[Gangnam Perspective] Survival Keywords in the Age of AI

The business succession tax deduction has suddenly become the focus of public debate. During a State Council of South Korea meeting on the 6th, President Lee Jae Myung of South Korea exposed the abuses of de facto tax-avoiding business transfers, sharply remarking that the situation was "absurd." That does not mean the business succession deduction system should be demonized in a witch-hunt. There were reasons and circumstances that justified its introduction in the first place.
When the system was first introduced in 1997, its purpose was to protect the technologies of small and medium-sized enterprises. There was broad support for the idea of passing on the founder’s craftsmanship and know-how to the second generation and nurturing century-old companies. In the 2000s, the system was further expanded to strengthen benefits in line with its stated goal of "job retention." The rationale was that maintaining small and medium-sized enterprises would help sustain employment.
The problem is that there have been many cases where the intent of the business succession system has been exploited through loopholes. In fact, examples of such abuses have long been widely known through social media videos. It is nothing new to see people open a flashy bakery with no actual baking facilities, or turn a vast empty lot into a parking lot, then claim it as a family business succession and receive tax benefits.
So, would abolishing the business succession system altogether, or merely tweaking it, actually help strengthen the competitiveness of small and medium-sized enterprises?
In reality, the support system for family business succession is already trapped in a fundamental dilemma. Fewer and fewer second-generation heirs are willing to take over the founder’s business. Even if it is a business built on their parents’ sweat and sacrifice, the MZ generation (a combined cohort of Millennials and Generation Z in South Korea) will firmly refuse if it does not match their own aptitudes and values. This is why we see irregular successions involving parking lots and bakeries. Bringing in professional managers from outside is not easy either. It is difficult to build compensation schemes or governance structures attractive enough to recruit capable external executives. Public opinion toward family business succession is also harsh. In a social climate where inheritance is viewed as the passing down of privilege, tax support for business succession is losing its persuasive power.
On top of this, a decisive variable has emerged that neither small nor large companies can avoid: artificial intelligence (AI). The core justification for family business succession has been the transfer of craftsmanship and accumulated skills. The argument that founders pass on their embodied technical know-how and networks of trust and business relationships to their families has long served as a key rationale for tax deductions. Now, however, AI has begun converting the tacit knowledge once held only by founders into explicit knowledge that anyone can use. Skilled workers’ know-how is being turned into data, repetitive tasks into algorithms, and sales relationships into platforms. As AI-driven automation and algorithms spread across industries, the very reason for family business succession—passing down technology—is being shaken at its roots.
An even harsher reality is looming. While a company receives tax breaks and fulfills a ten-year employment maintenance requirement in order to hand the business to the second generation, the industry itself may be transformed or disappear. Traditional manufacturing sectors are the most directly exposed to the impact of AI. We could end up in a bizarre situation where taxes have been waived, yet no company, no jobs, and no technology remain.
Most critically, the system carries a built-in structural contradiction. In the age of AI, the survival keyword for small and medium-sized enterprises is rapid pivoting—that is, bold transformation. Yet the business succession system is premised on maintaining the status quo. Conditions such as restrictions on changing business lines, mandatory shareholding retention, and employment maintenance obligations act as shackles that block transformation. A system created to help companies instead holds back their growth while merely draining tax revenues.
Of course, policy must address the problem of companies struggling to survive because of the costs associated with business succession. The desirable policy direction is to preserve the system’s positive functions while correcting its side effects. However, we now stand at the threshold of a massive industrial transition. The smaller the company, the more precarious it is in the face of sweeping change. Our policy perspective must widen to match the shifting business environment. From that standpoint, it is more in tune with the times to shift the focus from "family" succession to "corporate" succession. What truly matters is not who holds managerial control, but whether the jobs and technologies—social assets embedded in the company—can endure.
jjack3@fnnews.com Reporter