Government policy funds for businesses are excessively concentrated in low-profit or struggling firms, and Korea urgently needs to shift to a performance-based support model to drive corporate growth and create added value, according to a new report. The report recommends supplying patient capital tailored to each growth stage, along with dedicated coaching and performance-linked incentives, to resolve the so-called Peter Pan syndrome, in which small businesses avoid growing larger.
The Korea Chamber of Commerce and Industry (KCCI) released the findings on the 26th in a report titled "Cases and Implications of Performance-Based Support Policies in Major Economies," written by researchers Park Sung-keun and Lee Hong of the Korea Institute for Industrial Economics and Trade. According to the report, an analysis of how government support funds were distributed by return-on-assets (ROA) decile from 2018 to 2023 found that firms in the lowest decile received 10.7% of the funds, the second decile 12.0% and the third decile 12.3% — a combined 35% for the bottom three deciles. By contrast, the eighth decile received 8.8%, the ninth 7.6% and the tenth 5.1%, showing a structure in which the more profitable a firm, the smaller its share of support.
The report said that while policy support aimed at protection and survival is also important, incentives for firms with growth potential need to be strengthened, and it proposed three directions for support tailored by growth stage.
For the startup stage, the report proposed adopting Israeli-style patient capital, under which the government shares the risk of failure while providing subsidies to early-stage firms with high strategic value for the future, such as those in deep tech, bio and advanced manufacturing. The R&D fund of the Israel Innovation Authority recovers its support as royalties of 3% to 5% of annual revenue, but imposes no repayment burden if a project fails or generates no revenue. Research has estimated that each dollar of R&D subsidy increases a firm's total R&D spending to $1.41.
For firms that have grown to a certain scale, the report called for providing British- and French-style tailored growth support. France's "Tech Next 40/120" selects 120 companies that have grown at least 15% annually on average over the past three years or have secured investment, and assigns them dedicated managers to help with regulation, legal affairs and internationalization. Britain's "Scale-up Programme" likewise assigns dedicated staff to high-growth innovative firms expanding more than 50% a year, offering tailored support in raising growth capital, mergers and acquisitions (M&A) and intellectual property.
For mature firms making large-scale investments, the report recommended introducing performance-linked incentives modeled on the California Competes Tax Credit (CCTC) in the U.S. state of California. Under this structure, a firm agrees with the state government on annual targets — such as full-time jobs, wage levels and investment plans — and receives corporate tax credits only after meeting them. Experts estimated that the program increased the total number of workers in the relevant region by about 2.5 for each job pledged under the agreements.
Lee Jong-myung, head of the industrial growth division at the KCCI, stressed that "support for marginal firms is important, but support for growth-oriented and efficient firms must be increased to spur growth." He added that "just as the Miracle on the Han River was built through a monument of exports, it is now time to build a monument of corporate growth to break the Peter Pan syndrome and rapidly create economic value."
