Preventative health can lift productivity growth

Those hardheads who consider spending on health care a drag on the economy, as something to be afforded if the economy is strong, will need a rethink in light of research work presented at the Melbourne Economic Forum. Of the myriad proposals to boost productivity growth – and with it, future living standards – smart investment in preventative health might just top the list.

When then chairman of the Productivity Commission, Gary Banks, released a ‘to-do’ list of unfinished policy business to improve Australia’s productivity performance, he attracted some unfair criticism that the list was made up of bits and pieces that would not add up to much even if fully implemented. Opening up pharmacies, taxis and book publishers to competition might be worthy in their own right, but would barely register as an asterisk in effects on measured productivity growth.

Chairman Banks argued for a new review of competition policy and the application of efficiency principles in government service delivery, especially in health. But new evidence has come to light suggesting that investing in preventative health could yield productivity and workforce participation benefits to rival the productivity gains of the transformational economic reforms of the 1980s and early 1990s that created Australia’s open, competitive economy.

Professor Maureen Rimmer of Victoria University’s Centre of Policy Studies modelled the benefits of treating chronic diseases such as diabetes, arthritis, heart disease and back problems. Almost 40 per cent of Australians over the age of 45 have two or more of these diseases. Rimmer found that the returns from treating these diseases in older workers far outweighed those from concentrating on young people. While this might seem counter-intuitive, the results are explicable by chronic diseases effectively precluding older workers from paid employment whereas young people are comparatively less hampered by their diseases and have better recovery rates.

Yet the gains from prevention are huge too. Victoria University’s Professor Rosemary Calder noted the dramatic effect on the road toll of the concerted road safety advertising campaign of the last few decades and called for a similar campaign aimed at chronic disease prevention.

Obesity is the rising chronic disease, with well over one-quarter of Australians now obese, an increase of almost half in just the last two decades. Obesity creates other health problems, such as cardiovascular disease, type 2 diabetes and sleep apnoea, all of which not only directly affect personal wellbeing but also impair productivity and workforce participation.

Professor Alan Fels pointed out that the overwhelming proportion of the federal health budget was spent on treatment programs rather than on prevention. Mental health prevention programs are small and uncoordinated. Fels argued for a refocusing of investment in mental health to the early years and a healthy start in life. A 25 per cent improvement in mental health could yield a one percentage point increase in GDP. That is to say, everyone has a stake in improved mental health, not just the sufferers and their families.

At the National Reform Summit, agreement was reached on reviewing the efficiency of delivering health services in Australia while maintaining the quality of services. As the Melbourne Institute’s Professor Anthony Scott told the Melbourne Economic Forum, we should go further, to consider a shift further away from fee-for-service to results-based health systems.

When speaking of productivity growth and workforce participation, economists argue that the low-hanging fruit was picked in the 1980s and 1990s. They are wrong. In front of their eyes is an orchard full of unpicked fruit: preventative programs for chronic diseases and mental health. These have for too long been consigned to the social policy basket.

Meanwhile, economists have successfully argued for Productivity Commission inquiries into the rules governing the importation of books and the dumping of manufactured goods onto our markets. As important as these reviews have been, the case for a Productivity Commission inquiry into chronic disease and mental health prevention is compelling.

Craig Emerson is managing director of Craig Emerson Economics and adjunct professor at Victoria University’s College of Business.