Contracting Out in Korean Local Governments: Current Situation and Challenges Ahead
| Author | Se-Jeong Park |
| Published date | 01 September 2004 |
| Date | 01 September 2004 |
| DOI | http://doi.org/10.1177/0020852304046204 |
| Subject Matter | Articles |
Review of
Administrative
Sciences
Contracting out in Korean local governments: current
situation and challenges ahead
Se-Jeong Park
Abstract
Faced with an economic crisis in the 1990s, the Korean government pushed on
strongly with a privatization policy as one of the main tools for reforming govern-
ment. In compliance with the national policy, local governments in Korea began to
expand privatization in the 1990s. In spite of this development in practice,
systemic efforts at assessing privatization have been deficient in academia.
Consequently, little is known about privatization in Korean local governments. This
study is intended to remedy such a deficiency. It introduces readers to Korean
local government experiences with contracting out which is one of the most
typical forms of privatization. Main topics in this study include the background to
and motivation for contracting out in Korean local governments, features and
results of contracting out, problems encountered in the process of contracting
out and the tasks ahead. For the discussion, it analyzes the actual cases of two
regional governments and 17 municipal governments.
Introduction
Privatization has been a popular tool for reforming government in many countries
(OECD, 1997; Seidenstat, 1999; Parker and Saal, 2003). Contracting out is one of
the most common forms of privatization, with some uneven applications among
countries (Rehfuss, 1991; Greve and Ejersbo, 2003). Supporters of contracting out
propose that it promotes the culture of competition in government, which in turn
would lead to better management and work practices, an innovative approach to
solutions and more productive use of capital and facilities. They assume that this will
produce positive results to the contract-giving government. Typical benefits include
cost savings, fewer staff, better services and flexibility in management (Rehfuss, 1991;
Se-Jeong Park is an associate professor at the Department of Public Administration, Keimyung
University in Korea.
Copyright © 2004 IIAS, SAGE Publications (London, Thousand Oaks, CA and New Delhi)
Vol 70(3):497–509 [DOI:10.1177/0020852304046204]
498 International Review of Administrative Sciences 70(3)
Hodge, 2000; Savas, 2000). Advocates of contracting out assume that ‘markets are
beneficial and governments harmful’ (Tang, 1997: 459). In this context, they strongly
argue for the logic of market mechanism in the operation of government.
There is a group of people who stand against this view. They challenge claims
made and raise issues overlooked by advocates of contracting out. These include
efficiency and cost savings to the contract-awarding municipality (and the com-
munity) as a whole (Stein, 1990), working conditions of the workforce who are
affected by the contract (Sullivan, 1987), minority employment (Suggs, 1986), service
quality and costs (Sullivan, 1987), corruption (Kolderie, 1986) and democratic values
(Moe, 1987).
A review of a number of systematic evaluation studies indicates that taking
government services to contract does reduce costs in a majority of cases (Hodge,
2000; Savas, 2000). In other types of outcome criteria, however, there are no clear
patterns toward either a positive or negative direction (Hodge, 2000; Reeves and
Barrow, 2000). It should be noted, though, that there is a lack of cases included in the
evaluation studies that deal with the non-economic impact of contracting out.
In short, we do not have a full picture in connection with the assessment of con-
tracting out. Nevertheless, contracting out is widely used in many countries and is still
increasing. Reflecting this trend, Greve and Ejersbo (2003: 2) state that ‘contracting
for public service is an essential feature of today’s modern government’. The idea of
introducing competition in government started in English-speaking countries, typically
in the United States, the United Kingdom (in the name of compulsory competitive
tendering [CCT]) and New Zealand. But on entering the 1990s, other countries joined
the race (OECD, 1997; Seidenstat, 1999). Korea is one such case. Since the mid-
1990s, contracting out in Korea has been increasing significantly. But it has caused
much controversy too. Introducing a market-like situation in government is strongly
resisted and frequently distorted in the process of implementation. Nevertheless, the
Korean government continues to push the contracting-out policy. This paper intro-
duces readers to Korean local government experiences with contracting out. It talks
about the background to and motivation for contracting out in Korean local govern-
ments and describes its main features and results, the problems encountered in the
process of contracting out and the tasks ahead.
Local government contracting out in Korea
It is important to note that the terms ‘privatization’ and ‘contracting out’ as used in
Korea include the shifting of functions under a contracting system from one public to
another public organization. This is illustrated here in the discussion of ‘proxy’ or ‘sub-
sidiary’ organizations created by local governments to carry out functions previously
discharged directly by those local governments. In the west, this process would once
have been seen as a form of devolution within the public sector and called ‘hiving off’:
in mainline analysis of recent public management reforms, it is likely that it would be
described as ‘corporatization’ or ‘agencification’ rather than ‘privatization’.
Park Contracting out in Korean local governments 499
Background and motivation
Contracting out is not a brand new concept in Korean local government. It has been
practised for a long time but in quite limited areas. Public works construction, the
building of roads and bridges, would be a typical example. Most architectural services
have also been subject to contracting out. However, in other areas, contracting out
was the exception. In addition, there was no controversy surrounding alternative
service delivery option. Consequently, contracting out did not become a policy issue
until the 1990s.
The situation changed in the 1990s. Local governments were asked by the
central government to expand contracting out. Korea experienced a severe economic
crisis in 1997, though its symptoms had been visible since the early 1990s. Faced
with this, top policy-makers at the national level arrived at the conclusion that the
public sector was one of the most critical factors causing the problem. In connection
with this, they expressed a strong will to ‘fix’ the governmental question.
Major reform prescriptions included ‘reduce the size of bureaucracy’, ‘introduce
competition in government’ and ‘make government accountable and customer-
oriented’. All of these are in line with the British model of reform. As a matter of fact,
people directly involved in British government reforms were invited to share their
experiences with Korean government officials.
Contracting out was seen as one of the major tools for reforming government in
Korea. Policy-makers believed that competition-driven contracting out could make
government more efficient and productive. In line with this thought, the central
government put pressure on local governments to contract out services. The national
government pressed local authorities with its power over finance.
Another factor also motivated contracting out in local governments. With the
economic crisis, the then incoming administration, led by President Dae Jung Kim,
expressed its strong will to cut down on the size of bureaucracy. The new govern-
ment promised that it would reduce its bureaucracy by 20 percent during the
four-year period from...
To continue reading
Request your trial