1. Why the “Millstone System” Hunts the Rising Individual Business Owner
(1) The Millstone’s Discriminatory Behavior: Beyond James C. Scott’s “Legibility”
We have previously examined how the “Millstone System” (Democracy + Welfare + Massive Bureaucracy) acts as a political mechanism to loot producers. Yet, a question remains: why do monopolistic manufacturing giants continue to maintain production facilities domestically despite knowing this?
The answer lies in their guaranteed monopoly status. The Democratic Welfare State imposes “Shadow Taxes,” shifting the burden of employment and welfare onto large corporations. In exchange, the state erects high entry barriers to block new competitors and installs “glass ceilings” to prevent small and medium-sized enterprises (SMEs) from competing. They are, in essence, “Gganbu” (partners in crime).
Simultaneously, the state extends the lifespan of “zombie companies” and micro-SMEs through subsidies and loans. Meanwhile, it imposes taxes and regulations on high-performance individual business owners—those with strong cash flow and growth potential—at levels that make reinvestment nearly impossible. Why does the Democratic Welfare State make such discriminatory choices?
Traditional explanations rely on James C. Scott’s “Legibility” logic. In Seeing Like a State, Scott argues that the state always seeks to make society “legible” to improve the efficiency of tax collection and conscription. According to him, corporations are “legible,” while small business owners are opaque, decentralized, and difficult to control. Thus, the state encourages corporations and suppresses small businesses.
However, several questions remain unanswered:
- Technological Sovereignty: In the 21st century, states possess advanced ICT and administrative power. If a state truly wanted to, it could make any small business legible. The collection efficiency of the National Tax Service in Korea is already overwhelming.
- Selective Suppression: The state does not suppress all small businesses. It implements paternalistic policies for failing businesses while stifling those trying to excel. According to capitalist logic, capable producers should be nurtured while the uncompetitive are phased out. Yet, policy perks like low-interest loans, guarantees, and exemptions from harsh labor laws are concentrated on uncompetitive, small-scale operators.
- Bureaucratic Risk Aversion: In a democracy, “legibility” often chokes the bureaucrats themselves. If the state intervenes in every domain—hygiene, safety, finance, environment—it must take responsibility for policy failures. Fearing public backlash, bureaucrats avoid increasing legibility in the private sector unless a superior takes clear responsibility. Their preferred state is inertia; they value avoiding accountability over expanding power. (This contradicts William Niskanen’s Public Choice Theory, which posits that bureaucrats strive for budget and organizational expansion—a topic I will dissect in detail later.)
- The Error of “Metis”: Scott assumes citizens value local, practical wisdom (Metis) over official, formal wisdom (Techne). This is a fatal error. Citizens actively demand standardization, infrastructure, and network improvements (transport, internet, weights, and measures) to enhance commercial efficiency. They consent to state attempts at legibility for the sake of convenience.
The core issue is this: the Democratic Welfare State loves big corporations and zombie SMEs but treats growth-oriented individual owners with extreme hostility. This article explores why the Millstone acts with such calculated discrimination.
(2) Why the Millstone Loves Big Corporations: Shadow Taxes and the Blame Shield
The public often views big corporations as “devils” and the state as an “angel.” In reality, they are inseparable partners. The state utilizes big corporations as an active “Blame Shield.” As Christopher Hood’s research suggests, democratic bureaucracies delegate policy implementation to private firms to avoid direct accountability. While bureaucrats hold the power of standards and licensing, the failure of the process is blamed on the firm.
This is the “Shadow Tax.” The government does not collect taxes directly but imposes obligations for the sake of the state and shifts the blame onto corporations when they fail.
Consider the recent “personal data leak” at the logistics giant, Coupang. The media highlighted the “immorality and greed” of Coupang’s management, and the public was enraged. Yet, the real responsibility lies with the individual perpetrator, the National Assembly that drafted flawed privacy laws, the government that approved a weak system without verification, and the prosecution that failed to catch the criminal. But the public only blames “Coupang.” Large corporations can absorb this blame; a small business owner cannot.
