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[Editorial] Conditions for deregulation

Politicians, bureaucrats must change; Large businesses must not be alienated

The Moon Jae-in administration outlined regulation reforms for innovation-driven growth, but its deregulation plans are likely to end up as a mere gesture unless politicians and bureaucrats change.

It is regrettable that the deregulation road map is biased toward small venture businesses. The government must not make light of the role of large businesses in propelling industrial innovation. To raise the effectiveness of deregulation, it also needs to review its controversial economic policies.

Words like regulation reforms or deregulation are spoken each time a regime changes. Though regulations have been blamed for dragging Korea’s growth down, deregulation always meets headwinds as it becomes a political football.

According to the World Economic Forum’s Global Competitiveness Index for 2017-2018, South Korea ranked No. 95 among 137 countries in terms of “burden of government regulation.” The WEF report found that policy instability, access to financing and inefficient government bureaucracy were the three most problematic factors for doing business in the country.

Local businesspeople say more than 6,000 acts regulate doing business in Korea. The number of related ordinances is about 39,000.

The Lee Myung-bak and Park Geun-hye administrations tried to eliminate cumbersome business regulations, likening them to “an electric pole obstructing the way of trucks” or “a thorn stuck under a fingernail.” But little changed.

A case in point is a “regulation-free zone bill” intended to nurture regional strategic industries outside Seoul and its vicinity. The bill dates back to the Park administration, which proposed it together with the then ruling party. It failed to pass the National Assembly. The then opposition and current ruling Democratic Party of Korea opposed it strongly, denouncing it as unjust for giving preference to large companies, and began to work on its own version.

The Democratic Party plans to propose its bill this month with the goal of enacting it next month. It wants to keep some regulations intact from the viewpoint of “economic democratization.” But the opposition Liberty Korea Party is sticking to its guns regarding regulation-free zones. It is questionable if any compromise on the establishment of regulation-free zones will be made this time, not to mention the passage.

In this situation, the Moon administration is working on another bill to establish “regulation sandboxes” where new products and services will be exempt from regulations for certain periods until they are rolled out to the market. Its details will no doubt be a hot issue in the legislature.

“The government must find ways to help private-sector efforts for innovation despite related laws requiring regulation,” Moon told a meeting on deregulation on Monday, “It is important to guarantee that those officials who try to assist businesses should not suffer disadvantage when they are audited due to problems caused by their help.” Public officials heard remarks to that effect in past administrations, too. Considering civil servants’ tendency to play it safe, it is doubtful they are willing to take risks.

Korea Venture Business Association President Ahn Keon-joon said recently that 72 percent of Korean venture businesses are based on a business-to-business model dependent on large companies. He also said that brisk mergers and acquisitions by large companies are a necessary condition to establish an ecology for venture businesses.

Some innovation projects cannot proceed without the involvement of large companies. Self-driving electric vehicles or innovative drugs can hardly be developed or commercialized by venture businesses alone. If the government treats large businesses as predators it should combat in order to protect small businesses, an innovation ecology cannot be completed.

The Moon administration must also send consistent signals to the market. Inconsistent responses as shown in its recent policy flip-flop on cryptocurrency exchanges will only disorient deregulation.

To raise the effect of deregulation and show a consistent policy direction, the government needs to reflect on its business-unfriendly policies, such as those to increase the number of public officials, sharply raise the minimum wage, shorten working hours and push businesses into hiring outsourced workers directly.