Rethinking shared growth and economic democracy

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Rethinking shared growth and economic democracy

Published: 04 Feb. 2026, 00:01

Audio report: written by reporters, read by AI

Chung Un-chan

The author, a former president of Seoul National University, is the chairman of the Korea Institute for Shared Growth.

Korea’s economy remains mired in a deep slowdown despite strong performance in a handful of sectors such as semiconductors. Growth has hovered between zero and 1 percent with little sign of a sustained rebound. Income distribution has also deteriorated to a level that threatens social cohesion. The top 1 percent now accounts for about 15 percent of total income while the top 10 percent earns close to half. In short, Korea has sunk into a trap of low growth and widening inequality.

Han Sung-sook, minister of SMEs and Startups (fourth from left), takes part in a performance with attendees including Lee Dal-gon, chair of the Korea Commission for Corporate Partnership (fifth from left), at the 2025 Shared Growth Week ceremony held at the The Korea Federation of Small and Medium Business in Yeongdeungpo District, Seoul, on Nov. 25, 2025. The slogan “A future drawn through shared growth, a Korea built together” is seen in the background. [MINISTRY OF SMEs AND STARTUPS]

At the root of this crisis lies the breakdown of the trickle-down mechanism that once linked large corporations with small- and mid-sized enterprises (SME). The virtuous cycle in which corporate gains flowed to suppliers and households has been severed. Over the past decade, average operating margins in manufacturing have stood at around 6 to 8 percent for large firms but at just 2 to 3 percent for SMEs. This gap cannot be explained by productivity differences alone. Unfair practices such as forced price cuts, passing on higher raw material costs, demands for technical data and exclusive dealing arrangements may have boosted big firms in the short term but have weakened smaller ones, deepening polarization. The result has been sluggish growth across the entire economy. Corporate competitiveness ultimately depends on the strength of SMEs.

Recent shocks have further entrenched these structural disparities. Tariffs imposed under the Trump administration and a persistently weak won have intensified the imbalance. When tariffs raise costs for large exporters, the burden is often shifted to subcontractors through lower prices, reduced volumes or altered contract terms. A high exchange rate compounds the problem. While a weaker won cushions large exporters, it drives up import costs and squeezes margins for smaller firms reliant on foreign inputs.

To overcome the crisis and secure sustainable prosperity, a fundamental shift in economic thinking is required. For the past 17 years, I have advocated the concept of shared growth. Shared growth seeks to reconnect the economy, achieving sustainable expansion while easing polarization. It rests on a simple principle: Grow the pie together and share it fairly. This is not a matter of corporate charity or one-off assistance but the shortest path to restoring fair rules of competition.

From the stage of expanding the pie, large firms should develop and share innovative technologies while SMEs build capabilities on that foundation. Through this process, a virtuous cycle of cooperation can take shape within production systems. Restoring such dynamism would allow the economy to achieve both equity and growth.

For this to happen, executives at major corporations must cultivate a stronger sense of community. The success of Korea’s conglomerates was built on the infrastructure of “Korea, Inc.” and extensive government support. They therefore carry a social debt to the nation and society that cannot be ignored.

Some large companies have introduced programs such as performance-sharing schemes and cooperation funds. Yet the impact on the ground has been limited. The reason is that many of these initiatives are ineffective or focus on after-the-fact compensation. Sharing gains only after results materialize leaves outcomes determined by bargaining power. Large firms can always turn to alternative suppliers, while SMEs have already sunk investments into equipment. Post hoc negotiations may appear fair but in practice reproduce imbalance. What is needed is an institutional shift toward sharing risks and rewards in advance.

The institutional foundation for shared growth is economic democracy. Economic democracy means creating a fair playing field in which cooperative models can function. This principle is grounded in Article 119, Paragraph 2 of Korea’s Constitution, which empowers the state to prevent market dominance and abuse of economic power and to promote economic democratization through harmony among economic actors. Correcting imbalances between large and small firms is not optional but rather a constitutional mandate.

The photo shows a hearing room at the Fair Trade Commission's headquarters in the Government Complex Sejong. [YONHAP]

What concrete policies can advance shared growth on this basis? First, the government must act as what economist Adam Smith called an “impartial spectator,” preventing market distortions and enforcing fairness. Laws must be strengthened to punish unfair practices such as technology theft, and the independence of the Fair Trade Commission should be reinforced to ensure robust enforcement. Wage gaps should be partially offset through welfare and cultural facilities, and a set share of government procurement should be directly awarded to SMEs to bolster their self-reliance.

Second, large corporations must move beyond short-term profit seeking. Research and development spending should focus on core source technologies, and advanced technologies should be shared with partner firms. Introducing profit-sharing mechanisms would encourage reinvestment and wage growth among suppliers, which in turn will bring benefits back to corporations.

Going together allows one to go farther, and fairness allows one to go longer. Choosing shared growth grounded in economic democracy offers a path out of low growth and polarization, ensuring that the “Miracle on the Han River” becomes not a relic of history but a sustainable future.

This article was originally written in Korean and translated by a bilingual reporter with the help of generative AI tools. It was then edited by a native English-speaking editor. All AI-assisted translations are reviewed and refined by our newsroom.