#reformasLV or why Latvijas Banka cares about education and healthcare?
For Latvijas Banka Monthly Newsletter, In Focus, October, 2016
Several years ago "economics guru" could argue that economic growth is hindered by "expensive money". Nowadays, with historically low interest rates and Latvian commercial banks literally rolling in money (having 3 billion euro on corresponding accounts with Latvijas Banka), the economic growth is indeed weak. Despite the fact that politicians have been mentioning the word "reforms" for years and the need to address bottlenecks in crucial sectors is obvious to everyone, little is being done in reality, and the majority of true reforms die out because of red tape.
Therefore, on 28 September Latvijas Banka hosted a conference fully dedicated to structural reforms in education and healthcare, the two sectors in which reform postponement has the highest cost to Latvian society. Several bottlenecks on which structural reforms should focus in these sectors have been identified. We invited President of Latvia Raimonds Vējonis, Minister for Health Anda Čakša, State Secretary of the Ministry of Education and Science Līga Lejiņa as well as key experts to discuss our concepts.
Latvia has a record-high population share with unmet needs for medical treatment because of its expensiveness and long waiting lists. As a result, Latvia has high mortality from cancer and circulatory system diseases as well as one of the lowest healthy life expectancy among the EU countries. Hospitals are well-equipped with magnetic resonance imaging units and computed tomography scanners, but they are often underused. Deficit of publicly funded quota forces patients to wait for weeks or even months while medical equipment is just gathering dust. Thus, diseases might progress to advanced stages which are difficult and expensive to cure. The share of decentralised private out-of-pocket spending (least efficient healthcare financing channel) is high, while the amount of public healthcare spending is one of the lowest in the EU.
Contrary to the widespread view, the Latvian healthcare system incurs problems not only due to low public spending. For instance, public expenditure on education in Latvia is the highest (as percent of total public spending) among the EU countries, yet study achievements are rather modest. In Latvia, there are lots of school teachers, with one per every 9 pupils, while the respective figure for Estonia and Finland is more than 12 (population density is lower in the latter two countries, but pupils' performance measured by PISA tests – better). In Latvia, teachers receive low wages and their remuneration primarily depends on quantity (the number of hours worked and pupils), with little motivation for quality. There are too few young teachers, even taking into account the population age structure. Twenty-one subjects of detached nature result in a rather fragmented image of the world. Long 3-month summer holidays go hand in hand with overload and burn-out (topical for both children and teachers) during the remaining nine months. As a result, Latvian pupils skip classes most often in the EU, more than half of pupils complain about boring lessons, and every third pupil feels unhappy at school.
Governor of Latvijas Banka Ilmārs Rimšēvičs emphasised the significance of structural reforms in education and healthcare for sustainable economic growth. I did some calculations and found that the impact of these sectors is really important. For instance, only due to the fact that extra 4 000 working age people die every year (compared to the number of people who would die according to Western European mortality rates), the annual growth rate of Latvia's GDP decreases by 0.2 percentage point, let alone a noteworthy impact on output from improving human capital (education and health quality).