Social Economy of Republic of Korea: Conditions of Success and Policy Direction57 Social Economy of Republic of Korea: Conditions of Success and Policy Direction KIM Jong-Gul (Professor, Graduate School of International Studies, Hanyang University) 1. Socio-economic problems of Republic of Korea 1) Aging and polarization - % of senior citizens over 65: 1990 2000 2018, 5.1 7.1 14.0%. - Absolute poverty rate is 11,7%, relative poverty rate 16.7%, one of highest level among OECD countries(2013). 2) Economy structure led by only a few Korean Chaebols: Double Structure - Rapid growth of investment towards eight Korean Chaebols. Continuous decrease of employment by Korean Chaebols in ten years. The number of employees of Korean Chaebols (over 500 people) has decreased from 2.1 million to 1.3 million from 1993 to 2005 3) A development country but poor welfare. Bureaucracy of welfare delivery system - Per capita income (GNI, Purcahing Power, 2013) is USD 30,011 below than Japan, France, U.K., Germany just by 2,000-4.000 USD. - The size of welfare budget of the government of Republic of Korea is only 6.9% of GDP. OECD's average is 20.6%(in 2005). Social insurance and basic support should be strengthened in mid and long terms but in short term, not easy. - Current welfare system focused on social services has risk of bureaucracy in welfare delivery Reengineering welfare delivery system is urgent.
58 2015 KOREA UZBEKISTAN ROUNDTABLE 2. Significance and Role of Social Economy 1) What is Social Economy? - According to <Three-year-plan for cooperatives, mutual aid organizations, associations and foundation in EC(1994-96)> by European Commission in 1994: * Organizations of social economy are formed and run by principles of economic democracy. They have social purpose and run by Participation Principle (One person one vote) and Solidarity Principle(Among members, organizations and producers & consumers)" * Characteristics are People before Capital, Human development through training and education, Cohesion through free will, Democratic operation, Autonomy and civic participation. - Various types of social enterprise have been developed. * Development Trusts Association in UK defines the scope of social enterprise widely including community business, community development financial institutions, co-operatives, micro-finance, social firm and NPO (non-profit organization). (http://www.dta.org.uk). - In public policy perspectives: * In Italy, the Act for Social Cooperatives in 1991 was enacted. In UK, special divisions were made in Coalition for Social Enterprise and Department of Trade and Industry of the Tony Blair government in 2002. Their duties and responsibilities were transferred to Office for Third Sector and Office for Civil Society, directly under the Prime Minister Office. * There is no single definition for social enterprise in UK. Generally, Social Enterprise" is regarded as "A business with primarily social objectives whose surpluses are principally reinvested for that purpose in the business or in the community, rather than being driven by the need to maximize profit for shareholders and owners" (DTI, Social Enterprise: A Strategy for Success, 2002). - Definition by OECD is seen as the most comprehensive approach * An organization that has social and economic aspects and belongs between a
Social Economy of Republic of Korea: Conditions of Success and Policy Direction59 state and market". A concept that includes cooperatives, mutual aid associations, social enterprises, nonprofit organizations, foundations, incorporated bodies (OECD Social Economy: Building Inclusive Economies, 2007). - The scope of social economy and social enterprises as its main actors should be wide. * Discussing social economy itself pursues 'practicality' to build alternative economic structure by complementing and replacing failures of market and government. We need to make the scope of social economy as wide as possible, in order to maximize resources to build cooperative market and capital * If we adapt definition by OECD above, its main actors can be called as social enterprises. * Similar to definition by EMES Research Network. 1) * Definition by EMES: (1) Unlike conventional nonprofit organizations, continuously generating and selling products and goods (2) High level of autonomy (3) Considerable amount of economic risk (4) The minimum labor with salary (5) Clear goals that benefit for communities (6) Decision governance, not proportional with financial shares (7) Involvement of various stakeholders (8) Limited profit sharing. 2) What are effects of Social Economy? - The effects of social economy were summarized clearly at the international conference organized by International Co-operative Alliance (ICA), Promoting the Understanding of Cooperatives for a Better World on March 15-16, 2012 in Venice, Italy. Scholars attended at the conference listed economic and social effects of cooperatives as followings 2) : * First, 'Reducing market failures'. Cooperatives have distinctive ownership and governance rules of cooperatives. The coexistence of a plurality of enterprises that have diverse ownership structures and pursue different goals contributes to improving market competitiveness, which in turn provides more choices to consumers, helps prevent the formation of monopolies, lowers retail prices, provides opportunities for innovation, and limits information asymmetry. * Second, 'Stabilizing the economy'. Especially in sectors characterized by considerable uncertainty and price volatility, such as finance and agriculture. 1) EMES is abbreviation of Emergence of Social Enterprise in Europe. Defourny and Nyssens (2012),"The EMES Approach of Social enterprise in a Comparative Perspective," EMES European Research Network Working Paper No 12/03, 2) Carlo Borzaga and Giulia Galera, Conference Report, Promoting the Understanding of Cooperatives for a Better World. March 15-16, 2012
