Cal Benedict Frey, Oxford Professor
Banks: Focused on Avoiding Failure and Ensuring Stability
Capital Markets: Easier Entry and Greater Liquidity
Raising Funds from Diverse Investors
Enabling Investment and Innovation in New Technologies in th
There is a suggestion that, for South Korea to survive the uncertain technological competition of the artificial intelligence (AI) era, it must first change its conservative, large-bank-centered funding structure. Analysts say that by reducing reliance on banks and fostering capital markets that can disperse risk, companies will have greater capacity for innovative investment.
Cal Benedict Frey, Associate Professor of AI and Labor at the Oxford Internet Institute, emphasized in a video interview with The Asia Business Daily on the 24th, "If South Korea wants dynamic innovation, it is important to reduce dependence on large banks and direct capital flows to capital markets that are easy for new entrants to enter and have high liquidity." He added, "Large South Korean corporations should raise funds from a diverse range of investors and pursue bolder investments."
This means that bank financing, which prioritizes collateral and stability, makes it difficult to achieve high-risk new technology investments and long-term innovation. He explained that while bank financing is inherently structured to avoid failure, capital markets allow multiple investors to share risks and rewards, making them more suitable for industries where technological changes happen rapidly.
Cal Benedict Frey, Associate Professor of AI and Labor at the Oxford Internet Institute, emphasized in a video interview with The Asia Business Daily on the 24th, "If South Korea wants dynamic innovation, it is important to reduce dependence on large banks and direct capital flows to capital markets that are easy for new entrants to enter and have high liquidity." Photo of Associate Professor Frey. Provided by the subject
Associate Professor Frey, well known in South Korea for his book "The Technology Trap," is an economic historian. In September, he published "How Progress Ends: Technology, Innovation, and the Fate of Nations," which has once again drawn attention. His latest book was recently selected as a "Book of the Year" by both the Financial Times (FT) and Bloomberg. In this book, Associate Professor Frey warns that technological advancement does not necessarily lead to prosperity for all.
Regarding the development of South Korean companies, Associate Professor Frey said, "In the past, South Korea's growth was centered on 'catch-up growth,' where technologies invented abroad were brought in, diffused within large corporations, and rapid progress was made through coordinated investments across sectors." He continued, "After the financial crisis, unlike Japan, South Korea strengthened its antitrust policies, which encouraged the entry of new companies and increased patent applications."
He pointed out that while this strategy was effective during the industrialization phase, when technological standards were relatively clear, it has clear limitations in the AI era, where technological paths are not fixed. Now, with no targets left to catch up to, South Korea must simultaneously pioneer new technologies and markets.
He said, "Competition in the AI era is like aiming at a moving target," and "it is no longer valid for the government to try to predict the future of technology and select specific industries or companies." He added, "The best explorers should be chosen by the market, and politics should create a platform that allows those explorations to expand globally."
Associate Professor Frey referenced the past success of Airbus to highlight differences in industrial environments. He said, "Airbus succeeded because aviation technology was already mature, allowing nations to set clear goals and compete by following them. In contrast, semiconductors and AI are moving targets with constantly changing technological paths, making it impossible for governments to select and nurture specific companies."
He advised, "To allow various players to take on different challenges, barriers to market entry should be lowered, and new companies should be able to explore multiple technological paths."
He also pointed out that, although arguments for maintaining or reviving domestic manufacturing for reasons of security and supply chains are gaining traction in many countries, it is important to distinguish between growth strategies and security strategies.
Associate Professor Frey stated, "From a national security perspective, such as energy security, the logic of maintaining certain manufacturing industries domestically can be valid. However, manufacturing margins are declining, and competition with low-wage countries is inevitable," adding, "This is closer to 'managed decline' than a new growth model."
Associate Professor Frey pointed out that South Korea must change its growth model itself to overcome the limitations of its domestic market. He stressed the need to move away from expanding production by increasing factories and labor, and instead adopt a "service-oriented scaling" strategy, in which services or software developed once can be repeatedly expanded into multiple markets without additional cost. This means businesses should be designed with the global market in mind from the outset.
He said, "South Korea is a typical manufacturing-based country, but as income levels rise, the economic structure will inevitably shift toward services. Companies must create business models centered on high value-added services and software." He continued, "Unlike goods, services face language and cultural barriers, but if South Korea actively leverages successful cases of cultural exports such as K-pop and AI translation technology, it can break down service trade barriers and achieve new global scaling."
Meanwhile, in his book "How Progress Ends," Associate Professor Frey traces 1,000 years of history to analyze why great powers such as the Song Dynasty and the Dutch Republic lost their innovative drive and stagnated.
He argues that exploring new technologies requires autonomous decentralization, and that efficient bureaucracy is needed to expand this across an entire nation. He warns that this balance is collapsing in modern-day America and China, and stresses that, learning from past lessons, institutional flexibility is needed to turn the winds of technological innovation into opportunities for growth.
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