The Pharmaceutical Industry and Economic Growth

Does the pharmaceutical industry promote or impede economic growth? No doubt, many would affirm or deny with Olympian zeal that it does one or the other. They might in fact be able to woo converts to their creed of the industry with ‘impeccable’ expert statistics. Indeed, even many laypersons hold strong views about an industry that is usually under the kliegs, even if pulverized over the years into a picture many would deem hardly pleasing to behold. Yet, prudence dictates teasing fact from fiction, deciphering what belies the ‘objectionable’ mash-up shimmering before us.

In a recent study, the researcher used microeconomic estimates of the effect of health on individual outcomes to build macroeconomic projections of the proximate effect of health on GDP per capita1, the level of physical capital, education, the quality of institutions, and other indirect means by which health could affect the economy held constant. The findings that ridding countries of health differences would decrease the variance of log GDP per worker by 9.9 percent and the ratio of GDP per worker at the 90th percentile to GDP per worker at the 10th percentile, from 20.5 to 17.9 are instructive. The author noted that the effect is economically significant, albeit much smaller than estimates of the effect of health on economic growth based on cross-country regressions.

Such studies could not only enable us understand what role health plays in some countries, perhaps individuals being rich or poor, some remaining so, and what initiatives to improve health could do to bridge this economic gap, but also perhaps make it easier to convince individuals and governments to embrace these initiatives. Furthermore, they may enable us see the logic in the key roles the pharmaceutical industry for example plays in those initiatives by developed countries such as the U.S., several international organizations, such as the World Bank, and many charitable groups and individuals to improve the health of peoples in developing, mostly poor countries, vis-à-vis its battered image.

Thus, they may help us decide what the industry might do to economic growth in these countries being involved, for examples, in the pledge by the Bush Administration of $15 billion over five years to combat AIDS or in other similar commitments to fight Malaria, Tuberculosis, Polio, and other diseases ravaging some developing countries and essentially destroying their economies.They may also paint an accurate picture of the roles of the industry in different contexts, and their effects on economic growth in diverse countries, what modifications need made, and how, to ensure that the industry plays a positive role in the economy of their operational jurisdictions.

In other words, if economic development resulted from improvements in health and well-being what roles does the pharmaceutical industry play in this processes involved, and their outcomes? Would a decomposition/exposition of the underlying dynamics enable us better appreciate the pharmaceutical industry, condemn it to oblivion, or offer it an opportunity for an image makeover? Few if any would argue that healthier workers are not in general more productive and that disease burden do not constitute an obstacle to economic growth. The direct or proximate effects of health on economic output however, operate in tandem with those indirect, yet just as crucial to economic output.

Thus, firms do not just have to worry about absenteeism, occasioned by ill health, but also ‘presenteeism,’ when workers show up for work, but literally ‘multislack’, as the contemporary American teenager would say, meaning essentially do any assigned tasks, or not anything productive at work, ill or not. Further, health shortens workers’ learning curve on tasks, which could enhance productivity, and save training costs. It could also promote a positive attitude to retirement savings hence improve assets levels and physical capital per worker, which latter the increased labor input that health produces could also augment. Thus, we should also consider indirect ways that health could influence economic growth, such as those mentioned above, and the significance of their interplay with the operations of pharmaceutical industry for economic growth and development.  


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