60 2015 KOREA UZBEKISTAN ROUNDTABLE * Third, though with low profit, 'Keeping the production of goods and services close to the needs of the people that they serve with social purpose'. Cooperatives often produce goods and services with low and uncertain, if not negative, profitability that investor-owned enterprises are not interested in providing and public authorities are unable to supply. * Fourth, cooperatives tend 'Adopt a long-term perspective'. They often become productive assets for the communities in which they operate by allocating a portion of cooperative surpluses to a collective and indivisible reserve fund (sometimes as asset locks) that does not belong to members individually but must be utilized for the benefit of all and future generations. * Fifth, through 'Fairer distribution of income', cooperatives contribute for economic stabilization. They tend to redistribute their resources either to workers by increasing wages or employment or to consumers by charging lower prices. * Sixth, 'Enhancing social capital' in communities. Cooperatives are rooted in communities and ensure involvement of stakeholders. Therefore, they play a role of an important tool to develop civil society by contributing for enhancing social capital in communities. * Lastly, since cooperatives are employment and profit generation friendly, they produce 'Positive effects on public expenditure'. Cooperatives help solve problems that would otherwise remain a responsibility of public policies. - In UK in 2011, the Mutuals Taskforce was appointed by the Minister for the Cabinet Office with the backing of the Prime Minister. The Mutuals Taskforce took researches on merits of the Mutuals. * Characteristics of the Mutuals which employees own and control (1) Absenteeism and staff turnover are lower in Mutuals, (2) Mutuals pay higher wages on average than non-employee-owned organizations and have lower production costs and higher productivity. (3) Mutuals deliver greater customer satisfaction (4) Mutuals are resilient and innovative. 3) 3) What is social economy in Republic of Korea? - The language that has not acquire citizenship. In Republic of Korea, social enterprises, cooperatives and nonprofit organizations are supported and managed by different ministries in the government of Republic of Korea, Therefore, the concept <Social Economy> which could integrate all together is 3) Mutual Taskforce, Our Mutual Friends; Making the Case for Public Service Mutuals, Cabinet Office, UK, 2012.
Social Economy of Republic of Korea: Conditions of Success and Policy Direction61 more meaningful. - In reality in Republic of Korea, social economy might be a sum of social enterprises + cooperatives + nonprofit organizations providing social services (+ social contribution by companies, labor unions and religion based organizations). In generic aspect, social economy in Republic of Korea can be explained as A sum of good wills in the society structured economically including efforts of people for life. - An important tool for voluntary growth and efficiency of welfare system. 4) What are social enterprises in Republic of Korea? - A legal term (The Social Enterprise Promotion Act in 2007). Designed as job creation tool for disadvantaged people. Conceptionally, CIC (Community Interst Company) in UK + Social cooperatives in Italy. * Currently, legal definition is a company for disadvantaged people by doing Job creation Social service provision ( + is possible) Local community contribution Producing and selling products and goods Allowing involvement of various stakeholders as decision governance Reinvesting profits for social purposes Satisfying standards and procedures of certification requested from the government. * Its budget in 2012 is about USD 160 million. 744 social enterprises exist in the late 2012. 1,682 preliminary social enterprises. The total number of employees hired in social enterprises is 18,639. * The Ministry of Employment and Labor supports and manages policies for social enterprises. There are similar policies in other ministries. Rehabilitation Project of the Ministry of Health and Welfare (USD 400 million, 2012), Village Enterprises of the Ministry of Security and Public Administration, (USD 10 million), Rural and Fishing Community Enterprise of the Ministry of Agriculture, Food and Rural Affairs (USD 600,000). - There is tendency that each ministry compete in a way with its own policy to promote Social Enterprise in wider concept. Risks of competition may results in squandering of the state's budget.
62 2015 KOREA UZBEKISTAN ROUNDTABLE 5) What are cooperatives in Republic of Korea? - In the past, cooperatives were approached as a policy tool for individual industry, not as a way to promote independence of cooperatives. Rather diverged from Principle of autonomy and independence (The fourth principle) and Cooperation among cooperatives (The sixth principle). Eight different separate laws such as agricultural cooperatives and credit union. * As of late 2011, the number of cooperatives is 3,097, the number of members, 28.5 million, the number of employees, 88,604, invested capital USD 10 billion and business volume USD 30 billion. - <The Framework Act of Cooperatives> was made in December, 2011 and enacted in December 1, 2012. * The structure of the Act has many conditional sections but basically, Anybody who forms a group of five in any sector can set up a cooperative There are general cooperatives (Declaration System) and social cooperatives (Certification System) and supporting system are separately equipped The Ministry of Strategy and Finance makes Promotion Plan. * Currently, hight interests from the National Assembly, local governments and public which generate active establishment of cooperatives and social cooperatives. As of February 28, 2013, outputs of social cooperatives (37 applied and 7 certified), general cooperatives (570 applied and 437 are declared), association of general cooperatives (1). 6) What are NPOs in Republic of Korea? - Related acts * An incorporated body and a foundational juridical person according to Civil Law Section 32 (Approval System), Supporting Law for Nonprofit Orgnizations (Registration System 2000). - Support system * The Nonprofit Supporting Act by the Ministry of Security and Public Administration, exceptional support by the Special Acts (Korean Association for Senior Citizens and
Social Economy of Republic of Korea: Conditions of Success and Policy Direction63 Korea Freedom Federation), The Acts for Government Subsidy Management and Budget (In each Ministry), subsidy for social organizations in local governments, tax exemption for nonprofit organizations, and exemption for mailing costs etc. However, there are no precise statistics of the government of Republic of Korea. Often people criticize lack of transparency. - Problems in operation (Especially, NPOs in local areas) * Limited finance and organizational resources. Shortage of networking capacity with areas of social economy. - Size * According to <Global Civil Society: An Overview> by Salamon, among 35 countries, size of employment by the third sector is 4.4%. 14.4% in the Netherlands and 2.4% in South Korea(1995). Current size information is not available. 3. What are future tasks?
