The government’s investment promotion package announced Wednesday was, simply put, long on hope and rhetoric but short on action.
The package features a long list of measures aimed at encouraging corporate investment in new technology businesses and the service industry. But if past experience is any guide, their feasibility is very much in doubt in light of the regulatory problems involved.
The government may well focus on private-sector investment to prop up the sagging economy. With exports no longer contributing to economic growth, the government has to boost domestic demand.
But there is little room to expand government expenditure and private consumption due to the rapid increase in fiscal deficit and household debt in recent years. Support from the central bank is also hard to expect in light of the increasingly limited effect of expansionary monetary policies on buoying economic growth.
Encouraging corporate investment is therefore one of the few options the government has. The latest package, which is the ninth of its kind announced by the incumbent government since 2013, centers on emerging technology industries, new services and agriculture.
The government said the package, if implemented as planned, would encourage private companies to invest 44 trillion won ($36.4 billion) in new technology businesses alone in the next three years.
The massive investment in such emerging technologies as the Internet of Things, driverless vehicles, drones and biotechnology, is estimated to increase the country’s output by $98 billion, boost exports by $65 billion and add 415,000 new jobs to the economy.
If the projection is realized, it couldn’t be better. But its feasibility is very much in question, given the almost insurmountable regulatory barriers that frustrate innovative entrepreneurs.
Companies engaged in new technology areas frequently complain that they cannot bring their new products and services to market due to outdated regulations.
Korea’s business-related regulations generally specify the products and services that companies are allowed to produce and sell. This so-called “positive” regulatory approach hinders swift commercialization of new technologies as it prevents firms from developing new products and services not spelled out in the relevant regulations.
Aware of this problem, President Park Geun-hye told officials Wednesday to make a drastic shift to a more flexible “negative” approach, in which regulations only specify banned business activities, allowing all others.
Yet it was not the first time that Park instructed such a shift. Presiding over a meeting on deregulation in 2013, she made a similar instruction, likening unnecessary regulations to a cancer.
Despite her repeated instructions, the regulatory system has remained largely intact. One reason is that regulatory reform involves rewriting laws. In the current National Assembly, however, making laws has proven to be a time-consuming process.
As overhauling the regulatory framework is out of the question at the moment, the government said it would set up a committee to address regulatory complaints from companies.
If a company asks whether its planned new product or service falls afoul of the relevant regulations, the committee would come up with an answer within a month. The committee is obviously better than nothing, but its effect will be limited.
Outdated regulations have also been an impediment to embracing the sharing economy, an economic model in which individuals borrow or rent assets, such as rooms and cars, owned by someone else.
The investment-promotion package included a plan to foster room-sharing and car-sharing businesses in a bid to unlock the potential of the sharing economy. To cultivate such new types of business, however, the government needs to do the regulatory groundwork first.
