Overview report about Interior Furniture Market of Vietnam (2015-2020)

The furniture market attracts thousands of participating businesses, including the most exciting high-end segment with names such as Pho Xinh, Nha Vui, Index living mall, etc. foreign brands because of the opportunity from the domestic furniture market of Vietnam.

Real demand and purchasing power of furniture industry per capitaAccording to data of the Ho Chi Minh City Association of Fine Arts and Wood Processing (HAWA), only for furniture, the average consumption demand in Vietnam is 21 USD / person / year. Calculated, the scale of domestic wooden furniture consumption in 2018 reached US $ 4 billion.

According to Mr. Phan Dang Chuong – Deputy General Director of ERNST & Young Vietnam Limited, in the past 5 years, about 400,000 – 500,000 townhouses and high-class apartments have been born in Vietnam. On average, each apartment uses at least 1-2 hundred million dong for the interior, so there is less than 100,000 billion dong for this demand.

In addition to real estate, the strong growth of the furniture industry is also related to the formation of the middle class in Vietnam that has spread the aesthetics and demand of consumers. “Customers do not choose furniture as ordinary items but express their lifestyle, sophisticated aesthetic sense,” Mr. Phan Dang Chuong shared.

In 2018 Vietnam spent nearly 500 million USD to import furniture, which is expected to continue to increase in the following years.

According to the sharing of representative of Eric Dinh, marketing director of Dongsuh Furniture, middle and high-end products have many price segments ranging from tens of million to nearly 400 million dong / product. In particular, the purchasing power of the price segment below 50 million VND accounts for 40% of sales of this business. And at the same time affirmed, the current furniture market has not been properly evaluated in terms of product value, many products have been raised from 3 to 5 times.

“The opportunity to experience a complete interior space for every Vietnamese family is almost a luxury. It is a challenge but Dongsuh Furniture’s model of selling furniture online will completely change that. Buying goods online in Korea as a habit of the people, we believe that in Vietnam, we will do the same, especially before the explosion of IoT and e-commerce platforms in Vietnam. selling home furniture will help save significant costs and help all Vietnamese people have the opportunity to access the luxury furniture segment at an affordable cost “- Mr. Eric Dinh shared with reporters tablets.

Not only Dongsuh Furniture, other high-end brands distributed by Dongsuh Furniture also grow very high as the model of living furniture (sectional sofa) classroom furniture, office room with office chair samples.

With kitchen equipment, kitchen, Kohler, Rita Vo is one of the 10 largest distributors of this group. Mr. Vo Mau Quoc Trien – Chairman of the Board of Directors Rita Vo said that Vietnam is the third largest market in Asia, after India and China. Kohler products distributed by the company increase every year. Rita Vo currently has 7 stores (each store area is from 3,000 – 10,000m2) and will open more to reach 20 stores within the next 5 years.

Evaluating the market will continue to grow strongly, in the fourth quarter of this year, Dongsuh Furniture intends to open 3 more large-scale production factories and open two more stores in Ho Chi Minh City and Hanoi so customers can easier to position the brand and then gradually move to online.

In the plan to conquer Vietnamese consumers, in the next 5 years, this business will open 15-20 furniture stores in Vietnam. “We choose Vietnam as the center to explore the ASEAN market. When having a satisfactory partner, the development of the distribution system will be very fast, ”Mr. Park Young Nam affirmed.

What is the potential of Vietnam’s furniture market today?While leading the world in furniture export, Vietnam is still leaving many potentials of the domestic market open.

“Ignoring” the domestic furniture marketAccording to a report on the Vietnam furniture market made by Dongsuh Furniture, Vietnam ranks first in Southeast Asia, 2nd in Asia and 4th in the world in furniture export. In 2015 alone, in the European market, the total export turnover of furniture reached US $ 7.2 billion and US $ 1.7 billion with home decor items.

The development of the furniture industry in Vietnam is expected to grow steadily at a rate of 9.4% per year.

Also according to Dongsuh Furniture’s analysis, the current Vietnamese furniture market is mainly export-oriented and leaving the yard open. Most of the domestic market is a playground for imported goods, originating mainly from China, Malaysia and Thailand.

Domestic consumption of wooden products remains weakA recent report on Vietnam’s wood product market by the Ministry of Agriculture and Rural Development also pointed out that. Although ranked 6th in the world in exporting wood products, the domestic market with the consumption of 90 million people, estimated at 1-2 billion USD a year has not been paid enough attention.

Partly due to the incorrect pricing of products in the domestic furniture market, as originally shared by Eric Dinh. Causing many families as well as consumers to wonder before going down, although in general, the quality of furniture in Vietnam is quite good.

Statistics show that Vietnam’s domestic wooden furniture market only accounts for about one third of export turnover

With an average GDP growth rate of 6% per year, along with the development of construction and real estate sectors, the increase in household income will also help increase spending on goods and services. Interior.

