"Consuming 50 Trillion Won Annually Due to Regulations... 'Proactive Administration' Alone Can Reduce It by 30%"

[Asia Exclusive] Park Jubong, Small and Medium Business Ombudsman

Jubong Park, Small and Medium Business Ombudsman. / Photo by Dongju Yoon doso7@

The Most Effective Ways to Support Economic Innovative Growth and Boost Vitality: 'Regulatory Innovation' and 'Proactive Administration'

[Dialogue = Kim Min-jin, Head of the Ministry of SMEs and Startups, Summary = Reporter Kim Jong-hwa] "One and a half times around the globe in 2 years and 4 months."

This is the distance Park Ju-bong, the Small and Medium Enterprise Ombudsman (vice-ministerial level), has traveled since taking office. Even now, he visits sites nationwide twice a week. "Because we need to listen to voices from the field and improve regulations and difficulties from their perspective," explained Ombudsman Park. The Small and Medium Enterprise Ombudsman represents small and medium-sized enterprises (SMEs), mid-sized companies, small business owners, and self-employed individuals, taking the lead in resolving unreasonable regulations to promote productive economic activities. It is a government agency with authority under the Framework Act on Small and Medium Enterprises to propose and recommend improvements to regulatory difficulties, hear opinions from related agencies, conduct investigations, and make public announcements.

On the 19th, we met Ombudsman Park at the Ombudsman Support Group in Gwanhun-dong, Jongno-gu, Seoul. He emphasized, "Regulatory innovation and proactive administration are the most effective ways to support innovative growth and enhance economic vitality without spending money." In particular, he reiterated the importance of 'proactive administration,' stating, "The annual cost incurred due to regulations exceeds 50 trillion won, and about 30% of these regulations can be resolved solely through proactive administration without changing laws or enforcement decrees."

Ombudsman Park said, "Over three years, ministers have responded 'we will do it' twenty times, but sometimes it still doesn't happen." He pointed out the reality that even when ministers give instructions, executives or staff do not take action. He added, "Still, you must not give up and keep reporting. There was a case where I told the minister, 'This is the twenty-first time I am making this proposal, so you must resolve it this time,' and the matter progressed."

The Ombudsman's work is that challenging. Last year, the number of regulatory difficulties handled reached a staggering 5,328 cases. This averages to about 15 cases processed every day, including holidays. They participated in 1,306 field communications and held 60 meetings with companies. Through these efforts, 775 institutional improvements were achieved, an 80% increase from 430 cases the previous year.

If it doesn't change after reporting twenty times, report twenty-one times to make it change

Even with such improvements, new regulations continue to be created. Last year, the National Assembly proposed 1,200 regulatory legislative bills. Over the entire 20th National Assembly, there were nearly 4,000 regulatory bills. Amid this, the outbreak of the novel coronavirus disease (COVID-19) caused a surge in reports of regulatory difficulties from SMEs and small business owners. From January to May, 1,109 regulatory difficulty reports were filed, about a 40% increase compared to the same period last year. Financial difficulty reports from small-scale small business owners more than doubled from 48 cases last year to 110 cases this year.

Ombudsman Park said, "Regulation is money." By imposing regulations, companies spend more money, which weakens their competitiveness. He expressed his opinion, "Members of the National Assembly do not consider the burden on companies. I hope they listen carefully to the pros and cons from related industries before creating regulatory bills and legislate cautiously."

The SME Ombudsman is also the only institution that can exercise the 'proactive administration immunity recommendation right' for public officials. Ombudsman Park expressed regret, saying, "Many public officials are unaware that if they contact us when unfairly disciplined while working with conviction, we can conduct reinvestigations and help them avoid disadvantages." So far, seven public officials have been relieved through the proactive administration immunity recommendation right of the SME Ombudsman. These officials were disciplined for reasons such as admitting companies into unsold industrial complexes through improper procedures, excluding environmental impact assessments for faster approvals, or hastening factory establishment approvals.

The SME Ombudsman determined that these officials took proactive administrative actions to help companies operate normally but were ultimately disadvantaged. The Ombudsman actively negotiated with metropolitan local governments, which have disciplinary authority, recommending exemption from discipline and nullifying their penalties. He said, "It makes no sense to discipline those who worked hard and achieved results on the ground, let alone promote them." He added, "While each regulatory innovation is important, I will continue efforts to remove obstacles to proactive administration."

He also raised the need to amend the Board of Audit and Inspection Act. Ombudsman Park pointed out, "Instead of audits focused solely on punishment, audits should be guidance-oriented for minor issues so that public officials can engage proactively in administration," and emphasized, "There is a need to amend the Board of Audit and Inspection Act accordingly."

- Last year, the number of regulatory difficulties discovered reached about 3,200 cases. What kinds of complaints were most common?

