POVERTY AND HEALTH an overview of the basic linkages and public policy measures
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an overview of the basic linkages and
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WHO/TFHE/TBN/97.1
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POVERTY AND HEALTH
an overview of the basic linkages
and public policy measures
HEALTH
ECONOMICS
TECHNICAL BRIEFING NOTE
POVERTY AND HEALTH
an overview of the basic linkages and
public policy measures
by
Guy Carrin and Claudio Politi
Health Systems Development Programme
WHO TASK FORCE ON
HEALTH ECONOMICS
January 1997
Documents of the WHO Task Force on Health Economics
A bibliography of WHO literature.
WHO/TFHE/93.1. e-mail access:
hcconl@who.ch (English)
heconlf@who.ch (French)
A guide to selected WHO literature.
WHO/TFHE/94.1. e-mail access:
hecon2@who.ch (English)
hccon2l@who.ch (French)
Unc demarche participative de reduction des couls hospitallers
Hospices cantonaux vaudois (Suisse).
WHO/TFHE/95.1. c-mail access'
hccon.3@who.ch (French)
hccon3c@who.ch (English)
Environment, health and sustainable development'
the role of economic instruments and policies
WHO/TFHE/95.2 c-mail access:
hecon4@whoch (English)
hccon4f@who.ch (French)
Identification of needs in health economics
in developing countries.
hccon5@who.ch (English)
WHO/TFHE/95.3. c-mail access.
Health economics' a WHO perspective.
WHO/TFHE/95.4. e-mail access:
hccon6@who.ch (English)
WTO: What’s in it for WHO?
WHO/TFHE/95.5. c-mail access.
hccon8@who.ch (English)
hccon8f@who.ch (French)
Cost analysis and cost containment in tuberculosis
control programmes: The case of Malawi
WHO/TFHE/96.1. e-mail access.
hecon9@who.ch (English)
Drugs and health sector reform
WHO/TFHE/96.2. c-mail access:
heconlO@who.ch (English)
Task Force technical briefing notes:
Privatization in health.
WHO/TFHE/TBN/95.1.e-mail access:
hccon7@who.ch (English)
© World Health Organization, 1997
This document is not a formal publication of the World Health Organization (WHO), and all rights are reserved
by the Organization. The document may, however, be freely reviewed, abstracted, reproduced and translated,
in part or in whole, but not for sale or for use in conjunction with commercial purposes.
The views expressed in documents by named authors are solely the responsibility of those authors.
For users of electronic mail:
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TABLE OF CONTENTS
Foreword......................................................................................................... V
Introduction.................................................................................................... I
1.
The extent of poverty in the developing world..................................... 2
1.1 The income aspect of poverty................................................................ 2
1.2 The health aspect of poverty.................................................................. 2
1.3 The role of income in health improvement............................................... 3
1.4 Poverty as a determinant of changes in health status.................................. 4
1.5 Poverty mailers for health policy............................................................. 6
2.
The household economy of the poor...................................................... 8
2.1 Basic features of a household economy.................................................... 8
2.2 The household economy of the poor......................................................... 9
2.2.1 Insufficient capital assets.............................................................. 9
2.2.2 Inadequate use of labour.............................................................. 13
2.2.3 Allocation of income................................................................... 14
2.3 The health determinants.......................................................................... 15
2.4 Human capital and income generation....................................................... 17
2.5 Summary.............................................................................................. 18
3.
Public policy instruments for poverty reduction.................................. 18
3.1 Allocation of public sector funds across a country's regions......................... 18
3.2 Specific poverty reduction instruments....................................................... 20
3.2.1 Making factors of production available to the poor........................... 20
3.2.2 Improving human capital: nutrition and education............................. 23
3.2.3 Improving human capital: health.................................................... 25
3.2.3.1 Public resources allocation for health services..................... 25
3.2.3.2 Establishment of cost-sharing while safeguarding
the interests of the poor................................................... 26
3.2.3.3 Further improvement of access to health care..................... 29
3.3 Summary............................................................................................. 30
4.
Conclusion............................................................................................... 33
BIBLIOGRAPHY............................................................................................ 35
iii
Foreword
Building upon activities already undertaken in the area of health
economics, the Director-General created the Task Force on Health Economics
(TFHE) in November 1993 in order to enhance WHO’s support to Member
States'. Its goal is to further the use of health economics in the formulation
and implementation of health policies, giving priority to countries in greatest
need.
The Task Force aims not only to strengthen the technical content of
WHO programmes so that they can better adapt the tools of health economics
to country needs, but also to foster cooperation among development agencies in
applying health economics at country level.
A series of documents in English and French is now available (a list of
which can be on page ii) to help meet the information needs of both those
involved in the organization, planning and financing of the health sector and
health professionals whose expertise may lie in other areas.
This paper is the second in a new series of Technical briefing notes.
These notes tackle subjects of concern to health policy decision-makers,
particularly in developing countries. They are intended to provide readers who
are not necessarily familiar with the health economics aspects of a subject,
with information designed for non-specialists. Nonetheless, the notes are
comprehensive and reflect the entire scope of a given topic.
1 Members of the Task Force are : F. S. Antezana (Chairman), M. Jancloes (Vice-Chairman), G. Carrin (Secretary), O. B. R. Adams,
S. Bertozzi, A.L. Creese, D.B. Evans, K. Janovsky, J.M. Kasonde, C. Kinnon, E. Lam bo, C.L. Lissncr, P. Lowry, M. Miller, J.H. Perret,
B. Sabri, Than Scin, G. Velasquez, C. Vieira, A.E. Wasunna,, H. Zd liner.
V
Acknowledgements
Sincere thanks are due to the many colleagues who commented
upon earlier drafts of this paper. In particular, we wanted to acknowledge
the comments and suggestions of Andrew Creese, Julia Jameson, Michel
Jancloes, Marianne Jensen. Colette Kinnon, Joe Kutzin, Socrates Litsios,
John Martin, Roeland Monasch. Alvaro Moncayo. Dev Ray. Abdelmajid
Tibouti (Unicef, Geneva). Michel Vanderheyden. German Velasquez,
Ambrose Wasunna and Derek Yach. The usual disclaimer applies.
vi
HEALTH ECONOMICS
Introduction
As advanced in the World Health Report 1995, poverty will continue to be a
major obstacle to health development. Low income levels are associated with
debilitating disease patterns and, as well as being connected to lack of access to
health services, are also associated with substandard nutrition, illiteracy,
inadequate housing, lack of hygiene and lack of access to safe water. The latter
are important health determinants, and thus perpetuate the low health status among
the poor.
This briefing note is an attempt to identify common features of poor
households, to better understand the major linkages between poverty and health,
and to review the roles that public policy can play in alleviating poverty and
improving health. These linkages, as well as public policy, will be studied from
a micro-economic point of view. Impacts of the macro-economic environment
on poverty and health are not addressed explicitly. The latter is surely important
and demands additional inquiry. In fact, we understand the current analysis to
be essential to any further macro-economic analysis.
In section 1, we discuss the extent of poverty in the developing world, and
the role of poverty reduction in enhancing health status. A simple framework to
describe the household economy is presented in section 2 which is used in order
to better understand why people are poor. In section 3, the most crucial policy
responses in and outside the health sector are discussed. We conclude in
section 4.
POVERTY AND HEALTH an overview of the basic linkages and public policy measures
I
HEALTH ECONOMICS
1. The extent of poverty in the developing world
1.1 The income aspect of poverty
A frequently used tool to study the extent of destitution of a population is the
absolute poverty index1. This index is defined as the percentage of the population
that has an income below the absolute poverty line, i.e. that income level that is
just sufficient to acquire both the food that is nutritionally adequate and the
essential non-food requirements. The absolute poverty index can apply to a
country's total population, its rural or urban population, or even the population
of specific regions.
