public administration and development

Public Admin. Dev. 37, 15–27 (2017)

Published online in Wiley Online Library
(wileyonlinelibrary.com) DOI: 10.1002/pad.1783

USING SOCIAL ENTERPRISES FOR SOCIAL POLICY IN SOUTH KOREA:

DO FUNDING AND MANAGEMENT AFFECT SOCIAL AND ECONOMIC
PERFORMANCE?
TAE HYUNG KIM AND M. JAE MOON*
Yonsei University, Korea

SUMMARY
This study examines the way the South Korean government utilizes social enterprises as a policy alternative to promote
employment and provide social services for the socially disadvantaged. As an example of “capable policy design” characterized
as high levels of instrumentality and government capacity, this study focuses more specifically on the social and economic
performance of Korean social enterprises. Using the Korea Social Enterprise Data, this study conducts an empirical analysis
to identify how government subsidies and management quality affect the social and economic performance of social enterprises.
The results show that government subsidies partially contribute to the enhancement of the enterprisesˈ social performance and
economic performance. There are mixed results regarding the effect of management quality on the social and economic
performance of social enterprises. The results also suggest that general donations from citizens along with government subsidies
help social enterprises pursue social performance particularly in employment of socially disadvantaged people, while corporate
donations promote the provision of social services. This suggests that government subsidy is an important instrument in the birth
and growth of social enterprises as well as the social and economic performance of social enterprises but should be
complemented by corporate and general donations to sustain both social and economic performance in the long run. Copyright
© 2017 John Wiley & Sons, Ltd.

key words—policy capacity; social policy; South Korea; social enterprises; social performance; economic performance

INTRODUCTION
Can social enterprises be utilized as instruments for social policy? Social enterprises are often established by
non-profit organizations or socially responsible individuals and investors without any intentional government
policy involvement to address complex social issues such as education, disability, aging, poverty, and unemploy-
ment. They seek to solve social problems by presenting innovative and sustainable solutions (Engelke et al., 2015).
In South Korea, however, social enterprises have been actively introduced and promoted by the South Korean
government as a policy alternative to tackle unemployment and poverty affecting the socially disadvantaged
populations that were particularly impacted by the financial crisis of 1997 and the economic crisis of 2008.
Social enterprises were originally presented as a policy alternative in the midst of the financial crisis of 1997,
when unemployment and massive economic instability became major social issues in South Korea. Interest in so-
cial enterprises resurfaced in 2008, when South Korea faced another economic crisis and social services for socially
disadvantaged populations again became critical. With the growing demand for social services and employment
opportunities for the socially weak, the Social Enterprise Promotion Act was enacted to facilitate the establishment
of new social enterprises that would pursue both social goals (including the provision of social services and em-
ployment for the socially vulnerable) and economic goals (including increasing sales and business profits; Lim

*Correspondence to: M. J. Moon, Department of Public Administration, Yonsei University, 50 Yoonsei-ro, Seodaemun-gu, Seoul, Korea.
E-mail: mjaemoon@gmail.com

Copyright © 2017 John Wiley & Sons, Ltd.

16 T. H. KIM AND M. J. MOON

& Lee, 2013). In light of this act, social enterprises drew more policy attention from the government, civil society,
and academic communities.
Using the framework of policy design and policy capacity (Chindarkar et al., 2015), the study examines the case
of Korean social enterprises as an example of social policy outcome of “capable policy design” based on high
levels of policy instrumentality and government capacity. The study particularly examines how the South
Korean government designed, formulated, and promoted social enterprises as a policy alternative in order to re-
spond to deepening unemployment problems and growing social service demands in the middle of an economic
crisis. Non-governmental organizations (NGOs) are often main providers of social services, particularly in devel-
oping countries where constructing relationships between governments and NGOs are critical to the quality of so-
cial services (Batley, 2011; McLoughlin, 2011; Nair, 2011; Tonsawate and Tips, 1988). As an extension of the
relationship between governments and NGOs, this study not only investigates the relationship between the
South Korean government and social enterprises but also examines the ways in which the government funding
and managerial characteristics of social enterprises affect their social and economic performance—that is, the ex-
tent to which such enterprises fulfill their social goals of providing job opportunities for the socially marginalized
as well as their economic, profit-making goals.

