How does the economy really work?

Or, asked differently, how should the economy work for us?

A simple way to think about the economy is – ‘people buy goods and services, and people produce and sell goods and services’.

People often need money and other things to produce and sell goods and services.

They need money to buy the goods and services they need or want.

People may buy or sell goods such as food items, mobile phones, medicines, cars, electric generators, etc.

They may buy or sell services such as transportation, electricity, data, etc.

The goods and services we buy are produced directly or indirectly by others and used directly or indirectly by us or others.

The point is, it is all about people and it should be all about the people and their well-being.

We will come to well-being later as it is the pillar of health.

Before then, let us explore a bit further some of the big questions that managers of any economy should constantly engage.

These will provide appropriate answers, as these questions connect with health:

1. Can our people produce the goods and services that our population needs?
2. Are they able to sell the goods and services that they produce (needed by our population)?
3. Can we buy the goods and services that we need?

Government (run by our people) engages these questions through its preferred fiscal policy actions.

The Central Bank (also run by our people) responds to these questions through monetary policy.

They are trying to answer the above questions affirmatively together, but what do these policies mean to the people?

Fiscal policy is about the preferences and choices of governments as they collect revenue and borrow money.

It’s also about how much, when, why and on what that governments spends money.

Monetary policy is about what the Central Bank does to control inflation so that people can buy and sell to grow the economy and to ensure that banking and financial services are strong, stable and operating smoothly.

When fiscal and monetary policy choices work very well together over a sustained period of time, an environment emerges that enables people and businesses to produce and sell goods and services.

Thus people, businesses, governments and others can easily buy the goods and services they need.

This kind of environment should lead to growth in demand and supply of goods and services and create jobs.

When Fiscal and Monetary policy work well.

The economy grows in a more stable, predictable and inclusive way.

This can reduce inequality and poverty; and improve the well-being of the population.

But the well-being of the population would further improve when fiscal policy is focused on the right priorities and choices.

This links and catalyses key drivers in the economy.

It might mean that taxation is more progressive, promoting small businesses and protecting the poor.

Further, it might also mean spending priorities and increased investments in health and education, social security and welfare programmes, and physical infrastructure.

All this can mean investments in other public goods and merit goods and services (such as security, public safety, public health, etc.) that every person should and can have will blossom.

Hence, irrespective of the ability to pay, we will have investments in areas which can bring social, economic and political returns on investment.

These are positive benefits to the entire population and economy (positive externalities).

Investments in these kinds of goods and services improve equity in the population which is important to health.

But there is much more to it.

How Health and Economy link.

Yes, human activities are at the heart of economic performance.

To be involved in producing and supplying goods and services (and supporting the value chains that promote well-being), people need to be well.

Also, the nature of the goods and services that people demand depends on their health, albeit what they can afford.

In most economies, healthcare expenditure contributes a significant share of the Gross Domestic Product (GDP) with, in the United States, for example, about 18 per cent of GDP in the United States.

However, the bigger story is that consumption-led economic growth in most countries has implications for health and the related epidemiological, demographic and human-capital drivers.

It is on these that current and future economic performance would depend.

And this is where health converges and can determine the economy.

After all, health is about people’s well-being (physical, mental and social).

Health depends on the conditions in which people are born, grow, live, work and age – often described as the “social determinants of health”.

When the economy is unfair in the way it supplies and distributes opportunities, jobs and work conditions, financial and material resources, and power, it results in health inequalities and avoidable disparities in health status of individuals, communities and population groups.

Inequalities and disparities occur at local, national and global levels and are related to the flow of capital, demand and supply of goods and services and economic performance.

Such inequitable distribution of the “social determinants of health” leads to social exclusion affecting the health, education and development of women and children in particular.

It also affects other minority groups in both rural and urban areas within countries.

Between countries, there is the impact of globalisation from trade imbalances that leave a few countries and a few people with so much wealth at the expense of most countries and most people in the world.

So, when Nigeria imports most of the goods and services that we need or when Nigeria imports most of the inputs (medical devices, equipment, vaccines, medications, etc.) for healthcare products, we increase demand for US$-dominated goods and services.

This is the same when some Nigerians who have access to and have benefited from the unfair distribution of opportunities and resources in Nigeria seek healthcare abroad.

With a large sized [health care] population and oil-only source of US$ earnings under stress, this exerts pressure on the Naira, resulting in a high Naira to US$ exchange rate and the erosion of our trade balances.

Also, with high levels of grand and bureaucratic corruption, the making and delivery of fiscal and monetary policy suffer.

Thus the very pillars that support production and competitiveness suffer.

Demand and supply suffer.

Our economy is inefficient and suffers.

Health suffers, and a vicious cycle continues.

Health and the Economy are intrinsically linked.

Author: Dr David Kieghe

Editing by AskAwayHealth Team

Disclaimer

All AskAwayHealth articles are written by practising  Medical Practitioners on a wide range of healthcare conditions to provide evidence-based guidance and to help promote quality healthcare. The advice in our material is not meant to replace the management of your specific condition by a qualified healthcare practitioner.
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