3rd Nov. 9am morning YEDG Session/ China Go on, Bet the Farm
jiyoen park
김은영
Dear all
The articles we will cover on Sun, Nov.10 are as follows and the discussion topics will be advised on site.
Regards,
Sophia
1st topic
Great Britain or Little England?
2nd topic
Credit cards in South Korea
3rd topic
BlackBerry:Only thorns
The future
Great Britain or Little England?
Fingers crossed that the country will choose wisely
BRITAIN WAS AT its most decisive when its cities lay in ruins. Within a few years of the end of the second world war a Labour government had founded the National Health Service, provided for universal free secondary schooling, introduced unemployment and sickness pay and child benefit and embarked on a public-housebuilding spree.
No less than 19th-century Anglicans heading into the bush, the architects of the British welfare state had a profound sense of mission. “Society must be brought under control in exactly the same way as man has tried to bring natural forces under control,” explained Aneurin Bevan, the mighty health minister who supervised the introduction of the NHS.
The state grew ceaselessly, even through recessions and the leadership of Margaret Thatcher. Between 1948 and 2009 spending on education, health and social security rose by an average of 4.5% a year in real terms. Generously supplied, well-run public services are still part of Britain’s image of itself, proudly projected to the world: recall the Olympics opening ceremony, with its vignette of children bouncing on hospital beds. But the economic crisis has led to something almost unthinkable.
The present government is in the midst of an unprecedented state-pruning exercise. By the middle of the next parliament almost the entire surge in spending that occurred under Labour’s Tony Blair and Gordon Brown will have been reversed (see chart 8). The health and schoolteaching budgets have been protected, but only in nominal terms: the NHS must still treat more people with less money. Everything else has been slashed.
You can quibble with the details. It was foolish to make such deep cuts in spending on infrastructure, which helps the country run better. Welfare for young adults is being cut more than welfare for the old largely because of crude politics: the old are more likely to vote. And the coalition’s bigger goal, of bringing down the deficit, is still miles away. According to the “plan A” laid down in 2010 by George Osborne, the then new chancellor of the exchequer, Britain was to borrow £60 billion in the current fiscal year. The outturn may be almost double that.
None of this detracts from the coalition’s success in cutting costs, though. It has stuck to its painful course, and common British decency has done the rest. A multitude of government departments, local councils and public agencies have thought carefully about what they could afford to lose—a police car here, a library there, a nursery—and have quietly got rid of them. Predictions of social catastrophe have not come to pass. Despite deep cuts to policing, for example, crime continues to fall. The nation is learning to live within its means.
The state is changing shape as it shrinks. Police chiefs can now be sacked by elected police and crime commissioners. The unemployed are being steered back into work by private companies, who are paid by results. The probation service is being privatised, too. Some initiatives have run into trouble—reforms to the NHS are in a special circle of bureaucratic hell—but few are likely to be reversed completely.
One reform is proceeding more quickly than all the others. The coalition has freed many schools to alter the curriculum and vary teachers’ pay. Few are using their new powers yet, but the system is on the move. Chains of academies have emerged, pushy and competitive. ARK and Harris schools (the latter sponsored by a carpet magnate) boast about their pupils’ exam results just as private schools do. And the coalition’s education reforms act as a ratchet. Labour may slow them if it comes to power in 2015, but it will not reverse them.
In another way, though, the coalition has gone backwards. The Labour government that lost office in 2010 encouraged immigration and smiled on one immigrant-dominated activity in particular: the financial-services industry. It used the proceeds to run up spending on public services. In effect, globalisation paid for an increasingly generous welfare state. The current Conservative-dominated government, in reversing the rise in state spending, has unfortunately also reversed much of Labour’s internationalism. It has pulled back from the EU and talks of withdrawing from the European Convention on Human Rights. Britain is on the way to becoming more solvent but also more insular.
Countries often try to pull up the drawbridge when times are tough. They may lower it again when the economy improves. But in Britain’s case a possibly temporary grumpiness could turn permanent.
Within five years the United Kingdom may be down one country and Britain could be negotiating its departure from the European Union. It would still be an interesting, plucky nation but no longer an important one. A smaller, footloose Britain might rediscover an enthusiasm for trade and financial services, becoming a kind of nuclear-armed Hong Kong. But do not count on it. Norway and Switzerland, free from the constraints of EU membership, throw subsidies at their farmers and impose tariffs on food imports.
Although the most zealous Eurosceptics are Conservative, Britain is at least as likely to leave the European Union under a Labour government—if the party ends up holding a referendum, at any rate. David Cameron has raised expectations that the country will manage to drag powers back from Brussels. Labour prefers a gentler, slower, more consensual approach to European reform. That is more realistic, but it may now strike Britons as too soft.
