It seems only yesterday that the South and East Asian 'Tiger' economies were being held up as models of problem-free capitalist expansion. But now currencies collapse, stock markets tumble and banks close. Huge industrial conglomerates go bankrupt. Politicians dither and totter. Teams from the IMF fly in to dictate the terms for a bail out. Even in Japan the economy remains stalled on the brink of a major recession, while the long trail of financial scandals runs on and on. At the end of January the finance minister was forced to resign after police raided his ministry and arrested two officials on suspicion of taking bribes to reveal commercial secrets.1 Even the resources of what is easily the largest and most established economy in the region, indeed the second largest economy in the world, seem insufficient to resolve the crisis.
Yet the Tigers were supposed to be examples of a new phase of capitalist development. Their phenomenal rates of growth demonstrated that capitalism was still an enormously vigorous and expansionary system. The scale and continuity of their growth demonstrated that there was a way around the cycle of boom and slump that socialist critics have always claimed to be endemic to capitalism. Their social peace demonstrated that the idea that class struggle is the inevitable accompaniment of class society was the product of Marxist imaginations. The very achievements of their young people in literacy and numeracy demonstrated both the inadequacies of trendy 'red teachers' and the degeneracy of Western (male) youth. Travelling through the region from the banks and factories of Seoul to the nascent 'multimedia super-corridor' outside Kuala Lumpur, wide eyed Western commentators like Martin Jacques, the former editor of Marxism Today, found the living embodiment of the gleaming, problem-free New Times that they believed had replaced socialism as the alternative future of humanity. In a typically lyrical passage the World Bank Annual Report 1997 said:
East Asia's capacity to sustain rapid growth is without precedent. The only significant group of countries to close the gap with the industrialised economies over the past few decades, their growth has averaged 7 percent per year in real terms since the mid-1970s, accelerating to 9 percent per year in the 1990s. China's growth has been astonishing, with per capita income rising 270 percent in 17 years... East Asia enjoys enviable macroeconomic conditions and an unprecedented growth momentum...2
To be fair, the bank did identify one or two problems that needed tinkering with, but it was convinced that 'the prospects for continued high growth in coming years remain sound.' Even without the benefit of hindsight, this passage surely has the selfsame congratulatory and uncritical tone as some Stalinist acolyte of the 1930s praising the achievements of the latest Five Year Plan.
Now, in one of those extraordinary ideological transformations at which bourgeois thinkers are so adept, there is general rejoicing that crony capitalism has had its comeuppance. All of the shortcomings manifested by societies which have developed with extreme rapidity from subsistence agriculture to industrial capitalism have come to light. The rotten foundations of the banking system have been exposed. The grandiose projects to acquire the trappings of an advanced industrial economy, like the Indonesian plan to build an aerospace industry, have been revealed as ludicrous fantasies on the part of corrupt politicians and their profiteering friends and relations. The solution to the world's problems is no longer to make the West more like the East, but to make the East more like the West. A particularly unpleasant example of this sort of attitude was provided by one Jeffrey Bartholet, who found it impossible to decide whether he wanted to adopt a patronising sneer or just indulge in some good old fashioned gloating when he wrote:
Can South Korea become an open, Western-style economy? To an extent, it has to. The IMF demanded that Seoul open Korean companies to foreign ownership. Already, the government is allowing non-hostile takeovers - a shock in a nation where most companies are so tightly held they rarely welcome fellow Koreans as partners. But Koreans now have little choice but to sell to foreigners...Western companies...often open internal accounts to their private bankers. But South Korean conglomerates never have, and are sure to balk at foreign investors who demand to see their books. 'Those accounts are the source of dirty funds,' says [one] banker. 'Making payments to ghost people and returning the money to the company coffers was the way they got money to bribe government officials. So they had to keep those accounts in their own hands. In Asia, the emperor comes first and after him the rule of law'... A habit of greasing palms runs deep in South Korea...3
The IMF, as the chosen instrument of the international ruling class, will sort out the web of protectionist and anti-competitive policies that have given these economies an unfair advantage in international trade.4 There may be unexpected shocks, there will certainly be far too many red figures in the balance sheets, and there is always a danger that something really nasty will happen in Japan, but on balance it looks to the bourgeoisie as though the worst is over. Slimmed down, tamed, reformed, transparent, and deeply in hock to Western governments and banks, the chastened former Tigers will in the future be much more dependable, and much more junior, partners in a new phase of capitalist growth.
Most of the explanations offered in the West for all of this by bourgeois commentators are, frankly, racist. Such writers assume that 'they', the Asians, are fundamentally different from 'us', the Westeners. These differences explain their economic success. We are idle and enjoy only our leisure. They are industrious and love hard work. We like to spend our wages without thought of the morrow. They prefer to save for a rainy day. We are obstinately attached to things like independent working class organisations and democratic practices that get in the way of economic efficiency. They know better, and like nothing more than a strong paternal hand, whether from the leader of the country or the boss of the company. A similar set of fundamental characteristics is invoked to explain the recent economic catastrophes. We run open and transparent businesses. They prefer secrecy. We have contractual relationships. They do favours for their chums. We know how to close unsuccessful companies. They do not. We understand that business is about profit. They mistakenly believe market share is important. The fact that these myths are equally assiduously propagated by the local apologists for the ruling classes of South and East Asia does not make them any less unpleasant.
As well as exposing this rubbish, there are serious problems for Marxists to address. It is one thing to ridicule bourgeois myths for the ludicrous nonsense that they are, but it is another, and very much more important, task to discover whether there is some special kind of capitalism that has different dynamics to those of the familiar 'Western' model. We need to understand why these economies were able to grow so fast, and why that growth reached the limits it did. We need to be able to explain why the crisis has taken place, and why it took place just when it did and just in the form that it did. We need to have some sense of the ways in which the crisis is affecting the working class in those countries, and what the prospects are for them to resist the sacrifices they are being asked to endure. The present article is more concerned with the background to the recent events, and analyses the patterns of growth and stagnation in the region as a whole.
The first myth that needs exploding is that we are discussing a homogenous and uniform region. First the boom and then the bust have been attributed to some set of Asian values that all of the countries in the region share. There are certainly similarities between the countries of the region, in the same way as there are similarities between the countries of Europe. There are, for example, some quite strong similarities in the way that their economies are run that we will need to look at in more detail. On the other hand, there are also sharp differences at all levels. Whatever racist Western 'experts' or Eastern apologists for tyranny may claim, there is no single, homogenous 'Asian' set of characteristics that explains what has been going on in the region.
We can demonstrate this by looking at some very obvious facts that ought to be well enough known to everyone who comments on the region. At almost every level there is less evidence of a monolithic 'Asian' unity than there is of an equally mythical 'European' unity. In important aspects of ethnicity, language and culture, South and East Asia are at least as diverse as anywhere else. European religious belief, for example, is primarily Christian, although with important Jewish and Muslim components of very long standing. It would be difficult to make any parallel claim in South and East Asia. To take only the major religions: Malaysia and Indonesia are predominantly Muslim; the Philippines (Catholic) Christian and Muslim; Thailand Bhuddist; China partly Bhuddist, partly Taoist; Japan partly Bhuddist, partly Shintoist; Korea partly Bhuddist, partly (Protestant) Christian; and so on. The idea that a single set of beliefs has permeated the value systems of all these countries and so produced similar economic behaviour is palpable nonsense.
The historical experiences of the countries of the region are different too. Malaysia was the victim of British imperialism, and Hong Kong and Singapore were, of course, actually set up as outposts of that empire. Indonesia was ruled by the Dutch. The Philippines experienced first Spanish and then US colonial rule. Korea, Taiwan and much of China were subjected to Japan, which itself was a minor colonial power up until its defeat by the US in 1945. Thailand, balancing between British and French imperialism, managed to avoid formal subordination to any foreign power. There is no common legacy of the past that can be used to explain the present and future.
On a shorter time scale, and more importantly for our purposes, the timing and speed of capitalist development have varied widely from country to country. Japan began its industrial development after the Meiji restoration in 1868. For a long time it was the only industrial economy in the region. We have looked at its growth in detail in an earlier issue of this journal, and it is quite clear that Japan was a substantial, modern, industrial country by 1970 at the very latest.5 In the 1970s Singapore, Hong Kong, Taiwan and South Korea began a period of rapid economic growth that led to them being labelled the 'Four Small Tigers'. Subsequently, in the 1980s and 1990s, these countries have been joined by the 'Tiger cubs': China, Malaysia, Thailand and most recently Indonesia, with, possibly, the Philippines as the newest member of the club. These different time scales of development mean that the various countries grew in different phases of the world market, and their economies and social structure have, as Table 1 shows, very different shapes.6
TABLE 1: GROSS PRODUCTS OF SELECTED COUNTRIES (1995) Country Population GDP GNP per GNP per capita (millions) (US$ million) capita (US$) PPP (US$) China 1,200.2 687,647 620 2,920 Indonesia 193.3 198,079 980 3,800 Philippines 68.6 74,180 1,050 2,850 Thailand 58.2 167,056 2,740 7,540 Malaysia 20.1 85,311 3,890 9,020 ROC (Taiwan) 21.3 241,000 11,604 - (South) Korea 44.9 455,476 9,700 11,450 Hong Kong 6.2 143,669 22,990 22,950 Singapore 3.0 83,695 26,730 22,770 Japan 125.2 5,108,540 39,640 22,110 US 263.1 6,952,020 26,980 26,980 [Source: World Bank and ROC]The first thing that is evident from this table is that the economies we are discussing are of very different sizes. This is a central fact that must be remembered in any discussion of the crisis in Asia. Japan, by far the largest in the group, is a truly colossal economy. It is close, in terms of size and per capita GDP, to the US. At the other end of the scale, Singapore and Hong Kong, although with high per capita GDPs, are tiny in absolute size. Singapore is a city state in fact, and Hong Kong is one in effect. Some of the economies in between are significant, but even the largest, South Korea and mainland China, are of an order of magnitude smaller than that of Japan. It therefore follows that the impact of any crisis on the world economy will be far more severe to the extent that it involves Japan. However serious the South Korean, Thai or Indonesian crises may be, and however devastating their effects on the lives of the working class, they do not spell automatic doom for world capitalism. As we shall see, these crises in the smaller economies could still have very serious effects around the world, through their ability to affect the development of the crisis inside Japan itself among other things, but it is important to keep a sense of proportion with regard to the scale of the economies currently involved in meltdown.
