The Trap of Regulation and Vested Interests: Lessons from Gwangju and Korea's Future

Preface: A Question Posed by a Single Number

In June 2025, the population of Gwangju Metropolitan City fell below 1.4 million for the first time in 21 years.

This is not a simple population decline. It is a clear signal that one of South Korea’s six major metropolitan cities has entered a path of structural decline.

From 2004 to 2024, 97,000 young people moved from Gwangju to the Seoul metropolitan area. During the same period, 78.2% of the total net outflow of 124,000 people were youth. Every year, between 3,000 and 6,000 people, the future of this city, were loaded onto trains bound for Seoul. The waist that supports the city is breaking.

The reason young people are turning their backs on their hometown is clear. Because there are no jobs and nothing to enjoy.

But there is a strange point. Gwangju has no Costco. No IKEA. No Starfield. No Traders. It is the only metropolitan city in the nation that, beyond the stigma of being a ‘No-Jam (Boring) City’, does not even possess basic consumption infrastructure.

Why?

It’s not because there were no investors. Over the past 10 years, Shinsegae Group came with a 600 billion won investment plan. Lotte came, Hyundai came, and global retail giants like Costco and IKEA also knocked on the door. These were proposals to create jobs, pay taxes, and breathe vitality into the city.

But they all went back empty-handed. Because they hit the massive wall of “Protection of Traditional Markets” and “Opposition to Chaebol Retailers”. It was a ‘cartel of regulation’ created by civic groups, merchant associations, and politicians conscious of them.

Now, 10 years later, what is the result? Have the traditional markets they vowed to protect revived?

The 2025 research results of the Federation of Korean Industries (FKI) are shocking. Even with mandatory closures of large marts, purchase amounts at traditional markets actually decreased by 55%. On the other hand, purchase amounts at online malls exploded by 125%. In an era where the consumption paradigm has changed, the idea that consumers would go to traditional markets if competitors were shackled was closer to ignorance than naivety.

The traditional markets they said would be protected are dying, the city they said they would protect is becoming empty, and the youth they said they would protect have packed their bags and left. This is a massive social tragedy created by ‘regulation omnipotence’ beyond mere policy failure.

And the bigger problem is that right now, all of South Korea is walking the exact same path as Gwangju.

According to the May 2025 outlook of the Korea Development Institute (KDI), South Korea’s potential growth rate will crash to 0% in the 2040s, or negative in a pessimistic scenario. The Bank of Korea warned that the growth contribution of labor input will turn negative starting in the 2030s. The World Bank analyzed that if Korea’s regulations are relaxed to the level of other developed countries, the growth rate would rise by 1.4 percentage points.

Currently, Korea’s growth rate is around 1%. It means that just by loosening regulations, the growth rate could nearly double. However, we are still churning out countless regulations under the guise of ‘fairness’, ‘coexistence’, and ‘protection’.

This article starts with the tragedy of one city, Gwangju, but ultimately asks about the fate of South Korea. How regulations and interests swallow a city, and a nation. And why now is the last chance to reverse this flow. Numbers do not lie. Now, let’s face that cold truth.

Part 1: Gwangju, the Galapagos of Capitalism

10 Years of Frustration: How 600 Billion Won Vanished

In 2015, Shinsegae Group announced an ambitious plan to build a luxury hotel and complex shopping mall on the site of E-Mart in Hwajeong-dong, Seo-gu, Gwangju. The investment scale alone was about 600 billion won. It was a large-scale project that would generate thousands of jobs during the construction phase alone, and thousands of permanent jobs after completion. Annual local tax revenue of tens of billions of won was a bonus.

However, this plan could not even break ground. It was due to the organized resistance of some civic groups and politicians backed by opposition opinion claiming “Traditional markets will all die” and “It only fills the bellies of chaebols.”

It wasn’t just Shinsegae. When Costco attempted to enter, the building permit was rejected, and eventually, Costco turned its steps to nearby Suncheon and Naju in Jeonnam. IKEA also looked for a site but concluded “Gwangju is difficult” and withdrew. For over 10 years, investments worth trillions of won were blocked one after another.