And in some ways the Labour Party has forgotten its internationalist history, or rejected it outright. Ed Miliband, Labour’s leader, has apologised fulsomely for three mistakes (as he sees them) made by his predecessors. One is the Iraq war. Another is New Labour’s enthusiasm for financial services. The third is the decision to let so many eastern Europeans into the country. Mr Miliband pledges to make it even harder for companies to import talent, by obliging them to provide an apprenticeship for every foreign worker they hire.
Immigration policy has become an auction, with Labour and the Conservatives bidding to make life ever tougher for newcomers—particularly, but not only, illegal ones—and the people who employ them. A big turnout for the UK Independence Party in next year’s European elections will encourage both parties to promise more restrictions. Yet it is becoming harder to find an MP who can defend anti-immigration policies, except by saying that they are popular. They make little economic sense. Christian Dustmann, an economist at University College London, and others have shown that the Poles and other eastern Europeans who arrived in Britain from 2004 have been net contributors to the national purse. They are more likely than natives to work and less likely to claim benefits or use public services.
A pain in the wallet
In the long term, a closed nation would become poorer. The government’s fiscal referee, the Office for Budget Responsibility, has produced a series of forecasts for Britain’s debt under different immigration scenarios. They show that the more immigration is cut, the more the country sinks into the red as the ratio of working-age people to the general population shrinks (see chart 9). If that happens, all the state-pruning will be for naught.
It need not. Under a more optimistic scenario, Britain will vote to hold together and stay in the European Union, where it will continue to push for free trade. It will become better at exporting and more tolerant of immigration, though still not enthusiastic.
Devolution to Northern Ireland, Scotland and Wales may even turn from being an untidy mess into a catalyst for radical reform that could sweep the entire nation. Peter Hain, who oversaw devolution to both Northern Ireland and Wales under Labour, points out that there is a solution to the “English question”—shorthand for the problems that arise from devolving powers to the Celtic fringe but not to England. Although an English parliament is out of the question, the government could proceed piecemeal, allowing competent, successful cities like London and Manchester to take greater control over money and policy. Others would clamour for similar powers.
Like the isolationist scenario, this could come to pass under any government. Although the Conservative Party contains only a handful of outright Europhiles, many of its MPs would rather change the subject. And Labour has some cheerleaders for free trade and critics of state over-centralisation. Its new education spokesman, Tristram Hunt, wrote a wise book about the rise of city governments in the Victorian era and their decay since.
The country truly faces a fundamental choice. In the next few years it could lapse into isolation, or it could succeed in combining a smaller, more efficient state with a more open attitude to the rest of the world. So, Britain, which is it to be?
Credit cards in South Korea
A swipe at profits
It is getting harder to make money from the world’s most prolific card-users
Where cash is not king SOUTH KOREA is a notoriously competitive society. But how do those who play its fierce status games know when they have won? Probably when they are invited to apply for “the black”, a credit card issued by Hyundai Card, a subsidiary of Hyundai Motor. Cast in “liquidmetal”, a trademarked alloy suited to armour-piercing ammunition, the card is heavy. It is also rare. Only about 2,000 have been issued and only 9,999 ever will be. To qualify, a holder needs high social standing as well as high net worth. The card charges a stiff membership fee and offers a variety of benefits: members were, for example, invited to a mock Christie’s auction, featuring works flown in from New York. But the main reason people want the black card is that it is so difficult to get.
That elusiveness is unusual in South Korea, where credit cards are issued promiscuously. The country has the equivalent of 4.4 cards for every member of the labour force. Koreans made 129.7 transactions per person in 2011, according to Yonhap, a news agency, more than any other country. In comparison, Canadians made 89.6 transactions and Americans 77.9.
The popularity of plastic dates back to the aftermath of the Asian financial crisis in 1997-98. By promoting cards the government hoped to boost consumption and curb cash payments, which are harder for the taxman to track. It rewarded users with a tax break and even entry into a lottery. The progress of plastic was interrupted by a wave of delinquencies and bankruptcies in 2003. But usage soon resumed its climb. Merchants are obliged to accept card payments, however small the purchase. South Koreans fill their wallets with multiple cards to take advantage of the endless promotions that card companies offer.
Hyundai Card has even succeeded in making cards cool and debt debonair. Unlike most financial firms, it showcased the product itself, not the company behind it. Its cards competed on the image they conveyed, not the features they offered. The company invested heavily in design and marketing. It invented its own typeface, suited to both English and Korean. One of its offerings had an orange rim to make it stand out in a wallet full of cards.
Unfortunately a credit card’s 86-by-54 millimetres offer a limited creative canvas. The firm has thus allowed its designers to indulge in a variety of sidelines, such as a range of kitchenware and a CD cover. It also “donates” their talents to struggling small firms in need of a makeover. Beneficiaries include a butcher’s shop and a handmade tofu restaurant run by a North Korean defector.