The second obvious fact that emerges from Table 1 is that these countries are at very different levels of development, as measured in GDP per capita, either in simple dollar terms or adjusted for the effect of exchange rate variations (ie the fourth column). In fact, these differences are recognised by the various bodies that attempt to manage international capitalism. Japan, South Korea, Hong Kong and Singapore are classified by the World Bank as 'high income economies' (and Japan and South Korea are members of the OECD). In these terms at least, they are effectively developed, industrialised societies of the kind found in Europe and North America. Malaysia is 'upper middle income'. Thailand, Indonesia and the Philippines are 'lower middle income', while China is 'low income'. This broad group of countries are 'developing' in the same way as are India, Jamaica, Turkey or Chile, although, as we shall see, their rates of growth are very high by international standards.
TABLE 2: STRUCTURE OF PRODUCTION IN SELECTED COUNTRIES (1995) Country Percentage of Distribution GDP (percent) labour force in Agriculture Industry Services agriculture China 74 21 48 31 Indonesia 57 17 42 41 Philippines 45 22 32 46 Thailand 64 11 40 49 Malaysia 27 13 43 44 (ROC) Taiwan - 4 37 59 (South) Korea 18 7 43 50 Hong Kong 1 0 17 83 Singapore 0 0 36 64 Japan 7 2 38 60 Germany 4 1 31 68 US 3 2 26 72 [Source: World Bank, OECD, ROC]The differences in the economic structures are even clearer when we look at the data in Table 2.7 Japan, Hong Kong and Singapore are countries in which the transition to an urban capitalist productive structure is more or less complete. South Korea and Taiwan are approaching that position. The other countries of the region retain large or very large agricultural populations engaged in unproductive agriculture. They have substantial urban populations, and within those substantial industrial sectors. These latter are extremely productive in value terms relative to the rest of the economy. These are economies in which the motor of dynamic social development is obviously the same as that which transformed Britain, Belgium and the north eastern US 150 years ago. Factories are being built. Peasants are turning into proletarians in one lifetime. Industrial capitalism is being constructed out of the ruins of earlier modes of production. The more developed economies present a rather more complex picture. In fact, the tiny economy of Hong Kong is even more 'post-industrial' than is the US. In the course of the 1980s the economy of Hong Kong shifted, in value terms, away from indigenous production towards the provision of financial services and acting as an intermediary for the trade into and out of mainland China. Japan and, increasingly, South Korea are, in terms of the structure of advanced economies in the contemporary world, pre-eminently industrial capitalist economies of the classic kind. Their economic structures resemble most closely the massive and highly industrialised German economy. They are countries dominated by big scale modern factories in which the classical industrial proletariat working in manufacturing is the largest social class.
These differences mean that the impact of the economic crisis takes a different form from country to country. In particular, the different levels of economic development affect the kinds of goods and services that the various countries trade on the world market. The smaller and later developing countries tend to have industries that are at a relatively low level of sophistication. A large section of their industrial bases depends on imported specialist items that they then work up and re-export. In contrast, Japan has very sophisticated industries that need to import raw materials but which provide finished and semi-finished manufactured goods for export. Again the later developers are, in general, net recipients of foreign capital, while Japan is the world's largest exporter of capital. A crisis in Thailand or South Korea has an effect on banks in Japan that have loaned heavily to capitalists in these countries. As we shall see, these factors mean that the capitalist class in various countries identifies its majority interests in different ways, making it even more difficult to achieve a resolution to the crisis that satisfies everybody.
The short answer is: yes. However unpalatable it may be to would be Marxists who believe that humanity's productive forces can only stagnate and decline, there has in fact been an enormous expansion in the last couple of decades, much of it concentrated in South and East Asia. Not only have these economies changed and grown, but parts of the population have experienced the benefits as well as the hardships that capitalism bestows compared to less productive economic systems.
Table 3 shows the rates of growth for some of the main sectors of the economy since 1980.8 These show that, while all of the economies in the region grew quickly during the period, there were some striking differences between them. Japan, the most mature of the economies, had experienced its most rapid periods of industrial growth during earlier decades, and this period demonstrated that its pace of growth was slowing down to one closer to the 'high income countries' average (2.0 percent per annum during 1990-1995), and actually falling below that of the US. Of the other major economies, something of a slowdown was also experienced by South Korea, although its rate of growth remained much higher than that of other comparable countries. The less developed countries, on the other hand, experienced high rates of growth during the 1980s, and even higher ones during the 1990s. What is more, the rate of growth of industry, and of the value of goods and services exported, rose more quickly than did overall GDP.
TABLE 3: THE PACE OF CHANGE IN SOUTH AND EAST ASIA Country Average annual percentage growth rate GDP Industry Exports 1980-90 1990-95 1980-90 1990-95 1980-90 1990-95 China 10.2 12.8 11.1 18.1 11.5 15.6 Indonesia 6.1 7.6 6.9 10.1 2.9 10.8 Philippines 1.0 2.3 -0.9 2.2 3.5 9.4 Thailand 7.6 8.4 9.9 10.8 14.0 14.2 Malaysia 5.2 8.7 7.2 11.0 10.9 14.4 (ROC) Taiwan - (6.5) - - - - (South) Korea 9.4 7.2 13.1 7.3 12.0 13.4 Hong Kong 6.9 5.6 - - 14.4 13.5 Singapore 6.4 8.7 5.4 9.2 10.0 - Japan 4.0 1.0 4.2 0.0 4.5 3.4 US 3.0 2.6 2.8 1.2 5.2 7.3 [Source: World Bank, ROC]Growth of this kind, taking place at such a phenomenally rapid rate, inevitably transforms some parts of society and leaves other parts untouched. Apart from Japan, Hong Kong and Singapore, these countries are all classic examples of what Marxists call 'combined and uneven' development. They exhibit many of the most advanced social features cheek-by-jowl with many of the most backward. From the tops of the huge skyscrapers of Shanghai, one can see villages that have not yet experienced an agricultural revolution. The modern proletarian, working in the sterile atmosphere of the chip manufacturing plant, has a brother who is labouring in the fields. She uses the highest technology known to humanity; he uses the methods and tools that have endured for thousands of years. But the societies are in a constant social turmoil. As Table 4 shows, modern cities are sucking peasant labour in from the countryside and proletarianising it at an astonishing rate.9 The social and political structures of such societies are necessarily under immense pressures. The beliefs and habits of past times do not disappear overnight, but at the same time new conditions of life produce the germs of new ideas and new horizons, as Marx and Engels famously observed in the Communist Manifesto.10 This process of social transformation has been the immediate life experience of millions of people throughout South and East Asia. Born into a world of agriculture, they live in a world of industry. Born in villages, they live in cities. Born to obey the old ways, they struggle in a confrontation with the new.
TABLE 4: COMBINED AND UNEVEN DEVELOPMENT Country Agricultural workers Industrial workers as percentage of as percentage of total labour force total labour force 1980 1990 1980 1990 China 76 74 14 15 Indonesia 59 57 12 14 Philippines 52 45 15 15 Thailand 71 64 10 14 Malaysia 41 27 19 23 (South) Korea 37 18 27 35 Hong Kong 1 1 50 37 Singapore 2 0 44 36 Japan 11 7 35 34 [Source: World Bank]These structural changes have meant changes in the conditions of life of the masses. Workers in Japan, and increasingly in South Korea, have life experiences which in many respects are the same as those of workers in other advanced countries but, in those countries that have experienced growth more recently, the change to the new world is measurable in the vital statistics. Infant mortality in the region has fallen from 44 per 1,000 live births in 1987 to 35 in 1993. Life expectancy rose during the same period from 67 to 68 years, four years more than the developing countries' average of 64. Adult illiteracy fell from 29 percent in 1985 to 24 percent in 1990.11 To take poverty alone, one study, using the criterion of an income of US$1 per day or less as a measure of absolute poverty, found that:
The number of poor people in the region fell by 27 percent during 1975-1985, and 34 percent in 1985-1995 - the fastest pace of poverty reduction in all of the developing world. In 1975, six out of ten East Asians lived in poverty; two out of ten do now. The region's most populous countries, China and Indonesia, alone held 92 percent of the region's poor in 1975. China's poverty incidence dropped by 63 percent, while Indonesia's poverty incidence fell by 82 percent. Other countries had similarly impressive achievements - Thailand's poverty incidence fell by 90 percent (from 8.1 to less than 1 percent), and Malaysia's fall was of 95 percent (from 17.4 to less than 1 percent).12
To be sure, this still leaves around 400 million people living in absolute poverty in the region, mostly in China, and it is entirely reasonable to say that the definition of 'poverty' is so desperately mean that the figures serve to conceal almost as much as they reveal. Despite the real gains, in the period 1989-1995, 17 percent of under-fives in China were malnourished. In Indonesia the figure was 39 percent, in the Philippines 30 percent, in Thailand 13 percent and in Malaysia 23 percent. Even in wealthy Japan the figure was 3 percent. For the working class and the peasants, the experience of capitalist industrialisation is a profoundly contradictory one. Some sections experience marginal but very real gains, while others see their already miserable conditions grow even more desperate. Uneven development means unevenness within the working class as much as anywhere else.
