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Bring back economic dynamism

[Korea’s] enterprising spirit cannot be restored while the old, worn out system is kept intact.
Apr 08,2017
Two people who had been working at a farm decided to seek a new life. One bought a ticket for New York and the other for Boston. While they were waiting for their trains, they overheard that New Yorkers were so stingy that they demand money for directions while Bostonians are generous even to beggars. The two traded their tickets.

The man originally headed for New York was inclined to Boston since he won’t have to worry about going hungry even if he cannot find a job. The other thought he could become rich if he had to pay money to get directions. The future of the two changed. The one that went to Boston lived off the streets while the one that arrived in New York was flush with excitement about making money. He sold soil for plants and then started a cleaning business to make big money.

If I ask people what path they would choose after telling the story, most say they would follow the man that went to New York. They envy the adventurous spirit and the man’s will to change his future. Entrepreneurship refers to the spirit of challenging crisis to seek a new opportunity and venturing with boldness to see work through to success. When many pursue that kind of spirit, the economy gains life and becomes more dynamic. When this energy grows, a multitude of the challenges the Korean economy faces — low growth, income inequality, and youth unemployment — could be solved. The Korean economy achieved a dramatic rags-to-riches transition based on enterprising minds and commitment. It grew at a staggering pace and distributed wealth in the process.

A dynamic economy is different from a growth-oriented economy. Growth is the byproduct of dynamic activities. In the Korean corporate world, the small merchant population is too large, mid-sized enterprises are too weak, and large and strong businesses are rare. Not many small companies grow up to become mid-sized, and fewer mid-sized ones turn big. The way to revive the entrepreneurial spirit in the corporate community is simple. It must provide incentives to build a cycle of a small player innovating and becoming bigger. For large players, it must ensure that they do not get in the way of breeding and the growth of smaller counterparts. Unfair and illicit practices like trade to increase the wealth of the owner’s family and keeping work within an umbrella of affiliates must be strictly supervised and forbidden. Hereditary ownership, however, should be allowed as business succession can be a motivation to fuel dynamic activities.

The public policy on small and mid-sized companies also should change. The current policy is all-giving. Pampering has spoiled many and turned them into zombie-like entities entirely relying on government grants and relief. For dynamics, the government should be selective and support those who are willing and adventurous. It could hold off assistance for a certain period after a the founding of a business or limit funding to research and development.

Many of the problems of Korea Inc. and the economy stem from sagging or a void in entrepreneurial spirit. The economy has lost steam and strength. It is drooping and sinking. Many already say Korea has begun down the path that Japan has gone down over the last two decades. The economy has been moving at snail’s pace for years. Last year, the economy missed the growth potential rate of 3 percent for the sixth consecutive year and the average global growth pace for the seventh year.

Disgruntlement against the widening wealth gap is also growing. Sagging dynamics are to be blamed. The people are more frustrated that they are losing hope and opportunities to venture. Dynamism breed opportunities.

Young startups should be given the opportunity to retry after several failures. The socially disadvantaged must be given opportunities to start anew and build competitiveness. Conflict and disputes have worsened because of protracted depression and deepening inequalities. Again, the solution lies with revived dynamics.

The economic platforms of the presidential candidates are all the same and unimpressive because they neglect dynamism. The small and mid-sized enterprises are still regarded with condescension. The chaebols still pose as a common enemy. While they talk of creating jobs for the young, they keep silent on reforming the elephantine unions at large manufacturers. The country’s enterprising spirit cannot be restored while the old, worn out system is kept intact.

While expanding welfare spending, public policy should be focused to fuel dynamism in the economy. The government should not play the role of a donor. Without dynamism, we too could end up in lengthy stagnation.

JoongAng Ilbo, April 7, Page 32

*The author, former writer of the JoongAng Ilbo, is an adviser to the Korea Institute of Finance.

Kim Yeong-ook