The number of people living in absolute poverty was estimated to be 1.3
billion in 1993 or more than one-fifth of the world population2*. Chen et al.
(1993) have estimated changes in the incidence of absolute poverty between
1985 and 1990 in 40 selected countries’. An absolute poverty line of 1 US $4 is
used to obtain these estimates. The incidence of absolute poverty, as an aggregate
for the selected sample of countries, is relatively stable: 33.28% of the population
of these countries was considered poor in 1985, and 33.13% in 1990. During
this period, however, the total population of this group of countries grew by
about 2% per year, and it follows that the total number of the poor or headcount
has sustained a similar growth pattern. There are regional differences, however:
the incidence of absolute poverty drops in East Asia, the Middle East and North
Africa, and South Asia, and rises in Latin America and Sub-Saharan Africa.
However, the highest incidence of poverty, namely 59%, remains in South Asia.
1.2 The health aspect of poverty
When looking at global indicators of health such as life expectancy at birth
or infant mortality, the developing countries as a group have definitely made
some progress since I960. Whereas average life expectancy was 46 in I960, it
rose to 6I.5 in 1993, while infant mortality decreased from 150 per 1,000 in
1960 to 70 per 1,000 in 1993s.
Also referred to as the "headcount ratio".
* WHO (1996). UNDP (1996).
'Fhese arc developing countries belonging to East Asia. Latin America, the Middle East and North Africa. South Asia and Sub-
Saharan Africa, and countries belonging to Eastern Europe.
4 A purchasing power parity (PPP) exchange rate for 1985 is used: a PPP exchange rate reflects a country s true purchasing
power, expressed in dollar terms. These exchange rates therefore allow one to compare countries consumption baskets.
' UNDP (1996).
2
POVERTY AND HEALTH an overview of the basic linkages and public policy measures
HEALTH ECONOMICS
However, when focusing on the least developed countries (LDCs)'1, it is
clear that a special effort is needed to enhance the health status of their
populations, and to reduce the gap with respect to the industrialized world and
even other developing countries. In the early 1990s, the average life expectancy
at birth of these countries was only 51 years and the average mortality rate for
children under the age of five was 171 per 1.000 live births. Average maternal
mortality was 1,015 per 100,000 live births in 1993. These figures confirm a
marked inequality to the rest of the world. In fact, the average life expectancy in
LDCs is about 69 % of that in industrialized countries, and an excessively large
gap is noted with regard to the health of women and children. Average mortality
rates for mothers and children under five are respectively 30 and 10 times the
average rate in industrialized countries. When comparing with other developing
countries, we find that life expectancy in LDCs is about 78% of that in other
developing countries, and average mortality rates of mothers and children under
five are 2.7 and 2.4 times as high7.
Within the LDCs it also appears that specific population groups are at special
risk; it is estimated that, of the present total population of 540 million in the
LDCs, 350 million live in poverty, particularly those in rural areas (UNDP, 1994).
In addition, children suffer in particular: 30 million are reported to be dying
from malnutrition each year (WHO, 1993). The average population growth in
LDCs is also quite high, about 2.6% per year, and this, accompanied by migration
to cities, intensifies the poverty and health problems in urban slums.
1.3 The role of income in health improvement
To what extent can progress in health be triggered by income growth? For
simplicity's sake, we have measured health exclusively by life expectancy at
birth. We now illustrate the relationship between life expectancy at birth and
gross domestic product (GDP) per capita in 1993, using data from the 53
developing countries for which poverty data were also available8.
Figure I (page 5) shows that, on the whole, economic development enhances
health status: the higher the level of GDP per capita, the higher the life expectancy.
' Least developed countries are part of "A group of developing countries that was established by the United Nations General
Assembly. Most of these countries suffer from one or more of the following constraints: a GNP per capita of around $300 or
less, land'locked location, remote insularity, desertification and exposure to natural disasters" (UNDP. 1994).
’ UNDP (1996).
‘ The data are from UNDP (1996).
POVERTY AND HEALTH an overview of the basic linkages and public policy measures
HEALTH ECONOMICS
However, several important derivations or outliers are noted, vis-B-vis the
‘predicted’ indicators9. In the figure, ‘predicted’ life expectancy is indicated by
the points marked in bold. Countries such as Sri Lanka and Viet Nam perform
much better than would be expected for countries in their income group, while
Mauritius, Nigeria and Zambia perform less well than expected.
These findings confirm that there is more to health improvement than the
level or growth of economic resources alone: the way in which countries allocate
these resources also matters. Improving performance in the areas of education,
nutrition and family planning may also improve health status, although time
lags may be noted before any positive effects on health are obtained. In addition,
Anand and Ravallion (1993) and UNDP (1996) demonstrated that income
distribution is also an important contributory factor to health status: a more equal
income distribution means better health for the whole population.
1.4 Poverty as a determinant of changes in health status
Improvement in health is the result of several factors: education, health care,
environment, sanitation, nutrition, and income are some of the components cited
most often as affecting the health status of individuals. Economic growth can
enhance health status because it increases opportunities for better education,
health care, and better living standards in general.
However, economic growth does not always mean more equity, in the sense
that the living standards of traditionally disadvantaged population groups do not
improve. The spreading of wealth among the socio-economic groups, or, more
specifically, a reduction in poverty, plays an important role in translating economic
growth into health benefits.
A simple analysis can be performed in order to examine the effect of poverty
reduction on health. Using the data portrayed in Figure I, countries can be
ranked according to the size and sign (positive or negative) of the deviation
from estimated life expectancy. First, the IO countries with the highest positive
deviation (the "high” performers), and the 10 countries with the highest negative
deviation (the “low" performers) are selected. Table I (page 7) is used to compare
the high and low performers. Next, for each of the selected countries, the
percentage of the population living in absolute poverty for the whole of the
country and that for rural areas is examined"'.
The predicted values are based upon the results of a simple regression analysis: lor the methodology, see Carrin and I oliti
(I996).
"*The poverty data are from UNDP (1994) and refer to lhe period 19X0-90.
4
POVERTY AND HEALTH an overview of the basic linkages and public policy measures
POVERTY A N D HEALTH an overview o f the basic linkages and public policy
Figure 1 Relationship between Life Expectancy and GDP per capita
80 -
e
Mauritius
X
c
Zambia
Observed (LDCs)
j
" Observed (DCs)
• Predicted
2'000
4'000
6'000
8'000
GDP (PPP$) per capita, 1993
10'000
12'000
14'000
HEALTH ECONOMICS
0
HEALTH ECONOMICS
Il is clear that levels of both total and rural absolute poverty are substantially
higher in the "low" performers compared to the “high" performers. The 10
selected countries from below the expected line in Figure I have an (unweighted)
average of 55% of the population below the absolute poverty line. However, for
the 10 selected countries who performed better, i.e. with a higher life expectancy
than predicted, the average is less, with 36% of the population below the absolute
poverty line. For rural areas the percentage of the population living in absolute
poverty is, on average, greater in the “low" performers than in the "high"
performers - 61% and 45% respectively.
Given that the sample included China and other countries with different
population sizes, the averages weighted by the population were computed. This
showed clear-cut differences in the levels of poverty between “high" and “low"
performers. Although the exclusion of China from the calculation of the
population-weighted average would narrow the disparities in terms of GDP per
capita and absolute poverty between the two groups of countries, the indication
derived from this simple analysis remains that the level of poverty is significant
in the explanation of differences in health status across countries.
1.5 Poverty matters for health policy
We have illustrated the role that poverty can play in co-determining the health
status of the population. It is therefore important that health policy reflects an
awareness of the causes of poverty, so as to better address the goal of health
development. Health policy can have a direct beneficial impact on poverty
reduction and health by ensuring access to health services among the poor
population groups. It can also stimulate the formulation of anti-poverty measures
outside the medical sector, which are important to health improvement, such as
improving literacy, nutrition, hygiene and sanitation.