The other side of the coin, however, is the growth of a newly rich, indeed sometimes obscenely rich, capitalist class. Siti Hardianti Rukmana, President Suharto's eldest daughter, popularly known as Tutut, helped the national economy by handing over some of her gold and jewels: two kilograms of gold, to be precise. This was only a tiny fraction of her share of the family wealth that is estimated at US$40 billion.13 To take another example, in Thailand:
Consumerism was king. New Mercedes-Benz sales ranked third in the world. In 1995, the ratio of Benzes to all new cars sold in Thailand was 1:9, second only to Germany. New luxury boutiques opened throughout Bangkok, touting the latest fashion lines and products from Paris, London and New York. If products were not available locally, consumers shopped abroad. In the early 1990s, Thais became known as the global shoppers par excellence. Signs in Thai could be seen adorning shop windows in Switzerland, France and Hong Kong.14
It is certainly not the case that the only beneficiaries of this explosive growth have been bankers and capitalists in New York, Tokyo or London, nor are all of the local rich living off the rent of a natural resource like oil, as is the Sultan of Brunei. Many of the people who have profited from the labour of the new proletariat have been from the very same villages as the people they employ. They are not outsiders battening on the local economy. They are not the 'tools of the world bourgeoisie'. They are capitalists in their own right. They are independent exploiters who extract surplus value from the labour of their own workforce. They have class interests of their own and they seek to defend them. To be sure, they are not, for the most part, as powerful as capitalists in New York or Tokyo, but neither are they their puppets. One of the issues that has been at stake in this crisis has been a struggle to work out exactly what the relationship is between these local, new born capitalists and the bankers and politicians of the developed world.
The sorts of changes to the social structure that we have looked at above are the ones that normally accompany the transition to a modern capitalist economy, but they also illustrate one of the key elements that helped to produce the rapid rates of growth. The widespread poverty prevailing even today in the countryside means that there is always a ready supply of extremely cheap labour available for capitalist exploitation. However desperate conditions may be in the new factories, and however miserable the wages, the whip of rural poverty drives young men and women off the land, into the cities and onto the labour market. It is estimated that there are 150 million people in the countryside who are under employed. So compelling is this pressure that the Chinese government has made it illegal to enter cities without official permission. Despite that, around 70 million technically illegal workers crowd the urban streets looking for employment.15 Once in the cities, life may be harsh and demanding, but it is certainly no worse, and, in booms at least, it is marginally better than what went before.
This is no mysterious process that we need some special 'Asian' factor to explain. It is exactly the same mechanism as that by which the proletariats of Britain, the US and other advanced economies came into being. The basements of Victorian Manchester, or the tenements of Gilded Age New York, were grim indeed, but peasants from Ireland and elsewhere flocked into them, driven by the certainty of hunger and misery if they stayed where they were. The exploitation of a rural 'reserve army of labour' is a common feature of the earliest phase of the development of industrial capitalism in all countries. This widespread availability of cheap labour is one important factor explaining the growth of these economies. It means that in those labour intensive industries in which wage costs are the most important constituent of price, these economies can gain an advantage over higher wage countries. But low wages are not enough on their own to explain this growth. After all, labour is equally cheap in Bangladesh, or much of Africa, where there has been no such rapid transformation. Alongside the poverty of the working class, there have been a number of other factors that do indeed form a common pattern throughout the region.
The first of these is that in all of the countries there has been considerable repression, particularly directed against the left and the working class. In Japan there was a major working class offensive in the years after 1945, that was only defeated by an alliance between the US occupiers and their erstwhile Japanese enemies. The resulting anti-Communist crusade drove thousands of militant workers out of the factories, smashed many independent unions, and created the conditions for the tight control of labour that still exists in Japan. Other countries have had much more savage repression.
Thailand holds what must be the modern world record for the frequency of military violence, with 17 coups and attempted coups since 1945, but bloody military interventions have been central to the recent history of both Korea and Indonesia as well. Military rule in Korea, and the savage suppression of working class opposition there, is well known. Indonesia was, if anything, worse, albeit less well known. Bourgeois commentators usually refer coyly to Suharto having come to power 'in a period of civil unrest'. This little phrase covers an enormous massacre in 1965, of which the main victim was the Indonesian Communist Party, then the largest non-ruling Communist Party in the world. The Indonesia military leadership, in response to an attempted coup by leftist junior officers that had support from some members of the Communist Party, launched what one commentator described as:
...one of the biggest massacres since the Second World War. The top leadership of the party were all executed; the only member of the Politburo to survive was in Peking for health reasons. But the army also set out to destroy the base of the CP in the villages; the total figure for those killed was certainly well over a hundred thousand, and may have been as high as half a million. The technique adopted by the army was to go into a village and compel the headmen to give the names of all CP members and sympathisers, round them up, and then inform the violently anti-Communist Christian and Muslim mobs when they were to be released. As they came out of jail they were cut to pieces with knives and choppers.16
The current rulers of Malaysia, too, have their origins in a war against the Communists. In this case, it was a war waged by the British while they were still the colonial rulers of the country. The imperialist victory ensured that the people who came to power when the British withdrew were reliable friends of private capitalism. The 'Republic of China' in Taiwan, set up when the Kuomintang (KMT) was driven from the mainland in 1949, and established with a massacre of local oppositionists, experienced one party rule and martial law up to the 1980s. The extent to which the sworn enemies of the KMT, the Chinese 'Communist Party', rules the mainland through the repression of any forms of opposition, and particularly working class opposition, is notorious. Formal ideologies aside, one thing the rulers of the region have in common is ruthless hostility to working class organisation and struggle. But that, as we know only too well, is not at all an especially 'Asian' characteristic.
In all of these cases, the new working class that has been built up in the years of expansion confronted a state machine that was only too willing to use severe measures against anyone who openly dissented. It was extremely difficult to build strong, independent unions, and where they did emerge, as in South Korea, it was necessary to use the most extreme forms of mass action to achieve any gains against an authoritarian management backed to the hilt by the state machine. As a result of these circumstances, the ruling class throughout the region has often been able to impose conditions that elsewhere in the world would have met stern opposition. It is not that workers in the toy factories in the Special Economic Zones in China do not mind being locked in at the start of the shift and only let out at the end. They mind just as much as workers anywhere else, particularly since they know very well from recent incidents the horrendous consequences that these measures can result in if there is a fire or other emergency. What they have lacked so far is the organisation and power to do anything about it.
The second important factor is shared by many, but not all, of the countries in question. The accidents of geography meant that during the Cold War the region was one in which there was very heavy US involvement, always political and very often military. The first case was Korea, where the modern state of South Korea owes its entire existence to the US military, and which continues to this day to be home to 37,000 US soldiers, armed to the teeth with everything from handguns up to nuclear weapons. The Korean War, which devastated the peninsula, also provided a huge boost to the economy of Japan, then the most important staging post for US forces. Later the direct and indirect economic benefits from the US presence helped to provide a motor for growth in Korea itself. Taiwan, similarly, was for years entirely dependent for its existence on US military support, and was the recipient of substantial aid as well. After the US mended its fences with Beijing in the 1970s, it withdrew from its overt backing of Taiwan, but even as late as 1996, when the mainlanders staged threatening military manoeuvres, US warships were sent to the Straits of Taiwan as a warning not to go too far. All of the countries in the region, and in particular Thailand, which was a major rest and recreation centre, benefited economically from the protracted US involvement in Vietnam in the 1960s and 1970s.
