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rose: welcome, everybody. my name is gideonrose. i am the editor of foreign affairs, and i'm delighted to be able to welcome youto another foreign affairs live, this one on new emerging markets, which is based onour package in the jan-feb issue, "where to bet now." let me just say a little word about this,because some people might say, gee, what is foreign affairs doing talking about emergingmarkets? and this is not your kind of wheelhouse. and why are you in there at all? and for 90years, we've been purveying a steady stream of serious expert commentary on a whole rangeof subjects. our best known subject matter has always been, of course, u.s. foreign policyand grand strategy and security studies and
diplomacy, but we've done a lot of other things,as well, and certainly the original vision was one that essentially covered the world. and in today's world, our feeling is that,if it's important, we should be covering it, and we should be covering it with the samekind of seriousness intellectually, the same kind of practical relevance, and the samekind of accessible presentation that we've always brought to other kinds of things. and so whether it's emerging markets, whetherit's technology, which is the subject of the lead package in our march-april issue, whetherit's energy markets, which are the subject of our -- the lead package in may-june, we'regoing to be doing not just all the things
we used to do and better than ever, but we'regoing to be tackling whatever else is out there that is important, the trends that aredriving the world that are important to our clientele, and bringing to it the same kindof expertise and accessibility and authority that we've brought to the things that we'retraditionally better known for. so that's, if you're ever wondering why we're doing thiskind of thing, expect more of the -- expect more of this. but it's not so much a new departure,as it is an expansion of the franchise to all things that matter. so with that, everybody knows that, despitethe recent week or so in which the public seemed to pick up on it for the first time,or in a big way, the major emerging markets
that have been hot over the last several yearshave started to come undone. the brics are crumbling. some of the major countries thatwere doing very well a few years ago, you could throw a dart -- you know, throw a dartat a dartboard and do well by investing in the developing world, that's not true now. that said, there are some green shoots outthere. there are some very promising stories. and if you look at a stagnating europe, aslowing china, a muddling forward in a positive, but not particularly exciting way u.s., wethought that it was very important that -- and worth time -- to essentially take a look atsome of the newer emerging markets, the hotter developing countries that people hadn't focusedon as much, and say, gee, where are places
that over the next several years are goingto be interesting to watch and worthwhile to -- to maybe bet on. and what we did was we went out and foundsort of absolutely top experts in each of those countries to present to us honestlyand straightforwardly, not in a kind of touting way, not in a national champion kind of way,just what are the secrets of this country's success to date? what are the reasons to beoptimistic about it in the world that's going forward? and what are the challenges thathave to be overcome? what are the walls of worry that have to be climbed? because, ofcourse, every place has all sorts of problems that need to be overcome.
this is our attempt to basically dip intosort of global economic forecasting. and without further ado, let me introduce our panel, andwe'll get right to it. so, marcus noland is the executive vice presidentand director of studies at the peterson institute for international economics, and he's goingto talk about south korea. mitchell orenstein is the chair of the politicalscience department at northeastern university, and he's going to talk to us about poland. and steve cook is the hasib sabbagh seniorfellow for middle eastern studies at the council. he's going to talk to us about turkey. david dombey -- sorry, yeah, dombey wrotethe piece in the package on turkey. he couldn't
be with us tonight, but steve is not onlya good friend, has written for us on turkey many times, and is going to be the turkeyexpert tonight. i urge you to look at the whole package... cook: and dombey's taller than me. rose: ... to look at the whole -- whole package,and mexico is obviously one of the most interesting countries, and shannon's piece on that isquite good. and the two pieces on asean, sort of the archipelagoes and the mainland one,highlight countries that people haven't really paid all that much attention to outside pureregionalists and are also worth a close look. without further ado, so, marcus, why is koreain this? and why are we -- what are the reasons
to be excited and/or worried about korea? noland: well, i think the reason that koreais in it tonight is that korea is the premier development success story of the last 50 years.fifty years ago, south korea was poorer than mozambique or bolivia or ghana. and today,it's richer than spain and new zealand. it was the first non-oecd -- excuse me, non-g-7or -g-8 country to host the g-20 summit. it was the first asian country to host the g-20summit. but as remarkable as its economic transformationhas been, its political transformation was arguably even more stunning. in a period ofa decade, from the late 1980s to the late 1990s, they went from a military dictatorto his hand-picked general who was elected
successor to an elected civilian centristpolitician to electing a political dissident who a previous leader had tried to kill aspresident of the country. and it was a country that hosted the second nuclear summit andnow a korean national former foreign minister is secretary general of the united nations. so it is a country that has had stunning successin economics, has had success in politics, and those successes are now being recognizedat the international level. when jonathan tepperman first approached meabout participating in this project, i actually told him i wasn't really sure, you know, ishould do it, because in some ways, the talk about korea as an emerging market is a bitof an anachronism. korea today has a per capita
income of $25,000. it's a trillion-dollareconomy. now, it is a very open economy. exports plusimports exceed national income. trade ratio is more than 100 percent. and that means thatsouth korea is unusually vulnerable to shocks. and in that sense, it is a riskier economyin which to invest than, say, the united states or japan or canada. so in that sense, thereis this kind of aspect that it is -- it has not completely made the transition into akind of emerged economy. there is still an emerging economy aspect to it. that said, in the last couple weeks, wheninvestor concerns have really been roiling markets, the impact on south korea has beennothing, for example, compared to the impact
on turkey. so it seems like investors arereally putting it in a different basket. challenges moving forward is that growth isslowing. for the first time in history, trend growth is probably something on the orderof 3 percent to 3.5 percent, which actually means it's growing slower than the world averagefor the first time. and south koreans put a lot of demands ontheir government, so the government has recently begun -- this month announced that they'regoing to have a three-year plan. they've established some very ambitious goals. they want to haveper capita income get from $25,000 to $30,000. they want to raise the rate of growth to 40percent. they want to raise the labor participation rate to 70 percent, which would imply substantialincreases in labor participation by women
and young people. so it's a very ambitious set of targets. theyhaven't actually released the plan. the plan is supposed to come out this coming month.but they've identified three strategies that they want to use. the first is, there's anemphasis on building a more competitive economy. and what exactly does that mean? south korea's been really successful economically,but part of that success has been that it is a kind of unbalanced economy. very, verylarge conglomerates account for a lot of the economy. and while the manufacturing sectorhas obviously done very well -- everybody in this room is familiar with samsung andhyundai -- the service sector has really lagged
