Filed Under (Economics, Resources, US opinion) by Paul on 12-10-2012
There is a growing realisation amongst senior managers in the NHS that the future level of NHS resources are inextricably linked to the ability of the British economy to grow – or not. There is also a tight political boundary drawn by the fact that I cannot see any political party standing on a platform of charging for NHS services and winning general elections in 2015 and 2020.
So the good news is we will continue to have a system that is only paid for out of taxation.
But the difficult part of this good news is that it is difficult to see any Government over that period raising taxes to give more money to the NHS.
Given that we won’t get a larger slice of the national economic cake, increasing the size of the GDP cake is the only way in which the NHS can get more resources.
This completely binds the level of NHS funding to the level of growth of the economy.
What is interesting is that in all of my interactions with NHS senior managers, no-one ever disagrees with any of that logic. In fact when people confront it they think it’s a bit optimistic. In the face of further cuts to the army will the NHS be able to hold its own and keep resources at present levels?
Whilst UK economic growth is not completely tied to US economic growth, any decline in the latter will have a big impact on us.
That makes a new long term analysis of economic growth in the US not only important for the UK economy but for the future prospects of the NHS.
Robert Gordon from North Western University challenges the lazy belief (which I must admit that I have held) that “economic growth will continue indefinitely”. In my lifetime strong economic growth has continued almost every year. It has become a normal part of my expectations.
Robert Gordon takes a much longer world view and points out that for most of recorded history there was no measurable growth in output per person. What growth did occur came from a growing population and anything causing decline of that population led to an economic decline.
It was only in the late 18th century that this changed and growth in the western economies accelerated. Growth in productivity reached a peak in the two and a half decades after World War 2. Thereafter growth decelerated again and apart from an upswing between 1996 and 2004 it has continued to slow down.
He argues that growth is delivered by the exploitation of specific general purpose technologies which transform our lives in both a broad and a deep way.
The first industrial revolution started with the age of steam power that culminated in the railways
In the late 19th and early 20th centuries the second technological revolution included electricity, the internal combustion engine, running water, sewerage, radio and telephony.
Today he claims that we are living through a third technology revolution – the age of information and computers.
He argues that in terms of economics the second revolution (electricity and running water) had a more profound impact on economic growth than the first or the third.
He points out how improvements in life expectancy which continued throughout the 20th century were different in the two halves of the century.
“The annual rate of improvement in life expectancy in the first half of the 20th century was 3 times the rate of improvement in the second half”
There is, as I will explain, a flaw in the parameters of these statistics but it is still a stunning stat. If this is true of the UK it puts the impact of health care in perspective since the NHS existed during the second and much slower 50 year rise in life expectancy but not during the first.
His main argument is that today’s information age is full of sound and fury but he questions the importance of the enthralling communication devices with which I write this post and upon which indeed this whole blog depends. He claims that we are living through an intense but narrow set of innovations in one important area of technology. It is true (and astounding) that in a decade or two every human being in the world will have access to all human knowledge. But beyond information he sees other innovation slowing.
The implications for our economy are profound. He sees the US as the frontier for productivity improvement. At the moment the average GDP per head of developing countries is still only a seventh of the US.
But contained in this figure is the problem for his analysis – if it were applied to the world. One of the reasons that the information revolution is experienced in such a thin way in terms of improvements in productivity for the west is because it is in the east and increasingly the south where the manufacturing of all of these machines takes place.
Railways were important because they increased the speed of travel of goods, but if you go to most of the railways stations in South America you will see girders that were made in Britain holding up bits of the infrastructure. Railways made things go faster, but they were also made.
The machine I write this on was not made in Britain but in terms of the world economy it is made somewhere.
That’s also my comment on the life expectancy figures. The figures are only true in the west. They are the other way round (and then some) for the east. Life expectancy in China and India will have grown much more quickly in the second half of the century than the first.
Whilst the analysis is western centric and not global, it still applies to the economies of the west.
His point is that in the past we have looked to technological innovation as a spur to growth. But we must be unsure about how that will work for the west in general and the UK economy in particular.
We live in a society full of innovations but currently innovations don’t seem to be improving our rate of GDP growth.
And, to return to my first point, they will not therefore provide more cash for the NHS in the next decade or so.