EMERGENCE OF SOCIAL ENTERPRISES IN SOUTH KOREA

The definition of social enterprise varies according to the historical and social characteristics of the countries in
which they operate (Kerlin, 2006). For example, in the USA, social enterprises are often regarded as businesses that
pursue social goals by using business methods, while social enterprises in Europe often take the forms of associ-
ations or cooperatives pursuing social benefits (Kerlin, 2006). There is also a third type of social enterprise: one
that simultaneously pursues the public good and economic goods such as profit (Borzaga and Defourny, 2001).
In South Koreaˈs Social Enterprise Promotion Act, a social enterprise is defined as
a company that provides social services or jobs to vulnerable social groups or contributes to the community in order to
pursue social objectives, such as improving the quality of life of local residents, and at the same time performs businesses
activities such as the production and sale of goods and services. (Part 2, Clause 1).
In response to societal needs, social enterprises have emerged to offer innovative and sustainable solutions to
complicated social problems such as education, elder care, poverty, and unemployment. In South Korea, the dis-
cussion surrounding social enterprises first began when unemployment became an urgent social issue during the
countryˈs economic crisis of 1997. While social enterprises are rooted in civil society and citizen movements in
many countries, they became a policy agenda in South Korea, as voluntary actions are traditionally weak and
the conventional, family-based welfare system is rapidly shifting to a social safety net system (McCabe & Hahn,
2006). The South Korean government has taken a leading role in policy by establishing a system and providing
government subsidies to social enterprises. South Koreaˈs social enterprises thus have a variety of features that
distinguish them from similar enterprises in other countries, including a certification system, a high ratio of
government subsidy, and specified practices, goals, and values (Bidet & Eum, 2011).
Following the enactment of the Social Enterprise Promotion Act in 2007, the number of social enterprises in
South Korea expanded as the government launched official projects to provide jobs and social services. During
the 2008 financial crisis, social enterprises were regarded as an effective policy instrument and were expected to
serve a dual role by providing jobs as well as social services to the disadvantaged in those economically stressed
circumstances.
Social enterprises have evolved differently in various countries, reflecting varying social and economic needs
(Kerlin, 2010; Salamon & Sokolowski, 2004; Salamon et al., 2000). Unlike in many other countries, where social
enterprises emerged from the voluntary efforts of civil society (Kim, 2008), the Social Enterprise Promotion Act
uniquely allowed the South Korean government to provide subsidies for wage support to qualified social
enterprises through an application certification procedure. Certified social enterprises are expected to find their
own ways to achieve sustainable development, as the government subsidies end 3 years after certification. In light

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DOI: 10.1002/pad
 USING SOCIAL ENTERPRISES FOR SOCIAL POLICY IN KOREA 17

of this, there is increasing discussion of the autonomy of social enterprises and their dependence on government
subsidies, along with their performance evaluations. Against this backdrop, it has become important to conduct
an empirical review of the resources preferred by certified social enterprises and the beneficial impacts of those re-
sources on their performance.
With the growing interest in social enterprises in government, academic circles, and civil society, emphasis has
increasingly been placed on the role that social enterprises play in leading societal reform and serving as alternative
economic players, and growing attention has been paid to their effective organization and operation (Choi, Jo, &
Chung, 2012; Choi, Kim, & Kim, 2012; Kim 2012) as well as their performance (Doh & Park, 2014; Kim
et al., 2012; Lee & Jeong, 2014; Seon & Park, 2011).
As the South Korean government struggled to ensure secure and stable jobs after the 1997 financial crisis, social
enterprises were initially regarded as a type of job creation project, particularly for the benefit of the disadvantaged
population. Without a full understanding of the sociopolitical background of social enterprises, many practitioners
and scholars initially favored the European model in response to the emerging problem of growth without employ-
ment, which began to emerge in the early 2000s. In 2003, the Ministry of Labor introduced a social job creation
program to increase the efficiency of the governmentˈs job creation project through financial assistance. Influenced
by civil organizations such as the Civil Society Solidarity Network, in 2007, the National Assembly enacted the
Social Enterprise Promotion Act to obtain financial support for social enterprises working toward the secure and
stable employment of the socially disadvantaged population, which was expected to help boost the South
Korean economy.
Despite civil societyˈs initial involvement in the establishment of social enterprises in South Korea, there were a
few setbacks in the promotion of social enterprises. In contrast to the European model, the involvement of civil so-
ciety was limited in South Korea, particularly as the legislation was primarily led by the Ministry of Labor rather
than the Ministry of Health and Welfare, which would have been more receptive to the involvement of civil
organizations. The Ministry of Labor considered social enterprises to be an effective labor (employment) policy
instrument for social services and did not actively invite civil organizations to take part in the legislation making,
particularly when it found itself somewhat in disagreement with civil organizations on the priorities of social
enterprises. For example, the ministry stressed the role of social enterprises in creating employment, while the
network—the initial civil proponent of social enterprises—was more interested in the welfare aspects
(not employment).
Three major actors—the central government, local governments, and the civil sector—played critical roles in
promoting social enterprises in South Korea. The central government laid the institutional foundation that created
the environment necessary for their promotion, while local governments developed promotional models suitable
for their own communities. Civil organizations, including private enterprises, NGOs, universities, and research in-
stitutes, promoted investments from society. Among these three actors, the central government played the most
critical role in the early stages by providing direct financial assistance and promoting a favorable environment
for the formation and growth of social enterprises. With respect to direct assistance, the government first offered
social enterprise subsidies to cover their labor costs (about USD$666/month) and social insurance (8.5% of the la-
bor cost) for participation in the Social Job Creation Program. Second, the government provided another subsidy
(about USD$1014 per head/month) for professional employment to help social enterprises hire planning, strategy,
or marketing professionals. Third, the government granted loans (up to USD$400,000 per enterprise) to purchase
the facilities necessary for their establishment and to cover initial operating costs. By establishing the Social Enter-
prise Promotion Agency, a quasi-governmental institution, the government also made management consultation ac-
cessible not only to certified social enterprises but also to preliminary ones.1 In addition to direct financial
assistance programs, the government laid the groundwork for social enterprises to build and operate their own net-
works, provided training programs to encourage local government participation and cooperation, and guided local

1
When an organization does not satisfy some of the requirements, such as in its profit structure, while fulfilling the minimum legal conditions
necessary to be certified as a social enterprise, it can be designated as a preliminary social enterprise by local officials in order to be certified as a
social enterprise in the near future.

