The global financial crisis and health: scaling up our effort.

Labonte, Ronald

The global financial crisis is cutting a swathe of economic destruction across Canada and its largest trading partner, the United States. Its short-term economic impacts are unequivocally harsh, especially for those families that find themselves without work. The negative health effects of long-term unemployment and poverty are well documented and will likely worsen as rates rise in these two key health determinants. Evidence from countries undergoing recessions in earlier decades, however, suggests that average health could continue to improve, (1) largely due to declining consumption of alcohol and tobacco, (2) even as it worsens for groups living closer to the poverty line. (3,4) Key to weathering recessions without worsening health or increasing health inequities is strengthened social protection measures, such as active labour market programs, improved unemployment benefits and more generous social welfare transfers.

Most of the world's population, however, lack the resources being spent by wealthier nations to shore up their social protection programs, bail out their failing banks and jump-start their domestic economies through new public investments. Moreover, it is widely assumed that the health impacts of the crisis, through increases in poverty and decreases in growth, will be felt first and worst by the poor in low- and middle-income countries least responsible for the crisis and the ensuing recession. A February 2009 World Bank policy note estimates that over 40% of developing countries are at high risk for rising poverty. (5) Scores of these countries lack both the fiscal space and the institutional capacity to engage in the counter-cyclical spending now being aggressively pursued by high-income countries. As a result, the numbers living in extreme poverty (below the adjusted $1.25/day level of consumption) are estimated to rise between 50 million6 and 200 million (7) in 2009, adding to the more than 200 million who fell below that level in 2008 by (often speculative) rises in food prices. (8) More graphically, the number of children needlessly dying in 2009 could jump by 400,000. (6) The World Bank, echoing the concerns of the World Health Organization and global civil society organizations worldwide, is calling on rich nations to increase their level of support to poorer ones. (5,6)

Fair share

The sharp reduction in imports by western countries will bear heavily on large exporting countries such as China, India and other Southeast Asian nations. This is a worry in terms of regional stability and, by dint of the size of these nations, global security. But for many of the world's poorer countries in Africa and Asia, earnings from exports to western country consumers, while important, are comparatively small. Aid transfers remain for these countries a sizeable portion of their economy and a large part of their public financing--the very vehicle of their (now) much needed counter-cyclical spending. However, it is increasingly expected that development assistance levels will stagnate and decline as donor countries spend more to pull their own populace out of the recession's fallout.

Even as many donor countries are re-affirming their earlier aid pledges, there is doubt that they will follow through. The G8 countries, excepting the UK and the US but including Canada, are 'off-track' or 'dangerously off-track' in meeting the timetable of their 2005 Gleneagles Summit commitments. (9) Halfway to the target date, the G8 as a group has delivered only 14% of its Gleneagles' aid increases. Italy, while claiming it is still committed to reaching the 0.7% GNI (gross national income) aid target by 2015, is reducing its aid levels next year. Canada has never committed to a timetable to reach the 0.7% target and saw its aid for health decline in 2006 (from 2005 levels) by 10%. (10)

Even if aid commitments are honoured, the recession-induced decline in the GNI of donor countries will mean fewer than anticipated actual funds, at a time when much larger infusions are needed. If more than $5 trillion dollars can be committed to support the high-consumption economies and failed banking systems of donor nations (by one estimate over $7 trillion committed by the US alone (11)), there must be similarly ambitious commitments to assist those paying the highest price for the rich world's deregulated excesses. By one authoritative estimate, developing countries will need $1 trillion over the near term to sustain and improve their social protection systems and to rebuild their own banking systems. (12) The G20 countries in April 2009 pledged to dramatically increase the lending capacity of the International Monetary Fund and, to a lesser degree, the multilateral development banks; only $50 billion of this, however, is earmarked for the world's lowincome countries. (13)

Fair taxation

Greater ambition is far from unaffordable. The same global financial architecture that created toxic assets and impenetrable derivatives has allowed the expansion of low-tax/no-tax offshore financial centres, variously estimated to hold between $5 (14) and $11.5 trillion4 in untaxed wealth. A nominal tax on 5% growth of this wealth would raise as much as $160 billion a year. The persistence of such centres, and the capital flight they encourage, cost developing countries between $40 and $50 billion in lost tax revenues annually. (4) The April 2009 G20 meeting did announce an intent to act on this longstanding problem, citing a number of steps that, if implemented, could reduce foregone tax revenues for high-, middle- and low-income countries alike. (13,15)

A currency transaction tax (CTT) is another financing option. Long a source of civil society advocacy and occasional intergovernmental conversation, a CTT would levy a small tax on all exchanges from one currency to another. This could raise between $33 and $60 billion annually at a rate low enough to have no dampening effect on normal market transactions; (16) although some would argue that such a tax should have a dampening effect, to prevent the wild speculations that led to a spate of 'hot money' financial crises in the 1990s. (4) A CTT could finance global aid transfers, building on the UNITAID model under which a small levy on airline tickets of member countries to the agreement (Canada is not one) goes to the purchase of essential medicines for low-income countries. If we accept that economies have become inherently global, thereby allowing a high-income country financial crisis to topple the health capacities of many low-income nations, the mitigating, countercyclical policies in such poor and affected nations should be financed through similarly global taxation schemes. Momentum for a CTT is building among the 'Leading Group on Solidarity Levies to Fund Development,' which now boasts over 50 member nations. Canada is not one of them.