The third, and today most problematic, factor that the countries of the region have in common is a close relationship between the state, banks and industry. This is not a uniquely South and East Asian phenomenon. Throughout the 20th century there has been a close union between these three elements in many different societies. The extreme form was the fusion of all three into a single bureaucratic state capitalist class that was characteristic of the Stalinist states, but weaker versions were, and are also to be found in countries with rabidly anti-Communist politics, such as the old white South Africa. The underlying rationale for this union was that local capitalists wished for, and perhaps needed, the protection and support of 'their' state machine in order to defend themselves against competitors. The state could control many things apart from repression, although that was indeed one of its main functions. It could control the flow of credit, and use formal and informal measures to direct investment into priority areas. In the case of Malaysia, for example:
Corporate reporting standards and the rights of minority shareholders, for example, fall well below those of most Western nations. It is partly for this reason that many of the more important Malaysian conglomerates were able to take out large bank loans to finance risky projects which now threaten to turn sour. Other issues of concern include the extent to which politically well-connected companies have been able to obtain major contracts in circumstances that are frequently less than transparent. National economic institutions such as the Central Bank, while more sophisticated than in many other countries in the region, are also quite open to manipulation for short term political purposes. Unfortunately, in times of political stability and strong economic growth, such matters are easily forgotten in the rush to make money.17
The state could protect imports through tariffs, and provide incentives to exporters. It could, through its educational policies, provide the kinds of skilled labour that are needed to run modern industries. It could provide some of the elements of infrastructure, for example a modern telecommunications system, that are essential for any business that seeks to operate on more than the local scale. It could, in general, provide the conditions that local capital needed to get off the ground.
None of these functions, nor the corrupt ways that they were carried out, are unique to South and East Asia. Despite the claims of globalisation theorists, still, today, capital is everywhere closely intertwined with the state system and dependent upon it, but the shape and extent of the link in this region is now unusual. For one thing, it depends to a large extent on relationships mediated through the family and friendship networks, which is how it got its popular name of 'crony capitalism'. Indonesia is usually taken as the most notorious example of a more general trend, with Suharto's friends and relations enjoying local monopolies, owning banks, benefiting from state funding and so on.18 For example, of the 16 banks that failed in 1997, three were owned by Suharto's immediate relatives.19 Such links, however, were present in most of the countries in the region.
The rational core of all this, extending far beyond Indonesia, is that control over the banking system and industry allows firms to enter international markets from which they would otherwise be excluded by the pressure of competition, defend themselves against technically more advanced rivals located in more developed economies, and survive the long periods of low profits that are the inevitable result of trying to enter an established market.
In the case of the South and East Asian economies, there was an additional factor that is very important in explaining the rapid pace of growth. These are, as we have seen, societies experiencing rapid social change, in which uncertainty is a central existential component of people's lives. At the same time, they are societies without any developed form of social security. There is little or no state provision for unemployment and little or no provision for state pensions. In such circumstances, the only possible response for workers is to try to make provision for themselves. Although rapid growth meant that until recently the prospect of unemployment was relatively remote, sickness and old age are the inescapable lot of even the most devoted workers. The only way that an individual or family can make provision against them is through savings, and it is indeed the case that these societies have very high rates of savings. Again there is nothing particularly 'Asian' about saving - it is simply part of an attempt to make sure that one can continue to live even when it is not possible to work. In societies with a longer history of capitalist social relations, like Britain and the US, these 'savings' still take place, but it is through the relatively formal, socialised mechanisms of pension funds, health schemes, and the other forms of payment that sustain the welfare provisions that constitute the social wage.
High savings on their own, however, do not ensure high domestic investment. While it is axiomatically true that total saving equals total investment, there is no certainty that this will be concentrated within one country. What the saver, either individual or corporate, seeks is the best possible return on investment. Logically, if this can be obtained in another country, then that is where capital will flow. In other words, all things being equal, there should tend to be a uniform general level of return on investment around the world. One of the main functions of a closed banking system is that it interrupts this levelling process. Keeping out foreign bankers means that domestic savers have no option but to place their funds with the local banks. These, therefore, can set the returns for individual savers lower than the world market would dictate. They can thus ratchet up the total amount of savings needed to support a person in old age or sickness, and thus stimulate saving, while at the same time making generous loans to local industrialists at advantageous rates. In periods of expansion, they can turn this trick while still making a profit. One of the main reasons for the success of capitalists in the Tiger economies was that they gained a competitive advantage relative to the more open economies like the US precisely from their privileged access to large quantities of cheap capital.
Taken together, these factors meant that there was indeed an 'Asian model' of economic development, first pioneered by Japan and then followed to a greater or lesser extent by the other economies of the region. It began with an alliance of the state and local capital directing resources into labour intensive industries with a low technical threshold, aiming to enter the world market by undercutting established producers, and protecting infant industries through direct and indirect trade barriers. To finance this, at least in the initial stages, domestic savings generated out of acute social uncertainty were mobilised as cheap credit by a closed banking system that was closely linked to industrial capital. To the extent that they succeed in this, a new world division of labour emerges. Chemicals are a good example of this. One commentator wrote recently:
An East-West divide is opening up in the chemicals industry as low-cost manufacturers in South East Asia prepare to take a dominant share of the global commodity chemical market. Many European producers have decided that they cannot compete on production costs, and have spun off or sold their industrial businesses. They are concentrating instead on speciality chemicals. The changing shape of the industry reflects the different focuses of Eastern and Western manufacturing. Operations to produce commodity chemicals such as titanium dioxide and polyethylene tend to be relatively straightforward to set up and run. Consequently, the businesses are low-margin and prices are uniform. On the other hand, the manufacture of speciality products requires technical expertise. This makes it more difficult for new entrants to the sector to undercut established companies on production costs.20
This, however, is not the end of the story. What the capitalists of Japan could do in the 1950s, the capitalists of South Korea could do in the 1970s, and the capitalists of Thailand could do in the 1980s. There is a constant danger that someone else, with access to even cheaper sources of labour and even greater state protection, will undercut your market. Back in 1996, while everyone was still convinced that the Asian model was a good one, the World Bank drew attention to this problem: 'Rising wage costs, and emerging competition from even lower labour-cost countries means that East Asian countries will need to move up to more sophisticated markets to compete'.21 Once the bulk of the very cheap labour has been sucked off the land, and it becomes necessary to reproduce an urban labour force, it also becomes necessary to raise wages, irrespective of the existence of an organised working class. If the generation that grew up in a pre-industrial economy could be worked to death at low cost because it cost the new capitalists nothing to produce, the next generation has to come from somewhere and, apart from relying on immigration, that implies paying a sufficiently high wage to allow successful human reproduction. As labour becomes more expensive, it becomes more and more important to economise in its use. Thus there is a tendency for those capitalists who have succeeded in entering the low value added markets to try to move up to more capital intensive, skill demanding, and profitable, kinds of production. This desire to move away from manufacturing T-shirts and trainers and to produce cars and aircraft is one of the reasons why the states of the region place such a heavy emphasis on education. It is the only way that they can get access to the kinds of skilled labour that are essential if such a move to more technologically sophisticated forms of production are to be accomplished.
TABLE 5: SOUTH KOREA'S EXPORTS AND IMPORTS 1962 1985 1995 GNP (US$) 2.3 billion 90 billion 452 billion Total exports (US$) 0.05 billion 30 billion 125 billion Percentage primary goods 72.3 9.7 4.9 Percentage light industrial goods 27.7 36.9 22.5 Percentage heavy industrial goods - 54.4 72.6 Total imports (US$) 0.42 billion 31 billion 135 billion Percentage consumer goods 23.6 8.5 10.2 Percentage raw materials 54.0 55.9 50.0 Percentage capital goods 22.4 35.6 39.8 [Source: South Korean government]Table 5 illustrates this process in general terms for the case of South Korea.22 Although the absolute figures give an exaggerated picture, since they are not adjusted for inflation or exchange rate fluctuations, they do provide some sense of the scale of the growth. The figures for the percentages of imports and exports in different categories are, however, very clear. They show that the economy moved from being a very small exporter of primary goods (essentially raw materials) first, to the export of light manufactures, and finally the products of heavy industry. Thus by 1995 exports to the US, by far the largest single recipient of South Korean goods, were 56 percent made up of electronic goods.23 In a competitive capitalist world economy, there are no stable and assured market niches. The factors which produced comparative advantage in one period can evaporate or move to another location in the next. Up to 1997 there was a sort of economic escalator in which first Japan, then South Korea and then the other countries of the region began with the most primitive forms of capitalist industrial production and then moved on progressively to more advanced, and more profitable, fields.
The basic economic model present here does therefore display some common 'Asian' features, but it is in itself a variant of a more general characteristic of the 20th century world economy. Capital develops on a national basis, but has to operate increasingly on a world market. In order to compete effectively in that market, it needs the aid of 'its own' state. Not only must that state keep the working class in its place, and provide the general conditions for successful capitalist production, but it is also a valuable source of protection against capitalists based in other states. There is no contemporary capitalist society in which this is not the case, not even the US. In other countries the phenomenon is present to a much greater degree. In the case of the Tiger economies and their emulators, the local state provided the protected conditions in which infant industries could thrive, ensured cheap and docile labour and cheap capital. These factors, combined with boom conditions in the world economy, have allowed a number of societies to build export oriented industrial economies of varying degrees of maturity. This may not be a 'normal' development, but it is hardly a mysterious one that requires recourse to semi-mystical concepts about those societies.