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18 T. H. KIM AND M. J. MOON

governments in setting related rules or ordinances (Ministry of Labor, 2008). As a result, the number of certified
social enterprises increased dramatically, from 50 in 2007 to 501 in 2010 and 1012 in 2013.2
Despite this rapid growth in the number of social enterprises as a result of governmental financial support, many
observers expressed concerns about the low sustainability of social enterprises and their increasing financial depen-
dence on government subsidies. This led to the adoption of the Second Social Enterprise Promotion Plan in 2012.
The second promotion plan, which runs from 2013 to 2017, defined four specific objectives to fix the problems
faced by social enterprises: (1) strengthening the self-sufficiency and financial independence of social enterprises;
(2) providing customized support beyond financial assistance to individual social enterprises; (3) expanding the so-
cial roles of social enterprises and enhancing their performance; and (4) strengthening partnerships with the private
sector and local communities (Ministry of Labor, 2012). In order to address concerns about financial dependence
and lack of sustainability, the government has attempted to utilize various policy instruments beyond simple sub-
sidies, including consultation (provision of information) and public purchase (procurement). Working with the cen-
tral government, local governments started to promote social enterprises particularly suited to their local
communityˈs needs.
With the second plan, the South Korean government focused on diversifying the policy instruments beyond con-
ventional subsidies in order to improve social enterprisesˈ managerial capacity, to facilitate a more favorable mar-
ket environment, and to enhance the self-sufficiency of social enterprises. For example, the government started
providing social enterprises with business-related information and technical support to broaden their online and
offline sales channels and offered various forms of economic incentives, including reduced-interest loan programs
and public–private joint investment funds to enhance price competitiveness. The government also began to actively
utilize public procurement to create a favorable market environment for social enterprises.
However, despite the governmentˈs efforts to promote the financial independence of social enterprises with
time-limited subsidy programs and other complementary policy instruments, financial independence has remained
a challenge. While some social enterprises have successfully managed to build their own business models and to
become competitive and sustainable enterprises after the subsidy program ends, others continue to rely on govern-
ment subsidies to cover their labor costs and cannot sustain their operations once the subsidy expires. Financial as-
sistance played an important role in the early days of social enterprises, but to survive and remain sustainable,
social enterprises must now learn to maximize their given resources and to acquire more of the resources they need
for better performance as the environment changes.

SOUTH KOREAN SOCIAL ENTERPRISES AS POLICY INSTRUMENTS IN THE CONTEXT OF POLICY

DESIGN AND POLICY FORMULATION
There is a unique body of literature on policy instruments or policy tools that is influenced by policy science stud-
ies. This literature is often considered as the academic legacy of Lasswellian views on policy and government. Pol-
icy instruments have been examined in areas as varied as the environment, social welfare, and industry and have
recently been discussed in association with policy design and policy formulation. Policy design is a course of con-
sideration and action for the identification of specific policy problems, the definition of policy goals, and the deter-
mination and formation of methods and strategies to achieve targeted goals by applying an appropriate set of policy
instruments, including carrots (incentives), sticks (regulations), and sermons (public information; Chindarkar,
Howlett & Ramesh, 2015; Gilabert & Lawford-Smith, 2012; Howlett, 2014). Policy design by definition includes
the consideration and selection of a set of policy instruments among various substantive and procedural instruments
to solve a particular policy problem identified by citizens and policymakers (Chindarkar, Howlett & Ramesh, 2015;
Howlett, 2011, 2014).
Linking the dimensions of government capacity and knowledge and the instrumentality of policy design,
Chindarkar, Howlett and Ramesh (2015) presented a typology of policy formulation spaces, shown in Figure
ure 1. “Government capacity” refers to the set of analytical, managerial, and political “skills, competences,

2
Korea Social Enterprise Promotion Agency homepage, www.socialenterprise.or.kr

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 USING SOCIAL ENTERPRISES FOR SOCIAL POLICY IN KOREA 19

Figure 1. Typology of policy formulation spaces: design and non-design processes and outcomes.

