Costing us dearly: The toll of austerity policy on public health

VOICEOVER 

This is Up Close, the research talk show from the University of Melbourne, Australia.

ERIC VAN BEMMEL 
I'm Eric van Bemmel, thanks for joining us. An old word has taken on a much greater prominence in the wake of the 2008 Global Financial Crisis or GFC and the Great Recession which followed in many parts of the world. That word is austerity. Austerity is the belt-tightening budget-slashing response to economic conditions imposed by governments, often at the behest of international lenders. But it would seem the bitter pill of austerity does our physical health no good at all. David Stuckler is Professor of Political Economy and Sociology at Oxford and has looked closely over many years at the interrelation of political economy and public health. In 2013 he co-authored "The Body Economic: Why Austerity Kills" together with Sanjay Basu, a book which graphically describes the impact of neoliberal economics on the health of nations. David Stuckler is visiting Melbourne as a guest of the McCaughey VicHealth Wellbeing Unit of the University of Melbourne's School of Population and Global Health, and we're grateful he could join us today in the studio. David, welcome.

DAVID STUCKLER 
Thank you, great to be here.

ERIC VAN BEMMEL
David, we'll get into your research into the history of financial crises and their impact on health but let's start at what you've been observing in population health effects broadly since the GFC in 2008.

DAVID STUCKLER
Our research team has been studying how recessions, trade, large macroeconomic forces impact on people's health for about the past decade. When the Great Recession struck in 2007, 2008, we became concerned that people's health would suffer, and wanted to learn from the past what, if anything, we could do to protect people in hard times. What we've learned is that, surprisingly, recessions tend to be linked with improvements in health. The real danger is austerity, programs of deep budget cuts to vital and social protection systems, and across Europe and North America where we've seen deeper austerity measures, we've seen outbreaks of HIV, rise in alcoholism, a spate of suicides, among a raft of health problems.

ERIC VAN BEMMEL
Drilling down to a few country examples that highlight differences in policy outcomes when there's this economic adversity, let's have a look at Greece first. What did you find there?

DAVID STUCKLER
Greece is one of the most dramatic examples of a country in the grip of austerity. Economically, Greece made a series of mistakes. Most important of these is during the good times it didn't save, and then during the bad times it tried to make up for it, the opposite of standard macroeconomic advice. So coinciding with the timing of the Global Financial Crisis, Greece had few options of where to turn for support and was bailed out by the so-called troika - this is the International Monetary Fund, the European Commission and the European Central Bank. A strict condition of those bailouts was deep cuts to their health system.

ERIC VAN BEMMEL
Austerity.

DAVID STUCKLER
Austerity. To make these targets meet, Greece had to implement draconian cuts. For example in 2011, the health minister was asked ‘are you really going to cut hospital budgets by 40 per cent in one year alone?’ And he threw up hands and said ‘look, these aren't cuts with a scalpel, these are with a butcher's knife, we've got no choice’.

ERIC VAN BEMMEL
How were these cuts implemented?

DAVID STUCKLER
They were very much top-down. Managers of a hospital would be given a directive to find savings and try to do it without [impacting] frontline services. Often when we study health data, there's a lag between, say, someone smoking and we see a big jump in lung cancer rates. We've started to see rapid effects of these cuts. Taking one example, to make savings, the HIV prevention budget was slashed in half. The way they did it was by cutting needle exchange programs, programs that provide clean needles to drug users who, in Europe, are at high risk of HIV when they share infected needles with each other. We saw in 2011 when these cuts come into effect, a big jump in HIV in injection drug users. Unlike anywhere else, anything we had seen in the rest of Europe, Greece became the only nation to experience a huge uptake in HIV rates. That's just one example of a direct cause and effect between the cuts and direct human suffering at the other end of the chain.

ERIC VAN BEMMEL
There were also other austerity measures imposed on the Greek population that probably indirectly affected their health. People lost jobs, in the public service for example, unable to pay their bills. How do you find if it does, in fact, add to the overall poor health outcomes?

