For Annual Conference of the Royal Australasian College of Physicians, 10 May 2005.
Keywords: Globalisation & Trade; Health;
Introduction
The Royal Society of New Zealand has awarded me a grant from the Marsden Fund to study globalisation. The ultimate output will be a book. Today I want to set out the economists’ framework for thinking about globalisation, and to use it to consider the problem of alcohol control and the interaction between countries.
First, we need a definition . Globalisation is the economic integration of economies – regional and national economies. This is not to say it is solely an economic phenomenon. Economic globalisation has political, social, cultural and, as we shall see, health dimensions.
Second, globalisation itself is a consequence of the falling cost of distance: transport costs, plus the costs of storage, security, timeliness, information, and intimacy.
For an economist, globalisation is about where things happen. But while it pervades many aspects of our lives, we should not attribute everything to it. I spent quite a lot of time last year studying the pharmaceutical industry. It is a global industry, but its interesting issues are not particularly related to globalisation. Attributing everything to globalisation makes the notion meaningless rhetoric.
Third, most economists think globalisation began in the early nineteenth century, so the phenomenon is almost two centuries old. (There is an argument that it begins in 1492, which might attract the medical fraternity, as from that date certain diseases began being shipped around the world.)
The fourth and final general point is the policy conclusion. As long as the costs of distance fall, globalisation will continue, economies and societies will integrate and we must face those consequences.
Some globalisation issues are not that interesting although they may be important. Accreditation of qualifications between jurisdictions is a matter of some concern to organisations such as this Royal College, but are worth perhaps only a sentence. There is also a burgeoning problem of biosecurity because of increase in cross-border transactions, and the speed at which they occur. It vastly complicates disease control, but I dont know that we economists have much to contribute to its understanding, once we have pointed out the role of the falling costs of distance.
The Policy Convergence Problem
Given the limitations of time, today I want to consider the issue of policy convergence under globalisation. Policy convergence occurs where policies in different jurisdictions converge to the same practices. Often this may occur because of the identification of best practice, so that we may expect the treatment of many medical conditions would be much the same through out the world, subject to resource availability, as the profession discarded less efficient treatments as they learned more about them. That is little to do with globalisation.
However in many policy areas, there is not an agreed best practice, nor is there likely to be. Sometimes this reflects cultural and other situational particularities, but often we just do not know what is best. We dont know how to best organise a health care system. There are those who know what they think is the best system, but there is no majority agreement. Pragmatists discuss policies for improving the current situation, and they will look elsewhere to learn from their lessons. But there is no overall agreement as to the optimal system, and there is not likely to be in the near future.
The fear is that policy convergence to common policies may be forced on countries by the competitive forces which globalisation unleashes. For instance economies today have much less freedom to assist industry (and thereby create employment in the assisted industries) than they once did. It is easy to blame this on GATT (the General Agreement on Tariffs and Trade) and its successor WTO (the World Trade Organisation), but it is a consequence of the multilateral trade which globalisation induces, where it is necessary to have a kind of economic disarmament to avoid the economic warfare of assistance measures. (GATT and WTO are institutions to make this possible.)
There are, of course, those who say there should be no industry assistance. The argue that this policy convergence is a good thing, and that globalisation drives us towards what they deem to be best practice. Their ‘best practice’ is a very individualistic commercial arrangement, so they are arguing that globalisation drives out the collectivist solutions which they deplore. Those who argue that, at least in some areas, public solutions are more efficient, worry that globalisation which drives all policy to such to commercialist solutions is detrimental to the public interest.
However, we need first to ask whether globalisation necessarily causes a policy convergence. In many policy areas pertaining to business it does. But there are other areas where the convergence does not seem to be so inevitable.
A good example is that Canada and the United States have very different health care systems, despite there being more goods and services crossing the US-Canada border than any other border in the world. Of course the two systems influence one another, but they remain largely different systems, and are likely to remain so. If there is a policy convergence it is a very slow one.
Many other activities lie somewhere between the extremes of commerce and health care systems. So where do we draw the line which separate where policy convergence is, or can, happen and where it wont? The short answer is that no one knows, and in any case the line probably shifts over time with changing technologies and distance costs. Any long answer involves detailed analysis of particular circumstances.
