Why Reignite Entrepreneurship? Addressing Its Crisis and Korea’s Low Growth Challenge

Since liberation, the Korean economy has advanced through periods of rapid growth and crisis recovery, driven by a strong spirit of entrepreneurship. The industrialization of the 1970s and 1980s and the successful overcoming of the Asian financial crisis were fueled by entrepreneurs’ willingness to take risks and pursue new opportunities—ultimately elevating Korea into the ranks of the world’s top ten economies.

In recent years, however, the Korean economy has entered a phase of structurally low growth as entrepreneurship has visibly weakened. Innovative startups are declining, and even established firms are hesitating to invest, leading to a loss of overall economic vitality.

Entrepreneurship does not simply mean starting a business. It involves alertness to new opportunities (Kirzner), bold decision-making under uncertainty (Knight), and creative destruction and innovation that overturn existing structures (Schumpeter). The challenge Korea faces today is that this essential form of entrepreneurship is being suppressed by its institutional and political environment.

The regulatory framework is a prime obstacle. Korea’s regulations still rely on a “principle of prohibition with selective exceptions,” fundamentally restricting the emergence of new industries. Although discussions on shifting to a negative regulatory system have continued for years, in practice only limited and temporary exemptions are granted. A system in which innovation is impossible unless explicitly permitted by law suffocates Kirznerian entrepreneurship.

Legal and institutional uncertainty further exacerbates the problem. Even when management decisions are reasonable, executives face the risk of ex post criminal liability under laws such as breach-of-trust provisions, the Serious Accidents Punishment Act, and the so-called “Yellow Envelope Act.” When top executives must bear such extensive legal risks, entrepreneurship, investment, and risk-taking inevitably decline—leading to a broader contraction of corporate activity and economic dynamism.

The social climate also poses a challenge. Entrepreneurs continue to suffer from low social standing, and corporate success is often interpreted solely through the lens of inequality or greed. As anti-business sentiment intensifies, younger generations increasingly prefer stable employment over entrepreneurship, and creative risk-taking fades. Because entrepreneurship is not merely an individual trait but a societal culture and mindset, a fundamental shift in education, media, and politics toward a more positive view of entrepreneurship is urgently needed.

Restoring entrepreneurship therefore requires multi-layered institutional reform. Regulations should be transformed into a negative system to enhance predictability for innovation. According to the OECD’s 2023 Product Market Regulation (PMR) indicators, Korea ranked near the bottom among 38 countries—36th in government involvement in business activity and 28th in licensing and permit procedures.

Amid chronic stagnation in labor productivity, the labor market must be reformed toward job- and performance-based systems to boost productivity and enable young workers to flow into new and innovative firms. Corporate and inheritance taxes should also be eased to reduce excessive burdens and create a tax environment conducive to long-term investment.

Above all, entrepreneurship and innovation can flourish only when failure is treated as a learning opportunity and a foundation for future success, and when society is willing to invest in promising ventures. Creating an environment that allows free challenge and innovation is the most reliable way to secure Korea’s future competitiveness.

For Korea to break through the wall of low growth, now is the time to revive entrepreneurship through regulatory reform, tax reform, greater legal predictability, and a shift in social attitudes. Entrepreneurship is not merely a subset of startup support policy; it is a core value that determines the vitality and long-term sustainability of the Korean economy.

Kwang-yong Ko
Director of Policy, The Center for Free Enterprise

Korean version: https://www.cfe.org/bbs/bbsDetail.php?cid=press&pn=1&idx=28156