[Smart Economics] What Makes a Great Power

A Country That Is Good for Doing Business Becomes an Economic Powerhouse

Economic growth has always been led by businesses. When business activity is vibrant, the lives of the people who make up that society improve, and the nation prospers as well. Byeongrak Song, emeritus professor of economics at Seoul National University, presented the following four basic conditions for becoming a top-tier advanced country. First, a country that innovates weapons and strengthens its “military power” leads other countries. Second, a country with abundant money that innovates its “international financial know-how” leads other countries. Third, a country that innovates products and business activity and strengthens its “economic power” leads other countries. Fourth, a country that innovates cultural products and strengthens its “cultural power” leads other countries.

Professor Emeritus Byeongrak Song explains, “A country that ranks first in the world in these four areas leads the world. And since all of these are achieved through the growth and development of businesses, the importance of business can never be overemphasized.”

Sweden, Where No More Large Corporations Are Being Created

So how can we increase the number of businesses that develop a country and benefit all members of society? The answer is simple: create a country where it is easy to do business. If a favorable business environment is provided, companies will naturally be created and grow without anyone having to order or direct them to do so. Sweden is a small country with a population of less than 10 million, but under a free market economy it produced many global companies, such as the world-renowned automakers Volvo and Saab, electronics company Ericsson, home appliance maker Electrolux, and truck manufacturer Scania. However, after a socialist government came to power, its economic structure changed into one in which no new large corporations emerged.

There was also a time when many large corporations emerged in Korea. Entrepreneurial passion to build companies into large corporations was overflowing, and the media and government praised growing large firms and tried to provide them with more business opportunities. Naturally, companies challenged themselves continuously in pursuit of growth, invested generously in recruiting talent to expand into new businesses, and grew into large corporations. Then, competing freely on the global stage, they rose into global companies.

But as regulations on large corporations increased and protection and benefits for small and medium-sized enterprises expanded, companies aspiring to grow into large corporations gradually disappeared. Excessive policies protecting SMEs produced a flood of small and medium-sized firms afflicted with the “Peter Pan syndrome,” seeking to rely only on government benefits and support. On top of that, deeply rooted anti-capitalist and anti-business sentiment throughout society created countless regulations on and envy toward large corporations, putting the brakes on their growth. At the same time, even SMEs with ample potential for growth came to settle for the status quo rather than pursue fierce challenges and expansion.

In such a social environment, what company could vigorously carry out business activities? In that context, it was highly significant that Nexon, one of Korea’s leading game companies, placed its parent company in Japan rather than Korea and listed on the Japanese stock market. To quote a Nexon official, “Nexon earns close to 70% of its sales overseas,” and “since it is no longer a domestic-market company, it needs to actively pursue overseas mergers and acquisitions in order to become a global game company.” However, contrary to Nexon’s official position, the prevailing view is that Korea’s regulations on the gaming industry are simply too severe, making Japan far more advantageous than Korea for Nexon’s gaming business.

Nexon’s Listing in Japan…Effectively Losing a Company with Annual Sales in the 2 Trillion Won Range

From a national standpoint, Nexon’s listing on the Japanese stock market was a very large loss. According to sales figures released by Nexon’s Japanese headquarters, its revenue increased from 172.9 billion yen (1.6391 trillion won) in 2014 to 248.5 billion yen (2.684 trillion won) in 2019. Its net profit in 2019 exceeded 1 trillion won. By listing on the Japanese stock market, Korea effectively lost a game company with annual sales reaching the 2 trillion won range.

To emphasize again, countries that did not spare institutional support for free competition among businesses produced many strong companies. In other words, countries with many firms that succeeded through competition in the market became powerful nations, and even after becoming powerful and reaching high income levels, they did not necessarily enter a path of low growth. A clear example is Singapore. Singapore has already joined the ranks of advanced countries, yet it continues to post high growth. This is thanks to institutions faithful to the market economy that have attracted new investment. Even now, foreign capital is pouring into Singapore—at a scale several times larger than the funds invested in Korea.

Korea also has a successful, though smaller-scale, example: Jeju Island. By designating Jeju as the Jeju Free International City and improving the investment environment, foreign investment capital flowed in and drove rapid growth. As this shows, the key to success is which country creates a more market-friendly environment. The world has already seen the barrier of national borders collapse, and depending on which country creates a better environment for doing business and investing, it can achieve high growth and significantly improve the quality of its people’s lives.

Therefore, if Korean society is to stop losing Korea’s good companies and achieve sustainable economic growth, it must above all strive to create a favorable business environment. Only a country that is good for doing business can achieve economic growth. Let us remember that if the Korean economy is to shake off the crisis it now faces and make a further leap forward, it must create a business environment in which companies can operate freely, and companies in turn must enhance their competitiveness through competition with one another.

▲ Please remember

How can we increase the number of businesses that develop a country and benefit all members of society? The answer is simple: create a country where it is easy to do business. If a favorable business environment is provided, companies will naturally be created and grow without anyone having to order or direct them to do so.

Sung-no Choi, President of the Center for Free Enterprise (CFE)

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Original title: [스마트 경제 읽기] 강대국의 조건

Author: Sung-no Choi

Date: 2020-11-30

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=column&pn=5&idx=23269