Critics call for more realistic approach to help small businesses struggling through pandemic
Business owners stage a street performance in Myeong-dong, central Seoul, Wednesday. They say the government’s compensation plan only benefits building owners and not the self-employed. (Yonhap)
A government program to compensate small businesses for losses incurred because of the social distancing guidelines will only end up fattening landlords’ wallets, critics said.
Starting Wednesday, the government is accepting applications from pandemic-hit businesses and self-employed business owners for the 2.4 trillion won ($2.05 billion) cash subsidy plan.
Under the program, business owners can get up to 80 percent of the money they lost as a result of following the government’s social distancing guidelines. An estimated 800,000 individuals will be eligible for financial subsidies of up to 100 million won, the government said.
But many civic groups say the subsidies are too small and are likely to be used to pay rent.
“Rent is a fixed cost that occurs every month. It’s not something you can change with effort. Many business owners have been struggling to pay it back over the past year,” said Park Ji-ho, the secretary-general of one of South Korea’s largest groups representing small-business owners, during a call with The Korea Herald.
According to a survey of some 800 business owners conducted by the left-leaning civic group People Power 21, average compensation was likely to be similar to or even less than a month’s rent, of which the average was 7 million won.
This means most of the cash will be used to pay rent and save the business from going under.
Similarly, Lee, a former owner of a small clothing shop near Ewha Womans University, had to close down her store due to the high rent.
Her business suffered greatly after Chinese customers, her main customer base, stopped visiting the area for more than a year. She was eventually forced to close her shop after her landlord struggled with high vacancy rates and eventually sold off his building.
“A small clothing shop on the corner near Ewha Womans University can charge around 2 million won in monthly rent. The cosmetics shop that opened next door paid 6 million won last year, and that was at a discount,” she said.
“A couple of million won in government subsidies is not enough to even pay off rent at some places,” she added.
To realistically help small-business owners, the government should find a way for the landlord, financial institution and business owner to share the cost burden of rent instead of putting the burden entirely on small businesses, said Park. He suggested giving tax incentives to building owners willing to share the cost burden.
Some 50.7 percent of respondents to the People Power 21 survey said they had overdue rent to pay. Some 25.8 percent of respondents said they had fallen more than three months behind. Under Korean law, a landlord can evict a tenant if the rent is three months in arrears.
Business owners who were excluded from the subsidy program urge the government to expand it, at a press conference in Yeouido, western Seoul, Tuesday. (Yonhap)
Some argued the compensation plan neglects the many businesses that were indirectly affected by the COVID-19 prevention measures. While they may not have had to limit their hours of operation, they suffered too, said the Korea Federation of Micro Enterprises.
“It’s unjust to only include locations that had to follow operational hour limits. It’s unacceptable that the government excluded the accommodation industry when we diligently followed the government’s pandemic restrictions,” said Jeong Kyeong-jae, the head of a group of motel owners.
Experts also agreed that the subsidies allocated so far are insufficient to cover a country where self-employed business owners make up a quarter of the working population.
The government should have aggressively budgeted subsidies for business owners to promote spending and revive the real economy, they say.
“Korea has one of the highest populations of business owners among developed countries, and they play a pivotal role in restoring the economy. The government may have taken a conservative approach with the budget. They should have aggressively expanded the amount even if it put a burden on the national budget,” said economics professor Kim Sei-wan of Ewha Womans University.
By Kang Jae-eun (email@example.com