Chapter 16 of “Globalisation and the Wealth of Nations”

Keywords: Health;

While there is much policy convergence, both to best practice and where international trade is involved, this chapter argues that it is not necessary in many areas, such as health care. But even here, cross-boundary movements of goods and people compromise a country’s freedom to choose its own system.

We saw in the previous chapter that while globalisation is putting pressure on the organisation of social market economies, the likelihood is that they will adapt rather than end. So globalisation is driving some policy convergence (policy-makers in different jurisdictions are forced to adopt similar practices). If this convergence became widespread across too many policy areas, little would remain for the nation-state to do (except perhaps – perish the thought – participate in external aggression). In which case, despite representing a cultural entity, the nation-state might fade in significance.

But does globalisation necessarily cause policy convergence? While in relation to business policy it may, in other areas convergence seems less inevitable.

The Canadian and United States Health Systems

Canada and the United States have very different health-care systems, even though more goods and services cross the US–Canada border than any other. Of course the two systems influence one another, but their organisation remains very different. They are likely to remain so, despite some Americans thinking that Canadians have the better system (and some Canadians using the US system when theirs denies them immediate treatment). If there is policy convergence here, it is very slow.

Often policy convergence stems from a drive towards best practice. We expect the treatment of most medical conditions to be much the same throughout the world, subject to the availability of resources. That has little to do with globalisation.

But often there is not only currently no agreed best practice, there is no likelihood of this developing soon. While sometimes such divergence reflects cultural and other specific factors, often we just do not know what is best. For example, we do not know how best to organise a health-care system. Pragmatists discuss policies for improving the current situation, and they look elsewhere to learn from the experiences of others. But there is no agreement as to the optimal system, nor is there likely to be in the near future.

Without an internationally agreed best practice, a country can develop its health system to meet its own cultural and philosophical needs. It is limited by its ability to attract medical personnel (so salaries must usually be internationally competitive), and medicines and equipment must often be imported. But inside the country there can be considerable room for choice. Where health issues cross borders, choice is much more limited. The obvious example is control of worldwide epidemics, but a more instructive illustration is provided by control of the misuse of alcohol – a product (rather than a person) that may be shipped across a border.

Alcohol Control in the European Union

Controlling alcohol misuse (and tobacco use) is one of the most effective contributions that can be made to a nation’s health, for the economic and social costs of alcohol abuse are large. [1] In principle, alcohol control policies are the responsibility of individual EU countries, which is understandable given that drinking is partly culturally determined. Moreover, the EU principle of ‘subsidiarity’ holds that governance should occur at the lowest possible level consistent with efficiency.

The table below tells the broad story of alcohol consumption and control in the European Union (before its recent extension). [2]

Preferred Drink: Drinkers in most European countries prefer beer. In a handful of ‘Mediterranean’ countries – mostly with low excise duties – they prefer wine. In many countries more than 20 per cent of the absolute alcohol consumed comes from spirits.

Consumption (in litres of absolute alcohol per adult – over fifteen – in 2001): Consumption ranges from 6.9 litres per adult per year in Sweden to 14.5 litres in Ireland, averaging 10.8 litres a year across the EU. A male drinking three standard drinks a day – the level sometimes recommended as the prudent maximum, although some dry days are also advised – would consume 10.6 litres of absolute alcohol in a year; the recommended female level of two drinks a day amounts to 7.1 litres per year.

Chronic Liver Diseases and Cirrhosis (all ages, per 100,000 people): Alcohol causes harm. The rate of chronic liver disease and cirrhosis is but one indicator, for this does not capture harm from drunk driving, alcoholism or alcohol-induced violence. This measure ranges from 4.5 people per 100,000 for the Netherlands to 21.8 for Denmark, around an EU average of 12.7.

Control Intensity (out of 20): Control intensity is a summary indicator of the effects of all alcohol control policies constructed by Esa Österberg and Thomas Karlsson. Its six sub-components cover control of production and wholesaling, control of distribution, personal control, control of marketing, social and environmental control, and public policy – taxation is treated separately. The control index is an attempt to capture the intensity of public policy measures to limit alcohol consumption or the resulting harm. In 2000 values ranged from a relaxed 7 for Austria and Greece to an intense 16.5 for Sweden, averaging 11.0 for the EU.

