Nokia Crash Shows How Far Europe's High-Tech Has Fallen

Philippe Escande

Not prone to emotional effusiveness, the Finnish have developed a particular taste for euphemisms: “Naturally, this is a day of big change for Finnish industry,” Premier Jyrki Katainen affirmed modestly last Tuesday, when the country’s best-known company, Nokia, sold its mobile phone outfit to Microsoft for $7.2 billion. That is about 15 times less than its estimated value in 2000.

But it is necessary to add that this event also carries major significance for Europe as a whole: With Nokia’s takeover, the continent has lost its last gem in the consumer electronics industry.

Siemens, Thomson, Philips, Alcatel, Ericsson — one after the other, Europe’s biggest electronic brands have announced their retreat from a doomed sector that has brought them nothing but disappointment. And except from certain real gems, such as German SAP in the software sector or the French-Italian STMicrolectronics in the electronics component market, one could draw the same conclusions for the entire digital industry.

Lisbon dreaming

The telecommunications sector, which had long been protected from external interference through national monopolies such as Orange (France Télécom), Deutsche Telekom or Telefonica, has managed to stay afloat for a while. In return, the last two maintain an industry of fixed assets, of which today only three major actors survived: French Alcatel-Lucent, the remains of Nokia and Swedish Ericsson. Only the latter, a world leader for mobile devices, displays relatively good health, while two others are suffering major losses.

This is a far cry from the goals established during the European Summit in Lisbon in 2000, which promised that the continent would become “the world’s most competitive and dynamic knowledge-based economy" by 2010. Obviously, the digital industry sectors, consisting of consumer electronics, telecommunications and computing, are not the only ones contributing to this knowledge economy, but in many ways they are its backbone.

Thus, the access to high-speed internet, which — according to research by IDATE — is probably the most important element of all in this new era, is today 20 times more developed in Asia and North America than in Europe. And consultants at BCG fear that if the decline in investments in the telecommunications sector — which has dropped by 2% annually, after previously rising 2% — continues, up to 750 billion euros of GDP will be lost by 2020. The Old Continent would also miss the opportunity of creating some 5.5 million new jobs.

The main cause for this decline is well-known: With the revolution of the digital age and the Internet, Europe has gotten squeezed out by America’s ever healthy entrepreneurship, on the one hand, and the rising industrial competitiveness in Asian markets. As a result, nine out of the first ten stock market capitalizations were American and one Korean (Samsung).

Internet war

Yet, another aspect is less often mentioned, namely the American hegemony in the software sector. “Software is eating the whole world,” the Californian investor and entrepreneur Marc Andreessen, warned two years ago. This means that the value of our everyday products — from the telephone to the car — is more and more dominated by the software that comes with it. Once telephony networks increasingly started to resemble computers, new actors appeared on a horizon that used to be dominated by Alcatel and Siemens. The same happened once the telephone started to come with a computer-based interface able to access the Internet. As a result, American-based Cisco has replaced Alcatel, and Apple has done the same with Nokia.

The new Internet players — from Google to Amazon — are more or less software enterprises who have now started to pull the plug on what was supposed to be the revenue stream for many operators in the telecommunications industry, who now mainly function as sub-contractors. It is the U.S. that is winning the Internet battle and the digital industry as a whole, simply because they are invincible in software. This is an industry based on individual initiative and entrepreneurial Darwinism.

Can Europe regain its momentum, or will it have to resort to watching others win? Its main trump card remains the strength of its telephone operators, who are among the world’s best. Yet, the economic landscape remains fragmented. In the U.S., four different companies share the market in mobile telecommunications, while there are still more than ten in Europe. Undoubtedly penalized by the crisis, they are weakened as soon as it must turn to mammoth investments in such projects as new high-speed 4G mobile technology networks.

The solution of all this could be a stronger concentration of different players – just as has been the case in the U.S. during the last decade. After its retreat from the U.S., British Vodafone invested 38 billion euros in the Spanish Telefonica — which already was present in Germany at the time — and managed to emerge as the third strongest provider in the country. But because the French telecom SFR is up for sale and American giant AT&T has a strong interest in the European market, it is doubtful that France will join this movement anytime soon.

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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


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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