and is highly regulated. and in particular,there's a whole plethora of state-owned enterprises or government-sponsored enterprises or parastatals-- i'm not exactly sure how you'd describe them all -- but there is a sense that theycan operate not exactly conforming to market rules. and, in fact, there's a lot of concernabout the debts that these organizations are running up. so the first part of the planis try to level out the playing field to have a more competitive economy. second is an emphasis on creativity. i supposeeverybody in this room is familiar with, you know, "gangnam style" and, you know, the wholeboom in south korean cinema. and so that's kind of a code word for shifting away frommanufacturing and towards services. how you
do that is not so clear. and, finally, there's an emphasis on rebalancingaway from external demand to domestic demand. but, again, if you actually listen to whatpresident park geun-hye has been saying over the last month, she's actually been talkingabout really ways of milking external demand a little more, not such clear ideas on howto shift towards domestic demand, although the national assembly is bringing forwardsome expenditures. final thing. so far, everything i've saidis pretty conventional. i mean, the korean story is outstanding, of course. but it'sall kind of comprehensible. there is one thing that sets south korea apart, that is the world'slargest contingent liability, north korea.
and one of the really curious things in thelast month, not only in south korea, but then at davos, president park has been talkingabout unification. and she's been talking about unification in very positive terms.she's described it as a jackpot, as a bonanza. now, personally, i think there are many reasonsto look forward to korean unification. i mean, i look forward to the disappearance of thecurrent north korean regime. stimulus to the south korean economy is not high on my listof reasons about why i am looking forward to that. but between interesting developments in theeconomy and potentially enormous developments with respect to north korea, i think southkorea remains a very interesting and exciting
country. rose: ok. my son is 13 and is having his barmitzvah in two weeks, and you can tell that korea has come of age because psy, the "gangnamstyle" pop star, is actually on the new york bar mitzvah circuit. and you can check oninstagram. he is available. you can have psy do "gangnam style" at your child's bar mitzvah,if you're prepared to pony up, which is something that i don't think was ever the case in previouskinds of things. true story. mitch, you know, 20 years ago, the idea thatpoland would be featured at a panel like this would have been laughable. and 70 years ago,there wasn't a poland. so explain how poland went -- as in the title of your piece -- fromtragedy to triumph?
orenstein: yeah, well, thank you so much.i wanted to -- the previous speaker, marcus noland, drew a kind of interesting contrastbetween south korea and north korea. and as i was writing the piece, i thought about foreignaffairs' trajectory that you mentioned and the way that it tries to encompass -- i mean,its tradition is geopolitics, and trying to bring that geopolitical angle into thinkingabout the economy. and so i was thinking, well, what are someinteresting contrasts you could draw with poland? and i was thinking, well, you know,maybe you could compare poland to south korea and have belarus as their sort of north korea,you know? i decided not to go that route... rose: good choice.
orenstein: ... but -- but i will bring upanother contrast that's extremely relevant today, which is ukraine. as we look at ukraine-- and i know a lot of us in this room are following the events in ukraine -- one's lookingat the past of european politics, that one's looking at a country riven by serious geopoliticalfault lines, one in which the politics are extremely tenuous as a result, one in whichthe economic progress has, therefore, been extremely muted in comparison to poland. so when people ask me about my piece, whichis very bullish, very optimistic on poland, and they say, why are you so optimistic aboutpoland? i say, well, look at ukraine. and indeed, this argument came up, as i understand,in davos recently. there were a couple tweets
that i picked up from davos showing a nicechart of the trajectory of poland's gdp growth, which has doubled in proportion to e.u. average,whereas ukraine has more or less stagnated for the last 20 years. and the result is nowthat you have a gdp in poland which had been quite similar to ukraine historically is nowabout three times on a per capita purchasing power parity basis. so... rose: do the poles make ukrainian jokes? noland: they probably do, yeah. they probablydo. although i think today they have largely a very hopeful outlook on ukraine. so poland is a country that was in that typeof eastern european past, that had extreme
political turmoil. it has an enormously tragichistory. one can't step far in poland without encountering that sort of history on one sideor another. and yet it's managed to overcome that in the last 20 years to become one ofthe most successful economies in the world. it's now the 20th-largest economy -- or 24th-largesteconomy in the world. it's on its way to being the 20th-largest. it's a country which has utterly changed itsgeopolitical fate. it's no longer a ukraine. it's a poland. and it has really entered -- it'son the verge of entering the core of the european union. it will need to adopt the euro at somepoint to make that happen. but it's a core -- it's becoming a core economy of europe,just as britain is sort of moving out of that
sort of status. so how did it do this? well, i think partof the answer -- there's a number of answers one could give to that, but i think that oneshould go back to geopolitics to really understand the core of it. one of the key answers i givein the piece is that poland has become a western nation by virtue of the fact that its borderswere, in fact, moved at the end of the second world war. i had a nice little chart to showthis, but i think a lot of people know the basic outlines. poland existed several hundred miles to theeast up until 1945. it was an eastern-facing country, a country with an eastern empire.in fact, when it got its nationhood in 1918,
practically the first thing it did is keepmarching further east and try to grab some more territory away from the soviet unionin 1920 to 1922, at the time of the civil war in the soviet union. and after the molotov-ribbentrop pact, whichtook most of eastern poland into the soviet union, poland was compensated at the end ofthe war with a whole lot of german territory which was seized. those are the big areasof pomerania, silesia and east prussia. and so the map of poland today is -- i want tosay -- more than a third former german territory. and i have one line that i thought was goingto be controversial in the piece saying, you know, poland today is, to a large extent germanyinhabited by poles. and that, of course, came
about because of dramatic expulsions, extremelydevastating expulsions of people, where some millions of germans -- say, i think, 5 millionor 6 million germans were expelled out of poland into germany and 2 million or 3 millionpoles were expelled out of the soviet -- the eastern polish territories, which are nowgud lviv (ph) and vilnius, and move to the west, to the emptied west of poland. that for stalin was a great move. it effectivelypunished the germans after the war. it expanded the territory of the soviet union and in away punished the poles, also. but what i don't think he looked at, at the time, and what'sbecome evident now, is that it made poland a western nation. and where poland had alwaysvacillated, always been a sort of marching
ground for armies in a sort of tug-of-warbetween russia and germany, it effectively planted poland in this terrible history asfirmly in the german sphere of influence. and that's where it's come to at this moment. so the reason to invest in poland, the reasonto look at poland as a serious world economy is because of its extremely tight relationshipwith germany. when you look at sort of the european story -- you mentioned we talk alot about european stagnation, obviously the country that's not stagnating and is actuallydoing quite well in all of this is germany. germany -- the german economy is doing great.the strategy that... (unknown): testing. this isn't working.
