Restoring the 'Problem-Solving' DNA of Industrial Policy [Economic Policy Zoom-In]

Current Venture Policy Delegates Screening to the Private Sector
Government Ultimately Avoids Responsibility
Industrial Policy Should Be About "Mission Completion"
We Need to Learn the "Goal-Oriented" Mindset of the Defense Industry

Jiman Su, Senior Research Fellow at the Korea Institute of Finance, is being interviewed on the 14th at the Korea Institute of Finance in Jung-gu, Seoul. Photo by Kang Jinhyung

Jiman Su, Senior Research Fellow at the Korea Institute of Finance, recently posted an article on Facebook titled "Regret Over Fund-Based Industrial Policy."

The main points are as follows. Korea has the most successful experience in establishing and implementing industrial policy, but in the current "era of industrial policy" led by advanced economies, Korea is actually failing to do it properly. In the late 1990s, the "fund-centered" policy replaced the DNA of the developmental era's industrial policy, but the problem with this is that "policy" is replaced with "screening." In a fund-centered system, processes such as applications, reviews, and evaluations-essentially "management"-become important, while the initial mission and sense of purpose behind creating the fund become less significant. The DNA required for the old-style industrial policy to function-mission-oriented problem solving, engineering approaches, and field-centered perspectives-has disappeared. Businesspeople are increasingly specializing in applying for fund reviews, prioritizing fund application consulting and PowerPoint presentations over customers and technology.

I met with Research Fellow Su to hear his explanations in person.

- You wrote that Korea is currently failing to properly implement industrial policy.

▲Advanced countries began to roll out industrial policies during the Moon Jae-in administration. However, Korea strangely did not put much effort into it. If bureaucrats had been waiting for an opportunity, they would have jumped in, saying, "Other countries are doing it, so let's do it too," but there was no one waiting for such an opportunity. I thought the Ministry of Trade, Industry and Energy had been grinding their teeth, wanting to pursue industrial policy but unable to do so because of WTO regulations and the free trade order. But it seems that was only the attitude of past bureaucrats.

- The Industrial Policy Office within the Ministry of Trade, Industry and Energy used to handle such tasks, but now it only does industry monitoring. It seems they believe "private companies know much more and in greater depth than bureaucrats," and "the government cannot do better than the private sector." The government only provides support. The officials in charge are generalists who change every one or two years.

▲Nevertheless, it is extremely important to recover the DNA of industrial policy. Industrial policy is originally about "mission clearing"-accomplishing specific missions. Now, industrial policy has been replaced by venture policy. After practicing industrial policy until the 1980s, it was replaced by venture policy in the late 1990s, and now only the inertia of venture policy remains. Industrial policy is about the government having certain missions and goals and working together with the private sector to achieve them. That kind of industrial policy DNA needs to be recreated.

- What are the problems with venture policy?

▲Venture policy involves the government creating funds, injecting capital, and matching private capital at an appropriate ratio, delegating the review process to the private sector to utilize their experience and know-how. The government steps back, but it doesn't end there-it also escapes responsibility. The focus shifts to meticulously managing the fund review procedures to ensure there are no issues in the allocation process. Recovering the DNA of industrial policy does not mean simply returning to the past, but rather going back to the basics: "The process of solving our problems together with the private sector was itself industrial policy."

- There are also concerns that restructuring in the petrochemical sector is happening too late.

▲Of course, I understand that much effort has already been made. There were attempts to change the main products of the petrochemical industry, and restructuring was carried out after the IMF crisis (the 1997 foreign exchange crisis). However, when it becomes restructuring policy rather than industrial policy, the approach becomes finance-centered. As a result, there is a recent trend of industrial policy becoming fund-oriented and financialized. It is extremely important to break away from this financial mindset. The financial mindset has become overly dominant. I believe the field-centered or problem-solving mindset of industrial policy has disappeared. This is not because someone made a mistake, but because the fund and financial mindset, under the name of innovation policy, have taken over and replaced the original approach. Recovering from this is where we need to start.

- I heard that China has studied Korea's past cases extensively. Is China implementing industrial policy well?

▲In China's case, there is a concept called "kabos," meaning "choking the neck." They designate about 20 "choke point" tasks or technologies at once, set goals, and work to solve those problems. For example, "There are several tasks currently choking our necks; how do we solve them?" This is a mission-oriented policy. We need a mindset that starts from the ground up and clears missions from the bottom up. The approach of "let's just distribute funds and see where something sprouts" is not the kind of industrial policy we need right now.

- The Lee Jae-myung administration's plan to create a 100 trillion won AI fund is similar, isn't it?

▲That's right. I am not sure whether it will produce the intended results.

- There was also the New Deal Fund during the Moon Jae-in administration, although its nature was somewhat different.

▲Ultimately, they are all funds. Civil servants only think about that. Whenever something needs to be done, their first thought is to create a fund. They have realized how convenient it is. They report the amount, and say, "We have invested this much, so we've done our part." After that, the private sector is expected to take care of the rest. Another thing about funds is that, perhaps because people have become so accustomed to venture funds, no one asks whether they succeeded. In venture capital, it's enough if two or three out of a hundred succeed, and people think it's old-fashioned to judge success based on whether the result met the original objective. The culture now is to measure performance by how much was invested and how many reviews were conducted, rather than by outcomes.

Jiman Su, Senior Research Fellow at the Korea Institute of Finance, is being interviewed on the 14th at the Korea Institute of Finance in Jung-gu, Seoul. Photo by Kang Jinhyung

- So, it seems that we are not seeing any results now. There is no information on how the New Deal Fund was used or what outcomes it produced.

▲The area where there are tangible results is the defense industry. If we are to restore the industrial policy mindset, we need to adopt the mindset of the defense industry. The mindset of the space industry or defense industry is actually what our industrial policy needs now. For example, launching the Naro rocket and succeeding, or developing a fifth-generation fighter jet with our own technology-these are goal-oriented achievements. The space industry is also said to have many problems because it has become fund-oriented, but in any case, for issues like microplastics in the environment, we need to do something concrete, no matter how small, to reduce microplastic generation and produce results. There is a very interesting example. During the COVID-19 pandemic, when there was a shortage of masks and small and medium-sized enterprises had to increase production, Samsung engineers were sent to SME mask factories to help improve processes, and production increased significantly. This is what is needed. When there is a problem, we must tackle it head-on and solve it. Even if it seems like a small issue, if it is necessary, we must devote national resources to it. This is the approach China is taking.

- Are you talking about solving current problems, rather than simply repeating past industrial policy?

▲We are no longer in the 1960s or 1970s, when we had to nurture entire industries. Now, we need to solve bottlenecks in technology or supply chains, or address socially necessary issues. For example, in the process of transitioning to low-carbon manufacturing, we are trying to address everything through funds, financial support, and carbon credits, thinking there is no other way and relying on market pressure. But instead, shouldn't we work together to solve the technological challenges? I believe we need to return to that kind of mindset.

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