resources, and institutional arrangements and capabilities with which key tasks and functions in the policy process
are structured, staffed and supported” at the individual, organizational, and systematic levels (Chindarkar, Howlett
& Ramesh, 2015).
In this typology, South Koreaˈs utilization of social enterprises for social policy falls into the capable policy
design space because the South Korean government was not only highly instrumental in using social enterprises
for providing employment opportunities and expanding social services to the socially disadvantaged but also well
informed and capable in strategically formulating an appropriate legal framework and allocating financial
resources. Social enterprises were considered an instrument to address social and economic problems such as
inequality, unemployment, and jobless growth that had emerged from the 1997 and 2008 economic crises. The
South Korean government was relatively well organized in mobilizing necessary budget and establishing institu-
tional arrangement for collaborative partnerships with the private sector and local governments, as stipulated in
the Social Enterprise Promotion Act and the Second Social Enterprise Promotion Plan. The immediate outcome
was a rapid increase in the number of social enterprises, although their financial independence and sustainability
remained questionable.
While social enterprises are non-governmental actors (Bressers & OˈToole, 2005; Howlett, 2005) employed in
the public interest, the South Korean government utilized various policy instruments to promote social enterprises,
including nodality, authority, treasure, and organization (Hood, 1986; Hood & Margetts, 2007). Financial assis-
tance (treasure) in the form of subsidies was a primary instrument, complemented by nodality, authority, and orga-
nization. For example, technical support and consultation that largely fall into nodality and public information were
offered to develop managerial and marketing capacity. There are many rules and regulations (authority) governing
the process of certification of social enterprises, which is a prerequisite for governmental subsidy. Social enterprises
must also follow strict governmental rules regarding how and on what they spend their government funding. Under
the Social Enterprise Promotion Act of 2007, the government also established the Korea Social Enterprise
Promotion Agency, which is an organizational policy instrument. The agencyˈs main duty is to manage various
promotion programs for social enterprises, including certification programs, subsidy allocation, and consultation.
While the South Korean governmentˈs promotion programs have been central to the growth of social enterprises
(at least in terms of total number), it is not clear whether governmental subsidies have also been instrumental to
their performance (Kim, 2012; Kim & Lee, 2012). Do government subsidies help social enterprises achieve their
targeted social and economic goals, including the employment of the socially disadvantaged, the provision of social
services, and business performance? It is also important to know whether their performance is a sustainable legit-
imate concern. The economic and business performance of social enterprises (Dees, 1998) appears to have received
little attention despite its importance as a barometer predicting the sustainability and potential financial indepen-
dence of social enterprises following their graduation from the 3-year government subsidy program (Kim &
Lee, 2012). Some believe that government funding makes social enterprises financially dependent and discourages
their own efforts to improve financial independence and economic performance. Just as non-profit organizations

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20 T. H. KIM AND M. J. MOON

attempt to reach out for different sources of funding, including corporate donations, general donations, and philan-
thropic funding (Jung, 2000; Kim, 2014), social enterprises must also make efforts to attract other sources of finan-
cial assistance. At the same time, it is important to recognize that the source of funding might affect the
organizational performance according to the fundersˈ interests (Kim, 2014; Oh, 2013). For example, social enter-
prises that receive more corporate donations might be more focused on economic performance rather than social
performance if sustainable business activities are a priority of the donors. Based on the discussion on the effect
of funding sources on performance of social enterprises, we posit the following hypotheses:
Hypothesis 1: Social enterprises with more government funding are likely to achieve a higher level of social
performance.
Hypothesis 2: Social enterprises with more corporate funding are likely to achieve a higher level of economic
performance.
In addition to external funding, managerial capacity is also important to the performance of social
enterprises. Unlike corporate organizations or public agencies, many social enterprises lack managerial capacity
as they are financially dependent and understaffed. For small social enterprises, which are often understaffed
and underfunded, managerial capacity is a primary asset that is as important as physical and tangible resources
such as staff and financial assistance. Intangible managerial capacity includes organizational mission (Watson,
2006), reputation, and network management. As a key organizational factor, the clarity of the organizational
mission helps to mobilize the organizationˈs members and encourages them to commit to their own tasks
(Watson, 2006).
Organizational reputation is another critical intangible resource built over time. Reputation is simply the value
and credibility conferred to a particular organization by interested persons (de Marcellis-Warin & Teodoresco,
2012). Reputation is a vehicle for the promotion of marketing and customer satisfaction and also reduces cus-
tomersˈ uncertainty (Kotha et al., 2001). Scholars have found that reputation is a very important strategic resource
(Roberts & Dowling, 2002). Executives with favorable reputations can achieve better results in the long run, and
the reputation of enterprises has a positive influence on their financial performance (Fombrun & Shanley, 1990;
Weigelt & Camerer, 1988). The maintenance and operation of a managerial mechanism is often a challenge for rel-
atively small organizations, including many social enterprises. Some of them do not even have a formal managerial
structure with which to make various business decisions. The establishment and operation of a formal organiza-
tional structure are important indicators of managerial structure through which an organizationˈs operation and per-
formance can be checked and managed. This leads to the following hypothesis:
Hypothesis 3: Social enterprises with a higher level of managerial capacity are likely to achieve a higher level of
social and economic performance.

DATA AND METHODOLOGY

In order to investigate the effects of funding from different sources and managerial capacity on the social and eco-
nomic performance of social enterprises, we conducted statistical analyses of Korea Social Enterprise Data (KSED)
collected in 2012 and 2013. The data were collected by the Korea Social Enterprise Promotion Agency3 and
include business (employment, profit, etc.) and management information (mission statement, meetings, etc.)
voluntarily disclosed by 154 social enterprises. Of these, 44 disclosed their business and management information
in 2012 only, 76 disclosed the information in 2013 only, and 33 disclosed their information for both 2012 and
2013. This makes a sample size of 184.

