Cut SME Support and Eliminate Regulations on Large Firms

The practice of supporting or regulating companies differently based on their size is undermining the dynamism of our society. Because support policies are expanded for small and medium-sized enterprises simply because they are small, while regulations are strengthened for large corporations simply because they are large, the corporate economy is losing vitality and showing weak growth. Policies that discriminate against firms based on size need to be abolished.

Depending on consumer demand and market conditions, a company may grow larger or become smaller. Regardless of size, a company is simply a producer and supplier. There is no reason to support or regulate businesses differently on the basis of the criterion of “size.”

When the government implements discriminatory policies based on firm size, companies try to remain small and avoid becoming or staying large. This leads to lower productivity and lower wage levels. Furthermore, it reduces employment and creates broader social harm. The low share of large corporations in Korea is the result of such discriminatory policies, and this has weakened our growth engine.

When one listens to the justification for discriminatory regulation, the claim often made is that “small firms are the socially disadvantaged.” It is wrong to divide companies into the weak and the strong according to size. Whether large or small, firms are simply suppliers competing for consumers. The term “socially disadvantaged” should be used for citizens, not for businesses.

People who are in difficult circumstances and unable to support themselves may be the subject of welfare, but companies should not become objects of welfare simply because they are struggling. The labor, capital, land, technology, and other resources within firms are resources that should be able to combine in more efficient ways. It is better for the market to decide through what kind of business structure productivity and income can best be generated.

The very act of setting standards for whether a company is small or large is itself arbitrary and subjective. Depending on the size of the market, only large firms may exist; if the market is small, only small and medium-sized firms may exist. This is because the issue is what scale is needed to establish the most efficient supply system.

Discriminatory policies that hinder investment aimed at finding efficient methods only weaken corporate competitiveness. Firms that ignore this reality end up being forced out of the market or surviving only on government subsidies.

The policy goals and instruments of the Ministry of SMEs and Startups must be changed. Policy objectives should be revised so that small and medium-sized enterprises can secure competitiveness, make a leap forward, and develop.

We must move away from a system in which firms receive support simply because they are small. Policies that support SMEs should be abolished, and support should be maintained only for firms that demonstrate results in strengthening competitiveness. If SMEs become complacent under support policies and fail to secure competitiveness, that support should be cut off.

The government agency whose main task has been regulating large corporations is the Fair Trade Commission. The Fair Trade Commission must now make competition policy its central role. The practice of blocking corporate competition and undermining the dynamism of our society through regulation of large firms must come to an end.

Because the Fair Trade Commission arbitrarily sets size thresholds and places shackles on businesses, SMEs are reluctant to become large corporations, halt investment, split themselves up, or move overseas. It can contribute to our society only by becoming a government body that promotes stronger competitiveness through encouraging competition, rather than acting as a regulatory authority.

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

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Original title: 중소기업 지원 줄이고 대기업 규제 폐지해야

Author: Sung-no Choi

Date: 2023-08-20

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=press&idx=25951