The mechanism of symbiosis between the state and big corporations operates in three stages:
- Stage 1: Outsourcing Exploitation If the state wants workers to have higher wages, it should provide subsidies from the national budget. Instead, the bureaucracy passes regulations: minimum wage, holiday pay, and 52-hour work weeks. The justification is always moral—human rights, dignity, etc. But the bill is sent 100% to the firm. The state takes credit for redistributing private capital to voters. Consequently, regular jobs decrease, and small producers who cannot afford compliance costs are “butchered.” Those who could have been independent producers are turned into precarious contract workers—an “invisible” tragedy that no one notices.
- Stage 2: Activating the Blame Shield When labor and compliance costs skyrocket, small business owners must raise prices or cut jobs to survive. The public then pours its anger into “greedy franchises” and “wicked corporations,” demanding investigations into price-fixing. The state, as if waiting for this moment, launches tax audits and parliamentary hearings. The state plays the “hero” to maintain its regime and secure votes, using producers as a shield against the resulting economic pain. Small producers, lacking the capacity to absorb this blame, go bankrupt, leaving only big corporations in the market.
- Stage 3: Moral Gaslighting If producers use loopholes to survive the shadow tax, the bureaucracy immediately uses the media to label them as “social evils.” Since legislatures in a democracy strive to maintain the “good guy” persona, they pass even harsher regulations and punishments. While the state’s credit-seeking caused the problem, the resulting side effects become a pretext for the bureaucracy to expand its budget and power—a self-augmenting loop. The public cheers for “consumer sovereignty,” unaware that this is exactly why prices rise and local neighborhoods are replaced by franchises.
[The Dark Deal: Trading Monopoly Rights for Shadow Taxes]
Big corporations endure the shadow tax and the blame shield because the payoff is sweet: State-sanctioned domestic monopolies. In Korea, the Fair Trade Act is often applied selectively—used only to discipline disobedient firms or foreign competitors.
The sheer scale of taxes and regulations becomes a barrier to entry and a glass ceiling for growth. A small firm cannot afford the infrastructure for ESG certification or complex labor management. As a result, the Korean economy is currently dominated by monopolistic giants:
- Telecommunications: 3 companies control 99% of the market.
- Banking: 5 banks hold over 90% of the market.
- Mobile Phones: Samsung holds a 70%+ share.
- Automobiles: Hyundai-Kia Group holds a 95% share.
- Search & Ads: Naver alone controls 60-70% (Google 30-40%).
Having been guaranteed a monopoly, big corporations pass the costs of the shadow tax down to consumers, subcontractors, and platform fees. The government knows this but remains silent in the name of “industrial competitiveness.” This is the “Gganbu System.” In this massive sandwich press, the only ones being crushed are the independent small business owners.
(3) Collection Efficiency: Bureaucracy Desires Controllable Gangsters
The second reason the bureaucracy favors big corporations and suppresses independent entrepreneurs is collection efficiency. In the film The Departed, the Massachusetts State Police do not attempt to eradicate organized crime entirely. Instead, they plant moles and exchange information to maintain a balance of power. The boss, Frank Costello, keeps the neighborhood “small fry” from selling drugs and maintains order in the commercial districts—all while serving as an FBI informant.
Bureaucracy operates on the same logic. As the modern welfare state deepens, “fancy” social responsibilities like the four major insurances, minimum wage, ESG, the Serious Accidents Punishment Act, and various labor protections skyrocket. The state lacks the budget and personnel to directly enforce these mandates. Therefore, it delegates these administrative tasks to big corporations that possess HR, finance, and compliance departments—at no cost to the state.
