Recommendations on the Strategy and Direction of Public Institution Reform for the New Government

Reforming public institutions has long been a recurring task in discussions on the Korean economy and administrative reform, but the results have generally been partial and limited. Successive governments have pointed to problems such as lax management, parachute appointments, abuse of employee benefits, mounting debt, similar and overlapping functions, and low productivity. Yet with each change in administration, the emphasis and intensity of reform have shifted, and structural reform based on consistent principles has not been sustained. The new government has recently also mentioned the need for large-scale restructuring, including the merger and consolidation of public institutions, but the direction and philosophy of reform remain unclear.

Public institution reform should be understood not as improving the management of individual institutions or simply reducing the number of institutions through restructuring, but as a national governance task that requires redesigning the overall scale and functions of the public sector, as well as the division of roles between the state and the market. Accordingly, public institution reform needs to be approached as a comprehensive structural reform encompassing functional redesign, promotion of competition, restoration of financial soundness, and reform of personnel and compensation systems.

Against this backdrop, the main purpose of this report is to diagnose changes in the size and workforce of public institutions over the past 10 years, as well as the structural problems arising from those changes, and to present the strategy and direction for public institution reform that the new government should pursue.

First, in terms of organizational scale, the number of public institutions increased from 316 in 2015 to 331 in 2025. On the surface, this may appear to be a modest increase, but in reality it should be understood as structural expansion beyond a simple numerical increase, given that the public sector’s reach has widened further through subsidiaries, affiliated bodies, entrusted organizations, and the expansion of policy programs. In particular, the number of public institutions expanded to as many as 350 in 2020 and, despite some subsequent adjustments, still maintains a large-scale structure of around 330 institutions. This shows that public institution reform cannot easily change the structure through one-off reductions alone. Therefore, future reform should focus less on the number of institutions itself and more on which functions should remain in the public sector and which functions can be transferred to the private sector.

In terms of manpower as well, public institutions have already become a massive employment sector. In 2024, the authorized staffing level of public institutions stood at 423,000, exceeding half the authorized staffing level of the national civil service. Over the past five years, public institution staffing levels have generally remained in the 420,000 range, indicating that the personnel structure of public institutions has entered a stage of entrenchment beyond temporary policy responses. Staffing has steadily increased in such entities as the National Health Insurance Service, Korea Railroad Corporation, policy finance institutions, and public medical institutions in line with expanded policy programs and rising service demand. However, once staffing levels increased, they tended not to decline easily even after projects ended or functions were reduced. Moreover, while total staffing has been maintained or increased, new hiring has declined, suggesting that the public institution labor market is gradually becoming more rigid internally even as it appears stable externally. This makes it more difficult to attract young talent and reorganize institutions flexibly, and it may also distort competition for talent with the private sector.

A review of cases from major foreign countries shows that the United Kingdom pursued public institution reform through privatization, the establishment of regulatory bodies, and the externalization of executive functions, while New Zealand improved the efficiency of state-owned enterprises through corporatization, expanded autonomy, and the introduction of competition. Sweden, meanwhile, has maintained state ownership while shifting toward management based on commercial principles and long-term value, and the OECD likewise presents professional exercise of ownership, competitive neutrality, and transparency as core principles of public institution reform. These cases show that public institution reform does not immediately mean across-the-board privatization; rather, it means distinguishing between functions that the state must perform directly and functions that can be left to the market, while imposing stricter accountability and market discipline on public enterprises that remain. In other words, the key to successful reform lies not in the form of ownership but in functional redesign and the quality of discipline.

Based on this analysis, this report proposes the following basic principles for the new government’s public institution reform: function-centered redesign, promotion of competition, strengthening financial soundness, and establishing responsible management. Public institution reform should be diagnosed not at the institutional level but at the functional level, and the criteria for judgment should include national necessity, the possibility of private-sector substitution, the possibility of introducing competition, whether functions are similar or overlapping, fiscal and debt risk, and contribution to public benefit. Depending on the results, reform tools should be applied differentially, including retention with strengthened performance management, merger and consolidation, market opening, equity sales, and transfer to the private sector or privatization. Cultural, exhibition, and research institutions; guarantee and financial support institutions; and related regional organizations that perform similar or overlapping functions may be suitable candidates for merger, consolidation, or functional reallocation. By contrast, in areas such as the six power generation companies and KTX-SRT, where relative competition can improve efficiency and service quality, maintaining separation and supplementing competition may be more reasonable than hasty reintegration.

