Professor Kim Hong-ki, who led the Korean Economic Association and teaches at Hannam University, advised that 'supporting innovation and listing policies based on the selective capabilities of the private sector' is necessary to overcome the low growth and income disparity issues in the Korean economy. He suggested that policies such as startup subsidies are preventing the exit of low-productivity corporations from the market, negatively impacting South Korea's economic growth.
On the 6th, Professor Kim stated this during his keynote speech titled 'Challenges for Small and Medium Enterprises for Future Growth of Korea' at the first plenary session of the '2025 Joint Academic Conference on Economics' held at Hannam University in Daeduck.
Professor Kim emphasized, 'Korea is facing a crisis of falling from a country with the highest growth rate to one with the most rapid decline in growth rate.' According to the Korea Development Institute (KDI) and the Bank of Korea, the Korean economy is projected to record a growth rate in the 0% range before 2050.
The contribution of total factor productivity (TFP) to the average growth rate from 1991 to 2000 (7.2%) was 2.3 percentage points, while during the average growth rate from 2011 to 2019 (2.9%), the TFP contribution was only 0.7 percentage points. TFP refers to the efficiency of various production factors such as labor, capital, and land.
Professor Kim noted, 'Although the productivity of the manufacturing sector is above the average of the Organisation for Economic Co-operation and Development (OECD), the productivity of the service sector is significantly lower than the OECD average.' He stated, 'Service sector productivity is at 66% of the G7's and 74.1% of the OECD average.'
As of 2022, small and medium enterprises account for 99.9% of the total 8.05 million corporations in South Korea. Furthermore, the proportion of workers in small and medium enterprises reaches 81.0% based on the total number of employees (18.95 million).
In particular, the proportion of micro service corporations (with fewer than 4 employees) is high, but their low productivity has been cited as a reason for the decline in South Korea's economic productivity. According to the Korea Productivity Center, the share of micro service corporations in total enterprises reached 87.6% last year. However, the labor productivity of these corporations was found to be 31% that of corporations with more than 100 employees.
The productivity of micro service corporations showed a low level compared to advanced countries. As of 2023, the overall service productivity in Korea was less than 80% of the OECD service productivity average.
Additionally, the productivity of young advanced technology corporations has been found to be declining recently. The TFP growth rate of manufacturing corporations less than 10 years old exceeded 15% from 1995 to 1999 but dropped to about -5% from 2010 to 2014 and around 5% from 2015 to 2018.
Professor Kim criticized the government, noting that despite providing substantial support for small and medium enterprises' research and development (R&D), the outcomes are low compared to the investment.
According to data from Kim Sun-woo, head of the Small and Venture Technology Innovation Policy Research Center at the Science and Technology Policy Institute, the proportion of small and medium enterprises engaging in innovation activities among all corporations was 42.5% in 2022, but the share of firms achieving market-first innovations was only 1.5%.
Professor Kim stated, 'If Korea raises the productivity of the service sector to about 85%, which is the OECD average compared to the manufacturing sector, per capita gross domestic product (GDP) will increase by around 60%.' He added, 'Moreover, if the productivity of small and medium enterprises is brought up to the OECD average level of about 50%, per capita GDP will rise by around 40%.'
He further stressed the need for scale-up through the creation of a healthy ecosystem for small and medium enterprises and improvement of their dynamism, stating that 'support for small and medium enterprises must be carefully considered to be selective.'