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[Letters] Overprotecting SMEs

Published: 30 Jun. 2010, 21:58

Small and medium-sized enterprises (SMEs) are often the wellspring of what Joseph Schumpeter called “creative destruction,” the free market’s untidy way of delivering progress and creating wealth. Unfortunately, in an attempt to help small, local service station operators, the Small and Medium Business Administration (SMBA) recently decided to force two E-Mart gas stations to shorten their hours, a move that will serve only to further weaken South Korea’s struggling SME sector, all the while making consumers a bit poorer. See the June 25 article “E-Mart should scale back gas station hours: SMBA” for more on this recent decision.

In the late 1990s, the South Korean government launched a series of generous support programs for local SMEs. Not surprisingly, SME performance initially accelerated with the help of these programs, but in recent years the South Korean government has found itself sheltering a large number of uncompetitive businesses from the winds of competition. The SMBA’s recent decision is the latest perpetuation of this problem.

As your article notes, the mom-and-pop operators are miffed that the E-Mart fuel stations offer “competitive prices and superior product selection.” Pray tell, how will the South Korean economy - to say nothing of small businesses in the long term - benefit if the government protects businesses which offer higher prices and inferior products?

In addition, consumers will take a direct hit to their pocketbooks as a result of this ruling. At present, no one forces them to frequent the E-Mart service stations. Rather, they are enticed by the prices and convenient hours offered by E-Mart.

The SMBA, however, will soon force these consumers to patronize other stations, where they will pay more for lower quality products and services. Moreover, the extra money wasted on fuel is money that cannot be spent elsewhere - at other small businesses, for instance.

Ultimately, while the SMBA’s decision might benefit a few clamorous gas station owners, it can do so only by stunting progress and limiting choice for everyone else.

Aaron McKenzie,

graduate student at Korea Development Institute School of Public Policy & Management