Learning from Zug
The author is an editorial writer of the JoongAng Ilbo.
Zug, a half-an-hour train ride from Zurich, has become Crypto Valley, the epicenter of virtual assets. With a population of 30,000, the city doesn’t have an airport. Yet hundreds of people in the fintech and blockchain industries, start-up entrepreneurs and politicians from around the world flock to the vibrant hub.
The phenomenon would seem alien to Koreans, where cryptocurrency trade is perceived as a pyramid scheme by the authorities. As the exotic concept draws millions of businessmen to Zug, my curiosity got the better of me. I decided to use my holiday to join the pilgrimage.
Zug is home to over 250 blockchain enterprises, including the widely known Ethereum Foundation. It has built up a cluster by drawing in related financial, legal, accounting and ICT service providers. The city is well equipped to serve as a blockchain hub. Initial coin offerings are legal. It does not mean that e-money has replaced hard currency. Few pay for shopping, meals or parking fees and taxes in bitcoin. Shops that accept bitcoin and other crytocurrencies are few in number. “Cryptocurrency and blockchain are still incomplete technologies. They are not perfect enough to replace traditional currencies,” said the CEO of a Zug-based blockchain start-up.
Yet the city, as well as the Swiss government, is happy and eager to back and engage the cutting-edge money. Roman Weiss, deputy head of the Economic Promotion Office in the Canton of Zug, explained.
“The founder of Ethereum Foundation visited the city in 2014. The CEO, who was around the age of 19 or 20, spoke on how he wanted to change the world. We were impressed by his presentation and decided to give him a chance to start. The idea behind blockchain is the application of publicly-available data trails and monetization of data. At the end of the day, it is a technology that can serve many companies. More came after Ethereum. It is how the Crypto Valley was born. All we did was to welcome them with an open mind,” he said.
The city does not provide tax or financial incentives to companies as “it is up to the market — not the public authority — to decide what company is better,” he added. Instead, the authority builds an environment friendly to companies experimenting with new ideas and technologies. “We are only helping to create a business environment where blockchain enterprises join with other industries to create new value,” he said. Zug does not just host blockchain companies, but also pharmaceutical, biotech, hi-tech, and raw material companies. “We provide equal opportunities to all,” he said.
Small governments can remove unnecessary regulations and build a host of innovative industries. President Moon Jae-in also vowed to keep interference and regulation to a minimum and support innovative enterprises. But no progress has been made on the innovation front. The government has spent — and pledged again — colossal funding, but the market and companies are unimpressed. Small- and mid-sized companies complain that if they receive state subsidies, they would have to come with matching funds. Bigger companies keep a low profile while authorities watch them with tougher rules on in-house business deals through the state-forced stewardship codes.
The government may be touting innovative growth, but it keeps to the practices of Big Brother and a closed administration. As long as it places the priority on the income-led growth policy, with a focus on distribution through wage increases for low-income earners, promises on innovation promotion will be in vain. No government can be both big and small. How can science and ICT talents be found and groomed when it is even out to eliminate special-purpose and elite high schools?
A big government thinks it can do everything. In the worst case, it quits its referee position and jumps into the ring. The Seoul city government launched its own payment system — Zero Pay — as if to play the role of a credit card company.
Seoul Mayor Park Won-soon must have been deeply moved by his visit to Zug last year. He announced a plan to nurture Seoul as a hub of blockchain. The city government is spending huge sums to promote its Zero Pay system. But a tangerine can never be an orange no matter how it claims to be one.
JoongAng Ilbo, Feb. 1, Page 24