The Ho Chi Minh City Fine Arts and Processing Association estimates that in 2018, the total domestic furniture consumption is estimated at about US $ 4 billion.

In the context that domestic companies are focusing on exporting, Dongsuh Furniture said that the furniture market in Vietnam is similar to South Korea 20 years ago, but this will be the first step for attracting foreign investor. Many international brands are planning to set up manufacturing plants, or seek opportunities to expand business in Vietnam when the tariff barriers on furniture and home decor are removed.

Enhance interior shopping experience to attract customersAccording to the study, Vietnamese consumers tend to change their home decoration quite often. Customers aged 25-35 years rearrange their furniture within 6 to 12 months. This group is especially interested in modern and convenient shopping experiences.

Therefore, many companies in Vietnam have participated in the race of e-commerce and technology applications to improve shopping efficiency of customers.

A pioneer in the field of online furniture, Dongsuh Furniture brings a whole new shopping experience with diverse furniture products, fashionable and elegant colors, along with the promotion of focusing on design as well as description of details. verbatim honesty, making furniture shopping easier. Looking is mesmerizing, touching is coffee.

Smart interior market, the race is gradually heating upWith the 4.0 industrial revolution has come, along with many other fields, the interior sector is also heating up with the smart product race.

Developed with the need to buy furniture onlineSocio-economic life is increasingly improving, people’s needs are also increasing. In the field of real estate, the current demand is not only a house to live in, but also a place to enjoy life, to rest and relax.

Along with the development of science and technology, especially the industrial network 4.0, artificial intelligence (AI), connectivity of things (IoT) …, is increasingly being applied in many fields and industries. different, bring convenience, increase labor productivity.

The price of furniture increased but it also led to the demand as well as the rigor in each customer’s request.

See also: Price list of interior design of new houses 2020

Along with the general trend, a number of furniture manufacturing and trading businesses have also researched and produced many smart products and these products were quickly accepted and favored by consumers.

Many interior products are compact, multifunctional, suitable for many types of apartments and rooms. Meanwhile, restrictions on small area or tight space will no longer be noticed. In addition to being compact with multiple uses, the colors of these products are also very diverse, consistent with the diverse needs of consumers.

In addition, this product was not previously popular due to the habits and culture of Vietnamese consumers. Because it is a new product, Vietnamese consumers do not believe in product safety. Therefore, the market for smart furniture products does not develop for a long time in Vietnam.

However, in recent years, this furniture line has created a new consumer trend because of culture and consumer understanding are different from the past. In addition, consumer finance is also better, helping this product line to have more and more foothold in the market.

The trend of integrating digital technology into interior designEach year, the interior decoration market has its own changes and changes to ensure that it always meets the needs and tastes of consumers. This year, the trend is to integrate digital technology into interior design.

Interior “Modern – comfortable” customer priorityExperts in the market research and interior decoration industry said that in the past 2 years, the customer segment using high-class interior products tends to favor but modern and convenient designs. Comfort as well as the use and coordination of neutral colors create elegance and closeness to nature.

According to industry insiders, “modernity – comfort” are the two factors that are given top priority in making decisions on interior design choices. The attraction of these two factors can be clearly seen through consumer behavior towards the product.

Furniture collections catch the new trendAccording to the statistics of Dongsuh Furniture – one of the leading Korean furniture distribution businesses in Vietnam, consumers are now making moves as well as extremely positive expressions for decorative items. Interior style but with a bit of European style in general, especially Scandinavian Nordic furniture in particular.

The integrated functions are the major plus points such as the Dongsuh Furniture brand has used leather sofas with integrated USB charging plug or magazine compartment, etc. for relaxing sofa models.

Regarding colors, the neutral colors such as natural wood color, gray, brown, white …. Not only helps dislodge the elegance, warmth but also cleverly creates striking contrasting shades of personality that show the unique personal impression of the owner.

Especially, this is also a color that expresses elegance, nobility but no less modern, sophisticated in accordance with the active life today.

The race against the modern interior market

Mr. Eric Dinh said that consumers now have a high demand for smart and modern furniture. However, because the environment of the house has different spatial designs, while the Company only offers mass products, which are general in shape, not “tailor-made” for each apartment, it does not meet all requirements. be in demand.

“The smart furniture market in Ho Chi Minh City is developing quite bustling. Currently, there are many competitors in this market”, said Eric Dinh.

Typically, the newly launched LED bed of Dongsuh Furniture has been warmly welcomed.

Worries about Chinese goods “disguised” as furniture for exportAccording to Mr. Huynh Van Hanh – Vice President of Hawa, US-China trade tensions are now very easy to turn Vietnam into a “backyard” of Chinese wooden products, if Vietnamese enterprises do not build a retail system. will definitely lose at home. Once exports to the United States are declining, China must find markets to consume Chinese wooden products and furniture that will land in regional countries, including Vietnam.

