When old institutions pay off: a new entrepreneurial state in South Korea and its limit in incorporating small firms into semiconductor production

Abstract This study discusses why South Korea has not always succeeded in the ‘entrepreneurial state’ approach – defined as policy efforts to move away from the old developmental state model to a new industrial system of innovation in which small- and medium-sized enterprises (SMEs) are incorporated – by focusing on the limitation of new semiconductor industrial policies of the former Moon Jae-in government (2017–2022). Conventionally, many scholars have exclusively ascribed this limitation to large businesses' (chaebol's) practice of in-house production. Building upon historical institutionalism and its concept of increasing returns, alternatively, we shift attention to the way the Moon government played its entrepreneurial role. We argue that, as the government sought increasing returns from the developmental state idea and institution, the likelihood of wider SME incorporation decreased. Nationalism enabled the government to control the policymaking process but made it difficult to obtain new information through policy contestation. The government depended on developmental alliance to increase policy visibility through the chaebol's capabilities, but demands of small firms were downplayed. This study proposes to construct a more theoretical framework with which to explain how the old political economy model affects new entrepreneurial goals.