Economic Analysis – Social Welfare Boosts Growth

Up until this moment, the global economy has yet to draft a new economic order that would herald a path that is invulnerable to crises. As such, all those voices demanding change have remained nothing more than echoes, while the governments’ preoccupation with the economic stimulus plans and the need to circumvent any catastrophic ramifications of the crisis did not leave them any room to agree on new economic plans. This was further exacerbated by the fact that the economists, and in particular those who are Nobel laureates, did not succeed in achieving consensus over a unified vision. Then add to that those economic analysts who disagree in assessing the role of the emerging world, and over the facts of China’s economic realities, and the other analysts who are taking a long time to define the components of new indicators, which would be more closely related to actual growth, and which would ultimately replace the GDP indicator or complement it in the least.

Yet, in the United States where the crisis started and where it hit hardest, the President and his administration are still fighting to implement reforms that they believe to be radical, including reforms related to regulations in the financial sector, and those related to the expansion of healthcare.

However, Joseph Stiglitz, who has been appointed by the French President as the chairman of the commission that is currently working on new systems that would reinvigorate France’s economy, has focused on the current discrepancies in the component of the GDP, and considered that bridging such gaps and achieving comprehensiveness for those components would lead to an improved economic growth, which starts by avoiding everything that is wasted or miscalculated. Last April, Stiglitz said that “the GDP is a misguided accounting number. Input figures are almost always more important than output figures.” He added that “In the U.S., we spend a lot of money on health care, but we have much poorer outcomes in terms of life expectancy, morbidity, etc., than many European nations. Yet that spending has the effect of increasing our GDP, even though much of the health-care spending is actually wasted money.” He then also added “prison spending increases the U.S GDP; it's a perverse effect.” (Newsweek)

An economist such as Stiglitz knows very well that the GDP resembles to a large extent the annual budgets and balance sheets in companies and corporations, if not being identical to them. Such budgets include for inputs and outputs, while the latter include for depreciation of equipment, an area where spending is considered to be waste or “depreciation”. On the other hand, it would not be farfetched that in the global economy, or the economy of each country, depreciations in the production world, or spending on healthcare (including spending on prisons as prisoners can be considered ill) would boost the GDP, and contribute to increased growth rates. This is because disease damages productivity, and because an ill worker does not produce. As such, healthcare would otherwise fight against disease if governments sought to eliminate disease-ridden environments, and organized vaccination plans; thus, spending on healthcare would help the ill regain their wellbeing, and consequently restore their productivity.

Also, to consider spending on healthcare to be a waste is equivalent to considering spending on health insurance within private insurance or on social security to be also a waste, while it is the opposite that is rather true. It is also no secret that the pharmaceutical industry, the pharmaceutical research in laboratories, the hospital and clinical sectors, in addition to the medical body starting with medical studies in universities, are all a major contributing part to the GDP: this is not only in terms of the spending related to this comprehensive sector, but also evident from the health safety that this sector provides, and which boosts the productivity within communities and the GDP itself. In fact, a number of studies have shown that the working individual in the developed nations that adopt good healthcare plans in both the private and public sectors, achieves double the productivity rates of those achieved by workers in developing or poor nations (as compared between Europe and Africa).

Moreover, healthcare plans go hand in hand with the appeals by the United Nations to combat deadly epidemics and incurable diseases which cause major losses in growth rates, in addition to their influence in the general work, and consequently, productive environments.

In conjunction with the international interest in healthcare, and the allocation of sufficient funds for the latter by the developed nations, several studies have shown that the countries that provide unemployment and healthcare benefits, achieve better economic growth or higher growth than those countries that do not pay much attention to those areas that are of a humanitarian nature.

In comparison with the United States meanwhile, studies have also shown that the Europeans spend more than Americans during economic crises, where Americans are preferring to save more now than they did prior to the crisis; this is because the welfare programs in America are insufficient, while unemployment benefits in Europe prompt the Europeans to spend more on domestic consumption – which in turn injects energy into the markets and increases demands on domestic goods or other goods. In this vein, Stiglitz acknowledges that “Europe's social safety net can actually act as a kind of economic stimulus encouraging people to keep spending, or not to save so much as Americans are doing now”.

Spending on the “weak” components of the GDP, then, increases the productivity of the broader set of components within this indicator.