[Policy Pulse] Regulatory Reform, the Beginning and End of National Policy Planning

It has been two months since the launch of the new administration. With most ministerial appointments made, it is time for the government to accelerate its efforts. The key national policy agenda is beginning to take shape. Regulatory reform, while not a specific project or business sector, has consistently been adopted as a top national priority by every administration in Korea. It is illogical to govern while leaving in place regulations that create economic and social contradictions, and no citizen would support a government that fails to improve regulations causing unnecessary costs and burdens.

Anyone who has worked in an office has likely muted their computer while enduring the tedious, mandatory legal training sessions. The fact that over 1,900 regulatory sandbox cases have been submitted over the past six years highlights just how difficult it is to launch products or services utilizing new technologies in Korea.

In reality, Korea's regulatory reform performance is not viewed positively, especially in the economic and corporate sectors. According to the 2023 OECD Product Market Regulation Index, Korea ranked 36th out of 38 countries in both business activity intervention and trade and investment barriers. The recent trend in Korea’s GDP is also unfavorable, dropping from 9th in 2020 to 14th in 2023, and the potential growth rate is expected to fall into the 1% range by 2025.

Domestic growth engines are cooling rapidly. Korea's major industries have remained largely unchanged for over a decade, and it is rare to see new star companies equipped with cutting-edge technologies. A significant part of the problem lies in irrational regulations that stifle entrepreneurship and distort resource allocation. It is simply illogical for a country to prosper while discouraging private sector innovation.

I am aware of the counterarguments. There are plans to invest 1,000 trillion won in artificial intelligence (AI), and the reduced R&D budget will be restored. There are also promises to further expand the regulatory sandbox to boost entrepreneurial spirit among tech companies. However, what is truly needed is a more fundamental and bold direction, executed swiftly. As long as deeply entrenched, chronic, and unresolved regulations?like bedrock suppressing Korea’s core competitiveness?remain, pouring money into the system and tweaking minor, bothersome regulations will not yield meaningful results.

While companies achieving $5 billion valuations are emerging regularly in global startup ecosystems, Korea’s criteria for large business group regulations have remained at a total asset threshold of 5 trillion won for decades. The Act on Fixed-Term and Part-Time Employees, which has led to the practice of hiring workers on two-year temporary contracts, has remained unchanged for 17 years. Korea also operates a unique system that creates a stagnant market exclusively for small and medium-sized enterprises.

The special regulatory zones that promise regulatory freedom exclude the Seoul metropolitan area, and the Serious Accidents Punishment Act makes it difficult to recruit talented CEOs. Although Korea was the first in the world to establish level 3 autonomous driving regulations in 2019, not a single company has been certified. Essential data regulation improvements for AI remain a distant goal, and in some cases, regulations are even being strengthened.

Just as pouring water into a broken pot is futile, national governance cannot succeed simply by spending money. If sending a child to a cram school guaranteed better grades, every parent would be happy. Before the Lee Jaemyung administration talks about investing 1,000 trillion won in AI, it must answer whether it can truly discuss the nation’s development and future while leaving contradictory regulations untouched. The administration must realize that regulatory reform must be both the beginning and the end of national policy planning if success is to be achieved.

To a government that claims to pursue 'real' growth, I would like to say this: "If you truly want to succeed, please, for once, approach regulatory reform with genuine intent. Push aside the noisy interests surrounding you and create an impressive five years by fixing and eliminating institutional contradictions for the good of the entire nation."

Lee Hyukwoo, Professor at Paichai University (Chairman of the Regulation Monitoring Committee at the Good Regulation Citizens’ Forum)