What was the result?

Even existing large marts withdrew. E-Mart Donggwangju and Sangmu branches, and Homeplus Gyerim branch closed their doors one after another. As new investments were blocked and the city’s commercial district shrank, existing businesses packed their bags unable to hold out any longer. The basic principle of economics, the vicious cycle where ‘investment attracts investment, and contraction invites contraction’, became reality.

As of 2025, Gwangju has become the only metropolitan city in the nation without a large complex shopping mall, a strange city where citizens leave for ‘expedition shopping’ to Daejeon or the metropolitan area on weekends.

What Did Other Metropolitan Cities Do?

Let’s compare.

Busan attracted Shinsegae Centum City, setting a Guinness record for the world’s largest department store, and formed a huge commercial district around it. Large retail facilities like Lotte Department Store Centum City, 2 Costco stores, IKEA East Busan, and Lotte Mall East Busan are lined up. Busan attracted tourists and revitalized the local economy through this.

Daegu successfully attracted the Shinsegae Dongdaegu Complex Transfer Center, completely transforming the Dongdaegu station area. Currently, two additional complex shopping malls are under construction.

Daejeon attracted Shinsegae Art & Science and Hyundai Premium Outlets to shed the stigma of being a ‘No-Jam City’. Costco and IKEA also entered. And now, the shopping destination most visited by Gwangju citizens every weekend is none other than Daejeon.

Even Ulsan is ahead of opening a complex shopping mall.

Only Gwangju lagged behind. Why? Not because there were no investors. Because investment was defined as evil and rejected. It is the result of ideology overwhelming the economy.

Gwangju’s Reality in Numbers

The price of ideology was harsh. According to the 2024 regional income statistics of the National Data Agency (formerly Statistics Korea), Gwangju’s Gross Regional Domestic Product (GRDP) per capita is 37.68 million won, ranking 15th among 17 cities and provinces nationwide. It is at the bottom level. It is only 76.1% of the national average (49.48 million won).

More serious is the consumption outflow rate. Gwangju’s consumption outflow rate is 26.5%, ranking 3rd nationwide. It means that more than a quarter of the money earned in Gwangju is spent in other cities. Gwangju citizens have to leave for other cities to shop or enjoy culture. That money does not contribute to the Gwangju economy but fattens the economies of Daejeon, Seoul, and Busan. They blame ‘sluggish domestic demand’, but it was Gwangju itself that eliminated the space for domestic demand to occur.

A City Youth Leave

The most tragic number is youth outflow.

According to National Data Agency population movement statistics, the net outflow of youth in Gwangju in 2024 was 5,860, an 87% increase compared to 2020 (3,137). The youth ratio among the total net outflow of 7,962 reaches 73.6%. It means that more than 7 out of 10 people leaving are youth.

Why do they leave? The Gwangju Metropolitan City Youth Statistics Report (2024) cited “complex factors such as lack of jobs, burden of housing costs, and lack of cultural infrastructure.” Having blocked large corporate investments that would create quality jobs and complex shopping malls that would become cultural and leisure infrastructure, it is inevitable that youth leave.

Young people say, “There is no place to play and no place to work in Gwangju.” To them, the pretext of ‘protecting traditional markets’ is just an empty echo. No youth will have an attachment to a city that fails to protect their lives.

The Paradox of Protection: Who Was Protected?

They shouted “Protect traditional markets” for 10 years. So did traditional markets revive?

According to the April 2025 research results of the Korea Economic Research Institute under the FKI, purchase amounts at traditional markets on days when large marts were closed decreased by 55% compared to 2015. On the other hand, purchase amounts at online malls exploded by 125%.

Even when large marts closed, consumers did not go to traditional markets. Instead of going to the market to buy bean sprouts, they opened their smartphones and ordered Coupang Rocket Fresh and Market Kurly Dawn Delivery. It is a disaster brought about by the simple idea that ignoring changes in consumption trends and eliminating physical competitors would suffice.

