‘Gangnam Style’ signals bright future for Korea

Psy is becoming an international star through his sensational song “Gangnam Style,” a Billboard hit which has spawned a dance craze.

On the surface, it is just a passing fad but many people say that the rise of the Korean singer on the global scene suggests that Korea is moving to another level.

Bain & Company Chairwoman Orit Gadiesh is one of those who take the Psy craze seriously. She said that behind the “Gangnam Style” fever is a combination of creativity and irreverence and that Korea is well positioned to capitalize on the global trend.

“I think Koreans should be happy that their country can no longer depend on low cost labor. The whole point of economic progress is to make people prosperous ­ higher wages may not make everyone happy, but it surly does help,” Gadiesh said in a recent interview with The Korea Times.

She pointed out that the challenge is to plough back the profits from early economic success into a sustainable mix of improved education, innovation and a prosperous domestic economy.

“I am sure older Koreans will disagree with me, but I believe Korea has a very bright future ― Gangnam Style. What I see in this global phenomenon is a combination of creativity and irreverence. Precisely, the qualities that have made Silicon Valley great. Surely Psy is not the only Korean who has them,” she said.

The 61-year-old Israeli-American businesswoman said that a united Korea will take a seat at the table of global economic leaders this century.

“This century will not be another American Century. Others will be entitled to a place at the table. Everyone talks of China and India, but smaller countries like Korea ― possibly a united Korea ― will be there as well,” said Gadiesh.

She said that it is inevitable that the rebalancing of economic hegemony, explained by the transition from advanced Western countries to emerging Eastern economies, due to the prolonged eurozone debt crisis and weakening consumption power in the U.S.

Gadiesh urged Asia’s fourth-largest economy to invest more in education to facilitate the leap forward as a leading country on the international stage, arguing that the world wants skilled human resources.

“If I were to whisper three words in the ears of the new Korean government, they would be education, education and education. The world has a potentially vast supply of cheap labor. What the world is increasingly short of is skilled labor.”

Talking about the global economy, she criticized bigger players, such as the European Union, the U.S., China and Japan, for all bark and no bite and argued that the global economy has not been reshaped in any significant way.

“Everyone knows the euro is a problem but the Europeans are still engaged in putting band aids on a festering wound. The Chinese and Japanese economies are still heavily dependent on exports despite the fact that their best customers don’t have any money. We have certainly talked about the problems. We have done remarkably little.”

As a fundamental solution to get the global economy back on track, she suggested that global powers join hands to deal with the imbalances that existed long before Lehman Brothers went under.

“The banks need to be regulated properly. The EU needs to fix the euro or admit that it is not willing to do so. The American and British consumers need to deleverage, though I would very much like to see the British Conservative Party and the American Republican Party less dedicated to repeating every single mistake Herbert Hoover made 80 years ago,” she said.

“We know ― or at least we knew ― that governments need to support demand in an economy stuck in a liquidity trap. The export driven economies need to develop domestic demand for their huge productive capacity. If they do not, the economic problems of the West will bring them down too.”

The veteran consultant said that developed economies are still largely preoccupied with grappling with their own internal challenges but over time are likely to become increasingly aware that the process of global economic integration will need to do more to integrate developing economies into a framework for coordination and shared governance across economies.

“Twenty years ago, some of the larger developing countries like China were small relative to the U.S. or Western Europe and with that size difference, imbalances could go on indefinitely without noticeable effect. Today that is no longer the case and economic policy impacts can flow both ways creating the imperative for greater policy coordination and harmonization to the benefit of all parties involved,” she said.

“Improved central bank coordination and the existence of multilateral institutions like the International Monetary Fund and the World Trade Organization are good but early steps along that path.”

The following is an excerpt from the interview

The Korea Times: Under ongoing challenges, how are companies readjusting their strategies in attempting to integrate their businesses internationally? What do you think of the movements by nations, particularly developed economies?

Gadiesh: I don’t think we know how the crisis is going to alter globalization. One thing I think we can say is that globalization is an inherently dynamic process. There are no stable plateaus. We citizens of the world will either continue our extraordinary progress towards a seamless economy, or political pressure will put the whole process into reverse. Look at what is happening in Greece if you want to scare yourself. The government is trying to find a rational way out of the mess the country is in, the Germans are balking at providing yet more money, and the Greek people only know that they are deeply unhappy and want to kick someone, anyone, very hard indeed. This could happen on a much larger scale if the issues I mentioned above are not addressed.