Alcohol Control in the European Union
| Country | Preferred Drink |
Consump- tion |
Liver Disease |
Control Index |
Control Index |
Excise Duties |
| litres of abs alcohol |
per 100,000 |
1950 | 2000 | €/litre abs alcohol |
||
| Austria | beer | 12.6 | 18.3 | 4.0 | 7.0 | 4.0 |
| Belgium | Beer | 10.1 | 11.8 | 6.0 | 11.5 | 5.9 |
| Denmark | Beer | 11.9 | 21.8 | 4.0 | 11.5 | 5.9 |
| Finland | Beer+ | 11.9 | 21.8 | 4.0 | 8.5 | 12.1 |
| France | Wine+ | 13.5 | 13.4 | 1.0 | 12.5 | 3.6 |
| Germany | Beer+ | 12.5 | 17.0 | 4.0 | 8.0 | 4.3 |
| Greece | Wine*+ | 9.3 | 5.0 | 2.0 | 7.0 | 3.7 |
| Ireland | Beer+ | 14.5 | 5.8 | 8.0 | 12.0 | 22.8 |
| Italy | Beer+ | 9.1 | 13.6 | 7.0 | 13.0 | 3.6 |
| Luxembourg | Wine | 17.5 | 12.8 | n.a. | n.a. | 1.0 |
| Netherlands | Beer+ | 9.7 | 4.5 | 6.0 | 13.0 | 6.6 |
| Portugal | Wine | 12.5 | 14.1 | 1.0 | 8.0 | 1.4 |
| Spain | Wine*+ | 12.3 | 10.5 | 0.0 | 10 | 2.2 |
| Sweden | Beer*+ | 6.9 | 5.4 | 17.5 | 16.5 | 30.9 |
| UK | Beer | 10.4 | 10.4 | 8.0 | 13.0 | 21.4 |
| EU | Beer*+ | 10.8 | 12.7 | 4.7 | 11.0 | 7.8 |
* Less than 50% of absolute alcohol consumption (all more than 40%)
+ Spirits make up more than 20 percent of absolute alcohol consumption.
Alcohol control policies, in the Europan Union give an indication of the complexity of the problem. Such policies are a country responsibility in the European Union, understandably so given that drinking is partly culturally determined. Moreover the EU has a principle of ‘subsidiarity’, that governance should occur at the lowest possible level consistent with efficiency.
The above table tells the broad story of alcohol consumption and control in the European Union (before its recent extension). [1]
Preferred Drink
Most European countries prefer beer. A handful of “Mediterranean’ countries prefer wine. The latter tend to be low excise duty countries. In many countries more than 20 percent of absolute alcohol consumption is from spirits.
Consumption (in litres of absolute alcohol per adult – over 15 – in 2001)
Consumption ranges from Sweden at 6.3 litres an adult to Ireland at 14.5 litres a year, averaging 10.8 litres a year in the European Union. A male drinking three standard drinks a day – the maximum recommended level, although some dry days are also recommended – would consume 10.6 litres of absolute alcohol a year, the woman’s level of two drinks a day is 7.1 litres a year. (Australian adults consumed 9.9 litres (1999) a year on average, and New Zealand adults 8.8 litres a year (2001))
Chronic Liver Diseases and Cirrhosis (all ages per 100,000)
Alcohol causes harm. The rates of chronic liver diseases and cirrhosis is but one indicator, for it does not capture such harm as drunk driving, alcoholism or alcohol induced violence. The measure ranges from 4.5 per hundred thousand for the Netherlands to 21.8 per for Denmark, around a EU average of 12.7.
Control Intensity (out of 20)
Control intensity is a summary indicator of the effects of all alcohol control policies constructed by Esa Österberg and Thomas Karlsson. [2] It’s six sub-components cover control of production and wholesale, control of distribution, personal control, control of marketing, social and environmental control and public policy, but exclude taxation which is treated separately. The index is attempting to capture the intensity of public policy responses aiming to limit alcohol consumption or harm. In 2000 the index ranged from a relaxed 7 for Austria and Greece to an intense 16.5 for Sweden, averaging 11.0 for the whole of the EU. When interpreting the index we need to be careful about causation. The index may be high because there is a lot of harm in the country, but it may be high because it reducing harm.
Österberg and Karlsson also calculated their index for 1950. The control levels were much lower then, averaging 4.7 instead of the today’s 11.0 , presumably reflecting today’s greater willingness to tackle alcohol harm. The spread was greater in the past. Two countries, Sweden and Finland, had even more controlling policies in 1950 than 2000. Thus there has been a policy convergence, although it is probably better explained by shifts to best practice and changing attitudes. Globalisation, other than the spreading of information and attitudes, probably has a small role.
Taxation of Alcohol (Euros per litre of absolute alcohol).
Taxation is often seen as the most effective way to reduce alcohol consumption, and thereby reduce harm. It does so clumsily, because it also reduces drinking that is not harmful, and may even be benign. However most health professionals in Australasia would argue, at a minimum, we need high excise duties on alcohol insofar as other control measures are only partially effective, or take a long time to be effective.
That may not be the view in all European countries, for we see there wide variation of excise duties and other taxes ranging almost zero rates in (typically) wine drinking countries to a punitive 33.3 euros per litre by Finland (and a tendency for Northern European countries to levy the highest taxation rates). (The current New Zealand rates are 14.4 euros for drinks less than 14 percent absolute alcohol by volume and 26.3 euros above, including GST.)
