[Op-Ed] To Counter Regional Extinction, End Central Control and Give Local Governments Power and Funding

Local governments are expending administrative capacity on writing project plans tailored to central government criteria rather than designing bold experiments

True decentralization requires the central government to set only the goals and let local governments design the means

The answer lies in the market economy principle: control less, entrust more, and hold actors accountable for results

The pendulum of local extinction is swinging ever faster, yet the annual 1 trillion won Local Extinction Response Fund created to prevent it remains trapped under central government control. Fiscal resources have been transferred downward, but authority has not.

The current method of operating the fund entrenches not the “muscle” localities need to grow on their own, but a “subsidy-dependent constitution” reliant on central evaluations. In name, the current Local Extinction Response Fund is a fund, but in substance it is closer to a special grant whose uses and evaluation authority are controlled by the central government.

Rather than designing bold experiments suited to their industrial structures and market conditions, local governments are spending their administrative capacity drafting business plans tailored to central evaluation criteria. This is not competition in policymaking, but merely “competition to respond to evaluations.”

This structure suppresses local autonomy and entrepreneurship, turning the entire country into a uniform policy testing ground. When local governments bear responsibility for failure but the central government retains freedom of choice, the only option left to them is the safe one.

Uncertain but high-potential initiatives such as attracting firms or transitioning industries are excluded, while only safe, uncontroversial projects aimed at avoiding elimination are reproduced. As a result, differentiation among regions disappears, and the same kinds of projects are repeated everywhere.

The structure of the fund as a temporary 10-year program is also problematic. Annual performance evaluations and pressure for short-term results push local governments toward immediately visible outcomes instead of long-term investment. Building an industrial ecosystem requires time and tolerance for failure, but the current system leaves no room for that.

In the end, the fund is easily scattered across construction projects, one-off events, and small-scale subsidy programs. Financial resources that should be building engines for sustainable local economies are instead consumed by “showcase-style performance.”

A more fundamental problem is the absence of a business perspective. With an evaluation system fixated on simple population inflow figures, it is difficult to expect actual business relocation or settlement. Leaving untouched the key variables firms actually feel—regulatory burdens, labor market rigidity, location costs, and labor supply—while merely injecting fiscal resources ignores market logic. It is no different from pouring water into a bottomless jar.

The lack of incentives for participation is also serious. Areas with declining populations or designated concern areas have little motivation to respond aggressively to local extinction. As long as the fund remains a one-time cash support measure, it is difficult for it to function as a signal that draws in private investment.

Without structural change in the industrial base, subsidies alone cannot create a virtuous cycle in the local economy. The Local Extinction Response Fund must now be redesigned not as an “allowance to help localities,” but as an “authority that enables localities to grow on their own.”

The allocation structure should be simplified into a basic portion and performance incentives, and the central government should boldly relax detailed restrictions on use and shift to a block grant approach. True decentralization means the center presents only the goals, while local governments design the means.

In particular, the fund needs to be linked to expanding local tax sources and strengthening autonomous authority. Fiscal transfers alone make it difficult to ensure responsible policy choices. Only when results are connected to tax revenue and fiscal autonomy will local governments finally have an incentive to attract industries and firms from a long-term perspective.

The evaluation method must also become more market-friendly. Rather than relying on subjective judgment, it should be tied to objective outcome indicators such as GRDP (Gross Regional Domestic Product), growth in the living population, attraction of private investment, creation of sustained employment, and increases in local tax revenue.

The role of the central government must also change. Instead of prior control and detailed design, it should focus on ex post audits and data management. The responsibility for policy choices and failure should rest with local governments, while the center’s role should be to share the data accumulated in that process so the entire country can learn from it.

Finally, the priority in use of the fund should shift from “reinforcing living SOC (social overhead capital)” to “industrial ecosystem infrastructure.” Investment should go not to parks and paving blocks, but to the engines that create local productivity and employment. The starting points include industrial complexes combined with regulatory special provisions, settlement-based job models, training technical personnel in connection with local universities, and strengthening logistics and data infrastructure.

There must also be flexibility to convert closed schools and idle land into lease-type startup spaces that the private sector can use freely, rather than having the public sector operate them directly. Government-led rigid operation should be reduced, and private innovation and capital should be allowed to flow into the regions.

The way to revive local areas does not lie in more central planning. It lies in less control, greater delegation, and accountability for results—that is the response to local extinction that accords with market economy principles.

Hyewon Jin, Intern Researcher, Center for Free Enterprise (CFE)

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Original title: [칼럼] '지방소멸 대응’ 중앙 통제 없애고, 지자체가 권한‧재원 가져야 성공

Author: Hye-won Jin

Date: 2026-03-31

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=free_opinion&idx=28755