[Viewpoint]Think big on small businesses

No industrial sector is under more pressure from the current economic crisis than small businesses. So many privately owned small stores are on the verge of going out of business. The government is pouring out various policy measures to boost the economy, encourage restructuring and ease the credit crunch.

However, the grand blueprints of “green growth” and “future growth engines” have no place for small businesses. Most policies focus on corporations and wage workers. In reality, small businesses are in the blind spot. About 30 percent of workers in Korea are engaged in small businesses. Naturally, the collapse of small business is a problem separate from the unemployment of wage workers. Once a small business owner closes shop, his family has no way to make ends meet. We cannot just sit back and watch small businesses die. Of course, the financial health of small business owners’ households is more vulnerable compared to the wage workers’ households. Therefore, unconditional assistance is not appropriate.

Proper measures to help small businesses should be based on subjective evaluation of the economic status and role of small business sectors. Korea has about three times more small business owners compared to other developed nations. Less than 10 percent of Japanese are small business owners. Why do we have so many small businesses?

First, Korea’s deindustrialization has been so fast that employment opportunities in the manufacturing sector have diminished rapidly. In Japan, the number of employees in manufacturing peaked at 26.2 percent in 1973, and then it took 25 years to fall below 20 percent in 1998. Meanwhile, the same decrease took Korea only nine years, from 29 percent in 1989 to 19.7 percent in 1998. The employment opportunities in the manufacturing sector disappeared quickly as a result of the Asian financial crisis and layoffs.

Second, Korea’s service industry was relatively slower to develop than the manufacturing industry. It means that the opportunity to become a wage worker in the service industry is relatively limited. Sixty-seven percent of wage workers in Korea are employed in the service industry, far below the Western average of 78 percent in the United States, Britain, France and Germany. Lastly, Korea’s social welfare system is not as comprehensive as other developed countries’, and many retirees and unemployed are likely to start small businesses to make a living.

Then does the manufacturing industry need Korean small businesses as a mere employment safety net to absorb labor surplus? When we think of small business, retail shops or restaurants run by retirees come to mind. Until recently, the majority went into wholesale, retail, restaurants and lodging businesses.

But if we look closely, there is considerable room for development. Since the financial crisis, small business owners are increasingly highly educated, many with college degrees and higher. While the number of small business owners in the traditional service industry is diminishing, the number has been rising in up-and-coming service areas such as the transportation, communications and financial sectors and corporate, personal and public services. Recently, the new industries have outgrown the traditional service industry.

Therefore, assistance to small businesses should be customized, meeting the needs of each sector rather than providing undifferentiated aid. The government needs an approach from the perspective of expanding growth engines as well as providing social security.

Small business owners in traditional industries are likely to be pushed away first as the financial crisis leads to a slump in the real economy. The social security net needs to be reinforced to save them. The mid- and long-term vocational training system should be expanded to let them come back to the growth industries. The small business owners in the knowledge-based industries call for more active planning. Since they have fresh, creative ideas, they can be utilized as a new growth engine for the future. In order to help them endure the economic crisis, the government needs to seek ways to improve their access to financial institutions and emergency funding.

Small businesses make up the base of the economic ecosystem. If we neglect the fall of small businesses, we cannot expect our economic system to be healthy. We must not forget that giants like Microsoft and Google began as humble garage startups.

*The writer is a senior economist at the Bank of Korea Institute for Monetary and Economic Research. Translation by staff of the JoongAng Daily.

by Kim Hyun-jeong