Fragmented Governance Weakens Korea’s Social Enterprises

South Korea’s social economy enterprises — covering certified social enterprises, cooperatives, and village companies — are operating in a fragile environment shaped by abrupt fiscal changes. Under the Yoon administration, the 2025 budget reduced direct support for social enterprises to 13.1 billion won, a drop of more than ninety percent compared with 185 billion won in 2023. The decision drew criticism for leaving organizations that employ vulnerable workers and provide local services without a stable base of funding. With the change of administration in June 2025, President Lee Jae-myung’s government signaled a different approach in its 2026 draft budget, which restores allocations to about 118 billion won, though the details remain under review in the National Assembly.

In Sinan County, South Jeolla Province, residents have begun to receive dividends from community-owned solar power projects created under local ordinance. In Yeonggwang County, a cooperative of farmers has launched an agrivoltaic development, installing photovoltaic panels above cropland to secure both farm income and electricity revenue. These projects are still modest, but they show how community ownership can create income streams in rural areas struggling with depopulation and ageing populations, while also building public acceptance for renewable energy.

The sector now stands between two contrasting realities. One is the volatility of budgets that fluctuate sharply with political shifts, exposing enterprises to sudden funding cuts. The other is the gradual emergence of local models that tie revenue to contracts, procurement, and ownership. Whether government policy can evolve into a framework that recognizes social economy enterprises as consistent partners in service delivery remains unresolved.

Global Models of Procurement

In the European Union, public procurement law gives social economy enterprises a formal place in the market. Directive 2014/24/EU allows contracting authorities to reserve tenders for companies where at least thirty percent of employees are disadvantaged. The directive also permits simplified procedures for health, social, and educational services. Because these rules are mandatory, member states have written them into their national laws, creating a degree of consistency that Korea currently lacks.

The United Kingdom has taken a similar path. Its 2015 Public Contracts Regulations carry over the EU rules, and guidance issued in 2025 reaffirmed that health and social care contracts can be awarded under simplified procedures. The aim is to lower administrative barriers so that social enterprises can compete, with the expectation that their revenue should come from contracts rather than discretionary subsidies.

At the municipal level, Barcelona has gone further by issuing city-wide rules that require every department to integrate social value into tender evaluation. A standard guide with model clauses covering labor, safety, and subcontracting has been distributed to all offices, giving cooperatives and social enterprises clearer terms when competing for contracts. While the model has increased administrative work, it demonstrates how procurement rules can be applied across an entire public administration in a consistent way.

Compared with these systems, South Korea’s framework remains fragmented. Certification and support are split across ministries, and the use of social value in procurement is advisory rather than mandatory. The international cases show that when procurement rules are embedded in law and applied uniformly, social economy enterprises gain a more predictable role in delivering public services.

Fragile Budgets, Fragmented Governance

During the Moon administration, spending on social economy programs increased each year. By 2022, the budget for social enterprises and related initiatives reached about 193 billion won, most of it used for wage subsidies for disadvantaged workers and for grants to help cooperatives and village companies get established. The steady growth created expectations that the sector had secured a durable role in labor and welfare policy.

That assumption was broken when the Yoon administration set the 2025 budget. Allocations for direct support to social enterprises fell to 13.1 billion won, down from about 185 billion won in 2023. Programs that had financed payroll subsidies and incubation schemes were cut back or suspended. Local governments reported that many certified firms could not renew contracts for employees with disabilities or for the long-term unemployed. For a significant number of organizations, the loss of funding meant halting operations rather than coping with a temporary reduction.

The change of administration in June 2025 brought a shift in direction. President Lee Jae-myung’s first draft budget for 2026 proposed restoring funding to around 118 billion won, reinstating wage support and seed funds for village enterprises. Because the bill is still under review in the National Assembly, organizations remain cautious. They have seen how quickly central decisions can change, and they have little certainty that revived programs will survive the next budget cycle.

Even when funds are available, governance itself presents challenges. Certification for social enterprises is managed by the Ministry of Employment and Labor, village companies are overseen by the Ministry of the Interior and Safety, and cooperatives are handled by the Ministry of SMEs and Startups. Each ministry applies its own criteria and demands separate reporting. Local governments add another layer of rules through ordinances and grant schemes. Enterprises often face duplicated applications and inconsistent evaluations, with no single authority responsible for coordination or long-term strategy.