COUNTRY	Preferred Drink	Consumption	Liver Disease	Control Index 1950        2000		Excise Duties
Austria	Beer	12.6	18.3	4.0	7.0	4.0
Belgium	Beer	10.1	11.8	6.0	11.5	5.9
Denmark	Beer	11.9	21.8	4.0	8.5	12.1
Finland	Beer+	10.4	12.4	17.0	14.5	33.3
France	Wine+	13.5	13.4	1.0	12.5	3.6
Germany	Beer+	12.5	17.0	4.0	8.0	4.3
Greece	Wine*+	9.3	5.0	2.0	7.0	3.7
Ireland	Beer+	14.5	5.8	8.0	12.0	22.8
Italy	Beer+	9.1	13.6	7.0	13.0	3.6
Luxembourg	Wine	17.5	12.8	n.a.	n.a.	1.0
Netherlands	Beer+	9.7	4.5	6.0	13.0	6.6
Portugal	Wine	12.5	14.1	1.0	8.0	1.4
Spain	Wine*+	12.3	10.5	0.0	10.0	2.2
Sweden	Beer*+	6.9	5.4	17.5	16.5	30.9
United Kingdom	Beer	10.4	10.4	8.0	13.0	21.4
EU	Beer*+	10.8	12.7	4.7	11.0	7.8

* Preferred drink accounts for 40 to 50 per cent of absolute alcohol consumption (no *: over 50 per cent)

+ More than 20 per cent of absolute alcohol consumption comes from spirits.

Source: E. Österberg & T. Karlsson, Alcohol Policies in EU Member States and Norway: A Collection of Country Reports, 2002.

Levels of the control index in 1950 were much lower, averaging just 4.7, which presumably reflects less willingness to tackle alcohol-induced harm half a century ago. The spread was also greater, with  Sweden and Finland having even more controlling policies  than they did in 2000. Thus there has been a policy convergence, although this is probably better explained by changing attitudes and shifts towards best practice than by globalisation, except in relation to the spreading of information and attitudes.

Taxation of Alcohol (Euros(€) per litre of absolute alcohol): Taxation, which raises the price of alcohol, is often seen as the most effective way to reduce consumption, and thereby harm. It does so clumsily, because it also reduces drinking that is not harmful and may even be benign. However, the majority of health professionals support high excise duties on alcohol.

Yet that may not be the view in all European countries, for there are wide variations in excise duties and other taxes, which range from close to zero in (typically) wine-drinking countries to a punitive €33.3 per litre in Finland. (Northern European countries tend to levy the highest taxation rates.)

Any correlations in the table are crude, and hardly worth pursuing given the limited number of observations. But there is a larger message. The individual countries have very different drinking practices, and their alcohol control policies differ too.

There is a tension between the principle of alcohol control and the principle of freedom of movement of goods and services within an economic union. What is to be done about travellers who cross national borders with goods taxed under the departing jurisdiction at a lower rate than they are at their destination?

The EU has abolished duty-free allowances for travellers between its member countries, while allowing them to carry sufficient purchases for ‘personal use’. In the case of alcohol the effective personal allowance is 110 litres of beer, plus 10 litres of spirits, plus 90 litres of wine, plus 20 litres of fortified wine. That amounts to almost 23 litres of absolute alcohol, or more than two years’ average consumption for a European Union citizen (and more than two years’ consumption at the maximum recommended male rate).

So under the EU rules, travellers can purchase large quantities of alcohol in a low-tax country, and consume it in a high-tax country. The greatest benefit would be gained by a person travelling from Spain or Italy, where the allowance would carry a tax burden of €46 and €53 respectively, to Sweden or Finland, where the tax would be €703 and €688 respectively. The differentials are smaller for countries that border one another, but four Swedes returning from Germany in a light van laden with their ‘personal’ allowances would save more than €2400 in taxes compared with buying at home. (Finnish alcohol control policy is having a similar problem with its neighbouring new EU member, Estonia. Alcohol is so cheap there that even Britons fly to Tallinn for the weekend to get wasted.)

Thus the opportunities offered by travel to avoid excise duties on alcohol (and tobacco) are considerable – enough, it would seem to pay for some trips. The alcohol must be used for personal consumption and not on-sold or exchanged. For public health purposes it might be better if this rule was ignored.

Individual jurisdictions may continue to pursue independent policies in respect of most of the elements covered by the control index. While varying minimum drinking ages may affect the drinking opportunities of young travellers, that will not markedly undermine the alcohol control policies of the home country. However, advertising limitations are being undermined by media which cross international boundaries – television, radio and print media. It may also be difficult to sustain public monopoly provision of alcoholic drinks because of World Trade Organization and European Union rules.

There may well be a convergence of these controls over time, as best practice becomes clearer, but that will be the voluntary decision of the countries involved, and hardly attributable to globalisation, other than in the sense of the sharing of information. Even so, the pressures from the personal shipment of alcohol within the EU may force some convergence of alcohol tax regimes. It would seem, then, that the globalisation inherent in the European Union provides a pressure on high excise duty countries to scale down their tax rates. If these duties existed just to generate revenue, that would be a matter of only fiscal concern. But insofar as they exist to reduce harmful drinking, some European countries may be losing one of their most effective public health policy instruments in relation to alcohol.