The following are suggestions based on a review of cases of merger and consolidation of public institutions currently being pursued or discussed by the new government, along with proposed reform directions. KORAIL (KTX) and SR (SRT), as well as KEPCO’s five power generation subsidiaries, may appear on the surface to have similar functions, but from the perspective of limited competition within the public sector, comparative evaluation, and the separation of performance responsibility, maintaining separation and adjusting inefficient functions was assessed to be preferable to full integration. By contrast, the proposed integration of Incheon International Airport Corporation, Korea Airports Corporation, and the Gadeokdo New Airport Construction Authority could repeat the failed LH integration case, in which the costs were effectively shifted and financial burdens compounded, and it is necessary to separately diagnose specialized airport management functions and construction, operation, and policy-support functions, while considering the reorganization of temporary entities, integration of overlapping functions, and partial opening to the private sector. In addition, the Korea Housing Finance Corporation (HF) and the Korea Housing & Urban Guarantee Corporation (HUG), as well as the Export-Import Bank of Korea and the Korea Trade Insurance Corporation, were analyzed as areas requiring merger and consolidation or extensive functional realignment in order to reduce overlap in policy finance and guarantee functions and to simplify service channels. Furthermore, among the 61 small public institutions, many have little practical justification for maintaining independent corporate status, and thus institution-type-specific restructuring is needed, including absorption into parent institutions, integration with similar institutions, abolition after the end of temporary projects, contracting out to the private sector, and complete abolition. In the end, the new government’s public institution reform should not take the approach that “if functions are similar, they must be integrated.” Rather, it should be a sophisticated, function-centered reform that differentially applies integration, maintenance of separation, functional adjustment, and market opening based on national necessity, the possibility of private-sector substitution, the need to promote competition, whether functions are similar or overlapping, and public benefit.

In sum, the new government’s public institution reform must not remain at the level of symbolic restructuring in the early stage of the administration. It should be institutionalized as structural reform based on medium- to long-term principles of national governance, and it requires a strategic vision for a government that is small but capable. In the short term, a comprehensive diagnosis and functional classification of the real public organizational landscape is needed, including designated institutions, non-designated institutions, subsidiaries, and invested institutions. In the medium term, merger and consolidation, equity sales, transfer to the private sector, debt-reduction programs, and reform of job- and competency-based compensation systems should proceed in parallel. In the long term, the division of roles between the public and private sectors should be reestablished, and reform outcomes should be continuously disclosed to the public through a digital-based performance disclosure system.

I. Introduction: The Need to Explore the Direction of Public Institution Reform under the New Government

II. Diagnosing Recent Changes in the Size and Workforce of Public Institutions and Their Problems

1. Quantitative Expansion of Public Institutions: Not a Modest Increase but Structural Expansion

2. Recent Workforce Changes: Entrenchment in the 420,000 Range and the Aftereffects of Expansion

III. Cases of Public Institution Reform in Major Foreign Countries and Their Implications

1. United Kingdom: Privatization, Establishment of Regulatory Bodies, and Externalization of Executive Functions

2. New Zealand: Corporatization, Expanded Autonomy, and Introduction of Competition

3. Sweden: State Ownership with Management Centered on Commercial Principles and Long-Term Value

4. Korea: Failure of the LH (Korea Land + Korea Housing) Integration Reform (Deteriorating Financial Soundness after Debt Consolidation)

5. Implications of Cases of Public Institution Reform and Merger and Consolidation in Korea and Other Major Countries

IV. Exploring the Strategy and Direction of Public Institution Reform under the New Government

1. Basic Principles and Decision Criteria for Public Institution Reform under the New Government

2. Directions for Structural Reform of Public Institutions: Merger and Consolidation, Equity Sales and Privatization, and Maintaining Separation

3. Review of Cases of Public Institution Merger and Consolidation and Suggestions for Reform Directions

V. Conclusion: A Roadmap and Policy Recommendations for Public Institution Reform under the New Government

References

Wiki:

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Original title: 새정부 공공기관 개혁의 전략과 방향 제언

Author: Gwang yong Go

Date: 2026-03-26

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=report&pn=1&idx=28737