Can Infused Publicness Enhance Public Value Creation? Examining the Impact of Government Funding on the Performance of Social Enterprises in South Korea

• Date: 01 April 2021
• Author: Frances S. Berry,Donwe Choi
• Published date: 01 April 2021
• DOI: 10.1177/0275074020983253
• Subject Matter: Articles

983253ARPXXX10.1177/0275074020983253The American Review of Public AdministrationChoi and Berry
research-article2020
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American Review of Public Administration
2021, Vol. 51(3) 167 –183
Can Infused Publicness Enhance Public
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Value Creation? Examining the Impact of
https://doi.org/10.1177/0275074020983253
DOI: 10.1177/0275074020983253
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Government Funding on the Performance
of Social Enterprises in South Korea
Donwe Choi1 and Frances S. Berry2
Abstract
Numerous countries employ social enterprise as an alternative way of addressing social, economic, and environmental
problems, with this new approach steadily gaining strength over the last two decades. Despite this growth, few empirical
studies have examined the effects of government policies on social enterprise development. Seeking to fill this gap, this
study examines the impact of government funding on the social and economic performance of social enterprises in South
Korea, framed by integrative publicness hypotheses. The integrative publicness framework posits that infused publicness by
government funding can enhance public value creation. To investigate the impact of government funding on social enterprises,
this study has gathered data from annual reports voluntarily published by Korean social enterprises in 2018. Regression was
employed to analyze the data. The findings suggest that government funding is positively associated with social enterprise’s
employment of the disadvantaged, community contribution, and democratic decision-making. In addition, government funding
is related to a decrease in the business profitability of social enterprises, implying that it may lessen their profit-maximization.
This study provides policymakers and managers of social enterprises with suggestions on how to measure the outcomes of
social enterprises and offers real-world touchstones on how they can improve their creation of public value.
Keywords
social enterprise, government funding, social performance, economic performance, publicness theory, public value
Introduction
influence the social and economic performance of social
enterprises differently? This study attempts to find answers
Although there are various social enterprise concepts across
to these questions, thereby contributing to uncovering the
countries, social enterprise is commonly defined as the orga-
role of government that previous studies have rarely investi-
nizational pursuit of blending social mission and market-
gated with quantitative data.
oriented income generation (Kerlin, 2009, 2017; Peattie &
Recognizing that there are complex problems that cannot
Morley, 2008). Since the late 1990s, there has been a rapid
be solved by governments alone due to the unstructured,
increase in the number of social enterprises in the world, par-
cross-cutting, and relentless characteristics of the problems
ticularly in Europe and the United States (Alter, 2006, 2007;
(Weber & Khademian, 2008), public administration empha-
Antonella, 2009; Borzaga & Defourny, 2004; Kerlin, 2006,
sizes the importance of networked and collaborative gover-
2009; Terjesen et al., 2011). This expansion has led to social
nance. In response to the emphasis on New Public
enterprises receiving increased attention from the public,
Management, in addition, public administration is devoting
policymakers, and academic scholars. Yet, despite the
increased attention to public value creation (Van der Wal
increased attention, there is still much we do not know about
the structural differences and outcomes from social enter-
1Texas Tech University, Lubbock, USA
prise policies (Gonçalves et al., 2016; Granados et al., 2011;
2Florida State University, Tallahassee, USA
M. Lee et al., 2014).1 Do governments matter in promoting
Corresponding Author:
social enterprise? What is the impact of government funding
Frances S. Berry, Florida State University, 649 Bellamy Building,
as a policy tool on social enterprises? How does govern-
Tallahassee, FL 323036-2250, USA.
ment funding affect social enterprise performance? Does it
Email: fberry@fsu.edu

