The Second Miracle on the Han River

While the Pyongyang Kim’s have enjoyed their fleeting fame as spoilers, the real and quiet battle for South Korea’s future has been taking place here in South Korea. There are several issues that have grown slowly out of aggravated and unsolved problems but, the largest problem that affects the most citizens in South Korea is Household debt – this long-standing problem has kept growing and growing despite the claims of so many who felt that this is a not a big problem. Well, now most people have come to share the view that it really is bad. This proverbial hole in the dike could be manageable, if it were not for other conditions that exist today, per a McKinsey & Company article on the problems that face the South Korean economy and society:

. . . More than half of middle-income households spend more each month than they earn(cite). The signs of social distress are multiplying. South Korea’s divorce rate has doubled, fertility rates have fallen to the fourth lowest among advanced economies, and the suicide rate is the highest in the OECD(cite). (McKinsey article)

PGH’s idea of starting a “new era of people’s happiness and hope” or her “happiness fund” is only useful if it focuses upon increasing middle class solvency rather than handing out new loans, which would ignore the underlying problems that haunt the middle class in South Korea as they struggle under ever increasing debt. Wonsik Choi and Richard Dobbs, in the McKinsey article, claim that nothing less than a “second miracle on the Han River” is needed for South Korea to overcome the economic problems that have have been allowed to grow into big problems. IMHO, If ever there was a time for South Koreans of all ideologies to unite in a common goal, now is the time. PGH is probably the right person to lead this task, unlike her predecessor who has left Korea with a miracle on four rivers – miraculous only because this prodigious example of mismanagement, corruption and waste was allowed to happen and has mostly gone unpunished.

Read the McKinsey article, in full and also the excellent article in the JoongAng Ilbo for a very succinct view of the economic issues that Korea faces today.

  • Bobby McGill

    Interesting and scary post. Good stuff.

    POSCO’s near future can’t be welcome news for the economy either:

    Nor can several Chaebol companies seeing their ratings drop on the FTC Fair Trader list:

  • R. Elgin

    I was hoping POSCO would do better. Their efforts in India are an ongoing lesson in doing business in a really foreign culture, on a large scale.

  • WangKon936
  • R. Elgin

    Oops, sorry WangKon. I was out of the country for a while and did not surf much.

    – What do you think about PGH’s ability to deal with these issues?
    – Do you think that more Koreans will be interested in vocational training instead of college or is mom and dad going to kill them first?
    – How would you assess the solvency of the middle-class, here, at this time? Explosion or a slow sucking sound?
    – Do you think the political establishment understands what they need to do now?

  • will.i.aint

    More than half of middle-income households spend more each month than they earn

    I wonder how many of the these middle-income households are in Seoul? Seoul housing costs so much more than anywhere else. If people in Seoul would be more willing to live outside of the city – I’m sure this would solve at least some of the problems associated with their household debt. But I also know that few people in Seoul ever consider doing this. It’s almost un-Korean to not want to live in the big city.

  • MikeinGyeonggi

    A quick glance anywhere in Korea shows new apartment complexes popping up all over the place. And their are people in this country who expected housing prices to skyrocket?? People all around the world need to stop thinking of buying a home as an investment and start thinking of it as a commodity. If home prices rise accordingly and the place can be sold for a nice profit later on, then that’s great. But it’s certainly not a guarantee these days.

    And Koreans’ living expectations have a lot to do with this household debt problem. Designer clothes, luxury goods, dining out 5 nights per week, and driving a new car in a city like Seoul (where nobody actually needs one) are considered normal and desirable, regardless of salary. Your average New Yorker or Londoner would quickly tell you a lifestyle like that is reserved for yuppies and high-income households.

  • MikeinGyeonggi

    ^^ their = there

  • SalarymaninSeoul

    Its an illusory gain since Mr. Kim’s apartment is not the only one to go up in price, all others do as well, so unless you are willing to sell your apartment and then to move into a poorer area with cheaper houses, you aren’t really ahead of the game.

  • Anonymous_Joe

    8 SalarymaninSeoul: “Its an illusory gain… you aren’t really ahead of the game.

    I understand your point, but that’s not strictly true. If housing outstrips all other prices, then housing is a good speculation, particularly for retirees who would be willing to move and downsize. I do understand your point and shouldn’t nitpick.

  • SalarymaninSeoul

    You still need a house to love in. It would also be a good investment for those who own several flats, but for the average Kim, that’s not so. For the average Kim a house should be seen as a house, not an investment. Usually people do not want to downsize or move to cheaper digs, keeping up the facade and with the Lee’s and Kang’s means that is not an option. The ambition is to move up: bigger and more expensive.

  • SalarymaninSeoul

    should be “live in” not “love in.” Funny typo considering there probably ain’t much love in Korean homes.

  • will.i.aint

    A few years back, I rented an apartment that was worth roughly 4 million USD. The owners were a 40 year old man and his late 30-something wife. The realtor showed me the documentation that proved they owned the place outright – so no need to worry about a foreclosure or anything strange happening with the apartment’s ownership while I was living there (the previous apartment I lived in almost went into foreclosure). I have to admit … I felt a twinge of jealously. The reason the family was renting it out was because the mother was taking the kids to the US for the next 3-4 years to study. The father was going to rent a small one-room place and live by himself in Seoul until the family returned.

    I felt like telling the guy he ought to sell the apartment, move to the US, buy a really nice place, invest the rest of the money into something fairly conservative, never work again, and just play golf and enjoy himself for the rest of his life.

  • PeterDownUnder

    Never knew mortgages average 10 years in Korea…

    Koreans will not chase vocational schools since no matter how well they compensate economically they will not compensate socially. But then again Korea nowadays is much more superficial and capitalist then 10 years ago. Was gonna say a millionaire restaurant owner would get less respect than a Samsung employee from SKY, but thinking about it money might talk louder in Korea nowadays.

    I’m just glad Korea is under conservative rule since if Moon won the election SK might be a Peoples republic by now. But I have doubts about PGH’s own abilities especially with her choice of staff and the shitstorm that came along with it. She has done exceptionally well in handling the NK shittalk, a welcomed distraction for SK politicians. I await to see how she handles the other issues.

    Regarding the McKinsey article, if all goes to plan Seoul will become a large rice field by the time the current Mayor is done. There are just too many individually run fried chicken and chinese restaurants in SK. Not good for the economy when everyone has the mentality of “fuck it Ima start my own fried chicken shop”…

    And with the weekend opening ban placed on larger businesses…Korea is not a country OF and FOR mom and pop shops nor farmers…The liberal left in SK seem to have a nostalgia for the Chosun dynasty.

    Gonna leave this with the fact that there was a time when people protested against the Kyeongbuk highway because;
    a. No cars in Korea, lets focus on farming.
    b. A means for the rich to enjoy leisurely drives.
    c. Discriminatory for Jeolla