New measures can help to measure economic “externalities”

BMJ 1995; 311 doi: https://doi.org/10.1136/bmj.311.7009.878a (Published 30 September 1995) Cite this as: BMJ 1995;311:878
  1. Ed Mayo
  1. Director New Economics Foundation, London E1 1JE

    EDITOR,--Peter Draper and Hugo Crombie ask whether the health sector can make a useful contribution to macroeconomic policy.1 This marks an important divergence from the school of thinking that health matters should be treated in economic terms entirely as consumption with no (monetised) return on expenditure.

    An economic framework which understands how health outcomes themselves feed back into the process of sustainable wealth creation offers a starting point. For the purpose of discussion, we have, for example, created a pilot index of sustainable economic welfare for the United Kingdom.2 Starting from a standard measure of personal consumption, the index makes a series of adjustments for factors which relate to human welfare and environmental sustainability. While the index does not purport to establish a single number as “true” welfare, it does allow an important assessment of relative performance over time.

    Applied to the British economy, the index shows a striking difference to trends in gross national product, the most cited macroeconomic indicator of progress. Gross national product per capita was 2.3 times greater in real terms in 1990 than it was in 1950, with an average year on year growth rate of 2.1%. In contrast, there was virtually no overall growth in the index per capita over the same period. In 1990 the index was just 3% higher than it was in 1950, with an average growth rate of 0.1%. The difference between gross national product and the index per capita was particularly great from the mid-1970s onwards. Whereas, over the first half of the study (1950-74) sustainable economic welfare rose broadly in line with gross national product, in the past 15 years it has fallen dramatically--declining at an average rate of almost 5% a year over the 1980s.

    The reason seems to be a rising toll of social and environmental costs that are increasingly reflected as real losses in terms of welfare. The “externalities” ignored by macroeconomics are coming home to roost. In short, for all its sophistication, macroeconomic policy still does little more than assume that if one key indicator of economic output (gross national product) goes up, sustainable welfare will improve. Health professionals have much to offer in the development of new indicators that can contribute to a more sophisticated debate on the part of economists and policymakers.


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