Healthcare costs as a competitive (dis)advantage?

The Council on Foreign Relations has published a much discussed backgrounder titled Healthcare costs and U.S. competitiveness. The main point of the article is that employer-funded healthcare (that covers around 175 million American workers), coupled with skyrocketting healthcare costs in the U.S. is becoming a significant competitive drag for American businesses, threatening millions and millions of workers with losing their jobs to offshore competitors (made competitive by their more efficient healthcare systems).

American healthcare is, I agree, poorly efficient and has a distorted incentive structure that tends to push up costs (and care consumption). But all that can be stated without the fearmongering about millions of American workers about to lose their jobs because of health costs.

Let's get into a few details. The article provides several figures showing just how incredibly expensive American healthcare is. Yes, it is. I miss, though, a solid figure about what percentage of total worker compensation goes to pay for healthcare costs. This is the relevant figure in an article that argues that such cost makes American business uncompetitive and workers about to fall prey to outsourcing dynamics.

In fact, such a number could come in handy to make comparisons, now that we're talking about business environment and competitiveness. If we check for more general business costs, we get some interesting results. Let's look at some data from the OECD. For example, this just released report about total wage taxation that provides this useful and informative table of total tax wedge as a percentage of labour costs:

• Belgium, 55%
• Germany, 52.2%
• France, 49.2%
• Sweden, 45.4%
• Spain, 38.9%
• UK, 34.1%
• USA, 30.0%
• Japan, 29.3%
  

So, labour-related tax costs are around fifteen points lower in the U.S. than the average European country. It sure doesn't seem like a very labor-uncompetitive arrangement to me!

If, and it's a big if, healthcare costs amount to something like 20% of labour costs in American firms, then they're as labour competitive as France. France's healthcare system is reasonably efficient and, in a general sense, probably the best national healthcare system in the world. I say it's a big if because the aforementioned OECD report provides ppp-adjusted figures for unit-labour costs. For the American firms, that includes the cost of employer-provided health coverage. Let's see:

• Germany: $59,526
• UK: $56,612
• France: $50,260
• U.S.: $44,347
  

Really, how can a serious institution, in the face of such figures, contend that the argument for establishing a national health system in the U.S. is the uncompetitive labour costs that American firms face if it's not done? Factoring-in productivity figures makes the difference even starker.

You may be wondering why the American figure for total tax wedge as a percentage of labour is so low compared to many other developed nations. Their (somewhat lower) level of public spending as a share of GDP surely doesn't justify such a big diference. Well, it may seem paradoxical to some, but the American tax system is much more weighted towards corporate taxes than most European ones. Once state taxes are taken into account, the U.S., at 39.27%, has the second highest corporate tax in the world after Japan (that not surprisingly has a similar labour tax wedge). Spain's figure, for the sake of comparison, is 32.5%. Sweden's is 28%. The corporate tax rate in Ireland is 12.5%. How competitive is that for American businesses? Is no one at the CFR worried about it?

The CFR article quotes Michael Porter, who knows a thing or two about competitiveness, regarding the (sorry) state of competition in the American healthcare sector. I concur with that diagnosis, but that's an altogether different statement from affirming that healthcare costs make American employers (and workers) uncompetitive. Do not miss Porter's latest book addressing healthcare competition, it's excellent: Redefining Health Care.

The article is interesting but I find the argument blatantly disingenuous. Just a way of selling a national healthcare system to the enterprise-minded. National public healthcare systems should (and can) be argued for on their own merits, without this kind of spin.

Measuring Innovation

Innovation is one of the basic foundations of any dynamic economy. The (current) problem with the concept of innovation is that its own relevancy has rendered the term almost meaningless. Innovation has become just another management (and government) buzz-word, a fad. It is thus essential, if we are to manage innovation efficiently and define sound policies to foster it, that we can agree on what we are talking about and, more to the point, how to measure it.

On the terminology side of that effort, we have initiatives like the Spanish UNE-166000 set of standards that aim to define concepts and approaches related to innovation, innovative projects and innovation management systems. The basic framework is closely related to that of other management standards like the ISO 9000 for quality management systems or the ISO 14000 for environmental management systems.

So far so good but, more than delimiting which are the processes that we will refer to as innovations, what we really need to learn is how to measure their outcomes and results. This is in no way an easy task, because the innovative process permeates all the levels and sectors of a modern economy. Economists frequently use Total Factor Productivity (pdf) as the best measure to estimate the impact of innovation, but it hasn't been established in any meaningful way that every increment in TFP is attributable to innovation. Innovation diffusion, crucially, has an important effect in TFP without any new innovation taking place. Determining what are the subjacent causes for increases in worker productivity isn't exactly straightfoward.

Nonetheless, some efforts are being undertaken in this field. The most thorough one that I know of is this one: Measuring Innovation in the 21st Century Economy. It's been produced by the U.S. Department of Commerce and with the participation of some industry heavyweights (like the CEOs of Microsoft, IBM, Medtronics...). The report is really insightful and I strongly recommend reading it for anyone interested in innovation policies and metrics, but don't expect it to ultimately clear all the blurry parts of the innovation picture.

If what you want to measure is the volume and activities of the innovative process, instead of its ultimate efect on the economy, the best reference I know of is the OECD Oslo Manual. It's a must read.

(Thanks to orgtheory.net)

Technology adoption rates

The ever interesting Visualizing Economics points to this NY Times article featuring a terrific graphic by Nicholas Felton that shows the rate of adoption for serveral mass-consumer (eventually, anyway) technologies along the twentieth century:

(Click on the image to view a larger version)