Improving public enterprise performance : lessons from South Korea

In 1983 Korea dramatically changed the way it managed the largest and most important group of its public enterprises, or GIEs. The reforms increased enterprise autonomy, changed managerial selection procedures, and began systematically to evaluate performance and provide incentives on the basis of the evaluation. This paper assesses the results of these reforms and suggests ways the Korean performance evaluation system might be adapted to cicumstances in other countries. A central feature of the Korean reforms is the performance evaluation system, which sets clear targets for management and provides bonuses on the basis of outcomes. The system has four essential prerequisites for success : 1) parallel reforms to increase managerial autonomy and skills, 2) reliable and timely information, 3) adequate skills to supervise and evaluate, and 4) political will. This paper suggests ways to build up and compensate for the first three requirement; there is no substitute for the fourth.