The Future of AIDS

Nicholas Eberstadt

From Foreign Affairs, November/December 2002

Summary:  In the decades ahead, the center of the global HIV/AIDS pandemic is set to shift from Africa to Eurasia. The death toll in that region's three pivotal countries--Russia, India, and China--could be staggering. This will assuredly be a humanitarian tragedy, but it will be much more than that. The disease will alter the economic potential of the region's major states and the global balance of power. Moscow, New Delhi, and Beijing could take steps to mitigate the disaster--but so far they have not.

Nicholas Eberstadt holds the Henry Wendt Chair in Political Economy at the American Enterprise Institute and is Senior Adviser to the National Bureau of Asian Research. This essay draws on a longer study prepared with the assistance of Lisa Howie; for more detailed results see www.AEI.org/scholars/eberstadt.htm.

Even so, a number of important potential economic ramifications of an HIV/AIDS epidemic in a low-income setting have as yet received little consideration. Two in particular deserve mention here. First, by curtailing adult life spans, a widespread HIV epidemic seriously alters the calculus of investment in higher education and technical skills -- thereby undermining the local process of investment in human capital. Second, widespread HIV prevalence could affect international decisions about direct investment, technology transfer, and personnel allocation in places perceived to be of high health risk. These factors suggest that HIV breakout could have lasting economic consequences -- in effect, cutting afflicted countries off from globalization. The long-run economic impact of these effects could be even more significant than the constraints the epidemic could impose on local labor supplies or savings.

Precisely calculating the prospective economic cost of HIV/AIDS for a society would be a highly exacting task (it would essentially require figuring out how much less a population would earn due to HIV, how much more it would be obliged to devote to covering the needs of AIDS victims, and the present value of the differences in those two amounts). This exercise would require detailed data that are simply unavailable today for any country. There is, however, an extremely simple alternative approach to thinking about the possible economic implications of these HIV/AIDS epidemics, one that may promise a serviceable first approximation of the macroeconomic impact. We might call this the "health-based productivity" approach.

Modern economic development has seen an important and well-documented shift in patterns of global economic performance: a continuing move away from natural-resource-based wealth and toward wealth generated by human knowledge and skills. Put another way, "human capital" has become a predominant and increasingly important factor in overall economic potential. In modern times, this trend has made for a robust link between health and productivity at the national level. This association holds both across nations at any given point in time, and also within particular countries over time.

Naturally, these simple patterns do not capture the complexity of the health-productivity relationship, nor do they indicate causal directions. On the one hand, wealth is an instrument that helps people afford lifestyle patterns that lead to better health. On the other hand, improvements in health can boost productivity by extending potential work-life, enhancing physical capacity, and facilitating learning. Regardless of these complexities, for any country, at any point in time, life expectancy is a fairly good predictor of per capita economic output.

THE HEALTH OF NATIONS

What would these HIV/AIDS projections for Russia, India, and China imply for each country's economic performance if we relied solely on a simple health-based productivity model? The answers can be computed by using World Bank data to estimate the recent (circa 1999) correspondence between national life expectancy and output per member of the "potential work force" (i.e., persons 15-64 years of age), and then combining these figures with the simulations of national life expectancy and potential work force size from the various HIV scenarios.

By this method, Russia's GNP per "person of working age" would be projected to rise by about 50 percent between 2000 and 2025 without HIV. Health-based productivity predictions, however, indicate that an HIV epidemic could radically reduce per capita productivity under any of the scenarios discussed earlier. Even with a mild epidemic, Russia's predicted output growth per working person would be less than half as great as under the "no HIV" baseline scenario. And if there was an intermediate epidemic, the predicted level of output would actually be lower in 2025 than it was in 2000.

For India, this method predicts about an 80 percent increase in GNP per working-age person over the next 25 years assuming the absence of AIDS. All of the HIV scenarios, however, would reduce that growth significantly. A milder epidemic, for example, would depress predicted growth by about two-fifths; under the intermediate epidemic scenario, output per working person would be no higher in 2025 than it is today.

China without AIDS would, by this method, experience a predicted increase in output per working-age person of more than 50 percent during the next 25 years. But even a mild epidemic would cut that growth by half -- or, to put it slightly differently, even an epidemic with a peak HIV prevalence rate of 1.5 percent would cut more than half a percentage point a year off China's long-term economic growth rate. Under an intermediate epidemic, output per working person would barely rise between 2000 and 2025. And under the most pessimistic of the scenarios, Chinese productivity over that same period would actually decline.

This method also permits the prediction of national levels of output, a set of figures that merits examination. In Russia, for instance, even though the model predicts a baseline increase of more than 50 percent in output per potential worker, national output would increase only by about 33 percent in the "no AIDS" case. This discrepancy results from the decline in the absolute number of Russians between the ages of 15 and 64. The HIV scenarios reduce Russia's future GNP not only by reducing predicted output per worker, but also by cutting the size of the 15-64 cohort. Thus, under conditions of a mild epidemic, Russia's national output would remain completely stagnant between 2000 and 2025. And under the intermediate epidemic scenario, Russia's GNP would be a shocking 40 percent lower in 2025 than it is today. Indeed, the model suggests that HIV/AIDS in Russia might, under a variety of scenarios, prevent the Russian economy from experiencing any growth in the years ahead.