orenstein: ... they're pushing for the restof europe is one that's really working for germany. and it's also working for poland.poland, in contrast to other emerging markets, has just had its growth outlook upgraded,so it's now looking at 3 percent growth or 4 percent growth this year. why? well, because poland has become a -- has becomea low-cost platform, low-cost, high-quality platform for production of european, but largelygerman goods. this is really across-the-board, if you look at any industry, but the primaryone is the auto industry, where companies like volkswagen employ thousands of workersin poland, producing all sorts of german automobiles, from trucks to cars to luxury cars, not justcheap cars.
hugo boss, the fashion-maker, makes a lotof its products -- mainly its shoes -- in poland. man, the bus-maker, makes its stuffin poland. and now they're starting to employ nearly as many workers in poland as they arein germany. in fact, one recent analysis by one of the major investment banks showed thatnearly -- i think was 30 percent or 40 percent of poland's exports to germany end up as germany'sexports to the rest of the world. so those german exports are including a huge componentof poland. so in this, it's interesting that poland wasable to pull this off at a time when china was rising in the global economy. and obviously,china became eastern europe, and poland in the foremost their main competitor. you know,they were trying to attract capital at the
same time as asia, asian competitors, likesouth korea and china are taking off. and so they had to really prove that they hada value proposition. so what was that value proposition? the valueproposition was that you could make goods cheaper in poland than you could in china,not every good, not very lightweight goods, but heavy industry, things that have substantialtransport costs involved with them, such as automotive, such as white goods, where actually-- have become actually cheaper to produce in poland than to produce in china. and that'sreally, i think, the -- you know, the sort of bottom line. in addition to that, of course, you have amuch more stable political environment by
virtue of the e.u. you have the massive e.u.investment in poland, which is building the highways, the autobahn that poland never had,correcting a lot of their infrastructure problems, tying them in much more closely to westerneurope. and so you have the political thing and then,of course, the proximity, which is that a german manager can, you know, drive over tothe factory in poland, take a look, walk around, see it. so you have -- you have a whole systemwhich is much more monitorable and much more easily compatible with european ways of doingthings than a factory in china. so i would say that poland, for these reasons,for its political stability, which is rooted in the geopolitical situation, for the stronglinkages, the close ties, the way it's embraced
germany is really an economy that's goingto be on the upswing for quite a long time, and probably will do better over the next10 or 20 years than the forecasts even think. rose: what are the challenges? orenstein: well, the challenges, i think,are still political. so some of you may -- some people will note that the current governmentis on the verge of losing its majority its parliament. it's facing elections where it'suncertain to win. and as -- like a lot of countries in europe right now, the far-rightor the more populist right in poland is rising. and they typically have a more populist economicplatform, to some extent. they're more welfarist, in particular.
and people always raise questions about thisand wonder, you know, what's going to -- what the effect is on the economy. and you mayremember the disputes about the kaczynski twins and their sort of statements about europeand others. so that kind of politics could emerge as dominant in poland again. my personalview on it, though, is that it's probably not going to have such a huge effect on theeconomy, which is why i remain optimistic. obviously, geopolitical turmoil, you know,that -- unresolved in ukraine or, you know, the relations with russia are, you know, potentiallyissues. but i guess those are really the main potential blockages, that there's somethingthat takes it off this train that's zooming towards europe.
