CLARIN

Welcome To Our New Economic World Order: The Silicon Valley Consensus

The dominant economic idea used to be to cut all barriers to capital flows, the so-called Washington Consensus. But since the 2008 financial collapse, the tech industry's hold on global consumption rules the day, and anything impeding it is considere

Uber founder Travis Kalanick
Uber founder Travis Kalanick
Pablo Maas

-Commentary-

BUENOS AIRES Remember Washington Consensus? It was the theory in vogue in the 1990s, espousing the need to deregulate and privatize economies, from Argentina to New Zealand, in the name of economic efficiency and market superiority.

The Great Recession of 2008 has swept away a good portion of this intellectual structure. Companies the size of General Motors and Citibank have had to be rescued by those nation states that were supposed to be outdated and receding, both in Europe and the United States. The idea of "too big to fail" imposed itself — a term hitherto absent in the Washington Consensus glossary.

It seemed that bankruptcy procedures — the dungeon of capitalism — did not apply to inefficient, over-indebted and poorly run companies. No, rather they were sent to the protective embrace of governments of any ideological hue. Thus marked the end of the famous consensus.

The pivot of a new consensus has now shifted from the East Coast to California's Silicon Valley, the cradle of the tech industry. The rise and expansion of digital economy giants (Google, Facebook, Amazon) have collided with the old economy and its rules, from copyright norms to privacy rights. This time, though, calls for deregulation are not in the name of economic efficiency but of technological advance, which is basically being touted as a natural force that it would be futile to oppose.

Internet giants present themselves as benevolent. They are not just businesses. They are here to save the world, end hunger or give work to millions of people — as in the so-called "sharing economy." Just a few days ago, the digitial car-service Uber, now operating in 80 cities, was re-valued at $40 billion. The company owns no automobiles, though lobbying to persuade city authorities to allow its operation in dozens of cities doesn't come cheap.

Europe is currently at the forefront of regulating new tech services, beginning with its ruling that people have a "right to be forgotten" on the Internet. Brussels is mulling proposals on a kind of Google tax.

In our Latin American region, Brazil prefers storing its citizens' Big Data inside its own national borders. In Argentina, the debate on such questions is just beginning. While Uber itself in just the past week has been banned in Spain, Thailand and India.

The Silicon Valley Consensus is firmly in command, but already has its first dissenters.

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Society

Debt Trap: Why South Korean Economics Explains Squid Game

Crunching the numbers of South Korea's personal and household debt offers a glimpse into what drives the win-or-die plot of the Netflix hit produced in the Asian country.

In the Netflix series, losers of the game face death

Yip Wing Sum

-Analysis-

SEOUL — The South Korean series Squid Game has become the most viewed series on Netflix, watched by over 111 million viewers and counting. It has also generated a wave of debate online and off about its provocative message about contemporary life.

The plot follows the story of a desperate man in debt, who receives a mysterious invitation to play a game in which the contestants gamble their lives on six childhood games, with the winner awarded a prize of 45.6 billion won ($38 million)... while the losers face death.


It's a plot that many have noted is not quite as surreal as it sounds, a reflection of the reality of Korean society today mired in personal debt.

Seoul housing prices top London and New York

In the polished streets of downtown Seoul, one sees endless cards and coupons advertising loans scattered on the ground. Since the outbreak of the pandemic, as the demand for loans in South Korea has exploded, lax lending policies have led to a rapid increase in personal debt.

According to the South Korean Central Bank's "Monetary Credit Policy Report," household debt reached 105% of GDP in the first quarter of this year, equivalent to approximately $1.5 trillion at the end of March, with a major share tied up in home mortgages.

Average home loans are equivalent to 270% of annual income.

One reason behind the debts is the soaring housing prices. In Seoul, home to nearly half of the country's population, housing prices are now among the highest in the world. The price to income ratio (PIR), which weighs the average price of a home to the average annual household income, is 12.04 in Seoul, compared to 8.4 in San Francisco, 8.2 in London and 5.4 in New York.

According to the Korea Real Estate Commission, 42.1% of all home purchases in January 2021 were by young Koreans in their 20s and 30s. For those in their 30s, the average amount borrowed is equivalent to 270% of their annual income.

Playing the stock market

At the same time, the South Korean stock market is booming. The increased demand to buy stocks has led to an increase in other loans such as credit. The ratio for Korean shareholders conducting credit financing, i.e. borrowing from securities companies to secure stock holdings, had reached 21.4 trillion won ($17.7 billion), further increasing the indebtedness of households.

A 30-year-old Seoul office worker who bought stocks through various forms of borrowing was interviewed by Reuters this year, and said he was "very foolish not to take advantage of the rebound."

In addition to his 100 million won ($84,000) overdraft account, he also took out a 100 million won loan against his house in Seoul, and a 50 million won stock pledge. All of these demands on the stock market have further exacerbated the problem of household debt.

42.1% of all home purchases in January 2021 were by young Koreans in their 20s and 30s

Simon Shin/SOPA Images/ZUMA

Game of survival

In response to the accumulating financial risks, the Bank of Korea has restricted the release of loans and has announced its first interest rate hike in three years at the end of August.

But experts believe that even if banks cut loans or raise interest rates, those who need money will look for other ways to borrow, often turning to more costly institutions and mechanisms.

This all risks leading to what one can call a "debt trap," one loan piling on top of another. That brings us back to the plot of Squid Game, "Either you live or I do." South Korean society has turned into a game of survival.

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