The truth about profit-sharing

Chung Un-chan

The author, a former president of Seoul National University and former prime minister, is the chairman of the Korea Institute for Shared Growth.

A recent proposal by the presidential policy office for a so-called national dividend sparked intense debate across Korea. The idea was to return excess tax revenue generated by the booming AI industry to the public. Financial markets reacted sharply and the Kospi fluctuated significantly.

During the debate, however, some media outlets improperly dragged in the concept of “profit-sharing,” portraying it as something entirely different from its original meaning. Critics framed the system as a “communist-style redistribution scheme” or an infringement on private property rights, using it to attack broader policies aimed at shared growth between large corporations and smaller firms. Such a distorted framing of profit-sharing, one of the central mechanisms of co-existence-oriented growth policy, deserves correction.

The government’s proposed national dividend and profit-sharing are fundamentally different concepts. A national dividend is a welfare policy in which the state redistributes wealth through the tax system. Profit-sharing, by contrast, is a market-based transaction model in which large corporations and their smaller business partners agree in advance to share gains generated through their commercial relationship.

It is not a system in which the government confiscates corporate wealth and distributes it to the public. Rather, it is a contractual arrangement that rewards partner firms that directly contributed to innovation and production.

Calling such a model communist reflects a misunderstanding of both economic history and modern management theory. The origins of profit-sharing can be traced to Hollywood in the United States during the 1920s. Film studios sought to reduce uncertainty surrounding box office performance by signing contracts with directors and actors that combined relatively low guaranteed payments with a share of profits if a film succeeded commercially.

Global corporations such as Chrysler and Rolls-Royce later adopted similar systems in managing supply chains. The NFL went further by introducing revenue-sharing mechanisms designed to promote collective sustainability and prosperity. Even Google and Apple operate ecosystem-based profit-sharing structures with app developers. No one would seriously claim those companies operate under communist principles.

Profit-sharing is not unfamiliar in Korea either. Many corporations have long maintained internal systems in which employees receive bonuses when profits exceed targets. Extending such arrangements to subcontractors and partner firms should not be interpreted as ideological radicalism. The negative reaction from parts of Korean society instead reflects a failure to understand how market economies evolve.

Capitalism has advanced not when greed was left unchecked but when systems encouraged restraint, co-existence and sustainability. The original intent behind Adam Smith’s “The Theory of Moral Sentiments” (1759) and “The Wealth of Nations” (1776) was also to prevent monopolistic concentration and preserve the healthy circulation of wealth throughout society.

Today, the global economy has shifted from competition between individual firms to competition between industrial ecosystems. Even the most successful conglomerate cannot maintain competitiveness if the suppliers supporting it collapse. Amid growing uncertainty in global supply chains, shared growth is no longer merely a moral slogan. It has become a core management strategy aimed at maximizing value while distributing risk more efficiently.

Profit-sharing serves as an important mechanism for strengthening such ecosystems. When export-oriented conglomerates generate profits exceeding targets through products developed jointly with small suppliers, distributing part of those gains to partner companies aligns with market fairness.

Smaller firms can then reinvest those resources into research and development, secure skilled workers and improve the quality of components supplied to larger manufacturers. This creates a virtuous cycle in which stronger suppliers reinforce the competitiveness of larger firms, forming what economists describe as an inclusive economic structure.

If economic gains remain concentrated solely in corporate reserves held by large conglomerates, Korea will struggle to overcome chronic problems such as slow growth and widening inequality. Wealth must circulate through small businesses and households, which function as the capillaries of the real economy.

Corporate leaders should remember the spirit of co-existence rather than ignore the difficulties facing smaller partners. The media should also move beyond ideological interpretations and examine the substance of the system itself. The real issue is not ideology but how to refine profit-sharing into a more market-friendly and sustainable institution capable of supporting Korea’s long-term prosperity.

This article was originally written in Korean and translated by a bilingual reporter with the help of generative AI tools. It was then edited by a native English-speaking editor. All AI-assisted translations are reviewed and refined by our newsroom.