Ch.2 The Meaning of Regulatory Reform

Types of Regulation: Economic, Social, and Administrative

The report defines three types of regulation. Economic regulation intervenes in the market to correct market failure (monopoly, externalities, public goods) or to protect specific industries. It controls prices, quantities, and market entry. Social regulation addresses public interests — environment, safety, health — where social costs differ from private costs. Social regulations tend to strengthen as incomes rise, because people demand more of these values as they become wealthier. Administrative regulation refers to paperwork and administrative formalities; it imposes compliance costs on the private sector that can be severe for SMEs (Canada data: small enterprises spend 8% of sales on government documentation vs. 2% for large firms).

A crucial distinction is between formal regulation (established through legal proceedings, enforceable through law) and informal regulation (restricts private activity through customary practice or political acts, without legal basis). Informal regulation is pervasive where rule of law is weak, government authority is broad, and regulatory transparency is low. Korea's history of government-led development created extensive informal regulation — the regulatory reform process explicitly targeted its reduction through the principle that regulations must be based on legislation.

The Three-Factor Model

The report's analytical contribution is a three-factor model for evaluating regulatory reform:

The model also identifies two special features of regulatory policy that distinguish it from general policy evaluation. First, continuity is a unique requirement — general policies can succeed intermittently, but regulatory reform requires sustained institutional effort across administrations. Second, environment factors — the attitudes of various stakeholders toward reform — are particularly important because regulatory reform "involves various governmental institutions" and depends on both official and public support that most policies do not require in the same way.

Ch.3 History of Regulatory Reform by Administration

Key Structural Observation: The Dual-Track Problem

A recurring structural problem across all administrations: large-scale one-time deregulation efforts (driven by presidential will or crisis) coexist — and often conflict — with the ongoing regulatory review system (the RRC). When a separate organisation is created for big-bang deregulation (the Presidential Council on National Competitiveness, the Regulatory Reform Task Force), it tends to marginalise the standing committee. The report documents this tension without fully resolving it.

Ch.4 Evaluation of Korea's Regulatory Reform System

The Regulatory Reform Committee (RRC) — Korea's Core Institution

The RRC was established in 1998 under the Basic Law on Administrative Regulations. Its key design features: legally binding decisions (ministries cannot ignore RRC recommendations); co-chaired by the Prime Minister and a civilian member; 25 members total (17 civilians, 6 government officials, 2 co-chairs) — civilian majority by design; Regulatory Reform Bureau in Prime Minister's Office as secretariat; mandatory pre-submission RIA by ministries; annual ministry regulation improvement plans with performance-linked rewards; public satisfaction surveys and e-mail/telephone feedback channels.

The RRC review data (Table 4-1) shows consistent performance: of "important" regulations reviewed between 2007–August 2011, the ratio of withdrawal or improvement recommended ranged from 48.3% to 64.4%. This means the RRC actively intervenes to block or modify roughly half of important regulatory proposals — a significant filtering function that most developing country equivalents cannot achieve.

Three Major Reform Measures

1998 Regulatory Reform (50% Reduction). Context: IMF bailout crisis, strong public consensus for systemic change. Process: presidential directive overriding cabinet caution (President Kim Dae-Jung personally ordered 50% cut after cabinet proposed only 33%). Scale: 11,125 registered regulations; 7,841 addressed in 1998; 5,430 abolished, 2,411 improved. Critical limitation: no RIA was conducted because scale and time pressure made it impractical. Expert advisers substituted for systematic analysis.

Regulatory Reform Task Force (2004–2008). Innovation: first organisation to embed private-sector employees (from actual companies, not just business associations) permanently inside the reform body. Method: field visits, user interviews, direct collection of reform demands from the private sector before designing reform plans. OECD assessment (March 2007): "implementing a user-participatory regulatory reform promotion system" — described as "an original and effective organization that is unparalleled anywhere in the world." Extended by 2 years at the request of business organisations.