Ultimately, the target the regulations intended to protect (traditional markets) was not protected, and only unintended third-party competitors (online retail giants) were fostered. This is the ‘Paradox of Regulation’.

Then who was protected?

Some established merchants trying to maintain existing businesses without competition, and specific groups that have exercised political influence by leading anti-chaebol struggles in the name of “civic movements.” Hiding behind the moral pretext of “protecting small business owners,” they eventually ate away at the competitiveness of the entire city. For their interests, the convenience of the majority of citizens and the future of youth were sacrificed.

Part 2: Economics of Regulation, and Public Choice Theory

Regulation is Not Free

“If regulations are relaxed by 6% annually over the next 5 years to lower them to 30% of the current level, the total factor productivity growth rate after 5 years could be 1 percentage point higher than now.” - Bank of Korea (2008)

Regulation is not free. We pay massive invisible social costs.

1. Investment Opportunity Cost: What if 600 billion won had been invested in Gwangju on time? Direct employment during construction, permanent employment after completion, sales of stores in the shopping mall, growth of related service industries, increase in local tax revenue. All these opportunities vanished into thin air. According to the results of a service commissioned by Gwangju Metropolitan City in December 2025, if all ‘Big 3’ complex shopping malls enter, an economic ripple effect of up to 16 trillion won is expected. We kicked away this massive wealth ourselves for 10 years.
2. Consumer Welfare Loss: Gwangju citizens were forcibly deprived of shopping choices. Transportation costs to go to Daejeon to buy what they want, time wasted on the road, or the decrease in utility experienced by giving up shopping itself. All of this is the cost caused by regulation.
3. Brain Drain Cost: Talent that leaves once does not easily return. The added value they create in other cities, the taxes they pay, and their entire lives of marrying and raising children belong to places other than Gwangju. The vitality of the city is permanently damaged.

Regulatory Capture

Public Choice Theory in economics explains the mechanism by which regulation is formed and maintained for the Private Interest of specific interest groups rather than the Public Interest. This is called Regulatory Capture.

Gwangju’s case is typical. The pretext of “protecting traditional markets” sounds good. It is easy to take the moral high ground. However, in the actual policy-making process, a small number of organized interest groups (merchant associations, civic groups) exercise greater influence than the majority of scattered citizens (consumers, youth). Politicians have no choice but to listen to the voices of the organized few who give votes and donations.

As a result, the regulatory agency (local government) is captured by the regulated group (interest groups), making decisions contrary to the interests of the entire citizenry. Gwangju’s 10-year stagnation is the result of this ‘Regulatory Capture’.

Part 3: South Korea, Following in Gwangju’s Footsteps

Economy Drowning in a Flood of Regulations

The greater fear is that this tragedy that unfolded in Gwangju is now being replayed on a national scale in South Korea.

The number of registered regulations of 43 central ministries reached 47,640 as of the end of 2024, a 4.2% increase from 5 years ago. During the same period, technology startups decreased by over 10%. Startups are decreasing while regulations are increasing, a worst-case situation impossible to explain economically.

Departing Companies: Korea Exodus

The direct victims of regulation are companies. Companies no longer invest in Korea.

In a 2024 survey by the Korea Enterprises Federation, 40% of large companies with 300 or more employees expressed an intention to reduce domestic investment. The reason is clear. “Because there are too many regulations, labor flexibility is low, and the atmosphere treats companies like criminals.”

In 2023 alone, 2,816 domestic companies moved their legal entities overseas or built factories abroad. On the other hand, ‘reshoring’ companies that returned to Korea were only 22. Companies leaving are more than 100 times those entering.

The ratio of Outward Direct Investment (ODI) divided by Foreign Direct Investment (FDI) was 168.9% as of 2023. It means that domestic capital leaving Korea is 1.6 times more than foreign capital entering Korea. Money, companies, and people are all leaving. Just as youth leave Gwangju, companies are leaving South Korea. If this isn’t a ‘Korea Exodus’, what is?