Hyundai Card now claims a 14% share of the market. But the market is not what it was. The return on assets for the average card company has fallen from over 5% before 2008 to only 2.5% in the first half of this year, according to Heakyu Chang of Fitch, a ratings agency. Hyundai Card managed less than 2%. In September the value of credit-card purchases fell by 1.7% compared with a year earlier.
Returns have been hurt by tighter regulations. In 2012 the government barred card companies from extracting higher fees from smaller merchants. It is also making it easier for customers to compare interest rates across products and harder for less creditworthy borrowers to spend beyond their means. Its tax breaks now favour debit-card purchases over those made by credit card. In 2010 debit-card payments amounted to only 11% of the value of credit-card purchases. That figure has now passed 15%.
The card companies’ efforts to seduce customers with perfectly matched cards have also reached their limits. “People are overwhelmed with choices,” says Kim Jung-in of Hyundai Card. “If you dine a lot, if you shop a lot, if you are a car maniac”—there is a card for each category. People often carry four or five cards in their wallets, he says, but they use only one or two. They may not know what benefits their cards offer. In July Hyundai Card streamlined its products, offering customers a simpler choice among more versatile cards. Their cards may not fit each customer so tightly. But at least their customers’ wallets will fit in their pockets more snugly.
BlackBerry
Only thorns
For a fallen star of the smartphone industry, things go from bad to worse
THE signs do not look good. On November 4th, six weeks after BlackBerry said that its biggest shareholder, Fairfax Financial, wanted to take the ailing Canadian smartphone-maker private for $4.7 billion in cash, the sale was called off. BlackBerry instead declared that it would raise $1 billion in debt, convertible into 16% of its shares. Fairfax, a Toronto holding company that focuses on insurance but owns 10% of BlackBerry, is taking a quarter of the issue. Barbara Stymiest, who chairs BlackBerry’s board, called this “a significant vote of confidence in BlackBerry and its future”. The stockmarket called it a flop: the share price, already a fraction of what it once was (see chart), fell by 16%.
Thus BlackBerry ended a “review of strategic alternatives” with no visible alternative strategy—and no chief executive. Thorsten Heins, its boss since January 2012, was unseated. He brought a much-delayed operating system, BlackBerry 10, to market, but this will not make much difference. Although lots of people still carry BlackBerrys, not many of those devices are new. BlackBerrys have not only been squished by Apple’s iPhone (and iPad, to which BlackBerry responded feebly) and by Android devices; they are also being outsold by phones with Microsoft’s Windows. In its latest quarter BlackBerry lost $965m, mostly because of a write-down of unsold phones. Last month it made its BBM instant-message service available as an iPhone and Android app.
Mr Heins has a temporary replacement: John Chen, the former head of Sybase, a software company that he knocked back into shape before selling it to SAP, of Germany, in 2010. Once a permanent chief executive is found, Mr Chen will stay as executive chairman. It is not yet clear whether his background in software is a clue to BlackBerry’s future. He seems keen to keep selling handsets. Roberta Cozza of Gartner, a research firm, thinks BlackBerry should become a “niche player”, focusing on applications and services for companies to which secure communication is especially important. “I don’t think their priority should be hardware at all,” Ms Cozza says.
Mr Chen told Reuters that at Sybase he had “seen the same movie before”. Canadians also know the story. The version they saw involved Nortel Networks, a telecoms-equipment company that was heading for oblivion when Research In Motion (as BlackBerry used to be called) was on the rise. Nortel too was a high-tech source of national pride. It also brought in a turnaround specialist when its fortunes darkened. Alas, the ending was unhappy: it went bankrupt in 2009, albeit bequeathing a pile of patents worth billions. “The demise of Nortel hit the Canadian psyche very hard and the same thing would happen if BlackBerry failed,” says Don Drummond, a former senior civil servant.
It is no comfort that others in the cruelly Darwinian smartphone business have also begun to look like wounded gazelles. On November 5th Taiwan’s HTC reported its first quarterly loss. It added that sales in the first ten months of 2013, at NT$175.5 billion ($5.9 billion), were down by 29% from a year earlier and by 57% from 2011, when HTC was briefly the biggest seller of smartphones in America. HTC has made mistakes, but its chief problem has been having Samsung, with its scale and marketing clout, as a competitor in Android phones.
A third national phone champion, Nokia of Finland, has sold its device division to Microsoft. The other two are battling on alone, HTC apparently out of choice—its chairwoman says it is not for sale—but BlackBerry out of necessity. Its shareholders will be praying that Mr Chen can direct a sequel to “Sybase”, not “Nortel”.
