[Viewpoint] For recovery, get back to the basics
It is no news that Greece is faced with an economic crisis as a result of excessive social welfare and careless financial spending. But now the focus of the international community is shifting to the question of whether the Greek economic crisis could spread across southern Europe and develop into a problem for the European Union as a whole.
In the past two days, a discussion on the subject was held in Berlin, Germany. There, leaders of the European Union paid particularly close attention to a lecture given by Kishore Mahbubani, dean of the Lee Kuan Yew School of Public Policy at the National University of Singapore.
Last year, the Financial Times selected Mahbubani as one of the top 50 individuals in the world in terms of potential impact on society along with U.S. President Barack Obama, Chinese Premier Wen Jiabao and French President Nicolas Sarkozy. Mahbubani said that the West was able to lead the world over the last two or three centuries because it was ahead of the rest of the world in several keys areas including free markets, science, technology, pragmatism, culture of peace, rule of law and education.
However, he says the situation has reversed itself and that these pillars of wisdom are now benefitting Asia. In short, he emphasized that we have entered the era of Asia.
Columbia University business professor Robert Fallon offers a different interpretation. Fallon served as the head of the Korea Exchange Bank. He said that Korea seems to be faring well in terms of the seven pillars of wisdom, and moreover that Koreans have a national character of sacrificing small things for greater causes. He said that the future of Korea is bright. However, he is skeptical about the era of Asia. He retorted, “If we use the standard of the seven pillars of wisdom, doesn’t the United States still get the highest score?”
I had deja vu when I heard the news that Chinese officials recently visited Athens, Greece to acquire state-owned shipping, port and communications companies. History repeats itself, and when you spot a certain phenomenon, you can easily predict the consequences from the experiences of the past.
Some 25 years ago, an economic crisis hit Eastern Europe and Latin America hard. These countries had their debts written off. Essential businesses such as state-owned communications providers, gold and bronze mines and state-operated airlines in these countries were sold to foreign companies and creditor banks, including Japanese companies.
At the time, I was working as a member of the task force in charge of converting the debt into equity at the New York headquarters of a U.S. bank and was involved in the competitive bidding for privatization of ENTel, an Argentine state-owned public telecommunications company.
Problems arose after the tsunami of the economic crisis. Latin American and Eastern European countries made various efforts to make a comeback, and their economies began to recover in the early 1990s.
The bank I was working for had acquired shares of ENTel in exchange for providing loans to Argentina, and it collected several times the principal thanks to a rise in the stock price in the following years.
Historically, countries that were faced with an economic meltdown requested the principal be written off as a last resort or they sold key state-run assets and cultural properties.
The ongoing global economic crisis is not likely to end anytime soon. It will take several more years until economic growth gets back on a normal track.
However, from the historical perspective, the winner and the loser will be determined by how the states and their citizens respond as economic entities. In the case of the United States, the country has reconfirmed the influence of the dollar and its reputation for creativity, transparency and pragmatic reform.
It is in a more favorable position than other countries.
Now the United States is researching and reviewing policies to resolve its massive financial deficit, which is where it is most vulnerable. Lately, journalist Fareed Zakaria, who recently published a bestselling book called “The Post-American World,” proposed meaningful policies to resolve the financial deficit.
He proposed that the income tax rate should be drastically lowered and that those making less than $100,000 a year should be exempt from having to pay it. At the same time, he suggested that the U.S. implement a value-added tax, which is a global trend. It would be the only way to resolve the growing financial deficit, which grows by several hundred billion dollars a year. The United States is agonizing over how to reform the fundamental structure of its economy.
Fortunately, emerging industrial nations in Asia and Central and South America, including Korea and China, are maintaining relatively solid economic growth for now. However, the overall health of the global economy certainly depends on the European Union.
Yet the EU’s international competitiveness will be enhanced and its balances of trade and invisible trade are likely to improve as the euro is drastically devalued. For a speedy recovery of the EU economy, the European Union needs to get back to the basics.
The point is to retrieve the strength that allowed Europe to lead the world for several centuries.
Europe needs to be faithful to the seven pillars of Western wisdom once again.
*The writer is chairman of Deutsche Bank of Korea and honorary chairman of the MIG Alley chapter of the U.S. Air Force Association. Translation by the JoongAng Daily staff.
by Kim Soo-ryong