Big corporations perform withholding tax collection for tens of thousands of employees, pay the four major insurance premiums on their behalf, and manage the safety and environmental standards of subcontractors. The state achieves these results without deploying a single tax auditor. At the peak of capitalism, big corporations have become both profit-generating entities and unpaid welfare subcontractors executing state power.
(4) Why the Millstone Sustains Zombie Firms and Micro-SMEs
At a glance, the Millstone System appears to be a rent-seeker that takes credit while shifting all costs to producers. Surprisingly, however, it shows the face of a “benevolent patriarch” to zombie companies and micro-SMEs (workplaces with fewer than five employees). It pours massive amounts of policy funds and guaranteed loans into marginal firms that would have been weeded out by market logic long ago. Why this contradictory behavior?
What a democratic state fears most is political backlash from consumers and workers. Micro-SMEs are not framed as “greedy villains” like big corporations. Regulating them strictly creates two problems:
- Administrative Cost: There is no budget or manpower to monitor them. Hiring more civil servants to catch “small fry” invites public criticism.
- Political Risk: Even if enforced, it is attacked as “desk-bound administration” that tramples the common people. Conversely, if let loose and an accident occurs, the public blames the government for lack of oversight, resulting in “civil complaint bombs” and lawsuits.
Consequently, it is cheaper to act as a benevolent patriarch, keeping them alive just enough so they don’t cause trouble. The numbers the welfare state cares about are employment rates and self-employment closure rates. A million self-employed people in the streets shouting for the regime’s downfall is unmanageable. Thus, instead of restructuring, the state continues “life support” through policy funds and debt forgiveness. These firms function as statistical buffers to massage unemployment figures. They lack the capacity to pay heavy taxes or act as compliance subcontractors; they are simply the “second sons” who absorb the failure of the father-state.
(5) Summary: Two Logics of the State
The following table organizes the logic presented so far through two distinct frames:
| Category | James C. Scott (Legibility) | Christopher Hood (Blame Avoidance) |
| Behavioral Principle | Increasing Legibility | Avoiding Blame and Responsibility |
| State Objective | Transparent society for total control and collection | Enjoying power while minimizing risk and blame (Blame Game) |
| Role of Big Corporations | An easy-to-control target with transparent accounting | A “Blame Shield” that absorbs shadow taxes and public anger |
| Essence of Delegation | A leakage of control due to lack of state capacity | Intentional delegation to disavow responsibility and shift costs |
| Perception of SMEs | Opaque and troublesome targets escaping the state net | “Complaint Bombs” if regulated; Social Backlash if let die |
| Resulting Action | Thorough suppression | “Life Support” (Allowing them to barely breathe) |
3. Why the Millstone Beats Down the Growing Individual Entrepreneur
The Millstone guarantees monopolies for big corporations and life support for zombie SMEs. However, it classifies the high-potential individual entrepreneur as a “fattened pig” to be thoroughly looted. This is the exact point where the dreams of ambitious small business owners are broken.
(1) Why Loot the Fattened Pig? Democracy as a System of Institutionalized Envy (Ressentiment)
Why does the state impose high taxes, health insurance premiums, and regulations on individual entrepreneurs with high growth potential? Because they are a “risky” existence. Their local influence is significant, yet they do not bear the same legal and economic responsibilities as a corporation. Furthermore, they keep the profits for themselves, can hire/fire relatively easily, and are harder to punish than a corporation. Because they are sovereign individuals, they enjoy the protection of private property rights and physical freedom. The state is uncomfortable with this “lack of social responsibility,” and the public is consumed by envy.
Democracy, a system that divides sovereignty by 1/n, easily justifies this public envy. The state, serving the “public will,” imposes unbearable taxes on individual entrepreneurs to shift the social responsibilities (employment, welfare) that the government should fulfill.
Traditional “legibility” logic cannot explain why the state treats these individuals so harshly, yet suddenly offers subsidies and tax breaks the moment they convert to a corporation. In Korea, legibility is already near-perfect; digital transactions and tax invoices leave no room for hidden cash.
