[Public Voices] Productive Finance Must Focus on National Economic Growth and Technological Advancement

Supporting Mergers and Acquisitions by Large Corporations and Long-Term Investment in Innovative Technologies
Inclusive and Real Estate Finance Cannot Foster Unicorn Companies
Productive Finance Should Focus on Advancing Science and Technology

The goal of productive finance is to manage funds in a way that fosters economic growth and builds the infrastructure for technology. A representative example is the productive finance policy launched by the Bank of England in 2020. The policy's key strategies include long-term investment, venture capital investment, the injection of risk capital, fund formation, and the expansion of machinery and equipment. All these are being pursued with the aim of driving the growth of the UK economy.

In Korea, the starting point for productive finance comes from reflecting on banks’ overreliance on mortgage loans. The practice of providing loans secured by officially appraised housing should be reconsidered, as such lending can be sufficiently handled by financial institutions other than banks.

Recently, Chang Yong Lee, Governor of the Bank of Korea, projected that Korea’s potential growth rate could drop to the 0% range by 2040. He emphasized that, to overcome such challenges, finance must efficiently redistribute limited resources. Redistribution involves creating a national system that channels bank funds into the productive real economy. This means investing in risk capital that can lead to expanded reproduction and drive economic growth, rather than focusing on mortgage loans.

Several directions can be proposed. First, large corporations should acquire and emulate global leading companies. Examples include Hyundai Motor Group’s acquisition of Boston Dynamics, which developed a quadrupedal robot, for 1.1 billion dollars (about 1.25 trillion won), and Samsung’s acquisition of Rainbow Robotics. Recently, Samsung Electronics invested 2.6 trillion won in a German company to acquire advanced driver assistance systems and develop new technologies. This approach echoes the historical regret that, had Joseon Dynasty imported arquebuses by any means during the Imjin War, it could have helped in the war effort.

Second, in middle-income countries like Korea, scaling up funds through collective investment funds for long-term investment in technology is essential. Typically, this involves raising capital from banks and capital markets to structure fund of funds and sub-funds. Recently, the government launched the 150 trillion won “National Growth Fund,” with plans to invest in advanced industries such as artificial intelligence, semiconductors, and secondary batteries starting this year.

Productive finance is implemented through joint funds formed by private banks, the government, and other funds, emphasizing mutual cooperation. Investments are made in companies with key technologies and those commercializing technology, with a focus on long-term factory construction.

The fund system, composed of fund of funds and sub-funds, allows for diversified investment and multi-stage reviews, which reduces risk and enhances stability. The success of the National Growth Fund depends on global evaluation capabilities. The ability to assess companies and industries is paramount, and it is crucial to recruit top evaluators from around the world.

Third, inclusive finance, real estate finance, support for small and medium-sized ventures, and startups are not considered productive finance. These areas should be entrusted to financial institutions other than banks, with efforts focused on strengthening their relevant capabilities. This is because it is difficult to create a unicorn company in these sectors.

In conclusion, productive finance is finance that focuses on science and technology to generate synergistic effects. This type of finance should be promoted to increase the production of new, high-quality products and to advance the national industrial structure toward a high-tech, advanced model.

Lee Kunhee, Director of the Korea Credit Card Society (former Professor at Kookmin University School of Business Administration)