Business Is the Foundation of the Nation: More Large Firms Raise Income Levels

There was a time when people proclaimed that “agriculture is the foundation of the nation,” but today, no matter what anyone says, this is the age in which “business is the foundation of the nation.” A business is the embodiment of capital and a group that pursues profit. To pursue profit, “people, know-how, and money” must work in harmony. Businesses have evolved in a way that generates profits by maximizing productivity through the combination of technology, people, and money.

Businesses have grown in forms best suited to deploying capital, and they have continuously restructured themselves to fit changing realities. They have not remained fixed in a single form, but have developed by constantly reconfiguring themselves. Managers have identified which areas to supplement in order to raise productivity and further improve profitability, and they have made those improvements.

Businesses need autonomy and a flexible environment in which they can change themselves. Only then can people, technology, and money adapt to reality as circumstances change. The more capital evolves into its most advanced form and is effectively utilized, the greater its value and the larger the social benefits.

Highly profitable businesses naturally provide high-income jobs, which in turn raises overall income levels and welfare. It is deeply regrettable that Korea has become an environment in which highly profitable large corporations can no longer emerge.

If large corporations are not emerging, it is because competition has been blocked, because there is excessive control, or because the system is flawed. In short, it means capital accumulation has become difficult. Regulations must be eased so that capital can be invested; only then will large corporations emerge and high-income jobs be created.

One of Korea’s strengths used to be the number of global companies it had. But instead of taking pride in global companies, the country has become one in which large corporations no longer emerge, due to the “chaebol” frame and anti-business policies.

Since the late 1990s, the share of large corporations has dropped sharply, widening the gap with advanced countries. In the United States and the United Kingdom, 40% of employment is in large corporations. In Japan, 20% of workers are employed by large corporations. In Korea, only about 10% belong to large corporations.

In the past, when Korea’s large corporations were growing into global companies, 20% of workers were employed by large corporations. During the foreign exchange crisis, the dismantling of chaebol groups led to the share of workers employed by large corporations falling to around 10% of the total. As stable jobs offering high earnings declined, workers’ lives have in some respects become more precarious.

Since the IMF crisis, no new large corporations have emerged in Korea. Some large corporations were dismantled during the IMF crisis, but afterward institutional disadvantages were also imposed on large corporations. Meanwhile, policies supporting firms that remained small and medium-sized were strengthened.

Korea must quickly abolish its policies of suppressing large corporations and supporting small and medium-sized enterprises. Compared with other countries, Korea’s policies restraining large corporations are so excessive that companies capable of making the leap to become large corporations remain as SMEs. As a result, when SMEs grow in size, they choose to sell the company, split it into smaller pieces, or relocate overseas. This causes enormous social losses. Rather than becoming more capitalized and using capital more efficiently, Korea repeatedly prevents capital from growing any further. This phenomenon leaves Korea behind in global competition.

There is no need to favor either large corporations or SMEs. If firms are allowed to compete, become capitalized, and make full use of capital regardless of their size, good results will follow naturally. Regulations on large corporations and support for SMEs should both be eliminated. Whether a company is large or small is irrelevant. Firms should be allowed to grow on their own through free competition in the market.

Above all, venture businesses must be able to mobilize capital quickly. When a new company is created, capital must be injected immediately for it to develop. Venture business is something undertaken by everyone, whether large corporations, SMEs, or startups. The economy must be made flexible so that capital can flow smoothly without obstruction.

There are also companies that cannot change. In such cases, they should be naturally weeded out by the market so that winning firms can grow even larger. They should not be artificially kept alive through intervention. The resources of failed firms should be absorbed into new venture businesses. It is socially harmful when things that ought to disappear remain and wander about like zombies.

We must not assume that capital formed somewhere must last forever and play only its existing role. Capital and labor must be fused and combined in new ways. It is desirable for businesses—the embodiment of capital—to respond flexibly to change, engage in new businesses, or transform into new forms.

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

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Original title: 기업천하지대본, 대기업 많아져야 소득수준 올라간다

Author: Sung-no Choi

Date: 2023-09-01

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=column&pn=3&idx=25991