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International Socialism, Autumn 2001

Rumy Hasan

East Asia since the 1997 crisis

From International Socialism 2:92, Autumn 2001.
Copyright © International Socialism.
Copied with thanks from the International Socialism Archive.
Marked up by Einde O’Callaghan for ETOL.

The financial crisis of 1997 in East Asia has had a major impact on conventional thinking regarding the world economy. Prior to the crisis the East Asian economies – be they the ‘tiger economies’ of South Korea, Taiwan, Singapore and Hong Kong, or ‘tiger cubs’ (such as Thailand and Malaysia), or the old giant Japan and the emerging giant China – were viewed as paragons of the virtues of the free market that increasingly set the standards across the globe. The collapse of the Eastern bloc in 1989 had considerably discredited state intervention and, in so doing, blunted criticisms of neo-liberal free market policies. Consequently, for governments of both the (social democratic) left and the right, developed or developing countries, East or West, there was simply no alternative – states should retreat from control over the economy and ‘leave it to the market’. Within this paradigm attention turned to East Asia as this region had consistently achieved the highest growth rates throughout the 1980s and 1990s. A World Bank report in 1993, in the aftermath of a widespread recession, termed this the ‘East Asian miracle’ – though it rather twisted reality to fit the facts of this ‘miracle’ being largely the product of the free market. [1] Nonetheless, East Asia appeared to provide affirmation of the belief that market capitalism could enable developing countries to catch up with the developed world. [2]

But much of the glowing praise for the region has, since 1997, been shaken and, in consequence, altered economic thinking in the rest of the world. Debate has been raging and a massive literature has been generated about the nature of the crisis. [3] It is now clear that for the first time in over two decades the free market orthodoxy has been put on the back foot. Where there had been a ‘Washington consensus’ before – that is, the unanimity of the Bretton Woods institutions (the IMF and World Bank) and the US Treasury in promulgating economic reforms on the basis of free markets in trade and investment, privatisation of public assets, and strict control of government expenditure, there is now the emergence of a ‘post-Washington consensus’ which is critical of the idea that free markets work best and questions the impact of IMF-inspired ‘structural adjustment programmes’, not just in East Asia but throughout the developing world. We can also argue that the 1997 crisis fed into the questioning of the world capitalist order that crystallised so effectively in Seattle in November-December 1999 and has continued to do so since. ‘Anti-capitalism’ is now a term no longer confined to the political fringes. Indeed, the UNCTAD 1999 World Investment Report suggested (before Seattle) that there was now a ‘backlash against globalisation’. [4] And UN secretary general Kofi Annan also picked up that something had gone very wrong as he provided a human face to the crisis:

What we once called the ‘Asian financial crisis’ is now a global economic, social, and political crisis that has had its most devastating impact on society’s margins: the millions of poor and vulnerable men, women, and children who are in no way responsible for the fallout but who have nonetheless seen their hopes dashed, and their families thrown into terrible hardship and even destitution. [5]

Politically, all these are very positive developments for the Marxist critique of market capitalism. But what of East Asia itself – how has this region fared since the crisis? This article provides a summary of the developments in this region since 1997 and brings up to date analysis conducted in issues 78 and 81 of this journal. [6]
 

East Asia before and since 1997

A major reason the East Asian economies became paragons of virtue is that over an array of socio-economic indicators real improvements in living standards have resulted since independence. From being poverty-ridden, peasant-based societies, they have to a significant degree industrialised and eliminated starvation, grinding poverty and levels of destitution that still afflict so much of the Third World. Table 1 shows the exceptional levels of growth rates achieved by East Asian countries over the two decades prior to the 1997 crisis – rates that were more than double that of any other part of the world economy, and on average three times the advanced West’s. These resulted in per capita income rising (excepting the Philippines) by an astonishing three to five times. Between 1975-1997 Singapore, South Korea and Hong Kong achieved the fastest progress in ‘human development’ starting from what the United Nations Development Programme (UNDP) Human Development Report describes as countries of ‘medium human development’, and Indonesia achieved fastest progress for a country starting from a ‘low human development’. [7] In regard to the UNDP’s Human Development Index, the East Asian countries (including China) are well ahead of South Asia and Africa and marginally behind Latin America. [8]

Consequently, alongside a rise in per capita income there has been a rise in life expectancy, and improvement in the literacy rate and levels of school enrolment.

Women have entered the paid workforce in numbers now broadly in line with industrialised countries. The infant mortality rate has fallen whilst the general level of healthcare has improved. Food security and levels of nutrition have also markedly improved, whilst the death rate (except in China) has slightly declined. East Asia, excepting China, has for several indicators reached levels close to the West’s (see Table 2 for some social indicators). This then is the concrete basis for East Asia’s ‘miracle’ – achievements that gave the rulers of this region much cause for pride, those of the rest of the developing world cause for envy, and prompted governments and theorists of the advanced West to examine closely the basis for this rapid advancement.

It seemed then that all was going rather well – on the face of it there was no cause to worry unduly about a sudden downward surge in the economies of the region. Indeed, in 1997, the year the crisis started, the region was largely experiencing growth rates far in excess of the rest of the world – in keeping, we could say, with its ‘miracle’ epithet. Then came the shock of July 1997 when Thailand devalued its currency, the baht, and the contagion spread to Malaysia, Indonesia, South Korea and beyond. The results were catastrophic – 1998 saw output declines in the order of those of the Great Depression of the 1930s or the slump that followed the collapse of the Eastern bloc in 1989 (see Table 3). As in all slumps, the impact on the population, especially on the working class and poor, was devastating (see below).

East Asian integration into the world economy can be gauged by the rapid increases in trade, foreign direct investment, loans and portfolio investment. In regard to exports (based on dollar revenues), these grew at a phenomenal average rate of 27 percent per annum during the 1970s, slowed down to a little over 11 percent during the 1980s, but increased again to almost 17 percent in the first half of the 1990s (see Table 4). But falling dollar prices caused a slowdown in 1996 and 1997, and a contraction of almost 9 percent took place in the wake of the crisis in 1998. Though China did not suffer recession that year, its export growth fell dramatically – from 21 percent in 1997 to nil in 1998. This indicates that the East Asian companies’ economies were not able to achieve proportionally greater sales from lower export prices stemming from currency devaluation – although South Korea did increase export volumes throughout the crisis period, dollar revenues suffered from the lower prices obtained. [12] A recovery in exports was, however, on the way during 1999 – though actual figures at the time of writing are not available.

