The reason for the ‘large-scale overhaul’ of government R&D projects and drastic budget cuts is

Ministry of SMEs and Startups expresses strong will to improve R&D business
Budget cuts of up to 50%, full payment impossible if changes are not accepted
Is it possible to restructure the R&D business, which has been criticized as a waste of taxpayers' money?

While news of the government’s large-scale cut in the R&D budget for small and medium-sized enterprises shook the venture industry, the Ministry of SMEs and Startups announced that it would hold an information session on changes to R&D agreements for small and medium-sized businesses in each region within this week. Despite growing dissatisfaction from each industry over budget cuts, he emphasized, “If we do not accept changes to the agreement, we will not be able to pay this year’s research funds.” This is a resolute expression of the government’s will to fix government R&D projects that are not producing results relative to their investments.

The budget will be drastically reduced, and research funds will be cut off if you do not comply

The small business R&D agreement change briefing session will be held to adjust government contributions to small and medium-sized business R&D projects in 2024 and share changes to the agreement. This year’s government’s R&D budget for small and medium-sized enterprises is KRW 1 trillion, a 4,097% decrease compared to last year (KRW 1 trillion). The cut budget was allocated intensively to key areas such as private R&D, R&D in strategic technology areas, and R&D for global innovative companies.

On the other hand, in the case of ‘continuing projects’ that carry out long-term projects such as small and medium-sized enterprise technology cooperation development and strategic cooperation technology development of materials, parts, and equipment, the budget allocation amount was only 6 months. Considering that the budget for continuing projects was reduced by half this year, the Ministry of SMEs and Startups decided to decide whether to accept changes to agreements for each project, request for suspension, or refuse compliance through consultations between research and development institutions. The policy is not to impose sanctions in cases where projects are changed or discontinued due to budget reduction.

The problem is that if the small business carrying out the project does not comply with the agreement changes, it will not be able to receive all of this year’s research funds. This means that small and medium-sized businesses that cannot provide their own R&D funds virtually have no choice but to accept changes to the agreement. There are a total of 24 projects that require agreement changes, including start-up growth technology development and small and medium-sized enterprise technology innovation development, and the budgets of 22 of these projects were cut by 50%. The number of R&D projects under the Ministry of SMEs and Startups that are subject to budget cuts is close to 4,000.

Huge R&D investment, shabby results

Although the Ministry of SMEs and Startups understands the industry’s dissatisfaction, its position is that R&D reorganization is inevitable. This shows a strong will to improve inefficient government R&D projects. Although government R&D budgets are difficult for the private sector to invest in, they are generally invested in technologies that are public goods and are essential to the nation. However, the domestic venture industry has previously been criticized for wasting the government’s R&D budget on unnecessary areas. In fact, government R&D budgets are used as survival funds for ‘zombie companies’ that have no ability to survive on their own, while they are also abused for technology development focused on the profitability of specific private companies.

This is not a problem limited to the venture industry. Government-funded research institutes, which are allocated about half of the government’s research and development (R&D) budget, are being criticized for producing virtually meaningless ‘closet patents’. In fact, the Korean Patent Attorneys Association analyzed 2021 patents registered at the Korean Intellectual Property Office by 19 government-funded research institutes in 384 by dividing them into 10 grades, and found that there were 1 patents in grade 0, the best, and only 2 patent in grade 1. It was confirmed that more than half of the patents remained at the level 5 or 6 (57.8%).

The Korean Patent Attorneys Association determines that although it is possible to ‘register’ a patent of level 5 or lower, it is difficult to actually commercialize it. In fact, most of the patents registered by government-funded research institutes are closet patents. This is the current state of Korea’s R&D business, which ranks first in the world (as of 1.33) in the ratio of government R&D investment to GDP (4.9%) and the ratio of R&D investment to total government expenditure (1%). The government’s R&D budget cut is interpreted as an attempt to break the cycle of ‘wasting taxpayers’ money’ in chronic R&D projects.