Consider This...
If only Europe could match Korea’s “gold standard”
Posted by WATATAWA on December 14, 2011
By Bill Rylance, WATATAWA Founder & CEO
A lot of ideas and opinions are flying around as the Euro zone seeks a solution to its sovereign debt crisis. One that really caught my eye was from a former IMF chief economist who wondered if there were lessons Europe could learn from Korea’s response to the 1997 Asian financial crisis.
Sadly I don’t think there are. Or at least the lessons are there but the disparate Europeans are neither structurally nor emotionally equipped to follow them.
I was living in Korea in 1997 and, indeed, our firm was retained by the government to manage a sovereign communications program. The world had often seen images of apparent polarisation when demonstrators and riot police fought pitched battles over many issues — but when the country faced its worst crisis since the Korean War, it put on an astonishing show of national unity.
Housewives lined up to donate their gold jewelry, including even their wedding rings, to help bolster the country’s reserves and pay off foreign debts. The country initiated a national job-sharing program to prevent unemployment from rising sharply. Those who did lose their jobs were served discount noodles by shopkeepers.
The Korean establishment had earlier denied that the country was facing a potentially crippling debt crisis — but when it became clear that this was the case, President Kim Dae-jung, who came to power just as the crisis erupted, refused to blame “outside forces” for the country’s plight instead acknowledging that Korea’s problems were of its own making.
He took decisive action. Many large business groups, which once enjoyed political favor, were allowed to go bankrupt and some of their owners went sent to prison. Others were forced to sell off prized assets to keep from going under. Troubled banks and other lenders were nationalized.
These measures were particularly extraordinary since Korea had earlier been seen as a prime example of a dirigiste economy. Suddenly, the government was adopting the core principle of allowing inefficient investments to be punished by the market and not saved by the state.
Equally impressive, the majority of the population — driven by national pride and shared responsibility — rallied in support. In stark contrast to what we have seen on the streets in Athens, Korea showed the world a collective public response to a national problem. And it worked.
It’s hard to imagine Europe responding in similar fashion. Harder still to picture the fashionistas of Milan or Madrid lining up to donate their jewelry to the nation.
Despite the recent proposed treaty for a closer fiscal union, I doubt Europe’s politicians can drive a common and decisive agenda because the EU does not have the collective and cohesive moral courage to respond like the Koreans.
Of course, one can’t overlook the fact that Korea is an homogeneous country, while Europe is multicultural. Or that the EU is far bigger than Korea and, unlike Koream cannot easily export its way out of the crisis on the back of a devalued currency.
Even so, the reality is that Europe appears more likely to follow the path of Korea’s neighbor, Japan, which has suffered from more than two decades of stagnation due to its unwillingness to undertake the kind of drastic reforms that Korea courageously embraced.