(September 2005) Debt relief, agricultural subsidy reform, the Millennium Development Goals—these and a host of other global policy issues are underpinned by a single notion: While the world’s rich continue to get richer, the poor are falling farther and farther behind.

But a recent study argues the opposite: that the world became significantly less unequal between 1960 and 2000, because of extraordinary increases in average life expectancy in less developed countries during that period. These increases, the study’s authors argue, more than offset the widening disparity between the per capita incomes of less and more developed countries.

The study, which appeared in the April 2005 issue of the American Economic Review, was co-authored by University of Chicago economist Gary Becker, who won the Nobel Prize in 1992 for his application of market analysis to nontraditional subjects such as divorce patterns, fertility decisions, and criminality. In the new research, Becker and co-authors Tomas J. Philipson and Rodrigo R. Soares combine life expectancy from birth rates with national per capita income figures to create a “full-income” index that they use to compare well-being across countries or regions.

“What the article reminds us is that income per capita is not the only measure of well-being,” says David N. Weil, a professor of economics at Brown University. “As a person, I care more about how many years I live than how wealthy I am. And if we think about welfare as some combination of life and consumption, this index shows us that poor countries have caught up.”

But Rachel Nugent, an international development economist and director of the BRIDGE project at the Population Reference Bureau, says the study masks a recent slide in well-being among the world’s poor. “Almost all developing countries are better places to live now than they were 45 years ago—before modern communication, transportation, manufacturing and trade arrived,” Nugent says. “But many are worse off now than they were 25 years ago, before the debt crisis, HIV/AIDS, and the digital divide.”

The Problem With Other Indices of Well-Being

Rates of life expectancy at birth converged to a striking degree over the last four decades of the 20th century. The World Health Organization reports that average life expectancy rose an average of 23 years in the poorest 50 percent of countries, but only nine years in the richest 50 percent (see table). While East Asia and the Pacific led the way with an average increase of 29 years (from 42 to 71), life expectancy from birth in North America increased only seven years, from 70 to 77.


Global Trends in Life Expectancy from Birth and Per Capita Income, 1960-2000

1960
2000
Value of L.E.* gains in terms of annual income
Yearly growth rate of full income (percentage)
L.E.*
Per capita income
L.E.*
Per capita income
Europe & Central Asia
68
6,810
76
18,281
$1,809
2.7
East Asia & Pacific
42
1,317
71
5,866
$2,600
4.8
Latin Am. & the Carib.
56
3,459
70
7,161
$1,365
2.3
Middle East & N. Africa
48
1,935
69
5,525
$1,817
3.4
North America
70
12,380
77
32,880
$2,804
2.7
South Asia
44
892
63
2,346
$635
3.1
Sub-Saharan Africa
41
1,470
46
1,573
$72
0.3
Poorest 50% countries in 1960
41
896
64
3,092
$1,456
4.1
Richest 50% countries in 1960
65
7,195
74
18,162
$2,076
2.6
World
49
2,983
67
7,236
$1,627
2.8

*L.E. = Life expectancy.

Note: Income per capita is GDP per capita in 1996 international prices, adjusted for terms of trade (Penn World Tables 6.1). Life expectancy is life expectancy at birth (World Development Indicators, World Bank). Regional averages weighted by country population. Sample includes 96 countries, comprising more than 82 percent of the world population. Value of life expectancy gains based on the authors’ calculations.

Source: Gary S. Becker, Tomas J. Philipson, and Rodrigo R. Soares, “The Quantity of Life and the Evolution of World Inequality,” American Economic Review 95, no.1 (2005): 277-91.


But factoring this trend into a comparative index of well-being has been a long-standing problem for economists. Established indices such as the U.N.’s Human Development Index weight such factors as literacy rates and life expectancy—weighting that Becker and other economists call arbitrary.

To counter this problem, Becker and his co-authors calculated the dollar value of changes in average life expectancy at birth for 96 countries between 1960 and 2000. The researchers made these calculations using a broad body of research measuring how people quantify risk—for example, how much more they are willing to pay for a safer car or to accept in wages for a risky job versus a relatively safe one. “We’re basing this on how much people value changes in their life expectancy,” says Becker.

