Making a Better Future with Social Investment March 26, 2007 Rhyu, Simin Minister Ministry of Health and Welfare, ROK.

Making a Better Future

with Social Investment

March 26, 2007

Rhyu, Simin

MinisterMinistry of Health and Welfare, ROK

CONTENTS

I. The Overview of Health & Welfare in Korea

II. Challenges and Paradigm Shift: Social Investment

III. Investment for Children in terms of Social Investment

IV. National Finance & Governance for Social Investment

The Overview ofHealth and Welfare in

Korea

I

Overview of Health & Welfare in Korea

Risk

OpportunityOECD Average

Health

& W

elfa

re P

olic

y

Ind

ex

Health

& W

elfa

re S

tate

s

Ind

ex

Public Medical Expenditure/GDP

Social Security Expenditure /GDP

Public Social Expenditure /GDP

Income Support for Workable Population/GDP

Tax Rate

/GDP

Child Survival Rate

Life Expectancy at Birth

Aging Population Rate

Total

Birth Rate

Cancer Mortality Rate

Recent Development

Focus on Physical Growth

(Capital-oriented)

Reconciliation of Growth & Welfare(Human-oriented)

Before the Financial Crisis (1998)

After the Financial Crisis After the Financial Crisis

Roles of the

Government

Roles of the

Government

Quantitative Input, Imbalanced Growth, Government-driven

Focus on Human Capital, Balance betweenGrowth & Welfare,

Market Driven

Growth Strategy Growth

Strategy

Family Dependent,Residual Model of

Welfare

Increased Role of the Gov. Rapid Growth in Welfare - National System for Minimum Living Standard- National Pension Scheme- Separation of Prescription & Drug Dispensing- Act to Address Low Birth Rate and Population Aging

Welfare StrategyWelfare Strategy

Challenges and Paradigm Shift

-Social Investment-

II

Social Changes & Challenges in Korea

Domestic Challenge

s

Global Challenges

1. Slowdown of Potential Growth Rate2. Growing Bipolarization3. Low Birth Rate/ Aging Population4. Changes in Family Structure5. New Health Risks6. Increasing Uncertainty for the Future Life

1. Globalization (FTA)2. Knowledge- and Information-based Economy

The challenges arise not only out of traditional but also new social risks, and is like to

intensify social instability.

Domestic Challenges

Domestic Challenges: Slowdown of Potential Growth Rate Before 90s: 6~8% growth

rate After mid-90s: Decrease in

GR 2000s: 4% GR

Population aging → Reduced labor & capital inputs → Slowdown of potential growth rate (KDI, 2006)

Off-shoring of labor-intensive manufacturing facilities, industrial automation, etc. → weakened job-creating effect of economic growth (Jobless Growth)

Growing Income Inequality & Rapid Increase in ER Index

Decrease in Trickle-Down Effect

If bipolariza-tion continues,(1) increasing working poor class;(2) Limiting the possibility of social mobility; and (3) deepening the conflicts between classes.

Domestic Challenges: Growing Bipolarization

Low Birth Rate

1.08 (2005) - Lowest in the world - USA(2.01), Japan(1.24), OECD(1.6) Total population Decline

starting in 2020 Legislation of the

Framework Act on Low Birth Rate & Aging Society

Population Aging

Rapid Aging Process- Aging Society (2000)- Aged Society (2018)- Super-aged Society (2026) - Most Aged State in the World (2050)

Elderly Dependency Ratio (%) : 12.2 (2005) → 21.7 (2020) → 71.4(2050)

Domestic Challenges: Low Birth Rate/Population Aging

Increase in Women’s Economic Participation and Divorce Rate

Smaller families and change in lifestyle → Weakened family function → Greater demand for public care service※ Ratio of Lone Elderly: 16.1% (’00) → 17.9% (’05)

Domestic Challenges: Changes in Family Structure

Physical & mental health problems - reduce life quality- cause labor loss - induce heavy medical expenses.

8.8%

1.8%

0.78%

6%

1.5%

0.2%

Diabetes Stroke Suspicious Dementia

Korea

OECD

Health Status of the Middle-Aged (Korea/OECD)Obesity Rate below 18 yrs. Old (‘98 /‘05)

Although mental health problems such as depression, suicide, etc. leads to labor loss and decline in quality of life, fewer system for protection is in place. - Suicide Rate: Top among OECD member states in 2005 (26.1 suicide/100,000)

Domestic Challenges: New Health Risks

Men Women

2005

1998

According to Social Statistics Survey (2006): 45% of the respondents answered “I am in LOWER-CLASS”- Compared to 2003 survey, there is little change in the number of respondents who answered “Upper class”, but significant difference in “Middle Class”(56.2% → 53.4%) and “Lower Class” (42.4% → 45.2%).

Class Perception Survey (Korea National Statistical Office, 2006)

1.4%

56.2%

42.4%

1.5%

53.4%

45.2%

High Class Middle Class Low Class

20032006

Domestic Challenges: Increasing Uncertainty for the Future Life

Global Challenges

Global Challenges: Globalization/Information-based Economy

Globalization (FTA)

Globalization & regional economic integration posing as both risks and opportunities

Korea-USA FTA: a challenge that night have effects as great as the financial crisis

Knowledge & Information

Based Economy

Core Strategy - Nurturing human capital, especially skilled manpower

New Approaches for Social Policy that adds human capital and social investment to the existing programs of social security.