2009 Temporary Regulatory Relief Programme. Innovation: government suspends effect of regulations for a set period (moratorium), rather than permanently abolishing them. Allows swift economic stimulus without the political cost of permanent regulatory change. 280 regulations selected; 150 revised within 2 months; 42% permanently improved afterwards. Key result: factory extension permits granted to 15 companies in Gyeonggi-do within 6 months, generating KRW 73 billion investment and 360+ jobs; 790,000 small business operators benefited from online substitution for mandatory group training.

System Limitations

The report candidly identifies several unresolved weaknesses. First, National Assembly bypass: legislation submitted by individual assemblymen is not reviewed by the RRC — creating a major gap through which ministries can introduce regulations by persuading assemblymen rather than going through the executive regulatory review process. Second, inter-ministry resistance: essential regulations involving multiple ministries are the hardest to reform because no single ministry can be held accountable, and the RRC has limited authority to force inter-ministerial coordination. Third, informal regulation persistence: the formal regulatory reform system addresses formal regulations; informal regulatory practices by government officials (guidance notes, verbal requirements, selective enforcement) remain largely outside the system.

Ch.5 Economic Effects of Korea's Regulatory Reform

1998 Reform: Cost-Benefit Analysis

The cost-benefit analysis of the 1998 reform was itself a policy innovation — it was commissioned by presidential directive to demonstrate the value of reform and maintain momentum. Key findings over the 5-year period 1999–2003:

Critical methodology note: the analysis was performed without RIA being conducted during the reform itself (scale and time precluded it). The benefit estimates were calculated by government officials in charge of each regulation — creating obvious incentive for optimistic projections. The report acknowledges this as a "partial equilibrium analysis" and explicitly notes limitations on cross-country comparison.

Potential Effects of Ideal Deregulation (OECD Methodology)

The OECD-derived simulation estimated that ideal deregulation across five sectors (electricity, construction, distribution, road transport, telecommunications) would generate GDP growth of 8.6% over 10 years — higher than all other OECD countries analysed (US: 0.9%, Japan: 5.6%, Germany: 4.9%, UK: 3.5%). The consumer price would decline by 8.9% after 3 years. These figures suggest Korea had larger potential gains from deregulation than OECD peers because its regulations were more restrictive relative to the size of the regulated sectors.

Entry Regulation Effects (KIET 2009)

The most methodologically rigorous analysis in the chapter: panel data regression of entry regulation intensity against business start-up rates and job creation across Korean industries, 1999–2007. Key findings: a 10% reduction in medium entry regulations increased the business start-up rate by 0.48–0.70 percentage points; a 10% reduction in strong entry regulations in the service industry would create approximately 72,320 new jobs. The effect was concentrated in service industries (which had higher entry regulation) and was not significant in manufacturing (which had lower entry regulation). This finding is directly relevant to developing countries where service sector entry barriers are often the most economically significant.

Ch.6 Implications and Regulatory Reform Checklist

Four Major Implications from Korea's Experience

Implication 1: Perceive reform as trials and errors, not a success story. Korea's "successful" reform system was built over 40+ years of largely failed attempts. The 1998 breakthrough required a financial crisis to create political conditions that decades of good-faith reform had not produced. Countries that import the post-1998 system without understanding the trials that preceded it are importing the outcome without the learning that produced it.

Implication 2: Presidential will is a decisive — but fragile — driver. The 1998 50% reduction was decisive because President Kim Dae-Jung's personal order overrode bureaucratic resistance. The system continued after him, but with lower intensity. The Roh administration initially allowed the RRC to become "little more than a name." Presidential interest cannot substitute for institutional design — but institutional design cannot substitute for presidential interest either. Both are necessary.

Implication 3: Crisis creates reform opportunity — but also distortion. The 1997 financial crisis created the best environment Korea had ever had for regulatory reform by neutralising vested interests through the legitimacy of crisis response. The 1998 reform was successful partly because it bypassed normal RIA processes — in a crisis, speed mattered more than precision. Countries without crisis conditions will find this model harder to replicate without accepting lower reform quality for higher reform quantity.

Implication 4: Large-scale one-time deregulation requires a permanent system for maintenance. The 1998 50% reduction created a new baseline, but without the RRC's ongoing screening function, regulatory creep would have reversed the gains within years. The Temporary Regulatory Relief Programme of 2009 shows that even with a permanent system, additional crisis-response instruments may be needed for specific economic contexts.