In the next section, the determinants of poverty are further discussed. A
simplified model of the economy of a household is used to identify, in a structured
way, which behaviour and living conditions would reduce poverty and, hence,
improve health.
6
POVERTY AND HEALTH an overview □( the basic linkages and public policy measures
HEALTH ECONOMICS
Table 1 Comparison between high and low performers
Countries
Deviation from
expected life
expectancy (%)
GDP per
capita
1993
1993
Absolute Poverty
(%)
Total
Rural
1980-90
1980-90
HIGH PERFORMERS
Viet Nam
108
1,040
54
60
Sri Lanka
85
3,030
39
46
I londuras
7.6
2,100
37
55
China
7 -I
2.330
9
13
Costa Rica
72
5,680
29
34
Myanmar
6.6
650
35
40
Lesotho
6.5
980
54
55
Nicaragua
6.1
2,280
20
19
Paraguay
5.8
3,340
35
50
El Salvador
55
2,360
51
75
Average
- unweighted
- population weighted •
- population weigthed
(excluding China)*
7.2
7.6
9.0
2379
2336
1,488
36
13
46
45
17
53
LOW PERFORMERS
Chad
-4.0
690
54
56
Cameroon
-4.5
2,200
37
40
Mozambique
-4.8
640
59
65
Rwanda
-5.0
740
85
90
Swaziland
-5 4
2,940
48
50
Papua New Guinea
-5 9
2,530
73
75
Malawi
-64
710
82
90
Zambia
-6.6
1,110
64
80
Mauritius
-6.8
12,510
8
12
Nigeria
-7.2
1,540
40
51
Average
- unweighted
- population weighted *
-5.7
-6.5
2,561
1,477
55
48
61
57
• The population data arc for 1990, the source is UNDP (1992)
POVERTY AND HEALTH an overview of the basic linkages and public policy measures
7
HEALTH ECONOMICS
2. The household economy of the poor
2.1 Basic features of a household economy
Figure 2 (page IO) shows the most important linkages (shown by arrows)
between income generation, consumption and health status in a family. In this
note, the family is considered the basic unit of analysis, and it is defined as a
group of people living together or closely connected, sharing their food and/or
working formally or informally in a family enterprise. In section 2.2, we will
analyse how this basic framework can allow for the specific influence of poverty.
In Figure 2, the main inputs into the household production process are listed
as capital, other inputs and labour (arrows I). Firstly, capital can be of a private
nature, namely land, equipment or livestock; it can be in the form of public
infrastructure, such as roads or water supply, which also supports household
production; or it can be common to whole villages or communities, such as river
banks or forests (referred to as “common property resources").
Secondly, labour can be measured by the amount of time allocated by a
household to income generation. Thirdly, “other inputs" could be, for example,
the amount of fertilizer used in the event of agricultural production. Farmers
are associated with all three types of inputs, while industrial workers tend to be
limited to labour, although they may possess land from which they can derive
additional income.
It is important to note that income earned can be in kind (such as self
consumption of vegetables), in cash, or in both", and may be taxed. In addition,
the government may extend transfers to households. Net household income is
then equal to income earned minus taxes plus transfers. It can be used to finance
private consumption, or to realize savings (arrows 2). In turn, capital can be
built up using savings or by borrowing (arrows .3).
Components of private consumption, especially those related to basic needs,
such as food, health services, education and housing, will have a positive influence
on health status (arrow 4). Health can be taken as one of the most important
indicators of the family’s well-being. However, the same consumption related
to basic needs also influences other indicators such as the nutrition and education
status of the family’s members.
Note here that a subsistence economy is associated with income in kind and devoid o! subsequent trading activities.
K
POVERTY AND HEALTH an overview of the basic linkages and public policy measures
HEALTH ECONOMICS
The structure of private consumption will be influenced substantially, not
only by income, but also by relative prices and fees (arrow 5). For example,
food prices will co-determine the types and quantities of food bought, while
user fees for health services are more likely to have an impact on the demand for
health care.
It is not only private consumption patterns that affect health status in a family:
environmental factors, such as parasitic diseases or pollution, and health
behaviour'2 (e.g. with respect to sex and alcohol) are also important influences
(arrows 6 and 7). It is also obvious that various public policy instruments can
affect the different components of the household economy, such as the inputs,
the net household income and the consumption pattern, as well as health
behaviour and environmental factors. We return to these policies in section 3.
The health status of the family will have a further effect on labour, the use of
capital, and other inputs (arrow 8). The quantity as well as the quality of labour
(e.g. measured by productivity) can be influenced positively by a better health
status of working family members11. In addition, better nutrition and education
contribute to the quality of labour, and therefore strengthen the economic position
of the family. In this sense, one can also refer to labour as “human capital"
which is at least as important for economic growth as physical capital.
2.2 The household economy of the poor14
Poverty in households can be defined as the lack of a means to achieve
minimum acceptable standards of living, in terms of food intake, housing and
hygiene, education and health. The simple framework above is used to identify
those factors which make households poor or even poorer.
2.2.7 Insufficient capital assets
Private capital
For the poor in rural areas, land and livestock are an important means of
livelihood. First, ownership of land allows families to cultivate food for self
consumption or for selling, or it can also be used for grazing of cattle. The poor
For simplicity’s sake, health behaviour has been presented in figure 2 us an independent factor affecting health status. In
reality, health behaviour itself is influenced by other factors, such as education campaigns. In addition, health behaviour also
affects private consumption patterns, such as allocutions towards food, beverages (e.g. alcohol) and housing.
In this note, we make abstraction of differences in health status between individual family members.
U Many empirical findings reported in this section are front Dusgupta (1993).
POVERTY AND HEALTH an overview of the basic linkages and public policy measures
9
HEALTH ECONOMICS
Figure 2 The household economy
10
POVERTY AND HEALTH an overview Of the basic linkages and public policy measures
HEALTH ECONOMICS
may have too little land to sustain their livelihood or they may simply be landless.
In the majority of countries, the poorest 20% of the population holds a very
small proportion of land: less than 5% of the total is quite common. For instance.
in Bangladesh, the Gambia and Haiti, the poorest 20% of the population holds
2.3%, 3.0% and 0.8% of the total land, respectively. This type of unequal land
distribution is an important factor in explaining the extern of poverty as a general
rule.
Secondly, the ownership of livestock affects the income-generating process
of the rural household: either by breeding and selling, or by consumption by the
household itself. Livestock can also be used as collateral for loans, or it can be
sold in order to sustain livelihoods during economically depressed periods. The
average number of large livestock (cattle, camels and buffalo) is less than three
per smallholder farmer household in 38 of the 49 developing countries for which
data are available (Jazairy et al., 1992), while the average number of small
livestock (sheep, goats, pigs, etc) is less than three in 25 of these countries. In
addition, these averages may conceal the fact that many rural households are
without animals altogether. For example, 38% of rural households in rural
Ethiopia were without work oxen; 45% of small holders in Botswana do not
own any cattle.
Among the urban poor in developing countries, one of the most important
capital assets is housing, and so-called illegal settlements have developed in
cities with their inhabitants being subject to eviction. An important contribution
to poverty alleviation could be to grant legal tenure to squatters, which would
provide security and increase the value of housing, and, in addition, would
stimulate investment towards housing improvements.
For the poor in general, inheritance and access to credit are two additional
factors related to difficulties in securing an adequate capital stock, with inheritance
playing a crucial role in ensuring the availability of capital among the survivors
in poor households. However, in many poor countries widows may be at risk,
especially if they have no surviving sons. Despite the 1956 legislation on
succession, Hindu widows in India often do not inherit their husband's property
(Dasgupta, 1993). If there are surviving sons, a widow has a role as trustee of
the estate, but if not, the family of the deceased husband can seize the property,
leaving the widow in a vulnerable position. In this context, there also seems to
be an inverse relationship between widowhood and health; it was found in India
that age-specific survival probabilities among widows are lower than those for
non-widows.
