[Insight & Opinion] Creating an Environment for National Competitiveness and an Innovation-Driven Economy

According to the 2025 National Competitiveness Ranking released by IMD Business School in Switzerland, South Korea, which had climbed from 27th and 28th place in previous years to 20th last year, has fallen back to 27th this year. Unlike in previous years, the country saw a significant decline in the business efficiency category (from 23rd to 44th), particularly in management practices, labor market, productivity, and finance. Even in the infrastructure category, which had previously been rated highly (from 11th to 21st), there were notable drops across all areas, including technology, basic infrastructure, as well as science, health, environmental, and educational infrastructure, all contributing to a setback in national competitiveness.

Labor productivity is another area that deserves close attention alongside national competitiveness. In 2023, South Korea's hourly labor productivity was $42.3, ranking 29th out of 38 OECD countries. This is less than half the level of most advanced economies. Thanks to the adoption of the 52-hour workweek policy, the average annual working hours per person improved from over 2,100 hours-consistently the second longest in the world-to 1,872 hours, now ranking sixth. Still, despite working long hours, hourly productivity remains low.

South Korea's labor flexibility, as assessed by the World Economic Forum (WEF), ranks a dismal 97th, and IMD also ranks it low at 53rd. This lack of labor flexibility is cited as a factor hindering corporate productivity. Ultimately, with creativity, innovation, and autonomy in short supply, and an increasing number of regulations constraining businesses, it is inevitable that corporate competitiveness will decline.

Choi Tae-won, Chairman of the Korea Chamber of Commerce and Industry, announced-based on a comprehensive survey by Pusan National University-that 343 regulations, based on 12 economic laws, increase stepwise according to company size. Regulations increase as follows: assets of 500 billion won (94 regulations), 2 trillion won (128), 5 trillion won (329), and 0.5% of GDP, or 11.6 trillion won (343). This growing regulatory burden is said to dampen companies' willingness to grow.

Furthermore, although the Lee Jaemyung administration talks about an innovation-driven economy, South Korea's track record for innovative companies is dismal. The number of unicorn companies as of 2025-a key indicator of future growth-tells the story. The United States has 758, China 343, India, the United Kingdom, Germany, and France each have between 30 and 64, while South Korea has only 18. This year alone, 43 new unicorns have been reported in the United States and China, but not a single one in South Korea. Despite the government announcing massive investments in artificial intelligence as the centerpiece of the innovation economy, the AI unicorn situation is even more discouraging. There are over 370 AI unicorns worldwide, but South Korea does not have any to speak of.

We must clearly recognize that we are not the only ones pursuing innovation. An innovation-driven economy cannot be achieved through political slogans or willpower alone. The government must accurately assess South Korea's position in the global landscape and abandon the illusion that it can lead the innovation economy from the top down. Instead, it should foster an environment-legal, institutional, and ecological-where innovation can flourish in the private sector, enabling companies to become the driving force of innovation. Currently, the approach is the opposite.

The public and private sectors must build real capabilities and create a competitive environment, but overall, the nation’s competitiveness is losing strength. Every new administration has emphasized an innovation-driven economy, but the number of unicorns-a key indicator-makes it glaringly obvious how poorly the government is performing.

It is hard to understand how innovation can occur when regulations (laws) that constrain businesses are increasing, the government is actively encouraging overseas (especially U.S.) investment, and the will of academia and industry is being undermined. If policies and environments are created to encourage the return (re-shoring) of capital, talent, and companies that have flowed overseas, national competitiveness will be revived.

Kim Hongjin, CEO of Work Innovation Lab