The Social Medicine Portal

The Debate over Health and Mass Privatization in post-Communist Europe

In January of this year the Lancet published an article entitled Mass privatisation and the post-communist mortality crisis: a cross-national analysis written by David Stuckler and Lawrence King of Oxford University’s Department of Sociology and Martin McKee of the London School of Hygiene and Tropical Health. The article concluded that the adoption of mass privatization (a component of “shock therapy”) during the transition from Soviet-style communism was associated with increased mortality among working age men. This finding adds to the ongoing discussion on the health impacts of privatization and more generally to the study of the health effects of economic policy.  [A prior posting on the portal discussed Oxfam's recent report, Blind Optimism which examined privatization in health care.]

The Context

The transition from Soviet communism to capitalism after the fall of the Berlin Wall in 1989 was associated with increases in mortality in certain countries, particularly those of the former Soviet Union.  In a 2004 British Medical Journal editorial Dr. McKee and Kristina Fischer summarized the situation:

Life expectancy at birth is now lower in the transition countries than that in western Europe. Although in the 1960s it was slightly higher in former East Germany than in former West Germany, by the 1970s the numbers reversed and the gap has been widening ever since. In 2000, life expectancy at birth was almost 12 years less in the countries of the former Soviet Union than in western Europe, and it is continuing to decline, making the former Soviet Union one of only two regions in the world where life expectancy is declining, the other being sub-Saharan Africa.  But in other post-communist countries life expectancy is generally improving.

The health consequences of the transition were, thus, different in different countries.  Life expectancy decreases were particularly marked in Russia while in Croatia and Poland life expectancy increased.  What accounted for these differences between countries?

What the authors did

Stuckler and his colleagues set out to understand whether economic policies could explain the differing health experiences of the transition countries. They distinguished between countries who adopted “shock therapy” (“liberalisation of prices and trade to allow markets to re-allocate resources, stabilisation programmes to suppress inflation, and mass privatisation of state-owned enterprises to create appropriate incentives”) and those that adopted more gradualist approaches.  Russia, for example, instituted shock therapy in the early 1990′s at the urgings of Harvard economist Jeffrey Sachs.

The authors suspected mass privatization would increase unemployment; unemployment has a variety of negative health effects.  If unemployment increased mortality, the effect might be seen in working age men.  The authors created a statistical model to explain the intra-national differences in mortality rates for men aged 15 to 59.  In their statistical model they controled for a variety of variables (such as whether a country was at war or changes in trade in policies). To examine the effect of privatization they used two different mesasures;  one was a measure that they developed on their own and the other was a ranking system from the European Bank for Reconstruction and Development (EBRD).  Using a technique called logistic regression, they concluded that “Mass privatisation programmes were associated with an increase in short-term adult male mortality rates of 12·8%.”  They found some evidence that unemployment mediated this increase and that participation in civic organizations decreased it.

The authors drew the following policy implications from their conclusions:

“Great caution should be taken when macroeconomic policies seek radically to overhaul the economy without considering potential effects on the population’s health. As variants of rapid reform policies are being debated in China, India, Egypt, and several other developing and middle-income countries—including Iraq—which are just beginning to privatise their large state-owned sectors, the lessons from the transitions from communism should be kept in mind.”

The Response

Within days of the Lancet report, Dr. Jeffrey Sachs published an angry response (“‘Shock therapy’ had no adverse effect on life expectancy in eastern Europe”)  in the Financial Times.  He cited the increased in life expectancy in Poland as evidence that shock therapy did not increase mortality and went on to implicate non-economic factors (such as corruption and the poor Soviet diet) for what happened in Russia.  (Stucker et. al’s response to Sachs was published by the Financial Times on January 22nd.)

The Lancet itself published two letters to the editor (and a response) on April 11.

One letter by Italian researchers Giorgio Tamburlini and Adriano Cattaneo looked at different rates of infant mortality decrease (from 1990-2005) in Moldova and Georgia, countries with differing degrees of health care privatization.  In Moldova, which was transiting to a national health insurance system, infant mortality rates dropped by 54%, while in Georgia, where the health care system was increasingly privatized, infant mortality rates decreased by only 4%.

The other letter by John S. Earle, of the Upjohn Institute for Employment Research,  used data from individual firms in four post-communist countries to argue that privatization did not result in job cuts, a finding that contradicted that of the Lancet authors and which they described in their response as “counter-intuitive.”  Earle’s argument is presented in fuller form in this link.

Commentary

Stuckler’s paper was accompanied by a Lancet editorial (Societal Transition and Health) written by Martin Bobak and Michael Marmot of University College London.  While supporting the authors conclusions, they note:

“Even with the use of an ingenious design, such as that adopted by Stuckler and colleagues, pre-existing societal characteristics cannot be taken into account. This flaw is not a criticism, but rather an illustration of the difficulties faced by investigators who wish to disentangle the effects of different factors that act at the societal level.”

There are inherent limitations in the study of historical events which are by their nature unique and unreproducible.  These difficulties are compounded when one studies different countries;  statistical models really cannot control for all differences.  The fact that Poland adopted a gradualist approach to privatization makes Poland intrinsically different from Russia where the political class adopted a more radical approach.

Nonetheless, it would be hard to argue that shock therapy did not have negative health effects.  It is unfortunate that the Dr. Sachs is so closely associated with this policy that the debate has a personal tone.  Clearly, privatization (often forced) of social institutions is a policy that has had broad support amongst those who dictate global economic policy.

The conclusion of the Lancet authors – that radical macroeconomic policies need to be considered in light of their health consequences – should be pretty uncontroversial.  If it is controversial we should wonder why.

posted by Matt Anderson, MD