POVERTY AND HEALTH an overview of the basic linkages and public policy measures
11
HEALTH ECONOMICS
Another factor that contributes to economic difficulties in a poor household
is lack of access to credit. Although credit would provide an opportunity for the
poor to embark on some productive activities or to invest in land, livestock or
equipment, most official credit institutions, such as state banks consider it too
risky to extend loans to the poor, because of the lack of collateral. As a result,
informal credit markets have arisen in many countries, often with money-lenders
operating at village level. However, the rates of interest charged are usually
high, making it difficult for the poorest to borrow.
Public infrastructure
Public infrastructure, such as transport systems, is evidently important for
development, and is necessary to stimulate the trading of goods and services,
whether in rural or urban areas. Rural areas are frequently isolated and the
construction of new rural roads can enhance agricultural production; either new
land can be brought into cultivation, or the use of existing land can be intensified
to exploit fresh market opportunities. In urban areas, good transport infrastructure
can benefit the poor through greater access to trading possibilities and job markets,
and also facilitates the access to basic services such as education or health care.
In addition, appropriate telecommunications could reduce the isolation of rural
populations - easier contact facilitates trading opportunities. Access to health
care can also be improved, for instance by enabling better and faster treatment
of emergency cases.
Public sector involvement in water supply systems, both for drinking and
irrigation purposes, also enhances living conditions. The availability of water
can increase and stabilize agricultural production and income, while access to
safe water has a direct impact on health status. Easy access to safe water also
reduces collection time; in the Central African Republic, Pakistan and Papua
New Guinea it has been reported that women spent an average of four hours in
collecting drinking water (Jazairy et al., 1992). If the collection time could be
reduced, the time saved could be used for income-generating activities. Public
sector involvement in energy development, such as in automatization and
utilization of power for water pumps, irrigation and other basic activities also
have positive effects on the household economy.
Common property resources
Although individual people often have rights to land and livestock, a whole
group (such as a village) would benefit from common property resources such
as village ponds and river banks, sources of fuel (such as wood) for cooking and
heating, and forest products such as gum and bamboo. Equality of income also
12
POVERTY AND HEALTH an overview of the basic linkages and public policy measures
HEALTH ECONOMICS
appears to increase when common property resources are more prevalent. A
survey conducted in 80 villages in 21 dry districts in 7 states in India found that
15-25% of the income of poor families originated in the use of common property
resources (Jodha, 1986)
Such common resources also help poor families to cope when their economic
situation deteriorates; for many of them, it is the only non-human asset they are
able to use freely. Hecht et al. (1988), for example, state how important the
extraction of palm oil is for the landless in the Maranhoa state of Brazil. Between
harvests, this extraction is an important source of cash income.
Common property, however, might come under the authority of the
government. As such, it may be subject to privatization and subsequent changes
in land use, which may indirectly cause a deterioration in the health of the poor.
Feder (1979) showed that privatization of land in the Amazon Basin, associated
with private cattle production, affected the health of the rural poor because of a
decline in their protein intake.
2.2.2 Inadequate use of labour
Labour and the rural poor
In rural areas, the institutional mechanisms governing agricultural work can
be very complex, so that it is difficult to suggest clear-cut causes of poverty. For
instance, tenancy is an important agricultural institution in many developing
countries, and it is often tempting to associate tenancy with poverty. However,
tenants are not necessarily small farmers, and are therefore not always poor.
What can we say then about poverty related to labour? First, the poor may
have only small plots of land and little purchasing power to buy agricultural
inputs such as seeds, fertilizer and pesticide. Since labour productivity on such
plots is low, a poor farmer may seek work on the labour market, becoming a
labourer-cultivator. However, it is not certain that he will find regular work and
so may have to rely on casual labour. Secondly, the poor without land can only
hire out their own labour, as this is their only asset. This “potential" labour has
to be converted into “actual" effective labour, and this is possible only when the
person is adequately nourished and when he has access to basic health care.
Those poor that lack food and proper health care are therefore often unable to
find a job, as potential employers judge their productivity as excessively low.
The end result is that the landless poor are often not able even to hire out their
own labour, and their economic situation declines even further.
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The informal sector in urban areas
The informal sector in urban areas is made up of informal small-scale activities
such as petty trade, small repair (bicycles, knife sharpening), hawking and pedi
cab services. These activities are unregulated by government, and, in addition,
informal workers do not generally have access to any form of social security.
A significant number of the informal workers are underemployed and
unemployed people from rural poor areas who move to cities or villages in the
hope of finding economic opportunities that exceed those at home. If they do
not find a job in the formal sector, they tend to move quickly to the informal
sector. Official statistics often fail to capture the magnitude of the informal sector
- in developing countries in the early 1980s, 20-70% of the urban labour force
was engaged in informal sector activities, the average being around 50%15.
In many developing countries, the informal sector is also quite important
economically because of its linkages with the rural economy and the urban formal
economy. The rural areas "send" labour at low cost to the informal sector. The
urban formal sector provides consumers for low-priced products and services
from the informal sector. These low prices partly explain why informal workers
may be quite poor, even though they may have a full-time activity. They may
live in shacks in slums where public services - electricity, water, drainage,
transportation, and educational and health services - do not exist. They may
even be homeless, working only as day-labourers and hawkers, and therefore
be the poorest of the poor.
Migration is another result of poverty in countries or in specific regions of
countries. This can have advantages, such as the migrant transferring money
home to help sustain the livelihood of his family. However, migrants may
abandon the elderly and dependants at home, thus leaving them poorer and
possibly at greater risk of illness. In addition, migrants may be required to take
on dangerous or insecure jobs refused by the residents of the area. Mining is a
clear example of occupations involving high health risks, such as lung diseases,
other disabilities and accidents. Poverty may thus induce people to accept the
risk of illness because no alternatives are available.
2.2.3 Allocation of income
It was explained in the previous section that insufficient income is caused
primarily by a deficient level in the production factors. In theory, this income
” Todaro (19X9. pp.26X-269).
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could be complemented by the government, for example, via transfers. It is rare,
however, that governments in developing countries, especially the least developed,
have the financial capacity to allocate important transfers of funds. Rather, they
attempt to improve the well-being of the poor using pricing or subsidy policies
that have an impact upon the current income of the poor by improving their
purchasing power. For instance, exempting the poor from paying fees for
education or health services is an important form of social protection. Targeting
the poor with low-priced food (or from food stamps) or housing subsidies can
also be part of the Government's anti-poverty policy. It is also recommended
that migrants be integrated as rapidly as possible into the local economy, and be
granted the same health and education benefits as the local residents.
Clearly a basic needs policy"’ would help to minimize expenditure for basic
necessities. This could help poor households to start saving, which is only possible
when there is a surplus of income after financing necessities. Savings are important
to build up capital which will increase future production. Savings, which could
be in the form of money or land and animals, may also be used to maintain
levels of consumption in times of economic stress. Households without savings
may have to cut consumption of food, needed health care may no longer be
accessible, and children’s attendance at school may suffer. They could borrow
money to sustain their consumption level, but then part of future earnings would
have to be allocated to pay back these loans.
2.3The health determinants
Private expenditure patterns are clearly linked to health status. The first
basic commodity bought or produced by most households is food. Poor
households spend most of their income on food - the estimated average is 70%
in Sierra Leone - but higher figures are probable in the poorest segments of this
population group. When such a high proportion of income is allocated to food,
even small negative income variations may suddenly reduce food availability
unless savings are tapped or money is borrowed. It is also evident that
malnutrition affects the health status at all ages. Inadequate food intake in
particular is the main cause of high rates of infant and child mortality in poor
countries. Poor nutrition and associated diarrhoeal diseases are reported to be
responsible for around 3 million child deaths in developing countries in 199517.