Fair trade

Finally, there is the matter of trade and tariffs. A large number of low-income countries still rely on tariffs for 20-40% of their overall general revenue. They remain under pressure, either from loan conditionalities from the World Bank or IMF or from trade treaty negotiations, to lock in and progressively lower such tariffs. The economic theory is that the growth resulting from increased liberalization would allow a broader base of taxable sources to replace, if not expand, the lost tariffs revenue. Empirically, however, this has not been the case for most low-income and many middle-income countries whose tariffs were reduced consequent to structural adjustment programs. (4) That is one reason why the WHO Commission on Social Determinants of Health recommended that no such reductions be demanded in loan or trade treaty negotiations unless and until low- and middle-income countries have developed institutionally adequate and transparent systems of public revenue generation. Otherwise the gains for high-income countries arising from easier access into low-income country markets would almost certainly be paid for by reduced health and welfare access by the poorest citizens of those countries.

Going forward

The United Nations will hold a meeting in the near future to determine what should be done to avoid the financial crisis from rolling back what progress has been made towards the Millennium Development Goals. One key message the global health community through their respective governments should ensure is that this is the time to increase aid transfers, not decrease or merely hold to past promises; and that such transfers must be longer-term in commitment. A second key message is that all forms of tax evasion (and legal but ethically questionable tax avoidance) should be ended by changing banking rules that prevent the escape of wealth into opaque financial centres, wherever they may be. This is technically feasible, if the political will is there; as is a third key message concerning the imposition of a CTT. The mechanisms for a fair disbursement of its earnings may require considerable multilateral debate, but the collection of this tax does not have to wait until wrangling over how it will be spent is resolved. Another key message is that, in the name of policy coherence, wealthier nations' aid and Millennium Development Goal pledges should not be undone by their trade demands. Developing economies should be allowed much greater trade treaty flexibilities, particularly in tariffs reductions, at least until their domestic revenue sources allow for sustainable financing of their public health, education and social protection systems.

Finally, for those of us concerned with health equity, merely fixing a broken banking system to return to an economic model based on environmentally unsustainable levels of consumption by the wealthy for some to trickle down to the poor is ethically unacceptable. (3,4) We can do better. We must do better.

Received: February 24, 2009

Accepted: April 17, 2009

REFERENCES

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(2.) Parry J, Humphreys G. Health amid a financial crisis: A complex diagnosis. Bull World Health Organ 2009;87;4-5.

(3.) Marmot M, Bell R. How will the financial crisis affect health? BMJ 2009;338:858-60.

(4.) Labonte R, Blouin C, Chopra M, Lee K, Packer C, Rowson M, et al. Towards Health-equitable Globalisation: Rights, Regulation and Redistribution. Final Report of the Globalization Knowledge Network, World Health Organization Commission on Social Determinants of Health, 2008. Available online at: http://www.globalhealthequity.ca/electronic%20library/GKN%20Final%20Ja n%208%202008.pdf (Accessed February 1, 2009).

(5.) World Bank. The Global Economic Crisis: Assessing Vulnerability with a Poverty Lens, 2009. Available online at: http://siteresources.worldbank.org/NEWS/ Resources/WBGVulnerableCountriesBrief.pdf (Accessed February 18, 2009).

(6.) The Age. World Bank wants G7 to address rising poverty in crisis, February 13, 2009. Available online at: http://business.theage.com.au/business/worldbusiness/ world-bank-wants-g7-to-address-rising-poverty-in-crisis-2009021386dt.html (Accessed February 15, 2009).

(7.) International Labour Organization. Global employment trends 2009. Geneva: ILO, 2009.

(8.) World Health Organization. The Financial Crisis and Global Health: Background Paper for WHO High Level Consultation. Geneva: WHO, 2009.

(9.) ONE. The DATA Report, 2008. Available online at: http://www.one.org/ report/en/index.html (Accessed February 18, 2009).

(10.) Conway S, Harmer A, Spicer N. IHP+ External Review, 2008. Available online at: http://www.internationalhealthpartnership.net/pdf/IHP_External_review_ 2008_EN.pdf (Accessed February 21, 2009).

(11.) Pittman M, Ivry B. US pledges top $7.7 trillion to ease frozen credit, Bloomberg.com, December 4, 2008. Available online at: http://www.bloomberg.com/apps/news? pid=20601109&sid= an3k2rZMNgDw& (Accessed December 8, 2008).

(12.) Birdsall N. How to Unlock the $1 trillion that Developing Countries Urgently Need to Cope with the Crisis. Washington, DC: Center for Global Development, 2009. Available online at: www.cgdev.org/content/general/detail/ 1421143 (Accessed April 10, 2009).

(13.) G20. London Summit - Leaders' Statement, April 2, 2009.

(14.) Ramos J. A place in the sun: A special report on offshore finance. The Economist February 24, 2007;382.

(15.) G20. Declaration on Strengthening the Financial System--London Summit. April 2, 2009.

(16.) IHP+. The Currency Transfer Tax. A presentation by David Hillman of Stamp Out Poverty at the UN Financing for Development Conference--Doha, Qatar, November 29, 2008--at the side event: Innovative Financing to Serve Development: From Monterrey to Doha towards a Scaling Up. Available online at: http://www.internationalhealthpartnership.net/pdf/IHP%20Update%2013/ web%20new/Stamp%20Out%20Poverty%20presentation%20-%20Doha% 20Side%20Event.pdf (Accessed February 18, 2009).

Author Affiliations

Canada Research Chair, Globalization/Health Equity, Institute of Population Health; Professor, Faculty of Medicine, University of Ottawa, Institute of Population Health, 1 Stewart Street, Ottawa, ON K1N 6N5, Tel: 613-562-5800, ext.2288, Fax: 613-5625659, E-mail: [email protected]

Acknowledgement: The author thanks the anonymous reviewers for helpful comments on the initial draft.