A visit to any large East Asian city over the past two decades will have shown buzzing activity, with construction projects galore – a chaotic mass of new office blocks, roads, factories, warehouses, etc. This is the physical evidence of booming growth – in part attained by incoming foreign direct investment (FDI). The increasing liberalisation of international trade has been mirrored by increased liberalisation of foreign direct investment, [14] which has grown massively since the 1980s. East Asia’s share increased rapidly up until the mid-1990s. Thus in 1985 East Asia’s share of world FDI was 7 percent ($4 billion out of $56 billion). By 1995 this had increased to 21 percent ($53 billion out of $254 billion). During the latter half of the 1990s, however, the share began to fall – from 18 percent in 1996 to 11 percent in 1998 (see Table 5). The actual levels of FDI stabilised at about $70 billion, as FDI to other regions (of the developing world, especially to Latin America) proportionally increased during the 1990s. Estimates for 1999 suggest that a combination of the recovery and lower asset prices will result, once more, in an increase in FDI to East Asia.

A key consequence of liberalisation has been the deregulation of financial markets. This does not necessarily imply rapid inflows – the key determining factor for this is potential returns on capital. Overseas capital started pouring into East Asia because returns were anticipated to be higher than elsewhere – particularly in comparison with the major Western markets where the bulk of this finance came from. Lower interest rates in the US particularly encouraged the search for better investment possibilities. Latin American countries were also significant recipients – especially after the debt crisis of the 1980s was eased by the creation of ‘Brady Bonds’. [16] Given that these economies had had a record of sustained economic growth, this was in general a rational assumption – not just for short term loans and portfolio capital but also, as we have seen, for long term FDI, though not necessarily for each loan or investment decision. Moreover, in the absence of capital controls, it was easy to withdraw funds – as indeed happened with venomous effect once the crisis broke. The outcome was that East Asia rapidly built up large private debts – whereas in 1990 the average debt to GDP ratio of Indonesia, Korea, Malaysia and Thailand was 15 percent, this shot up to 35 percent in 1996. Second, it also led to absorption problems, that is, converting financial capital into productive capacity. This takes time so that there was a lag before export revenues were generated to pay off the debt. But, as can be seen from Table 4, in 1996 export growth rapidly slowed down – in consequence putting a strain on the current accounts and the ability to service debts. Furthermore, a surfeit of credit led to lax lending by the banks which, in turn, resulted in an increase in non-performing loans. Bad debts accumulated. At the same time, due to the fact that East Asian currencies are largely pegged to the dollar, these appreciated in line with the dollar, which was appreciating vis à vis other currencies. This resulted in an increase in the real debt service burden, as foreign debt is dollar-denominated. [17]

All this meant that East Asia was hit by a ‘double crisis’ – not only a financial crisis but also a balance of payments crisis. Moreover, the solutions to these appear contradictory. The former requires a tight monetary policy to choke off import demand but the latter requires a reduction in interest rates so as to ease debt service requirements (see below for explanations of the crisis). Soon after the crisis hit, private banks started calling their loans in and private capital took flight. Table 6 shows the dramatic reduction in commercial banks’ exposure in these countries. Table 6a shows that net private inflows to the five ‘crisis countries’ underwent a massive reversal – from $66 billion inflow in 1996 to $20 billion outflow in 1997. Capital continued to pour out in 1998 and 1999 ($26 billion and $25 billion respectively). This led to a credit crunch in the real sector where even healthy firms were bankrupted. The downward spiral continued with the raising of interest rates, and subsequent fall in output and employment, feeding into yet more output contraction. [18]

Despite capital flight and the bankruptcies this generated, the turnaround in 1999 was generally swift as all countries moved out of recession at varying speeds. Whereas Indonesia registered growth of just 0.2 percent, South Korea – after contracting by almost 6 percent in 1998 – achieved an astonishing growth rate of almost 11 percent, much higher than it had done in the early part of the 1990s. And by the end of 1999 only Indonesia and Thailand had failed to reach their 1996 levels of output. China and Taiwan, with the least liberalised financial markets, managed largely to avoid crisis, continuing to grow in 1998, albeit at a slower rate. This incontrovertible fact strengthened the position of those advocating capital controls – Malaysia took heed, and adopted them against the IMF’s strictures.

Given this positive bounce-back, one is tempted to ask: crisis, what crisis? Surely 1997 just seems an unfortunate blip in the onward march of this region? Well, the East Asian crisis was all too real, as the figures for 1998 show. First, the crisis was a major setback to the overall economic trend of the region. A significant ‘output gap’ had opened up for Indonesia, Malaysia, South Korea and Thailand so that by 1999 output was significantly below the pre-crisis trend (ranging from 7 percent for Malaysia to almost 17 percent for Indonesia). [21] But the real nature of the crisis can be gauged by the impact on the population. It needs emphasising that, though East Asia has made considerable progress over the past three decades, welfare provisions are rudimentary in comparison with the West’s. Public expenditure on health, education and social security remains a very small proportion of national income – with the least expenditure devoted to social security and welfare (see Table 7).

This means that when a crisis hits there are few social safety nets. Millions move rapidly from having the basics to penury. This is precisely what happened between 1996 and 1998, as tens of millions more people were added to the ranks of those living in poverty. Table 8 provides some key socio-economic indicators for the major East Asian countries.