rose: steve, a couple of years ago, turkeywould have been a no-brainer for something like this. in fact, it was -- there were peoplewho suggested adding it to the brics, or various kinds of -- you know, almost moving it upinto the super-stratosphere in developing economies. it's cooled off a little bit, andthere's political turmoil. so what are the -- why did turkey do so well? and where isit going now? and what are the challenges? cook: thanks, gideon. and thanks for includingme in this, because i did not contribute to this package, but have been thinking and writingabout turkey, including for foreign affairs, for a while. i also want to thank you. forthe last 10 minutes, i'm sorry, i didn't pay any attention. i've been replaying my barmitzvah with psy in it. totally the oddest
thing i could -- anyway... rose: other ones this year have include lordeand imagine dragons, all on the instagram circuit. it's really ridiculous. cook: in any event, look, you know, turkey-- and you're absolutely right. in the last decade, turkey certainly would have been ano-brainer. and i think a lot of people tried to work the t into the brics. and the turkscertainly wanted the t in there and often talked about how they should be included amongthose countries. and i think that the genesis of the kind ofgreat 2000s turkish economic boom goes back to the economic crisis of 2000 and 2001, whena government prior to the justice and development
party, before tayyip erdogan came to power,undertook some very serious and painful reforms. those reforms are authored by kemal dervis,our colleague from the brookings institution, and despite some expectations, after the justiceand development party came to power in 2002 that they would pursue a populist economicpolicies and not stick to the very kind of stringent conditions that the imf had imposed,they were basically responsible stewards of the economy. so take that, they were able to instill confidencein investors by sticking to an imf program, add it to a large, young population, a countrythat does have a manufacturing base. talking about automotive manufacturing, if you'regoing to buy a ford in europe, it was manufactured
in turkey. then you have location. turkey sits at animportant location, access both central asia, eurasia, the middle east, europe, the balkans,the eastern mediterranean, extraordinarily important. and over the course of this decade,you had the rise of new turkish entrepreneurs, these kind of fearless entrepreneurs whichshow up everywhere around the world wanting to trade. i remember just by an anecdote, i was havingdinner with one of these representatives from one of the turkish trade associations. andhe was aware of my interest in egypt and egyptian politics and egyptian economy. and he said,oh, we have a very small investment in egypt.
i said, oh, really? you know, how many? hesaid, oh, well, we employ 70,000 people in egypt. i thought that was pretty extraordinary. so you have the combination of, i think, goodeconomic stewardship, a young and growing population, a manufacturing base, to someextent, good location, and then this kind of bubble about, you know, turkey as a liberalizing,democratizing country. i mean, one of the advantages that turkeyreally had in the 2000s was that it wasn't turkey in the 1990s, where you had a seriesof unstable governments that didn't make sense. you had a coup d'etat. the turks, you know,kind of bristle at the idea that it was a coup, but they call it the blanc (ph) coup,the postmodern coup. the fact of the matter
is, is that the military pushed a governmentout of power, produced a significant amount of political instability. tayyip erdogan and akp come to power in 2002and 2003. and you suddenly don't have the need for coalition governments. you have astrong leader. and the akp, different from previous governments, looked out to the world.this was the party, this was the government that was going to bring turkey to the world. turkey historically had been very insular,inward-looking, a kind of prickly nationalism. foreign investment was there, but not in thekind of way then when the akp opened up the i think the reason why turkey has cooled offis because, despite all the great promise
and these factors that have led to -- thatled to the great, you know, boom of the 2000s, is that, one, the country's largely dependenton financing a current account deficit through foreign investment. and that's essentiallyhot money. turkey has no energy resources to speak of and must import all of its gas,and the only way to finance that is through foreign investment. current account deficitis a structural problem. over the course of the decade, as turks becameor believed that they were wealthier, you saw -- again, nobody really wanted to talkabout it, but a consumer credit bubble emerging. you know, i'd go back every couple months,and you'd see a neighborhood transformed. you'd see people who -- you know, friendswho told me that, you know, the guy -- the
neighbor didn't have a bmw two months ago,now had a bmw. there was clearly -- turks were feeling wealthier and starting to usecredit when credit was unavailable to them before. you also had a very significant real estatebubble. i mean, if you look at the skyline of istanbul, it's been absolutely transformedover the course of the last decade. some of that's real. a lot of that has to do withcrony capitalism in erdogan's turkey and that the construction industry has essentiallybecome a vehicle for patronage. add to that an illiberal turn in politicsthat kind of exploded before everybody's eyes during the gezi park protests this summer.add to that the corruption scandal that's
been rocking the country over the course ofthe last month and you have the problems that turkey is confronting now, and along withchanges in -- or anticipated changes in fed policies, growth in the united states, peopleare pulling their money out of turkey as quickly as possible. and the lira took a massive nosedive. the central bank last night, in an emergencymeeting, hiked the interest rates, seemed to have stabilized the situation, and it wassomething very, very important. i wrote about this for fa.com a couple weeks ago. somethingvery important happened. erdogan had lobbied against this interest rate hike. he has beenlaying the groundwork for his survival in this very difficult economic environment sincethe summer by talking about the interest rate
lobby, the international bankers, zionists,islamophobes. i've been called every single one of these things, by the way, by any numberof turks. and he lobbied against it, but he said ultimatelyhe had no power to prevent it from happening. to me, that was an -- that's a double-edgedsword, because i think in -- i think what prevented, what put the break on erdogan reallyputting the screws to the central banker, erdem basci, who, you know, many people wereholding out a hero for defying erdogan, but who previously had been seen as kind of a-- you know, too close to the prime minister. i think had it not been this massive fearof what might happen had they not hiked interest rates, erdogan might have gotten his way.
and i think that what that speaks to -- andi think this is a fundamental weakness in turkey -- is perverse institutions, eitherweak or perverse institutions, in which at crisis moments, political leaders either usethem for their own non-democratic agendas or go around them. and i think that, had therenot been this massive, massive fear about what might happen had there not been an interestrate hike, it would have been business as usual and erdogan would have applied as muchpressure on the central bank as possible not to have the interest rate hike. rose: so are you completely bearish? or isthere any bullish aspect to it? cook: you know, it's hard to see where -- youknow, there are -- you know, there have been
some, you know, positive -- there was positiveinvestment in real things in turkey. there was a recent big investment in the dairy industry,which seems like the right thing, but a lot of the investment has not been towards productive,real kind of investment. i think that, you know, when turkey comesout on the other end, there has -- you will see that, you know, the akp record is notall bad. there's been significant improvement in infrastructure, airports built, high-speedrailways, highways, and so on and so forth. but basically, this economy has been, youknow, jacked up by fiscal policy and hot money and reputation for a government that's stable,and suddenly it doesn't look as stable as it once was.