24.1%

68%

83.8%

24.3%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

1980 1985 1990 1995 2000 2004

KoreaUSAJapanChina

Market Opening of Major Countries

Definition and Elements of Social Investment

Definition of Social Investment Policies

Social Investment is the strategy which pursues economic growth and social development by magnifying the opportunities to participate in economic activities and by providing better jobs through the investment of human and social capital. (P. Taylor-Gooby(2006) ; D. Perkins(2004) ; Esping-Andersen(2002) ; A. Giddens(1998))

Key Elements of Social Investment Policies

Approach incorporating Social and Economic Policies

Investment for Equal Opportunities

Focus on Economic Participation

Emphasis on the Investment for Children as Future Citizens/Workers

Action Plan of Social Investment Policies

VISION

GOAL

High quality of life through individual capacity development

Investment in human capital to cope with various risks arising out of the market economy

Equal Opportunities Economic Activities by the Entire Population Sustainable and Efficient Welfare(Social) Policies

Support Mechanism: Direct Income Redistribution→Opportunity Redistribution

Intervention: Retrospective/Responsive→Progressive/Preventive

Target: Low-income Class (Residual) → Expansion to Universal Service/Balanced Welfare Expenditure

Priorities in Expenditure: Desire-oriented → Improving sustainability of policies by considering inducement effect of employment/industry

Welfare Supply: Mutual Responsibility between individuals & State

PRICI-

PLES

Ten Core Actions for Social Investment

Equal Opportuni

ty&

Improved Potential

Active Economic Partici

pa-tion

(1) Asset-Building & Management - Child Development Accounts (CDA)(2) Financial Support for the Needy(3) Early Capacity-Building - Sure Start/Book Start(4) Expansion of Social Services

(5) Investment for Health - Children’s Physical/Mental/Cognitive

Health(6) Active Labor Market Policy: for

Elderly/Disabled(7) Public/Community Work Chance for the

Working Poor(8) Job Creation through Value-added

Health & Welfare Industries

(9) Welfare Delivered by Both Public&Private Sectors (10) Fiscal Reform (Sustainability)

Efficient Welfare

3 Goals Ten Core Actions

Investment for Childrenin terms of Social Investment

III

Investment for Children: Asset-Building

Child Development Accounts

Support System for Asset-Building : Savings Account by parents or sponsors + matching fund by the Government

Reserves to be invested in long-term savings or stable savings account type fund (Education on Finance and Economy for Children)

Limited Use to School Tuition/Seed Money for Startup Business after age 18. (No Withdrawal before 18 yrs old.)

Effective since 2007 (At–risk Children are protected first → Extended to middle class children)

Child Trust fund (U.K.), Children’s Development Account (Singapore), IDA (U.S.A.), Canada Education Savings Program (Canada)

Investment for Children: Social Learning Network for Capacity-Building

Hope Start Project (Korean Style Head Start)

Comprehensive Welfare Service incorporating health, welfare and education of children and job training for their parents, targeting low-income families with women in pregnancy and children under 12

Effective since 2007 (starting in 16 areas with higher poverty rate → gradual expansion)

Head Start (U.S.A.) & Sure Start (U.K.)

Book Start Project

Target: Preschool children (below 5) of both parents working and with a single parent under the average income level

1:1 Reading Counseling by using suitable books for each age and character of children from “Reading Helper” ‘

Investment for Children: Physical Health Investment

Comprehensive Health Investment for Pregnancy/Birth/Growth Period

Pregnancy/Birth Total Care: Prenatal Examinations, Ultrasound Scans, etc

Infants: Free Essential Vaccination(2008), Reduction in Outpatient Medical Expenses

National Support System for School Health

Child Overweight Prevention Program

Development of and support for child fitness program Regulation on food packaging/designing/labeling

Investment for Children: Mental Health Investment

Child Behavior Improvement Program (What a change for my children!)

Children with Mental and Behavioral Disorders- Delivering medical services for mental and behavioral care depending on the severity- Strengthening mental health services such as mental health examination /counseling services - Support for children in low income families : Voucher Program

Case Management System - Establishment of test/treatment/intervention plan for children with disorders

- Training /counseling programs for parents

National Finance & Governance

for Social Investment

IV

Direction of Public Finance for Social Investment

Continuous Increase in Welfare Investment : 25.2%(2005) → 40%(2030)

Reduction in Economic Investment : 19.9%(2005) → 10%(2030)

Larger proportion of investment in Social Investment Programs

Demand Management Type Program Budget : Cost-Saving Effect

202020102000199019800.0

10.0

20.0

30.0

40.0

50.0(%)

2030

The Ratio of Welfare Expenditure to Public Finance

Welfare

Economy

Civil

People’s Participatory

Social Governance: Responsibility

Intervention inSocial

Conflicts

Social ServicesCooperation

between public and private

sectors

Social Capital: Trust

Building between

Government-Civic Society

Coordination between

Economic & Social Policies

High-Quality Social Welfare Infrastructure