Overall the contraction in private consumption was greater than the decline in overall output, resulting in the mushrooming of those defined as living in poverty. This is shown (excepting China) [24] by the increase in ‘poverty incidence’ – that is ‘the proportion of a country’s population with income or consumption expenditure below the poverty threshold’ – and is based either on the national poverty line (considered to be ‘the minimum consumption level required to achieve the minimum acceptable standard of living within a society’) or the international ‘dollar a day poverty line’. [25] Indonesia, one of the weakest East Asian economies, was hit especially hard, with almost 20 million extra people falling into poverty, and in the Philippines more than 90 percent reported a deterioration in living standards owing to inflationary price rises in various commodities. [26] Unemployment and underemployment, though low by international standards [27], increased markedly in a short space of time. Inflation rose as a result of currency devaluation, leading to a reduction in disposable income, hence a decline in real wages. On average the share of wages in GDP fell by 5.5 percent. Citing a study by Diwan that examines the ubiquitous decline in the share of labour during financial crises, the World Bank makes the frank admission that financial crises tend to be resolved ‘at the expense of labour’. [28] The dramatic declines in GNP per capita give an indication of the drop in living standards. A more accurate indicator of this is movement in real wages. Though data on changes in real wages is not readily available for all countries, it can be gauged by figures for South Korea, where they declined by 12.5 percent between mid-1997 and end of 1998; for Indonesia, where they fell by a massive 34 percent in the formal sector; and for Thailand, where they fell by 6 percent in real terms between February 1997 and February 1998 (at about the halfway point in the crisis). In the absence of generalised social security benefits [29], workers who lost higher paid ‘formal’ jobs in the relatively modern sector were forced into lower paid ‘informal’ jobs (often in agriculture back in the villages), frequently on a part time basis, thus adding to the underemployment count.

The impact was severest on women, who are considered secondary wage earners and so tended to lose their jobs first [30], and on immigrants, many of whom were forced to return to their countries of origin. [31] Furthermore, the poor also suffered from the reductions in government expenditures, especially in health and education, as part of the IMF’s stabilisation programme for the region. The health sector suffered from government cutbacks on medical personnel, investment and equipment in an attempt to balance budgets, whilst facing two additional squeezes. First, unemployment and rising poverty led to an increase in illness and consequently additional demand for healthcare. Second, those working in the formal sector normally have access to private health facilities provided by employers but, as in America, losing the job means also being denied healthcare. Thus many – usually from the middle class – switched from expensive private healthcare to the cheaper state variety. [32] Compounding all this was the rising cost of imported drugs stemming from currency devaluation. The result was an inevitable deterioration in healthcare provision. Similarly, education also suffered with cutbacks in teachers and equipment. Many schoolchildren dropped out to go to work in order to supplement family income. In Thailand evidence shows that the highest dropout rate was at the primary level (47 percent of the total who had dropped out), and the proportion of elementary school students going to middle schools was down to 81 percent from 90 percent in 1997. In other words, child labour increased significantly. Women’s oppression was also entrenched. In Indonesia girls were often kept at home so that their brothers could go to school with the money saved. [33]

Any crisis of capitalism also affects those with capital as savings are eroded, stock markets plummet, property values fall and currencies are devalued. The full brunt, however, invariably falls on workers and the poor. Consequently, alongside a widespread increase in poverty was an increase in income inequality – in a region that had already become one of the most unequal in the world. China, Hong Kong, Philippines, Thailand and Malaysia all now have levels of inequality that are comparable to the average in the notoriously unequal sub-Saharan Africa and Latin America. [34]

Although statistics are difficult to obtain on many of the social ills accentuated by the crisis, the UN acknowledged that the ‘increase in unemployment and poverty is certain to have led to a rise in the incidence of crime, violence within the family, mental stress and suicides, drug trafficking, begging, prostitution, industrial unrest, racial or ethnic strife, and political discontent’, and in ‘family tensions, violence against women and child abuse’. [35]

On top of the man-made crisis, there was a more natural one (though many argue that this has been exacerbated by man-made global warming) that highlighted how far the East Asian economies have to go to cope with sudden reversals – the El Niño climatic change that occurs periodically in South East Asia. Commencing in March 1997, this brought the severest drought in 50 years to Indonesia, Malaysia, Philippines, Singapore and Thailand, leading to a fall in the production of rice and various commercial crops, as well as forest fires, especially in Indonesia. As a result, many industrial plants were closed and tourism suffered. Those countries hardest hit by El Niño are estimated to have had an additional output loss of 1 percent of GDP. [36] In sum, East Asia was hit by a crisis of immense proportions where tens of millions of lives were shattered. For them the miracle proved to be built on sand. True, a recovery is on its way, but it is fragile and for many has yet to yield lasting benefits.
 

Governments’ responses

When the crisis hit, East Asian governments began to turn to financial institutions and other governments for help. Various IMF ‘rescue packages’ were cobbled together on the condition, as we have seen, of the implementation of austerity plans. First in line was Thailand, which was granted loans totalling $17.2 billion in August 1997. Then followed Indonesia, with loans of $23 billion in October 1997, and South Korea, with a record-breaking $57 billion loan in December 1997. Later that month the IMF and the US (and 12 other countries) promised a further $10 billion to Korea. The Asian Development Bank also sanctioned loans of $3.5 billion and $4 billion to Indonesia and Korea respectively. [37]

Measures directed at alleviating social suffering were minuscule – not much more than throwing buckets of water at a raging fire. Given that governments were faced with the squeeze of loss of tax revenues and mounting debt, this was hardly surprising – but, as seen from Table 7, welfare provision had always been a low priority. In Indonesia a ‘social safety net programme’ (centred on supply of basic foods, creation of employment and healthcare) was set up involving $1.8 billion. With a population of over 200 million, this worked out at just a few dollars per needy person. In Malaysia a Fund for Food programme ($263 million) was created that provided direct subsidies for certain food items (oil, rice, sugar) and exports of these and other basic foodstuffs were forbidden. The health budget was increased by 29 percent in 1999 in an attempt to meet the increased usage of the public sector. In Thailand a ‘social investment project’ ($462 million) was launched for the poor (for an array of uses including irrigation, health and social welfare) and a social sector programme loan was taken out from the Asian Development Bank. In South Korea an unemployment benefits package was introduced – though only 25 percent of those recently made unemployed were eligible for payments in 1998. A public works programmes ($900 million) was also allocated. [38]

A perverse contrast is, of course, revealed here between the tens of billions taken out in loans to prop up currencies and the financial sector, yet only small fractions of this are provided to support those shattered by the crisis. For some years now, on the back of high growth rates, rulers of this region have trumpeted the virtues of the ‘Asian way’. This was never more than a clumsy tool for camouflaging increasing class polarisation and the stifling of internal dissent – it was also used to warn Westerners of a left or liberal persuasion not to rake over the authoritarian nature of these regimes (’don’t criticise what you don’t understand’). What became clear was that the ‘Asian way’ was an abysmal path for those whose lives have been wrecked. We should expect to hear less of this humbug from now on.
 