i'm not talking about, you know, egypt instability,but we're talking about a significant amount of political ferment for the foreseeable future,and i think that's what the markets are responding to. i don't see a way out. nobody's goingto give up in this struggle in turkey, and i think it will -- there will be iterationsof this ongoing. rose: it's funny. you talked about the acronymand trying to get turkey into the brics. when we were putting together the package, we thoughtabout an acronym, and i actually came up with one that was our temporary internal name forthe package, which was the gems, the growing emerging markets. and my staff ultimatelyvetoed that and said the acronyms are stupid, don't do acronyms, and so forth and so -- so,fine, we didn't. ok.
well, this has been great. let me take onequestion from the chair before i turn it over to our members and participants. if we hadshannon here, if we had karen brooks here, who talked about, you know, the philippines,we talked about mexico, one of the questions we'd be asking is about the role of leadership.so you have aquino in the philippines or pena nieto in mexico who managed to turn theircountries around and pull off reforms that their predecessors hadn't either been interestedin or able to. have leadership -- and i see that -- to acertain extent, we see this in turkey with erdogan playing a negative role, leadershipbeing important there, not just on the upside, but then screwing it up. in poland and insouth korea, and to one extent in turkey,
too, how much of a crucial variable has personalleadership been in driving successes? noland: well, in the case of south korea,south korea has a form of government where the president is quite strong, and so thequality of leadership has made a big difference. but i think it -- and i think that peopleprobably underestimated president park geun-hye, including the north koreans, and i think probablypart of this was related to the fact she's a woman. and she's turned out to be a tougher,kind of more committed, harder, you know -- she's a more forceful and stronger leader than ithink some people expected. but i think another aspect of it -- and iwas really reminded of this listening to steve -- if you compare south korea and turkey rightnow, there are -- there are two big differences,
the reason why turkey's gotten hit with thisfinancial -- emerging financial crisis and south korea really hasn't. first of all, southkorea is running a trade surplus; turkey's running a deficit. but the more important point is that turkey-- a lot of that deficit is -- what you had in turkey was you had turkish banks borrowingfrom european banks in euros short and lending to construction firms in anatolia and so forthin lira long. and that's created both term and currency mismatch. and that's very dangerous. and a lot of people initially were concernedthat the problem would emerge in europe, that if something happened in europe and the europeanbanking system contracted, they'd cut the
turks off and turks would be in trouble. ithasn't worked out that way, but that created a dangerous situation. in south korea, south korea got into sometrouble in the global financial crisis. the won fell by 45 percent. they were subjectto a sudden stop. and one of the things the south korean financial regulators recognizedwas that south korean banks and south korean firms were doing things to indirectly createthe same sorts of mismatches, and they stepped in and put a stop to it. and so the point i would emphasize is, thething about south korea, south korea, like any other country in the world, has the capacityto screw things up. but one of the things
that's really striking about south korea isthey learn from their mistakes. and -- and you have not only the quality of leadershipat the presidency level, but you have a quality of leadership in governing institutions morebroadly that they change, they adjust, and so the financial regulatory authorities inkorea now act with greater prudential activism than they did several years ago. and that's-- it's helped them in this emerging situation the last couple of weeks. rose: mitch, has leadership played a particularlysignificant role in poland? orenstein: yeah, i mean, this is a great question,a very controversial one with regard to poland. there's a number of leaders, economic leaderswho claim all the credit for poland's success.
and i tend to be rather skeptical of thoseclaims. but one wouldn't want to say that leadership's unimportant. i think like in south korea, where you'retalking about leadership goes very deep, right, it's not only at the top level, but we'retalking about the bureaucracies, we're talking about multiple decision-makers. poland's acountry that's gone through -- i can't even count the number of governments since 1989.i mean, i think it's like dozens, you know, or at least over a dozen, anyway. it's a government where -- it's a countrywhere the reformist government that was put in, in 1990 lasted only about a year and thenwas succeeded by a very populist right-wing
government. it was succeeded by a left-winggovernment. it was succeeded by another liberal government, by another populist government,and it keeps on going. a lot of political change. so what's interesting about poland's transformationis that it's been carried forward by the entire political class. this -- remember, this happened-- this sort of thing used to happen in the united states, too, right, where there waslike a bipartisan sort of, you know, agenda going forward? well, poland has that. and what i would call that is not leadership.i would call that social consensus. i would call that maybe an elite consensus that there'sonly one direction to be going, and that direction
is towards the west. whether you like it ornot, whether you're comfortable or not with all aspects of it, it's been widely recognizedin poland that that is the game in town and that you'd better play it. and i think that makes it -- that's why italk about this in a more geopolitical space. why did that consensus emerge? i think that'sthe thing that's been missing throughout polish history. poland's famous for what's calledthe liberum veto. back in the 1500s, poland was organized in a quasi-democratic arrangementof nobility, but any one person could veto whatever the policy was of the day, and thatwas what ultimately led to the demise of poland as a state.