The Regulatory Reform Checklist (Ch.6 §2)

The report's checklist for evaluating regulatory reform readiness covers three domains. Environmental elements: social recognition of regulatory reform need; high-level government recognition; public awareness of regulatory reform benefits. Institutional elements: existence of a regulatory reform institution with legal basis; continuity mechanism; feedback/assessment loop. Decision mechanism: leadership participation; private sector participation; RIA institutionalisation.

Type B No Permanent Reform Institution with Binding Authority

‘We have had four different regulatory reform committees in eight years. Each government abolishes the previous one and creates a new one. Their recommendations are routinely ignored by ministries. The new committee will be announced next month.’

Korea’s Experience with the Same Problem

This is Korea’s own history from 1964 through 1997: six administrations, multiple committees, each dissolved or marginalised when a new government took office. The report documents this pattern without attempting to minimise it. The institutional breakthrough came in two stages. First, the Basic Law on Administrative Regulations (passed at the end of the Kim Young-Sam administration, December 1997) created the legal basis for a permanent Regulatory Reform Committee with binding authority. Second, the Kim Dae-Jung administration, which took office amid the financial crisis in February 1998, immediately activated this legal framework and built the RRC into an operational institution.

The key design features that made the RRC different from its predecessors: legally binding decisions (not advisory); statutory basis (the committee cannot be dissolved without amending the Basic Law); civilian majority (17 of 25 members; prevents capture by ministries); Prime Minister as co-chair (signals political priority without making it purely a presidential initiative vulnerable to administration change); mandatory pre-submission review by each ministry before proposals reach the RRC; and a computerised public registry that makes all regulations visible and regulation counts publicly auditable.

Type C Poor Regulatory Quality — Regulations Harm Without Purpose

‘No one analyses regulations before they are issued. The ministry drafts a regulation, it goes to the Council of Ministers, and it is enacted. There is no requirement to show that benefits exceed costs. Regulations are designed for government convenience, not public welfare.’

Korea’s Experience with the Same Problem

The absence of systematic regulatory quality analysis was Korea’s problem throughout its entire pre-1998 reform history. Even the 1998 50% reduction — the most successful regulatory reform Korea ever undertook — was conducted without Regulatory Impact Analysis, because scale and speed made individual analysis impossible. Expert advisers substituted for systematic analysis. RIA was introduced as a legal requirement after the fact, in the Basic Law on Administrative Regulations, as a condition for all future regulation submissions to the RRC.

The RIA requirement in Korea works as follows: when a central government agency introduces a new regulation or reinforces an existing one, it must first perform RIA; then have its own ministry regulation review committee examine the regulation; then submit to the RRC. The RRC determines whether the regulation is "important" (large socioeconomic impact) or "unimportant" (technical/procedural). Important regulations receive full committee review; unimportant ones are processed administratively. This tiered approach prevents RIA from becoming a formality applied equally to consequential and trivial regulations.

Type D Informal Regulation Dominates — Formal Reform Has No Effect

‘We formally abolished the regulation two years ago. But the ministry official still calls the company and tells them what they can and cannot do. Nothing changed. The formal system is irrelevant to what actually happens.’

Korea’s Experience with the Same Problem

Informal regulation was one of the most persistent features of Korea’s regulatory environment throughout the government-led development period. The report describes Korea’s regulations as characterised by "abundance with overlaps and duplications, in addition to opaqueness and comprehensiveness subject to the arbitrary decisions of the regulators" — all of which create the conditions for informal regulation. Close ties between government and the private sector seeking economic favours (described under the Park Chung-Hee era) institutionalised a system where formal regulatory authority was used as leverage for informal direction of private economic decisions. The Chun administration recognised this as a source of corruption and removed some of the formal regulatory instruments (government funding ceilings, fixed exchange rates) that enabled informal regulation — but the underlying culture of government direction of private activity persisted.