The real reason is that a democratic government, following the “public will burning with envy,” drives the fattened pig toward “incorporation.” Once incorporated, the individual becomes an employee of the corporation. They can no longer use money freely or exert influence as a private sovereign. They receive the title of “CEO,” but they lose their “wildness” and become a “fiduciary” of the legal entity. The money belongs to the corporation, and the state binds the corporation through commercial law, articles of incorporation, disclosure duties, and fair trade laws. The state then forces the corporation to fulfill the employment and welfare duties it could not impose on the individual. This is the reason why the government cannot restructure Korean companies, even though 55% of them do not pay a single penny in corporate tax.
A prime example of this politicized envy is the “Neon Green License Plate” law for corporate vehicles (2024). When the public saw CEOs using expensive foreign luxury cars for personal use through corporate leasing, their envy boiled over. While the issue could have been handled as a breach of fiduciary duty, the public wanted “humiliation.” The state chose to mark these cars with a fluorescent plate, signaling “I am a corporate car” to prevent the display of status. The result? The public was satisfied, the media praised it, and the issue vanished. It was an incredibly effective way to brand and discipline the “winners” in the name of “fairness.” Democracy is a system that resolves public jealousy.
(2) How the Millstone Loots the “Fattened Pig”
Individual entrepreneurs have no real defense once the state decides to “squeeze” them through tax audits. Since public sentiment is fueled by envy, the masses cheer for these high-intensity audits. A democratic state never chooses a policy that the public would condemn, regardless of its rationality. Instead, they whisper a seductive lie: “Convert to a corporation, and we’ll slash your 49.5% income tax to a 9-27% corporate tax. We’ll even lower your health insurance premiums.” But there is no such thing as a free lunch. The moment you step into the pen, the rules change.
- Rule 1: Double-Entry Bookkeeping & Integrity Filing — Open the Black Box If an individual owner with over 1 billion KRW (700,000$) in annual revenue refuses to incorporate, the state designates them for “Integrity Filing Verification.” This is a Shadow Tax that shifts the state’s responsibility for tax audits onto the taxpayer. If a single discrepancy is found, the certifying accountant loses their license and goes to prison. Accountants thus become the Millstone’s henchmen, scrutinizing the owner’s every receipt. Since this system’s introduction in 2014, forced incorporations have surged. Once incorporated, every credit card transaction and cash flow is rendered 100% visible to the National Tax Service (NTS).
- Rule 2: The Trap of Temporary Payments, Embezzlement, and Breach of Trust As an individual owner, the money in the safe is yours. The moment a corporation is established, that money belongs to the entity. If the owner withdraws company funds at will, it becomes a “temporary payment”, triggering a tax bomb. Worse, it can lead to imprisonment for embezzlement or breach of trust. The founder is demoted to a mere salaried slave of their own company.
- Rule 3: 49.5% Income Tax + Health Insurance — Choking the Individual The state maximizes the penalty for remaining an individual. As income rises, one hits the top tax bracket of 45% (49.5% including local tax). Combined with the ~8% health insurance premium for regional subscribers, the marginal tax rate nears 60%. For every extra dollar earned, the state takes 60 cents. Individual owners incorporate with blood in their eyes.
- Rule 4: Punitive Inheritance Tax — The Final Trap When an individual owner tries to pass the business to their child, the final trap springs: a 50% inheritance tax rate. To pay the tax, the business must be sold. To avoid this, they turn to incorporation, where legal detours—such as splitting stock for gifting or dividends—become available.
4. How the Millstone Tames Corporations: Domestication
Sweet feed awaits the small corporation that gives up its freedom: low corporate taxes, employment subsidies, and exclusive R&D grants for SMEs. The state’s gaze is hypocritical. Superficially, it claims to protect the weak and nurture them into giants. In reality, it wants them to stay small and docile. This is “Peter Pan Syndrome.”
