Out with the old

“May we all have a vision now and then of a world where every neighbor is a friend … May we all have our hopes, our will to try, if we don’t we might as well lie down and die.” The lyrics of Abba’s “Happy New Year” resonated poignantly as the radio played the song on the New Year’s Day.

To realize a world where everyone can lead their lives happily, we all must have “hopes” and a “will to try.”

But there are too many stumbling blocks and challenges to seeing a happy 2016 for the Korean people. Politics are mired in a hopeless stalemate and the ruling party is more eager to please the president than the people. The main opposition is too busy trying to stay afloat after a disastrous schism. The world economy is dangerously treading waters due to higher U.S. interest rates, a slowdown in the Chinese economy and recessions in emerging economies.

Domestic conditions are equally demoralizing. While our household debt has reached 1,200 trillion won ($990.6 billion) - tantamount to 84 percent of the gross domestic product compared with the average 30 percent in emerging economies - domestic demand remains subdued, wealth polarization has deepened and the labor market is not in a cheery condition. The calendar has changed, but the problems of last year have all been handed over to 2016.

The real problem of our society is a lack of innovation - the driving force of economic progress in the words of economic prophet Joseph Schumpeter - and a scarcity of entrepreneurs, the very agents of innovation.

Entrepreneurship and entrepreneurs are as misrepresented in today’s society as Adam Smith’s “invisible hands.” Staunch believers in free markets define all types of businessmen as “entrepreneurs” and criticize the principle of economic justice for undermining their entrepreneurship. The entrepreneurs Schumpeter touted are not just ordinary business managers. He claimed entrepreneurs should not just introduce new inventions, but create new means of production, marketing, sourcing of raw materials and forms of business organizations.

An entrepreneur, under Schumpeter’s definition, does not merely seek profit, but ways to create new energy, technologies, skills and equipment by destroying the old forms. Creatively destructive innovations drive growth and generate new values and profit. Therefore, anyone who brings forth creative destruction and innovations in a field - whether it be in the area of public service, politics, teaching and work - would have achieved entrepreneurship.

There are a multitude of enterprises in Korea, but few are run by entrepreneurs. While inherited millionaires make up 33 percent of the rich in the United States and 12 percent in Japan, the share is 84 percent in Korea. Capital wealth is handed down and so are businesses as the economy revolves around the conglomerates called chaebol in Korea.

Under government patronage and public support, the founders of chaebol boldly ventured into new markets and businesses and flourished through innovations. But the succeeding generations sought to expand business mostly through cross-affiliate transactions and predatory practices against smaller companies. In the face of their towering monopolies, Korean start-ups failed to grow into technology giants like Google, Facebook and Alibaba.

Under such distorted market conditions, we can hardly expect the birth and grooming of entrepreneurs who can bring a transition to the Korean economy from the old ways. We do not have to borrow the cases cited by Schumpeter - we have ample examples at home. Daewoo Group eventually crumbled, and the incumbent administration, run by people from a certain region and with certain connections, fails to deliver any inventive breakthroughs to the myriad of problems facing the country.

An organization lacking diversity is deficient in flexibility and capacity to grow further. Without destruction of the chaebol-driven economic structure, we cannot bring about a truly happy society. Schumpeter foresaw a boom when there were a multitude of entrepreneurs and a bust when they were few. The biggest danger to Korean capitalism does not come from outside but from within - those who blindly worship the chaebol system.

The state must be responsible for any distortions to the market. The president, government and politicians must all reform economic policy so that entrepreneurs can be bred in this country. We must demand this. A happy society does not fall from the sky.

Translation by the Korea JoongAng Daily staff.

JoongAng Ilbo, Jan. 11, Page 31

The author, a former prime minister, is the director of Korea Institute of Shared Growth.

by Chung Un-chan