Meanwhile, according to Mr. Eric Dinh – marketing director of Dongsuh Furniture, in order to protect the domestic wooden furniture market as well as export, the customs sector must closely monitor Chinese wood products into Vietnam in what form, which is a component. or selling components or raw materials to impose proper tax, avoiding the situation of “disguising” Vietnamese goods for export in order to enjoy tax incentives like Chinese flooring products and anti-dumping prices. Therefore, Vietnamese authorities must be more strict in considering and issuing C / O. At least that item must be over 70% of the value created in Vietnam to be granted a C / O, but it is impossible for an item of only 10% or 20% of the value created in Vietnam to issue a certificate of origin of Vietnam. .

Managing interior furniture market: It’s hard to … go to heavenVietnam’s furniture market is a fertile ground for many domestic and foreign businesses to exploit. However, according to experts, the transparency of this market from origin, quality to truth-checking – fake products is still as difficult as going to heaven.

White – black mixed … when shopping furnitureAccording to statistics of Cheap Korean Furniture, the value of furniture production in Vietnam is expected to exceed US $ 1 billion by 2020, with the participation of more than 7,000 furniture manufacturing and supplying enterprises. With such a large number of enterprises producing and supplying furniture have met the increasing demands of Vietnamese consumers.

Just type the phrase “buy furniture online”, in just 0.61 seconds, there were nearly 7.5 million search results with a full range of products, models, from famous brands, to The most popular brands, meeting the diverse needs of consumers.

However, due to the large number of furniture manufacturers and suppliers, with a variety of designs, types and origins of furniture, the management of this market is very difficult for businesses. management. This leads to the situation of fake goods, fake goods, poor quality goods that still have land on the market, affecting the interests of consumers and society in general.

Sharing with the Vietnam Investment Review reporter, Mr. Park Young Nam shared that, currently, on the market, many small furniture stores in Hanoi, or Ho Chi Minh City have introduced as distributors of many big brands. , but when customers make product certification requirements, they cannot provide it, or require VAT invoices, many of them cannot provide.

In another perspective, Mr. Pham Ngoc Cuong, Sales Director of Nha Xinh Furniture Construction Joint Stock Company said that, in fact, in order to distinguish real fake furniture, it is still difficult for people in the profession. Do not mention consumers. Because there are many different types of products, interiors, different identities and no one knows all the products.

Sharing the same view, Mr. Dinh Hoang Quan (Eric Dinh), Director of Makerting YN Vietnam, a genuine production and distribution unit of Dongsuh Furniture brand in Vietnam said: “If I go to buy furniture for decoration, Besides the field of furniture – my specialty, other products are difficult to choose because there is no experience, knowledge and lack of information about the product, especially about the product material as well as the origin. This is harder for the average consumer. ”

… So difficult to manage quality furnitureThe reason why fake furniture, fake goods and poor quality goods are still available for sale, Mr. Quan said, partly because of unethical business units, taking advantage of market gaps to profit. , on the one hand due to the poor management.

Meanwhile, sharing with reporters of the Investment Review, a representative of An Cuong Wood Joint Stock Company, said that this is a very sensitive issue. Furniture is very cheap, but consumers should carefully understand about businesses, distributors of prestigious products, big brands with State protection certificates, or other certificates. about the product. By big furniture brands, it is not foolish to lose the “god”.

Users are increasingly strict in interior decorationAccording to Savills Research, construction revenue increased continuously in 2007 from 1.2 billion USD to 12.8 billion USD in 2017, a great opportunity for civil engineering companies.

And with many good signals in macroeconomics, foreign investment flows, the development of the real estate market can predict that the construction industry will continue to be the leading growth industry for more than 10 years. past year.

In addition, the average population growth rate of Vietnam is 1.2 – 1.5% / year and the average urban growth rate is 3.4% / year … Therefore, the potential to increase Head of domestic housing segment is still very large, office demand is increasing sharply.

Along with the increasing demand for civil construction, consumers’ tastes are also more stringent. For example, with interior items as floor carpets, at present, most apartments tend to use carpets, at least spread one sheet in the living room. Consumers have gradually updated their home décor with carpets, so finding and buying rugs in the home is also as important as buying a sofa, a bed, a dressing table, etc.

Five years ago, consumers easily accepted the use of Chinese origin beds with low price and not high quality. However, now with the new consumer trend, consumers are turning to more luxurious wooden beds. Especially taking into account factors such as health safety and environmental friendliness.

In fact, consumers often prefer to choose a modern wooden vanity table imported from Korea because of the superior style and design. The products all meet E1 standards of Korea – quality assurance standards for consumer health.

In addition, the Japanese style tea table sofa line is more selected by customers. The attraction of this tea table is compact, sophisticated, foldable and when combined with the living room sofas, combined with the light will see the space also more luxurious.

Designed to accentuate interior styleAccording to the Vietnam Association of Architects, unlike previous tastes of building houses and offices, business owners or homeowners often focus only on the necessary construction elements of a house or building with familiar materials. attached bricks, iron and wood.

