A mirage without deregulation
The author is the dean of Sogang Graduate School of Management of Technology and head of the FinTech Center.
Governments in both developed and developing economies are pulling out all the stops to promote venture start-ups. The enterprises will create jobs and drive growth in the age of the fourth industrial revolution. A unicorn — a start-up company valued at over $1 billion — is being born across the globe almost every week. The bar is being raised fast in the tech world with the arrival of decacorns — or venture companies valued at over $10 billion. The proliferation of promising unlisted companies underscores the significance of fostering start-ups.
Where does Korea stand in raising start-ups? Four administrations, liberal and conservative, have been eager to encourage tech start-ups since the early 2000s. The current Moon Jae-in administration vowed to create an environment for innovation by arranging private venture funding and by stimulating the Kosdaq market. He promised to bring back the IT venture fever of 1999-2000 under the Kim Dae-jung administration. Investments in start-ups last year reached an all-time high of 2.86 trillion won ($2.6 billion). Despite the surge in capital, the mood is hardly feverish. Of 236 unicorns across the world, only three are of Korean origins. The tech-laden Kosdaq index has declined since the second half of last year.
The poor scoreboard is largely the result of heavy government regulation. In a 2016 World Economic Forum report, Korea was ranked 26th among 138 countries in national competitiveness. But it was 105th in the burden from regulation category. Regulations are taxing Korea’s potential and threatening its competitiveness. A special law allowing regulation-free zones in 14 cities and provinces across the nation finally passed the National Assembly in October 2018 after it was first motioned in May 2016. The Innovation and Venture Council, a representative body for venture enterprises, asked that 160 regulations be eliminated. Ultimately, 24 were eased.
Applications of big data, dubbed the oil of 21th century, also remain limited due to privacy regulations in Korea that require companies to get prior consent from individuals for any use of their personal information.
The United States and China allow “regulatory sandboxes” to allow for the testing of new technologies before their regulations are created. Unintended consequences can be avoided in this way. New industries can bloom first, with interference coming only if and when problems arise.
Beijing is allowing “white spaces” — periods of five to 10 years which see complete liberalization in new businesses — under a campaign to promote 100 million start-ups. As new industries involve novel business concepts, they cannot grow in the context of traditional rules, frameworks, infrastructure and market practices. If the potential for start-ups is great, new business concepts should be allowed to run beta for a time: regulations can come later.
The fourth industrial revolution will usher in a digital age. The market must become digitalized in tune with the new age. The enterprises must pioneer the market and make money. But the government’s role is also pivotal in backing the digital market and growth of e-commerce.
During the Nov. 11 Singles’ Day shopping extravaganza last year, Chinese e-commerce giants like Alibaba and JD.com sold 60 trillion won worth of goods in one day. Alibaba has expanded to Malaysia, Thailand and other Southeast Asian markets given how borders are meaningless in e-commerce. At the suggestion of Alibaba executive chairman Jack Ma, Malaysia opened a digital free trade zone near the Kuala Lumpur International Airport in November 2017. China aims to become a digital superpower through expansion in the digital realm.
Korea does not have any large-scale e-commerce players. Gmarket was sold off to eBay.
The digital economy is expected to amount to half of the global economy, up from its current 20 percent, within the next 10 years. It will soon be larger than the brick-and-mortar economy. The digital market is a country’s strongest infrastructure. The Moon administration must put top policy priority on promoting a digital drive.
A strong digital market can broaden opportunities for small- and mid-sized companies that lack overseas networks and brand power. Good products and services can reach all parts of the world through mobile and digital space. Smart and creative start-ups can grow on their own at an explosive pace. Revised bills on private information and regulatory sandboxes are inbound. The government must take a more proactive role than ever before in championing venture enterprises.
Translation by the Korea JoongAng Daily staff.
JoongAng Ilbo, Jan. 7, Page 29