Renowned U.S. economist William Baumol in his book "The Cost Disease: Why Computers Get Cheaper and Health Care Doesn’t" which was published this year, presents a unique theory - that today's economy is infected with "cost disease". The author draws one specific trend from recent economic history that causes drastic increase in prices of certain products and services. He begins by dividing all industries in one period into two groups: the "progressive" industries - those who experience rapid development and achieve greater productivity, and "stagnant" industry in which such progress is not achieved. Stagnant industries are those in which technological progress cannot foster a significant increase in productivity. These are education, health, arts and other activities in which the role of direct human labour is crucial and cannot be automated. A medical examination will always require the same amount of doctor’s time, a concert performance of Mozart's piece will always require the same number of people and amount of time spent regardless of the general technological progress.
Progressive activities, such as production of cars, computers and related services have become more efficient due to use of automation and standardization of processes, thus increasing their total income. Due to higher revenues, faster growth and increased competitiveness, progressive industries may allow for higher wages in their sector. Increased wages in one sector put pressure on other, stagnant, industries to raise the salaries of their employees, despite the fact that productivity remained at the same level and there is no real basis for salary increase. Stagnant sector, especially education and health institutions, are forced to raise the price of their services in order to increase revenue and provide their employees with equal wages in relation to the progressive sectors. In this way the cost of health care, educational and related services have undergone steep growth in recent years. Author William Baumol named this trend "the cost disease" and believes that it cannot be stopped because it is inherent in our economic system in which some activities are developing faster than others. Naturally, prices will be highest in the most developed countries, so the author predicts that in the year 2105. expenditure on health care in America will amount to 60% of GDP. To counter the rising cost of health services, citizens of rich countries will increasingly use the opportunities offered by the global market. Therefore, we expect even faster growth of interest in medical tourism in Croatia, which could certainly have a positive impact on domestic economy.
Source: >>The Economist, 2012