3
Voluntary management disclosure is available to enterprises certified by the Minister of Employment and Labor that has a disclosure intention
and wants to participate on a voluntary basis.

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 USING SOCIAL ENTERPRISES FOR SOCIAL POLICY IN KOREA 21

The sample includes four different certification types including (1) employment-type enterprises (90); (2) social
service-type enterprises (13); (3) mixed-type enterprises (28); and (4) others (23). KSED also has performance-
related information such as the number of socially disadvantaged employees, the number of social service
recipients, and the net profits.
To supplement the KSED, we also collected information on management-related variables such as reputation
through content analysis of newspaper articles. We counted instances of positive newspaper coverage of each
social enterprise in the relevant year using the Korean Integrated Newspaper Database System established by the
Korea Press Foundation.
To examine the effects of funding from different sources and of managerial capacity on the social and economic
performance of social enterprises, we categorized funding by source (i.e. governmental subsidy, corporate dona-
tion, or general donation) and managerial capacity in terms of organizational mission, organizational reputation,
and number of management meetings. We also investigated potential differences between different types of gov-
ernment subsidies, including general wage subsidies, professional employment subsidies, business development
subsidies, and social insurance premium subsidies. In addition, we added several control variables that could affect
the social and economic performance of social enterprises, including size, age, asset, debt, and number of years
since certification. The variables, measurement, and descriptive statistics are summarized in Table 1.
The dependent variables are divided into social performance and economic performance variables. Social per-
formance was measured by two indicators in the voluntary management disclosure data: the number of vulnerable
workers and the number of social service recipients. Economic performance is measured in terms of net profits.
The independent variables are financial resources and management factors. Financial resources are measured by
the ratio of governmental subsidies and corporate donations to total financial assistance and by the type of govern-
mental subsidies. The management factors are divided into the enterpriseˈs organizational mission, the reputation,
and the number of management committee meetings. Organizational mission is assessed by references to the social

Table 1. Variables and measurement indicators and descriptive statistics

Variable Measurement indicator Mean SD

Performance Social performance Number of vulnerable workers 23.58 38.42

Number of social service recipients 11,440 44,504
Economic performance Net profit (thousand won) 33,178 104,520
Funding Ratio of Governmental subsidy/total financial 79.52 28.41
governmental subsidy assistance (%)
Ratio of corporate Corporate donation/total financial 2.71 9.17
donation assistance (%)
Ratio of general General donation/total financial 2.88 11.22
donation assistance (%)
Management Social mission Number of social mission in mission 2 0.888
statement
Economic mission Number of economic mission 0.376 0.586
in mission statement
Reputation Number of newspaper articles 4.215 10.419
on good performance of social
enterprises
Organizational management Number of management committee 4.064 10.641
meetings
Control variables: Duration since Duration since certification (years) 3.069 1.888
organizational certification
characteristic Organizational age Organizational age (years) 6.198 4.380
Organizational size Number of workers 40.612 62.119
Asset (log) Asset (log) 12.787 1.289
Debt (log) Debt (log) 12.037 1.600
Year 2013 (year) 0.586 0.493

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22 T. H. KIM AND M. J. MOON

and economic values included in the mission statement found in the KSED. The frequency of expression of the
social mission and economic mission is also considered. The social mission is a more crucial factor, as the nature
of the social enterpriseˈs economic activity is closely related to its social mission (Defourny & Nyssens 2010). Rep-
utation is measured by the number of newspaper articles that mentioned the relevant social enterpriseˈs social ser-
vice activities or its social value-creating activities, which could help build a positive image.
Lastly, control variables comprise the length of time that a social enterprise has been certified, organizational
age, year (2012 or 2013), total number of workers, and volume of assets and debts, which are taken to reflect
the size of the organization. The length of time that a social enterprise has been certified is included as a control
variable because social enterprises can only receive government assistance for personnel expenses for up to 3 years
after certification. Organizational age is also included among the control variables in order to control for the pos-
itive effects of a longer organizational age on performance, as age is likely to reinforce the organizationˈs indepen-
dent knowhow and survival strategy.

STATISTICAL ANALYSIS AND DISCUSSION

We employ a regression analysis to investigate the effects of funding and managerial capacity on the social and
economic performance of social enterprises. The social enterprises are divided into two groups based on their year
of certification: Old social enterprises had been certified more than 3 years, while young social enterprises had been
certified for less than 3 years. We classified the enterprises into these two groups because the government subsidies
for personnel expenses (wages) and professional staff expenses are only provided for 3 years. Once social enter-
prises graduate from the 3-year subsidy program, they are only eligible for a small amount of government subsidies

Table 2. Regression analysis (social performance: number of vulnerable workers)