The WHO Framework Convention on Tobacco Control

The approach to tobacco control might suggest how such differences can be handled. In many rich countries the consumption of tobacco is falling, partly because smoking is going out of fashion, but partly because of vigorous control measures introduced after its consumption was recognised as a major public health problem. However, tobacco consumption is rising in poorer countries and consequently in the world as a whole.

In order to reduce the long-term effects on public health the World Health Organization negotiated a Framework Convention on Tobacco Control which came into force in February 2005, when sufficient countries acceded to it.[3] Its objective is ‘to protect present and future generations from the devastating health, social, environmental and economic consequences of tobacco consumption and exposure to tobacco smoke by providing a framework for tobacco control measures to be implemented by the Parties at the national, regional and international levels in order to reduce continually and substantially the prevalence of tobacco use and exposure to tobacco smoke.’

The convention covers the following areas:

Measures relating to the reduction of demand for tobacco, including price and tax measures; protection from exposure to tobacco smoke; regulation of the contents of tobacco products; regulation of tobacco product disclosures; packaging and labelling of tobacco products; education, communication, training and public awareness; tobacco advertising, promotion and sponsorship; and measures to reduce dependence on tobacco.

Measures relating to the reduction of the supply of tobacco, including provisions to prohibit sales to and by minors; support economically viable alternative activities; and deal with illicit trade in tobacco products.

The WHO solution leaves considerable freedom to individual countries; there are no sanctions for non-compliance. Membership is voluntary, and at the time of writing in 2006 many countries – most notably the United States and fourteen members of the European Union – had not acceded to it. Moreover, except for references to smuggling and a commitment to a comprehensive ban on cross-border advertising, promotion and sponsorship (which is likely to be ineffective as long as major media-owning countries have not acceded to the convention), there is little on international trade. Travellers may continue to carry duty-free cigarettes across borders. This is a global convention setting out best practice, but ignoring the implications of globalisation.

Controlling Borders

The European Union has a protocol on alcohol control, but this is honoured more in the breach, since it involves low-duty countries raising their rates.

Given that the European Union is a sort of mini-globalised world, the case study illustrates the possibilities for tension between the principle of free trade in goods and services on the one hand, and public health on the other. This tension does not just apply to alcohol (and tobacco), including their advertising. Other examples include genetically modified foods, unapproved pharmaceuticals and, of course, (illicit) psychotropic drugs. What is to happen if one country requires an additive such as iodine in salt, but others do not?

Nevertheless, the prospect of more international conventions to regulate public health issues across borders is a counterweight to the drive to zero tax levels, despite public health justifications for maintaining higher prices. This involves challenging uncompromisingly free trade in goods and services: restrictions for biosecurity reasons are a precedent.

But even if people cross borders without (licit or illicit) drugs (and without epidemic-generating diseases), there remains a pressure for policy convergence. Who is entitled to treatment? No rich country has an entirely patient-pays system, even where a large proportion of the population have private health insurance. Who is entitled to publicly funded health care?

This is a particularly difficult question for countries where entitlement has been a matter of citizenship, so that practically everyone (or at least every resident) got ‘free’ care. (Britain and New Zealand have been examples.) Did that mean that tourists and other visitors were not charged either? What about guest workers and their families? In particular, what was to prevent an outsider with a medical condition travelling to a country and using its publicly provided care without payment? It is impractical to give everyone who crosses a border a full medical examination. Completely free-to-(all)-residents schemes may have to become more selective or markedly change their funding principles.

Insofar as insurance schemes, whether public or private, do not cover everyone, the same challenge applies when the ‘non-citizen’ is not covered. Once more the mobility of people threatens to undermine traditional assumptions of who is entitled to ‘free health-care’, whatever the reluctance to switch to a full private user-pays regime.

Because international boundaries are increasingly porous, policy areas such as public health face new challenges which at first seem to have little to do with jurisdictional boundaries. John Donne famously said that ‘no man is an Island, entire of it self’; nor, increasingly, is any public policy.

Endnotes

[1] In the two most authoritative studies, the economic impact of alcohol abuse is calculated to lower effective GDP by around 1%. See B. Easton, ‘Alcohol Consumption: The Social and Economic Impacts’, in The Encyclopaedia of Public Health.

[2] Luxembourg is not discussed in the text. Its data tends to be distorted by the number of workers who live outside its borders.

[3] See http://www.who.int/tobacco/framework/download/en/index.html.