Management scholars often claim firms choose not to grow. On the ground, the truth is different: the system is rigged so that not growing is more profitable. The moment a firm crosses a threshold (e.g., 50 or 100 employees), it is hit with unbearable regulations and taxes, and its subsidies vanish instantly. Most small firms cannot survive this “Regulatory Cliff.”
Why does the state want “livestock” rather than “predators”?
- The state protects the monopolies of big corporations in exchange for Shadow Taxes; it has no desire to disrupt this balance.
- Bureaucrats hate losing control over firms that grow large and self-sufficient. Dealing with “compliant” firms that stay small is easy; managing unpredictable mid-sized firms is a headache for those whose primary goal is avoiding accountability.
(1) The Carrot: The Public Procurement Market
The state creates a “Sweet Spot” (the public procurement market) where neither micro-businesses nor big corporations can enter. Under the guise of protecting the weak, it opens markets—prisons, military bases, government facilities, local festivals—only to firms of a specific size. As long as the paperwork is met, revenue is guaranteed. This market is swarmed by “Government Translators”—former officials and brokers. Firms hire lobbyists and become Peter Pans, waiting for the next government contract rather than innovating.
(2) The Whip: Punishment for Growth
The most bizarre contradiction occurs when a firm tries to leave the fence. The moment a firm grows past the 50 or 100-employee threshold, the state cuts subsidies and pours on Shadow Taxes: labor regulations, environmental mandates, and governance controls. This phenomenon is observed globally, from the US to Europe.
This reveals the market structure preferred by the Democratic Welfare State: A bipolar landscape consisting of a multitude of dependent “Peter Pan” small firms and a few monopolistic giants symbiotic with the bureaucracy. This allows the state to maintain its “Benevolent Patriarch” image while using big corporations as a “Blame Shield.” The state becomes the “Absolute Good,” punishing the “evil” giants and caring for the “lamb-like” SMEs. This is how a democratic state acquires the moral legitimacy of its governance.
If a firm tries to escape this fence? The state attempts a “capture” under pretexts like “fair trade” or “labor inspection.” Coupang is a prime example. Coupang refused to be a Peter Pan. Driven by US investors, it grew to become Korea’s second-largest employer. It rejected the capture attempts of the militant labor unions (KCTU). Immediately, a barrage of “incidents”—whistleblowers, personal attacks on the founder, worker deaths, and data leaks—flooded the media, often instigated by union-linked outlets. The state will continue to seek ways to weaken Coupang’s market power. While a market can beat a government, a single firm rarely can. Coupang will eventually have to bow—either by supporting the state’s “Patriarch” image or becoming its “Blame Shield.”
Evidence from Research:
Professor Casey B. Mulligan (University of Chicago) studied the distortions caused by Obamacare in the US firm size distribution. His research shows that approximately 38,000 firms intentionally stay under 50 employees (the “49ers”). Unless a firm’s profits significantly exceed the added cost of mandated health insurance, they voluntarily abandon growth. This intentional suppression of growth resulted in the disappearance of roughly 250,000 jobs. The government claims it “protected workers without insurance.” That is what is seen. What is unseen is the 250,000 people who were never hired.
Source: Mulligan, C. B. (2018). Employer Mandates and the Impact on Hiring.
In Korea, the percentage of “micro-enterprises” (10-49 employees) that remain small even five years after founding has surged from ~40% in the 1990s to nearly 60% today. Rational entrepreneurs choose to split their companies into smaller affiliates or stop growing altogether rather than face the harsh regulatory cliff.
Source: Maeil Business Newspaper (2024). Micro-enterprise Stagnation in Korea.
(3) Cartels: The Completion of the Revolving Door (Indirect Spoils System)
The third reason the Democratic Welfare State wants firms to remain as “Peter Pans” is the “Rigged Network.”