64 2015 KOREA UZBEKISTAN ROUNDTABLE 1) How can we realize social economy as national agenda? - Necessity for establishing consistent and logical structure including idea, policy and implementation governance - A keyword of the current Park, Geun-Hye government of Republic of Korea is <Creative Economy>. Science and technology + Small and medium enterprises + (Social Economy?). Basis of <Creative Economy> is regarded as building a country with industrial development. * Among 140 national policy agenda, <Promotion of Social Enterprise and Cooperatives> is included. However, more attention is needed and relevant implementation structure should be strengthened. * For example, in the past Lee, Myung-Bak government of Republic of Korea, Working Class Secretary's responsibility included social enterprise and cooperatives but Working Class Secretary position does not exist any more. Currently, there are
Social Economy of Republic of Korea: Conditions of Success and Policy Direction65 Secretary of National Policy Planning and Secretary of National Policy Agenda in the State Affairs Planning Secretary Division. There is Secretary of Employment and Labor in the Employment and Welfare Secretary Division. However, none of position does not seem to cover those topics. - UK and France assigned those topics to a ministerial position: OCS (Office for Civil Society) in the cabinet in UK of the David Cameron government and the Minister of Solidarity and Social Cohesion in the cabinet of France of the Hollande government. 2) Will it be possible to strengthen connection towards social economy with government budget? - Logically, possible. Willingness for making policies matters. * For example, large portion of <Job Giving Project Supported by Government>(Approx. USD 2.8 billion in 2012) can be shifted to social economy function. <Fostering Project for Culture and Tourism Commentators> by the Ministry of Culture, Sports and Tourism, <Supporting Project for Disadvantaged Rural Village People> by the Ministry of Agriculture, Ford and Rural Affairs, <Preservation Project for Environment> by the Ministry of Environment and, <Forest Commentator> by the Korea Forest Service Agency can be also. 3) How can we achieve concentric circles of Social Economy? - The most important things is integrate market, capital, information and people so that they can become friendly to each other. Main actors of social economy, namely, social enterprises, cooperatives, nonprofit organizations in social services should collaborate effectively. - In addition, religion organizations, volunteering organizations, educational institutions and labor unions should be included in the circles of collaboration. - However, reality is very harsh. For example, an experiment in Wonju in Gangwon Province of Republic of Korea * 22 cooperatives and syndicated alliance of social enterprise based on cooperation
66 2015 KOREA UZBEKISTAN ROUNDTABLE * "Tuksirubong", a preliminary social enterprise established in 2009. Capital, raw materials and sales clients are limited within cooperation network. 9 employees. Monthly USD 1,800 sale volume. For independence, it should be over USD 5,000 at least. Still dependent to government subsidy. - <Private-Public Social Enterprise Promotion Network> is alliance comprising of government, business, religion based organizations and volunteering organizations and social economy, founded in 2012. However it is not active yet. There is practitioner driven <Council for Solidarity and Cooperation towards Social Economy>. Overall, none of organization or alliance does not cover wide range of social economy. It is important to integrate all of these and connect resources and support into every level of fields of social economy. 4) How can we nurture social entrepreneurs? - In order to energize social economy, creative and devoted entrepreneurs and practitioners are important. There are dire needs for educating and incubating youth generation with not only entrepreneurship spirit and practitioner talents. - However, education and incubation in that kind have not received much attention and spotlight. Redesign of education system including higher education is needed. * For example, Said Business School of Oxford University has been deliberating how to connect higher education and civil education by Social Enterprise Coalition London. - <Education Program for Social Enterprise Leaders> by the Ministry of Employment and Labor from 2013 will be a test bed for advancing education for social enterprise leaders. 5) How much do we allow government's involvement? - Social economy is considered to be driven by civil society. Excessive involvement from government will decrease voluntary actions and self growth capacity. - Generally, a role of government for social economy is to make an enabling
Social Economy of Republic of Korea: Conditions of Success and Policy Direction67 environment. Also, to eliminate different treatments for social economy compared with the treatments given to other regulation and supporting system. However, would those be enough? - Insufficient with only making an enabling environment in the midst of <Excess of market>, <State with bureaucracy> and <Scanty civil society> - One of future tasks would be <The 4th generation of industrial policy> targeted for the areas of social economy.