[The Editors' Verdict] What Happens When Referees Start Playing as Athletes

Public Sector Overreach Undermines Private Enterprise
and Wastes Taxpayer Money

In sports games, referees never play as athletes, but in real society, such cases are frequent. One example is when the public sector intrudes into the domain of private enterprises. This can stifle the entrepreneurial spirit of private companies and waste taxpayers' money.

A representative example is in the delivery industry. During the explosive growth of the delivery platform industry amid the COVID-19 pandemic, more than 20 local governments jumped in. As a result, several local governments wasted budgets ranging from hundreds of millions to billions of Korean won.

For the past 2 to 3 years, local governments have been rushing to launch public delivery apps. According to government statistics, the number of public delivery apps led by metropolitan and basic local governments has reached 25.

The public sector did not aim to make money from the delivery platform business. The rationale was to alleviate the difficulties faced by small business owners due to excessive commissions charged by private delivery apps. However, the public sector could not match the efficiency and financial power of the private sector. It was structurally difficult to compete from the outset.

According to a usage survey of public delivery apps conducted by the Korea Agro-Fisheries & Food Trade Corporation (aT), the average number of orders per franchise store per day through public delivery apps was only 2.1 times (as of the third quarter of 2022). Since the number of participating food service businesses was small, consumers could not find the brands they wanted, and a vicious cycle of failing to achieve economies of scale repeated. There were clear limits to playing the role of a ‘catfish’ to protect small business owners and check monopolistic companies. Good intentions alone could not earn applause.

Ambiguous role boundaries also hinder the emergence of new industries. The ‘Safe Hospital Companion Service for Single-Person Households’ launched by Seoul City and Gyeonggi Province is a public welfare service created in response to the increasing number of single-person households. Seoul City has been implementing this service since the end of 2021, and Gyeonggi Province started this year a service that helps single-person households who find it difficult to go to the hospital alone, assisting not only with transportation but also with reception and payment. The cost is about 5,000 KRW per hour as a self-pay, with the rest covered by the budget. This allows usage at about one-fourth the price of private services.

Following Seoul City, Gyeonggi Province’s introduction of this service has pushed startups and private companies with similar business models, mainly in large cities, to the brink of collapse. CEO A, who founded a related company, said that despite investing nearly 1 billion KRW over several years, the expansion of the service target by the public sector has made the situation overwhelming.

Such welfare services are essential amid the increase in single-person households and accelerated aging. The problem is that the public sector has expanded the service beneficiaries too broadly. By covering almost all age groups (youth, middle-aged, elderly), it is sweeping away the private sector’s domain and leaving no room for them. There are voices calling for limiting support to marginalized groups such as low-income households or people with disabilities due to concerns about excessive welfare. According to Statistics Korea’s ‘2022 Social Indicators of Korea,’ single-person households accounted for as much as 33.4% of all households as of 2021.

Money leaks and only trial and error accumulate. The central government’s debt to fund local governments stood at 1,037 trillion KRW last year, 1.65 times higher than five years ago. Clear lines and boundaries are needed.