Modern bureaucracy, constrained by the career civil service system, can no longer practice the “Direct Spoils System”—brazenly appointing their own people to key positions as they once did. Thus, the “Indirect Spoils System” was born.
The state designs a labyrinth of complex regulations and public procurement rules. Firms cannot survive unless they can interpret “the language of the government.” At this juncture, a new class of people emerges to translate that language: high-ranking former officials who designed the regulations and politicians who control the budgets. These are the “Government Translators.”
The structure operates as follows: A retired official is re-employed as an executive at a Peter Pan firm. They request market access from their former subordinates—the current officials. The current officials, in turn, maintain regulations or steer contracts to favor their “senior.” As the retirement age for the current official approaches, the senior official settles into an advisory role at an unlisted subsidiary, leaving their seat for the next “junior.” This is the outsourcing of the spoils system, using the “feed” of the national budget as a medium. It is a redistribution system that butchers the capital efficiency of the market to guarantee the retirement of the bureaucratic class.
Large corporations utilize this structure through official channels, hiring former officials directly into “External Affairs” or “Future Strategy” departments. In contrast, “Peter Pan” SMEs are utilized as informal networks. Because they are small and less visible, they are more intricately intertwined.
Political parties take this a step further, inserting “straws” into Peter Pan firms through a pyramidal structure. Politicians swear loyalty to the powerful and contribute to election campaigns to become executives or directors of unlisted firms. Below them, aides and regional activists are given titles like “Manager” or “Director.” The tentacles of a specific political party infiltrate every corner of the local economy. Individuals caught in this network pledge loyalty to the party until the nation collapses. These people do not want firms to grow into “predators”; if they grow, the network destabilizes. Thus, firms remain in a comfortable “Peter Pan” state, feeding on government budgets. The more complex the regulations, the higher the value of the “translator.” Consequently, the state has no reason to reduce regulations. A self-augmenting loop is completed.
5. Conclusion: A World Happy for Everyone Except the Ambitious Individual Entrepreneur
Within the “Millstone System” of the Democratic Welfare State, four main actors appear to be at each other’s throats but are, in reality, in a symbiotic relationship:
- First: Big Corporations accept the roles of “Shadow Taxpayers” and “Blame Shields” in exchange for guaranteed monopolistic status.
- Second: Zombie SMEs survive on loans without innovation, serving as tools for the state’s “employment statistics massage.” The state gains the image of a “Patriarch” caring for small merchants and the local economy.
- Third: Local Toffs (Small Merchants) monopolize rents through permits and licenses, acting as micro-parasites on the fringes of the bureaucracy.
- Fourth: Peter Pan SMEs intentionally stop growing to receive subsidies and “procurement feed” in a digital greenhouse. Firms receiving government subsidies grow their government-relations departments, and “Government Translators” appear to line up at the doors of the government and National Assembly.
All four actors have their own share of the rent. Each survives by coexisting with the Millstone in their own way. In this rigged world, only one group bleeds: the individual entrepreneurs who want to grow outside the greenhouse. They provide no “Blame Shield” for the state, yet they have high cash-flow potential. The public envies them. The system hunts them down with precision.
Consequently, they all flee to the crypto markets or become YouTubers. They attempt to hide their physical reality to escape the state’s grasp. This is why innovation evaporates from this land. The tragic part is that not everyone is talented at crypto or YouTube. In the next article, we will examine this phenomenon more closely.
(The 51% Legal Dictatorship Series Articles)
- [The 51% Legal Dictatorship] The Death of the Producer: Why Democracy Needs You to Stay Small (Preface)
- [The 51% Legal Dictatorship] How Democracy Plunders the Productive Class (The Collapse of American Republicanism)
- [The 51% Legal Dictatorship] A Geopolitical Autopsy of the Welfare State (U.S, U.K, France, Korea)
- [The 51% Legal Dictatorship] From Craftsmanship to Captivity — How the Democratic Caste System Traps the Producer
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