Free and Public

Working for the Many – what role for public services in fighting inequality?

The extreme gap between the rich and the poor has become headline news in countries around the world, with consensus from actors as diverse as the Pope, Christine Lagarde and President Obama that we need solutions to reverse the growing divide between the haves and the have nots.

In February 2014, backing a new IMF discussion paper, Christine Lagarde Director of the IMF underlined that ‘making taxation more progressive’ and ‘improving access to health and education’ have a key role to play in tacking inequality.  Oxfam has worked for decades to promote universal access to quality health services, and in our new report ‘Working for the Many’ we consider evidence of how public services – especially health and education – impact on economic inequality.

The evidence bears out Christine Lagarde’s claim – the case to invest more in free public healthcare as one of the weapons to tackle extreme inequality is compelling.

First we consider a 2012 OECD study which quantifies the value of public services – the vast majority of which is health and education – to each quintile of the population, by converting that value into ‘virtual income’.  The data shows that in OECD countries public services are worth the equivalent of a huge 76 per cent of the post-tax income of the poorest group, and just 14 per cent of the richest. So whilst public services benefit rich and poor equally in absolute terms, so that everyone is a winner, these services are strongly redistributive and help to mitigate the impact of today’s skewed income distribution by benefiting the poorest far more.

In fact, across OECD countries the virtual income gained from public services reduces income inequality by an average of 20 per cent.  Similar calculations across six Latin American countries show the same impact – virtual income from health and education reduce income inequality by between 10 and 20 per cent.

Evidence from studies done across Asia, and more than 70 developing and transition countries shows the same underlying patterns in the world’s poorest countries.  A 2007 study of healthcare systems in eight Asian countries and three Chinese provinces and regions shows that in all but one, healthcare had the same equalizing effect through progressive distribution of benefit. The more these governments spent on healthcare, the more progressive the distribution of income was and the more the healthcare system addressed economic inequality. This mirrors findings in the OECD study, that countries that increased public spending on services throughout the 2000s had an increasing rate of success in reducing income inequality. But those countries that cut spending during that time showed a marked decline in the rate of inequality reduction.

Whilst public services provide everyone with ‘virtual income’ and fight inequality by putting more in the pockets of the poorest; user fees and private services have the opposite effect.

User fees take money out of the pockets of the poorest and undermine the inequality-reducing potential of services.  Health user fees cause 150 million people around the world to suffer financial catastrophe each year.  That is approximately two per cent of the global population.  And since Malaysia privatized portions of its health services and introduced user fees in the 1980s, out-of-pocket spending has risen, representing one-third of total healthcare spending in the country in 2009. A recent study in the USA showed that the poorest 20 per cent spend 15 per cent of their income on healthcare, compared to the richest 20 per cent for whom healthcare amounts to just 3 per cent of income. But despite this significant cost to the poorest, they still don’t get all the cover they need.

Private provision of healthcare further skews the benefit towards the richest.  In three of the best performing Asian countries that have met or are close to meeting Universal Health Coverage – Sri Lanka, Malaysia and Hong Kong – the private sector is of negligible value to the poorest quintile of the population, and the benefits of private healthcare services are strongly regressive. They serve the richest far more than the poorest. Fortunately in these cases the public sector has compensated and allowed universal and equitable access to be achieved.

More recent and detailed evidence from a 2013 study of the Indian healthcare system finds that amongst the poorest 60 per cent of Indian women, the majority turn to public sector facilities to give birth, whilst the majority of those in the top two quintiles give birth in a private facility.  Finally, comparable data from across 15 countries in sub-Saharan Africa reveals that just three per cent of people from families living in the poorest quintile sought care from a private doctor when sick.

Fees take more away from the actual income of the poorest people, and private services benefit the richest first and foremost.  If governments are serious about closing the gap between rich and poor, and achieving Universal Health Coverage, the evidence points them towards free public services.

Read the full paper, ‘Working for the Few: Public Services Fight Inequality’

Emma Seery is Head of Inequality Policy and Campaigns for Oxfam GB

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Global Health Check was created by Anna Marriott and is currently edited by Mohga Kamal-Yanni