If the model was such a successful one, sustaining the protracted colossal growth of the Japanese economy as well as the more modest achievements of other capitalist classes, why should it suddenly produce a major crisis? Bourgeois theorists give various answers to this, most of which are variants on the following astonishingly crude explanation:
At the root of the crisis in...East Asia in 1997 was a sudden change of heart on the part of investors in the world economy's industrial core - in New York, Frankfurt, London and Tokyo... In East Asia in 1996, international investors poured perhaps $100 billion into the region's economies. In 1998 - even though East Asian currencies have been lowered far enough to create some equally amazing bargains for those seeking long-term investments - we will be lucky if the net private capital flow is zero... The root cause of the crises is a sudden change in international investors' opinions. Like a herd of not-very-smart cattle, they were all going one way in 1993 or 1996, and then they turned around. Was the stampede of capital in emerging markets disconnected from fundamentals of profit and business, or is the stampede of capital out an irrational panic? The correct answer is probably 'yes' - the market was manic, it is now panicked, and sudden change in opinion reflects a psychological victory of fear over greed.24
Pleasant though it would be to believe that our rulers are 'not-very-smart cattle' prone to easy panic, this sort of explanation really will not do. For one thing, it does not explain anything. Why should there be a change of heart? After all, even very dumb cattle only stampede when something scares them.
The Marxist account of the crisis sees the financial crisis as a symptom of underlying problems with the general economic situation. The most fundamental of these is the overall failure of the world system to find a method of orderly restructuring. This crisis is not unprecedented. There was a financial crisis in Europe, including Britain, during 1992-1993, then a crisis in Latin America in 1994-1995, and now a third in Asia, which will last we don't know how long. What, essentially, is at stake in all of these is a vast overcapacity on a world scale in a number of industries - allegedly 40 percent in automobiles, for example. The way that capitalism would 'naturally' resolve such a situation is for the weaker capitalists to go under. Firms would go bust. Banks would fail. Savings would be destroyed, and so on. There would be a great destruction of capital and, at the cost of vast human suffering for the working class, the system would be ready for another period of rapid expansion. This has not happened this time around. The major capitalist economies are very reluctant to allow big units of capital located in their own territorial patch to go bust. They prop up banks, bail out ailing companies, and try to make sure that some other state suffers the agonies of massive failure.
TABLE 6: REAL PERCENTAGE GROWTH RATES FOR JAPAN Year 1990 1991 1992 1993 1994 1995 1996 Real GDP% growth 5.1 3.8 1.0 0.3 0.6 1.4 3.5 [Source: IMF]The prime example of this at the moment is Japan. Since the collapse of the 'bubble economy' at the end of the 1980s, it has proved very difficult to get the economy to grow. As Table 6 shows, despite frequent reflationary packages, real GDP growth has been very low.25 The fundamental reason for this is that it has proved politically impossible to force through the restructuring of the large number of banks that have loans that are no longer making payments ('non-performing loans'). The banks and the finance ministry have in fact proved very reluctant to reveal the true scale of these loans. In September 1997 they said they were around 22 trillion yen. Under pressure, in January 1998 they said they were around 76 trillion yen: 3.5 times higher. What the real figure is remains obscure. As one Japanese commentator put it:
Information about bad loans is still vague and invites confusion rather than assurance. Stock and foreign exchange markets have been plagued by doubts about the health of certain banks and corporations. Rumours that some companies face a crisis have been enough to trigger panic selling of their stock and prompted depositors to withdraw funds. Firms targeted in this way have had difficulty securing credit, putting them at risk of collapse.26
The actual collapse, under the weight of its 3 trillion yen debt, of Yamaichi Securities, the fourth largest brokerage in Japan, on 24 November 1997, demonstrates just how deep the problems are facing Japanese companies. There is a steady drain of smaller banks and other companies closing. Figures for bankruptcies were at their highest since the Second World War in 1997.27 What has not yet happened, however, is the kind of massive shake out that would be necessary to liquidate all of the bad debts. The Japanese government is slowly being forced by international capital into addressing the problems, but these problems worry even the IMF:
The recent plan to inject public funds to bolster the Deposit Insurance Corporation represent an important step toward resolving the lingering problems of the Japanese banking sector. The goal of these measures is to ensure the stability of the banking system while advancing the needed resolution of the bad loan problem. Toward this end, it will be essential to ensure that the public funds are used to promote the needed bank restructuring rather than to support unviable institutions. A transparent and credible plan for using the funds to close insolvent institutions and to restructure undercapitalised banks, along with the government's plans for strengthening regulatory and disclosure standards, will lay the foundation for a successful transformation of Japan's financial system, as the 'big bang' initiative unfolds.28
The worry of the ruling classes outside Japan is that the political influence of their Japanese competitors will be used to bail them out long after the logic of capitalism would dictate bankruptcy. A life support system of state backed credit means that the beneficiaries can hold out longer than would otherwise be the case. They might even outlast capitalists elsewhere who do not have such support. The 'wrong' firms would then go bust. They would be 'wrong' in the sense that they might not be the economically less efficient, but just the poorly connected producers in a particular market. They would also be 'wrong' from the point of view of the capitalists elsewhere who owned them, and would lose out 'unfairly' in the competitive struggle.
TABLE 7: DESTINATIONS OF EXPORTS FROM SOME SOUTH EAST ASIAN COUNTRIES Country of origin Destination (percentage of total exports) US Japan Europe South Korea (1996) 17.6 12.2 16.5 (ROC) Taiwan (1994) 26.2 11 13.9 Hong Kong (1994) 25.4 5.3 17.4 (EU) (Re-exports) (1996) 20.4 6.8 14.4 (EU) [Sources: Governments of South Korea, Taiwan and Hong Kong]The continuing slow growth in Japan had two important effects. In the first place, it meant that the Japanese yen fell somewhat against other currencies, particularly the US dollar. In 1994 the average exchange rate was around 100 yen to US$1; by 1997 the rate was around 120 yen per dollar. A 20 percent devaluation of the yen means that Japanese exports are cheaper on the world market, and particularly in the US, than they had been previously. This had a major effect in the rest of South and East Asia because many of the smaller economies had fixed their exchange rates relative to the US dollar, in an effort to attract foreign investment and deter currency speculation. Their export prices thus remained relatively stable. This was a particular problem because, as Table 7 shows, the destination of many of the manufactured goods from the Tigers and their emulators is the US and, to a lesser extent, Europe.29 This meant that, while their substantial imports from Japan became cheaper, their relatively limited exports to Japan became absolutely more expensive. More importantly, the much greater proportion of their exports directed to third markets became relatively more expensive compared with those directed to the same markets, particularly from Japan. At the top end of the market, in the most advanced industrial sectors, these price shifts gave Japanese exporters a comparative advantage against their competitors in South and East Asia. Selling the same products into the same market, relative pricing is a vital component of competitive advantage. South Korea, for example, is particularly sensitive to moves of the yen against the dollar:
The two largest Asian economies share many of the same exports, including electronics, steel, semiconductors, chemicals and automobiles. Over 50 percent of Korea's exports compete directly with Japanese products... Hence, the won's moves against the dollar often mirror the yen's trading movements versus the US currency, as local exporters vie to make their products more attractively priced compared with the products of their Japanese rivals.30
The prospects for continuing with an export oriented economy that could avoid the problem of even lower wage competitors undercutting it from below by continually moving up the scale of capital, technology and skill were thus made that much more difficult.
At the same time, a really formidable low wage competitor at the bottom end of the market was starting to make itself felt. China has not only grown very rapidly over the past decade, but has become very much more oriented on the world market: 'China is the tenth largest trading nation in the world and attracts more foreign direct investment than any country except the United States'.31 The 1994 devaluation of the yuan (now the renminbi - the 'people's money') gave Chinese exporters a powerful advantage in those, essentially low technology, products in which it competes directly with other South and East Asian economies. By 1996 'Thailand began losing ground to China, particularly in labour-intensive sectors such as garments, footwear and parts'.32 Overall a group of countries whose economies depended heavily on exports found themselves caught between increasing Japanese competition in the more sophisticated goods and increasing Chinese competition in the less sophisticated goods. The room for manoeuvre, at least with a fixed exchange rate, was greatly reduced. In country after country, but notably Thailand and South Korea, there was a mounting current account deficit as exports failed to cover imports for the first time in years.
