Business Innovation Depends on Policy Reform

This is an era that requires “growth through innovation.” Companies that succeed in innovation that raises productivity expand their markets further and generate more profit than those that do not. Through new production methods, market development, and other advances beyond the status quo, firms can move a step forward. Such innovation enables companies to secure distinctive competitive advantages. It also allows them to further improve growth potential and profitability.

Recently, the vitality of our corporate economy has shown a noticeable decline. This is because innovation and productivity improvement within firms are not being properly achieved. As a result, not only has the growth potential of existing companies weakened, but the economy has also continued to suffer from a lack of new business creation.

Our companies are repeatedly losing market share to rival firms not only in global markets but also in the domestic market. Many of our companies have failed to raise productivity and are stuck in stagnant growth. This means that firms are not simply “maintaining the status quo”; in reality, they are falling behind their competitors. Unlike us, where things remain stagnant, firms in developing countries are efficiently benchmarking advanced-country companies and rapidly narrowing the gap.

The only way to build businesses and create jobs in underdeveloped sectors is to raise productivity in those sectors. The economic actor best able to do this is the “firm.” That is why corporatization is necessary and why business investment is needed. In sectors where investment conditions are in place, firms should naturally now be demonstrating the “entrepreneurship” that brings about innovation.

The problem, however, lies with firms in underdeveloped sectors where the conditions for investment are not in place. To raise productivity in these sectors, capital investment must be possible above all else. Only then can new forms of business organization that make innovation possible emerge. Only then can modernization be achieved. Here, modernization also means raising productivity in those sectors to international levels.

Unfortunately, outdated regulations that fail to keep pace with the trends of the times still surround our businesses. These regulations are blocking corporate investment. At present, companies are in a situation where they want to invest but cannot. That is because there are simply too many regulations, and overlapping regulations are suppressing business activity.

Now government business policy, too, must boldly break away from the old paradigm. The old method of the government managing and supporting businesses is no longer sufficient. The time has come to modernize the regulatory approach as quickly as possible so that firms can lead new innovation in the market.

The old approach, in which the government controls corporate investment and competition, is no longer effective. Now the direction of government business policy should be actively shifted toward protecting corporate investment and competition. The core of such a “pro-competition” business policy is also to create an environment in which innovative business activity and venture business activity can flourish.

In other words, from now on, the focus of government business policy should not be on protecting vested interests, privileges, or existing firms, but on protecting competition among firms. Only under such competition-oriented policies can firms finally demonstrate the innovation that raises productivity.

Sung-no Choi

Vice President, Center for Free Enterprise (CFE)

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Original title: 정책 혁신에 기업 혁신 달렸다

Author: Sung-no Choi

Date: 2017-10-15

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=press&pn=27&idx=10742