A famous claim in economics is that the cost of services (such as healthcare and education) tends to increase relative to the cost of goods (such as food, oil and machinery). This seems right: People around the world can barely afford the rising healthcare and school-tuition costs they currently face — costs that seem to increase each year faster than overall inflation. However, a sharp decline in the costs of healthcare, education and other services is now possible, thanks to the ongoing information and communications technology (ICT) revolution.
The cost of services compared to the cost of goods depends on productivity. If farmers become much better at growing food while teachers become little better at teaching kids, the cost of food will tend to fall relative to the cost of education. Moreover, the proportion of the population engaged in farming will tend to fall, since fewer farmers are needed to feed the entire country.
This is the long-term pattern that we’ve seen: The share of the workforce in goods production has declined over time, while the cost of goods has fallen relative to that of services. In the US, around 4 percent of the population in 1950 was employed in agriculture, 38 percent in industry (including mining, construction and manufacturing) and 58 percent in services. By last year, the proportions were roughly 2 percent, 17 percent and 81 percent respectively. In the meantime, healthcare and tuition costs have soared, along with the costs of many other services.
However, a productivity revolution in service sector delivery is now possible. As a professor, I feel it in my own classroom. Ever since I began teaching 30 years ago, it had seemed that the technology was rather fixed. I would stand before a class and give a one-hour lecture. Sure, the blackboard gave way to an overhead projector and then to PowerPoint; but, otherwise, the basic classroom “production system” seemed to change little.
In the past two years, everything has changed — for the better. At eight on Tuesday mornings, we turn on a computer at Columbia University and join in a “global classroom” with 20 other campuses around the world. A professor or a development expert somewhere gives a talk and many hundreds of students listen in through videoconferencing.
Information technology is revolutionizing the classroom and driving down the costs of producing first-rate educational materials. Many universities are putting their classes online for free, so that anyone in the world can learn physics, math or economics from a world-class faculty. At Stanford University this autumn, two computer-science professors put their courses online for students anywhere in the world; now they have an enrollment of 58,000.
The same breakthroughs now possible in education can occur in healthcare. The US healthcare system is notoriously expensive, partly because many of the key costs are controled by the American Medical Association and private-sector health-insurance companies, which act like monopolists, driving up costs. Such monopoly pricing should be ended.
Yet there are other reasons for high healthcare costs. Many people suffer from chronic ailments, such as heart disease, diabetes, obesity, depression and other mental disorders. These diseases can be expensive to address if they are poorly managed and treated. Far too many people end up in the emergency room and the hospital because they lacked the advice and help to keep their conditions under control without institutional care, or even to prevent their disorders entirely.