"I will be a minister who tears down walls of regulation."
That was the opening message from Lee So-young, who took office last month as minister of SMEs and startups. It signals a strong determination to scrap unreasonable rules that have blocked new attempts by businesses and held back their growth. For companies long hobbled by a thicket of regulations, it is welcome news.
Many firms have developed innovative technologies and services only to fail at market entry because of regulation. Tada, a ride-hailing service, was one such case, and Lucentblock, a platform for fractional real estate investment, was another. In each case, newly introduced rules made it hard to pursue the business, or the absence of applicable standards and frameworks made it difficult to even take a first step. The institutional barriers weigh especially heavily on smaller regional companies that lack capital and staff.
As advanced industries such as artificial intelligence and biotechnology accelerate, building local environments where new technologies can be tested and their marketability verified has become a national task. The 2019 launch of regulatory free special zones — a regulation-free zone concept meant to support local innovation — marked the starting point. Over the seven years since, 57 zones have been designated outside the greater Seoul area, supporting on-site testing of new technologies and businesses in regional strategic industries through regulatory exceptions, with results of their own.
Yet critics say visible economic outcomes at companies in the zones — revenue, hiring and investment — have fallen short. For new technologies, considerable time is needed after testing to revise relevant laws and then to obtain certification, reach mass production and enter the market. So rather than immediate performance, what matters is closely examining results that emerge over the long term and urgently fixing the problems that have surfaced in running the program.
Next, perceptions of regulation need to change. Regulatory innovation is commonly taken to mean abolishing unreasonable rules, but in many cases new technologies and businesses cannot be developed at all because no laws or standards apply to them. The zones therefore need to emphasize not only immediate easing of rules but also the role of "good regulation" — setting safety standards and guidelines based on test results.
Shifting the mindset of the central ministries that oversee regulation matters just as much. Technologies and businesses that carry high importance in a region are often met with reluctance on testing exceptions, citing safety or conflicts of interest. A cautious approach is needed, but it is unacceptable to block new corporate attempts or impose excessive conditions merely because of uncertainty. From the earliest stage of a zone's designation, the testing requirements and the direction of legal revisions should be set together with the relevant ministry and carried through to new standards.
Another task is the so-called regulatory cliff, in which regulatory support available during the testing stage stops once the project ends. Even when a technology's safety has been confirmed, commercialization becomes difficult if legal revisions are delayed or if funding and sales channels are lacking. Follow-up support — attracting investment, public procurement and overseas expansion — should be linked so that new businesses take root properly in the market.
Finally, close ties with the regional industrial ecosystem cannot be left out. Because the zones are confined to specific areas, many point out that it is hard to cooperate in various ways with anchor companies, universities and research institutes located outside their boundaries. If the zones were expanded into metropolitan-scale and global linkages, connecting joint research and development, testing and commercialization, it would lay a foundation for local companies to grow where they are instead of moving to the capital region.
The regulatory free zones turn seven this year. Alone among the many regulatory sandboxes, they apply a regional concept and have grown into global and metropolitan-scale linkages. It is time to assess them less by the volume of rules removed than by the industrial base they have built. Regulation is both a stumbling block to innovation and a stepping stone for new industries. The hope is that the zones become a starting point for fresh innovation-led growth in regions losing their vitality.