After 14 years of reduction of the garden
10% reduction in cost by selling inefficient assets
Introduction of job grades, freezing of employee remuneration
Welfare benefits reduce the level of civil servants
The government has decided to reduce the number of public institutions from next year. It is the first time in 14 years that the government has issued a policy to reduce the number of public institutions since the ‘Advanced Public Institutions’ policy in 2008. The government required public institutions to sell non-core assets that have nothing to do with their own business and reduce current and business expenses by more than 10% in the second half of this year. The Yoon Seok-yeol administration’s public institution reform work is on track.
On the 29th, the government held the 9th Public Institution Steering Committee presided over by the Deputy Prime Minister and Minister of Strategy and Finance Choo Kyung-ho and decided on the ‘New Government Public Institution Innovation Guidelines’ containing these contents. The guideline is the standard for each institution’s innovation plan, which 350 public institutions must submit to the Ministry of Strategy and Finance by the end of August. Among the functions of public institutions, it includes contents such as abolition of non-core functions other than the specific purpose specified in the law by drastically reducing the functions that compete with the private sector or that local governments can do.
According to the guidelines, the quota exceeding the current capacity should, in principle, be reduced. As of the end of March, the current number of public institutions was 416,610 and the number of employees was 448,276. There are speculations that the reduction in quota could reach up to 30,000 people. The ratio of executive positions should be reduced, and local and overseas organizations should also be made more efficient. If multiple public institutions are performing similar tasks, the functions should be consolidated. All non-core assets, such as condos and golf course memberships or company shares that are not related to their own business, must be sold.
The introduction of a job remuneration system that links job difficulty and remuneration is also being promoted. Excessive welfare benefits such as the so-called ’emperor’s internal loan’, which lends a large amount at a lower interest rate than commercial banks, must also be trimmed. The government has decided to reflect the implementation of the innovation plan in the task evaluation of the competent ministries so that reform of public institutions does not falter.
The government’s strong push for reform of public institutions is based on the judgment that while public institutions have become bloated over the past five years, productivity and financial conditions have deteriorated. “The new government will no longer tolerate inefficiency and negligent management of public institutions,” said Deputy Prime Minister Chu.
On the operating table of a public institution ‘Negative’… “Sell non-core assets and drastically reduce executives”
Government, innovation guidelines… Reduce costs and reduce your quota
The Yun Seok-Yeol administration began to reform public institutions in earnest. Less than three months after the government took office, he completed the innovation guidelines, a major framework for public institution reform. A government official explained, “We are pushing ahead with reform work at a speedy pace, judging that public institutions should no longer neglect the negligent management and inefficiency of public institutions.” In the past five years, the financial condition of public institutions has rapidly deteriorated and their scale has grown excessively.
In the same vein, public institution reform was chosen as the subject of the third cabinet meeting presided over by President Yoon Seok-yeol. At the time, President Yoon ordered that “the evaluation of public institutions should be strict and those that have been operated negligently should be boldly improved.”
Reduce overflowing executives
The ‘Innovation Guidelines for Public Institutions’ released by the Ministry of Strategy and Finance on the 29th consisted of five areas: △functional adjustment △ organizational and manpower efficiency △ budget efficiency △ asset maintenance △ welfare benefit inspection and adjustment. The key to function coordination is to reduce or abolish functions that overlap with private or local governments. Functions that have been expanded to expand areas other than their original purpose business or to increase profits will also be abolished. Even when public institutions perform similar tasks, they are consolidated and abolished. This is because it is determined that reducing the size of oversized public institutions is the first step to reform. It is also intended to prevent the practice of public institutions carrying out projects desired by the government with ‘arms’.
Functional adjustments are expected to lead to reductions in manpower. The government decided not to make any artificial manpower restructuring, but instead decided to reduce the number of employees that exceeded the current workforce. As of the end of March, the quota for public institutions was 448,276, which is 33,666 more than the current number (414,610). It is difficult to apply it all together because the characteristics of public institutions must be taken into account, but in principle, it means that the quota should be reduced by about 30,000 people.
It also reduces the proportion of excessive executives. In some public institutions, such as LH (Korea Land and Housing Corporation, 37.9%) and Korea Horse Society (33.9%), the ratio of executives exceeded 30%. Local and overseas organizations should be downsized if they cannot demonstrate business performance and service demand.
Budget efficiencies also begin. The government announced that it would “set the remuneration of executives and employees of public institutions at an appropriate level,” but it is analyzed that the government has actually taken measures to cut it. The guideline also includes the introduction of a job pay system instead of the existing salary system.
Measures to reduce current expenses, including business promotion costs, are also implemented. In the second half of this year, the government guideline is to reduce business promotion and recurring expenses by more than 10%. Next year, ordinary expenses will be reduced by 3% compared to the previous year, and business promotion expenses will be reduced by 10% compared to the previous year.
Selling shares that are not related to business
The government has instructed public institutions to dispose of all assets that have nothing to do with their original functions. Examples include unnecessary land or buildings, and assets for employee welfare such as condo memberships or golf memberships. The government principle is to sell all shares in the company that are not related to core business.
The work area per person of public institutions and the area of office heads and executive offices are also subject to intensive management. The office of the head of an agency must meet the standard of the vice minister level (99 m2), and the office of an executive must meet the standard of the first level of a national public official (50 m2). According to the results of investigation by the Ministry of Strategy and Finance, there were 106 public institutions that violated executive office standards. This means that three out of ten public institutions violated the principle. Excessive welfare benefits system will also be overhauled. Excessive internal loan practices and medical expenses support system.
Analysts say that the biggest obstacle to reform of public institutions may be public institution unions. The labor community has been protesting even before the government’s public institution innovation guidelines were published. Reorganization of the remuneration system and reduction of ordinary expenses may face opposition from public institution employees. Some argue that the government’s reform of public institutions will lead to privatization and manpower restructuring. A government official explained, “There are no plans to carry out artificial manpower restructuring or privatization.
Reporter Do Byung-wook dodo@hankyung.com
