9th Market Economy Colloquium: Fostering Entrepreneurship, a Prerequisite for Korea’s Economic Takeoff

9th Market Economy Colloquium

Date and Time: 11:00 a.m., October 17, 2025

Venue: Pureun Hall

Topic: Fostering Entrepreneurship, a Prerequisite for the Korean Economy’s Renewed Takeoff

Presenter: Sang-yeop Kim, Researcher, Center for Free Enterprise (CFE)

Discussants: Lee-seok Kim, Director of the Market Economy Research Institute; Jae-wook Ahn, Chairman of the Center for Free Enterprise (CFE); Sung-no Choi, President of the Center for Free Enterprise (CFE); Gwang yong Go, Policy Director of the Center for Free Enterprise (CFE); and three others

Fostering Entrepreneurship, a Prerequisite for the Korean Economy’s Renewed Takeoff

Sang-yeop Kim, Researcher, Center for Free Enterprise (CFE)

Theoretical Definitions of Entrepreneurship: Knight, Schumpeter, and Kirzner

Entrepreneurship is the driving force of the economy that seizes opportunities amid uncertainty and creates new combinations. At a time when low growth, demographic change, and rapid technological transition are accelerating, its importance has grown even greater. Research on entrepreneurship can broadly be organized into three strands.

First, Knight distinguished between risk and uncertainty. He viewed the entrepreneur as one who makes decisions under uncertainty and bears responsibility for them. Society differentiates roles: those who take on uncertainty and assume judgment and responsibility become entrepreneurs, while those who cautiously choose stable compensation take on wage labor. In this view, the essence of entrepreneurship lies in judgment in the face of uncertainty and the willingness to bear responsibility.

Second, Schumpeter emphasized that entrepreneurship drives economic development through creative destruction. Concrete examples of innovation appear as new combinations such as △ developing new products or new quality △ introducing new production methods △ opening new markets △ securing new sources of raw materials or components △ reorganizing firms. These ultimately accompany improvements in labor productivity. He regarded the entrepreneur’s effort and drive in leading creative destruction as entrepreneurship.

Finally, Kirzner of the Austrian school explained entrepreneurship as “alertness” to the discovery of opportunities. In markets, buyers and sellers do not possess complete information, creating gaps in prices and demand. He defined as entrepreneurs those who detect gaps unseen by others, satisfy unmet needs, and improve inefficiencies, and regarded this as entrepreneurship.

Entrepreneurship, Economic Growth, and Korea’s Institutional Constraints

The link between entrepreneurship and economic growth is clear. A Center for Free Enterprise (CFE) report (Development of a Comprehensive Entrepreneurship Index for Korea and Its Implications) measured entrepreneurship using five factors: investment, labor, production, regulation, and attitudes. The resulting entrepreneurship index showed a significant positive correlation with the economic growth rate (real GDP). In other words, the higher the index, the more startup activity and innovation there are, and the more productivity and economic growth rise together. Put differently, the level of entrepreneurship is a key indicator for gauging a country’s medium- to long-term growth capacity.

Recently, low growth has become structural in the Korean economy, entrenching weakened investment and stagnant job creation. Domestic and foreign capital alike are avoiding real investment in Korea, while startup-oriented entrepreneurship in large-scale facilities, R&D, and ventures is shrinking. Above all, anti-business sentiment and accumulated regulations have worsened the risk-reward structure of business activity, discouraging attempts and expansion. The fundamental cause lies in the weakening of entrepreneurship that opens new markets and leads innovation, which in turn reduces economic vitality and works to shrink medium- to long-term growth potential.

In Korea, the flow from attempt to learning to expansion is not smooth. Early-stage experimentation is blocked by prior regulation and fragmented administrative channels, while the cost of failure rises because rehabilitation and bankruptcy procedures are prolonged. Scale-up pathways are shallow, and the movement of talent and knowledge is constrained by taxation, limits on holding multiple positions, and technology transfer costs. As a result, rewards relative to risk fall, weakening entrepreneurship. Ultimately, combined with low growth, lower risk-adjusted returns sap the strength of entrepreneurship.

Recommendations for Enhancing Entrepreneurship

The social atmosphere matters as much as institutions. Korea needs a culture that tolerates failure and encourages trying again, reduces anti-business sentiment, and spreads awareness that innovation, jobs, and growth are interconnected. A climate that respects entrepreneurship becomes an invisible infrastructure that fosters productive entrepreneurship and suppresses unproductive behavior.

Education and talent development are the foundation of entrepreneurship. However, in Korea, experience with entrepreneurship education at the elementary and secondary levels remains limited, and learning related to startups and innovation is also restricted in universities and lifelong education, deepening avoidance of and fear toward entrepreneurship. When entrepreneurship is included in the formal curriculum and a culture is established that turns failure into a learning opportunity, young people’s willingness to start businesses and their entrepreneurial capabilities will rise substantially.

Korea’s early-stage startup rate is at a certain level, but at the scale-up stage severe constraints in funding, manpower, and institutions have led to more cases of stalled growth and relocation overseas. The key causes are an ecosystem skewed toward short-term startup support and the weakening of institutional pathways through which small and medium-sized firms and mid-sized firms can leap into large enterprises. Accordingly, growth-stage financing should be supported by revitalizing private venture capital and angel investment and by providing tax incentives, while the institutional growth ladder must be restored so that small and medium-sized firms and mid-sized firms can gain global competitiveness.

Regulatory reform should be the rule, not the exception. For new businesses, the principle should be “permit in principle, inspect afterward,” while accumulated regulations should be regularly reviewed and reduced in total volume. The more a permanent negative regulatory system is institutionalized and the more policy and taxation become consistent, the lower the threshold for early-stage experimentation and the faster the pace of innovation.

Tax reform and easing the inheritance tax are incentives for long-term investment. Excessive burdens undermine entrepreneurship and economic vitality, so the overall corporate and inheritance tax system should be rationalized, and tax benefits for R&D and investment aimed at scale-up and the opening of new markets should be designed. Korea should ease its world-leading inheritance tax burden to remove obstacles that block business succession and reinvestment.

Labor market reform means greater flexibility in performance and mobility. Compensation should be centered on job duties and performance, and friction in changing jobs and redeployment should be reduced so that workers can move quickly into more productive sectors. At the same time, lifelong education and retraining should support capability transitions, and diverse forms of employment should be allowed to increase high-quality jobs that appeal to young people. This will strengthen the ability of startup and scale-up firms to absorb talent and raise average labor productivity.

The Need for Reform to Promote Entrepreneurship

In conclusion, enhancing entrepreneurship in Korea requires comprehensive reform spanning socio-cultural norms, education, regulation, taxation, finance, and labor. Entrepreneurship goes beyond the domain of individual startup policies; it is a driver of sustainable growth and a core value that leads to social prosperity. From a long-term perspective, the government must innovate both institutions and culture so that entrepreneurship can become a central pillar of the Korean economy.

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Original title: 제9회: 기업가정신 고양, 한국 경제 재도약의 전제조건

Author: Market Economy Colloquium

Date: 2025-10-17

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=collo&pn=1&idx=28211