DAVID STUCKLER
So one side are the cuts to the health system. We've seen a range of people no longer being able to afford medicines, hospitals running out of surgical gloves, gowns, wipes, cleaning supplies, creating its own risk of drug resistant bugs spreading on the wards. This is happening in Europe, not a Third World country. Then there are the cuts that impact on the social conditions. You mentioned a few examples, the public wage bill was cut, people were earning less, there were fewer jobs available and what we've seen with that is a raft of mental health suffering. Greece used to have some of the lowest suicide rates in Europe. It's gone from one extreme to another with an epidemic of suicides, depression and mental health problems, that even if the economy recovers can have scarring effects that endure.

ERIC VAN BEMMEL
By contrast, a country like Iceland which took a very different approach to its severe economic conditions, resulted in different health outcomes, did it not? Can you tell us about that?

DAVID STUCKLER
Iceland's a fascinating case. Similar to Greece, it was in a bad economic situation. All of its banks had failed and as a result, its debt jumped to 800 per cent of GDP in a rapid period of time back in 2008, making it the worst banking crisis we have on record in the history of banking crises. But Iceland took a different stance than Greece. It did something quite radical in the crisis. It asked people how they wanted to manage the debt. They called a referendum.

ERIC VAN BEMMEL
The government asked the people how they wanted to deal with the situation?

DAVID STUCKLER
Correct. So it was at the time Greece was being pressed down a path of austerity, the Icelanders went to the polls and 93 per cent in March of 2010 voted no to the plan of paying for the bankers' greed, to paying for the bankers' mistakes. Instead, they followed the opposite of the prevailing economic advice. Rather than make deep cuts, they let the bankers fail and they spent more money to try to shore up their health system and social safety nets during hard times.

ERIC VAN BEMMEL
Nevertheless, this money was owed, right, but it was not on the public purse?

DAVID STUCKLER
It's an important point. What we've seen with the bailouts is the public, you and I, being asked to take on the debt from the private sector, from the bankers who lost their bets. Unlike the US, the UK and most of the rest of Europe, Iceland didn't take on that debt from the private debt into the public sector.

ERIC VAN BEMMEL
They don't socialise the debt? …. Privatise the profit, as one often hears that term.

DAVID STUCKLER
Correct.

ERIC VAN BEMMEL
Isn't also true that Iceland, there's a culture perhaps of social connectedness that was missing in other societies?

DAVID STUCKLER
It's striking when you get off the plane in Reykjavik that you'll see Icelanders shaking hands with each other, being on a first name basis. It's a very tightknit community. It has what social scientists like to call very high rates of social capital, trust in each other and participation in groups and clubs and social organisations. It stands out too for its political participation. I don't know how many of your listeners have written to their local political representative or member of parliament. In Iceland, those who have done so in the past six months? More than three in four.

ERIC VAN BEMMEL
Wow.

DAVID STUCKLER
Very politically engaged.

ERIC VAN BEMMEL
It's a small town though in a sense, 300,000 people in the country. Does that sort of connectedness scale to a larger society? Greece, I think it's about 11 million people, not exactly large but not everyone knows each other.

DAVID STUCKLER
An interesting comparison is shortly after the Icelanders called their referendum, then Prime Minister George Papandreou tried to call a referendum on what to do with the Greek debt, and he was shortly ousted by European partners. It's only the recent party, Syriza, that came in several years later that managed to successfully call a referendum in Greece. The point is these countries illustrate two extremes of the debate. Iceland, of course, is a smaller nation. Importantly, it also sits outside the Eurozone, so it has flexibility with its currency. But importantly, it was able to avoid the devastating consequences to health that we're seeing in Greece. What this tells us is that even a severe financial crisis needs not impact people's health if politicians take steps to protect their people. Fiscal policy's a matter of life and death.

ERIC VAN BEMMEL
So you would argue in theory that had all those European states adopted a similar policy they probably would've had similar outcomes, had they taken the Icelandic model, had they been able to politically?