Korea’s primary mechanism for reducing informal regulation was the principle of legislation-based regulation — enshrined in the Basic Law on Administrative Regulations, which required that all regulations be based on legislation and registered with the RRC. Unregistered regulations could not be enforced. By making the regulatory stock visible (the public online database) and by requiring legal basis for all restrictions, Korea created accountability for informal regulatory practices. However, the report is honest that this mechanism is imperfect: informal regulation exists wherever "the rule of law is not well obeyed" and where "the government has a wide range of regulatory means" — both of which persist in Korea to varying degrees.

Type E Bundled/Essential Regulations Cannot Be Reformed

‘The regulations that hurt the economy most involve five different ministries. The regulatory reform committee can only review regulations from one ministry at a time. No minister will agree to reform a regulation that reduces another ministry’s revenue. Nothing changes.’

Korea’s Experience with the Same Problem

This was Korea’s most difficult regulatory reform challenge, explicitly acknowledged by the Roh Moo-Hyun administration as the reason quantitative deregulation had limits. Despite achieving a 50% regulatory reduction by 1998 and continuing reform through the 1999–2002 period, "bundled and essential regulations were yet to be modified and improved" because they "were related to a number of government departments rather than a single government branch." The standard RRC process — ministerial submission, RRC review — could not force cross-ministerial coordination because the submitting ministry only controlled its own regulations.

Korea’s institutional innovation was the Regulatory Reform Task Force (2004–2008). Its key features distinguishing it from the RRC: (1) it selected improvement tasks proactively rather than waiting for ministry submissions; (2) it collected private-sector reform demands directly through dispatched company employees and field visits; (3) improvement plans went through vice-ministers’ meetings for inter-ministerial coordination; and (4) ministers directly participated in approval, creating cross-ministerial accountability. The OECD assessed this model as "an original and effective organization that is unparalleled anywhere in the world" specifically for its user-participatory approach to cross-ministry bundled regulation reform.

5.2 ✅ Check Your Understanding

5.3 ✏️ Scenario Writing

The Scenario: The Minister Wants to Copy the Korean Model — in Six Months

Core Tensions

5.4 📝 Assignments

5.5 📚 Further Reading

• OECD, "The OECD Report on Regulatory Reform: Synthesis" (1997): The primary international reference the Korean report draws on for its definitions, typology, and economic effects analysis. Reading the OECD source alongside the Korean report allows you to see which elements Korea adopted directly and which were adapted to the Korean context. The OECD definition of regulatory reform (p.6) is quoted verbatim in the Korean report.
• OECD, "Regulatory Policy in Korea: Towards Better Regulation" (2017): The OECD's most recent assessment of Korea's regulatory reform system — written five years after the KSP report. It shows what changed, what remained problematic (particularly the National Assembly bypass and informal regulation), and how Korea's system compares to OECD averages. Reading this alongside the 2012 KSP report reveals what the KSP report's optimism left unresolved.
• World Bank, "Doing Business" annual reports (2004–2020): Korea's performance on the Doing Business metrics provides external measurement of regulatory burden over the reform period. Cross-checking the KSP report's economic claims against Doing Business indicators allows independent assessment of whether the claimed reforms translated into measurable improvements in business conditions.
• Jacobs, S. (2004), "The Second Generation of Regulatory Reforms," Columbia University SIPA Working Paper: Analyses the gap between first-generation regulatory reform (quantitative deregulation) and second-generation reform (regulatory quality improvement). Directly relevant to understanding why Korea's 50% reduction in 1998 did not resolve the regulatory quality problem — the distinction between these two generations of reform is the framework behind Korea's Regulatory Reform Task Force.
• Jordana, J. & Levi-Faur, D. (2004), "The Politics of Regulation" (Edward Elgar): Comparative political science analysis of why regulatory reform succeeds or fails across different political systems. Provides the analytical framework for understanding the "environment" factor in Korea's model — specifically why crisis conditions, political will, and public consensus interact differently in different institutional contexts.
• Korea Prime Minister's Office, "Regulatory Reform White Paper" (annual, in Korean with English summaries): The primary ongoing source for Korea's regulatory reform data — regulation counts, RRC review statistics, and reform programme results. The 1998 edition (referenced in the report's Table 4-2) is the foundational data source for the 50% reduction. Subsequent editions track whether the gains were maintained.