This is an era of mass closures. One million businesses shut down every year. The closure rate among small businesses keeps climbing — a trend that has become unmistakably clear.
Whether the cause is shifting purchasing habits, changing consumer patterns and lifestyle changes, a prolonged economic slump, or minimum wage hikes has yet to be precisely analyzed. What is certain is that output has fallen relative to input — revenue no longer covers costs. This translates directly into owners' personal income and their ability to pay.
Particularly in the wholesale and retail sectors, which post some of the highest closure rates, small businesses have lost much of their competitive edge against platform-based rivals such as e-commerce operators. The incentive to keep the doors open has simply vanished. This cannot be dismissed as a matter of poor management. The structural causes must be identified.
In a platform-driven society, small businesses need to be redefined. Their status as the base layer of the production economy — the bottom of the pyramid — remains unchanged. They are the entities that supply the diverse, small-scale goods and personal lifestyle services that people need for daily life.
Beyond their varied production activities, small businesses also provide the widest range of employment of any sector — hourly, daily, monthly and annual arrangements. In effect, they allow individuals to choose whatever form of employment suits their needs.
Mass closures amount to a paralysis of this vast supply network. They can shake the economic ecosystem of production, employment, income and consumption from its very foundation. The causes must be identified and precise remedies applied.
Would it not be better, some ask, if everything simply scaled up or moved onto platforms? Human life cannot be reduced to something simple and standardized. And how bleak would an ecosystem look if only a handful of platform giants remained?
The roughly 8 million small-business operators in South Korea feel the impact of the minimum wage on the front lines. Whether registered as a corporation or as a sole proprietor with the National Tax Service, the scale and nature of their operations are the same. They differ only in whether they pay income tax or corporate tax and which tax code applies — their production and income-generating activities are identical.
Some sneer: "If you can't afford to pay, why did you start a business?" or "If you can't even meet the minimum wage, you're better off closing." It is the worst kind of insult.
A significant share of these owners are self-employed out of necessity — people pushed out of retirement or unable to find work elsewhere. For them, the distinction between employer and employee is meaningless. It is a tense equation between guaranteeing a bare minimum right to survival and stripping it away entirely.
The capacity to generate profit must also be examined. A business is entirely bound by the ratio of costs to revenue. No matter how hard an owner struggles, the balance sheet, cash flow statement and income statement set the limits. Within that profit-and-loss structure, small businesses are particularly vulnerable on the cost side — their value chains are too short to absorb cost shocks. Unlike larger companies, they generate almost no asset-related income either.
This is why cost structures urgently need attention. Just as average operating profit margins are calculated by industry, margins should be computed by sector — retail and wholesale, accommodation, food service, small manufacturers and the rest. This could lay the groundwork for a minimum wage calculation framework calibrated by sector with greater precision than a simple ability-to-pay measure.
freiheit@heraldcorp.com