Explanations of the crisis

The 1997 crisis should not be a momentous shock for Marxists as it was for mainstream commentators. Such crises are endemic to the capitalist system and accord well with the boom and bust cycle. But being aware of this crucial characteristic of the system does not mean that Marxists, as mainstream theorists readily point out, can predict with accuracy the timing and extent of any crisis – or the extent and speed of recovery. This means that there is always the need to understand the specifics of each crisis. Though there was widespread expectation that a world crisis would ensue in 1999, we need to recognise that this did not happen – and part of the reason must be due to the strong recovery of the East Asian region, helped along by a growing US economy. This poses a challenge. Granted that crises will periodically occur, is it possible for these to be minimised: (1) in terms of the length of time they endure; (2) in terms of their severity; and (3) assuming they do not originate from the major centres in terms of spreading there? These are the issues that have been raging over the past four years – and there have been clarion calls for the creation of a new global ‘financial architecture’ to address them. However, we shall see that the answers to these questions are by no means satisfactorily achievable. What is clear is that, with the exception of diehard free marketeers, no one seriously claims that crises can be prevented. [39] This is an acknowledgment that capitalism – particularly the deregulated, globalised version of today – is not subject to effective control by national or international authorities. Nonetheless, the search for explanations for the crisis has gone on unabated. It is worth looking at some of these key explanations.

Paper tigers? In recent years the nature of the East Asian miracle itself has been challenged. Work by researchers such as Young, and Kim and Lau – given prominence by the US economist Paul Krugman – shows that East Asian growth was achieved by ever increasing inputs (labour, raw materials, capital investment), but with no concomitant increase in efficiency. [40] Thus growth by such ‘extensive’ means must be subject to diminishing returns as the rate of inputs begins to decline. Without more efficient technologies to offset this, so too must the growth rate decline. This was a key factor in the slowdown and stagnation of the Stalinist economies – and East Asia must, therefore, experience a similar slowdown. From this Krugman disparagingly refers to East Asian countries as ‘paper tigers’. [41] It follows therefore that a downturn was on the cards. But what actually happened does not conform to this-rather than a slowdown, there was a sudden crash followed by a rapid upturn (while growth rates for 1999 are rather lower than those of the 1980s and 1990s up to the crisis, they are, nonetheless, very high in comparison with the rest of the world). So locating the reason for the high growth rates of East Asia in terms of mobilising resources at a phenomenal rate helps explain slowdown in the economy when the rate of this mobilisation declines. But this is not sufficient to explain the sudden shift in private capital flowing out of the region and the severe contraction that followed. The crucial point here is that capital is not so much interested in aggregate growth rates as sectoral profitability – thus a growing economy might still experience declining profitability in certain sectors which in turn can scare off financial capital and possibly later productive capital. This, as we shall see, seems to have happened in the crisis-hit East Asian economies.

Crony capitalism and moral hazard: Why is it that East Asia has performed so much better than the rest of the developing world? We need to acknowledge that under capitalism certain actions at certain periods under certain conditions may yield better overall results than others. In East Asia there is now considerable evidence – notwithstanding IMF and World Bank insistence on this region being a success story for the free market – to show that it was selective state intervention in key sectors under the imperative to export on the world market that drove the industrialisation process along, in conjunction with, as we noted earlier, extremely high levels of investment in physical infrastructure and education to service this. [42] At the same time, however, labour was ruthlessly repressed and exploited. Bello and Rosenfield have a valid point when they argue that these were ‘command capitalist’ economies. [43] This strategy was helped by an increasing openness of economies throughout the world and in the early years by a booming world economy. This has certainly provided a crucial lesson for reformists – that significant gains are feasible within the system provided that the right ‘policy instruments’ are used. Whereas in the 1950s and 1960s various former colonies could (and many did) seriously consider the Stalinist planning model as the route to development, over the past two decades it has been the East Asian path that has gained hegemony. The virtues of this ‘model’ were centred on the extremely close relation between the state and the ‘commanding heights’ of the economy – with the state, as in the Eastern bloc, providing a very visible hand in economic life. There was no pretence at state neutrality between the various classes in society. On the contrary, as already noted, there was systematic denial of workers’ rights. In terms of the nature of the links between the state, big business and big finance, increasingly there was a seamless blending of these into the ruling class – often tied by kinship or friendship. Nepotism became the order of the day and, for example, in South Korea the large diversified business groups, the chaebol, that came to dominate the economy after the military’s retreat during the 1980s had their origins as family businesses and operated a ‘nomenklatura-like’ system of senior management selection of the sort seen in the Eastern bloc. But, as the economies were performing well, the hotbed of favouritism and corruption that underpinned them was, more or less, quietly tolerated.

But when East Asia nosedived after the crash, close examination was conducted of all aspects of these economies and pretty quickly the skeletons in the cupboard were revealed. In the context, a new phrase was coined to explain this – ‘crony capitalism’. Suddenly blame was put on corrupt and cosy dealings between the various segments of capital and their links to the state – in particular the lax manner of credit provision provided to business by the banks (which are often owned by the conglomerates) and the tacit underwriting of these by the state. This phenomenon of undertaking risky and often corrupt loans and transactions, but knowing that if the gamble fails someone else (usually the state) will pick up the tab, is known as ‘moral hazard’. When you know that you have this protection, there is every temptation to take out even riskier loans. In East Asia a good deal of these were directed towards speculative purchases – in other words, purely for gambling purposes. [44] As long as the economies were growing, so too were the markets – hence the gambles generally paid off. But as soon as there was a slowdown, as was the case with Thailand, the returns failed to materialise and the gambles failed. Normal gambling rules require that you settle your debts. The same applies in the rules of free market economics – debtors should pay and, if unable to do so, go broke. This, of course, is the clearing out of inefficient firms during crises. However, in East Asia, this would have meant hundreds of banks and finance houses being forced to shut down – threatening not only the financial system of Asia, but also institutions across the globe with which they have myriads of dealings. But we know in Marxist discourse that it is the working class and the poor who pay for such crises – in terms of sackings, cuts in wages, and deterioration of working conditions and living standards. And this is precisely what happened in post-1997 East Asia. The credit crunch that followed led to massive layoffs – this is the classic ‘paying for the crisis’. But the really large financial institutions had the state (in the form of central banks backed up by loans from the IMF) step in to bail them out. This put further strain on the state budget that was offset through cuts in expenditure (partly to pay interest on these very loans), as we saw earlier in regard to education and health, and in other social services. Consequently workers pay not only for the ‘normal’ types of recession but also for the reckless gambling of the financiers.

