The profit motive is a big factor, both in inflating costs and in encouraging practitioners to overtest, overprescribe, and overoperate. In cities up and down America hospitals are among the most profitable enterprises, employing administrators whose salaries frequently run into millions of dollars. Fear of litigation also drives costs higher. Behind every well-paid doctor stands an even better paid lawyer. In Janice’s case, certain of the tests administered were more about protecting the hospital from potential lawsuits than providing the best patient care.
What does all this extra health care spending bring, if not improved health? The answer, of course, is economic activity. Lots of it. All those profits, insurance assessments, malpractice suits, and unnecessary CT scans are contributing to the growth of America’s economy. But it is an odd sort of contribution. The more inflated the prices, the bigger health care’s seemingly positive impact on the national economy.
If you accounted for it differently—say as Kuznets proposed—you might consider the huge bill a minus rather than a plus. You could even subtract it from the size of your economy as a negative “defensive expenditure.” But that’s not how it’s done. As things stand, all that is required to boost American growth would be to double health care costs. You could call this growth-enhancing policy proposal the $42,000 heartburn.
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If it is easy to count up the revenues and profits of private health care providers, we have a much harder time figuring out how much the government contributes to our economy. Much as Keynes wanted to ensure that government expenditure appeared as national income, all too often government spending doesn’t count for very much. That is no small matter. Even in the most market-oriented economies, governments provide all sorts of services, often for free. Because there is no charge, it is not easy to price them or to work out how much they contribute to the economy. A private school, for example, makes profits, which count as national income. A hospital in America can positively rake in the cash, measurably adding to the size of the economy. But government services—from an accounting point of view—are less visible. Depending on the country, the state may run trains, collect rubbish, build roads, provide fire and ambulance services, and invest in science. Governments in most countries of the world provide free schooling up to a mandatory age. Some even provide free, or heavily subsidized, university education. Many offer free health care.
National accountants have never cracked the problem of how to value government services. It is almost impossible to measure properly something that is provided for free. Why is that? Take state schools. All you can do is count inputs: wages for teachers, rents for buildings, the cost of electricity, and so on. Since no one pays for the output—education—you cannot measure the value-added. Similarly, with state health systems you can’t measure all those inflated profits. Again, you simply count the inputs: doctors’ and nurses’ pay, the wholesale price of medicines, and so on. A successful hernia operation or a woman sent home with a touch of heartburn is invisible.
To raise the economic contribution of the UK’s National Health Service—which provides health care free to patients—you’d need to increase the cost of all those inputs. You would pay doctors and nurses higher wages, pay drug companies more for their medicines, and perhaps throw in some more litigation and lobbying activities for good measure. In other words, the only way to raise a public health system’s economic contribution—as conventionally measured—is to make it less efficient.
Not all growth is good and the apparent absence of growth is not always bad. You can conjure a bigger economy out of thin air simply by wasting money: just look at US health care. Conversely, you could drastically improve a free state-provided health service without it adding to growth one iota. Another implication, therefore, is that the bigger a country’s public sector, the more we underestimate the true size of its economy. The way we account for national income is biased in favor of private over public provision.
In Britain the government of Tony Blair tried to solve the problem by directly measuring public service efficiency. In 2001 Blair appointed Michael Barber, a former teacher, to head the so-called Delivery Unit. Barber appeared before skeptical journalists flourishing a dizzying array of targets and flip charts. He would, he said, benchmark the provision of public services and hold public servants accountable. Journalists mocked his new-fangled approach as “deliverology.” Barber adopted the term and never looked back.
The Delivery Unit was attempting to come up with actionable alternatives to the conventional way we measure growth. It started with the recognition that the government couldn’t measure public provision well, so simply pouring more money into hospitals and schools and hoping for the best could end up being a colossal waste of money. Instead, it wanted measurable outcomes, whether in successful hip replacements, shorter waiting times at government offices, fewer train delays, or better exam grades by eighteen-year-olds. You’d set a target, say that 90 percent of trains would arrive with less than a ten-minute delay. And then you’d track results and take action—fire the management or invest in updated technology—if targets were being missed. Barber has since helped export the concept as far afield as Malaysia, Indonesia, and Ethiopia.
The verdict on how the Delivery Unit did is mixed. It was often too easy to game the system. Even Barber admits that hospitals improved their waiting times by the simple ruse of not letting patients through the door. (Only once they were admitted were they deemed to be waiting.) Although the intention was good, it created perverse incentives. Hospitals would seek to meet targets for heart patients by treating the easy cases and shunning the harder ones. Schools stopped admitting less gifted children. You could make the statistics look good without necessarily improving the quality of service.
