Blog Action Day entry - Poverty in the middle class, Korean story

It is Action Day today!  So I will write "not exactly it, but related to it" entry today.

I have been interested in what is going on in Korean economy recently.  Everyone in the world is suffering from the financial crisis, but according to Japanese "2-Channel" bulletin board, the crisis in Korea is much deeper than the rest of the world.  I usually don't read this type of info on the mainstream media (as Korea draws small attention from the US press, and Japanese press is "sensitive" about whatever related to Korea), so I would like to know if this is true...  if anybody knows, please let me know.

Korean economy in general has not been doing great these days, and its currency has been quite volatile.  (The 2-Channel theory says it is because Korean Won has been a target by vulture funds.)  The external trade balance turned to deficit last year, although 70% of its economy is dependent to external trade.  Because of its dependency, if Won becomes too high, export suffers, so the Korean central bank intervened many times to sustain the currency, spending lots of their dollar reserves.

Then came September 2008, the due date of money they borrowed from IMF during the crisis 10 years ago.  They have to pay back in dollars, but the country did not have dollars, especially with cheaper Won - meaning they need more Won to pay back the same amount of dollars.  It drew down all their foreign currency reserves but still not enough, so they had to even take out money from people's pension funds and sell off state-owned infrastructures.  Even that was not enough, so they basically had to borrow again, this time with much higher interest rate.  It is like paying back the mortgage with credit card loan.  Very dangerous move.

2-Channel says that there will be another deadline coming in November - will they somehow survive, or IMF intervene again?  This time around, US is fighting its own crisis and Japan is busy helping US, and I wonder how much of money can be used for Korea, which has been acting almost "irrationally" hostile against both countries....

So the details aside, the broader economic problem of this country seems to be the inequality in wealth distribution within the country.  Now there are several major Korean brands known internationally, such as Hyundai, Samsung and LG, but these "zaibatsu" (conglomerate) controls too much of its economy, giving little room to develop healthy small/medium enterprise sector.  Because of it, Samsungs and Hundais have to import much of the components from Japan, causing the trade deficit, despite of its very strong export drive.  Those big Korean brands, although well-known, have not enjoyed "high quality" brand recognition that compares to Sony or Toyota, and that is because of lack of home-grown reliable component suppliers.

The country also looks to have failed to nurture the middle-class population (such as SME owners and employees) and thus the domestic market has not developed well.  That causes the economy's heavy dependency to external trade, thus making it more sensitive to the foreign currency volatility and the economic weakness of U.S. and other major trade partners.

So I still need some help in making sure if all the above is true (especially because 2-channel is notoriously anti-Korea), and the actual seriousness of the country's economy, but in general, if the above is true (and sounds pretty legit to me), Korea's case is one of the extreme cases of the "poverty in the middle-class" problem, which is the base tone of the current economic crisis in the U.S., and in Japan in lesser extent.

From the point of view of wireless industry watcher, I have been concerned that once-mighty Korean handset brands have not really come up with good handsets lately.  They were successful in coming in to the U.S. market with sleek clamshell phones with multimedia funcionality at the time of digital transition in the late 90's, taking the advanced designs and technologies from the home country (which they had quickly adopted from Japan by then).  Now Samsung and LG only makes also-run handsets, such as cheapy looking iPhone copycat. 

So what is really going on in Korea still remains to be a concern for me.

Source:  2-channel summary site


Enotech Insight