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p. 24 of 27 BACK | NEXT Executive summary Introduction Regional health context The Bank’s involvementin the health sector Issues and options The Bank’s health policy Rationale for investing in the health sector The Bank’s health sector strategy Implications for the Bank Recommendation

Policy for the Health Sector : The Bank’s health policy

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Rationale for investing in the health sector

Investment in health and the Bank’s strategic objectives

Investments in health are fundamental to enhancing human well-being and advancing economic and social development. Of the Bank’s strategic objectives, four, i.e., promoting economic growth, reducing poverty, improving the status of women, and supporting human development, including population planning, will be very difficult to achieve without significant improvements in the health status of DMC populations. The Bank’s fifth strategic objective, protecting the environment, will be influenced indirectly by improved health services, which will help reduce fertility rates and stabilize population pressure on natural resources. Thus, investing in health provides the Bank with a means to achieve its strategic development objectives.

1. Health and Economic Growth

   Improvements in health provide substantial economic payoffs. Using a sample of 70 countries, the World Bank estimates that a decrease in under-five mortality of 1 percent is associated with a 1.24 percent increase in per capita income growth. Another study showed that improvements in male adult survival rates from 1965 to 1990 accounted for a large proportion of GDP growth and that the effect was particularly strong in poorer countries.²¹ In India and the Philippines, increased male adult survival accounted for 13 and 21 percent, respectively, of GDP growth during the period studied. Similarly, all of the East Asian newly industrialized economies achieved low IMRs—-in some cases, comparable with that of developed countries—- before their economies took off (see Box 1). The following mechanisms explain the link between improvements in health and economic growth:

   Increased share of working age population. As child health and access to family planning services improve, birth rates decline. This results in the medium-term in a high ratio of working age to nonworking age population, and increases per capita productive capacity. In East Asia, the working age population increased relative to dependents from the mid-1970s and this helps to explain that region’s rapid economic growth.

   Improved health increases productivity. Healthy workers have more strength and endurance on the job and a longer working life. In addition to being more productive, they take fewer days off due to illness, and the economic savings can be substantial. For example, a carefully controlled study in the PRC showed that treating iron-deficient female factory workers improved their productivity by 17 percent. Similarly, the prevention of hepatitis B in Southeast Asia alone can potentially add $1 billion to national incomes through improved worker productivity at a cost of $41 million.

   Improved health increases the returns to education. The links between schooling and income are well established. In Asia and the Pacific, primary education yields a private rate of return of 39 percent. Healthy children are better able to learn and take advantage of the investments made in their education.

   Improved health conditions increase the returns to other factors of production. Good health conditions allow populations to take full advantage of other factors of production such as natural resources. For example, in Sri Lanka, the control of malaria from 1947 to 1977 opened up previously malaria-infested areas for cultivation, adding $7.6 billion to the national income at a cost of only $52 million.

   Preventing disease frees up financial resources. For many illnesses, especially those that are expensive to treat, disease prevention offers a means of reducing the costs of curative care. The resources thereby freed up can be substantial. Recent estimates indicate that the global eradication of polio will result in annual savings of $1.5 billion worldwide (including $230 million in the United States alone). In India, aggressive treatment of STDs could reduce the number of new AIDS cases by about 50 percent. In the year 2000, this would save approximately $5 billion that will otherwise be spent on the care of AIDS patients.

2. Health and Poverty Reduction

   Poverty reduction provides another strong rationale for investments in health. The economic gains to the poor from improved health are greater than for their wealthier compatriots, since they bear a disproportionate burden of disease. Moreover, the income of the poor typically depends on physical labor, and thus illness robs them of a greater portion of their income. Since the poor usually do not have much savings, they find it difficult to recover from ill health without depleting their human and physical capital. As mentioned previously, sickness is a major cause of financial crises among the poor. Thus, a vicious cycle of low capital, low income, and poor health ensues. Investing in the health of the poor increases their productivity and educability; assets they need to lift themselves from poverty. Using a broader definition of poverty than merely low income, such as the one advocated by the United Nations Development Programme in its human development index, also encourages investments in health. Such investments reduce deprivation and provide the poor with the immediate welfare gain of relief from physical suffering.