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168
American Review of Public Administration 51(3)
et al., 2015). In this way, both public and private sectors par-
To test our hypotheses derived from integrative public-
ticipate not only in addressing public challenges but also in
ness theory, we will analyze the 2018 data of South Korean
creating desired public values with shared power (Bryson
social enterprises. In contrast to the enduring debates in aca-
et al., 2015). From the perspective of public value gover-
demic arenas regarding the definition of social enterprise,
nance, social enterprise has the potential to address wicked
Korean law works from a specific legal definition of social
and unresolved social problems through blending social mis-
enterprise and this will serve as our guide:
sion and market-based revenue generation based on cross-
sectional collaboration (Eggers & Macmillan, 2013;
an entity certified as prescribed in Article 7 to be that which
Rothschild, 2009). This is possible because social enterprise
pursues a social objective aimed at enhancing the quality of life
is at the crossroads of government, market, and civil society
of community residents by providing vulnerable social groups
(Defourny & Nyssens, 2017; Hulgård, 2014; Nyssens, 2007;
with social services or job opportunities, or by contributing to
the communities while conducting its business activities, such
Pestoff, 2014). Indeed, the hybridity of social enterprise is
as the manufacture or sale of goods and services. (Social
not just a mix of three different sectors’ principles, interests,
Enterprise Promotion Act, 2012)
and resources. It is, as well, a new way to mobilize and bal-
ance different interests and resources to devise a balanced
Indeed, in South Korea, the term social enterprise can be
goal supported by all stakeholders and to create synergy to
used only by organizations certified by the Korean govern-
achieve this mixed goal (Battilana, 2018; Battilana et al.,
ment. To maintain their certification and receive government
2015; Pestoff, 2014).
support, certified organizations are required to comply with
Taking this point as its beginning, this article investigates
specific standards set by the government. These standards
how public policy affects social enterprise’s value creation.
include employing paid workers, having a mission of social
More specifically, this article will analyze the impact of gov-
purpose, having a participatory decision-making structure,
ernment funding on the outcomes of social enterprises in
not having a financial surplus from the business that is more
South Korea. In spite of the rapid growth of social enterprise
than 50% of labor expenses, and requiring the reinvestment
research (Gonçalves et al., 2016; Granados et al., 2011; M.
of the surplus into social purposes (Social Enterprise
Lee et al., 2014), few studies have investigated, through the
Promotion Act, 2012).
lens of a compelling theoretical framework, the effect of
However, the Social Enterprise Promotion Act does not
government funding on social enterprise. To fill the gap, we
establish a high barrier to entry because social enterprise is
need to turn to the nonprofit organization (NPO) literature,
not a legal type in Korea but a certification.2 Indeed, a variety
particularly those studies that have examined the impact of
of organizations, including private companies and NPOs,
government fiscal support on NPOs from the perspective of
can apply for certification. In addition, the Social Enterprise
resource dependence theory (Pfeffer & Salancik, 2003) or
Promotion Act has promoted social enterprises through
third-party government and nonprofit failure theories offering various forms of support, such as direct subsidies
(Salamon, 1987, 1995). However, the previous findings con-
and indirect assistance, to organizations seeking to become
flict, indicating both positive and negative relationships
social enterprises.
between government funding and the performance of NPOs.
In particular, the social enterprise policies provide NPOs
Social enterprises are hybrid organizations that are differ-
with good opportunities to enhance their financial sustain-
ent from NPOs and private companies (Pache & Santos,
ability and civic engagement. The Korean nonprofit sector
2013; Pestoff, 2009). So, we turn instead to the integrative
and its civic society foundations are less developed com-
publicness framework (Bozeman & Moulton, 2011), which
pared with those of the United States and the United
provides us with an insightful and unstudied lens to predict
Kingdom. In addition, the term nongovernmental organiza-
the impact of government funding on the social and eco-
tion is more widely used than the term nonprofit organiza-
nomic performance of social enterprises. According to
tion because the Korean nonprofit sector is more inclined
Bozeman’s publicness theory (1987, 2007), “publicness is
toward an adversarial relationship with government rather
best defined not on the basis of the legal status of institutions
than a complementary one. Thus, government–nonprofit sec-
or their ownership (i.e., government or business) but accord-
tor partnerships are not popular. Ironically, the Korean non-
ing to the degree...