Korea’s Economy and Large Corporations: For a Sustainable Ecosystem

Summary

In the Korean economy, large corporations have been the core engine of growth and must continue to be so. Deep-rooted anti-business sentiment in Korean society and the accumulation of regulations not only constrain the competitiveness of large corporations but also block the very emergence of new ones. In an institutional environment where the regulatory burden rises sharply as firms grow and benefits disappear, it becomes a rational choice for small and medium-sized enterprises and mid-sized firms to avoid growth. The real problem in the Korean economy is not that there are too many large corporations, but that new large corporations are not emerging. A sustainable industrial ecosystem is not built by suppressing large corporations. Its foundation can only be a free competitive order in which growth and innovation are rewarded.

In the growth history of the Korean economy, the role of large corporations has been overwhelming. Since the 1960s, it was large corporations that stood at the forefront of export-led industrialization, and industries in which Korea has secured a presence in the global market—such as semiconductors, automobiles, shipbuilding, steel, and chemicals—have all been led by large corporations. By introducing technology, cultivating talent, and competing in global markets, large corporations changed the very weight class of the Korean economy. Considering the foreign exchange earned through exports, the jobs created, the taxes paid, and the spillover effects across industry including subcontractors and partner firms, a Korean economy without large corporations is inconceivable.

Debate over large corporations has been governed more by political framing than by economic facts. Slogans such as economic democratization, chaebol reform, and curbing the concentration of economic power repeatedly appear, and large corporations have been treated as though they carry an original sin rather than contribute to the national economy. When large corporations grow, they are identified as the main culprit behind inequality; when they increase investment, they are criticized for “octopus-like” expansion; when they earn profits, they are suspected of reaping monopoly rents. On the basis of this anti-business sentiment, regulations have accumulated, and politicians competitively pledge tougher regulation of large corporations at every election. A structure has become entrenched in which policy toward large corporations is driven more by political logic than by economic rationality. The essence of the debate surrounding large corporations is not a matter of being for or against them. It is a question of what kind of growth ecosystem the Korean economy will build going forward, and whether that ecosystem will encourage or suppress corporate growth.

The Longstanding Illusion in the Debate over Large Corporations

The claim that large corporations are the cause of inequality is treated almost as common sense in Korean society, but its logic deserves closer scrutiny. Wage gaps and productivity gaps between large corporations and SMEs certainly do exist. But to locate the cause of those gaps in the mere existence of large corporations is to reverse causality. Large corporations pay higher wages and achieve higher productivity because those are outcomes earned through market competition. The low productivity and wages of SMEs are not mainly the result of being deprived by large corporations, but largely stem from SMEs’ own lack of innovation, small scale, and management practices complacent under protection. Suppressing large corporations does not raise the productivity of SMEs.

There is a more fundamental question. Is the problem of the Korean economy that there are too many large corporations, or that not enough new large corporations are emerging? The answer is closer to the latter. Since the business groups that grew during the early industrialization period, the pace at which new global companies have appeared has clearly slowed. The real reason the market dominance of large corporations appears entrenched is that the environment does not allow new challengers to emerge. New large corporations must continue to appear so that existing large corporations also face competitive pressure, thereby raising innovation and productivity across the market as a whole. Yet Korea’s institutional environment is designed in the opposite direction. It does not help firms grow; it penalizes them for doing so.

The claim that regulating chaebol and large corporations enhances fairness is also based on illusion. Measures to curb the concentration of economic power, improve corporate governance, and strengthen fair trade regulation each have their stated justification, but as regulation accumulates, corporate managerial autonomy is eroded. In a structure where the government and regulatory agencies effectively decide, rather than the market, which businesses firms may enter, where they may invest, and how they may restructure, entrepreneurship inevitably contracts. Good intentions behind regulation do not guarantee good results. Government failure in regulation can inflict harm broader and more lasting than market failure.

The Paradox of Firms That Do Not Want to Grow

One of the most serious yet most overlooked problems in the Korean economy is the stagnation in the growth of SMEs and mid-sized firms. In Korea, SMEs account for an overwhelming majority of all firms, but among them, only an extremely small number grow into mid-sized firms and then into large corporations. To explain this phenomenon solely as a lack of entrepreneurship misses the essence of the problem. The true cause lies in the system.

