1. The Structural Crisis of the Korean Economy and the Need for a New Paradigm
Yet the economy’s growth potential weakened sharply in the wake of the 1997 currency crisis and the 2008 global financial crisis. Since the Kim Young-sam administration in the mid-1990s, the ten-year moving average of economic growth has declined steadily under successive governments, from 6 percent to the 1 percent range. Low growth has become a structural feature of the economy. An even more grave concern is the extent of economic polarization and the concentration of economic power. The wealthiest 10 percent hold nearly half of all assets, while the four largest chaebol, or family-controlled conglomerates, account for a share of the national economy rarely seen in other major advanced economies.
At the root of this crisis lies the unbalanced development strategy of “growth first, distribution later,” centered on large export-oriented corporations and entrenched over the past half-century. In the past, support for leading sectors generated a trickle-down effect through which the benefits of growth reached the wider economy. However, the global division of labor, digitalization, and closed subcontracting networks have broken the links between domestic industries. Even when large exporters report record results, those gains no longer feed a virtuous cycle of domestic investment in plant and equipment, job creation, and stronger domestic demand. Large corporations and small and medium-sized enterprises (SMEs) share a common economic fate; allowing this fragmentation to persist invites their mutual decline. We must therefore make shared growth—growing together and sharing the benefits—a central principle of national development.
2. The Principles of Shared Growth: Cooperative Competition and Virtuous Cycles
Shared growth is sometimes misunderstood as a form of redistribution that runs counter to market principles: taking from those who have more and giving to those who have less. Its central purpose, however, is to expand the economy while restoring fairness to the rules governing distribution. As national income rises, the aim is to ensure that vulnerable groups and SMEs receive a larger share of the increase than they do today, rather than allowing large corporations and high-income groups to capture most of it, as they have in the past. In this way, shared growth seeks to strengthen the long-term sustainability of society as a whole.
The pursuit of profit is essential to a market economy. Yet a model of shareholder capitalism concerned solely with maximizing shareholders’ short-term returns has reached its limits. Corporate value can increase sustainably only when the interests of shareholders are balanced with those of employees, suppliers of components and raw materials, and final consumers.
Restoring a virtuous cycle in the national economy requires two complementary mechanisms. The first is to restore the trickle-down effect by correcting unfair subcontracting practices and abuses of economic power, enabling the gains generated by large corporations and leading sectors to reach the wider economy. The second is the “fountain effect”: first raising the incomes and strengthening the capabilities of economically vulnerable groups—including SME employees, non-regular workers, and small business owners—so that greater purchasing power translates into higher consumption and stronger domestic demand.
Uncritical faith in trickle-down economics among some conservatives has entrenched the monopoly and oligopoly power of vested interests. Conversely, an excessive emphasis on the fountain effect among some progressives risks undermining economic dynamism. Shared growth seeks to move beyond these extremes and restore an economic ecosystem in which the trickle-down and fountain effects reinforce one another.
3. Policy Priorities for Strengthening the Economy’s Foundations
Addressing entrenched economic inequality and restoring the economy’s growth potential require coordinated action: immediate measures to address pressing problems, alongside medium- and long-term structural reforms.
First, three short-term policies for shared growth must be implemented urgently to address weak effective demand and economic polarization.
1. Profit sharing
Under a profit-sharing arrangement, large corporations share their profits with SME partners on terms agreed in advance. Contrary to criticism, this is not incompatible with market principles. It is an established management practice that leading international companies, including Chrysler in the United States and Rolls-Royce in the United Kingdom, have widely used to stabilize their component supply chains and drive improvements in quality. The National Football League (NFL) in the United States likewise shares revenue from television broadcasting rights, merchandising, and licensing, as well as 40 percent of ticket revenue, equitably among its teams. This system has enabled all 32 teams to become more competitive, narrowing disparities in playing strength while achieving the world’s highest franchise values. Profit sharing in fact originated in Hollywood in the 1920s through agreements among film producers, distributors, directors, and actors.
2. Designating business sectors as suitable for SMEs
Large corporations that have grown through preferential institutional treatment and concentrated state support must be prevented from using their considerable financial resources to expand indiscriminately into neighborhood markets and sectors dominated by very small businesses. At a minimum, further entry by large corporations into these sectors should be prohibited. Large corporations should concentrate on advanced emerging industries and expansion into global markets. In domestic markets that sustain small-business livelihoods, fair competitive conditions should allow small firms and merchants to become economically self-sustaining.
