[Asia Exclusive] "The Era of Supporting Specific Industries with Technology, Finance, and Workforce Is Over... It's Time to Invest in People"

Perception Grows That Protection-Focused SME Support Is Ineffective
Major Shift in SME Support Policies
In the Converged Core of the 4th Industrial Revolution Era
Human Capital Has the Highest Growth Potential

Generation Z to Lead the Economy for the Next 20 Years
Income and Tax Deductions Provide Little Real Help
Military Pay Raise May Negatively Impact SMEs
Shock Expected as It Matches Entry-Level SME Wages

Creating Quality Jobs Through Ventures and Startups
Urgent Need to Address Risk Outsourcing and Subcontracting Issues
Guidance-Focused Approach Over Punishment for Serious Accident Act Enforcement

Odongyun, President of the Small and Medium Venture Business Research Institute, is speaking in a recent interview with Asia Economy held in Gwanghwamun, Seoul.

[Interview with Kim Min-jin, Director of the Ministry of SMEs and Startups, Organized by Reporter Choi Dong-hyun] The presidential election is just two weeks away. Traditionally, issues related to small and medium-sized enterprises (SMEs) tend to gain significant attention during election seasons. This is because SMEs account for 96% of our economy and are responsible for 83% of employment, forming the backbone of our economy. In the 17th presidential election, the focus was on ‘co-growth between large and small businesses,’ in the 18th it was ‘economic democratization,’ and in the 19th, the establishment of the Ministry of SMEs and Startups was a major agenda.

However, in this election, there seems to be no significant keyword regarding support and development of SMEs. Issues related to small business support, whether 50 trillion won or 100 trillion won, are acting like a black hole, swallowing up SME-related issues.

So, what SME development policies should presidential candidates from both ruling and opposition parties definitely pay attention to? Oh Dong-yoon, President of the Korea Institute for Small and Medium Enterprises and Startups (KISME), recently said in an interview with Asia Economy held in Gwanghwamun, Seoul, "SME policies should no longer be centered on production factors (land, labor, capital) but on people." He pointed out that "a major challenge facing SMEs is what kind of future vision will be presented to Generation Z (born mid-1990s to early 2000s), who will influence our economy for the next 20 years."

-There is criticism that SME policies in this election lack concreteness compared to the past.

△SMEs have always been a major issue in presidential elections, and during the 8th constitutional amendment in 1980, ‘protection and promotion’ was codified in the constitution, leading to numerous SME support policies over the past 40 years. However, because the approach was always from the perspective of protection, there were limitations. Despite increased SME subsidies and policies, negative perceptions have accumulated that their effects are not significant. The younger generation is also not generous about supporting SMEs with their own taxes. SME policy is now at a major turning point.

-How would you evaluate Korean SME policies from the past to the present?

△Korea’s economic growth has been possible thanks to efficient industrial policies. The government chose industries on behalf of the market and companies and concentrated production factors in those industries. Electronics, real estate, and automobiles are representative examples. SME policies were not much different. They mainly involved inputting production factors such as technology, finance, and manpower.

While these policies were very effective, they also caused many problems. Since they were mainly centered on large corporations, side effects such as the gap between large and small businesses, economic inequality, and social division emerged. It also became difficult to find the next industry to follow automobiles, shipbuilding, and semiconductors. In the era of the 4th Industrial Revolution, where convergence and fusion are key, it is difficult to focus on a single industry or specific large company. Industrial policies that focus on what to produce no longer hold value.

-Are the structural limitations of our economy reflected in figures as well?

△In 2019, South Korea’s real GDP growth rate was 2.2%. Since GDP statistics began in 1953, there have only been five times when the growth rate was lower. These were 1956 (0.6%) during political instability when former President Syngman Rhee won a third term, 1980 (-1.6%) during the Gwangju Democratization Movement, 1998 (-5.1%) during the foreign exchange crisis, 2009 (0.8%) during the global financial crisis, and 2020 (-0.9%) during the COVID-19 pandemic. While recessions during major crises are understandable, 2019 was before COVID-19 occurred. It was a kind of signal that our economy was facing limits. Although in-depth discussions were needed, the issue was swept away by the COVID-19 situation.

-How should SME policies change going forward?

△They should be centered on people, not production factors. Entrepreneurs, workers, and small business owners are the targets. In an era requiring innovation through the 4th Industrial Revolution and transition, convergence ability and creativity can only come from people. Human capital has the highest growth potential in terms of mobility, speed, and infinity.

-If people are important, attracting young talent to SMEs must also be important.

△Generation Z has now reached the stage of knocking on the doors of SMEs through employment. However, there are concerns about whether our SMEs can properly understand and respond to their characteristics. Government policies for them tend to be narrowly focused on income or tax credits.

For example, recently, politicians have been competing to pledge ‘soldier salaries above 2 million won.’ This could negatively affect the SME job market. The average income in SMEs is 2.45 million won, but after taxes, it is just over 2 million won. If soldier salaries rise sharply, when Generation Z enters society after military service, the wage gap they feel with SMEs will be significant. This could have a greater impact on SMEs than the minimum wage increase.

-How can jobs that Generation Z desires be created?

△Ventures and startups can be an alternative. Ventures and startups provide challenging and growth-oriented quality jobs that the new generation desires. Even during the COVID-19 situation, the employment growth rate of ventures and startups was 10.2%, three times that of all companies (3.4%). Venture investment, which was about 2 trillion won annually before 2017, surpassed 5 trillion won for the first time in the third quarter of last year. The venture and startup ecosystem has firmly established itself as the ‘second venture boom.’

There is also a need for strategic partnerships between traditional manufacturing and ventures/startups. Traditional small manufacturing companies have stable distribution and sales networks, while ventures and startups have the latest technologies. Encouraging partnerships between them could solve problems that were difficult to address in traditional manufacturing.

-What policy causes the greatest pain to SMEs and must be improved?

△The subcontracting issue. In the Hyundai Development Company accident, it was found that cost-cutting through subcontracting led to the use of unskilled foreign workers, which created conditions for accidents. This is just one example. Large companies commonly outsource risky tasks to subcontractor workers and others, a phenomenon known as ‘risk outsourcing.’ SMEs, which lack financial resources due to the principal-subcontractor structure, find it difficult to actively invest in safety costs. For small subcontractors, safety management costs themselves are a heavy burden.

-How do you evaluate the Serious Accident Punishment Act, which was enacted last month?

△For SMEs, the imprisonment of business owners could collapse management systems. Since 99% of SMEs are owner-led, imprisonment of business owners could make it more difficult to analyze accident causes and prepare recurrence prevention measures. This contradicts the law’s purpose of preventing industrial accidents. While the need to prevent serious accidents is agreed upon, the level of punishment is excessive compared to major foreign countries. Instead of punishment, guidance focused on education should be provided on-site with preparation time.

About Oh Dong-yoon

▲Cheongju, Chungbuk ▲Economics at University of Hawaii, USA · Chinese Economics at Hankuk University of Foreign Studies (Master’s) · Economics at Sungkyunkwan University (Ph.D.) ▲2004 Researcher at Northeast Asia and China teams, Korea Institute for International Economic Policy ▲2006 Research Fellow at International Economics Office, Korea Institute for Small and Medium Enterprises (now KISME) ▲Associate Professor, Department of Economics, Dong-A University ▲President of Korea Institute for Small and Medium Enterprises and Startups (current)

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