While historically excise duties on alcohol were used for revenue purposes, increasingly higher taxes in order to increase prices and reduce harmful consumption has been a public policy goal in many countries. Within the tabulated data there is an crude correlation between low tax countries being high consumption countries.
Any correlations in the table are crude, and perhaps not worth pursuing given the limited number of observations. But there is a larger message from the table. The individual countries have very different drinking practices, and their alcohol control policies have responded also individually.
However, there is a tension between that principle for alcohol control, and the principle of freedom of movement of goods and services within an economic union. What is to be done about travellers who crossing national borders, with goods taxed under on the parting jurisdiction at a lower rate than at the arriving destination?
The EU abolished duty free allowances for travellers between its member countries, but allows the traveller to carry sufficient purchases for their personal use. In the case of alcohol the effective personal allowance is up to
110 litres of beer, plus
10 litres of spirits, plus
90 litres of wine, plus
20 litres of fortified wine.
That amounts to almost 23 litres of absolute alcohol, more than two year’s average consumption of a European Union citizen, or two years of the maximum recommended male consumption rate.
Under the EU rules, travellers can purchase the quantities in a low tax country, and consume it in a high tax country. The biggest differential would be a person travelling from Spain or Italy where the allowance would carry a tax burden of 46 and 53 euros respectively, to Sweden or Finland where the tax would be 703 and 688 euros respectively. The differentials are smaller for contiguous countries, but four Swedes returning from Germany in a light van laden with their ‘personal’ allowance would clear over 2400 euros. (Apparently Finnish alcohol control policy is having a similar problem with it neighbour new EU member, Estonia. There alcohol is so cheap there that Brits fly for the weekend, get wasted, and fly home – if they remember.)
The opportunity travel presents to avoid excise duties on alcohol (and tobacco) are considerable. Enough, it would seem to pay for some trips. Of course the rule is that the alcohol must be used for personal consumption and not on-sold or exchanged. Yea right! (For public health purposes it would be better that they did.)
Conclusion
Individual jurisdictions may continue to pursue independent policies of most of the elements covered by the control index. While varying minimum drinking ages may affect the drinking opportunities of young travellers, that will not markedly undermine the alcohol control policies of the home country. The exceptions are that advertising limitations are being undermined by media which cross international boundaries – television today as well as radio and the print media. It may also be difficult to sustain public monopoly provision of alcoholic drinks because of WTO and EU rules.
There may well be a convergence of these controls over time, as best practice becomes clearer, but that will be the voluntary decision of the countries involved, and hardly attributable to globalisation other than via the sharing of information.
Even so, given the pressures from the personal shipment of alcohol within the European Union there may be some convergence of alcohol tax regimes. The likelihood is a convergence to lower excise rates. It would seem then that the globalisation inherent in the European Union provides a pressure on high excise duty countries to scale back their tax rates. Were the rates there just for revenue purposes that would be a matter of fiscal concern. But insofar they are for reducing harmful drinking, Europe is losing one of its most effective policy instruments for public health where alcohol is concerned.
The World Health Organisation’s Framework Convention on Tobacco Control might suggest how such differences might be handled. (But it contains nothing about international trade in tobacco, other than illicit trade.) Such a solution, while leaving considerable freedom to individual countries, is a form of policy convergence, although it need not be a one racing to the bottom.
The European Union has such a protocol, but it is honoured more in the breach, since it involves low duty countries raising their rates. It is not hard to set out the political economy of those who have resisted such changes. Presumably alcohol lobbies, such as this College, will have to become have to become more internationally cooperative with the like minded in other jurisdiction, to offset the resisters And develop effective international contentions.
Since Europe is far away from Australasia this example may seem to be a curiosum. However the European Union is a sort of mini-globalised world. This case study illustrates the possibilities of tension between the free trade of goods and services and public health. It is a tension which does not just apply to alcohol (and tobacco), including their advertising. Other examples include genetically modified foods, unapproved pharmaceuticals and, of course, psychotropic drugs. What is to happen if we require an additive such as iodine in salt but others done? Australia and New Zealand are currently contemplating a Trans-Tasman agency for drug approvals. No doubt there are other examples, and new ones will arise.
My work has yet to identify the circumstances where policy convergence as a result of globalisation is inevitable or those circumstances, if any, where a jurisdiction may have significant independence to follow its own policy judgements. At this stage I merely concludes that because international boundaries are increasingly porous, policy areas, such as public health, face new challenges which at first seem little to do with the jurisdictional boundaries John Donne famously said that ‘no man is an island’. Nor, increasingly, is any public policy.
Notes
[1] Luxembourg is omitted in the text. Its data tends to be distorted by the numbers of people who live outside its borders but work within it, together with the cross-boundary problems that are discussed.
[2] Esa Österberg and Thomas Karlsson (2002) Alcohol Policies in EU Member States and Norway: A Collection of Country Reports.