3. Direct government procurement from SMEs
The multilayered contracting system must be reformed. Under the current structure, large corporations capture the bulk of major contracts awarded by the Public Procurement Service and other public institutions, then subcontract the work to SMEs. At least a specified proportion of publicly procured goods and services should instead be purchased directly from capable SMEs. This would provide an independent foundation for these firms to build their capital base, develop technology, and recruit skilled personnel.
Large corporations have substantial retained earnings but remain reluctant to invest in plant and equipment because they lack advanced core technologies and take an overly conservative approach to management. SMEs, by contrast, account for more than 80 percent of employment and have numerous investment opportunities, but face severe shortages of capital and personnel. By opening channels of funding to SMEs, the three short-term policies outlined above would set in motion a powerful cycle of economic recovery:
Second, medium-term reforms must substantially strengthen SMEs’ capabilities and build a self-sustaining innovation ecosystem.
The most pressing difficulty facing SMEs is a persistent shortage of highly qualified personnel. Wages at SMEs remain at approximately half the level offered by large corporations, strongly discouraging young people from taking up employment with smaller firms. Substantial publicly funded benefits are needed to attract qualified young workers. These should include reductions in social insurance contributions, scholarships conditional on employment with SMEs, and housing assistance and support for children’s education for long-serving employees.
At the same time, government research and development (R&D) funding, currently concentrated on large corporations, should be substantially redirected toward innovative SMEs with a strong capacity to generate value added. Stronger collaboration among industry, universities, and research institutes should also help SMEs develop technological capabilities of their own.
Third, long-term reforms must root out unfair practices and corruption across society and transform the educational paradigm.
We must eliminate unfair trading practices and dismantle the entrenched structures of corruption that benefit vested interests, establishing a fair social order in which principles and common sense prevail. In education, we must move decisively beyond the rote learning and imitation that characterized the industrialization era. When I served as President of Seoul National University, I introduced a regionally balanced admissions system to ensure that talented students from diverse backgrounds across the country were more evenly represented. I did so because I believed that interaction among people with different experiences and perspectives could foster creative and integrative thinking. Sustaining national competitiveness will require substantial improvements in higher education and the development of adaptable graduates with strong verbal reasoning and problem-solving skills.
4. The Foundations of Capitalism and the Twenty-First-Century “Impartial Spectator”
Shared growth is more than a collection of economic policies. It is a fundamental principle for organizing society so that the market economy functions properly. Adam Smith, who laid the intellectual foundations of classical capitalism, wrote The Theory of Moral Sentiments (1759) before discussing the “invisible hand” in The Wealth of Nations (1776). He emphasized that a healthy society and economy require more than prudence in the pursuit of self-interest. They also require justice, the pillar of social order, and beneficence, which provides the shelter and warmth of social life.
Although Smith emphasized market freedom, he believed that capitalism could flourish only when the “impartial spectator” within each individual restrained greed and government used laws and institutions to correct unfair economic practices. The systemic crisis facing neoliberalism, which remained influential until recently, stems from its uncritical pursuit of unrestricted competition without the restraint and moral discipline embodied in this impartial spectator.
The spirit of shared growth gives contemporary expression to the impartial spectator required by the advanced industrial society of the twenty-first century. It calls on individuals, large corporations, and SMEs to recognize one another not as isolated adversaries, but as interdependent partners. On the basis of “altruistic self-interest,” it seeks to sustain the community as a whole.
5. Conclusion: Coexistence as a Beacon for the Future
"For a country to stand on sound foundations, lawyers, scholars, and the press must not remain silent in the face of vested interests, but must fulfill their respective moral responsibilities."
— Wilhelm Röpke, German economist
Extending this principle to the economy, South Korea can find a path to renewed growth when three commitments converge: a government determined to build an economy capable of sustained development; large corporations willing to take the lead in nurturing a shared economic ecosystem; and SMEs making determined efforts to strengthen their own competitiveness.
Shared growth is not merely a policy option. It is the Zeitgeist that will shape the stability and prosperity of Korean society. When the benefits of growth are broadly shared and vulnerable members of society can look to the future with hope, class conflict and ideological divisions will naturally diminish, opening the way to greater social cohesion. Shared growth is the brightest and surest beacon guiding us beyond the darkness of polarization and low growth toward a sustainable future.