Variables Model 1 Model 2 Model 3

Old social enterprises Young social enterprises All social enterprises

Funding Ratio of governmental subsidy 0.176** (0.002) 0.036 (0.002) 0.073 (0.001)
Ratio of corporate donation 0.070 (0.008) 0.118** (0.007) 0.081* (0.005)
Ratio of general donation 0.306*** (0.006) 0.024 (0.008) 0.099** (0.004)
Management Social mission 0.129* (0.088) 0.067 (0.061) 0.067* (0.052)
Economic mission 0.105* (0.108) 0.038 (0.103) 0.006 (0.079)
Reputation 0.126* (0.009) 0.084 (0.005) 0.069 (0.004)
No. of management 0.018 (0.004) 0.021 (0.024) 0.058 (0.004)
committee meetings
Type of social Employment type 0.311*** (0.208) 0.432*** (0.197) 0.391*** (0.150)
enterprise Social service type 0.200** (0.354) 0.037 (0.275) 0.007 (0.218)
Mixed type 0.094 (0.239) 0.131 (0.223) 0.135** (0.169)
Control variables Duration since certification 0.063 (0.089) 0.076 (0.062) 0.114** (0.028)
Organizational age 0.190*** (0.016) 0.008 (0.015) 0.055 (0.011)
Total number of workers 0.702*** (0.001) 0.706*** (0.001) 0.689*** (0.000)
Asset (log) 0.022 (0.107) 0.198** (0.078) 0.160** (0.064)
Debt (log) 0.112 (0.057) 0.074 (0.063) 0.000 (0.044)
2013 (year) 0.102 (0.173) 0.020 (0.102) 0.052 (0.091)
Obs. 72 114 186
F value 15.18 23.94 30.93
Adj. R-square 0.764 0.769 0.725
Notes: The β values are reported. Standard errors in parentheses. The reference for the social enterprises type is “other type,” and there are no
“community-type” enterprises.
*p < 0.1.
**p < 0.05.
***p < 0.01.

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to cover non-personnel expenses such as business development expenses. This puts them under pressure to develop
a business model that does not rely on major governmental wage subsidies. In fact, the cumulative proportion of so-
cial enterprises that did not receive personnel expense subsidies per year after certification was as follows: 0 per cent
(less than 1 year), 20.5 per cent (after 1 year), 25 per cent (after 2 years), 22.2 per cent (after 3 years), 37.5 per cent
(after 4 years), 83.3 per cent (after 5 years), 91.6 per cent (after 6 years), and 100 per cent (after 7 years).
Table 2 shows the results of the regression analysis, with the number of socially disadvantaged employees
(or vulnerable workers) as a dependent variable representing social performance. Model 1 involved a regression
analysis for old social enterprises, while model 2 targeted young social enterprises. Model 3 involved a regression
analysis for all the social enterprises. The statistical results of model 1 show that the positive effect of government
subsidy on the employment of the socially disadvantaged is only found in old social enterprises. The results also
suggest that general donation along with government subsidy appears to help social enterprises to employ more
socially disadvantaged workers, while corporate donation is negatively associated with the employment of the so-
cially disadvantaged, particularly in young social enterprises as found in model 2 and model 3. There is a positive
effect of social mission in model 1 and model 3 and a negative effect of economic mission on the employment of
socially disadvantaged workers in model 1. This suggests that social enterprises that emphasize their social mission
are more likely to employ socially vulnerable workers, particularly in old social enterprises, while those that
emphasize economic mission are less likely to do so. Holding more management meetings does not contribute
to social performance in terms of employing socially vulnerable workers.
As expected, employment type and mixed type of social enterprises are positively associated with the employ-
ment of socially vulnerable workers. For example, the highest ratio of vulnerable workers was 100 per cent at
Donongsallim (www.edonong.com), which is an employment type of social enterprise that connects agricultural

Table 3. Regression analysis (social performance: number of social service recipients)

Variable Model 4 Model 5 Model 6

Old social enterprises Young social enterprises All social enterprises

Funding Ratio of governmental subsidy 0.191 (0.012) 0.210 (0.011) 0.072 (0.007)
Ratio of corporate donation 0.344* (0.033) 0.165 (0.029) 0.196** (0.020)
Ratio of general donation 0.022 (0.030) 0.019 (0.026) 0.009 (0.016)
Management Social mission 0.056 (0.435) 0.077 (0.248) 0.008 (0.198)
Economic mission 0.283* (0.556) 0.173 (0.410) 0.172** (0.310)
Reputation 0.131 (0.041) 0.020 (0.021) 0.035 (0.017)
No. of management 0.168 (0.020) 0.097 (0.096) 0.099 (0.016)
committee meetings
Type of social Employment type 0.228 (1.058) 0.142 (0.740) 0.191 (0.564)
enterprise Social service type 0.219 (1.686) 0.107 (1.054) 0.124 (0.792)
Mixed type 0.068 (1.160) 0.040 (0.838) 0.051 (0.614)
Control variables Duration after certification 0.357* (0.443) 0.086 (0.254) 0.127 (0.108)
Organizational age 0.024 (0.128) 0.018 (0.061) 0.024 (0.051)
Total number of workers 0.084 (0.006) 0.119 (0.005) 0.074 (0.003)
Asset (log) 0.237 (0.592) 0.109 (0.313) 0.055 (0.240)
Debt (log) 0.196 (0.250) 0.240* (0.253) 0.014 (0.159)
2013 (year) 0.361** (0.802) 0.009 (0.415) 0.049 (0.336)
Obs. 72 114 186
F value 1.37 1.43 1.91
R-square 0.365 0.205 0.176
Adj. R-square 0.097 0.061 0.084
Notes: The β values are reported. Standard errors in parentheses. The reference for the social enterprises type is “other type,” and there are no
“community-type” enterprises.
*p < 0.1.
**p < 0.05.
***p < 0.01.