DAVID STUCKLER
Taking Iceland again, even the International Monetary Fund, a vocal proponent of austerity, had to turn tail and say ‘well look, Iceland, you can't argue with four per cent unemployment and the rebound in GDP growth that you've had’. So based on what we've learned from past recessions and the current, there's a strong economic case from a health perspective to invest during hard times.

ERIC VAN BEMMEL
David, you've written about the historical antecedents to this situation, including the Great Depression. Some of what you found was expected, high rates of suicide for example, and stress, but some was counterintuitive as well: the proclamation of Dr Louis Dublin of the Metropolitan Life Insurance Company in 1932. He said that Americans were actually getting healthier. Can you get into what was happening around this crucial period in US economic history?

DAVID STUCKLER
It was, as you know, a turbulent period. The bottom had just fallen out as markets came tumbling, unemployment jumped to a quarter of the workforce and much like today, public health professionals were bracing for the worst public health disaster unfolding. Yet, as you point out, the head of the American Medical Association wrote into the New York Times in the early 1930s, “never before have there been such good health conditions as in the first part of this decade”.

ERIC VAN BEMMEL
What's going on there?

DAVID STUCKLER
We were puzzled as well. What we did is we got data from what were then 114 US cities from the US Center for Disease Control historical archives. They were a little bit dusty…I don't think anyone had been down there for some time. We pieced together the data and we were able to confirm that mortality rates dropped going into the crisis by about 10 per cent. When we dug deeper to figure out what people were dying from, living longer from, we found the main reason was that road traffic deaths fell.

ERIC VAN BEMMEL
Fewer drivers on the road.

DAVID STUCKLER
Exactly. For the first time in the history of the car, when road safety was a foreign concept, people were buying them less and they were, to save money, choosing to walk instead of drive. What was more important to the future of public health was the same debate that's going on in Europe and North America today: how to manage debt and deficits, in great part created by the bailout of bankers. This was the entry for the debate between Herbert Hoover and Franklin Roosevelt on the New Deal. Herbert Hoover had argued that Americans should pull themselves up by their bootstraps, which was slightly out of favour for those lined outside of soup kitchens, and they nicknamed the shanty towns Hoovervilles, mocking the then US president. Whereas Franklin Roosevelt campaigned on an alternative, to use the crisis as an opportunity to set America's economy back on the right path, to take the crisis as an opportunity to invest in hospitals, roads, sanitation, education, big investments that would help power recovery and solve long-term social and environmental challenges. And he won.

ERIC VAN BEMMEL
Quite the opposite of austerity.

DAVID STUCKLER
Stimulus, an archetypal case. My colleagues will argue about the magnitude of the stimulus and its importance. What was interesting is it created a natural experiment across the US from which we could learn because in the US everything's not implemented top-down. Governors of different states wanted to go further on the New Deal and some wanted to put a brake on it and what we saw was a polarisation across the US. Those that pushed further on the New Deal and had more relief spending to alleviate poverty, to help keep roofs over people's heads who had lost their homes, we saw bigger drops in tuberculosis, bigger drops in suicides and child deaths than in those states where the governor sought to avert the New Deal.

ERIC VAN BEMMEL
Now moving a bit forward in history to 1997, some listeners may remember quite a substantial market and currency crash, particularly in Southeast Asia. Again we saw there differing responses from governments in terms of how to deal with this crisis, to go austerity, to go for spending, and with different health outcomes. Can you talk a bit about that?

DAVID STUCKLER
As you look back historically, the cycles, says Mark Twain, they rhyme. In East Asia, what precipitated the crisis this time was not a housing collapse but a currency crisis. There was speculative attack on the baht, Thailand's currency, which brought the Asian Tigers, as they were then known, including Thailand and Malaysia, to economic struggle. Unemployment jumped up in both nations. A critical difference was Thailand turned to the International Monetary Fund for support and a bailout and Malaysia rejected it. Now with Thailand's bailout, came strings attached, not too dissimilar to what Greece experienced, involving big cuts to its health program.