International agencies – under the guidance of the US Treasury – had never been very keen on state meddling in the affairs of East Asian economies, notwithstanding the fact that their public sectors, as we have seen, were very small in several core areas. When the region boomed, this was ascribed to their getting ‘fundamentals right’ and adopting ‘market-friendly’ policies (this was the line taken by the World Bank’s East Asian Miracle study of 1993 cited earlier). With the onset of the crisis, however, came the chance to really stick the boot in. The crisis was deemed a consequence of the gross bypassing of the market mechanism that inevitably led to corruption and the misallocation of resources.

This was essentially the line taken up by the IMF, and its loans conditionalities to three of the most affected countries (South Korea, Indonesia, and Thailand) involved the retreat of the state in economic life and balancing budgets. But the IMF never asked the obvious question as to why it was that prior to the crisis this very meddling had yielded such high growth rates. Nor did it provide evidence to suggest that there had been a sudden upsurge in corrupt governmental dealings vis à vis the financial sector that was attributed most of the blame. And why was it that despite the meddling and corruption (or was it because of this?) foreign capital poured into the region? And why is it that countries not generally renowned for ‘crony capitalism’ have also suffered financial crises? (For example, Sweden and the UK – though suffering from constant bouts of Tory sleaze at the time – in the early 1990s.) In truth, as in many other regions of the planet, whenever weaker economies struggle, the cause is attributed to being a unilinear one of departure from rigid neo-liberal principles. The solution is always the same – imposition of ‘structural adjustment programmes’ whose essence is reduction in government spending that, as we have seen, hits workers and the poor hardest. Therefore, though ‘crony capitalism’ in the form of corruption and state ‘interference’ undoubtedly exists, this is just not a credible explanation for the crisis.

Instability in the financial markets: The inadequacies of the crony capitalism hypothesis led to attention turning to the other key explanation of the crisis-problems of the international financial system. In a candid admission, Radelet and Sachs believe that ‘international financial markets are intrinsically highly unstable: the East Asian crisis is as much a crisis of Western capitalism as of Asian capitalism’. [45] And this is absolutely correct. Since 1975 there have been banking and currency crises in nearly 100 countries resulting in output falls of between 5 and 12 percent. [46] True, the nature of each crisis and subsequent trajectory may differ. The roots, however, always lie within the capitalist mode of production itself, and in regard to financial or currency crises, within the money circuit of capital. [47]

The East Asian crisis does shed light on developments in the world economy which make it highly likely that similar crises will erupt in the future. Such developments relate to the deregulated nature of world financial markets, so that the triggering mechanism of a crisis may be financial (currency devaluations, runs on banks, etc) even though the ultimate origins lie in the real economy (see below). In Thailand, for example, it was the economic slowdown of 1996 that led to a speculative attack on the baht on the assumption that it was overvalued, and its subsequent devaluation. This is not to deny that financial panics may also emanate in situations where there has been no significant deterioration in the real economy – above all on the profit rates. For example, it has long been known that the world’s major stock markets – especially Wall Street – have grown at a level that is not justified by profit rates, that is, there is a severe imbalance in the ‘price-earnings ratio’ of corporations listed on stock exchanges (the most notorious recent examples were of rocketing share prices of a multitude of ‘dot.com’ companies which had yet to make any profit). A ‘correction’ (that is, a crash) is, therefore, a real possibility in the near future. So if it were to materialise this should not, evidently, be surprising – but may happen under conditions where there has been no significant fall in current profit rates. What might trigger such a crash may well, in fact, be shenanigans in the financial markets.

However, locating the cause of the crisis to financial disturbances begs the question, what causes these? What causes loss of confidence – the prerequisite to ‘herd behaviour’ so common during financial crises? Ultimately this must be the fear (be it rational or not) that returns will diminish below what can be obtained elsewhere. Hence when profits start to dip, or are likely to fall below expectation, a careful calculation needs to be made – either stay with the gamble or move elsewhere. In regard to direct investment, the decision naturally cannot be acted upon with immediate effect, but in financial markets exiting from markets can be done almost instantaneously – and this potentially accentuates the stampede and contagion. There are in fact two types of contagion – both of which can accentuate instability. First, the herd behaviour itself, where actions by some financial gambler(s) affect the thinking of others. When funds are withdrawn this immediately affects confidence levels in that particular market. Contagion arises when significant numbers follow suit, driving prices dramatically downwards. The second contagion is what might be described as ‘contagion proper’ – that is, the knock-on effect of the withdrawal of funds from markets in different countries (more usually from markets of similar countries). However, to determine the origins of contagion it becomes necessary to look at the productive sphere – that is, to examine changes in the real economy.

Declining returns to investment: Evidence suggests that the origins of financial instability in East Asia do indeed reside within the real economy – above all in the falling returns on investment. In a major survey of over 5,000 firms in East Asian countries, Claessens and others note declining performance in several countries between 1994 and 1996. Though sales growth was high, this was due to high investment rates, in large part reliant on external financing. [48] Table 9 shows return on assets for nine East Asian countries, the US and Germany between 1988 and 1996. The actual rate of return varies – in the more advanced economies of South Korea, Singapore, Hong Kong and Japan it is either below or approximately equal to the average for both the US and Germany (between 3 and 5 percent). In the less developed economies of Indonesia, Malaysia, the Philippines, Taiwan (though this is more developed) and Thailand it is significantly above this (between 6 and 10 percent). But what is striking is that, in the majority, returns were declining throughout the 1990s (Hong Kong, Indonesia, Japan, South Korea and Thailand). In Malaysia, Singapore and Taiwan returns were generally stable. Only in the Philippines were returns showing an increase. So what appears to have happened is the classic diminishing returns to investment scenario – that is, declining profitability.

Consequently it is reasonable to assume that it was this that prompted foreign investors in particular to seek alternative outlets for their investment – the precursor to capital flight. Once the withdrawals started, a self fulfilling panic and stampede ensued, culminating in full blown crisis.
 

