Korea's future fund should finance the next boom

The best time to prepare for the end of a boom is while it still feels permanent.

Korea’s artificial intelligence (AI)-memory surge is lifting exports, profits, and tax revenue. It has also given the government a rare chance to finance the technologies that could lead the next cycle. The proposed Future Response Fund can help, but only if it is designed with a clear purpose.

The fund’s size, financing structure and investment priorities remain unsettled. Those choices will go through interagency consultation and National Assembly review. That makes the current moment important. Once programs and beneficiaries are fixed, they become difficult to change.

Because the fund may serve several national priorities, its industrial investment window should be identified separately, with clear objectives and public reporting. Otherwise, broad social and regional goals could make it hard to tell whether technology spending is strengthening Korea’s productive capacity.

The question is straightforward: What should the fund do that existing budgets, policy banks and private firms are unlikely to do well on their own?

Korea is already expanding support for research and commercialization. The government’s industrial research and development plans emphasize projects led by customers, manufacturing, AI, regional research centers and commercialization finance, along with a reduction in administrative burdens. These are useful reforms. Korea’s deeper problem is not simply how much it spends on research. It is the distance between a promising result and a product that a demanding customer will buy.

The Future Response Fund should concentrate on that gap.

It should finance shared pilot lines, advanced packaging and testing facilities, large-scale testbeds, specialized engineering programs and early supplier qualification. These capabilities are expensive and their benefits spread across many firms. No single company has a strong incentive to build all of them at the scale Korea needs.

The fund should be cautious with routine capital spending. When a company already has a commercial reason to build a factory, government money may simply replace private money. Public funding should be reserved for infrastructure and commercialization bottlenecks that would otherwise remain underfunded.

It should also avoid becoming a permanent grant program for favored companies. Public money should help promising technologies reach their first serious customer, not guarantee the survival of every participant.

Even a well-designed fund has limits. Government programs must define eligible technologies and select projects. That works when the country faces a clear infrastructure gap. It works less well when several technical paths need to be tested and no one knows which will succeed.

Korea therefore needs a second tool in the form of a stronger general research and development tax credit.

The current credit is sharply differentiated by company size. Small firms can claim 25 percent of eligible general research and development spending, qualifying mid-sized firms can claim 8 percent, while the rate for larger firms is capped at 2 percent. Korea also provides stronger incentives for designated strategic technologies. But official technology lists cannot capture every promising field when industrial change moves faster than tax legislation.

Large firms conduct many of Korea’s most expensive research programs in semiconductors, batteries, robotics, advanced materials and industrial AI. They employ large engineering teams, operate pilot production systems and work with global customers. Their research also supports equipment makers, suppliers, universities and smaller technology companies.

A stronger general credit for large firms should not be treated as a reward for size. Its purpose should be to induce research that might otherwise be delayed, reduced or carried out elsewhere. The credit should remain broad, predictable and tied to genuine research and development spending.

The two policies would then serve different purposes. The Future Response Fund would build shared capabilities and close gaps between research and commercialization. The research and development tax credit would allow firms to pursue a wider range of technical bets without waiting for government approval. The government would identify the capability gaps Korea needs to close. Firms would compete over how to close them.

Both policies should be judged by results. Announced budgets, patent counts and the number of participating companies can show activity levels. They do not establish technological leadership. Korea should track the time from research to first deployment, progress against global technology gaps, adoption by major customers, private investment and exports.

Programs that work should expand. Programs with a sound strategic purpose but weak execution should be redesigned. Programs that no longer address a real capability gap should end. A temporary revenue boom should not create permanent spending commitments.

Korea’s AI-memory lead is real. It is also temporary unless the country keeps earning it. The best use of today’s windfall is to build the research infrastructure, incentives and commercial pathways from which the next lead can emerge. The Future Response Fund should help Korea create the next boom rather than simply spending the proceeds of this one.

Daniel Castro is president of the Information Technology and Innovation Foundation (ITIF), a leading science and technology policy think tank, and founder and director of ITIF’s Center for Data Innovation. Kim Se-jin is a tech policy analyst at ITIF’s Center for Korean Innovation and Competitiveness.