Russia's Huge Health Hurdle

Fueled by high oil prices, Russia's economy has surged at a hefty 6%-plus rate since 1998, producing big income gains for some groups of workers. A key question, however, is whether the boom is substantially improving the lives of the general population.

The answer suggested by Russia's health indicators -- especially life expectancy, which many experts consider the best yardstick of well-being -- is disappointing. New data from America's National Center for Health Statistics indicate that life expectancy in Russia was highly responsive to shifts in GDP through most of the 1990s but appears less so in the wake of the recent boom.

Russia's health woes aren't new, of course. Life expectancy edged downward in the decades prior to the breakup of the Soviet Union. Then, in the economic chaos from 1990 to 1994, as per-capita GDP fell by 40%, male life expectancy plunged by more than five years, to 57.6 years, and female expectancy fell three more years, to 71.2 years. More than 60% of these declines were erased after the economy turned around in mid-decade, but the longevity recovery was interrupted by the 1998 ruble crash.

It's no surprise that life expectancy fell in 1999 in the wake of a 4.5% decline in GDP per capita in 1998. Yet while per-capita GDP jumped at a 6% average rate in the following three years, life expectancy continued to slip, falling by half a year for males in 2001, the latest year for which data are available.

Why hasn't Russia's boom had more impact on its basic health trends? One reason appears to be that most of the economic benefits thus far have been concentrated in the Moscow area -- a situation that is strikingly confirmed by health statistics. Although Moscow's mortality rates were close to nationwide rates from 1990 to 1995, by 2000 they were 20% below rural mortality and 16% below overall urban mortality.

Another factor is the continuing deterioration of the health system. Russian medical officials estimate that some 40% of deaths contributing to its high mortality rate would be preventable with a proper health-care system. But the government still spends only 3.8% or so of gross domestic product on health -- less than half the average of developed nations.

The moral suggested by Russia's dire health statistics is clear: Unless it succeeds in spreading the benefits of its surging economy to all its people and starts repairing its medical system, its health problems will inevitably undermine future economic progress. Recent years have seen a big increase in the turnover rate of corporate top brass and a sharp rise in stock market volatility. The results of a new study by Matthew J. Clayton of Rutgers University, Jay C. Hartzell of the University of Texas, and Joshua V. Rosenberg of the Federal Reserve Bank of New York suggest that the two trends may not be entirely coincidental.

Analyzing 872 CEO turnovers from 1979 to 1995, and controlling for overall stock market price swings, the authors found that a stock's volatility tends to rise after any turnover. But the increase is especially large -- as much as 24% for a year or two -- after a forced departure. The jumps in volatility presumably reflect investors' uncertainty about a new CEO's ability and business strategy.

This pattern suggests that a corporate board planning to replace a CEO should expect possible negative effects on its ability to float new stock or participate in a merger. And investors with big holdings in a company whose CEO has been fired might be well-advised to diversify their portfolios. It's too soon to cheer, but the word from the number crunchers in the executive suite is that things are looking up. Chief financial officers of U.S. companies who answered a recent survey expressed more optimism about the economy than they've shown in more than a year. That's according to Financial Executives International and Duke University's Fuqua School of Business, which released the quarterly CFO Outlook Survey on Sept. 30.

Seventy-four percent of the CFOs surveyed said they were more upbeat about the U.S. economy than they were in the previous quarter, while just 8% said they were more pessimistic. Their median forecast for growth of gross domestic product over the coming year was 3%. The CFOs also expect capital spending to increase 9% in the coming year. That's up sharply from their forecast of 1.5% in the last quarterly survey. The survey suggests that employment may finally be about to pick up steam as well. No less than 42% percent of the chief financial officers say their firms plan to increase employment over the next year -- significantly more than the 26% that expect to cut jobs.

The financial executives surveyed are members of Financial Executives International, a professional organization for CFOs, treasurers, and controllers. The group and Fuqua have conducted the survey since 1996.

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