Implications of ‘globalised’ markets

The highly integrated nature of the world markets and open markets has meant that weaker economies have become especially vulnerable. But deregulated financial markets mean that countries that are otherwise performing well may also suffer from financial crisis happening elsewhere – the familiar ‘contagion effect’. The shockwaves of East Asia did spread around the globe, but they were felt most keenly in two other ‘less developed’ areas – Latin America and Russia. [50] However, what the East Asian experience also shows is that even relatively strong economies, such as South Korea, are by no means immune from shocks occurring in nearby countries. And, extending the logic, in principle there are no guarantees that crises can be completely sealed off even from the heartlands – at the least, we can conclude that the West had a close shave after 1997. Next time it might not be so fortunate. The only way to attempt to immunise economies from financial shocks is to set up tight currency and capital controls – this, however, is a strong taboo in today’s globalised financial markets. Alternatively, the severity of the crisis can be limited by massive bailouts, but the price to be paid feeds back into the real economy – government cutbacks, unemployment, poverty, etc. The omens are therefore not good, and pretty dire for Third World countries.

The drive to deregulation (’globalisation’) has meant that developing countries in particular are under enormous pressure to open their economies up for business. But at the slightest signs of economic downturn or ‘mismanagement’ (where policies deviate from neo-liberal principles), financial capital – speculators – will exit and, in their wake, wreak havoc on the real economy. Obviously long term economic planning becomes well-nigh impossible, and countries may find themselves locked into low skill, low value-added industries – predicated on their low wage cost ‘comparative advantage’ buttressed by denial of workers’ rights and negligible welfare services. This implies that the sorts of development strategies hitherto used by East Asian countries (excepting the unique case of Hong Kong) – based on strong state intervention that provided protection and an array of supports for priority sectors and firms as a prelude for them to effectively compete in world markets – becomes foreclosed. This is precisely what upsets rulers of Third World countries who resent not being able to pursue economic programmes of their choice. And this is why so many governments have, albeit to a limited extent, shown common cause with anti-capitalist forces, notably over the victorious campaign against the Multilateral Agreement on Investment and, of course, over the World Trade Organisation. Put simply, what so many governments are realising is that the free market favours the strong – the multinationals and financiers who are now responsible for the vast bulk of international trade, investment and financial services. Though these governments are invariably dictatorial, autocratic or, at best, mild democrats, they can sense a break of the democratic principle when it badly affects them. This is important, for it begins to unhinge the sleight of hand that was so baldly played after the collapse of the Berlin Wall – that is, the linking of the market to democracy.
 

Critics within the mainstream

As noted in the introduction, the crisis has dented the ‘Washington consensus’, and serious feuding has arisen amongst the leading institutions and their theorists. There has been a noticeable divergence between the IMF and World Bank, [51] but the greatest schism occurred with the sacking of the World Bank’s chief economist, Joe Stiglitz, who became something of a hero to the anti-capitalist protesters during the IMF/World Bank summit in Washington in April 2000. This is understandable given that Stiglitz’s charge is explosive and unprecedented for someone in his position (influential jobs in the big institutions are only given to those who can be trusted – Stiglitz apparently fitted the bill as he had previously been chairman to Bill Clinton’s Council of Economic Advisers). He savages the IMF for making the crisis worse by its dogmatic adherence to free market principles – specifically the removal of capital controls – and obsession with balanced budgets. He argues this policy prescription was ‘born purely out of ideology ... There never was economic evidence in favour of capital market liberalisation ... There still isn’t. It increases risk and doesn’t increase growth.’ What must have rankled with his superiors was his denunciation of both the IMF and World Bank’s lack of democracy and accountability: ‘There was certainly no engagement on the broad fundamental question about democratic process-of financial interests versus workers’. [52] So when such an influential figure in a key institution of the global economy, in barely coded language, takes the side of workers, he simply has to go.

Nonetheless, it appeared that the World Bank, at least, was taking note of critics and of the real world after the East Asian crisis. In the preparation for its annual flagship World Development Report (2000–2001, with the focus on poverty and development) it appointed Ravi Kanbur, professor of world affairs at Cornell University, as lead author – suggesting that the World Bank was prepared to allow a potential critic of orthodox economics something of a free rein. Kanbur did this with gusto – consulting with and commissioning research from a range of groups across the world. An electronic conference was set up to discuss the first draft of the report which attracted over 1,500 people from 80 countries.

Kanbur, however, overstepped the mark by showing that over the past decade, in an era when pretty much all developing countries were following the IMF/World Bank nostrums of neo-liberalism, world poverty increased from 916 million to 986 million people (excluding China). The first draft of the report emphasised the voicelessness and powerlessness of the poor, their lack of ‘assets’ and political access, and (dangerously) argued for ‘empowerment’ of the world’s poor. But this was again too much for the World Bank’s éminence grise, the US Treasury, so Kanbur was pressurised into changing it. He refused to comply and tendered his resignation. [53] There was an outcry among non-governmental organisations, many of whom felt betrayed – Kevin Watkins of Oxfam described the resignation as the ‘ultimate triumph of the neanderthal tendency within the World Bank group’. [54] However, the right wing Financial Times columnist Martin Wolf retorted that the ‘World Bank is not Oxfam’, and urged that it ‘must represent the views of its shareholders, not those of non-governmental organisations that are suspicious of economic growth, the market and globalisation’. [55] This urging was not necessary, for the World Bank has always toed the line of its biggest shareholder, the US government. Critics are sometimes allowed within its ranks, but they are never allowed to dictate policies.

