A Prescription for Marxism

A Prescription for Marxism

By Kenneth Rogoff
Foreign Policy/Jan-Feb 2005

The next great battle between socialism and capitalism will be waged over human
health.
Karl Marx may have suffered a second death at the end of the last century, but
look for a spirited comeback in this one. The next great battle between
socialism and capitalism will be waged over human health and life expectancy. As
rich countries grow richer, and as healthcare technology continues to improve,
people will spend ever-growing shares of their income on living longer and
healthier lives. U.S. healthcare costs have already reached 15 percent of annual
national income and could exceed 30 percent by the middle of this century?and
other industrialized nations are not far behind. Certainly, an aging population
is part of the story. But if economic productivity keeps growing at its current
extraordinary pace, Europeans, Japanese, and Americans could triple their
current income per person by 2050. Inevitably, we will spend a lot of that
income on improving and maintaining our health.

This brings us to Marx. When the price of medical care takes up just a small
percentage of national income, it is hard to argue with the notion that everyone
should enjoy similar medical treatment. Sure, critics may gripe that the higher
taxes needed to pay for universal health coverage may cut into economic growth a
bit, but so what? A little redistribution won't suddenly transform the United
States into a failed, Soviet-style "workers' paradise." But as health costs
creep up to, say, 25 percent of national income, things get more complicated.
Americans would see their tax bills more than double, while total taxes could
reach 75 percent of many Europeans' income. With oppressive tax burdens and
heavy state intervention in health already the largest sector of the economy,
socialism would have crept in through the back door.

Of course, smug Europeans, Canadians, or Japanese may think that exploding
healthcare costs are a purely U.S. problem. Certainly, the British and Canadian
governments successfully wield their monopolies over healthcare to hold down
both doctors' incomes and prescription drug prices. And part of the rise in U.S.
healthcare costs stems from the breakdown of the checks and balances that more
centralized systems provide. (For example, Americans are several times more
likely to receive heart bypass surgery than Canadians, where the procedure is
reserved for extreme cases. Yet several studies suggest that patients are no
worse off in Canada than in the United States.) And even the most fanatical free
marketers recognize that healthcare is different from other markets, and that
the standard supply-and-demand principles don't necessarily apply. Consumers
have poor information, and there is an obvious case for greater government
involvement than in other markets.

But if all countries squeezed profits in the health sector the way Europe and
Canada do, there would be much less global innovation in medical technology.
Today, the whole world benefits freely from advances in health technology that
are driven largely by the allure of the profitable U.S. market. If the United
States joins other nations in having more socialized medicine, the current pace
of technology improvements might well grind to a halt. Even as the status quo
persists, I wonder how content Europeans and Canadians will remain as their
healthcare needs become more expensive and diverse. There are already signs of
growing dissatisfaction with the quality of all but the most basic services. In
Canada, the horrific delays for elective surgery remind one of waiting for a car
in the old Soviet bloc. And despite British Chancellor Gordon Brown's determined
efforts to rebuild the country's scandalously dilapidated public hospital
system, anyone who can afford to go elsewhere usually does. With public
healthcare systems fraying at the edges, many countries outside the United
States increasingly face the need to allow a greater play of market forces.

During the next few decades, modern societies will wrestle with very tough
questions and tradeoffs: What, exactly, are people's basic health needs in an
era where medical technology relentlessly advances the frontiers of the
possible? How do we help people while still giving them the incentive to
economize on their use of scarce healthcare resources? And who plays God?the
bureaucrats, the doctors, or the forces of the market? Ultimately, the case for
some government intervention and regulation in health care is compelling on the
grounds of efficiency (because costs are out of control) and moral justice
(because our societies rightly take a more egalitarian view of health than of
material possessions). The issue is precisely how much redistribution of income
and government intervention is warranted. With the health sector on track to
make up almost a third of economic activity later this century, the next great
battle between capitalism and socialism is already underway.
Copyright Carnegie Endowment for International Peace Jan/Feb 2005 | Kenneth
Rogoff, FOREIGN POLICY'S economics columnist, is professor of economics and
Thomas D. Cabot professor of public policy at Harvard University.