The new trend now, business owners, homeowners also pay attention to the convenience and decorative accents harmonious colors for their buildings and homes. The color of the house does not stop at the color of wall paint, ceiling color, floor, but architects also use other furniture such as carpets, sofas or beds … to highlight the style, the personality of the house owner.

And in that new design trend, decorative cabinets are chosen as a popular color accent in homes, especially with modern living room or office interior architectures or young families. – Usually choose an apartment to live in.

Facing that fact, the market of supplying furniture with sleepy patterns like wooden wardrobe models in recent years has also become very exciting. Common wood materials that customers often choose are MDF, MFC, PB industrial wood because of their high durability. In addition, natural wood products such as rubber wood are also very popular because of their low price, firm texture and beautiful colors.

Dressing tables also become indispensable interior products for young people. The trend away from mini vanity models has moved to modern vanity models with wider dimensions. Products are often sold with makeup models.

WOODEN FURNITURE MARKET: HOME RENTAL“Going to buy Chinese wooden furniture? Any price is available, spoiled for choice of models … ”, Mr. Phuong, a furniture business specialist in Ngo Gia Tu area, District 10, Ho Chi Minh City, said. Following the “new boss” to see Chinese furniture in this area is a formidable opponent of domestic furniture. Many domestic woodworkers have begun to focus on “home turf”, which has been left open for Chinese guests.

Disorder price of home furnitureNot only rich in design, price, the way of Chinese goods to Vietnam market is equally dexterous.

“If not the people in the profession, want to buy Chinese furniture beware of buying the wrong goods called Chinese furniture, because the domestic carpentry establishment sells to the market to follow Chinese goods.” Just at the beginning of Ngo Gia Tu’s interior “market”, Mr. Phuong reminded him. Currently these items “Vietnamese soul, Chinese leather” are priced at 20% to 40% cheaper than genuine goods.

Chinese furniture is flooding the domestic market, although it has only entered Vietnam market about 3 years ago. According to the Chinese furniture business, the market is smoking Taiwanese and Chinese wooden furniture. “No one imports Taiwanese timber to sell in Vietnam market, all are Chinese wood products,” said an owner of a Chinese import establishment.

Taiwanese timber companies are moving their factories to China, due to cheaper labor costs and easier shipping for export. The “labeling” imported from Taiwan only to hit the brand’s consumer psychology. “Taiwanese goods are better than Chinese goods after all …!”, He shrugged. The majority of Chinese wooden furniture is imported mainly from Guangdong and Guangxi provinces of China.

According to the Ministry of Trade, in 2005, China provided 53% of furniture for the Vietnamese market, with a total import turnover of US $ 16 million. Chinese wooden furniture enters Vietnam according to the official quotas imported by Vietnamese enterprises for domestic distribution. Unofficial roads are bought by traders to China and through Lang Son border gate. The business of exporting wooden furniture calls importers by small quota “hitting fruit”. They often follow the orders of the building, they get the price and go to the root of the goods in China to find the lowest price to order. In these trips, the traders also took advantage of the survey of new and unique models to hit Vietnam.

“If hit correctly, the profit of each shipment is up to 50%. Conversely, if the judgment is wrong, the imported goods are “out of fashion”, hugging the number of inventories, they must suffer losses to recover capital. ”

Wood furniture imported to Vietnam is distributed by the traders at different prices, the retail price is usually 15% higher than the price for distributors. Usually, every importer has their own showroom system to display products. Imported furniture is also distributed to interior stores across the country, in Ho Chi Minh City focusing on two “markets”, Ngo Gia Tu (District 10) and Cong Hoa (Tan Binh).

Why Korean wooden furniture sucks?According to Eric Dinh, marketing director of Dongsuh Furniture, an online furniture store, which specializes in providing modern Korean style furniture on e-commerce floors, the designs of Korean furniture are quite plentiful, with Many different prices. Every day, Dongsuh Furniture exports to Korea and countries about 2 to 3 “public” furniture of all kinds by sea, according to the official quota.

Korean furniture has the advantage of cheap price, beautiful design, fashion and quality than the furniture from China. However, according to Eric Dinh, due to the 40% import tax on raw materials to Vietnam, plus 10% value added tax (VAT) excluding shipping costs, the price of goods sold in Vietnam market. Men are usually 5 to 10% more expensive than Chinese models. From bed, wardrobe, TV shelf, dining table set is priced from 2 million to 9 million, depending on size and style. Some stores do not retail but sell in sets including beds, wardrobes, dressing tables … with prices from 14-19 million VND / set, depending on type and size.

Korean furniture is mostly made from MDF artificial wood and processed rubber wood. For example, exported sofa samples are packed in assemblies, assembled at stores in Korea for sale in sets.

Wooden furniture is racing to gain domestic market shareIn the face of new developments in the furniture market in Vietnam, local wooden furniture businesses have begun to focus on designs and designs when investing in a new research and product development team to design and Selecting suitable models for each target market segment.