Another, much more surprising, critic also emerged out of the woodwork in the aftermath of the East Asian debacle. This was Harvard professor Jeffrey Sachs, key adviser to the IMF in its various disastrous structural adjustment programmes in Latin America and Eastern Europe – but now singing a different tune. In a major article with Radelet on the crisis, Sachs opines that ‘the IMF is rather poorly placed to rally market confidence in the short term under any circumstances. Its arrival gives all the confidence of seeing an ambulance outside one’s door.’ Though centring on the idiocy of demanding high real interest rates, the thrust of the article is that pretty much all of IMF’s actions worsened the situation. [56]

The onslaught on neo-liberalism espoused by the Bretton Woods institutions has also reached some unexpected quarters, perhaps the most amazing being that of the arch-speculator himself, George Soros. Soros lambasts what he terms ‘market fundamentalism’, believing it to be a danger to ‘open society’, and favourably quotes Marx and Engels for their critique of capitalism (though, needless to say, he thinks their solution to its ills is worse than the illness itself). [57] This is a serious embarrassment for the high priests of economic orthodoxy. Indeed, when such a damning critique emanates from an insider who so obviously benefits from the system, it is equivalent to a cardinal railing against the idea of god. What Soros in fact is advocating is controls on rapacious gamblers such as himself, for otherwise he thinks the baby will be thrown out with the bathwater: ‘To put the matter simply, market forces, if they are given complete authority even in purely economic and financial arenas, produce chaos and could ultimately lead to the downfall of the global capitalist system’. [58] Interestingly, Soros admits to being influenced by Karl Polanyi who, in his most famous work, The Great Transformation, argued that it was the free market system that led to the breakdown of 19th century civilisation with the onset of the First World War. [59] But whereas Polanyi, like Marx, wanted to do away with the market system altogether, for Soros, as indeed for so many others, this foolish experiment has been tried and failed resoundingly – above all, in Russia and Eastern Europe. The solution, therefore, is the familiar social democratic one of establishing a regulated market economy.

What this is really about, as it was for Keynes, is to save capitalism from itself. This is a recurring theme of critics from within the mainstream – perhaps best encapsulated by Paul Krugman’s recent and influential book on the East Asian crisis, at the core of which is the heretical view that markets do not peacefully equilibrate – that ‘irrationality’ leads to panics and self fulfilling crises:

Because crises can be self fulfilling, sound economic policy is not sufficient to gain market confidence. One must cater to the perceptions, the prejudices, the whims of the market. Or rather, one must cater to what one hopes will be the perceptions of the market. [60]

Apart from this being a case of reification par excellence, economic analysis is no longer based upon scientific principles, but rather becomes an exercise in amateur psychology. To prevent this shambolic scenario, Krugman goes on to advocate capital controls, to shut out not only the ‘perceptions’ of the market, but the market altogether. This prescription, from a leading light of the US economics fraternity, is yet another serious blow to the voodoo theorists whose understanding of the magical properties of the market is based upon assumptions of the never-never world of perfect knowledge and perfect certainty.

Resistance to the crisis

Any crisis brings great hardship to the masses and, as we have seen, East Asia has been no exception. Mass unemployment, downward pressure on wages and cuts to living standards make it more difficult to resist attacks – Marx pointed out long ago that, where the reserve army is large, bosses can simply look outside the factory gates for cheaper replacements. Consequently, crisis makes it difficult to organise and maintain union organisation – even more so in East Asia, with its long and brutal history of repression against workers. Trade unions do exist, but union density varies widely, with Indonesia and Thailand having the lowest density rates – indeed theirs are some of the lowest in the world. In some countries union density actually declined between 1985 and 1995, as can be seen from Table 10.

Nonetheless, despite all the difficulties there has been resistance to the crisis, which has led to gains and strengthened class consciousness. The most important was Indonesia, which far exceeded simple trade union demands and represented a major challenge to the existing order. An explosive, revolutionary situation developed alongside the economic crisis and accentuated a political crisis that had been brewing for years, which ultimately led to the overthrowing of Suharto and subsequently the liberation of East Timor. In the meantime, the economy has been making a much slower recovery in comparison with other crisis-hit countries (as seen in Table 3), and millions continue to endure great suffering. [62]

Other countries have also seen struggles, albeit not so politically threatening to the ruling class, yet strong enough to be taken seriously. South Korean workers have a long and heroic history of fighting against oppression and hardship. Seven months prior to the crisis a major confrontation took place with the Kim Young-Sam government over a new employment law whose aim was to further shackle the unions, and allow compulsory layoffs and the replacement of striking workers with non-union workers. This led to the largest strikewave since partition and ultimately to victory, as Kim apologised for the law. [63] The independent Korean Congress of Trade Unions (KCTU) led the strikes. Once the crisis broke, the unions could not be ignored to the extent they were in other crisis-hit countries. However, the existing KCTU leadership did not have the stomach to fight as it agreed to the replacement of permanent workers, and workers on strike, with temporary workers, and workers on lower pay and poorer conditions – essentially what the government was demanding in its 1997 Employment Law. Mass action replaced the leadership with a more militant one. The government, pressurised by the IMF, played the nationalist card, accusing the union of being traitors (in one sense this was true of many of the ‘accommodationist’ union leaders in regard to their members – hundreds of whom were imprisoned – but this was not what the government had in mind). Nonetheless, the strikes, demonstrations and campaigns continued. These have put the government on the defensive and extracted concessions – though the government continues to adhere to the IMF-inspired programme. Korean workers are experiencing what Western workers have long had to contend with – the danger that union bureaucrats are more interested in quick deals and sellouts, and have to be constantly pushed in order to force them to lead strong struggles.

As we have seen, unemployment benefit is now available to at least a minority of those eligible – a very important step forward for this region – with every prospect that the struggle for benefits for all the unemployed will be a key plank in future union demands. Moreover, the fight against mass redundancies has meant that the large chaebols cannot easily sack thousands of workers, and the struggle for increased union rights continues. [64] With the economy now growing once more, the experience of the past four years and the central role that militant unionism has played should result in an expanding union membership – where at least a significant, increasingly confident, minority will be sympathetic to the socialist argument, as well as socialist organisations, against not only the corrupt nationalistic ruling class, but global capitalism.