Copyright © 2017 John Wiley & Sons, Ltd. Public Admin. Dev. 37, 15–27 (2017)
DOI: 10.1002/pad
24 T. H. KIM AND M. J. MOON

products with urban consumers to help farmers. The results also suggest that a larger social enterprise is more likely
to employ socially disadvantaged people.
Table 3 summarizes the statistical results of the regression analysis with the number of recipients of social ser-
vices as another dependent variable for social performance. The results show that the effect of government subsidy
on the number of social service recipients is statistically significant in old social enterprises as found in model 4.
The effect of corporate donation on social service is also positive and statistically significant, which suggests that
corporate donation appears to promote the provision of social services in old social enterprises that have been cer-
tified for more than 3 years. This suggests that social enterprises continue to provide social services when they are
able to secure financial contributions even after they stop receiving governmental assistance for personnel
expenses.
It is noteworthy that corporate donations play a critical role in expanding the social services provided by some
old social enterprises although there is no positive effect on the employment of socially disadvantaged laborers. For
example, the Dasomi Foundation started the “Kyobo Dasomi Nursing Volunteers” in 2004 as a social enterprise
promoted by the Kyobo Life Insurance Corporation. The Dasomi Foundation provides jobs to single mothers
who have had difficulty obtaining employment and nursing care for patients of low-income families who cannot
afford nursing services. The foundationˈs Dasomi Noori Recuperation Center focused on professional training.
The center implemented a screening process for the recruitment of nursing staff to make sure that they could
provide higher quality services than their competitors and constructed a system for recruiting nursing staff that
involved 160 h of education and training. For these achievements, the Dasomi Foundation received the Innovation
Award from the Peter Drucker Society in October 2010 and won the grand prize in the social enterprise sector.
After the Dasomi Foundation became the first certified social enterprise in South Korea in 2007, it became

Table 4. Regression analysis (economic performance: net profit)

Variable Model 7 Model 8 Model 9

Old social enterprises Young social enterprises All social enterprises

Funding Ratio of governmental subsidy 0.259** (0.004) 0.038 (0.007) 0.053 (0.004)
Ratio of corporate donation 0.255* (0.013) 0.004 (0.027) 0.045 (0.013)
Ratio of general donation 0.151 (0.009) 0.038 (0.022) 0.001 (0.010)
Management Social mission 0.148* (0.147) 0.010 (0.181) 0.072 (0.116)
Economic mission 0.030 (0.216) 0.128 (0.305) 0.089 (0.195)
Reputation 0.131 (0.030) 0.038 (0.018) 0.074 (0.014)
No. of management 0.177 (0.012) 0.006 (0.069) 0.042 (0.015)
committee meetings
Type of social Employment type 0.193 (0.373) 0.064 (0.604) 0.077 (0.354)
enterprise Social service type 0.155 (0.634) 0.037 (0.859) 0.045 (0.521)
Mixed type 0.356** (0.443) 0.025 (0.684) 0.185* (0.411)
Control variables Duration since certification 0.050 (0.146) 0.156 (0.191) 0.011 (0.064)
Organizational age 0.011 (0.026) 0.062 (0.043) 0.009 (0.026)
Total number of workers 0.490*** (0.002) 0.124 (0.004) 0.261** (0.002)
Asset (log) 0.176 (0.187) 0.696*** (0.260) 0.440*** (0.162)
Debt (log) 0.269* (0.098) 0.392** (0.196) 0.087 (0.104)
2013 (year) 0.137 (0.291) 0.011 (0.310) 0.041 (0.216)
Obs. 72 114 186
F value 5.74 2.36 4.64
R-square 0.701 0.350 0.370
Adj. R-square 0.579 0.202 0.290
Notes: The β values are reported. Standard errors in parentheses. The reference for the social enterprises type is “other type,” and there are no
“community-type” enterprises.
*p < 0.1.
**p < 0.05.
***p < 0.01.