According to some enterprises in the industry, in the past, the domestic wooden furniture only focused on antique counterfeit and carved wood products. The prices of these items are quite high, only suitable for up-to-date customers with the classic and large house style.

Currently this trend is decreasing. Customers are getting younger and younger, preferring modern, block-style, simple and convenient boxes suitable for modern houses with paint colors and youthful designs. Businesses are aiming to sell products, with specific uses and utilities, rather than selling raw materials and costs as before. Products appearing on the market are designed in sets to improve the usability and utility for users.

For example, the living room set includes sofa tables and chairs, television shelves. The bedroom set includes a bed, a nightstand, etc. These products are easily removable, with many different functions.

“Customer care is also focused”. Mr. Eric Dinh said that the company has provided free delivery within Ho Chi Minh City and Binh Duong inner city. In addition, each product packaging comes with detailed instructions for use and assembly.

Consultation on display, preservation and assembly on-site at the request of customers is also the way that furniture manufacturing enterprises are applying to better return to the domestic market. Products are warranted for 1 year or more, 100% flexible return and warranty policy for the first 7 days. The sales from the domestic market of the company has reached nearly 10 billion / year.

A series of furniture supermarkets were born with many different brands, not to mention the shops specializing in selling imported furniture are competing fiercely in the market. Collaborating with suppliers of raw materials in production, promoting quality control, order fulfillment progress and reducing input prices are also ways that businesses are taking steps to be able to compete with furniture. China.

Even businesses specializing in handicrafts have started to focus on the interior business by associating with other construction companies. For example, Lac Phuong Nam Company cooperates with Nha Dan Construction Company to make interior decoration items according to specific orders of the owner. Upon receiving the order, the company will send people to survey depending on the type of house, the company will offer different decor patterns. Lac Phuong Nam furniture is quite diverse, targeting different types of customers to penetrate better. Wooden items such as tables, chairs, shelves, bars are lacquered to match the colors and designs of each office.

Summary of Vietnam furniture market report in the last 2 yearsVietnam’s home furniture market is forecast to have positive changes in the next 5 years (2020 – 2025), specifically, the estimated annual growth rate will reach CAGR (CAGR COMPOUND ANNUAL GROWTH). RATE) 5%.

Vietnam’s home furniture market is forecast to have positive changes in the next 5 years. According to analysts, Vietnam is an ideal country for furniture companies to build furniture factories and to invest and export furniture.

Up to now, interior products from Vietnam have been exported to more than 120 countries and territories, of which the main markets are South Korea, USA, UK, Canada, Australia and Japan. are extremely demanding markets. Vietnam’s furniture is also exported to China – a country that is known as the world’s factory.

For the domestic interior market, Vietnamese consumers have a preference for wooden furniture products, which has created conditions for the industry to produce interior and exterior products in Vietnam. Nam continues to grow strongly and is expected to keep going up in the coming years.

Compared to other major furniture exporters in the world, the Vietnamese furniture industry holds a production advantage, with the potential to expand its global market share due to its natural resources and long coastline. Convenient for waterway distribution channels.

This impressive growth has been contributed largely by the increasing demand from North America, Europe and the Asia-Pacific region, even to Middle Eastern and Indian countries.

Moreover, with increasing urbanization and rising demand for housing, apartments and buildings, Vietnam’s home furniture market is expected to grow during the forecast period.

The segment of Vietnam’s furniture marketMordor Intelligence predicts that the period of 2020 – 2025 will be a booming year for the kitchen furniture segment in the Vietnamese furniture market. The segment of kitchen furniture includes kitchen appliances and other wooden furniture. Explaining the rise of the kitchen furniture segment, analysts have relied on increasing urbanization and remodeling of kitchens as well as strong investment from hotel and hospitality units. goods due to the development of tourism.

According to statistics, the revenue of the kitchen or dining room furniture segment in the Vietnamese furniture market is valued at US $ 0.6 billion in 2015. For the global furniture market, the home furniture segment kitchens also accounted for the largest share of revenue in the US furniture market in 2015.

See more: Trends of interior design cheap dining room 2020

The wood processing industry in Vietnam also recorded impressive growth and will continue to grow during this period. Specifically, according to the Mordor Intelligence data, in 2017, the export value of wood, wooden furniture and non-timber forest products in Vietnam reached about US $ 8 billion, of which the export value of furniture was valued at 7, 6 billion USD. In 2018, the export value of timber, wooden furniture and non-timber forest products was US $ 9 billion. Wood and furniture has become the sixth largest export item in Vietnam, accounting for 6% of the world market share.

Market reports for Vietnam’s export and import timber industry 2020

The strong export growth of the industry is thought to be the result of free trade agreements (FTAs) and most recently (EVFTA) of Vietnam and the country, partner organizations, this is the main has provided opportunities for furniture and other wood product manufacturers to enhance their competitiveness and increase sales.

