When disruption meetsgradual institutional

change:The case of startup promotion policies in

Korea

PAULINE DEBANES, PhD CANDIDATE (EHESS)

INCAS workshop – Septembre 16th 2016

Phd dissertation about the role of the state in times offinancialization.

Theoretical framework based on:

Regulation Theory and Diversity of capitalism (Boyer & Saillard, 2004;Amable, 2005 ; Boyer et al., 2012),

Institutional change and policy outcomes (Streeck & Thelen, 2005),

Political dynamics (Jessop, 2002 ; Amable & Palombarini, 2009),

Main angle: transformation of industrial policies.

Today’s presentation: startup promotion policies

Background

Institutional side

Korea as coordinated marketeconomie= prone to incrementalinnovation (Hall & Soskice, 2001)

unfavorable institutional settingfor startups with rigid labormarket, education, weight oflarge firms (OECD, 2014)

Policy side

Highest R&D expenditures of OECDcountries

Few success stories of Korean unicorns(>1 bn $): Coupang, Yello Mobile

2013: ’creative economy’ agenda with2 bn $ /year invested in startups

Puzzle: the case of startup in Korea

What are the institutional transformations behind the recent startuppromotion policies?

Focus on startup promotion policies to grasp internal statedynamics (// financialization)

50 Interviews of key actors in the field to understand practices &representations but also to investigate power struggle andconflict of interests

Chaebols, startup founders, VCs, incubators, state agencies

Research strategy

I. Historical perspective on SMEs and startup policies: 3periods of institutional building

II. Mode of gradual institutional change (empiricalevidences)

Outline

I. Historical perspective ofbuilding institutionalinfrastructure for SMEs

3 periods of institutional building

‘developmental’ period (1960-1980)

‘dot bubble’ period (1997-2003)

‘creative economy’ period (>2010)

Historical perspective of building institutionalinfrastructure for SMEs

During the developmental period: strong support exportingSMEs, manufacturing SMEs(subcontractors of large firms)

Credit guarantee

Policy loan

ICT (~1990s): Increasing support to R&D, technology based loan(KIBO)

1.‘Developmental’ period (~1960-1990s)

Institutional legacy from SMEs and ICT support policies

Financial liberalization post-97: ↑ opportunities to get funding for SMEs.

Global context of internet bubble and rise of stock markets

Government support: Venture certification system (directallocation of resources to startups and VCs)

2.‘Dot bubble’ period(early 2000s)

Venture boom (x7 between 98 and 2000)

Peak of IPO on KOSDAQ (~100 during 3 years)

Rise of KOSDAQ index

One of the main characteristic: accent on indirect fundingthrough VCs and business angels (matching fund program)

Large infrastructure building

Financialization deepening: regulatory change to accomodatefintech (p2p lending, crowdfunding) and venture capital

3.‘Creative Economy’ period (2013-)

Incubation centers inpartnership withchaebols.The GCCEI has a 5.3M $ annual budget.

Startup campus (54 000m2) is supposed to host~200 startups.In 2015, MSIP has injected367 M $ in this project.

3.‘Creative Economy’ period

Gangnam Area

II. Gradual institutionalchange

3 coexisting and competing layers

Knock-on effect: through coordination by the new layer butresistance from old layers.

These layers are embedded in the power struggle within thestate apparatus (competition between ministries)

Evidences from fieldwork: Gov’t discourse and actors representation

Example of the 2 narratives: ‘creative economy’ // ‘continuity narrative’

Layering as the main mode of change

This layering and underlying power struggle lead to institutionalcontradictions

The « Creative Economy » narrative

The « continuity » narrative

Beginningstage (1986-

1997)

Boomingstage (1998-

2001)

Reformationstage (2002-

2004)

Resettingstage (2005

~ )

Drivers of this layering:

Institutional level: complementarities

Political dynamics: conflicts/convergence of interestsbetween the different actors involved)

Startup ecosystem emergence as part of financializationprocess

Further research

Thank youpauline.debanes@ehess.fr

Mode of institutional change (Streeck & Thelen, 2005)

Gradual but significant change

5 modes: conversion, drift, exhaustion, displacement, layering

Drivers of institutional change: institutional complementaritiesand political dynamics.

Strong linkages venture capitalists-entrepreneurs

Need for a developed financial markets (M&A and IPO)

Depressed macroeconomic context: create you own job (//labor market)

Institutional change analysis

R&D expenditures (OECD)

4.15%

0%

1%

1%

2%

2%

3%

3%

4%

4%

5%

1996 1998 2000 2002 2004 2006 2008 2010 2012

R&D expenditures (%GDP)

KOR OECD CHN JPN USA

‘Developmental’ period

1966 Small and Medium Industry Basic Law

1975 SME special designations Promotion Act

1976 Korea Credit Guarantee Fund

1978 SME Restructure fund

1979 SBC (funding for SMEs)

1989 KIBO with the “Financial Assistance to new

technology business Act”

3.‘Creative Economy’ period

TIPS, matching fund (5to 9 times) of businessangel or incubatorinvestment. In 2015, 18M de $ were investedby this programe.

Incubation centers inpartnership withchaebols.The GCCEI has a 5.3 bl$ annual budget.

Startup campus (54 000m2) is supposed to host till200 startups.In 2015, MSIP has injected367 M $ in this project.

The new wave started in 2010 (no proper infrastructure norecosystem)

2 success stories: Ticketmonster and Coupang

Boom of startups: second time is a charm

Valorised at 782M $ on 04/2015,aquired 2 yearsbefore for 260 M$

Valorised at 5 Mds $in june 2015 after a1Md $ investment bySoftBank.

3.‘Creative Economy’ period

Financial system

Labor market

More flexibility

Some safety net

Driver of change: institutionalcomplementarity

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1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

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2000

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Evolution of the VC industry

VC fund - total (r) Amount invested (r) Registred VC firm (l) Number of companies funded (l)

Sous performance du KOSDAQ

Youth unemployment

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1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Unemployement rate by age group (%)

20-29 Years old Total 20-24 Years old

Interpretation in terms of power struggle within the social space: there aresome political interests on the old layers and less differentiate support to SMEs(maybe influence of the old layer on the new extension to socialstartups=continuity of practices with new hegemonic project

Notes