Opening Their Wallets, Emptying Their Savings

By Blaine Harden
Washington Post Foreign Service
Thursday, July 30, 2009

SEOUL -- In pursuit of middle-class prosperity, South Koreans have looted their household savings like no other people on Earth.

They have collectively binged on private schools and fancy cars, language camps and new apartments, foreign travel and designer shoes.

Americans, the longtime avatars of consumerism gone mad, will save next year at double the rate of South Koreans, according to a report this month from the Organization for Economic Cooperation and Development (OECD), a group that supports sustainable economic growth in developed countries.

When it comes to buying high-priced, brand-name stuff as if there were no tomorrow, Sabina Vaughan concludes that Americans are relative wimps. "Koreans spend more, way more," said Vaughan, 35, who travels to Seoul every summer with her Korean-born mother and spies on her cousins as they shop. "It is a kind of competition for them. It doesn't matter what their income is."

Her conclusion is supported by a mountain of data and a chorus of concerned economists. The household savings rate in South Korea will have plummeted from a world-beating 25.2 percent in 1988 to a projected world low of 3.2 percent in 2010, according to the OECD. Government policies have encouraged borrowing, while Korea's aggressive culture has supercharged spending on signifiers of success, whether they be Ivy League degrees or Louis Vuitton handbags.

"It is not recognized as a virtue to save, not anymore," said Lee Sun-uk, an investment adviser for an office of Samsung Securities that is located in a wealthy neighborhood of Seoul. "To maintain a certain status, people are willing to spend, even if their incomes have declined."

In the past decade, average savings per household have plunged from about $3,300 to $525. On a percentage basis, it is the steepest savings decline in the developed world. Meanwhile, household debt as a percentage of individual disposable income has risen to 140 percent, higher than in the United States (136 percent), according to the Bank of Korea.

The consequences of South Korea's collapsed savings rate are beginning to register in the country's slowing rate of growth, economists said. For nearly 40 years, growth galloped along at between 6 and 8 percent, as banks were flush with household savings that fueled business investment and research. But growth slowed to about 4.5 percent after 2000, when the savings rate dipped below 10 percent.

"The low savings rate is sapping our capacity to grow, and it is going to get worse," said Park Deog-bae, a research fellow who specializes in household finance at the Hyundai Research Institute. "It will lead to credit delinquency. It will cause greater income disparity. It means less resources for our aging population."

As South Korea changed from a war-battered farming society to Asia's fourth-largest economy, its savings rate was almost certain to decline. Economists consider a fall in savings and a rise in consumer spending to be part of the normal development process, as government-backed social services increase, property values rise, and stock markets grow.

But the fall-off-a-cliff character of what has happened with household savings in South Korea strikes many experts as abnormal and worrisome. It is one of several trends suggesting that South Korea, as it wrestles with post-industrial affluence, is a society under extraordinary stress.

South Koreans work more, sleep less and kill themselves at a higher rate than citizens of any other developed country, according to the OECD. They rank first in time spent online and second to last in spending on recreation, and the per capita birthrate scrapes the bottom of world rankings. By 2050, South Korea will be the most aged society in the world, narrowly edging out Japan, according to the OECD.

At the same time, South Korea ranks first in per capita spending on private education, which includes home tutors, cram sessions and English-language courses at home and abroad.

An obsessive pursuit of educational achievement, it seems, is one of the driving forces behind the low savings rate. About 80 percent of all students from elementary age to high school attend after-school cram courses. About 6 percent of the country's gross domestic product is spent on education, more than double the percentage of spending in the United States, Japan or Britain.

"Education is a fixed expenditure for Korean parents, even when household income shrinks," said Oh Moon-suk, executive director at LG Economic Research Institute. "Parents often overspend. It even appears to be leading to a slowdown in the birthrate."

As she plans her family's monthly spending, Lim Ji-young says she makes sure that at least a third of the money is reserved for the education of her 5-year-old son, Roah.

Besides day-care fees, he requires money for books, alphabet tutoring and sports training.