how did this country develop such a strongconsensus on westernization, where its neighbors, its near neighbors, ukraine has not, belarushas not? and i think it had to do with a specific historical juncture they were at and a senseamong the broad elite that they couldn't mess this up, it was a unique opportunity to getto the west, and they were going to do that. so i think that one should look skepticallyon claims of particular individual leaders who claim a great deal of credit for this.i see many, many people there who can claim a lot of credit. rose: steve, a few words about leadershipin turkey, pro and con? cook: you know, i would -- i would agree with,you know, mitchell's last point that, you
know, you have to be skeptical of these claimsabout a single leader. after all, as i said, many of the reforms that put turkey on thepath of growth in 2000 were put in place by kemal dervis and a previous government. but there is something about tayyip erdogan.first of all, he is the best politician i have ever seen this side of bill clinton.he just has this innate ability to connect with turks and understands what turks -- whatmakes turks tick. and it is absolutely magnetic. and, you know, it's -- it took that kind ofleadership, that kind of political skill, i think, to undertake some of the really difficultreforms that, particularly in the political sphere, that led to this decade of stability.it took tayyip erdogan to bring the military
to heel. now, it hasn't ended up as well as it mighthave, but it took this type of personality to kind of wrench turkey out of that malaiseand that instability of the 1990s. the question is, now has the time passed for erdogan? becausehe now is creating his own distortions, because of a certain arrogance of power, because ofconcern -- starting back as far as 2007, concern that the system was going to strike back.he has resorted to a series of authoritarian measures to establish control and institutionalizethe power of the party. that has now clearly caught up with them, and that's why the marketsare pricing all of this risk into turkey. so he may have been appropriate, he may havebeen necessary in the early 2000s and through
the first decade of the 21st century, butthe question is, is he the appropriate leader to bring turkey? i don't know. but, again,i'm skeptical of these, you know, great man kind of arguments. rose: ok. at this point, let's bring all ofyou into the conversation. so stand, state your name after i call on you, and wait forthe microphone. this is on-the-record, unlike usual council sessions, so let's start outover here. yes? question: i'm glen fukushima with the centerfor american progress. i have a question for my friend, marcus noland. before i put mymoney into south korea, i have two questions. number one, is the contingent liability youtalked about, north korea -- how would you
assess the impact of unification, say, overthe next 5 or 10 years with the case of germany? and what impact do you think that unificationwill have on the south korean economy, in terms of investment? and, second -- the second question is, wheni was in davos at the world economic forum last week, a number of the south koreans thereexpressed some real concern about the fact that korea is caught among the trilateralgiants of china, japan and the united states. the relationship with the united states isgoing very well, but with japan, with the comfort women issue, with the yasukuni shrine,with dokdo island, takeshima island, all these history issues and territorial issues, that'sa real problem. with china, there's closer
economic relations, but politically there'snot necessarily consistency. so how do you see south korea navigating among these threegiants? noland: so how long are we going to go? twohours? ok, on the first question, korean unification would -- ok, assuming it all went smoothly,didn't involve detonation of nuclear devices or anything like that, if you just -- a verynice, comfortable, you know, east german-style collapse, right, no mass violence, the koreancase would be much bigger and more daunting that the german case. north korea is muchlarger relative to south korea than east germany was to west germany. it is my poorer relativeto south korea than east germany was relative to west germany. it's probably a more screwedup, distorted economy and has a -- you know,
all due respect to the stasi, even a morescrewed-up political culture than east germany. so this will be a big deal. people like me who model this, we need somesort of end point to kind of anchor our models. so a typical way of modeling this is to say,how much money would it take to raise north korean incomes to 60 percent of those of thesouth, 60 percent being rough difference between the poorest and richest u.s. state, roughdifference between the poorest and richest south korean province, until recently, roughlydifferent between the richest and poorest parts of the e.u.? and it turns out that -- you know, that dependspartly on how fast you can absorb new technology
and how many people migrate across the borderand so on and so forth. but a rough ballpark estimate, plausible set of parameters, it'sgoing to cost more than $1 trillion over, say, a 10-year period. and that means thatthis transitional period is going to be long, you're going to have to do something aboutpopulation influx control, you're going to have to do something about voting rights forthe current residents of north korea, how you integrate them into the political system.so it's not going to be a walk in the park. it could be really, really good for southkorean construction companies, right? there's going to be a lot of work. depending on howmuch of the money comes in from abroad and how the exchange rate behaves, it may notbe so good for south korean manufacturing
exercises. so the bottom line is, if you're a south koreanconstruction magnate with money to, you know, invest in unification bonds, unification couldbe very, very good for you. if you're a blue-collar worker in a traded goods sector, you know,manufacturing something for export, and now you suddenly have to compete against yourcousins up north, absent some compensatory policies, that could be a pretty tough thing,leading to increased wealth and income inequality. the geopolitical point, yeah, i mean, southkorea has a tough situation. right now, as you know, the relations with japan are fairlyacrimonious. what's interesting about south korea in the economic sphere, at least, isthat the south koreans are using the kind
of acrimony against japan to spur their owninternal reforms. i mean, high-level people, the finance minister, the head of korea development,have got up in public and said things like, you know, japan's gone through two decadesof nothing, the third arrow of abenomics is going to fail, we don't want to do that, sowe've got to start structural reforms today, right now, seriously. so they use their rivalrywith japan as a spur. and the fact that it's gotten a little more heated recently justmeans it's a better spur. the other thing that's curious is this. south-- the yen -- the japanese yen has really depreciated against the south korean won.and that's hurt south korean manufacturers who compete against the japanese directlyor indirectly. i've been struck by the park
government has not ridden the yen down, thatthey have said, no, we are going to do restructuring, we are going to promote the service sectorand creative economy, we are going to shift demand towards domestic demand and not relyso much on export markets. and thus far -- this may not -- if we havethis meeting in a year, i may not be able to say this -- but thus far, they have abjuredthe kind of quick fix of letting the won go down. now, i know that doesn't get into all thegeopolitical issues you represented, but we've got two other people here, and they want totalk, too. rose: great, thank you. i would say that weactually have a piece on korean unification
in the may-june issue coming up that willbe a look at sort of how it might play out, what its effects might be, and so forth, solook for that one. yes, over here. question: i'm mitzi wertheim with the navalpostgraduate school. i want you to look into the future. how do you think 3-d manufacturingis going to affect all of these economies? frankly, it scares the devil out of me, butanyway. i mean, i go to these meetings and listen to mercs talk about they won't haveany jobs because all the 3-d creation will be done at home and we won't have to transportanything. rose: are any of you up on digital fabricationand could you speak authoritatively to that