A basic needs policy, as emerged al (he World Employment Conference in 1976 (ILO. 1976) should include achievement of
certain minimum requirements for privaie consumption al (he household level: adequate food, shelter, clothing, household
equipment and furniture. It also should include essential services provided by and for lhe community, such ax safe drinking
water, sanitation, public transport and health, educational and cultural facilities. Closely connected to lhe concept of basic
needs is (he notion of "entitlements" introduced by Amartya Sen (1983).
” WHO (1996).
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Poor housing usually implies crowded housing, lack of water supply,
sanitation, proper storage or collection of refuse, which are a root cause of several
kinds of disease, both communicable and non-communicable. In fact, housing
could represent a partial protection from diseases and infections related to the
surrounding environmental conditions if minimum housing standards were
achieved, but this is often not the case with poor households. Poor people often
live in regions where there is a high prevalence of vector-borne diseases such as
malaria and sleeping sickness. The use of impregnated bednets or fly traps,
which could help to alleviate the situation, is constrained by the availability of
cash income, and the absence of an adequate supply of safe drinking water and
sanitation facilitates the diffusion of schistosomiasis and other intestinal parasitic
infections.
Efforts in the area of education can help to alleviate the burden of illness by
preventing hazardous behaviour and stimulating proper actions for avoiding or
curing disease. Education contributes to hygiene and safe living conditions,
and also has a role in the adoption of birth control methods and therefore in
achieving a desirable family size. In most societies, women's literacy and
education play a crucial role in enhancing the health status of the household,
because as key family figures, women can promote healthy behaviour and so
improve household living conditions.
Finally, it is evident that both curative and preventive health care are important
determinants of health status. Curative health care is increasingly on a fee-forservice basis in many developing countries, which, although helping to finance
and improve the quality of health services, must be carefully implemented to
avoid the exclusion of the poor. In fact, poor households could have to allocate
too great a share of income to health care. In Bangladesh the poorest population
(belonging to the first income quintile) spends about 7-10% of its income to
cover health expenses compared with 2-4% of the income of the better-off groups.
In addition, sudden health-related shocks could cause a further deterioration in
economic status and lead to indebtedness and erosion of savings. For example,
between 1990 and 1994, 21%"1 of previously non-poor households in
Bangladesh slipped into poverty as a result of health-related causes.
Preventive health care, such as immunization, prenatal care, information
campaigns (e.g. about AIDS, and smoking), is crucial in restricting the spread of
disease. But these are areas where the intervention of the public sector is warranted
because the benefits of prevention typically extend beyond the benefits that an
From an analysis of panel data carried out by Sen (1996).
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individual would experience from this type of intervention. In fact, groups of
people, or even whole communities, can benefit from vaccinations that are given
to individuals, or from changed health behaviour by individuals as a result of an
information campaign. Such activities are said to produce "externalities" and
therefore merit public intervention. In other words, for the sake of the benefits
to society as a whole, the government can ensure that preventive activities are
undertaken via co-financing or via direct provision.
2.4 Human capital and income generation
When looking for explanations for poverty, it is important to look beyond the
quantity of labour alone. The quality of that labour is also important. Investment
in education, nutrition and health-related activities in general improve the quality
of the population (measured, for instance, by better skills and knowledge, and
health status), which in turn enhances the economic prospects of the poor19.
These investments are therefore said to contribute to "human capital" as was
already referred to in section 2.1.
In the area of education, literacy opens up job opportunities otherwise denied.
Better utilization of land or access to credit can improve the level of income. A
common problem related to poverty is that children begin working at a very
young age. Poor families are confronted with a trade-off between an immediate
income gain, albeit modest, and a long-term investment in education that results
in greater future gain. Economic necessity often forces poor families to choose
the former solution.
Nutrition and health are also critical variables within the household economy
as malnourishment and sickness are translated into poor working performances
and/or difficulties on the job market. It stands to reason, therefore, that the
health of working family members, certainly in the absence of a formal social
protection system, determines the survival of the family. In addition, the low
health status of non-working members, such as the elderly or children, can
increase poverty if their access to health care is obstructed. Time and money are
necessary to look after sick relatives, and given a low income, poor families
either cannot look after their relatives properly. Or they spend money on health
care, but at the expense of other necessary expenditure such as for children's
food or education.
Schultz (1981. p.7)
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2.5 Summary
The linkage between poverty and health was discussed using a simple
household economy framework. Although real life is obviously more complex,
the household economy model helps us understand the negative spiralling process
towards further deterioration of poverty and health, w'hen unfavourable “starting"
conditions apply. If people initially have inadequate capital (for example, the
landless or street hawkers), their potential to generate income and therefore to
sustain good health, is low. The underemployed and unemployed will face similar
risks if they remain outside the labour market. Other population groups, including
widows, displaced people and refugees, may unexpectedly find themselves
without necessary capital and labour. Families may also find themselves trapped
in the vicious cycle of illness and poverty, when working members of household
fall ill. Missed income may reduce the purchasing power and living conditions
of the entire household, in turn making its members more vulnerable.
Furthermore, expenditure on necessary health care may preclude expenditure
on other basic commodities, such as education, food, clothing and housing.
This “disequilibrium" in the household expenditure pattern may reduce
households to a state of poverty, or may worsen poverty in those households
that are already poor.
A “general” public policy instrument is a process whereby public sector
funds are distributed throughout the regions of a country, guided by the needs of
the poorest regions. “Specific” public policy instruments are used both within
the health sector (e.g. exemptions from user fees) and outside it (e.g. credit to
the poor). These leading public policy instruments are discussed below.
3. Public policy instruments for poverty reduction
3.1 Allocation of public sector funds across a country's regions
In many countries, although regions or provinces may have powers to allocate
and spend funds, they still receive most of their budgets from the central
government which decides how its funds are allocated across these regions.
In a first scenario, regions would establish regional socio-economic plans
with associated budgets for recurrent and capital expenditure. If a country has
adopted a poverty alleviation focus for its policies, it would be expected that the
IK
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different regions would reflect the needs of the poor in their plans. As a result,
public sector funds would be allocated to these regions. It could be argued that
this is an example of the transfer of conditional public budget funds, whereby
central government is able to keep direct control over the allocation of regional
funds. Insufficient concern for poverty alleviation within regions may prompt
the central government to request a revision of the original socio-economic plan.
However, although poverty alleviation may be an officially declared policy
objective, funding allocations favouring the poorer regions is not always easily
accepted, and it should be anticipated that substantial political discussion may
precede the actual allocation.
A second alternative is for the central government to allocate unconditional
public budget funds to regions without intervening in the establishment and
execution of regional socio-economic plans. However, it is likely that the
government would want funds to be distributed so that the poorer regions receive
extra support, and in this case, the regions themselves would have to adopt a
poverty-conscious policy. Central government funds are allocated according to
criteria such as population size, regional income per capita, and social indicators,
e.g. infant mortality and literacy rates.
It is to be emphasized that allocation of funds based on population size alone
is inadequate because it assumes a similar socio-economic status for population
groups. This would mean that a region would receive the same amount of public
funds per capita, whether it was rich or poor. In order to favour the poorer
regions, it is better to combine the above mentioned criteria. For instance, the
larger the population size of a particular region, the lower its income per capita
and its literacy rate and the higher its infant mortality rate, the greater the share
of government funds that should be allocated to that region.
Countries may also have a more federal structure, with important provincial
or regional fiscal autonomy. In this case, transfers from central to regional
authorities become less important, but these more autonomous provinces or
regions then have the responsibility of deciding how much funding to channel
to the poor districts or localities. Again, conditional and unconditional grants
can be used to improve socio-economic status, particularly of the poorer districts
or localities.