"We want to give our son the opportunity not to be left behind in this society," said Lim, 34, an office administrator in Seoul. "We want to provide him with what other people are providing. To avoid condescension from other people, you want to have the best."

Competitive spending -- on tutors, apartments, imported whiskey and designer handbags -- is a significant factor in the decline of saving in South Korean, according to Park at Hyundai Research.

"Koreans are so much concerned about saving face," Park said. "This is encouraging overspending and it is sometimes irrational."

There are other reasons for the fall in savings that are eminently rational -- and sponsored by the government.

When the economy nearly collapsed a decade ago during the Asian financial crisis, the government made low-cost loans available for the purchase of apartments.

Borrowing exploded, as did housing values, while savings began to evaporate.

"Young households without proper discipline borrowed heavily from banks and on credit cards," said Lee Doo-won, a professor of economics at Yonsei University in Seoul. "They ended up with a huge amount of debt, and the debt trap is still there."

Stagnant incomes and job losses in the current recession have further reduced capacity for savings and have slowed debt repayment.

As important, the spending patterns of aging parents, many of whom have been tapped for loans by children in pursuit of real estate, mean that cash is steadily disappearing from savings accounts.

"Old people do not save," Lee said. "This is a long-term structural phenomenon. It will not change with the business cycle."

Special correspondent Stella Kim contributed to this report.

U.S. Overlooks Kyrgyzstan Rights Abuses

By CLIFFORD J. LEVY

BISHKEK, Kyrgyzstan — “You know what this is for,” Emilbek Kaptagaev recalled being told by the police officers who snatched him off the street. No other words, just blows to the head, then all went black. Mr. Kaptagaev, an opponent of Kyrgyzstan’s president, who is a vital American ally in the war in nearby Afghanistan, was found later in a field with a concussion, broken ribs and a face swollen into a mosaic of bruises.

Mr. Kaptagaev said that the beating last month was a warning to stop campaigning against the president, but that he would not. And so he received an anonymous call only a few days ago. “Have you forgotten?” the voice growled. “Want it to happen again?”

Mr. Kaptagaev’s story is not unusual in this poor former Soviet republic in the mountains of Central Asia. Many opposition politicians and independent journalists have been arrested, prosecuted, attacked and even killed over the last year as the Kyrgyz president, Kurmanbek Bakiyev, has consolidated control in advance of elections on Thursday, which he is all but certain to win.

“This is how the authorities rule in Kyrgyzstan,” said Mr. Kaptagaev, 52. “They use criminal methods to keep power.”

The United States has remained largely silent in response to this wave of violence, apparently wary of jeopardizing the status of its sprawling air base, on the outskirts of this capital, which supports the mission in Afghanistan. Indeed, the Obama administration has sought to woo the Kyrgyz president since he said in February that he would close the Manas base.

In June, President Obama sent a letter to Mr. Bakiyev praising his role in Afghanistan and the campaign against terrorism. Mr. Bakiyev allowed the base to stay, after the United States agreed to pay higher rent and other minor changes.

The lack of criticism of Mr. Bakiyev underscores how the Obama administration has emphasized pragmatic concerns over human rights in dealings with autocratic leaders in Central Asia. Under pressure in Afghanistan, the administration has feared alienating nearby countries whose support is increasingly important.

How to react to crackdowns like Mr. Bakiyev’s is a longstanding challenge for American diplomacy, here and around the world. Some American officials stress that rebuking governments over human rights is often ineffective because they lash back, and tighten things further.

The administration is mindful that a neighboring former Soviet republic, Uzbekistan, closed an American military facility there after American officials condemned an attack by the security forces in 2005 that killed hundreds of people. The Obama administration is trying to repair that relationship.

In the Kyrgyz elections on Thursday, opposition parties have rallied around the candidacy of a former prime minister, Almazbek Atambaev, but he is given little chance. Mr. Atambaev’s campaign manager, Bakyt Beshimov, said the Kyrgyz president drew strength from the American reluctance to speak out.

“This regime clearly understand that for the United States, democracy is not a priority, freedom of speech is not a priority,” Mr. Beshimov said. “They want peace, stability, air bases and regional security connected with Afghanistan.”