ERIC VAN BEMMEL
These were international lenders basically imposing cuts: austerity as the solution, as a condition.

DAVID STUCKLER
As a condition, and thought to help bring about an economic recovery: an untested experimental idea on the people of Thailand. As part of the cuts, Thailand made deep cuts to its HIV budget. If you look at the history of its HIV rates, you can see that was a turning point where Thailand remarkably, through some famous condom promotion programs, had brought HIV down. As they were slashed, rates began to reverse. It was only in the past two years that Thailand's been able to bring its HIV rates back in line with what they were in the late '90s. In December 2011 the International Monetary Fund apologised to Thailand, saying that the economic consequences of its austerity program were much greater than it previously had realised. The health consequences, to my knowledge, were never evaluated.

ERIC VAN BEMMEL
Our guest on Up Close is Oxford sociologist and political economist Professor David Stuckler and we're looking at what history tells us about the health impacts of economic crisis and austerity. I'm Eric van Bemmel. David, another example, which really seems quite astonishing, is the disappearance, as you put it, of 10 million Russian men in the 1990s. What happened?

DAVID STUCKLER
Russia faced an enormous challenge after the fall of the Berlin Wall in the late 1980s.

ERIC VAN BEMMEL 
These were the Yeltsin years?

DAVID STUCKLER
Correct. Russia faced the challenge of how to build a functioning system of capitalism out of the ruins of state socialism. There were debates on how to do it at the time, some calling for seizing the opportunity to introduce a set of reforms that would make sure the Communists never got back into power, a so-called Big Bang approach to capitalism. Another group said well, let's look at China, let's look at an historical precedence and reform more slowly and gradually let the market come in, outperform state institutions, grow out of the plan. In Russia it was the former approach that won. The central planks of the plan were to rapidly privatise its industry, to open its markets so that the prices were no longer set by the states and to allow for foreign investors and trade to come in for the first time. And the consequences were devastating. Russia experienced the worst mortality crisis that we have seen in the past 50 years in a time outside famine or war. In Russia alone, over 3 million excess deaths and across the Soviet Empire, the figure is much higher. What was unusual about this epidemic is that it was concentrated not in children or the elderly, some of the weaker members of society, but primarily in working-age men, and largely from heart attacks, suicides, homicides, what epidemiologists call violent causes of death.

ERIC VAN BEMMEL
But what is the mechanism, the connection between this very quick, sudden opening of the market and this health outcome? What actually happened to connect those two?

DAVID STUCKLER
That's a good point because these might seem far apart. What we had found is people were drinking in dangerous quantities alcohols, but these weren't just ordinary alcohols. These were perfumes, aftershaves and medical tinctures, surrogates that were marketed by their flavour not by their scent. I can assure you these substances are absolutely vile. In the case control study we looked at, the hazard of dying from these compared with the regular home-brewed Russian vodka was 26 times greater. The question was why were people dying in such greater degrees than before. We found people who had lost their jobs, who felt hopeless for the future, the rug had been swept out from underneath them as their world was left disorientated and confused, rapidly, were much more likely to die. It wasn't just individuals; it was entire countries. Where Russia's neighbour Belarus didn't go down the Big Bang path, we didn't see these big rises in mortality as we did in Russia. It was a devastating consequence of mass privatisation programs.

ERIC VAN BEMMEL
Now the suicide rate was very high among these Russian men and you talked about suicide in the Great Depression in America, suicide in Greece after the GFC. But suicide is not necessarily correlated with things like unemployment in some parts of the world, like in Scandinavia there doesn't seem to be a correlation. It is the case in other parts of the world, the US, Russia, Greece, Spain. So isn't there a cultural element here also at play?

DAVID STUCKLER
What's fascinating in the history of suicides is linked to the economy to see that they're not inevitable. Sometimes we blindly accept suffering. The correlation between recessions and an uptake in suicide rates has been known, from the work of the sociologist Emile Durkheim, since the 19th Century. But what we've seen is that different societies respond in different ways to unemployment and hardship. Those societies that have more comprehensive programs of support to help people get back on their feet and return to work, that losing a job isn't as detrimental to your health as it is in those societies that take the approach to pull yourself up by your bootstraps and provide less support. To be more specific, we found that countries that have better-resourced so-called active labour market programs seem to pull apart, to decouple an economic shock like losing a job from health harm such as suicide and depression risk.