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3.2 Specific poverty reduction instruments
3.2.1 Making factors of production available to the poor
As shown by the household economy framework, the initial distribution of
inputs such as capital and labour is crucial in avoiding poverty. Policies that
improve an inadequate initial distribution of factors of production are therefore
more likely to alleviate and/or eradicate poverty. Three such policies are discussed
here, namely land reform, credit to the poor and public works 211. Land reform
aims to improve the availability and use of land to improve income from
agricultural activities among the otherwise poor population groups; the allocation
of credit to the poor can help to build up both capital and labour; public works
initially result in more capital, but can also directly improve income due to the
employment generated.
Land reform
Land reform is often quoted as a significant method of reducing poverty.
There are three types of land reform measures: land redistribution, tenancy reform
and land titling. Land redistribution can be said to be equitable as the landless
and small landowners are usually poorer than large landowners. In addition, a
claim for efficiency can be argued in that redistribution of land increases farm
output. To support this efficiency argument, the inverse relationship between
farm size and output per hectare is often quoted. Lipton (1991) points out that
families can improve land quality on small farms by taking better care of the
land (e.g. levelling, irrigation), especially in slack periods. A special reference
should be made to the benefits generated by land reform in Japan, South-Korea
and Taiwan (China) in their initial stage of development. A higher farm output
led to both higher income and savings, which in turn financed a growing capital
stock. In addition, the higher incomes enhanced the demand for domestic
products. It is also recognized that the redistribution of income in those countries
contributed to stability and provided an attractive environment for both domestic
and foreign investment21 .
Tenancy reform comprises measures to regulate property rights, land sales
and rentals. Sharecropping contracts22 have been favoured for mainly two
reasons: (i) any payments to be made by the tenant are scheduled at the period
This section relics heavily on chapters 5 to 9 of Gaiha (1993).
" Stiglitz. <1996. p. 167).
*" This is a contract whereby a landowner leases out land to a tenant for a fixed share of the output.
20
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of the harvest when cash is available; and (ii) such contracts give tenants easier
access to complementary capital inputs. In 1979, the household responsibility
system was initiated in China. As a result of this major tenancy reform, families
received land tenancy and were permitted to make their own choice as to cropping
and use of new technologies. They were also allowed to sell any crop surpluses1’
on the market. This has resulted in a strong growth in agriculture over the period
1979-1984, and has also contributed to a distinct reduction in rural poverty.
The concept of land titling is often associated with a greater tenure security
that in turn increases investment in land improvement. In addition, it is argued
that it can help families in obtaining credit by being used as collateral. However,
the importance of land titling seems to be uncertain. The connection between
land titling and long-term investment is slight, especially in Africa, because other
forms of tenure such as long-term leases or communal land ownership may be
as efficient in generating investment as formal ownership. Also, the link between
land titling and access to credit is also open to debate; in Africa, the link is weak,
but in Asia, especially in Thailand, land is used as collateral for formal sector
loans.
Credit
Credit is important to the poor as it helps to sustain their level of consumption
during difficult times, and also enables them to finance both physical and human
capital investments. Yet, credit is often limited or non-existent for the poor because
lenders may judge them to be too risky: they probably do not have collateral,
they may not be able to repay their debt, and, furthermore, legal enforcement of
contractual obligations may be weak. From the other side of the coin, the poor
may consider transaction costs related to borrowing as too high, geographical
access to banks may be difficult, procedures may be difficult and disbursement
of loans may take time.
The government may play a useful role in addressing these problems by
contributing financially to the establishment of financial institutions which aim
to give access to credit to the poor. Transaction costs can also be lowered by
bringing credit institutions closer to the population and by simplifying the
processing of credit applications and disbursements. In order to improve the
operation of the credit markets, the government can improve the property rights
system, thereby enhancing contract enforcement. The government can also
He -too
This is the surplus above the amount they were obliged to sell to the Slate.
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promote the use of other types of assets as collateral, such as jewellery. This is
particularly important for women, who rarely have land or other assets registered
in their names.
Lessons learned by country experiences in banking for development and
health were described during a joint WHO-IBRD workshop24 and the major
components of successful credit models were identified. These include: i) quick
and convenient access to small, short-term loans, which may be increased,
depending on steady repayments and the growth of economic activities; ii)
decentralization and focus on sectors where poor people work; iii) reduced
transaction costs, both for lenders and borrowers; iv) loans offered at unsubsidized
rates - recognizing that low income people are able and willing to pay what it
costs an efficient lender to provide sustainable financial services; v) achievement
of adequate repayment rales to engender confidence and mutual accountability;
vi) promotion of small deposits and ready access to funds; vii) building a solid
and growing financial base. An example of a well-functioning credit scheme is
that of the Grameen Bank in Bangladesh25 2l>. This scheme was established in
1983 to supply credit to groups of landless and poor women in order to stimulate
self-employment. By the end of 1994, 1,044 branches were established in more
than half of the country's villages, indicating Grameen Bank's success. It is also
interesting to note that the repayment rate was 98%, and that there were less
poor among the members of the scheme than there were in villages which had
not yet established a branch.
Public works
In rural areas, public works, such as road construction, flood protection and
construction of water tanks, have always been a response to emergency situations
such as droughts and famine. They have also been used as instruments of poverty
reduction in periods of large-scale unemployment and underemployment in the
rural sector. However, more recently, they have also been used by many developing
countries as a regular component of poverty reduction strategies. One example
in Africa is the Labour Based Relief Programme (LBRP) in Botswana, which
was introduced in the 1980s to provide drought relief and employment
opportunities to the rural poor in village improvement schemes.
34 Mancuso (1994. ch.2).
*' Khan (1996).
S Mancuso, op.cil.. pp.42-48.
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In India, the Employment Guarantee Scheme (EGS) of Maharashtra State
has contributed to rural employment for many years now, employing between
one-sixth and one-third of the unemployed and underunemployed in Maharashtra.
The Food For Work Programme (FFWP) in Bangladesh helped to avert
impoverishment and starvation in 1988. Also, in Latin American countries such
as Bolivia, Chile and Peru, public works have been used to compensate reductions
in private sector labour demand in periods of structural adjustment and shock,
such as during the heavy recession in Chile in 1983, when the public employment
programme employed 13 percent of the labour force.
In urban areas, public works in sanitation are particularly important in
poverty-reduction schemes, and these are not organized and financed solely by
governments, but also by communities and NGOs. An example is the NGOinitiated Orangi Pilot Project (OPP) in Karachi (Pakistan), whereby low-income
households in an unplanned settlement participated in the financing and
management of a low-cost sanitation programme, involving the construction
and maintenance of pour-flush latrines in homes and underground sewerage
pipelines in lanes27. It is important to be as flexible and unbureaucratic as possible
in establishing development projects in close collaboration with informal sector
population groups (de Soto, 1987).
3.2.2 Improving human capital: nutrition and education
In the previous section, we argued that nutrition, education and health
constitute important elements of human capital. In this section we show that
enhanced human capital is likely to improve people's welfare. First, food policy
is discussed as a way of improving nutrition. Investment in education is then
reviewed, including the synergy between nutrition, education and health. Typical
anti-poverty instruments in the health sector are discussed in the next section.
Food policy
The poorer sections of the population can benefit significantly from food
subsidies, in view of the major part played in the household budget by expenditure
on food. A meaningful food subsidy scheme is one which extends a general
food price subsidy to the whole population, such as the scheme carried out by
Egypt in the early 1980s which confirms that there is a positive impact on the
welfare of the poor. Under this scheme, the food subsidies amounted to 10.8%
Orangi Pilot Project (1995),
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HEALTH ECONOMICS
and 8.7% of expenditure of the poorest rural and urban households respectively.
However, one drawback was that the richest population categories also benefited;
in fact, the total amount of food subsidy transfers to them was larger than that for
the poor.
