Small isn’t always beautiful

The liberals or progressives boast they are on the side of the weak. On the corporate front, they call themselves friends to the smaller enterprises. To them, small- and midsized industry is a vulnerable sector that needs state protection and support. One of the measures is to build walls around the sector with the government naming business fields best suited to smaller enterprises to better foster them and protect them from being devoured by large companies.

So here is a quiz. Which president - liberal Roh Moo-hyun or conservative Lee Myung-bak - abolished the system specifying business fields for small- and midsized companies? Here is another one. Which of those two presidents revived a similar measure under a new name: business suitable for small- and midsized companies?

The answer to the first question is President Roh and to the second is President Lee. Roh is from a liberal background and Lee is a conservative. Yet their behaviors were kind of inside out. One small corporate chief executive explained this irony. The former president knew how the economy worked. And a person who knows the real economy knows not to limit companies to a certain field just because of their relative sizes.

A corporation aspires to grow. To do so, it must make profit, increase hiring and build wealth and size. A company without the will to grow is a zombie. Regulations limiting the business fields of smaller enterprises discourages a business’s will and natural desire to grow and prosper. A company that works hard and prospers in a certain field might grow itself into extinction because the government says it’s too big to remain in that business.

President-elect Park Geun-hye has also expressed her partiality to the small- and midsized corporate sector. She has been vocal in championing small- and midsized business. In fact, she has even dubbed herself “the president for midsized enterprises.”

In a transition committee meeting she shared a story she heard from a bakery owner who has been running a store for 30 years and ordered committee members to come up with measures to protect mom-and-pop businesses.

It doesn’t take a genius to figure out what will pan out. It is no wonder the franchise association issued newspaper ads saying they are also small merchants that need state protection. They fear being targeted by new government interventionist policies.

One entrepreneur of a midsized enterprise who served as an executive member on the Korea Federation of Small and Medium Businesses said that former President Roh not only scrapped the so-called preferential business specification system for small- and midsized businesses but also the collective private contract benefit under which government procurements are arranged for members of the federation to help the small business sector maintain stable profits.

The executive team of the federation - an interest group for small- and midsized firms - paid a visit to the president to oppose to the move. But Roh persuaded it that the program is bad for the industry’s competitiveness. The team could not disagree with the president’s argument that the policy goes against normal thinking and market principles and returned empty-handed.

Korea may be the most generous patron state to small- and midsized companies in the world in terms of regulations and aid for them. It has 1,361 programs to support the sector and 260 public agencies and institutions to forster their businesses. If a company outgrows the midsized scale, it loses around 160 benefits.

From 1992 and 2006, the government budget increased 4.3 times, but spending for small- and midsized businesses surged 79.6 times. That is why small- and midsized companies are always mushrooming while the list of large enterprises grows shorter. A smart business owner wouldn’t want to grow beyond the mid-scale and lose various financial and tax incentives - and to face a raft of regulations and supervision.

As a result, we have an abnormal corporate ecosystem with a large number of small- and midsized companies lacking competitiveness and self-sustainability and a small number of big players with true competitiveness.

Something must be wrong if what we see today is the result of 40 years of heavy spending and incentives for the small and midsized corporate sector. But neither the government nor politicians have any thought of changing it. The president-elect should first of all throw away condescending or favoring attitudes toward the smaller business sector.

The direction is obvious. Limit help to promising start-ups. Realign the government’ hefty support system by applying the so-called “sunset principle.” Restructure and close lethargic companies that rely entirely on government funding and protection. Distinguish companies worth helping from those that are not. The entrepreneur I cited earlier said that a business is not a business if it depends on the government. The incoming government should take note of this truth.

*The author is an editorial writer of the JoongAng Ilbo.

by Kim Yeong-ook