A low share of large corporations means that the vast majority of workers remain in SMEs, where wages are relatively low and employment is unstable. Large corporations have the capacity to provide systematic personnel management, stable employment conditions, and generous benefits, whereas SMEs are often vulnerable to business fluctuations and offer lower-quality employment. Ultimately, if employment stability and quality of life for workers are to improve, the number and share of large corporations themselves must increase. This problem cannot be solved by regulating existing large corporations. Only when more firms grow into large corporations will more quality jobs be created and workers have more choices.

Under Korea’s institutional structure, the regulatory burden rises sharply as firm size increases. Tax benefits, financial support, preferential treatment in public procurement, and various policy support measures available to SMEs disappear the moment a firm exceeds a certain size. By contrast, once classified as a large corporation, it simultaneously faces regulations on the concentration of economic power, fair trade regulations, corporate governance regulations, and additional tax burdens. From the standpoint of a firm, the benefits gained from expanding in scale are outweighed by the benefits lost and the new costs imposed. In such an environment, avoiding growth is not a passive attitude but a rational response induced by the system.

This is the essence of the Peter Pan syndrome. It is not that firms refuse to grow; rather, under a system in which growth is punished, they choose not to grow. It is contradictory to call on entrepreneurs to embrace a spirit of challenge while at the same time imposing regulation and disadvantages as the price of growth. If the disadvantages surge the moment a firm becomes a large corporation, while protection and benefits are excessively maintained as long as it remains an SME, what entrepreneur would choose growth?

SME protection policies should be reconsidered in the same context. The original purpose of protection was to provide temporary support until SMEs became competitive. But as protection has been prolonged and entrenched, protection itself has become the objective. Measures such as designating industries suitable for SMEs, restricting the business areas of large corporations, and regulating subcontract prices may appear to protect SMEs in the short term, but in the long run they weaken incentives for innovation and strengthen incentives to remain within the shelter of protection. The longer protection lasts, the more protected firms lose competitiveness and become structurally unable to survive in the market once they leave that protective framework. This does not help SMEs; it confines them.

Under this structure, the industrial ecosystem hardens into a binary division between large corporations and SMEs, while the layer of mid-sized firms—the waist of the economy—remains thin. A healthy industrial ecosystem requires a thick layer of mid-sized firms with their own technologies and markets between large corporations and SMEs, but in Korea this middle zone is structurally hollow. This impoverishment of the middle is a product of the system.

The Dilemma of Global Firms and a Regulatory State

The Korean economy faces three tasks at once. It must maintain and foster globally competitive firms capable of competing in world markets; it cannot neglect the problems of low-productivity SMEs and workers in non-regular employment and very small workplaces at home; and it must respond to a rapidly changing international environment shaped by U.S.-China strategic rivalry, supply chain restructuring, competition for technological supremacy, and carbon regulation. All three tasks are important, but they require policy directions that differ from one another, and there is no simple solution that sacrifices one for another.

The problem is that Korea’s policy orientation has flowed not toward confronting these three tasks head-on, but toward the most politically convenient direction. To maintain the competitiveness of global firms, autonomous corporate decision-making, rapid investment, and flexible workforce management are essential. Yet in domestic politics, the expansion of large corporations into new business areas is criticized as octopus-like management, investment decisions are subjected to political pressure, and efforts to increase labor flexibility are portrayed as worker exploitation. Caught between the realities of global competition and the logic of domestic politics, firms are under pressure from both sides.

Changes in the international environment deepen this dilemma further. Amid U.S.-China strategic rivalry, Korea’s large corporations are deeply tied to both markets, and the pressure to choose one side is mounting. Supply chain restructuring imposes the burden of reorganizing existing cost-efficient production systems, while carbon regulation and technology controls add new costs and constraints. In such an environment, what firms need is managerial autonomy and institutional predictability. Regulatory swings that tighten and loosen according to the electoral cycle, policy directions that change from one administration to another, and an institutional environment shaken by political winds all discourage long-term investment and undermine confidence in the system.

The emergence of global firms cannot be ensured simply by protecting a few existing large corporations. New firms must be able to enter the market under low entry barriers, grow through innovation and investment, and compete with incumbent leaders in global markets. New large corporations must emerge so that existing large corporations also continue innovating under competitive pressure. In a market where no new challengers appear, incumbent firms lose the incentive to innovate, and the entire industry falls into stagnation. Competition does not threaten firms; it is the mechanism that keeps them alive.