But furniture and other wood products manufacturers face a major challenge: the shortage of raw materials in the context of closed forests, deforestation and other measures being taken by countries. Different participants made to protect their timber resources.

Competition in Vietnam’s wooden furniture marketNot only domestic enterprises, many large international enterprises are dominating a large market share in the Vietnamese furniture market. The majority of market share will fall into the hands of big companies such as Dongsuh Furniture, AKA furniture, beautiful houses, index living mall …

Social Values and the Health System

The health system should reflect social and cultural values.

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There are as many health systems and models as there are countries. This is because healthcare is a public good and,Social Values and the Health System Articles thus, reflects the social and cultural values of the societies that design and adopt them.

I. Social and Cultural Values

We should distinguish social and cultural values from economic and operational values. Efficiency, for instance, is an economic-operational value, not a social-cultural one. Equity (though often considered an economic criterion) is actually a normative social-cultural value whose pursuit often comes at a steep economic price and is non-efficient. Health systems can be categorized according to which class of values they emphasize: the American (US) health system is geared to satisfy economic-operational requirements while European health systems place a premium on social-cultural ones.

In this paper, I deal with three social-cultural constraints: solidarity, equity (vs. inequity), and progressivity (vs. regressivity), including the issue of redistribution. There are many other social-cultural values that I do not cover in here: fairness, dignity, and choice come to mind. Finally, I provide a discussion of the concept of “public good” in current literature.

II. Social Solidarity

Social solidarity is both vertical and horizontal and both contemporaneous and inter-generational.

Members of the same society ought to strive to share the burdens of the sick, the young, the poor, the weak, and the disenfranchised. This is usually done by transferring economic resources among population groups and by promoting fairness. At the same time, people should feel morally obliged to provide aid and succor to their peers and relatives, neighbors and colleagues, compatriots and friends by encouraging social cohesion and sharing of responsibilities (for instance, within the nuclear or extended family).

Such attitudes cut also across generations, so that the current generation is held answerable to future generations for their well-being and the reasonable fulfillment of their needs. This “solidarity across time” is at the foundation of most modern pension systems, for instance.

Some health systems are explicitly founded on social solidarity, others only implicitly so. However, there are health systems which partly or altogether eschew social solidarity as a defining principle and a determinant.

Health systems of the first type are usually universal, uniform, and comprehensive. They rely on tax revenues or a social insurance scheme or on a combination of both. Health systems of the second type depend on private insurance, are not universal, and are more diverse in the types of medical coverage offered (albeit this diversity comes with increased transaction costs).

Introducing means-testing (asking the rich to pay additional or higher user-fees, co-insurance, deductibles, or participation) does not affect social solidarity. On the contrary, taxing the rich to pay for the poor is the very essence of a solidary state. Similarly, introducing safety nets (such as voucher systems) is a solidary act. Whether such an approach is ideal, from the economic point of view is outside the scope of this paper.

III. Equity

There are three types of equity:

1. Equity of financing (affordability): can the poor, the unemployed, the homeless, the old, the young, the weak, the chronically sick, and the disenfranchised afford the healthcare offered? Are the expenses they have to incur catastrophic? Do certain expenditures (for instance user fees, or participation in the costs of medications) deter utilization? Do the payments reflect one’s income or wealth, are they “fair”?

2. Equity of utilization (accessibility) is comprised of two components:

(i) Vertical equity: Can everyone access healthcare services and facilities and make use of them easily and equitably (on the same terms and conditions, regardless of income)? This type of equity correlates with the progressivity of the health system (see chapter below.)

(ii) Horizontal equity is the extent to which people with identical incomes are treated similarly. This type of equity correlates with the redistributive aspects of the health system (see chapter below.)

3. Equity of quality: Is the level of quality healthcare provided in all regions of the country and in rural vs. urban settings the same?

Medical savings accounts adversely affect equity because they skew economic incentives and the allocation of healthcare resources towards the rich and men. Women and the poor cannot save as much and have greater healthcare needs.

User fees may actually increase equity under certain conditions: (1) That the income they generate is targeted at the poor and the chronically ill (2) That the poor and chronically ill are exempted from paying them and (3) That the level of funding from other sources (taxes, contributions) is not reduced.

Devolution of healthcare services may create inequity as rich municipalities are able to spend more on healthcare than poorer ones. The government should create an equalization fund or use general tax revenue to transfer resources from wealthier to more destitute regions. Pooling of funds among regional or competing funds guarantees more equity.

Regional health insurance funds increase inequity as they are faced with the same problems described under “Devolution” above: poorer regions cannot compete with richer regions on the purchasing and provision of healthcare.

Social health insurance and tax-based healthcare financing maintain the same level of equity of financing. Negative co-payments (no-claim bonuses); income caps (or ceilings) on contributions; the inclusion of dependants in the coverage at no additional cost; and the extent of cost-sharing determine how equitable and progressive the social insurance scheme is.