Copyright © 2017 John Wiley & Sons, Ltd. Public Admin. Dev. 37, 15–27 (2017)
DOI: 10.1002/pad
 USING SOCIAL ENTERPRISES FOR SOCIAL POLICY IN KOREA 25

independent while maintaining its indirect relationship with the Kyobo Life Insurance Corporation (www.dasomi.
org). The ratio of corporate donations made up 61.8 per cent of all donations in 2013, and the number of social
service recipients was 15,419.
Regarding the effect of managerial capacity, the results suggest that social enterprises that emphasize an eco-
nomic mission have lower social performance in terms of social service provision as found in model 4 and
model 6, particularly in the case of old social enterprises. This may be due to the fact that social enterprises
that emphasize an economic mission focus on economic goals to the detriment of social performance in the
long run.
Table 4 provides a summary of the effects of funding and managerial capacity on economic performance, as
measured by net profit. The results show that the effect of government subsidies as well as corporate donation
on the economic performance of social enterprises is positive and statistically significant for old social enterprises
(model 7). General donation is not statistically significant in either group of social enterprises. Interestingly, the
social enterprises that emphasize their social mission are more likely to achieve a higher level of economic perfor-
mance in terms of net profit. This is especially true for those that had been certified for more than 3 years. This
might be partially due to the fact that even social enterprises that stress a social mission seek to enhance their
net income in order to improve the sustainability of the enterprise through an active and healthy business perfor-
mance. It is worth noting that social enterprises that have been certified for longer are likely to perform better in
terms of net profit. This suggests that social enterprises that become more economically competitive do not neces-
sarily meet their social goals.

CONCLUSION
Based on the policy design and formulation framework, we consider the utilization of social enterprises as a case of
capable policy design characterized by higher levels of instrumentality and government capacity. With the enact-
ment of the Social Enterprise Promotion Act and the establishment of the Korean Social Enterprise Promotion
Agency, the South Korean government intentionally introduced social enterprises as an alternative policy solution
to not only tackle economic difficulties but also promote employment and the demand for more social services, par-
ticularly for the socially vulnerable. This study highlights the ways in which government funding, managerial ca-
pacity, and organizational characteristics can affect the social and economic performance of social enterprises.
Moreover, we paid attention to possible differences between social enterprises with more or less than 3 years of
certification, as government subsidies for general personnel and professional staff expenses are only provided
for up to 3 years.
Overall, the results regarding the effects of government subsidies on the social performance of social enterprises
are mixed. There is a positive effect of government funding on the employment of socially disadvantaged people
and economic performance in terms of net profit particularly among old social enterprises. This suggests that gov-
ernment subsidy is an effective instrument in promoting the employment of the socially disadvantaged for old so-
cial enterprises but not for young ones. This is probably because young social enterprises are likely to employ
socially vulnerable workers in a similar way because most of government subsidy is supposed to be spent for per-
sonnel expenses. The continued provision of government subsidies for non-personnel expenses appears to be crit-
ical to the employment of vulnerable workers because old social enterprises are often still financially vulnerable
and dependent on external financial support. In that regard, general donation also appears to be an important engine
to facilitate the employment of socially disadvantaged people.
Government subsidy is also very instrumental to the economic performance of old social enterprises, which sug-
gests that continued government support helps to promote both the social and economic performance of old social
enterprises that are still financially vulnerable. Nevertheless, the government subsidy on the provision of social ser-
vices is not statistically significant. The findings also show that corporate donation promotes the provision of social
services but not the employment of socially disadvantaged people.
It should be noted that in South Korea, where social enterprises are often not well supported financially or in-
stitutionally by civil society, government funding is instrumental not only to the birth and growth of social

Copyright © 2017 John Wiley & Sons, Ltd. Public Admin. Dev. 37, 15–27 (2017)
DOI: 10.1002/pad
26 T. H. KIM AND M. J. MOON

enterprises but also to their continuing social and economic performance. Thanks to the government subsidy pro-
gram and other policy instruments, including consultations, technical support, and public procurement, the number
of social enterprises has increased dramatically over the past decade to address a variety of different needs, includ-
ing employment, social services, and community development. Government subsidies and other policy instruments
are particularly effective in the employment of socially vulnerable people. Corporate donation seems to be more
effective in providing social services to the disadvantaged than in employing socially vulnerable workers.
It is important to note that there are legitimate concerns that government subsidies make social enterprises finan-
cially dependent. For this reason, corporate donation and general donation to social enterprises are increasingly en-
couraged because they help to sustain social and economic performance. In other words, government subsidies are
only instrumental to a limited degree, and other funding sources such as corporate donation and general donation
should be secured to help social enterprises achieve both social and economic performance, particularly after gov-
ernment subsidies are cut off. The government should make additional efforts to construct a virtuous circle through
which initial government funding is complemented with other sources of funding as well as quality management
for the sustainable pursuit of social enterprisesˈ social and economic objectives.
Among the management variables, the stated mission and type of social enterprise appear to be critical to social
and economic performance. Social enterprises that emphasize an economic mission are likely to be poor social
performers, while those stressing a social mission are likely to be more sustainable and better social and economic
performers in the long run.
This study had a number of limitations. As the dataset we used was collected through the voluntary disclosure of
management information, many social enterprises were left out of the analysis. Due to the lack of management in-
formation, we could not examine the effects of leadership and organizational culture on the social and economic
performance of social enterprises. Future studies should include more social enterprises and examine the impact
of various structural and cultural factors on their performance. Comparative studies also need to be conducted to
investigate how differences in policy design and contextual factors create variations in the social and economic per-
formance of social enterprises.

ACKNOWLEDGEMENTS
This work was supported by the National Research Foundation of Korea Grant funded by the Korean Government
(NRF-2014S1A3A2044630).

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