Local Energy Cooperatives

Sinan County in South Jeolla Province is often cited as the first local government in Korea to formalize a profit-sharing scheme for renewable energy. A county ordinance allows residents to take part in collectively owned solar and wind projects, with a portion of operating profits returned as dividends. The first payout was made in 2021, and although the sums are modest, the model changed the way communities view utility-scale projects. Instead of being asked to host infrastructure without compensation, residents began to see themselves as stakeholders.

In Yeonggwang County, a group of farmers created the Wolpyeong Solar Power Cooperative to pursue agrivoltaics, building elevated photovoltaic structures above active farmland. The idea is simple: crops continue to grow under the panels while electricity sales generate an additional income stream. Because the cooperative is owned by farmers themselves, profits are distributed locally rather than extracted by an outside developer. The arrangement also gave farmers more say over how the project was planned and operated.

National policy has introduced another lever. Korea’s renewable portfolio standard gives extra credit to projects that include local residents as investors. To qualify, a project must bring in a minimum number of participants living near the site and respect caps on individual investment. Those that meet the criteria receive additional renewable energy certificates, which increase revenue and improve access to bank financing.

These initiatives show how rural areas are experimenting with ways to capture value from energy projects. They are not large in scale, and they face barriers such as grid connection limits and administrative delays. Yet they suggest a different path from reliance on annual subsidies: one where income comes from ownership, contracts, and long-term participation.

Structural Weaknesses and Alternatives

Social economy enterprises were meant to provide stability for workers left out of the mainstream labor market. In practice, the picture is uneven. Some certified firms still rely on short-term contracts and low wages. Oversight is inconsistent, and without clear enforcement the original promise—secure work for the vulnerable—is easy to undercut.

The contracting system adds another problem. In cleaning and care services, social enterprises are often subcontractors at the bottom of a chain. Larger firms win the tenders and pass the work down. What remains for the enterprise is low-margin, labor-intensive work with little chance to accumulate reserves or improve conditions. At that point, it is difficult to distinguish a social enterprise from an ordinary outsourcing contractor.

Residents have also pushed back against energy projects advertised as “community-based.” Where participation is symbolic or profit-sharing is opaque, trust collapses quickly. Disputes over land use are common, especially when farmland is taken for solar development without convincing guarantees that locals will benefit.

The volatility of national budgets has made planning nearly impossible. Within three years, enterprises saw allocations rise, collapse, and rise again. Managers hesitate to hire or invest when funding can disappear with a change of government.

A further obstacle is information. Certification counts are published, but data on survival, job stability, or service quality are scattered across ministries. Without common metrics, it is hard to know whether the sector is delivering public value or simply surviving on subsidies.

One way forward is to restructure procurement itself. A cleaning workers’ union could form a cooperative, register as a social enterprise, and bid directly for municipal contracts. Instead of wages being squeezed through subcontracting layers, revenues would return to the workers. Italy and Spain already use this model in municipal cleaning and social care. For Korea, the key change would be in procurement rules: moving away from lowest-price bidding toward criteria that recognize job security, reinvestment in the local economy, and service quality. Worker cooperatives would still need start-up financing, but at least the market would be open to them on fairer terms.

Such measures would not remove every weakness, but they would replace dependency on subsidies with predictable revenue from service delivery. That shift would give worker-led enterprises a clearer stake in the system and tie public spending directly to stable employment.

Beyond Subsidies

The debate over Korea’s social economy cannot be reduced to a question of subsidies. At stake is whether essential services—cleaning, care, and local energy—remain caught in short-term contracts or are embedded in institutions that communities themselves can shape and control. The record of the past three years shows how easily budgets can rise and collapse with political change, leaving organizations unable to plan or invest.

Experiments in Sinan and Yeonggwang hint at another path: ownership models where revenue is shared locally and trust builds around visible benefits. Worker-led cooperatives in other countries show that public procurement can serve as a stable platform, not just a transaction. But these remain exceptions rather than the rule.

What will matter is not the size of next year’s allocation alone, but whether the state is prepared to alter the rules of contracting and governance so that social economy enterprises are treated as consistent partners in delivering public services. Without that shift, they will remain dependent on the budget cycle, fragile in the face of politics, and limited in their ability to address the very social challenges they were created to solve.