Why Entrepreneurship Matters Again: The Crisis of Entrepreneurship and the Challenge of Overcoming Korea’s Low Growth

Since liberation, the Korean economy has made great leaps on the basis of strong entrepreneurship through periods of rapid growth and crisis recovery. The spirit of challenge shown by entrepreneurs during the industrialization of the 1970s and 1980s and in overcoming the foreign exchange crisis led Korea to become one of the world’s top 10 economies.

Recently, however, the weakening of entrepreneurship has become increasingly evident in the Korean economy, and low growth is becoming structural. Innovative startups are declining, and existing firms are also hesitating to invest, reducing economic vitality.

Entrepreneurship does not simply mean starting a business. Its essence lies in alertness to discovering new opportunities (Kirzner), making bold decisions under uncertainty (Knight), and carrying out the creative destruction and innovation that disrupt existing order (Schumpeter). The problem Korea faces is that this essential entrepreneurship is being suppressed by the institutional and political environment.

The regulatory environment is a prime obstacle. Korea’s regulatory system still remains in a “prohibition in principle, permission by exception” framework, fundamentally constraining the emergence of new industries. Although discussions on shifting to a negative regulatory system have continued for years, in practice only exceptional special cases are repeatedly allowed. A structure in which innovation is impossible unless it is specified in advance by law is suffocating Kirznerian entrepreneurship.

Legal and institutional uncertainty is also serious. Even when management makes rational decisions, if CEOs must later bear legal risks and responsibility under charges such as breach of trust, the Serious Accidents Punishment Act, and the Yellow Envelope Act (Revised Labor Commission Act), they become reluctant to start businesses, invest, and take risks. This ultimately leads to a contraction in overall business activity and a decline in economic dynamism.

The social atmosphere is also a problem. The social reputation of entrepreneurs remains low, and corporate achievements are often interpreted only as inequality or greed. The stronger anti-business sentiment becomes, the more the younger generation prefers stable jobs over entrepreneurship, and creative challenges disappear. Since entrepreneurship is not merely an individual trait but a culture and attitude shared by society as a whole, a shift is urgently needed across education, the media, and politics toward viewing entrepreneurship positively.

Therefore, restoring entrepreneurship requires multilayered institutional reform. Regulations should be converted to a negative system to improve the predictability of innovation. According to the results of the OECD Product Market Regulation (PMR) assessment in 2023, Korea ranked near the bottom among 38 countries, placing 36th in state involvement in business activities and 28th in licensing and permit procedures.

Amid chronic stagnation in labor productivity, the labor market must be reformed around jobs and performance to raise productivity and allow the younger generation to flow into new businesses. Corporate tax and inheritance tax should also be eased to reduce excessive burdens and create a tax environment conducive to long-term investment.

Above all, startups and innovation can be revitalized only when a culture takes root that treats failure as an opportunity for learning and a foundation for recovery, and that does not hesitate to invest in promising challenges. Creating an environment in which free challenge and innovation are possible is precisely the path to securing the future competitiveness of the Korean economy.

Today, if the Korean economy is to overcome the wall of low growth, this is the moment when entrepreneurship must be revived through regulatory innovation, tax reform, greater legal predictability, and a shift in social perceptions. Entrepreneurship is not simply a matter of startup support policy; it is a core value that determines the vitality and sustainable growth of the Korean economy.

Gwang yong Go

Policy Director, Center for Free Enterprise (CFE)

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Original title: 왜 다시 기업가정신이 필요한가?...기업가정신의 위기와 한국경제의 저성장 극복 과제

Author: Gwang yong Go

Date: 2025-10-10

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=press&idx=28156