The Bank of Korea (BOK) has lowered its economic growth forecast for this year from 1.9% to 1.5%. Next year’s growth is also expected to stay at 1.8%, marking two straight years of sub-2% expansion. BOK Governor Rhee Chang-yong called it “the reality of our economy,” attributing the stagnation to a lack of structural reforms and an overreliance on existing industries rather than fostering new growth engines.
South Korea’s prolonged low growth reflects an economy that has failed to embrace creative destruction and innovation. Instead, it has relied on depleting existing resources. Shipbuilding and shipping sectors lost competitiveness to China, triggering crises, and now steel and petrochemicals face similar struggles. More industries are likely to follow.
Rather than implementing painful restructuring, the government has kept struggling firms afloat with financial aid. As a result, one-third of listed companies are now “zombie firms,” unable to cover interest payments with operating profits. Meanwhile, the real estate industry remains stuck in uncertainty as authorities continue delaying efforts to resolve bad property loans.
Emerging industries built on digital innovation—such as artificial intelligence, big data, and blockchain—have been stifled by regulatory hurdles and opposition from entrenched interest groups. While more than 100 countries allow ride-sharing services like Uber, they remain banned in South Korea. TADA, a ride-hailing service with over 1.7 million members, was shut down after taxi industry protests led lawmakers to outlaw its operations. Telemedicine, common in advanced economies and even in China, remains blocked by medical associations. Online legal matchmaking services face resistance from the legal industry, while real estate platforms offering lower brokerage fees have been curbed by realtor groups. Even efforts to exempt semiconductor research from the 52-hour workweek rule have been stalled by labor unions.
Politics should serve to mediate conflicts and create pathways for innovation. Instead, South Korean lawmakers focus on voter blocs rather than economic progress, making the country inhospitable to new industries. As a result, 57 of the world’s top 100 startup business models are effectively impossible to launch in South Korea due to regulatory restrictions.
History shows that stifling innovation ultimately harms consumers and deprives future generations of opportunity. The nation’s sluggish growth is the result of avoiding difficult but necessary reforms—like prescribing sugar water instead of real medicine.
