Is Spendthrift Korea Following Japan into a Long Slump?

      November 15, 2012 13:51

      Korea ranked No. 1 last year in the consumption of premium whiskey aged more than 17 years, imbibing a staggering 698,000 cases of the tipple. Whiskey comes in bottles of different sizes according to brand, so 9 liters is considered to be one case.

      Korea has been the world's No. 1 consumer of premium whiskey since 2001, its population of 50 million outperforming the U.S.' 310 million (478,000 cases), China's 1.34 billion (234,000 cases), and Japan's 130 million (140,000 cases).

      According to consulting firm McKinsey, Korea's market for luxury goods has grown 12 percent each year on average since 2006 and is worth US$4.5 billion. Five percent of Korean household spending goes into luxury goods, compared to Japan's 4 percent.

      When leading luxury labels roll out new products, they now target the Korean market first. For example, it accounted for 13 percent of the global sales of a Norwegian firm that makes high-end baby strollers priced at a cool W1.69 million (US$1=W1,085).

      That spending behavior, however, is similar to Japan's before it sank into a 20-year economic slump. As late as 1985, there were only 510,000 imported cars in all of Japan. But in 1990 alone, 220,000 imported cars were sold there. Some 50 percent of Louis Vuitton's sales were generated in Japan, and the country accounted for 20 percent of global diamond sales.

      Japanese collectors swarmed all over Christie's and Sotheby's auction houses in New York and snapped up prized works by Van Goh and Renoir, pushing up record prices by 70 percent.

      In the 1960s, Japan had 350 golf courses. In the 1990s, the number surged to 2,000, while the price of membership rose to as high as 500 million yen, and their clubhouses sometimes resembled the huge mansions of Western tycoons. Heavy spending by the ultra-rich rubbed off on the middle class, who had until then prided themselves on their frugality.

      Soon after, real estate prices tanked, and the bubble that had been fueling that conspicuous consumption suddenly burst. A thousand golf courses went bust, prompting some of them to be ceded for free to regional governments as there were no interested buyers. Young Japanese, who grew up in the days of conspicuous consumption and easy living, lost the spirit of challenge that had powered the growth of Japan.

      Over the last decade, the number of Japanese studying overseas dropped 52 percent, and one in two new employees in Japanese businesses apparently refuses to be posted abroad.

      Now U.S. magazine Foreign Policy warns that Korea's economy is heading in the direction of Japan, whose growth engine has gone rusty, while its society is aging fast. It is a warning that the country should take very seriously.

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