The study argues that health improved dramatically in the less developed world after 1960, even accounting for the devastation of AIDS in the 1990s. While “full income” for the poorest one-half of countries grew an average of 4.1 percent annually, it grew for the richest one-half by only 2.6 percent a year—although that figure still amounted to about $600 more per year for the rich than the poor (see table). The full-income rise in less developed countries that was attributable to health (1.7 percent) was more than four times the gains due to health in the richest countries (0.4 percent).

“There has been more success on the health side than on the income side,” says Weil, “probably because it’s easier to transfer health knowledge than transfer the tools for raising income. You can inoculate someone for smallpox, but to make a poor person rich, their country generally needs functioning economic and legal institutions, relatively corruption-free government, and other things.”

Transfer of Inexpensive Medical Technologies Key

Becker and his co-authors also broke out which medical advances had made the most difference in closing the full-income gap. They found that reductions in mortality for infectious, respiratory, digestive, congenital, and perinatal diseases—most before age 20 or between the ages of 20 and 50—were responsible for most of the reduction in life expectancy inequality. Drops in respiratory and digestive diseases deaths alone accounted for 81 percent of the reduction.

At the same time, reductions in mortality attributable to diseases of the nervous system, sense organs, and cardiovascular diseases were larger for elderly people in rich countries than in poor ones—widening health inequality worldwide. Becker and his co-authors conclude that “health education programs and simple interventions” were responsible for the bulk of closing the full-income gap.

“I think it’s a reasonable conjecture that the international transmission of medical technology and knowledge is quite good,” says Becker. “Poor countries are making strides in diseases [such as diarrheal diseases] that are becoming relative cheap to combat. But poor countries are not making strides in treating the rise of cardiovascular diseases, where effective treatments—such as open heart surgery or angioplasty—can be very expensive.”

Are Countries the Best Unit of Analysis?

Not all analysts are impressed with the new index. PRB’s Nugent says using country averages misses the hundreds of millions of people in the developing world who still lack adequate access to health services.

“Health status is an attribute of individuals, not countries,” she says. “Even in developing countries where there aren’t large gaps in wealth and income, there’s still a large variation in health conditions across the population. And if programs are designed for what’s considered to be a country’s average health status, they’re not going to be reaching those who are at the bottom of the income ladder.”

Nugent also thinks the full-income index privileges quantity of life over quality. “You always want to give additional years of life,” she says. “But when you’ve extended the life of a child in Zambia by a year, most of the time that’s a malarial life. And that’s missed in this aggregate cross-country approach.”

Weil, however, says the available data limits finer comparisons. “In theory, one could look at inequality of life expectancy in a country—the poorest quartile versus the richest quartile,” he says. “But that data is certainly not available on a comparable basis for a large number of countries.” (Infant and child mortality data—a large factor in determining life expectancy rates—was available by quintile from the Demographic and Health Surveys for 56 countries as of 2002.)

Shrinking Inequality Now in Jeopardy

Nugent is worried that policymakers will use the study’s results as a pretext for curtailing investments in health or even development assistance in general. But Becker says the study argues for more health spending, not less.

“The study’s most important policy implication suggests that improvements in health care can be justified on the ground that people value them a lot—I would say an enormous amount,” he says. “Health policy has to take that into account.”

Becker also says that no one should conclude from the divergence between income and health inequality trends that health spending somehow hurts economic growth.

“Investment in health will improved ordinary rates of income growth as well as improve health,” he says. “If you invest in better health, particularly for younger people, it makes for a workforce that is energetic and able to work better.”

Nugent, however, argues that health technologies aimed at diseases of the poor world are often left undeveloped because adequate profit incentive is lacking. “The world’s poor need specific kinds of health investment, not just the eventual transfer of rich world technologies,” she says.

Unfortunately, factors such as the spread of the AIDS epidemic in Africa, new infectious disease strains in Asia, and developing country spending on expensive medical technologies could mean that the 40-year trend of shrinking full-income inequality might have already ended.

“We caught some of the effect of AIDS in our data, but not enough because of data availability and time,” says Becker. “Richer countries are making significant investments in genetic modifications and elder care. There’s a possibility of reversing the decline in inequality.”


Robert Lalasz is a senior editor at PRB.


Reference

Gary S. Becker, Tomas J. Philipson, and Rodrigo R. Soares, “The Quantity and Quality of Life and the Evolution of World Inequality,” American Economic Review 95, no. 1 (2005): 277-91.