Global Crisis

First Greece,  now Spain: Can Countries Learn?

By Shlomo Maital

    A key principle of benchmarking is to solve your problems by first studying carefully how others have avoided or solved them.   Even as Greece’s crisis is being solved (with North Rhine-Westphalia elections upcoming in Germany, on May 9, Chancellor Merkel is fiercely resisting committing German taxpayers’ money to the rescue, even though it will be forthcoming —  on May 10), new ones are emerging — Portugal, perhaps Spain. The size of Spain will make its crisis huge, dwarfing Greece, if it occurs.   

    Many nations, including America, Britain and Spain, face huge fiscal deficits and the need to slash them, while lacking the political will to do so.  In Britain, just before a national election, in a television debate, not one of the three political leaders (Cameron, Brown, Clegg) was willing even to hint how they would slash spending and boost taxes.  Yet one of them, whoever becomes Prime Minister, will have to do so, and fast.  How duplicitous not to reveal what they would do, simply because it will cause pain — mainly, to their political party.

    Here is my suggestion.   After the UK election, let the Prime Minister-designate climb on a plane. First stop:  Ottawa, Canada.  Examine how Canada’s Stephen Harper slashed public spending, across the board, putting Canada’s budget into shape and avoiding the deep hole America has dug for itself.  Next, fly back to Stockholm.  Sweden, once socialist, and still highly social-welfare oriented, slashed its spending and especially public pensions; people in Sweden now retire at far older ages.  Then fly to Seoul, South Korea.  Here is what McKinsey Global experts write about South Korea and its strong performance despite the global crisis:

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    South Korea sailed through the 2008–09 financial crisis with remarkable aplomb. Despite its heavy reliance on exports, South Korea registered only a single sequential quarterly decline in real GDP during the global downturn, thus avoiding full-fledged recession. By the third quarter of 2009, South Korean growth had bounced back to nearly 3 percent while unemployment—which even in the worst of the crisis never rose more than a singlepercentage point—had already begun to ease.  Indeed, it took barely three quarters for  South Korea’s production and consumption to regain pre-crisis levels.  Among Asia’s “tiger economies,” South Korea suffered least from the crisis and recovered the most rapidly.

   Why was the South Korean economy so resilient? Because its businesses and government leaders recognized the opportunity this crisis presented. The familiar rap on South Korea is that its economy is “stuck in the middle,” trapped between an advanced Japan and a rising China. South Korea’s great dilemma—or so it’s often said—is that it falls short of Japan on quality and can’t hope to match China on price.     And yet South Korean producers’ performance in the wake of the financial crisis suggests the middle ground may offer advantages. In the post-crisis era, consumers the world over have turned cautious. The new mantra is value for money. South Korean companies are well positioned to capitalize on that new ethos with products that optimize the quality and price tradeoff. South Korean exporters have, in fact, gained market share during the crisis. South Korea’s global market share in phone handsets, for example, rose to 33 percent in the third quarter of 2009, from 22 percent at the end of 2007. In fact, in the US market alone, South Korean mobile phones are currently taking up almost 50 percent of the market share. Its LCD-TV global market share also jumped to 37 percent in 2009, from 27 percent at the end of 2007, and it will soon replace Japan as the world’s number-one LCD-TV supplier. South Korea’s automobile global market share climbed to 9 percent in the third quarter of 2009, from 6.5 percent in the final period of 2007.[1]

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It is supremely easy to blame the global crisis for a nation’s woes.  It is also supremely wrong.   Some nations, perhaps only a few, navigated through the turbulence with great wisdom and skill.  Most nations stumbled through it and rather than resolve the crisis, simply transformed it from a banking crisis, say, into a sovereign debt crisis (Greece, perhaps UK and Spain). 

      Let the bungling nations carefully study the wise ones and learn.

[1] McKinsey Quarterly.   South Korea: Finding Its Place on the World Stage.  April 2010.