[Editorial] Liberalize Entry Into the Service Sector

The Medical Devices Act bans the opening of an optical store without an optician’s license. The Public Hygiene Management Act prohibits the opening of a beauty parlor without the proper license. Even with the right qualifications or sufficient capital, a Korean cannot open such businesses or hire workers with licenses. Ownership of a license, however, allows the opening of just store. License holders have apparently toughened entry barriers to protect their interests.

It is also almost impossible to become a new gas provider since the service areas of established providers are thoroughly protected. Established gas providers -- five in Seoul and 32 in other cities -- have received protection from entry barriers. In the insurance guarantee market, Seoul Insurance Guarantee Company, which has monopolized the market for the past decade, has generated an annual surplus of 360 billion won (291 million U.S. dollars) over the past three years. Consumers’ rights have been frequently violated with the preservation of outdated entry barriers designed to protect providers despite the rapidly changing market.

If entry barriers are lowered, consumers stand to benefit more. Fierce competition among providers usually brings better quality, lower prices, and more jobs. If an experienced CEO hires several licensed opticians and establishes a national chain of optical stores, he or she can lower the price of glasses.

In the second half of this year, the government plans to significantly lower entry barriers in the service sector to better protect consumers’ rights and generate more jobs. The government had announced a review of licensing in September last year, but has failed to pursue related policies. Nevertheless, it should release details of its plan for lowering entry barriers and push it forward as scheduled.

If holders of professional certificates or licenses stick to a monopolistic style of business, they could be labeled as narrow minded. In line with the signing of free trade agreements with other countries, the domestic service market will be gradually open to foreign competition from next year. Since they cannot survive if they rely on entry barriers, certificate or license holders should pursue changes.

First, licenses or certificates given to doctors, pharmacists, designers and certified public accountants were created to protect consumers. The extremely strict method in which the license system has been operated, however, shows it mainly protects service providers, not consumers. License holders complain that lowered entry barriers will hurt consumers, not help them. This argument is a mere excuse, however. In September 2002, the Constitutional Court struck down Article 16, Clause 1 of the Pharmaceutical Affairs Act as unconstitutional. The ruling said the article stipulated that only pharmacists could open drugstores. The national license system and provider-oriented monopolistic structure should undergo changes reflecting shifts in the market and continuously evolve.