South Korea’s regulatory policies and institutional reforms have been positively recognized by the OECD, but deregulation is still needed in certain areas to achieve better results. As of 2023, South Korea’s product market regulation index reached the OECD average, and it is important to strengthen R&D and innovation policies. Therefore, it is necessary to make efficient improvements through thorough analysis and review rather than unconditional deregulation.
If you read newspapers and news these days, you can’t get enough of deregulation. This is because the government has chosen deregulation as a way to revitalize business activities and economic growth. The idea is to encourage entrepreneurial activity through deregulation, and at the same time, to grow the economy through technological advancement. However, deregulation can have negative effects in addition to its seemingly benign functions, so it is important to be careful about the scope and method. In this article, I will focus on the relationship between deregulation and technological development, exploring how regulations affect technology through case studies, and what direction the deregulation of Korean society should go.
Regulation means to set a certain limit or prevent something from exceeding a certain limit by rules or regulations. In general, we can say that technological development comes first, followed by regulations. For this reason, some people may question whether deregulation has a significant impact on technological development. However, the following example from the United Kingdom shows that regulation is an important factor in technological progress.
In the 19th century, Europe saw the invention of the automobile and efforts to improve it and make it a popular form of transportation. In the early 19th century, Britain was at the forefront of automobile development, with Richard Trevithick completing an eight-passenger steam car that could carry passengers. However, the noisy, smoke-emitting nature of the automobile and, crucially, the protection of the vested horse-drawn carriage industry, led to automobile regulations such as the Red Flag Act under Queen Victoria. The regulations at the time meant that cars couldn’t go faster than 3 miles per hour in town, flags and lanterns had to be waved to signal their approach, and they basically required three people to operate. In effect, it was a ban on automobiles, so cars could never become anything more than a luxury for the aristocracy in England, and naturally, research and development of automobiles came to a halt. The restrictions lasted for about 30 years, and eventually Britain fell from the forefront of early automobile development and became an automotive backwater.
The importance of regulation can be seen in the fact that despite starting the automobile industry from an early advantageous position, the UK was unable to continue to develop and eventually fell behind due to regulation. So, how does regulation affect technological development?
Let’s say there is a small pharmaceutical company in country A. It develops a breakthrough drug. The company has developed a groundbreaking new drug and wants to bring it to market. However, in order to launch the new drug, it must go through five stages of trials and three years of testing, according to the regulations of country A. In this case, the small pharmaceutical company decides that it is too time-consuming and costly to bring the new drug to market, so it either stops development or sells the technology to a large pharmaceutical company. If there is a country B and its regulations are weaker than those in country A, the company may decide to relocate to country B. As a result, regulation reduces the desire of individuals or companies to develop, which adversely affects the development of technology.
In this way, overly strict regulations make it difficult for innovative technologies or new products to reach the market. This is true in the IT industry, for example. If a new software or digital service is blocked by regulations, it can’t get to market, which in turn stifles technological progress. Companies lose the motivation to develop in such situations, which can weaken the technological competitiveness of the country as a whole.
However, regulations don’t only have a negative impact on technological progress. Imagine if there was no regulation in the pharmaceutical company example, the company would launch a drug without sufficient testing, with only a few simple experiments to make a profit. If the drug is later discovered to have side effects and harms people’s health, it will have a huge social cost. Because of this potential for adverse societal impacts, appropriate scope of regulation is essential.
There are two types of regulation: negative and positive, depending on how restrictive they are. Both are the same in that they limit the scope and scope of regulation. However, a positive approach specifies both what is prohibited and what is allowed. A negative approach, on the other hand, only prohibits something. Positive approaches are considered more efficient and open-ended because they can only cover what the regulation allows, while negative approaches can cover everything outside of the restrictions. For this reason, negative regulation is sometimes referred to as developed country regulation and positive regulation as underdeveloped country regulation.
Currently, many of Korea’s regulations follow the positive approach. This means that even if a new technology or product is developed, it cannot be fully developed until regulations are set. This results in a fixed direction for companies to generate profits, which hinders the diversity of R&D. The same is true for individuals and government organizations. Regulations are not only applied to companies, but also to individuals and government organizations, so it is an unavoidable problem.
Korea’s role model is Silicon Valley. Silicon Valley, located in California, has become a mecca for high-tech industries based on various conditions such as relaxed immigration laws, deregulation of technology development, and a favorable climate for research. The government’s goal is to create a Korean version of Silicon Valley by easing regulations in Korea to create a good environment for technology development and economic growth through technological advancement.
However, it is questionable whether this deregulation is too radical. It hasn’t been long since the government announced its intention to deregulate, and now it is actually happening. Deregulation certainly has a net function of encouraging entrepreneurship and technological development. However, as we can see from the simple example above, it also has many negative effects. If not sufficiently reviewed and applied gradually, the negative effects can far outweigh the positive ones. That’s why it’s important to categorize and prioritize regulations, not just deregulate them. Depending on the type of regulation, it may restrict only one sector or multiple sectors at the same time. In addition, some regulations restrict the outcome of development, while others restrict the method of development. Because of the complexity of regulations, it is important that experts take the time to analyze them thoroughly and predict what will happen after deregulation or abolition.
It’s also important to recognize that unconditional deregulation and abolition is not the answer. Regulations are created out of necessity, and necessity is the result of interconnected interests. Deregulation does not benefit everyone. Deregulation is not for everyone’s benefit. Governments need to weigh the interests of these groups and reset regulations.
According to the OECD’s 2023 report, South Korea still considers regulatory reform an important policy issue and has made significant progress in recent years. Most notably, South Korea’s product market regulation index has reached the OECD average. In 2023, South Korea’s product market regulation index (PMR) was 1.35, almost identical to the OECD average of 1.34, representing a jump from 33rd in 2018 to 20th in 2023. Despite this progress, the OECD noted that South Korea could still perform better by deregulating in certain areas. In particular, it noted the importance of strengthening research and development (R&D) and innovation policies, promoting internationalization, and broadening technology diffusion.
Therefore, rather than pushing for sweeping deregulation and abolition in a short period of time, such as a few months, without adequate review, it is necessary to identify and improve regulations that are outdated and inefficient in each sector. This will ensure that deregulation actually has a positive impact on technological progress and economic growth.
It’s also important to look to other countries’ success stories to find ways to deregulate in Korea. For example, Japan has deregulated its healthcare sector to enable telemedicine and promote technological advancements. These examples show that appropriate deregulation can lead to both technological advancement and economic growth.
In conclusion, deregulation should be approached cautiously, and it should be improved efficiently through thorough analysis and review rather than blindly. In this way, Korean society will be able to achieve both technological advancement and economic growth.