The Fall of Potential Growth Rate: A Predicted Disaster

The Korea Development Institute (KDI) and the Bank of Korea warn that South Korea’s potential growth rate could crash to the 0% range or even negative in the 2040s.

Regulations block innovation, lack of innovation leads to stagnant productivity, stagnant productivity shrinks investment, and shrinking investment leads to job losses. A Death Spiral. This is the current address of the South Korean economy.

Part 4: There is a Solution — Lessons from Argentina and Singapore

Milei’s ‘Chainsaw Reform’: A 2-Year Miracle

There is no need to despair. We just need to change direction. There is a country that chose the exact opposite path of Gwangju and achieved a dramatic reversal. It is Argentina.

Javier Milei took office as President in 2023 in Argentina, where the economy was ruined by populism, lax finance, and excessive regulation. Saying he would “cut regulations with a chainsaw,” he reduced 18 government ministries to 9 immediately after taking office and abolished over 300 unnecessary regulations at once.

The results were astonishing. The murderous inflation rate, which reached 211% annually, plummeted to 31% in 2 years, finding stability, and the Argentine government achieved a fiscal surplus for the first time since 2008. It proved that economic recovery, which seemed impossible, is possible just by abolishing regulations and restoring free market principles.

Singapore and Hong Kong: Economic Freedom Creates Wealth

In the 2025 Economic Freedom of the World Index released by the Fraser Institute, Hong Kong ranked 1st and Singapore ranked 2nd. How did these small city-states with no resources become the world’s richest countries?

The answer is Economic Freedom. A business-friendly environment, low taxes, flexible labor markets, and minimal regulation.

On the other hand, Korea’s economic freedom index stopped at 38th. Comparing per capita household income makes the difference even clearer. Singapore’s per capita GDP based on Purchasing Power Parity (PPP) exceeds $130,000, while Korea remains at the $50,000 level. Regulations are cutting our growth in half.

Part 5: Leave it to the Market

The solution is clear. We can delay no longer.

First, a total transition to Negative Regulation. We must break the old frame of “You can only do what is specified in the law (Positive).” We must go to “You can do everything except what is prohibited (Negative).” Innovation is not something you do with permission. Let them do it first, and regulate later if problems arise; it won’t be too late.

Second, strict application of Regulatory Sunsets. We must set expiration dates for all regulations. We must prevent regulations once created from surviving like zombies and shackling the economy. We must verify the effectiveness of regulations every 3 or 5 years, and automatically abolish them if they cannot be proven.

Third, complete dismantling of retail regulations. Regulations like the mandatory closure system for large marts and restrictions on new store openings, which have only caused consumer inconvenience and adverse effects without effectiveness, should not be completely re-examined but immediately abolished. Fortunately, in Gwangju, driven by the fervent demands of citizens, changes have belatedly begun with The Hyundai Gwangju and Shinsegae Art & Culture Park breaking ground. But the lost 10 years will not return.

Fourth, re-establishment of the government’s role. The government is a referee, not a player. It should focus on making fair rules and monitoring, not intervening directly in the market to control prices and sway corporate investment. Play must be left to the private sector and the market.

Conclusion: The Last Chance

The case of Gwangju Metropolitan City is a desperate lesson showing how misguided beliefs and interest politics can ruin a city.

Let’s look at the numbers again: Traditional market sales -55%, Youth outflow +87%, Per capita income at the bottom nationwide. This is the report card of regulation.

And now, all of South Korea is about to follow this path: Business sentiment outlook negative for 46 consecutive months, 2040s growth rate 0% warning.

Let’s leave it to the market. Let’s loosen regulations. Let’s allow competition.

As Argentina showed, bold reform is possible. As Singapore showed, the free market is a guarantee of prosperity.

The pain of a youth from Gwangju having to leave their hometown in tears to find a job must not spread to all of South Korea. To the youth packing immigration bags saying “There is no future in Korea,” we must be able to say, “No, we have the power to leap again.”

We cannot pass on a grim future of 0% growth rate in the 2040s, a purely impoverished country, to our children.

Now might be the last chance to change direction.

---

References