▲ Last year, 3,225 regulatory difficulties were identified, with location-related issues accounting for 15% (495 cases), the highest proportion. Startup-related issues were 12% (391 cases), and sales channel-related issues were third at 9% (301 cases). Due to Korea's limited land area, location regulations are stricter compared to advanced countries. Among these, industrial complex location regulations are most regretted. Visiting the field, recent industrial complexes show declining operating rates and employment compared to the past, losing vitality. The law regulates locations, and the basic management plan also regulates locations, creating a 'double positive regulation,' which is one of the causes. In corporate activities, many cases in Korea allow only what is prescribed, infringing on corporate autonomy and creativity. After COVID-19, difficulties are mostly in finance (9.9%), location (8.7%), and health (7.2%). Especially, financial difficulty reports from small-scale small business owners have more than doubled (48 cases → 110 cases), which is very unfortunate.

- What are typical cases of financial difficulty reports from small-scale small business owners?

▲ One of the most common complaints this year is requests for quick loans. Others include requests to enable loans, reduce loan interest, or inquiries about what to do when unable to repay bank borrowings due in a few days. While we want to resolve all requests, there are limits. Public institutions cannot provide loans indiscriminately. Issues such as breach of trust must be considered. The Ombudsman is working to resolve problems through institutional supplements. Currently, the situation is stable. Priority is given to easing the bottleneck so they can survive. It is regrettable that private commercial banks are not cooperating actively.

Changing Economic Environment Due to COVID-19, Now Is a New Opportunity for Regulatory Innovation

- How do you resolve so many complaints?

▲ The Small and Medium Enterprise Ombudsman Support Group consists of 41 experts who devote themselves to helping SMEs and small business owners. They specialize in resolving difficulties in 12 fields, including central ministries such as the Ministry of SMEs and Startups, Ministry of Economy and Finance, Ministry of the Interior and Safety, Ministry of Employment and Labor, Ministry of Environment; local governments such as Gyeonggi-do, Incheon, Gyeongnam; public institutions such as the Korea SMEs and Startups Agency, Industrial Bank of Korea, Korea Credit Guarantee Fund; and in-house hired master's and doctoral-level personnel.

- Despite continuous efforts by the Ombudsman to improve regulations, new regulations keep emerging. What fundamental solutions are needed?

▲ Last year, the National Assembly proposed 1,200 regulatory legislative bills, a record high, and the 20th National Assembly produced nearly 4,000 regulatory bills. While these may be necessary regulations, opinions from related industries directly affected by companies must be sufficiently heard and reflected. Especially, member-initiated legislation lacks prior regulatory impact assessments, so SMEs often learn about laws after enforcement and raise issues afterward. I believe Korea needs to introduce external expert advice or pre-review systems within the scope that does not infringe on the legislative authority of the National Assembly.

- Regulatory reform cannot be discussed without mentioning procurement market reform. Many businesspeople point out that the procurement market remains unchanged.

▲ The total procurement market size reaches 120 to 130 trillion won. Sometimes, SMEs and small merchants supplying products purchased by the Public Procurement Service claim they suffered losses in the procurement market. Complaints include that labor and material costs are set at prices from 5 to 10 years ago, despite minimum wage increases and soaring material prices, and that these situations are not reflected realistically. These difficulties were reported to the head of the Public Procurement Service, who is internally working on improvements. The Public Procurement Service temporarily doubled the amount for negotiated contracts until the end of this year. For example, a 10 billion won contract can be made for 20 billion won. When holding meetings with businesspeople on-site, almost no one knew about this. The problem is that even though the government supports this, few know about it. Please help spread this information. We are currently promoting institutional improvements with the Public Procurement Service. We expect the improved system to be reflected in reality by next year.

- How do you expect Korea's regulatory environment to change before and after COVID-19?

▲ I believe now is a perfect timing to lead the world through regulatory innovation. Although there has been much talk among experts about the Fourth Industrial Revolution, its impact on our daily lives was not significant. However, COVID-19 is restructuring our industrial structure around digital and contactless economies. Commonly called 'post-COVID,' healthcare, e-commerce, logistics are emerging as promising industries, and transitions to mobility such as personal transportation means and fintech-based financial services are accelerating. Although COVID-19 has caused hardship for many citizens, the growing consensus on the need to ease regulations could present a new opportunity for regulatory innovation.

- What are the Ombudsman's key projects and future plans this year?

▲ Above all, this year, it is crucial to resolve the difficulties of SMEs and small business owners caused by the economic shock from COVID-19. Recently, the government has been actively promoting regulatory improvements to overcome the COVID-19 economic crisis. We will do our best to ensure these improvements are implemented early on-site, conduct follow-up inspections, and carefully monitor for any blind spots so that voices from the field are reflected in policies. We also plan to actively promote improvement recommendations for SME-related regulatory issues. We will comprehensively review long-term and unacceptable tasks, form and deeply analyze the 'Public-Private Joint Regulatory Difficulty Review Committee,' and conduct improvement recommendations semiannually. Improvement recommendations will also be publicly announced so that businesspeople can tangibly feel the results of regulatory innovation. The SME Ombudsman will do its utmost to ensure that SMEs, mid-sized companies, small business owners, and self-employed individuals can tangibly experience the benefits of regulatory innovation.

This content was produced with the assistance of AI translation services.