Korea has undertaken a series of deregulation campaigns since 1998 in its bid to accelerate recovery from the Asian financial crisis. These reform drives contributed to lowering the number of regulations and improving the business environment.
But these efforts had limits because they were aimed at relaxing regulations on a case-by-case basis. To achieve drastic improvement in deregulation, it is necessary to change the regulatory paradigm itself and push for an across-the-board elimination of the regulations that unnecessarily require licenses or permits.
In this respect, the government’s new deregulation initiative unveiled on Tuesday is a step in the right direction. The Presidential Council on National Competitiveness said the government would transform the current positive-list system for issuing licenses and permits to a negative-list one.
A positive system prohibits all activities except those that are explicitly approved, while a negative approach allows all activities except those that are specifically prohibited. Under a negative system, a person can start a business without a license or permit unless it is banned by law.
Reporting the new initiative to President Lee Myung-bak, Kang Man-soo, chairman of the council, said it is the first major attempt to “fundamentally overhaul” the nation’s licensing-permission regime since a modern legal system was introduced in Korea about 100 years ago.
The current framework is the legacy of a system brought into Korea by the Japanese colonial government. It is good for regulators and enhances administrative efficiency. But for regulated entities, many regulations are outdated and unrealistic. In this sense, a fundamental reform of the framework has long been overdue.
Regulations requiring prior licensing, permission or registration inevitably involve lengthy proceedings, which tend to raise entry barriers and increase costs for users. It deters competition by making it difficult to launch news products or services. As a result, productivity growth slows.
A negative-list approach eliminates or reduces these regulatory proceedings, thereby lowering entry barriers. It facilitates the launch of new products and services, boosting competition and spurring productivity growth. Furthermore, the enhanced transparency reduces the room for regulatory authorities to get involved in corruption.
Kang said the government intends to rewrite about 370 laws and regulations by the end of 2011 to reform the regulatory environment. Specifically, it will seek an outright abolition of the current licensing/permission systems (27 cases), introduce a negative-list system in place of a positive one (200 cases), change the present licensing/permission systems to reporting/registration formulas (15 cases), make the licensing/approval criteria more rational and transparent (22 cases), and simplify the present procedures for licensing, permission, reporting and registration (109 cases).
To attain the desired results, the government needs to push the project systematically, based on firm support from the public as well as political parties. More importantly, it needs to change the mindset of government officials who enforce regulations.
If completed as planned, the new deregulation campaign will help reduce the regulatory burden on businessmen, lower entry barriers and stimulate competition, encourage investment in innovative activities, and create more jobs. To reap better results, the government needs to promote the project with more consistent commitment.