ERIC VAN BEMMEL
Just to push the point a bit further, can't we still somehow resolve that into cultural practices as well?

DAVID STUCKLER
Culture can make a difference and an entire society has a culture that says we should protect the weak. There is also culture that matters on a more personal level, a culture of resilience and resolve. While those individual choices are important, so too are the societal ones. Where we've seen societal choices to provide support, it helps considerably. Take Spain and Sweden: Spain has very strong family networks that people can turn to during hard times but it doesn't have a very strong system in terms of helping people return to work, where in contrast, Sweden has much stronger and better-resourced labour market programs to get people back into jobs. When we saw ups and downs in unemployment in Spain, those peaks and valleys map directly onto suicides, where in Sweden there was no relationship between the two that was evident. The way epidemiologists think is to map out complex causal chains. So if you're going to think about a factor like culture, to think through well what are the mechanisms, how does culture impact health at different times, how does it modify relationships between losing a job and the risk of suicide and then, what does that mean for what do we do in the programs that we develop, how can we make them work better. One cultural factor that we did find that was important in terms of men's risk of suicide was social pressure for men to fulfil breadwinner roles, notions of cultural norms around gender equality. Where we found a greater degree of gender equality in the workplace and in political spheres, we actually found that men's risk of suicide on losing jobs was lower.

ERIC VAN BEMMEL
Dr David Stuckler is our guest on Up Close. He's Professor of Political Economy and Sociology at Oxford University. We're discussing economic decision and the impact on health. I'm Eric van Bemmel. David, this data, both historic and contemporary, where does it take us? In your writing you talk about the centrality of health as a consideration in all government policy, the need for gainful employment as an economic lever and a health protectant, and the importance of well-supported public health systems. But more recently you've upped the ante, calling for radical reform to reverse rising inequalities and their harm to public health. Your wish list includes reregulation of the financial system, rejection of austerity as a response to economic downturn, restoring progressive taxation, nationally and globally, and also prioritising economic growth that is environmentally sustainable. Now let's take the second of these - on rejecting austerity measures. Not only are there some very powerful people with a vested interest in maintaining the tenets of neoliberalism but the general public seems to be persuaded, it seems to make sense to them. We're encouraged to see national budgets as like household budgets; if you overspend you have to face the consequences, you've got to tighten your belt. What does it take to change that mindset?

DAVID STUCKLER
A government budget isn't like a household budget. Absolutely if a household overspends, you need to tighten your belt. But in a government, the choice to cut means to cut someone's job, to cut someone's income. It then has a knock-on effect on how much money a company's making and how many employees it can have. The danger and what we've seen is that austerity can precipitate a vicious negative spiral, falling employment, falling spending, that worsens the situation. So what we've looked at - again it's based on the data of historically where to invest - and where to make cuts using a technical approach rather than a political one, which we've seen. Much of this debate has hinged on a rather arcane statistic known as a fiscal multiplier. Let me tell you about it. For a few - it's an important concept to really unpack this debate about whether austerity's good or austerity's bad. Well it's not so simple.

ERIC VAN BEMMEL
So tell us about the fiscal multiplier.