point? noland: i think it's like clint eastwood saidin one of those movies. a man's got to know his limitations. (laughter) rose: you know, it's interesting... orenstein: i think you exceeded mine. rose: the next issue has a lot of stuff ontech in it, including stuff on the internet of things, by -- one of the co-authors isneil gershenfeld, who wrote about digital fabrication. and this was actually a subjectat davos that was talked about a lot. and
the question about employment and machinesand are we in a second machine age, and if so, what's the future, it's actually fascinating. one of the most interesting discussions thati heard at davos was an off-site dinner in which fareed zakaria and martin wolf nearlycame to blows about whether the -- whether the u.s. slowness in employment, in termsof the rebound, after the economy rebounded, was a harbinger of a fundamentally new situationin which there's going to be a lower employment plateau and so forth, or whether it was justlack of demand and whether the transition to a new kind of economy will be like oldones. we're going to cover this kind of issue more.nobody actually -- mitch, do you want to talk
about that one? orenstein: i'll just say a couple words. imean, i can't -- i can't see it having an enormous impact in poland. if you can figureout how to print a volkswagen golf, then, you know, i guess i would be wrong about that.but i think we're probably a long ways away from that. i don't see us being able to printwashing machines. and i neglected to mention, also, you know,a lot of the industry, a lot of what's happening there is, you know, call centers or back-officesupport operations. so my guess is that that won't necessarily have an outsized impacton poland. it's going to be... question: near term.
orenstein: yeah, near term, right, right,as far as i can see, you know. cook: i'd say the same thing with regard toturkey, not knowing really anything about digital fabrication, but i know two things,one, the turkish economy, you know, we're talking about big construction-type of things,cars, you know, infrastructure projects, things like that. until you can digitally fabricatean airport runway, i thank the turks are going to be ok. but i will say this. for a country of turkey'ssize and levels of education, they are extraordinarily late adopters when it comes to technology.you know, there is no design fabrication software work really happening in turkey. there isno kind of dynamic tech-type of sector in
turkey at all. so over time, they may wellbe left behind. rose: yes, over here. you two. second row,then first row. yes, you first. question: diana lady dougan, center for strategicand international studies. i wanted to pick on steve for a moment because of his expertiseon both egypt and turkey. and i know we're talking about emerging economies or upper-endeconomies that were developing countries, but the role of religion and the militaryin both those countries, and -- and also in korea, i might add. and by way of disclosure, i'm one of the producersof a film called "the square," and involved in also post-production. and i've been sostruck by the demographics of change. and
when we're looking at the aging of some ofthese countries -- and i think turkey average age is about 29, and egypt's is 25, but theyhave a very highly educated workforce in egypt, and there's a lot going on right now. but i guess i would like to, particularlyfor you, but for others, to sort of extrapolate where demographics are going to come out inthis. and then, also, i can't help but think back to some of your very articulate commentsin past years about how much the egyptian military is the capital of crony capitalismin egypt and the degree to which this exists elsewhere. thank you. cook: thank you for the question. i couldspend the next three hours talking about all
of these things, so... rose: you don't have the next three hours. cook: but i'm not going to -- i'm going toget to the core of your question about demographics. and it's funny. when you think about it, youknow, for years, people have been talking about these demographic issues, and it seemedlike the dog that wouldn't bark, but then suddenly it did bark. and i think that, looking at egypt and thenlooking at turkey, and looking at the gezi park protests, and we cannot -- it was -- igroan every time someone, you know, wanted to make the connection between gezi, is thisthe turkish spring, as tahrir square was -- became
representative of the arab spring. but both are, you know, predominantly young,educated, mobilized, but unassimilated into the political process type of movements. buti think that they're somewhat different. first, if there's anything that revolutionary thathas happened in egypt over the course of the three years, and not much, actually, revolutionaryhas happened, is the fact that you do have this young demographic that is making demandson the political system and articulating those demands in actually the streets in a way thatthe authorities have no real answer for, other than to employ authoritarian measures. that'snot stable, because if their only answer is to more violence, more force, and these peopleremain, you know, brave in the face of it,
it's a recipe for continued political instability. the same kind of thing happened in gezi ona smaller scale. now, more and more people have come into the turkish political arena,but over time, over this decade, fewer and fewer have been able to contest it. now, withgezi, it wasn't just an environmental movement. it wasn't just about the redevelopment ofthis park off taksim square. it was about police brutality, crony capitalism, arroganceof power, the lack of access to the political arena, the inability to contest it, the inabilityof political parties, other political parties to be effective. these are -- you know, this is the new realityin turkey, as well. the question is -- extrapolating
now out -- in both egypt and turkey is, howdo these young, mobilized people now translate that into the formal political arena? in egypt, large numbers of them absolutelyreject the idea of formal politics and want to stay outside of it. home is where the streetsare. the streets are where home is. the street is where we've been most effective. we willonly be co-opted if we go inside. in turkey, they're still trying to figurethis out. they are -- many of them, these ineffective political parties that exist aretrying to co-opt them. just by way of anecdote, i met a group of them, wealthy, young, mobilizedby the gezi park protests, at a meeting through mutual friends over this past summer wheni was there. and they said to me, "oh, the
leader of the republican people's party, kemalkilicdaroglu, is going to be here in an hour." i said, "ok, what are your demands? come on,quick. let's write up what your demands are." it hadn't even dawned on them that they heldan upper hand. so turkey, i think, that demographic is waybehind where the egyptians are, and they're going to -- it's going to be a while untilthey figure out the way forward. rose: very quick comment on demographics inkorea and poland? noland: part of the korean success story isthey've had the wind at their back. they've had very good demographics for the last 50years or so. now it's going into reverse. 2010, the core productive population beganshrinking. next decade, dependency ratio goes
up. and if you -- you know, if you extrapolateout current trends, 2050, the population of the country absent korean unification beginsfalling. what it means for the government is, is thatold people consume more services and less manufacturers than younger people do. anda lot of -- and services, as i mentioned, is where the economy really lags in termsof productivity. and a lot of services are provided by the state. and so the koreansunderstand they need to get service productivity up and -- because that is not only going to,you know, help them in terms of dealing with these demographic changes, but it also couldbe important in terms of their fiscal position, as well.