Alternative schemes include support targeted specifically at the poor, such
as subsidies instituted exclusively for those food products that are predominately
consumed by the poor. A second option is geographic targeting, which directs
subsidies towards poor regions or villages. Rationed food subsidies is a third
alternative: quotas or rations of subsidized food are calculated, to ensure access
to basic food at a fair price. This type of food ration scheme has had a significant
positive impact on the welfare of the low-income population in Sri Lanka and
Kerala. Food stamps are another alternative, constituting a parallel currency.
The government must ensure that these are accepted by shopkeepers, who then
must be able to cash them in. The food stamp programme in Jamaica has
efficiently protected vulnerable groups, such as pregnant and breast-feeding
women, and children under 5 who are registered at primary health care centres.
Another option is the establishment of supplementary feeding programmes,
whose objective is to reduce undernutrition through the distribution of subsidized
or free food in nutrition and health centres, or through schools. In India, the
Tamil Nadu Integrated Nutrition Project (TINP) has been quite effective in the
rural areas of the six districts with the lowest caloric consumption in the state.
This project applied age-targeting, by focusing on children aged between 6 to
36 months.
Investments in education
Public investment in education constitutes an important element of an anti
poverty strategy. Illiteracy and substandard education help to maintain existing
poverty because poor people do not have sufficient skills to increase their income.
For financial reasons, a government might abolish a system of free education
and introduce user fees. In this case, it is crucial that poor families do not opt
out of the eduction system, so exempting them from paying user fees may become
necessary. In terms of education, perhaps primary education should be the priority
for developing countries, for reasons of simple economic efficiency alone: the
net returns to primary education (measured in terms of income) exceed those of
secondary or higher education.
Special attention should be paid to the primary education of girls. Evidence
in many developing countries shows that gender disparity in education is
24
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prevalent among most population groups. Apart from cultural reasons, there are
also economic reasons for this disparity. In many countries girls are involved
much earlier in household activities than boys, so the opportunity cost for parents
of enrolling girls in school is high. In addition, the livelihood of the poorest
families may depend on delegating a substantial amount of household activities
(care for siblings, collecting water and wood, caring for animals, cooking,
pounding grain etc.) to children, especially girls. An anti-poverty strategy would
thus have to include policies to reduce the opportunity cost related to girls, such
as the provision of community water and wood supply, or the introduction of
flexible school hours.
Synergy between nutrition, education and health
It is obvious that better availability and consumption of food leads to better
health for the poor. In the case of children, better health may result in improved
school attendance and higher educational achievements, in turn enhancing job
opportunities and leading to improved income. This additional income could
then be used to finance higher investments in nutrition, eduction and health.
This process can only be reinforced by better education and information about
nutrition and health. In other words, there are strong linkages between nutrition,
education and health, and combined efforts in these three areas are generally
better than an isolated effort in one area alone.
3.2.3 Improving human capital: health
3.2.3.1
Public resources allocation for health services
With regard to poverty-conscious allocation of public sector funds, the same
reasoning as that employed in section 3.1 can be used here. Government
can ensure that adequate funds for health are channelled to the poorest regions
through conditional funds, and it may also transfer unconditional funds to
the poorer regions. In turn, the regions are expected to address the inadequate
health status and health care problems of the poor.
Whatever the method used to channel funds for health to poor areas, it is
necessary to ensure that the health needs in the regions, and its districts and
localities, are properly reflected in its health budgets. In this “prospective”
budgeting, the needs of the poor must be explicitly included. It is clear that
any enumeration of health service needs should take into account the essential
curative services needed by a population, based on epidemiological patterns.
However, it should also allow for specific health interventions such as
immunization, infectious disease and vector control, and environmental health
and health education projects.
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While budgeting the needs for services and interventions, the basic rule of
technical efficiency (minimizing costs for planned activities) should be
applied. This rule implies that pharmaceuticals, for instance, should be
budgeted (and later purchased) at the lowest cost possible, while respecting
certain standards of quality.
In the area of human resources, increasing the number of paramedics and/or
village health workers (who require shorter and less expensive training than
doctors) can increase technical efficiency, provided that they can adequately
maintain basic health services. If the government is technically efficient, it
can save funds which can be used for further productive activities in the
health sector. In the event of cost-sharing, it could contribute to financing
exemptions for the poor, for instance.
3.2.3.2
Establishment of cost-sharing while safeguarding the interests
of the poor
The government has a role in the establishment of cost-sharing methods, for
instance with enterprises and households, while safeguarding the interests
of the poor. Increasingly, governments are turning to new forms of health
care financing, often when they can no longer assume the financial charge
of all recurrent and capital costs related to health care.
User fee arrangements
A great deal of caution has been expressed concerning cost-sharing systems
based on user fees, w'hich is justified, in view of the empirical evidence2*.
For example, Gertler and van der Gaag (1988) showed that while all patients
in Cote d’Ivoire reduced their demand when prices increased, the poor
reduced their demand more strongly, and a similar study by Gertler et. al
(1988) for Peru showed comparable results. There is an important caveat,
however; when user fees are used to improve the quality of health services,
the reduction in demand may be lower than expected, or demand may even
increase. This was shown by the findings of Litvack and Bodart in Cameroon
(1993), which indicated that when essential drugs are offered at competitive
prices in rural areas (vis-B-vis those charged in private pharmacies or by
drug sellers), and if the drug supply is guaranteed, then there is an increase
in demand for health services at public health centres by the poor.
’.See Creese (1991 land Currin. Perrot and Sergent (1994 > lor reviews of the impact of user fees on the demand for health services.
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HEALTH ECONOMICS
However, even if revenues from user fees are ploughed back into the health
system, access by the poor still remains a significant concern. Abel-Smith
and Rawal (1992) refer to a situation in Tanzania whereby hospital drug
supplies and food are insufficient, so that patients have to pay more elsewhere,
in addition to their travel costs. They conclude that modest fees would be
better than the existing situation, if fee revenues contributed to adequate
supplies at government health services. Abel-Smith and Rawal (1992) clearly
recommend that an attempt should be made to exempt the poor from paying
any user fees established for government health services.
Several methods can be used to ensure access by the poor. One method
would be to ensure that traditionally expensive treatments, even at primary
care level, become affordable, for example, by applying a system of cross
subsidization. For example, subsidization of treatment with antibiotics, thus
ensuring an affordable user fee, could be financed by levying small surcharges
on other (traditionally less expensive) treatments. If this method proves
insufficient to guarantee access to health care by the poor, an alternative
would be complete exemption from payment for all health services provided,
or for a selected number of important health services (e.g. vaccinations,
children's health care and maternal care).
Exemptions can be established on an informal basis, such as health centre
personnel making a selection on a case-by-case basis (in view of their general
knowledge of the population served). More formal mechanisms may also
be established, such as explicit identification of the status of poverty, using
simple criteria, such as landlessness, abandonment by spouse, family size,
and, of course, level of cash income.
Whichever method is chosen, it is clear that any effective system of exemption
implies a minimum of solidarity between population groups. Either the non
poor will need to pay surcharges which should be sufficient to finance the
health care cost of the poor, or the government (perhaps assisted by donors)
could contribute via a special fund. In practice, however, several constraints
make the implementation of user fee and exemption policies rather
difficult -9. For example, if user fee schemes cover large population groups,
difficulties may be experienced in collecting and using information about
the true socio-economic status of families. Also, if fee revenues are not
retained locally, the incentive to collect them and use them for quality
For an analysis of cost-recovery implementation issues drawn from recent experiences in low income countries, see Creese and
Kulzin (1995) and Gilson (1996).
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HEALTH ECONOMICS
improvements in health services may be undermined. Finally, a user fee
scheme may not be easily accepted by a population which is not used to
paying for health services. Careful publicity and information campaigns
will be needed in this case to facilitate the acceptance of cost-sharing.