The second major consequence of the slow growth of the Japanese economy is that there have been increasing capital outflows. Even while growing slowly, the Japanese economy is massive and generates vast surpluses, which need to find some kind of profitable home. The difficulty of finding reliably profitable investments in Japan has meant that finance capital has increasingly looked elsewhere for outlets. There has, in the 1990s, been a massive outflow of funds from Japan, mostly to other developed countries but also particularly to South and East Asian countries. Developing countries in Asia attracted US$108 billion in 1995 and nearly US$100 billion in 1996, and much of this came from Japan.33 More and more capital, generated all around the world, found itself tempted to South and East Asia by what appeared to be assured profits arising from expanding economies and stable exchange rates. Much of this was foreign direct investment (FDI), going into new factories to churn out yet more goods for the world market. One new trend, however, was the development of foreign portfolio investment (FPI) - money just looking for a profitable home. Overall:
FDI grew from $1.3 billion (10 percent of net capital flows to East Asian countries) in 1980 to $43.0 billion, or 50 percent in 1994... FPI increased from nil to $18.1 billion, or 24 percent of capital flows, in the same period. East Asia is now the destination of over half of total direct and portfolio investment flows to all developing countries and is expected to remain the leading recipient region. In East Asian countries these flows now represent 3 percent of gross domestic product (GDP), or 10 percent of investment. Foreign capital from all sources accounts for about 15 percent of investment. This surge in private capital flows since the late 1980s has been the result of both 'pull' and 'push' factors - the former consisting of rapid growth and high rates of return in recipient countries and the latter of declining rates of return, fewer restrictions on foreign investment, and large pools investable in source countries. Recent regulatory changes in source countries have allowed the issuing of developing country securities in industrial country markets. Technological advances in communications and financial instruments make it much easier to undertake these transactions.34
Some of these huge investment flows no doubt went into expanding production, but a substantial proportion went into stock market speculation, property price inflation, and what turned out to be dodgy loans to local companies. Massive investment in an economic system that is already under strain is a recipe for producing unsold goods - this is the root of the classic crisis of overproduction. We can see evidence of this building up when we look at the rates of growth for these countries, as shown in Table 8.35
TABLE 8: GROWTH IN REAL GDP FOR SELECTED COUNTRIES Country 1991 1992 1993 1994 1995 1996 1997e South Korea 8.46 4.70 5.80 8.60 9.00 7.10 5.95 (ROC) Taiwan 7.55 6.76 6.32 6.54 6.03 5.70 6.20 (PR) China 8.00 13.20 13.50 12.60 10.20 9.70e - Malaysia 8.65 7.80 8.30 8.70 9.50 8.20 - Thailand 7.89 7.40 7.80 8.80 8.60 6.70 2.00 Indonesia 6.62 6.10 7.25 7.48 8.20 7.80 6.00 Philippines -1.00 -0.04 2.10 4.40 4.80 5.48e 4.90 Singapore - 6.04 10.10 10.10 8.90 7.00 6.50 Hong Kong 5.10 6.30 6.13 5.29 4.68 4.70 5.50 [Source: Political and Economic Risk Consultancy, e = estimate]While all these figures are very high compared with those for Japan shown in Table 6, or for those of any other highly developed country for that matter, they mostly show a peak of expansion in 1994 and 1995, followed by a slowdown in 1996. In other words, while the economies had not actually contracted, the speed of expansion had been noticeably reduced. This was the result of a sharp decline in new investment, as perceptions of the possibilities for future profits evaporated. As one Korean economist noted, just before the storm broke:
Facility investments [ie investments in plant and machinery - CS] of Korean companies increased by 15.7 percent in 1996, compared to 36.7 percent and 37.9 percent growth recorded in 1994 and 1995 respectively. Behind this low increase was mainly completion of large projects which began or were in-process between 1994 and 1995 and production capacity increase already in place, together with discouraged investment plans due to a deterioration in the overall national economy.36
Not only were investment plans put on hold, but an increasing proportion of production was stockpiled in lieu of being sold - up to 20 percent of the total in late 1996.37 It was only in July 1997 that the rate of growth of these stockpiled goods fell below 10 percent (to 9.6 percent) for the first time since July 1995.38 For two years South Korean companies were producing more and more, and not selling all of it. This, of course, leads to cash flow problems on a grand scale. So companies found themselves forced to borrow more and more money to keep themselves afloat, and they obtained much of this in short term loans from foreign banks, thus adding to the mounting foreign debt of the region.
In Thailand too there were the seeds of a crisis. Much of the portfolio investment that had poured in during the 1990s had found its way into property speculation, leading to a rash of speculative building projects. By late 1996:
Reports began to surface that small developers were beginning to have difficulties in servicing their loans to local financial institutions. Poor sectoral research and over-enthusiatic credit officers helped fuel construction of unneeded property developments priced with unrealistic cash-flow projections... Developers came under increasing cash flow difficulties as local financial institutions cut back their financing lines while the number of unsold units rose... In February , Somprasong Land became the first Thai company to default on a Euro-convertible debenture, a popular method for local firms to access cheap foreign funding.39
In construction the mechanism of crisis is extremely clear. In the boom years it seemed as though property investments were a certain way to make a profit, and thus capital flooded into the sector. Vast numbers of offices, shops and houses were started. By late 1995 there were simply too many buildings being completed for them all to be profitably let or sold. As a consequence, the weakest and most exposed building companies started to fold: 'By 1995, an oversupply of housing emerged... With loans increasingly expensive and hard to get...the sector began to collapse in 1996'.40
Thus, when speculators first attacked the Thai bhat in February 1997, the grounds for a currency crisis were thoroughly prepared. All the economies were, by their standards, growing relatively slowly. There was substantial overcapacity on a world scale for several of the industries - steel, electronic goods, petrochemicals, semiconductors - that had been staples of the export drives. Exchange rate movements had eroded price advantages in key markets. Local companies found themselves unable to shift goods and borrowed more and more to stay afloat. The balance of payments situations were deteriorating. These are the conditions in which a speculative attack on a currency can be successful. Currency traders speculate on a daily basis against each and every tradable currency in the world. Usually their efforts are only of marginal effect - although quite large enough for them to make a great deal of money. These trades only become a crisis when there is a fundamental problem of an artificial exchange rate that no longer corresponds to the real economy. Far from being some kind of very stupid animal, Soros and his cohorts can see a weak economy even when the IMF cannot and, like the good capitalists that they are, they strive to turn a buck. The occasion of the crises in South and East Asia may have been a burst of currency speculation, but the causes lay in the fundamental weaknesses of the economies themselves.
The ruling class is divided. International bankers want their cash back. That is what the IMF is trying to make sure happens in each and every capital in the region. The local capitalist class, however, wants to survive with as much of its assets intact as possible. These two groups are struggling with each other over who is going to get what. The political crises of the region are vivid indicators of that battle.
The results of the currency crises have been massive devaluations, most spectacularly of the Indonesian ruppiah, but also of almost every other major currency in the region apart from the Hong Kong dollar. The effects have been devastating. Thailand was the first country to devalue, on 2 July 1997. Non-performing loans are estimated at 25 percent of the total.41 Only two out of the 58 financial institutions that were closed have sufficient capital to reopen.42 There have also been a string of cancelled projects - all 63 major projects were cancelled from July to December 1997, mostly in chemicals, paper, plastics and steel.43 Cancelled projects and reduced orders mean redundancies. The Thai Employers Confederation estimates that in six categories of employment (garments, textiles, electronics, car parts, construction and services) 180,000 jobs went up to December. Perhaps 10 percent of all Thai jobs are at risk.44
The devaluations are intended to stimulate exports, but they also have the short term effect of making the economic situation for companies much worse. Many of the loans they obtained before the crisis in order to keep afloat were denominated in US dollars. The capital and interest have to be repaid in US dollars. The devaluation of local currencies makes that debt burden all the greater and accelerates the prospect of bankruptcy. On the other hand, devaluation might not provide so much of a boost to exports as has been hoped. Many of the goods exported depend on working up and re-exporting semi-finished products from more advanced countries, notably Japan. The devaluation of the currency means that those input prices increase, and thus the scope for price advantages in the finished article is much reduced.
Endangered local capitalists thus turn to their own state to ask for a bail out. Since there are very close connections between politicians and businessmen, as indeed there are elsewhere, these pleas for help have often been answered. The initial response of the South Korean government, for example, was to bail out the ailing car manufacturer Kia by, effectively, nationalising it. The extraordinary manoeuvres of Suharto, his odious family and his toadies, have been based on just that desire to keep their access to the honeypots. One commentator, writing between the onset of the crisis in 1997 and the much stricter terms imposed by the IMF in early 1998, noted that:
Several of the big ticket projects still slated to go ahead symbolise exactly what is wrong with the Indonesian economy. They include Tommy Suharto's national car project (made possible by massive tax concessions to a company with little experience in automobile manufacture and no local production facilities), Research and Development Minister Habbie's expensive N-250 aircraft development project and plans by Tutut, the president's daughter, to build a US$2.3 billion triple decker toll road and mass transit railway in Jakarta.45
The terms of the various support packages sponsored by the IMF have been in large measure designed to prevent this sort of thing, and to make sure that the economies in question put the interests of the international capitalist class before the pet projects of local politicians and businessmen.
These policies have led to some rifts among our rulers. The international capitalist class all want their money back, and a chance to make any windfall profits that might be going, but there are some differences of emphasis. South Korea is a case in point. The IMF, primarily an agency for US capital, has been stressing the need for stern financial discipline, but some of the biggest creditors, primarily European, have been taking a softer line. This is partly a question of how much it will hurt. European bankers are owed US$33.8 billion, Japanese bankers are owed US$24.3 billion, and US bankers are owed just US$9.36 billion. A hard line, raising interest rates and tightening the money supply, means that many South Korean companies will go bust, banks as much as industrial concerns. This will, of course, mean that there is no chance of Western and Japanese creditors getting the cash they are owed back in full. The bankers who have got most to lose are, naturally enough, the ones who are least enthusiastic about the application of the classical mechanisms of capitalism to their debtors. There is always the risk that such drastic measures will backfire on the lending countries, particularly Japan, and transform a regional problem into a full fledged world recession. The public criticisms of the harsh IMF regime, even when couched in technical terms, reflect this fundamental division of interest.