3. Health and its Effect on Women

   Women have special health needs throughout their lives and improving their health can make a significant contribution to their well-being and that of their families. They face (i) a high burden of reproductive health conditions; (ii) gender-based discrimination within households in the allocation of resources for nutrition and health care; (iii) gender-based violence; and (iv) certain environmental and occupational health hazards. Moreover, in most DMCs women have the primary responsibility for ensuring medical care for their children and have to invest considerable time and effort in seeking such services. Strengthening health services targeted at women and children will help correct gender-based inequities, reduce the constraints on the time of women, and improve their overall status.

4. Health and Human Development

   Improvements in health allow children to reap greater benefits from schooling by increasing their attendance and ability to learn, and by increasing the participation of girls.

   1. Ensuring good health and correcting nutritional deficiencies in childhood can have a substantial impact on psychological and physical development leading to an improvement in children’s ability to learn. For example, a study from Indonesia demonstrated that treating iron deficiency anemia in children results in a 22 percent improvement in mental development and a 27 percent improvement in motor development as measured by standard tests.

   2. Scholastic achievements of well-nourished children are higher than their malnourished counterparts. For example, data from the PRC indicate that children who are malnourished as judged by having low height for age, a measure of chronic undernutrition, are further behind in school than well-nourished children.

   3. Healthier children are also more likely to enter school and attend regularly. For example, in Nepal, nutritionally normal children were found to be more than four times as likely to be enrolled in a school as compared with malnourished children.

   4. Ill health and lack of access to health services has a particularly negative effect on girls’ education. In many societies, girls miss schools because they have to look after their sick siblings.

Improvements in health and reductions in child mortality play a critical role in population planning. When child survival is uncertain, parents tend to be fatalistic about reproductive decisions and have more children, either to compensate for a lost child or as insurance against the possibility of losing more children in future. An analysis of data from around the world indicates that the prevention of ten infant deaths results in up to five fewer births.²² In addition, there has not been a single country that has completed the transition to low fertility without preceding declines in infant and child mortality. Good health and low fertility reinforce each other. Child spacing and avoidance of high-risk pregnancies (such as occur to women who have had five or more children) contribute to increased child survival

Effectiveness of health interventions

For an increasing number of health sector activities there exists compelling evidence of their effectiveness coming from scientifically rigorous studies (see Appendix 4). The existence of such evidence increases the likelihood that successful implementation of these activities will directly result in decreased age-specific mortality and morbidity rates and reduced human suffering. Strong evidence of effectiveness is essential for DMC policymakers and the Bank because it reduces the risk associated with making investments in health programs. Scientific evidence also allows for calculation of credible cost effectiveness ratios, without which policymakers will experience difficulties in choosing priorities. Compelling evidence of effectiveness also avoids the problems created by temporary fashions. Some interventions become fashionable for a period but are then discarded in favor of new interventions in a process that harms the credibility of development efforts. An intervention that enjoys clear evidence of effectiveness, such as immunization, is not ephemeral.

Role of the public sector

Pursuit of the Bank’s strategic objectives and demonstrated effectiveness provide a strong rationale for investments in health. Persuasive as they are, these arguments do not, by themselves, justify public investment in the health sector. Just as with public investments in other sectors of the economy, it must be shown that government intervention is warranted. There should be reasons for believing that market forces will not achieve good health outcomes on their own (because of certain market failures) or that public investments can achieve better outcomes. There are a number of good reasons for public intervention in the health sector, including (i) many health interventions, such as immunization or TB control, display substantial positive externalities or are public goods; (ii) due to the technical nature of the health sector, there are major problems associated with imperfect information; (iii) the existence of large uncertainties and catastrophic illnesses impels governments to ensure that there is risk pooling; (iv) there are serious insurance market failures associated with adverse selection by patients, “cream skimming” by insurers and the creation of moral hazards; (v) there are economies of scale, for example in the purchase of vaccines and essential drugs; and (vi) equity considerations.

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