Health insurance
Recently, several developing countries have begun implementing simple
health insurance or prepayment schemes'". One of the main features of
these is that the cash income position of an insured person is no longer
necessarily an obstacle to health services access. In addition, health insurance
is based on the principle that contributions from all those insured are pooled,
which (in principle) permits solidarity between the sick and the healthy, but
also between the well off and those that are less well off. However, this
solidarity is only guaranteed if health insurance is compulsory. If it is
voluntary, then individuals with average or lower-than average risks of illness
will be less likely to join, while the number of individuals with higher-thanaverage risks of illness remains the same or similar, and the pooling, or
spreading, of risks between the healthy and the sick does not materialize.
This “adverse selection” also tends to increase the average health care cost
of the insured, and therefore has an impact on the level of insurance premiums
which may become excessively high and deter the poorest from signing up
as members.
Another possibility is the introduction of a voluntary and uniform flat-rate
premium system, which may mean, however, that premiums exceed the
capacity to pay of the poorer sections of the population. However, the
experience of the Bwamanda Prepayment Scheme, which charges a flat
premium per insured individual, is worth noting. Membership in this scheme
expanded from 27.5% of the population in the Bwamanda Zone (in 1986) to
62.3% of the population in 1988. It has been found, though, that poverty
deters people from buying the (voluntary) health insurance card'1.
It is important, especially in the early stages, that health insurance schemes
bear in mind that their final purpose is the improvement of health of the
entire population, and that special consideration should therefore be given
to the situation of the poor. Many “young” schemes start with compulsory
insurance for workers of the modern sector, and then expand to include the
l-'or an overview of recent experiences. see Ron (1994).
” See Moens and Carrin (1992).
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HEALTH ECONOMICS
establishment of voluntary insurance for the other population categories,
such as (i) the families of workers; (ii) agricultural workers and the selfemployed and their workers. Inclusion of these groups can be done in stages,
of course, but it is important to realize that all risks need to be pooled in
order to achieve true health insurance.
In addition, the government should consider the adoption of differential
health insurance premiums, i.e. premiums according to the economic status
of the population, the purpose of which is to attract as many people as possible
from the low-income categories. This brings us back again to the question
of access of the poorest. A possible solution is the subsidization of health
insurance premiums. Those that have standard insurance could pay an extra
surcharge on their premiums, or the government could establish a special
health insurance provident fund in order to finance the premiums of the
poor. This fund could also be supported by donor contributions.
A further caution
Cost-sharing in health care, whether user fee or health insurance schemes,
are not simply mechanisms to generate revenues, but rather instruments of
public health.
Cost-sharing mechanisms should improve the health status of the population
by improving the access to health care by the poor. They should do so by
improving quality while minimizing the costs of health care: e.g. cost-sharing
schemes could guarantee the availability of essential drugs and provide them
to users at the lowest cost possible. Cost-sharing should also be consistent
with health needs in the various regions, some of which will be poorer than
others, with a lower capacity for cost-sharing and development of the health
system. It is expected, therefore, that cost-sharing initiatives allow for some
redistribution of resources between areas.
3.2.3.3
Further improvement of access to health care
Health policies should also take into account the specific living conditions
of many of the poor in developing countries. There may be several barriers
to the utilization of health care, such as living in isolated areas, illiteracy or
simply shortage of time, and policies are required which address more than
the financial aspects alone of lack of access and care.
The amount of time involved in travelling from the home to a health centre
may seriously delay or obstruct access to care. Furthermore, farm labour
during harvest time or household activities by women may be so precious to
POVERTY AND HEALTH an overview of the basic linkages and public policy measures
29
HEALTH ECONOMICS
families that they cannot afford to give up, say. a day's work in order to seek
care. In other words, the opportunity cost of seeking care may become loo
high. The health system should allow for this type of factor, by organizing
e.g. outreach activities which ensure that isolated families have access to
treatment.
Time-saving could be improved by the establishment of multipurpose
integrated facilities providing primary health care services, such as
vaccinations, family planning and health education12. That the access of
poor households to health care is often made difficult because of distance is
demonstrated by Baker et al. (1993) with reference to CAte d'Ivoire, Ghana,
Jamaica, Peru and Bolivia. They found that the percentage of the urban
population seeking care is substantially higher than that of the rural
population, largely because of shorter travel distances and greater numbers
of medical facilities in urban areas. In some instances, the likelihood of an
individual seeking medical care is twice as high in urban areas".
Lack of education and cultural factors can also represent barriers to modern
health care. Ignorance about certain illness symptoms may account for
families “doing nothing" in the face of illness. Cultural beliefs may also
explain why family planning and prenatal care are not perceived as essential
for family health. Health systems should therefore facilitate the spreading of
health information and stimulate the application of newly obtained knowledge
in close collaboration with communities.
3.3Summary
Figure 3 summarizes the influences on the household economy of the specific
poverty reduction instruments discussed above. This figure can also be used as
a quick guide to an initial assessment of the poverty situation, and its links to
health at country level.
First, upon inspecting the core of figure 3, which represents the household
economy, one can investigate where the main causes of poverty lie. In other
words, among the causes “lack of inputs and income”, “lack of basic needs”,
“health behaviour” or “environmental factors", which are the most relevant?
Kuuin (1993).
Il is true, of course, that differences in income partly explain differences in effective access io care.
30
POVERTY AND HEALTH an overview of the basic linkages and public policy measures
HEALTH ECONOMICS
Secondly, one could investigate what are the major public policy instruments
used in the country and how they have been effective in reducing poverty and
enhancing health status? In addition, when scanning the public policies depicted
in figure 3, is there any area of policy intervention that has not yet been explored?
If indeed some policy interventions have not been applied, what would be the
conditions to be met before they could be applied effectively?
Finally, how does the health sector contribute to the alleviation (or
deterioration) of the conditions of poor households in the country being studied?
Does the allocation of public resources take account of the poverty situation and
the needs of various regions? Are cost-sharing methods that have been introduced
sufficiently poverty-conscious?
H E '• I OO
0506/
POVERTY AND HEALTH an overview of the basic linkages and public policy measures
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HEALTH ECONOMICS
Figure 3 Influences of public policy instruments on the household economy
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POVERTY AND HEALTH an overview of the basic linkages and public policy measures
HEALTH ECONOMICS
4. Conclusion
First, it has been shown that poverty in developing countries is an important
indicator of health status. In a sample of countries with a similar level of GNP
per capita, those countries with a lower absolute poverty incidence are achieving
a better health status. Overall development policy should therefore incorporate
significant poverty eradication strategies for the sake of realizing health
improvements.
Secondly, a simple framework was established for the explanation of poverty
at household level: the level of traditional inputs, capital and labour, into the
household production process may be inadequate; capital may be constrained
by lack of land or by rationing of credit; the quantity and quality of labour may
be insufficient due to low health status and sheer poverty in general. Poverty
can therefore start a vicious circle of “poverty - lack of inputs - poverty". Land
reform and investment in human capital were shown to be important policy
instruments to break this cycle.
Thirdly, we analysed how government intervention could benefit the poor.
Government health policy can arrange for an allocation of public resources in
favour of the poor, and the government can regulate and monitor health financing
schemes in such a way as to safeguard or increase access of the poor to health
services.
Fourthly, attention was drawn to a number of government policies outside
the health sector that have a poverty-reducing effect, and thus indirectly benefit
health improvement. The government health sector should be aware of the nature
of these interventions, in order to develop appropriate intersectoral policies.
Finally, it is hoped that a better understanding of the broad approach to poverty
reduction presented here will stimulate country analysis and policy formulation.
Application of the framework in a specific country context will help in designing
a policy package that takes into account the various synergies between
interventions. In addition, it will enhance knowledge of the specific lags involved
in policies and related health outcomes. In other words, it is only through a
country-focussed empirical analysis that concrete and reliable indications for
policy-making can be obtained.
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