Making a Better Future with Social Investment March 26, 2007 Rhyu, Simin Minister Ministry 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 of Health and Welfare in Korea I

Overview of Health & Welfare in Korea Risk Opportunity OECD Average Health & Welfare Policy Index Health & Welfare States Index Public Medical Expenditu re/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 Roles of the Government Quantitative Input, Imbalanced Growth, Government-driven Focus on Human Capital, Balance between Growth & Welfare, Market Driven 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 Strategy

Challenges and Paradigm Shift -Social Investment- II

Social Changes & Challenges in Korea Domestic Challenges Global Challenges 1. Slowdown of Potential Growth Rate 2. Growing Bipolarization 3. Low Birth Rate/ Aging Population 4. Changes in Family Structure 5. New Health Risks 6. 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 Womens 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. 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

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) 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. 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 RedistributionOpportunity Redistribution Intervention: Retrospective/ResponsiveProgressive/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 Opportunity & Improved Potential Active Economic Participa- 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 - Childrens 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 GoalsTen Core Actions

Investment for Children in 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.), Childrens 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 (%) 2030 The Ratio of Welfare Expenditure to Public Finance Welfare Economy Civil Peoples Participatory

Social Governance: Responsibility Intervention in Social Conflicts Social Services Cooperation between public and private sectors Social Capital : Trust Building between Government- Civic Society Coordination between Economic & Social Policies High-Quality Social Welfare Infrastructure