Local government as a catalyst for promoting social enterprise

ABSTRACT

This paper aims to advance our knowledge of the relationship between social enterprise and local government. As social enterprise lies at the crossroads of government, market, and civil society, dynamic interactions exist between all actors. While governments play an important role in developing social enterprises, so far scholars have paid little attention to the specific role of local governments in the social enterprise ecosystem. To help fill this research gap, this paper investigates what motivates local governments to promote social enterprises and how effective their efforts are. Applying resource dependence theory, we test two hypotheses: (i) the fiscal constraints on local governments are the driving force behind their promotion of social enterprises, and (ii) their efforts to support social enterprises are effective. Using the data of 223 South Korean local governments over the 2011–2017 period and applying event history analysis and fixed-effects models, we find that there is mixed evidence for fiscal constraints being the reason local governments promote social enterprise—it depends on which fiscal constraint measures and dependent variables are being analysed. But we find evidence that local governmental efforts to promote social enterprises are effective.

KEYWORDS:

• Social enterprise
• local government
• fiscal constraint
• social enterprise policy

Acknowledgments

We acknowledge that this article is awarded in the 2019 manuscript contest jointly held by the Korea Public Finance Information Service and the Korean Association for Public Administration. We are grateful to J.S. Butler and Edward Jennings for their valuable comments on a previous draft. We would also like to thank the editors and anonymous reviewers who all provided constructive suggestions to further improve our article.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1. Event history analysis is a statistical method designed and widely employed to explain or predict the occurrence of events in social science research (Allison 1984; Blossfeld, Hamerle, and Mayer 2014; Yamaguchi 1991). Since Berry and Berry (1990) initially employed event history analysis to analyse American state lottery adoptions, event history analysis has provided a strong set of empirical techniques to policy scholars in researching various policy innovations and their diffusion at international, national, and local levels (Berry and Berry 2017), such as taxes (Berry and Berry 1992), state education reforms (Mintrom and Vergari 1998), anti-smoking policies (Shipan and Volden 2008), e-government and e-democracy (Lee, Chang, and Berry 2011), and climate protection (Wang 2012).

2. Matching grants can be classified into three categories based on the funding purpose: 1) creating jobs, 2) assisting with social insurance fees, and 3) business development. Specifically, matching grants cover portions of labour costs, four types of social insurance (medical, employment, industrial accident, and national pension), and the costs of operating businesses such as research and development, public relations, marketing, and quality improvement. Based on the estimated costs to fund social enterprises, local governments apply for grants to upper levels of governments in the prior fiscal year and they return unused funding in the subsequent year. We have not subtracted the return amount from the total amount of funding due to missing data in our sample; however, the impact on our analysis should be minimal, given that the proportion of return amounts in total funding is small.

3. We did not include preliminary social enterprises, which have not yet been certified by the government. We include only those social enterprises that complied with all legal requirements set by the government to be officially certified.

4. NGOs and SMEs are distinguished from social enterprises in terms of the source of revenues and the goal of organizations, respectively. In Korea, both NGOs and SMEs can become social enterprises but a social enterprise is not necessarily a private or non-profit entity.

Additional information

Notes on contributors

Donwe Choi

Donwe Choi is an assistant professor of the Department of Political Science at Texas Tech University. He obtained his Ph.D. from the Askew School of Public Administration and Policy at Florida State University. His research interests involve social enterprise and entrepreneurship, public policy process and theory, public value governance, co-production, basic income policy, and social equity.

Jinsol Park

Jinsol Park is a Ph.D. candidate in the Martin School of Public Policy and Administration at the University of Kentucky. Her research broadly focuses on local government administration, public performance and management, and public budgeting and finance.