Still, an urgent task of national accounting is to improve measurements of public services so that their true value is better reflected. Public services tend to be better value for money than our economic indicators suggest. And, of course, they are not really free. We pay for them with our taxes. Which is why it is so important to measure them properly.
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In 2012 Shinzō Abe was elected prime minister of Japan with a radical plan to get the economy growing again.9 There were several elements to his strategy, including a commitment to a daring monetary policy designed to rekindle inflation. One idea was more simple. He was going to put Japanese women to work. The plan even had a catchy title: Womenomics.10
Japan’s post-war economy was built around the male worker, the so-called salaryman. The stereotypical arrangement was for a man to enter a company from school or university. He would then stay at the same firm his whole career, his salary increasing each year, until retirement. The successful life path for a woman was to marry one of those men. At home she would take care of the house, including the household finances, bring up the children, and help look after her own and her husband’s parents as they grew older. When her own children went to school or university, she might go back to work, but probably only part-time. That pattern was encouraged by a tax system that effectively penalized married women for working too many hours.
Of course, there were exceptions. Many women broke the mold. Besides, by the time Abe came to power, Japan’s job-for-life system had long been crumbling. Still, it was obvious to almost everyone that Japanese women could be contributing more economically. When Abe launched his plan, about 49 percent of working-age women had jobs. That compared with 56 percent in the US and the UK and 60 percent in Sweden.
Trying to shift people into paid employment—or attracting new labor in the form of immigrants—is an obvious way to increase the size of an economy. In fact, there are really only two ways to produce economic growth as we now measure it. One is to add people. The other, usually achieved by investing capital, is to raise productivity by getting those people to work more efficiently. Instead of produc
ing, say, 1,000 cars a day, a factory will produce 2,000 cars using the same workforce or, better yet, with half the workforce and a cast of supporting robots.
Adding people is in many ways easier than raising productivity. You simply take people who were not earning money and put them into paid employment. Whatever they produce contributes to the national economy. The unspoken assumption here is that whatever these people were doing before was, from an economic standpoint, worthless. They may have been pillars of their community or unpaid performance artists or hardworking mothers. But only paid work counts.
If a Japanese housewife cooks her aging father-in-law meals, helps him in and out of bed, helps him use the toilet, and washes his clothes and sheets, none of her efforts count toward the economy. If, however, she works in a care home looking after someone else’s father-in-law—and earning a wage while she’s at it—then the exact same activities contribute to national income. In the same way, if I charge to paint someone’s house, I am adding to the economy. But if I volunteer to paint my neighbor’s living room for free, my work is statistically invisible.
In Japan women did enter the workforce in record numbers after Prime Minister Abe came to power, although this may well have had more to do with pinched family finances than a direct response to his plan. Many of the women who joined the labor force took on low-paid part-time work. More than half of all paid work done by women in Japan falls into this category. Still, after being well behind, the proportion of female workers in Japan is now higher than in America, where more and more people from both sexes have dropped out of the labor force altogether.11
Few doubt that Japan’s gender relations and its labor market need shaking up. It is good for the country to have more women in work, particularly if—as is presently not happening much—they climb the management ladder and begin to affect how companies are run. Corporate Japan could do with a dose of female creativity and a fresh injection of ideas. But much of the “economic gain” to Japan came about simply by encouraging women to ditch their often valuable unpaid work at home and to do paid—and taxable—jobs in the workplace. As a result, the economy grew marginally faster. But it is debatable how much extra work was actually being done.
Like the government’s contribution to the economy, housework and volunteer work is hard to count. Because there is no price attached to “home production,” such as making a bed, cooking a dinner, or sweeping the tatami matting, it is not easy to put a value on such activity. Nor is it clear where we should draw the line. Should we count it when we scratch our own nose, since this also brings an unrecorded benefit?12
Advocates of counting household chores and volunteer work say these activities are routinely ignored because they are performed mainly by women. That’s why they are undervalued. Or, more precisely, not valued at all. One author lists some of the activities that are not part of the economy as “giving birth to babies, raising children, cultivating a garden, cooking food for her siblings, milking the family cow, making clothes for her relatives or taking care of Adam Smith so he can write The Wealth of Nations.”13 Even the woman whose housework freed up time for the economist Adam Smith to write his most famous work contributed nothing to the economy, as we define it. Smith is known for his concept of the “invisible hand,” which describes the market forces and pricing signals that are supposed to make economies work smoothly without a central plan. He wrote less about the invisible sex.14
In Jonathan Franzen’s novel The Corrections Enid’s husband, Al, is irritated that she has not cleared up magazines and jars from the top of the stairs.