The introduction of private health insurers and voluntary health insurance to compete with the statutory health insurance fund or even merely to complement or supplement it would increase inequity especially with regards to women and low-income groups. Women are usually charged higher premiums though their incomes are often lower than men’s.

Risk-rated premiums decrease equity as they discriminate against the already ill and may deter them from seeking care. On the other hand, exemptions granted to specific population groups (and not based on income) increase inequity: the sick and the old may gain better access to quality healthcare than other, equally deserving beneficiaries.

Risk-adjusted (e.g., DRG) capitation systems enhance vertical equity.

Informal payments dramatically decrease equity because: (1) Access is restricted to those who can afford to pay (2) Payments terms and levels are arbitrary and changeable (3) Certain services and goods are rendered unaffordable (4) Public, more equitable services suffer (5) Lack of regulation creates variable quality of healthcare, fiscal irresponsibility, and lack of fairness.

IV. Progressivity and Redistribution

Though progressivity (and redistribution) are often conflated with equity, these are two separate issues. We can imagine a progressive system of health funding which is not equitable and can conceive of the reverse as well.

We say that healthcare funding is progressive when rich people pay more (as a proportion of their income) than poorer folk; the system is proportional when both rich and poor use up the same proportion of their disposable income to defray healthcare costs; it is regressive when poor people pay a higher portion of their income than the affluent to consume healthcare goods and services.

Progressivity largely determines whether there is a redistribution of resources from the rich to the government (not necessarily to the poorer segments of the population). How extensive and ubiquitous the redistribution from the government to the poor is depends on how involved the state is in the economy (in other words, it depends on the tax burden, the incidence of public spending, and on the absolute level of tax revenue, among other factors).

Tax-funded healthcare is progressive (assuming that most of the tax revenue is generated from direct taxes, not from consumption or indirect taxes which are regressive). It is less progressive than social health insurance when: (1) Indirect taxes constitute a major source of budget revenue and (2) The informal sector that does not pay taxes is large.

Earmarked (“sin”, or hypothecated) taxes on alcohol, tobacco, motor vehicles, and medicines are regressive (though their regressivity is intentional as they are intended to deter consumption).

Social health insurance is generally less progressive than a tax-based system because it does not tax income from interest, rent, capital gains, and non-wage types of income. This is especially true when there is an income ceiling (above which contributions are not levied); when there are no exemptions for low-income groups; and when the rates are uniform regardless of the size of the wages they are levied on.

Still, Social health insurance is more redistributive than private insurers: (1) It charges uniform or community rates (2) It insures dependants at no extra cost (3) The length and extent of healthcare goods and services provided is not related to previous or cumulative contributions (4) It caters to the needs of the old (inter-generational redistribution). Still, this type of redistribution has negative economic effects (which are outside the scope of this paper).

The introduction of private health insurers to compete with the statutory health insurance fund is neutral as far as progressivity goes. Only where private insurance has supplanted social insurance as the main source of funding did regressivity increase markedly. Risk-rated premiums, however, are regressive.

Medical savings accounts have no regressive or progressive effect as they do not redistribute income. All types of savings are neutral as far as progressivity or regressivity go.

User fees are highly regressive, regardless of any supplementary policy measures (such as exemptions). Only the introduction of means-testing can reduce regressivity.

Informal payments are highly regressive as the poor are asked to pay a high proportion of their income or assets (even when they are charged less than richer patients).

Tax deductibility of healthcare expenses is highly regressive (people with higher income tax rates receive a higher deduction).

V. Public Goods, Private Goods

Contrary to common misconceptions, public goods are not “goods provided by the public” (read: by the government). Public goods are sometimes supplied by the private sector and private goods – by the public sector. It is the contention of this essay that technology is blurring the distinction between these two types of goods and rendering it obsolete.

Pure public goods are characterized by:

I. Nonrivalry – the cost of extending the service or providing the good to another person is (close to) zero.

Most products are rivalrous (scarce) – zero sum games. Having been consumed, they are gone and are not available to others. Public goods, in contrast, are accessible to growing numbers of people without any additional marginal cost. This wide dispersion of benefits renders them unsuitable for private entrepreneurship. It is impossible to recapture the full returns they engender. As Samuelson observed, they are extreme forms of positive externalities (spillover effects).

II. Nonexcludability – it is impossible to exclude anyone from enjoying the benefits of a public good, or from defraying its costs (positive and negative externalities). Neither can anyone willingly exclude himself from their remit.

III. Externalities – public goods impose costs or benefits on others – individuals or firms – outside the marketplace and their effects are only partially reflected in prices and the market transactions. As Musgrave pointed out (1969), externalities are the other face of nonrivalry.

The usual examples for public goods are lighthouses – famously questioned by one Nobel Prize winner, Ronald Coase, and defended by another, Paul Samuelson – national defense, the GPS navigation system, vaccination programs, dams, and public art (such as park concerts).

