Korea Has Too Many Small Firms and It’s Hurting Economic Growth

Robert D. Atkinson May 6, 2021
May 6, 2021

From the 1950s to the mid-1990s, Korea pulled off an economic miracle: industrializing faster than virtually any nation in history. This process enabled Korea eventually to become the world's 10th largest economy today. But that progress has slowed over the last 15 years and Korea's productivity performance, while still stronger than that of the U.S. and other global leaders, is slower than it was.

As Rob Atkinson writes in the the Korea Timesfor Korea, the most obvious, and in some ways the easiest (although not politically), is to have fewer small businesses and more larger ones. Korea's biggest productivity problem is that it has far too many small, unproductive firms. According to the Organization for Economic Cooperation and Development (OECD) in 2015, 29 percent of workers in Korea worked for micro-firms (firms with 10 or less employees), compared to around 10 percent in the U.S. If small firms employed fewer workers and produced less output, and larger firms had more of both, Korea's productivity and living standards would increase significantly.

The anchor of inefficient small firms is getting heavier and heavier. The Korean government would need to step in and help small businesses, letting the market react, or cut the anchor chain on small businesses that can’t compete with tax breaks, regulatory exemptions, special aid, and other favors.