rose: quick? orenstein: yeah, on demographics in poland,a couple of points. one is that the solidarity movement was consonant with a big demographicboom in poland. a lot of kids were born in the 1980s. and as a result, they're a relativelyyoung population in europe, but that's not going to last. so they, too, are going tosuccumb to a lot of the declines that europe in general has been facing. but that won'tbe until sort of 2030, approximately. the other -- sorry, one other point to pointout here is there's a huge out-migration of poles in the u.k., prominently... rose: all those polish plumbers.
cook: the polish plumbers. orenstein: yes, primarily to the u.k., ireland,a couple other places. and one of the big internal issues is, are you going to havethose people come back at some point? and if the economy keeps growing, are you goingto end up with a labor shortage and to what extent immigration is going to occur intopoland? and that's a very new issue, so i don't think we can really say much about it. rose: last quick question. sorry for all those-- we could talk all night on these things. question: robert warren (ph) from the foreignservice institute. dr. noland, would you elaborate on points you haven't made, really, and thatis on the trade relationship. you have korea
now, i think, as partner in the trade -- thetrans-pacific partnership. what's the meaning of this partnership? and how might it impacton us, as well as korea? noland: we were just discussing this, youknow, before we came in here tonight. the basic problem is, is that trade policy hasbecome salient at the domestic level and it's become more pluralistic at the interstatelevel. and so it's hard to get things done at the global level. politics abhors a vacuum, so these peopleare following the path of least resistance, which is global -- i mean, regional and plurilateralagreements. in asia, you basically have two. you have one in east asia centered aroundasean. then you have the trans-pacific partnership,
which you mentioned. the issue with the trans-pacific partnershipis most of those economies are pretty liberal already, and they already have free tradeagreements. i mean, we already have a free trade agreement with south korea. so the marginalimpact is not that great unless you get other participants, such as japan. but the dynamicimpact is important, because if korea's in, japan is going to want to be in. and eventually,you're going to end up with a situation in which the united states and china are basicallythe only countries that are not part of both of those blocks. so if the united states and china are smart,we would be thinking about designing those
agreements in a way that at the end of theday they could be knitted together into one big agreement. or we're going to have a situationwhere all the other countries in the asia pacific are freely trading with everyone elseand then we and the chinese are the ones kind of, you know, stuck kind of staring at eachother. rose: any comments on trade in your countries? cook: yeah, i think that one of the advantagesthat turkey's had over the last decade was turkey's rise as a trading state and the riseof this entrepreneurial class that wanted to trade with the world, in fact. these traderswere kind of the leading edge of a turkish foreign policy that really spread its wingsthroughout the decade. the question is what
kind of impact that will have -- what kindof -- the current crisis in the political instability will have on this -- on this class?where will they go? these people were predominantly supporters of the akp. this political crisiscombined with this currency crisis is just at the beginning. i think it's unclear what'sgoing to happen to them. but at least they have the infrastructureand large numbers of people who are trading, they have things to trade, they have advantagesin certain areas, that they could come out on the end with no trouble whatsoever, becausethat's separate -- those advantages are separate from the political scandal that's happeningand the currency issues. rose: and, mitch, is the -- is poland's beingpart of the e.u., but not part of the eurozone
the right switch, the sweet spot? orenstein: oh, it certainly has been, yeah.i mean, i would say, obviously, poland benefits from being part of a big and functional regionalfree trade -- or regional trade agreement, the european union. that's obviously a hugeadvantage for the economy. but i would say that -- i'm sort of the outlierhere, as we talked about earlier. i think we've seen a collapse of the global free traderegime, or the beginnings of a collapse of the global free trade regime, and perhapsthat's because i'm looking at it from the vantage point of europe and not the vantagepoint of asia. but what i see, in poland's neck of the woods,is that it's part of this big trade bloc called
the e.u. and it's right next to another tradebloc that's trying to be built called the eurasian union. notice it has the same initials,too, you know? and that's a real challenge for a place likepoland. when we see in that region of the world trade barriers going up between thosetwo -- now, those are natural trading partners for poland, so this is why -- you know, there'sthe -- it's a big deal for the e.u. to have russia creating a big alternative tradingbloc that will have barriers against the e.u. so i think that poland can react as it hasby being a western-leaning state. maybe it will accentuate that, because that's whereit can trade freely, but it's an opportunity cost.
rose: in a piece accompanying the package,ruchir sharma talks about how the signal mark going forward of the emerging markets willbe differentiation, that instead of thinking of the developing world as a giant class inwhich it will rise or fall as a group, you have to look at the individual countries andtheir particular circumstances and pick your bets very carefully. and i think that whatwe've heard tonight confirms that, which is that each of these countries has very specifichistories and very specific problems and issues. and while there are some similarities, youneed to have -- you need to drill down on the specifics of each country, with peoplewho know what they're talking about, and we've been very fortunate, i think, to have accessto these people. and i want to thank marcus
and mitch and steve and thank all of you forcoming. and until the next fa live. (applause)