There is, however, much greater unanimity over other things. The first is that the local capitalist classes will have to reform themselves and allow much greater scope for their competitors. In country after country the IMF has made as a condition for its intervention a reform of the banking and finance system, particularly in order to allow foreign capital to purchase the devalued assets of the local economy. It has also been keen to dismantle protective measures, most obviously the scandalous ones like the monopolies that Suharto granted his family and friends over vital sectors of the economy, but also all of the other more normal barriers to trade. No one outside the IMF and the local finance ministries knows exactly what has been agreed, since the IMF does not publish the full text of its dealings with governments. What is clear from the public record, however, is that the terms for the bail out include very stringent conditions to ensure that the outcomes of the various rescue programmes are restructuring rather than repairing the existing set up. The key conditions for the January 1998 deal with Indonesia included a restructuring of the banking system, abolishing local monopolies in sugar and cloves, deregulating the trade in agricultural products, dissolving the cartels in cement, paper and plywood, and removing all barriers to foreign investment in palm oil.46 When the first bail out plan for South Korea was agreed, Stanley Fischer, first deputy managing director of the IMF, gave a press conference. One of the exchanges ran as follows:
Question: IMF financial assistance goes to the treasury, into the reserves, but many of the big business conglomerates may experience financial difficulty stemming from ambitious expansion plans. How do we know that the money will not be used to shore up the finances of the conglomerates?
Fischer: This money is intended to bolster reserves and to assist in restoring confidence. For the rest, there is a well-defined fiscal programme that includes and defines whatever support - and it is practically nil - is to be given to the corporate sector.47
It is quite clear in South Korea and elsewhere that the aim of the IMF package is to 'restore confidence' in an economy at whatever human cost. Only that way, they argue, can normal capitalist relations be restored. The special interests of sections of the local ruling classes will have to be sacrificed to this greater good.
The thing that the capitalist class, national and international, is unanimous about is that the working class is going to have to pay for the crisis. Devaluation raises the price of imported goods, and thus reduces living standards. The 'rationalisation' of industry and the banks means the sacking of thousands, if not millions, of workers:
According to investment funds and business consultants in the region, Indonesia will shed two million jobs this year, Korea about 1.5 million, Thailand over one million, about 150,000 in Malaysia, close to 100,000 in the Philippines, and probably 20,000 in Singapore.48
All of this will take place in countries without even the modest welfare provisions that we take for granted in more developed countries, and where workers' personal savings are at risk from inflation and bank failure. Misery will follow in the wake of the IMF as surely in Asia as it has done in Latin America, Africa and Eastern Europe. As Lenin remarked, there is no crisis so deep that it cannot be resolved, provided that the working class can be made to pay for it. The big question is: will the ruling classes in South East Asia be able to solve their problems at the working class's expense?
We have seen that it is a mistake to consider the countries of South and East Asia as one homogeneous entity, so we would expect to find that the chances of working class resistance differ from country to country. This is true, but, just as there are some general features of the way in which capitalism has developed in the region, there are also some general background features to the class struggle.
The most important of these is that the very pace of the transition in the later developers has made the hold of the ruling class over society relatively insecure. Among the 'ancient and venerable prejudices' that have been swept away by the hurricane of capitalist development were those that taught the poor that their lives would always be the same and that nothing could be done about it. The former peasant, uprooted from the farm, driven into the city, transformed into a wage worker, trained to use a modern machine, living in a gerry built tower block, knows from personal experience that things can be different, and that what people do makes a difference to society. Societies experiencing the rapid transition to industrial capitalism are always vulnerable to working class revolt precisely because the harsh routines of daily life, that workers in more established societies take reluctantly for granted, are seen as new, and perhaps temporary, impositions by the newly minted proletarians of a developing country.
Conditions of economic crisis make those stresses more acute. Not only are there the material hardships of unemployment and wage cuts to be endured, but the ruling class has lost one of its main ideological weapons. During the boom years, when people questioned the contrast between the vast wealth of the ruling class and the harsh conditions of the working class, the rulers could always reply that at least they were leading the country away from enslavement by the West and towards a more prosperous and developed future. Economic defeat, similar but much less intense than military defeat, always exposes the pretensions of rulers. What they have done no longer seems to be the only road to success, and the sacrifices they demand no longer seem so justifiable. The economic crisis exposes the claims of the ruling class to be following the only policies that are in the best interests of the whole of society. What to do next becomes an urgent question of public debate.
It does not follow that the answer the mass of the population will give to that great question is, overthrow capitalism and build a socialist society. The ruling classes have a few more very powerful ideological weapons in their arsenal that they can use to divert mass discontent from their own doors. Many of these are depressingly familiar to militant workers around the world. At the very start of the crisis, Mahathir Mohamad, prime minister of Malaysia, borrowed one of the most sordid pages from the book of tricks written by his former colonial masters when he argued that the currency crisis was the result of a 'Jewish plot'. This claim in South East Asia is even more ludicrous than it was in Europe 70 years ago, but other possible scapegoats are closer to hand. The vast movements of population that accompany industrial developments do not respect borders. There are hundreds of thousands of workers in the countries of South Asia who were born elsewhere and have travelled, legally or illegally, to Malaysia, Thailand and other centres of development, in the hope of finding work.49 Just as the Nazis in Europe try to use the existence of migrant populations to split the working class, so the ruling classes in South Asia are saying that they will first drive out the migrants in order to ensure that 'their' workers retain their jobs.
Equally repellent, and equally dangerous, is anti-Chinese sentiment. This really is very close to the sort of racism that was used by the Nazis in Europe in the 1930s. In South Asia the Chinese diaspora has played a similar role to that which Abraham Leon argued the Jews had played in Central and Eastern Europe: they were a 'people-class' who were the cutting edge of the money economy. As a consequence, the Chinese form a substantial section of the capitalist class and of the professions. Again, like the Jews in Europe, they also form a substantial section of the proletariat and provide many of the leaders of the socialist movement. One of the standard techniques of the ruling class is to divert anti-capitalist sentiment into anti-Chinese sentiment. This has a long pedigree. The British won their colonial war in Malaysia mainly because they were able to portray the Communists as Chinese, and thus to isolate them from the mass of the Malay population. The 1965 massacre in Indonesia was, partly at least, an anti-Chinese pogrom. There is, sadly, evidence that this old poison still works. Some of the discontent in Indonesia this time around has found expression in anti-Chinese rioting. There were riots in Banayuwangi and Jember in Eastern Java on 16 January and in Kragan in Central Java some 800 young people, allegedly from a Muslim boarding school, attacked and damaged 20 shops on 26 January. All of these attacks had an anti-Chinese element.50
Elsewhere, in China itself for example, this exact strategy obviously cannot work, but there are other variants that have the same effect of dividing the working class. The history of China, Taiwan and Korea makes Japan, within living memory the occupying imperialist power, the target for nationalist sentiment. And in Japan itself memory of defeat at the hands of the US can still be utilised for these purposes. Throughout the region the harsh terms imposed by the IMF, and the fact that is so clearly the agent of the West, indeed of the US, give anti-imperialist rhetoric from the ruling class a real popular echo. It is, regrettably, everywhere the case that the ruling class can find the scapegoats they want.
This kind of rhetoric can be particularly dangerous when the left is, for whatever reason, not in a position to provide a coherent alternative. As we have seen, many of these countries have been very repressive, and almost everywhere the socialist movement is in a small minority. Nevertheless, there have been signs of resistance. In Japan itself, the largest and thus ultimately the most important of the economies, there has as yet been no sign that the isolated incidents of discontent are coalescing into a coherent oppositional movement. Elsewhere the picture is a little better. In Thailand, for example, 3,000 workers in an auto parts factory went on strike against a wage cut on 21 January. They blocked the roads around the plant and fought a long battle with the riot police. In China, despite severe repression, there is evidence of discontent. As the following poem, found in a magazine at a train station, shows, there are certainly plenty of people who are not at all happy with the recent economic 'successes'.
The sentiments expressed clearly articulate a deep discontent with the people who have profited from capitalist development. More directly political dissidents face harsh persecution. On 16 January 1998 police in Datong, in the northern Shanxi province, arrested Li Qingxi for attempting to form an independent trade union. The 41 year old unemployed man, formerly a worker at the health clinic of the Datong Coal Mine administration, wrote and pasted up a 'Declaration of Foundation of Free Trade Unions'. A second activist, Zhao Changqing of the Nuclear Industry General's Number 813 factory in Hanzhong, was arrested a few days earlier. His crime was to take the constitution seriously and put himself forward as a candidate in the local elections. Factory officials told him that only Communist Party cadres above the rank of vice factory director could be nominated, and the police arrested him for protesting.51 As the example of 'Solidarity' in Poland showed 20 years ago, courageous individuals like this have a well of support amongst ordinary workers that, in the right circumstances, can explode into mass action and organisation. Should the crisis spread to China, it could well provide the spark for such a conflagration.