But it seemed to her that he’d asked her to do more than “one thing” while he was gone. He’d also asked her to make the boys three meals a day, and clothe them and read to them and nurse them in sickness, and scrub the kitchen floor, and wash the sheets and iron his shirts, and do it all without a husband’s kisses or kind words. If she tried to get credit for these labors of hers, however, Al simply asked her whose labors had paid for the house and food and linens?15
Presumably Enid did something else for her children that Al never bothered to consider worth putting on the same footing as paid work: she literally fed them on her own milk. Nutritionists are almost unanimous in recommending that mothers breastfeed babies for the first six months.16 Because of the antibodies in colostrum, the first milk a mother produces, more than one-fifth of deaths in newborn babies could be prevented if all infants were breastfed within the first hour of life. All the women of the world could suddenly decide that they were going to breastfeed their children for the first six months to the enormous benefit of the next generation. Yet this would not affect growth in any way. In fact, economic activity would decrease because of the loss of sales of paid-for infant formula. This is a classic example of perverse accounting: we value precisely the opposite of what is actually beneficial. Those who advocate government policies to encourage breastfeeding are outgunned by lobbyists working for baby-formula companies, who can point to the economic benefits of their industry.
Julie P. Smith, an Australian academic, attempted to estimate the hidden contribution of breast milk to the economies of Australia, Norway, and the US.17 She used the European market price for breast milk of $100 a liter, based on the cost of milk at human milk banks. She then worked out a value of average milk produced per day and the average length of time that mothers breastfeed their babies in those three countries. She found that Australian mothers produced 42 million liters of milk with a market price of $4.2 billion. Norwegian mothers produced $1.1 billion worth of milk, and American mothers $53 billion worth. She also calculated what she called “lost milk,” the milk that would have been produced if mothers had breastfed to the recommended six months. Doing so would have raised milk production to $8.9 billion, $1.8 billion, and $127 billion respectively.
Not counting “women’s work” diminishes its perceived importance. In this case we value a precious health elixir that only women can produce at precisely zero. The danger is that, if we do not measure something, it is undervalued. In often invisible—even subconscious—ways, policymakers and regulators are biased toward what they can see and what they can count. They support industries, say the baby formula industry, because it employs people, pays taxes, and contributes to the economy. The invisible and the uncountable, almost by definition, get sidelined.
If we can put a price on breast milk, surely all kinds of housework could be incorporated into a new definition of what constitutes an economy? After all, national income already includes one important item where no money changes hands: something known as “imputed rent.” If I live in a rented apartment, then the monthly rent I pay is part of the economy, recorded as my expenditure and my landlord’s income. But what if I live in my own house or apartment? I pay no rent even though I still have a roof over my head. From the point of view of the economy—unless we make some kind of adjustment—my house is invisible.
That is a problem. Imagine comparing a country where most people rent to one where most people own their own home. The home-owning country would look poorer relative to the home-renting country since the value of people’s homes would be effectively invisible. To get around this anomaly, statisticians use something called imputation. They work out how much rent an owner-occupier would have to pay if she were living in rented accommodation. This is done by comparing her own home to a similar rented property, say the house next door. The imputed rent figure appears in the national income accounts as if it had actually been paid—even though no transaction has taken place and no money has changed hands. Through this accounting trick, the rent we would have to pay if we didn’t already own our home becomes part of the economy. (Remember, what we confidently call the economy is basically a figment of our imagination.)
Couldn’t exactly the same be done for housework? The answer is that it could. In fact, the exercise of counting the imputed economic contribution of housework is now routinely per
formed by national statistics agencies in many countries. The results, though, are not incorporated into the official statistics. That would be just a bit too right-on. Instead, they are left in occasional “satellite accounts,” orbiting around the central body in the economic solar system: Planet GDP.
The man who figured out the size of the US economy for nearly twenty years, Steve Landefeld, former director of the Bureau of Economic Analysis, is on the whole enthusiastic about counting housework. He has done extensive research on the subject, starting in 2000 with a paper entitled, in the enticing language beloved of economists, “Accounting for Nonmarket Household Production Within a National Accounts Framework.”18 But Congress has been less than supportive, particularly when it comes to stumping up cash to pay for all the surveys that would be necessary to make this a regular exercise. For Congress, “statistics just can’t compete with stuff like cops on the street,” says Landefeld. “Statistics is about as far down the list as you can get in terms of priorities.”
In 2012 researchers in America published a paper building on Landefeld’s work.19 The headline finding was that if cooking, cleaning, washing, driving and so on were counted, these activities would add roughly $3.8 trillion to the total size of the American economy. That would make the economy 26 percent bigger. The paper uses what is known as time use data, basically a diary filled in to record activities performed throughout a twenty-four-hour period. After excluding a few activities—such as sleeping (which personally I’d very much like to see counted as a productive economic activity)—the researchers boiled these down to seven main tasks from gardening to childcare. The hours are aggregated and a wage applied, using the hourly rate for a general housekeeper.
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