It is evident that public goods are not necessarily provided or financed by public institutions. But governments frequently intervene to reverse market failures (i.e., when the markets fail to provide goods and services) or to reduce transaction costs so as to enhance consumption or supply and, thus, positive externalities. Governments, for instance, provide preventive care – a non-profitable healthcare niche – and subsidize education because they have an overall positive social effect.

Moreover, pure public goods do not exist, with the possible exception of national defense. Samuelson himself suggested [Samuelson, P.A – Diagrammatic Exposition of a Theory of Public Expenditure – Review of Economics and Statistics, 37 (1955), 350-56]:

“… Many – though not all – of the realistic cases of government activity can be fruitfully analyzed as some kind of a blend of these two extreme polar cases” (p. 350) – mixtures of private and public goods. (Education, the courts, public defense, highway programs, police and fire protection have an) “element of variability in the benefit that can go to one citizen at the expense of some other citizen” (p. 356).

From Pickhardt, Michael’s paper titled “Fifty Years after Samuelson’s ‘The Pure Theory of Public Expenditure’: What Are We Left With?”:

“… It seems that rivalry and nonrivalry are supposed to reflect this “element of variability” and hint at a continuum of goods that ranges from wholly rival to wholly nonrival ones. In particular, Musgrave (1969, p. 126 and pp. 134-35) writes:

‘The condition of non-rivalness in consumption (or, which is the same, the existence of beneficial consumption externalities) means that the same physical output (the fruits of the same factor input) is enjoyed by both A and B. This does not mean that the same subjective benefit must be derived, or even that precisely the same product quality is available to both. (…) Due to non-rivalness of consumption, individual demand curves are added vertically, rather than horizontally as in the case of private goods”.

“The preceding discussion has dealt with the case of a pure social good, i.e. a good the benefits of which are wholly non-rival. This approach has been subject to the criticism that this case does not exist, or, if at all, applies to defence only; and in fact most goods which give rise to private benefits also involve externalities in varying degrees and hence combine both social and private good characteristics’.

VI. Is Healthcare a Public Good?

Healthcare used to be a private good with positive externalities. Thanks to technology and government largesse it is no longer the case. It is being transformed into a nonpure public good.

In theory, all forms of healthcare are exclusionary, at least in principle. It is impossible to exclude a citizen from the benefits of his country’s national defense, or those of his county’s dam. It is perfectly feasible to exclude patients from access to healthcare. This caveat, however, equally applies to other goods universally recognized as public. It is possible to exclude certain members of the population from being educated, for instance – or from attending a public concert in the park.

Public goods require an initial investment by the user or consumer (the price-exclusion principle, demanded by Musgrave in 1959, does apply at times). One can hardly benefit from the weather forecasts without owning a radio or a television set – which would immediately tend to exclude the homeless and the rural poor in many countries. It is even conceivable to extend the benefits of national defense selectively and to exclude parts of the population, as the Second World War has taught some minorities all too well. Similarly, user-fees are required in order to benefit from certain types of healthcare.

Nor is strict nonrivalry possible – at least not simultaneously, as Musgrave observed (1959, 1969). Our world is finite and so is everything in it (the principle of scarcity). The economic fundament of scarcity applies universally – and public goods are not exempt. There are only so many people who can attend a concert in the park, only so many ships can be guided by a lighthouse, only so many people defended by the army and police. This is called “crowding” and amounts to the exclusion of potential beneficiaries (the theories of “jurisdictions” and “clubs” deal with this problem).

Nonrivalry and nonexcludability are ideals – not realities. They apply strictly only to the sunlight. As environmentalists keep warning us, even the air is a scarce commodity. Technology gradually helps render many goods and services – books and education, to name two – asymptotically nonrivalrous and nonexcludable.

From the book “Funding healthcare: Options for Europe” (p. 216):

Substantial research shows that improving quality, efficiency and equity critically depends on supportive policy contexts and policy measures, and government capacity to implement policy effectively (Gilson et al. 1995; Kutzin 1995; Nolan and Turbat 1995; Bennett et al. 1996; Gilson 1997). Mills et al. (2001) identify the following as being the most critical:

• Decentralized retention of revenue to provide incentives to collect fees and

to allow local improvements in quality.

• Information systems for accounting, auditing and financial management that support management at all levels.

• Financial management skills, especially at sub-national levels where revenue is managed.

• Well-motivated staff with balanced financial incentives that encourage adopting new charging and management practices but discourage overzealous or illegal charging.

• A well-designed and appropriate exemption system, with information that permits the target group to be reached.

• Central leadership, training and guidance on implementing exemption policy and using revenue.

• Maintaining government funding levels to ensure that fee revenue is additional and can be used to improve quality and motivate staff.

• Public willingness and ability to pay.

Bibliography

Buchanan, James M. – The Demand and Supply of Public Goods – Library of