Policy Paradox: Korean Gov’t Policies Lopsided for SMEs May Extend Life Spans of 'Zombie Companies' Only | BusinessKorea

Sunday, February 25, 2018

Many experts are pointing out that current policies lopsided toward giving support to and fostering SMEs go against the era of Korea’s per capita income of US$30,00
Many experts are pointing out that current policies lopsided toward giving support to and fostering SMEs go against the era of Korea’s per capita income of US$30,00
Seoul, Korea
4 January 2018 - 11:00am
Jung Suk-yee

Since the Ministry of SMEs and Startups inaugurated on November 30, last year, the Moon Jae-in administration has repeatedly said that the administration would actively pursue a policy of fostering small businesses as the subject of innovative growth rather than large businesses.

There are two major directions. One is strengthening so-called 'fair play-based economy' that prevents large companies from abusing their power to exploit SMEs and stealing excellent promising technology from SMEs. The other is lending more support to SMEs. The government has decided to scale up its policy funds for SMEs by 9.7 trillion won (US$8.7 billion) this year alone. By 2022, the company plans to support venture business start-ups by raising more than 10 trillion won in innovation venture funds.

However, many experts are pointing out that current policies lopsided toward giving support to and fostering SMEs go against the era of Korea’s per capita income of US$30,000. This is because it can further weaken the competitiveness of SMEs by ramping up the number of 'zombie companies' that barely survive with tax payer money and financial support. Even though SMEs account for 99% of corporations and create 88% jobs in Korea but their shares in Korea’s production (48%) and exports (20%) are very low. This is because their labor productivity is only 29% of that of large corporations. Therefore, it is pointed out that an SME ecosystem should be created and SMEs can be freely born and disappear in the ecosystem.

"In order for Korea to become a nation with US$40,000 per capita income, it is necessary for marginal SMEs to be eliminated and for their low-wage workers to move into new growth business sectors," said Park Jin, a professor at the School of Policy of the KDI. “Even though it will be painful, the government should slowly take away life support off zombie companies."

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