income inequality within a given economic region gives rise to increasingly stressful social comparisons between members of the society (3). In psychosocial terms, these comparisons manifest themselves as low levels of perceived life control and the well-documented association between control and health (12). In recent years, an expanding literature has emerged on the biological basis for this phenomenon. This literature revolves around emerging understandings of how certain brainbody host response pathways, such as the hypothalamic-pituitary-adrenal axis

6 328 / Siddiqi and Hertzman and the sympatho-medullary-adrenal axis, are conditioned by the socioeconomic, psychosocial, and developmental conditions under which individuals in society grow up, live, and work (13). The Gini coefficient, a standard measure of the income distribution within a society, is often used to illustrate the degree of income inequality or parity within a nation. Though we found original data difficult to locate, reported trends for the Tiger economies reveal that throughout the last half of the 20th century, they have demonstrated a high level of parity in income distribution relative to other developed nations (14, 15). All the Tiger economies experienced declines in the Gini coefficient, indicating increased income parity, between 1960 and 1980, the period of greatest economic growth for these nations (2, 16). Korea demonstrated a substantial increase in the number of people represented by the second, third, and fourth quintiles of income distribution, hence fewer people at the polar ends: the poorest and richest, respectively. Japan experienced a similar phenomenon and maintained a relatively stable and low Gini coefficient throughout the period of its economic boom. INEQUALITY AND ECONOMIC GROWTH Thus far, discussion has concentrated on the relationships between health and economic growth and between health and income inequality. But what of the relationship between economic growth and income inequality? Traditionally, economists have decreed (in the absence of evidentiary support) that economic growth and relative parity of income distribution within nations are incompatible. The convention has been to view income inequality as a trade-off against the economic prosperity of a nation as a whole (16). Two hypotheses have most commonly been put forth to support this notion. The first suggests that wealth must be concentrated in the hands of a few, those whose propensity to save is high, since rapid economic growth is facilitated by high levels of savings. The second hypothesis asserts that inequality is an inevitable consequence when labor shifts from sectors of low productivity to sectors of high productivity, as is the case during periods of rapid economic growth (16). It is evident from the above review of per capita GDP and Gini coefficients for the Tiger economies that these countries have defied conventional wisdom. They have shown economic prosperity with simultaneous reduction in disparity of income distribution (17). In fact, among the Asian Tigers, the nations with more rapid growth have greater equality of income distribution (16). The experience of the Tiger economies is consistent with the economic history of the Americas during the 19th and 20th centuries. At the beginning of the 19th century, the economies of such countries as Brazil, not the independent United States and British territories of the northern latitudes, were expected to lead the new world. After all, Brazil and its neighbors had both abundant natural wealth

7 Economic Growth, Income Equality, Health / 329 and a favorable climate for human habitation. Yet it did not work out that way. Instead, because of the strictures imposed by a cold climate, the economies of the northern latitudes developed on a base of small, freehold farms rather than large-scale plantations. From the beginning, this meant a more egalitarian distribution of income than was generated by the master-slave relations of the plantation. Furthermore, freeholder societies needed to build horizontal institutional structures for collective survival, with broad civic participation, whereas plantation economies were able to survive in a top-down, command mode over the short term (18). The long-term historical implications of these early factors can still be seen today in comparing the average income, income distribution, social trust, and health status of the former plantation versus the former freehold communities of the Americas. Canada-U.S. comparisons show that the northern (i.e., freeholder) U.S. states are, in general, similar to the Canadian provinces in their income distribution characteristics and health status, whereas the southern (i.e., plantation) states have more income inequality and lower health status (5). A state-level correlation has also been demonstrated between social trust and poor health. When compared with northern states, southern states have a larger proportion of people agreeing that most people can t be trusted, with a commensurate number of people reporting only fair or poor health status (10). Economists who have recognized these trends suggest four ways in which relative income parity may stimulate economic growth in the shorter term. First, reduced income inequality may facilitate greater savings and investments among the poor. Savings are a cornerstone of economic growth since they lessen the need for individuals to liquidate other productive assets for short-term use. Second, equality adds to political and macroeconomic stability. Here theorists argue that under conditions of equality, there is less need to make rash decisions for political support; rather, the environment facilitates fiscal prudence. Third, equality in income distribution increases the x-efficiency of low-income workers. That is, in an nonegalitarian society, low-income workers have little incentive to put forth extra effort, because they have limited expectation of adequate reward for their efforts. Conversely, if economic incentives are in place to reward effort, workers are likely to respond with effort (16). Finally, income equality increases the domestic multiplier effects of a given increase in per capita income. Developing countries with higher levels of income parity are more likely to have this parity extended between their urban and their (relatively large) rural populations. High income among rural populations translates to high demand for agricultural inputs. In turn, this facilitates increased growth of nonagricultural outputs and employment. The Tiger economies are a clear empirical demonstration of this, showing simultaneous growth in the agricultural and nonagricultural sectors during the period of rapid economic growth (16).