As to what this means for companies, I sense that they are becoming increasingly cautious about their exposure to global supply chains and the possibility that they might be disrupted. We see some instances of American companies (for example) bringing production back to the U.S. for non-economic reasons.

If by globalization we mean the process by which different nations use trade to enable them to sell their strengths and buy their weaknesses, then no, globalization has only faced a painful but potentially instructive growing pain on the path to maturity, similar to what we saw in the Asian financial crisis of 1997-1998.

The lesson is that partial globalization can lead to distortions and imbalances, such as when a part of the financial sector is opened up but access to the underlying economy remains restricted.  In that case, movement of capital ends up far outpacing the sustainable development of the underlying economy creating the familiar boom to bust effect.

Moving towards more sustainable globalization models implies being aware that all the pieces of an economy need to be harmonized on their path towards global exposure and to be vigilant to address problems earlier before they become world shaking events.

For businesses, there is increased awareness that in this adolescent stage of globalization there can arise larger macro risks across borders than what can usually happen within national borders. This requires an additional macro lens for monitoring and managing risks and opportunities in addition to more familiar sector or industry awareness.

Q: There had been expectations that the prolonged economic crisis would accelerate the process of a global rebalancing with the economic center of gravity shifting from the West toward the East. However, with the European problem showing signs of being chronic and the slowdown spreading to developing economies, it appears that the rebalancing act is going through severe growing pains. How do you think the crisis has changed the complexion of global growth and will the world economy eventually be more balanced and stronger for it?

A: The popular conception of global rebalancing may be somewhat lacking in nuance of what balance is trying to be achieved. The balance to be achieved is not just a question of raw size, such as what is measured by economic output, but also a balance of global roles.

The spread of European and American problems into the developing economies is indicative of the global overweighting of developed-market end-demand at a time when demand growth is the constraint on total growth.

Even within the developed economies we see internal imbalances such as the eurozone where there was excessive weighting on debt-fueled demand growth from the subset of periphery economies for almost a decade, or in the U.S. where an increasingly smaller subset of households were relied upon to fuel overall consumption growth.

Rebalancing these structures, which has taken decades to develop, will not happen overnight and the crisis has likely only signaled the start of that process.  The Chinese government’s recognition in its Five Year Plan that domestic consumption will need to play an increasing role in their overall economy is a good sign of a start to the rebalancing process.

The growth of other large developing economies like India, which currently has a more balanced profile of consumption versus production, is another encouraging sign.  If these and other developments take hold over time, then we would see a true global rebalancing that would improve the strength and sustainability of global growth, but there are numerous steps and a number of years before we will see that fully play out.

Q: In relation to the previous question, how soon do you think the global economy can right itself?

A: In 2011, Carmen Reinhart and Ken Roggoff published a book called “This Time It is Different.” In it they analyze the difference between recessions triggered by financial crises and those with more mundane causes.

Their principal conclusion is that recessions caused by financial crises tend to last a long time. I will be pleasantly surprised if the present crisis lasts for a shorter period than 10 years.

For a true global rebalancing, it will take many years to take hold. The imbalances themselves were decades in the making so it would be unrealistic to believe that a few short years would be all that is required to restore balance.

That said some of the bigger challenges that are currently constraining global growth are relatively more cyclical in nature than structural. The U.S. and China are both making steady progress to finding firmer footing for at least the medium-term and combined, that would go a long way towards helping the larger global economy restore a general sense of equilibrium.

But from that point, which one might say could be roughly a “mid-decade” landing point, the longer work of reorienting towards sustainable growth will be a decade or decades long process for the global economy.

Gadiesh has advised top level management in structuring and managing portfolios, developing and implementing global strategy, executing turnarounds, improving organizational effectiveness, determining marketing channel and supply chain strategies, designing both cost reduction and growth programs.

As well as serving as chairperson, she continues to be directly involved with her own clients. She splits her time on active client work between North America, Europe, and Asia. <The Korea Times/Kim Jae-won>