OPINION: South Korea's 2026 structural reforms must shift how wealth is built

Kim Dong-young, senior research fellow at the Korea Development Institute and adjunct professor at Chung-Ang University. [Photo=Ajou Economy DB]

The mission for next year is structural reform. If 2025 was the year to set the direction and strategy for change, the coming year must be about execution.

Structural reform is often misunderstood as synonymous with layoffs or austerity, recalling the trauma of the Asian financial crisis. But its true meaning is different. At its core, structural reform concerns how an economy creates wealth — its mechanism of accumulation. 

For decades, South Korea’s accumulation model was vertical and top-down. In an era of capital scarcity and limited technology, growth was driven by a strict division of labor: the state planned, firms executed. Resources were allocated through command-and-control mechanisms, enabling rapid, manufacturing-led expansion.

That model delivered results, but it is no longer sustainable. Vertical structures tend to create silos, hinder convergence across sectors, and reduce flexibility in responding to change. Even Germany, long admired for manufacturing efficiency, now faces what some describe as “industrial arteriosclerosis,” the result of delayed digital transformation within a highly optimized but rigid system. 

The first task of structural reform in 2026 is therefore to complete a shift toward horizontal connectivity that maximizes AI-driven productivity. Growth today depends less on scale within individual firms and more on collaboration that produces outcomes no single player can achieve alone. Collaboration is no longer limited to meetings or partnerships; it is increasingly a chemical process in which data flows across firms and industries, with AI mediating those flows to generate new value.

In the past, the government selected and nurtured heavy and chemical industries. Today, its role should be to diffuse AI as a general-purpose technology — infrastructure that raises efficiency across the entire economy. This requires building a “virtuous data cycle,” where manufacturing process data links with service-sector solutions, and mobility data connects with urban planning and public services. It also means moving beyond closed, vertically integrated conglomerate structures toward open ecosystems in which startups and large firms combine technologies on shared AI platforms.

The state’s task is not to command outcomes, but to design incentives and digital environments that allow data combinations and collaboration to occur freely.  

Financial reform must move in parallel by reshaping how capital flows. In the past, finance functioned mainly as a policy tool, channeling funds to designated strategic sectors. What is now required is a system of venture-oriented and productive finance that enables risk-taking by innovative firms.

Capital must flow more readily into future growth areas such as artificial intelligence, deep tech and climate technology, attracting both talent and opportunity. True “risk sharing” becomes possible only when financing decisions are based on technological capability and growth potential, even in the absence of traditional collateral — highlighting the importance of sophisticated policy finance. 

For startups and innovative firms to become new engines of accumulation, finance must act as a partner that shares in the upside of innovation, rather than a conservative system that avoids risk while privatizing gains. 

Korea’s objective should no longer be development alone, but genuine prosperity. The direction of structural reform in 2026 is clear: replace a vertical system of commands and rigid division of labor with a horizontal, collaborative structure that maximizes AI-driven productivity. If the country once escaped poverty by accumulating factories and machines, it must now advance to the next stage by accumulating data and innovation capital. That is the essence of structural reform in 2026 — and the key to restarting the growth engine.

* This article, published by Aju Business Daily, was translated by AI.