8 330 / Siddiqi and Hertzman HAS POLICY MADE A DIFFERENCE? The example of the Americas presented above suggests that the economic origins of a society will have a large influence on economic growth, income equality, and social trust over the long term, regardless of public policy choices. Similarly, the economic mechanisms relating income equality to economic growth given above are expected to operate regardless of policy. In contrast, the Tiger economies serve as examples of how policy can be used to simultaneously support economic growth and equality. The first policy success is in education. Empirical studies have consistently shown education to be necessary for economic growth (16). Education provides people with skills, which translates into increasing labor productivity. Studies of health status in developing countries have shown that the level of education of women has a direct effect on health status of the population, which operates, in part, through improved maternal-child health (19). Educated women also have fewer children. Among the Tiger economies, declining fertility rates have allowed constant overall expenditures on education over time to convert to higher per child expenditures and a consequent increase in the quantity and quality of schooling. Higher levels of education, then, can stimulate further economic growth, in a virtuous cycle (16). The second success has been a strong commitment to maintaining the welfare of the agricultural sector, allowing the Tiger economies growth as well as income parity. This was first achieved through land reform policies that tended to reduce inequalities in farm size (20, 21). It has been found that labor intensity and yield tend to increase as farm size decreases (16). In Korea and Taiwan, public policy worked to reduce the disparity in land holding, which consequently increased agricultural output and demand (16). Singapore, Hong Kong, and Korea all have policies of state intervention in housing and have a high proportion of state ownership and control of the land base on which urban housing depends. In contrast, Taiwan has limited state intervention in housing and the land is mostly in private hands (22). Although the effects of housing policies on socioeconomic equity have not been studied directly, Singapore serves as an instructive example of how housing policies may help increase equity. In recent years, the public sector has been providing housing to more than 85 percent of the population. At the same time, between 1970 and 1996 owner occupation of housing increased from 26 to 90 percent, and between 1965 and 1985 the average floor area per person grew by 50 percent. During this period the state dominated all aspects of housing: ownership and development of land; house building, management, and finance; and urban redevelopment. Through the Land Acquisition Act the share of state-owned land increased from 44 percent in 1960 to 80 percent in Thus, the state was able to create the conditions to

9 Economic Growth, Income Equality, Health / 331 promote home ownership over renting without creating an affordability crisis. This is an example of state intervention to ensure equity of access to socially necessary goods. Until now, there has been very little study of the role of equity of access to social goods, or the ways in which societies distribute social goods, as determinants of health. The example of Singapore gives us reason to explore this issue in more depth. Finally, some economists believe that the Asian Tigers have shown a favoritism toward an export-oriented economy, which requires a demand for labor domestically, thus creating opportunity for the lower-income segments of the population (16). CONCLUSION The Tiger economies of Southeast Asia seem to be an example of economic growth and increasing parity in income distribution occurring together over time, concurrent with a dramatic improvement in population health. The extent to which economic growth would have contributed to health independent of increasing income equity, and the extent to which increasing income equity would have contributed to health independent of economic growth, are unknown. What is clear from the Tiger economies is that rapid economic growth and increasing income equity are compatible and, when they occur together, can support a transformation to developed-country health status. Traditionally, economic growth has been thought to be negatively correlated with parity in income distribution, and this was considered a necessary sacrifice. In the context of most developing countries understandable desire to increase their wealth, public policy neglects the latter goal, leaving societies vulnerable to missing out on many of the potential health gains of economic growth. Recently, the Tiger economies have proved this traditional perspective wrong. The nations of Southeast Asia have used public policy measures to increase parity in income distribution while simultaneously achieving astonishing economic growth. In fact, the economic growth achieved by these nations may well have arisen, in part, from these policies. 1 The experience of the Tiger economies should free other societies to attend to reducing their income inequalities without fearing that they are sacrificing their prospects for economic growth. Supporting economic growth and income distribution simultaneously ought to improve population health, be it by material, neo-material, psychosocial, or developmental pathways across society. 1 Despite the economic setback in 1998, most have now returned to a trajectory of strong economic growth.

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