In all of these cases, however, we are dealing with limited protests which, while they are evidence of discontent, do not yet amount to open, class conscious opposition. There is one country in the region, deeply affected by the crisis, where we know that there is much more substantial opposition. The South Korean working class has managed to establish legal organisations. It has a fine record of struggle, and there is every indication that there is mass opposition to the sackings and austerity that the ruling class is attempting to impose on the country as the price of recovery. In another article in this issue of International Socialism, Shin Gyoung-hee looks in detail at the response of the Korean working class, its organisations, their strengths and their weaknesses, and at the prospect of revolutionary socialist ideas finding a wider audience in the struggle. Here we need only note that South Korea is the key to the international situation. If the working class in that country can successfully resist the attacks upon its living standards, then not only will the South Korean ruling class and the IMF have suffered a defeat, but an example will have been given that can be copied all over South and East Asia, and far beyond. There can be no better answer to the ruling class lies about the 'Asian way' than a victory for the Korean working class.
1 According to reports, they had been extensively wined and dined, and taken to strip clubs, by representatives of companies wanting advance information on bank inspections: 'In full glare of live national television on Monday prosecutors raided Japan's most powerful ministry and arrested two banking regulators for receiving bribes and lavish entertainment at night spots in return for prior intimation about surprise inspection of these banks' branches and other favours. On Tuesday, prosecutors launched another series of raids, this time on offices of the Dai-ichi Kangyo Bank, Asahi Bank, Sanwa Bank, and the failed Hakkaido Takushoku Bank', F Khergamvala 'Japanese Minister Quits' in The Hindu, 29 January 1998, p16. They were only the most recent in a series of very high profile cases, involving, for example, the finance director of the state Highway Agency, Takehiko Isaka, who had received massive amounts of 'entertainment' from Nomura Securities Co, in the expectation that it would be nominated as the lead broker in a bond issue. Many Japanese businessmen cannot see what is wrong with this. Nomura itself reported that it allocated 3.9 billion yen (around £20 million) for corporate entertainment in its recent accounts: 'Wining, Dining "Essential" Part of the Job?', Daily Yomiuri, 20 January 1998, p2.
2 The World Bank Group, Annual Report 1997: East Asia and Pacific (Washington DC, World Bank Group, 1997), pp1-2.
3 J Bartholet, 'The Won Is Not the Problem', Newsweek, 19 January 1998, p14. One should recall that this man is writing about a country that has been politically and military dependent on the US for much of the period since the Second World War. So long as the profits rolled in, this sort of thing was not even mentioned.
4 There are one or two dissenting voices, amongst them Martin Wolf, who wrote in the Financial Times: 'Conventional wisdom suggests the lesson is that East Asians should become as Western as possible as quickly as possible. This is the philosophy underlying the programmes of the International Monetary Fund. Yet the cardinal East Asian mistake could well be not that they liberalised too little, but rather that they liberalised too much and, above all, too imprudently'.'Caging the Bankers', 20 January 1998, p18.
5 S Cockerill and C Sparks, 'Japan in Crisis', International Socialism 72, Autumn 1996, pp27-58.
6 The data in this table are for 1995, and are taken from the World Bank World Development Report (Washington DC: World Bank, 1996), Tables 1 and 12, except for Taiwan, which is not allowed to be a member. These figures are for 1994, and are from ROC (1998), The Republic of China at a Glance, http://www.freesun.be/ ROC2.html.
7 Sources as in note 2, Tables 4 and 12, except for Germany, for which the source is OECD Statistical Tables (Paris: OECD, 1997).
8 Ibid, Table 11.
9 Ibid, Table 4.
10 K Marx and F Engels, Collected Works, vol 6 (London: Lawrence and Wishart, 1976), p487.
11 World Bank, The World Bank Annual Report 1996 (Washington DC: World Bank, 1997), p82.
12 The World Bank Group, Everyone's Miracle? Revisiting Poverty and Inequality in East Asia (Washington DC: World Bank, 1997), News Release No 98/1448EAP. 1.
13 'Suharto Consulted Children On Reforms, Daughter Says', Daily Yomiuri, 20 January 1998, p7.
14 'Greed', Bangkok Post Economic Review, 1997, p2.
15 P Yatsko and M Forney, 'Demand Crunch', in Far East Economic Review, 15 January 1998, p46.
16 I Birchall, Workers Against the Monolith (Pluto Press, 1974), pp165-166.
17 Political and Economic Risk Consultancy (1997), Country Risk Report: Malaysia, http://www.asiarisk.com/mal.html.
18 The use of informal networks to coalesce a ruling class is not, of course, an Asian speciality. Britain has its 'old school tie' system with a similar function.
19 Political and Economic Risk Consultancy (1997), Country Risk Report: Indonesia, http://www.asiarisk.com/indo.html.
20 M Peel, 'East and West Go Separate Ways', Financial Times Survey: Global Business Outlook, 13 January 1998, vi.
21 G Kaji, Sustaining the East Asian Miracle: The Prospects for Rapid Growth, Plenary Session Speech to the World Economic Forum 1996 Europe/East Asia Summit, Hong Kong, 19 November 1996.
22 Government of South Korea, Business in Korea: Economic Statistics (1998), http://korea.emb.washington.dc.us/new/business/econ/Econostat1.htm.
24 J Bradford Delong, 'Corral the Biannual Crises', Los Angeles Times, 28 January 1998. J Bradford Delong is not some dumb journalist but a full fledged professor of economics at the University of California, Berkeley. He is joined by some other famous names from the world of bourgeois economics. Jeffrey Sachs, the man who introduced 'shock therapy' to the former Communist world, for example, wrote, 'There is no "fundamental" reason for Asia's financial calamity except financial panic itself. Asia's need for significant financial sector reform is real, but not a sufficient cause for the panic. Asia is reeling not from a crisis of fundamentals, but from a self-fulfilling withdrawal of short-term loans.' 'IMF is a Power Unto Itself', Financial Times, 11 December 1997.
25 IMF, 'IMF Concludes Article IV Consultation with Japan'. Press Information Notice 97/19, 13 August 1997, http://www.imf.org/external/np/sec/pn/ 1997/PN9719.htm. 4.
26 J Hayakawa, 'Banks Must Open Up the Books or Suffer a Costly Trust Deficit', Daily Yomiuri, 21 January 1998, p7.
27 Kyodo News, 'Corporate Bankruptcy Debt Hits Postwar High in 1997', Daily Yomiuri, 20 January 1997, p12.
28 M Camdessus, 'Camdessus Welcomes Measures Announced by the Japanese Government', IMF News Brief No. 97/31.
29 The figures should be taken as indicative only, given the differences of date and definition that are indicated in the table. The sources are: Korean Embassy, Business in Korea: Economic Statistics (1998), http://korea.emb.washington.dc. us/new/business/econ/Econostat1.htm ; Government of Hong Kong, Hong Kong in Figures: External Trade (1998), http://www.info.gov.hk/censtatd/hkstat/hkinf/ex-trade.htm; Government of ROC, The Republic of China at a Glance (1998), http://www.freesun.be/ROC2.html.
30 Asia Chronology, Chronology of the Asian Currency Crisis and its Global Contagion (1998), http://www.stern.nyu.edu/~nroubini/asia/AsiaChronology1. html, 7.
31 The World Bank Group, Country Brief: China (Washington: The World Bank 1997), p1.
32 'Exports', Bangkok Post Economic Review 1997, p3.
33 World Bank Annual Report 1996 (Washington DC: World Bank Group, 1997), p82; S Fischer, The Asian Crisis: A View from the IMF. Address by Stanley Fischer at the Midwinter Conference of the Bankers' Association for Foreign Trade (Washington DC, 22 January 1998).
34 The International Bank for Reconstruction and Development, Managing Capital Flows in East Asia Summary. (Washington DC: World Bank Group, 1995), 5. To be fair, this was one of the few analyses to concentrate on the problems generated by this growth.
35 Political and Economic Risk Consultancy Ltd, Country Risk Reports (1998), http://www.asiarisk.com/.
36 G S Jeong, 'Forecast on 1997 Facility Investment', Korean Development Bank Economic and Industrial Focus, March 1997.
37 See Reuters' Business Briefing: South Korea, 1 April 1997, p2.
38 Kim, S and Kang, W, 'The Recent Trends and Forecast of Korean Economy', Korean Development Bank Economic and Industrial Focus, September 1997. 1.
39 'Greed', Bangkok Post Economic Review, op cit, p3.
40 'The Economy', Bangkok Post Economic Review 1997, p2.
41 'Banking and Finance', Bangkok Post Economic Review, op cit, p1.
42 'Greed' Bangkok Post Economic Review, op cit, p7.
43 'Investment', Bangkok Post Economic Review, op cit, p1.
44 Political and Economic Risk Consultancy, Country Risk Report: Thailand (1997), http://www.asiarisk.com/thail.html.
45 Political and Economic Risk Consultancy, Country Risk Report: Indonesia (1997), p2. http://www.asiarisk.com/indo.html.
46 M Camdessus, Press Conference, 16 January 1998, p2.
47 IMF, 'Fischer Press Conference: Aim of Korean Program is to Staunch Immediate Crisis, Permit Return to Stability and Growth', IMF Survey, vol 26, no 23, 15 December 1997, p387.
48 V Jayanth, 'A Breeding Ground for Dissent and Social Unrest', The Hindu, 28 January 1998, p17.
49 'Dollars and Dolours', Economist, 24 January 1998, p30.
50 'Mobs Attack Shops in New Wave of Looting', Hong Kong Standard, 18 January 1998.
51 'Activist Arrested for Poll and Trade Union Demands', Hong Kong Standard, 18 January 1998, p5.