Conditions for a Sustainable Ecosystem

A sustainable industrial ecosystem is not created by government design. It arises spontaneously in the market. The role of government is not to protect some firms or suppress others. What government should do is create the institutional foundation for firms to compete and grow freely. The view that seeks the Korean economy’s problems in the existence of large corporations is mistaken. The real problem is a structure in which new large corporations cannot emerge and SMEs and mid-sized firms avoid growth. Unless this structure is changed, no industrial policy can provide a fundamental solution.

The dichotomous institutional design that divides protection and regulation by firm size must first be fundamentally reconsidered. In a structure where the regulatory burden rises sharply as firms grow and existing benefits disappear, it is only natural that maintaining the status quo becomes a more rational choice than growth. The principle that the system must not punish growth is not preferential treatment for large corporations. It means creating an environment in which investment, innovation, and job creation are rewarded regardless of firm size. Taxation and regulation should apply continuously across stages of corporate growth; a system that imposes discontinuous disadvantages the moment a firm surpasses a certain size runs against market principles.

Autonomous corporate restructuring is also a key condition of the ecosystem. When the market environment changes, it is a natural management activity for firms to reorganize their businesses and eliminate inefficiencies. But in Korea, political resistance to restructuring is strong, labor adjustment is inflexible, and the regulatory costs accompanying business reorganization are high. The more the government intervenes in and delays corporate restructuring, the more inefficiencies accumulate, eventually resulting in a crisis on a larger scale. Allowing firms to evolve on their own is, in the long run, the way to save both firms and the economy.

Labor market rigidity, the declining international competitiveness of the tax system, and the unpredictability of regulation are institutional weaknesses that burden Korea’s entire industrial ecosystem regardless of firm size. To regulate large corporations and protect SMEs without improving these fundamentals is like treating the symptoms while leaving the cause untouched. The principles of a free market economy are simple. Firms compete freely, are rewarded according to performance, and if they fail, they exit the market. The moment the government decides whom to protect and whom to punish, market dynamism disappears.

What the Korean economy needs is not protection policy but competition policy. An approach that protects certain firms or punishes firms of a certain size reduces the dynamism of the industrial ecosystem. The heart of policy is to establish a competitive order in which fair rules of competition apply regardless of firm size, innovation and investment are rewarded, and inefficient firms exit under market pressure on their own. When the competitive system functions properly, the process by which new firms challenge, grow, and become large corporations takes place naturally, and existing large corporations can no longer remain complacent.

A system in which disadvantages increase as firms grow breaks the will to take on challenges and destroys entrepreneurship. For the Korean economy to regain vitality, it must remove the framework of punishment and protection based on firm size and shift the center of gravity of its institutions toward competition policy. Whether large or small, firms should compete under the same rules and be rewarded according to performance—that is the principle of a healthy market. An economy in which more firms grow into large corporations and more workers obtain quality jobs becomes possible only when the competitive order of the market is trusted. That is the principle of the free market economy and the condition for a society in which entrepreneurship lives and breathes.

About the Author

Sung-no Choi (President, Center for Free Enterprise (CFE))

Sung-no Choi currently serves as President of the Center for Free Enterprise (CFE). He graduated from Korea University’s Department of Economics and earned his Ph.D. in economics from its graduate school. He served as a visiting researcher at the University of British Columbia in Canada and later worked as a senior researcher at the Korea Economic Research Institute (KERI). Since joining as a founding member of the Center for Free Enterprise, the predecessor of the Center for Free Enterprise (CFE), he has held positions including head of the Corporate Research Office and secretary-general of the Center for Free Economy, and has served in his current position since 2017. He is also currently president of the Korea Christian Economic Association. His main research areas include the free market economy, improvement of corporate regulation, property rights, and inheritance tax systems. His major works include The Index of Economic Freedom, The Trap of Populism, and For Those of You Who Find Capital Difficult.

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Original title: 한국경제와 대기업: 지속가능한 생태계를 위하여

Author: Sung-no Choi

Date: 2026-06-11

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=press&pn=1&idx=29133