The Obama administration’s attempt to improve ties with Central Asia was underscored by a visit to the region this month by a senior diplomat, William J. Burns.

In Kyrgyzstan, Mr. Burns said at a news conference that the United States hoped for “fair and credible elections,” but he did not mention the treatment of the opposition or journalists.

Interviewed about the political situation, another State Department official, George A. Krol, said reports of violence “greatly disturb the department.”

“The United States doesn’t shy away from raising these issues with the Kyrgyz authorities,” he said.

The Kyrgyz president, Mr. Bakiyev, took office in 2005 after the Tulip Revolution — the third in what was seen at the time as a series of so-called color revolutions that offered hope of more democratic governments in the former Soviet Union.

Today, widespread disillusionment has set in, as in Ukraine and Georgia, which also had such upheavals.

Kyrgyzstan, with five million people, continues to have a more open political system and more open media than its hard-line neighbors in Central Asia. It is not a police state, and in general, only those who overtly challenge the government are hounded by the security services.

Even so, human rights groups have been taken aback.

“President Bakiyev has become infamous for even greater levels of corruption, authoritarianism and ineffective economic policies than his predecessor,” Freedom House, a human rights group, said in a new report.

In an interview at the presidential residence, Mr. Bakiyev dismissed such criticism. He said the security services were in no way persecuting the opposition.

He said he would be easily re-elected because the country was faring well despite the financial crisis, adding that opposition leaders were complaining that balloting would be falsified because they needed excuses for their lack of support.

“A strong opposition would not behave in that way,” Mr. Bakiyev said.

He said he was so confident that the elections would be honest that he had invited the Organization for Security and Cooperation in Europe to monitor them. In a report in May, the organization, which has 56 member states, described concerns in Kyrgyzstan about “a criminalization of the political process.”

Mr. Bakiyev, asked about repeated attacks on journalists, said he doubted that the attacks were related to their jobs. He said the government would never try to silence the media.

“The only authorities that would take that step are ones who are afraid — afraid of journalists, afraid of openness, afraid of something that they want to hide,” he said. “I, as president, and the government of Kyrgyzstan fear absolutely nothing. There is no motive, there is no reason to hunt down journalists.”

Still, the bloodshed continues. This month, a journalist named Almaz Tashiyev died after being beaten by police officers, prosecutors said.

Syrgak Abdyldaev says he barely escaped that fate. In March, Mr. Abdyldaev, 47, a well-known journalist who has scrutinized the president’s political activities, was lured to a meeting by an anonymous caller who promised confidential information, and was attacked.

He was stabbed 29 times in the thigh, apparently in an effort to cause him to bleed to death. He survived after passers-by came to his aid.

“They wanted to make an example of me,” Mr. Abdyldaev said. “They wanted me to die in front of everybody. And then nobody — not a journalist, not anybody with a brain in his head — would dare write anything in the press.”

While he was hospitalized, his newspaper, The Bishkek Reporter, dismissed him. He was told it was too risky to keep publishing his work.

Muslim Integration into Western Cultures: Between Origins and Destinations

Source: Kennedy School of Government, Harvard University, Faculty Research Working Paper Series

To what extent do migrants carry their culture with them, and to what extent do they acquire the culture of their new home? The answer not only has important political implications; it also helps us understand the extent to which basic cultural values are enduring or malleable; and whether cultural values are traits of individuals or are attributes of a given society. Part I considers theories about the impact of growing social diversity in Western nations. We classify two categories of society: ORIGINS (defined as Islamic Countries of Origin for Muslim migrants, including twenty nations with plurality Muslim populations) and DESTINATIONS (defined as Western Countries of Destination for Muslim migrants, including twenty-two OECD member states with Protestant or Roman Catholic majority populations). Using this framework, we demonstrate that on average, the basic social values of Muslim migrants fall roughly mid-way between those prevailing in their country of origin and their country of destination. We conclude that Muslim migrants do not move to Western countries with rigidly fixed attitudes; instead, they gradually absorb much of the host culture, as assimilation theories suggest.

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Source - http://www.docuticker.com/?p=26017