Weakness in corporate sectorA society is a complex web of production, management and distribution. Politicians were extremely generous in promulgating the value of welfare benefits during the presidential campaign. The results were free day care for toddlers and sharply reduced university tuitions. The management mechanism has also been activated. The tax code has been revised to lessen benefits for the earners in the high-income bracket and raise taxes on income from some kinds of investments to basically make the rich pay more than they have in the past. While working hard on management and distribution, the most important aspect, production, has been neglected by the politicians. But no one would disagree that without economic growth and jobs, none of the distribution of benefits can be sustained.
The JoongAng Ilbo’s New Year agenda series proposed a campaign to reinvent the nation emphasizing the humanities and economic creativity. We suggest a contemplation on the supply side. The Korean economy has an imbalanced structure with an enormous top and bottom and a slim middle. Growth and jobs cannot be generated solely by large companies. Small and midsized companies refuse to grow up, having been overly pampered and protected by a myriad of state support programs during the last three decades. The spirit of entrepreneurship has died. The Korean economy needs a breakthrough. For now the solution lies with midsized companies and creative startups.
The economy is too short on midsized companies with assets of 500 billion won ($470 million). They take up 0.04 percent of the total number of companies compared with 11.8 percent in Germany and 3.7 percent in Japan. Germany boasts 2,000 midscale companies that do well in global markets. Germany has been relatively immune to the credit and financial troubles sweeping Europe thanks to their performance. A society is more stable when it has a higher ratio of strong midsized corporations. We must continue to pursue the national campaign to triple the number of midsized companies by 2015.
Startups can be the answer to the conundrum of low growth and high unemployment among the young. Entrepreneurs in Silicon Valley have, on average, failed 2.8 times before succeeding in a venture. Young entrepreneurs must be allowed and even encouraged to fail so they can bounce back.
There is no future for an economy if companies fear growing and young people chase safe jobs. We need more dramatic success stories. Reckless support will only feed moral hazard. Funding should go to research and development to help midsized companies and startups succeed.