DAVID STUCKLER
The multiplier tells you how much money you get back for each dollar of government spending. Early in the crisis, the International Monetary Fund had projected from its previous models that this multiplier was around 0.5. That meant each dollar of government spending was like throwing a bombshell at the economy. So if you made cuts, you'd save. The economy would grow faster. Except there was a problem: when it projected that if Greece made the cuts (which it made), it suggested a four per cent cut would lead to growth. Those projections were wildly inaccurate. So its economists had to step back and say well, something went off with our models, what was it? When they re-estimated their fiscal multipliers, they found they were positive and larger than one. That's when the IMF did a U-turn and started advising stimulus, particularly around public infrastructure. Now where we came in is we thought well even this suffers a major flaw in the debate because it's assuming all government spending has a similar fiscal multiplier, which is implausible. You wouldn't expect the environment and health and education and defence to affect the economy in equal ways. One of our team took the International Monetary Fund's methods and re-estimated the fiscal multiplier but this time looking at those different sectors. What we found is that health and education had some of the biggest and most positive fiscal multipliers of up to $3 return for each $1 invested, whereas defence and bank bailouts had smaller and in some cases even negative fiscal multipliers. Money was flowing out of the economy in the case of defence, maybe going to contractors in Afghanistan or bank bailouts, to offshore tax havens but they weren't stimulating the domestic economy. What this told us is that if you wish to pursue austerity, there's a smart data-driven way to do it during a crisis and that, what the data shows for Europe at the point in time we're looking, would've been to protect health and education. Unfortunately that's the opposite of what the troika pursued. So the short of it is that's why we call for an end to austerity as it's been done.

ERIC VAN BEMMEL
Have you had much response to your book from international lenders or others, other policy makers?

DAVID STUCKLER
As it happens, the approach of the International Monetary Fund is now consonant with what our data show. In terms of the European Central Bank, there's been little change in the policy, simply been calling for more, greater and deeper austerity measures.

ERIC VAN BEMMEL
What do you think is stopping the European Central Bank and other bodies that don't seem to get this message?

DAVID STUCKLER
There's a complex set of forces of who wins and who loses from austerity. The European Central Bank is different from the US Fed (the US Federal Reserve Bank) in that it has only keeping inflation low in its mission, whereas the US has a mandate to also keep unemployment low. So the Central Bank is following its seemingly ideological belief to keep inflation low, which would be best done by limiting government spending. Who plays God in the decision, what degree of social suffering will we tolerate for a low inflation rate - and inflation has been at historic lows in Europe - that's a question for democratic debate.

ERIC VAN BEMMEL
We've seen radical change in the past, like the New Deal. How likely is it that in the current political environment we might see change? We're speaking in early 2016 where we're finding in the United States, for example, even the very word socialism or democratic socialism is finding some popularity. It's no longer a dirty word, particularly from young people. There's sort of a vocal economic leftism that's emerging. Is this a harbinger of change?

DAVID STUCKLER
I think there's a willingness of people to look at fresh ideas in thinking about old problems. One thing that has come out of current polarisation on both sides of the political spectrum, are a range of new ideas. One that's come back is that of a universal basic income that Finland has been experimenting with - knock out poverty in one fell swoop by giving EUR800 to every citizen or resident, depending on how you do it - and streamline your social support system, making it easier to administer. There are ideas about a negative income tax. There are other ideas about participatory grants to everyone. Ideas that we've been floating out in the ether but are coming back to the political debate in new forms. So I think it's an interesting time to see, even if these ideas don't get implemented, there now seems to be political groups that are spreading them more widely.

ERIC VAN BEMMEL
David Stuckler, we'll leave it there. Thanks very much for being on Up Close with us.

DAVID STUCKLER
Pleasure, thank you.

ERIC VAN BEMMEL
I've been talking about health, economics and society with David Stuckler, Professor of Political Economy and Sociology at Oxford University. He's the author of very many articles and co-author of books including "The Body Economic" and "Sick Societies". You'll find details of some of his publications on the Up Close website together with a full transcript of this and all our other episodes. Up Close is a production of the University of Melbourne, Australia, created by Kelvin Param and me, Eric van Bemmel. This episode was recorded on 16 February 2016 and was produced by Eric van Bemmel with editorial help from Lynne Haultain. Our audio engineer was Gavin Nebauer. Thanks for listening. I hope you can join us again soon.

VOICEOVER
You've been listening to Up Close. For more information visit upclose.unimelb.edu.au. You can also find us on Twitter and Facebook. Copyright 2016, the University of Melbourne.