As with South Korea, Thailand also has a long history of struggles against military rule and repression. The working class, now approaching the majority of the working population, has been increasingly active. Despite being, as Ungpakorn argues, ‘badly organised [union density of only 3.3 percent in 1997], often divided, and mainly led from the top by crooks, spooks and trade union bureaucrats’, it ‘has shown a resilience and imagination to struggle’ so that it can no longer be viewed simply as a ‘victim’ but as a powerful agent for change. [65] One of the reasons for the low union density is repression against unions. Thus, between 1991 and late 1998, public sector workers were banned by law from forming trade unions, but ‘employee associations’ often acted as de facto unions. Nonetheless, as recession bit hard during 1998, companies went on the offensive, frequently sacking key union members. Unlike South Korea, the unions seemed to campaign less against mass dismissals and more around receiving compensation. Importantly, it was the white collar financial sector workers who conducted some of the most militant protests against job losses. Though there were strikes, factory occupations, and factories even being burnt down, generally these struggles went down to defeat. Thailand appears to suffer particularly from weak class consciousness in the union leadership – one that is susceptible to crude nationalistic politics. Thus, for example, the Thai government had the temerity to launch a ‘Thais Help Thais’ campaign that asked people to donate gold and foreign currency to the government! Tragically many workers went along with this – a clear indication of nationalism winning over class politics to the detriment of workers. In a similar vein, the leader of the Labour Congress of Thailand, Prateung Sangsung, accepted the World Bank’s proposal that under conditions of crisis an unemployment benefit scheme was not feasible. Unlike South Korea, there was insufficient rank and file pressure on union bureaucrats to make them fight effectively.

The result of all of this was a tragic farce – the election of a crooked tycoon, Thaksin Shinawatra, as prime minister, whose disgusting nationalistic ‘Thai Rak Thai’ (Thai Loves Thai) party won the first ever majority in the lower House of Representatives in January 2001 with the help of rampant ballot-rigging and vote buying. [66]

But it is doubtless the case that Thai workers will be familiar with workers’ struggles in other East Asian countries, and will draw the conclusion that they have to conduct struggles with equal determination, and often against their own leaderships, to achieve lasting gains. [67]

The Philippines has seen struggles against privatisation, with independent unions within the May First Labour Movement Centre at the forefront. There was a successful campaign against President Ramos’s attempts to change the constitution to enable him to stand for another term as president. There have been strikes, rallies and protests, and legal action against oil price rises that were also ultimately victorious. Indeed, the Supreme Court ruled such price deregulation illegal – a remarkable result in that the court in effect banned the workings of the market in this crucial sector! [68] The defeat of Ramos’s successor, Jose de Venecia, in the general election and the victory of Joseph Estrada (supposedly a candidate of the poor) in 1998 can also be attributed to working class struggles and hostility towards the incumbent regime held responsible for the crisis. However, the Estrada government proved just as corrupt as the previous one, and its championing of the poor was quickly forgotten after the election victory as it continued to implement the IMF-backed liberalisation programme. Protests became widespread – sending the stock market and the peso tumbling – until in January 2001 massive demonstrations reminiscent of those which removed the dictator Marcos in 1986 quickly led to Estrada’s removal. The events of Indonesia and later the Philippines will undoubtedly have put the fear of god into the ruling classes of other East Asian countries. The IMF will also be worried. East Asian rulers attempting to implement its reforms will certainly be more hesitant about the speed and consistency of complying with IMF conditionality. There is every prospect, therefore, of the class struggle intensifying in the region.
 

Conclusion

What every crisis exposes is a simple truth – the uncontrollable nature of the capitalist system. It also forces honest supporters and theorists of the system to confront this truth. In regard to East Asia, many did just that and, in so doing, exposed the inadequacies of their theories. Krugman, for example, conceded that in the final analysis there were ‘no good choices. The rules of the New Economic Order, it seemed, offered developing countries no way out.’ [69] In other words, the freer you allow markets to become, the more difficult it becomes to control them and, as a result, forecasting the future with a reasonable degree of accuracy becomes pretty much impossible. So when markets turn against the weaker economies in particular, there is little that can be done except hope that the crisis soon ends and ‘normality’ returns. Given this sorry state of affairs it is not surprising to find constant cries for more ‘effective corporate governance’ in the form of a new ‘global financial architecture’. But these, inadvertently, are an implicit recognition that only by real planning can such crises be averted. Yet this further exposes the enormous contradiction at the heart of the capitalist system. Privately owned and controlled wealth implies little social responsibility and no democratic accountability whatsoever. Consequently the chief provider of humanity’s wants and needs – the market system – has no interest in providing these effectively, and certainly not to those who do not have the wherewithal to enter it.

In the aftermath of the East Asian crisis, as noted earlier, a backlash against globalisation has developed – one that received a major boost with the collapse of the Multilateral Agreement on Investment in 1998, the failure of the WTO talks in Seattle in November 1999, mass protests against the IMF and World Bank in Prague in September 2000, and the largest demonstration so far, the 300,000-strong march against the G8 in Genoa in July 2001. All these have had or are having a significant political impact on those who manage the system. Thus Alan Greenspan, chairman of the Federal Reserve, recognises the turbulent nature of the beast and dangers that lie therein. In December 1996, the year before the crisis, he had warned about the dangers of ‘irrational exuberance’ of the financial markets. [70] Recently he cautioned that ‘the “virtuous cycle” of tech-driven low inflation growth won’t last forever, and growth will then slow. When that happens, the potential political fallout could be severe’. [71] This is indeed what happened during 2000, as the high tech share index NASDAQ continued to fall and the US economy rapidly slowed down. The political fallout Greenspan is worried about is doubtless future ‘Seattle-type’ protests occurring within the US, but it is also likely to be international, in view of the huge importance of the US as the main engine of the world economy.

In sum, we can conclude that the 1997 crisis was extremely severe – with workers, peasants and the poor suffering the most – generating major struggles throughout the region. However, with the exception of Indonesia and the Philippines, the ruling classes of the region can be pleased at the rapid recovery of their economies and their controlling of working class resistance. Yet, given that it has been the recent strength of the US economy that has greatly assisted the East Asian recovery, this does not bode well for the rulers of East Asia given the stagnation of the US economy in 2001. As we have seen, East Asian growth has been dependent on exports and foreign capital, and the US is extremely important for both – all the more so because Japan is unlikely to provide the export markets in the event of a US downturn as it continues to languish. Consequently, though most of East Asia has grown rapidly since the crisis, there is every likelihood of new problems suddenly emerging and struggles erupting. So next time the ruling classes of the region might not be able to stabilise the situation so quickly. It seems, therefore, that the relative social peace of the past decade or more, buttressed by extraordinary growth, is unlikely to be satisfactorily restored.

Finally, the East Asian crisis revealed the severe dangers of completely liberalised markets for developing countries via capital flight, panics and contagion effects. We should be pleased on a humanitarian level that most East Asian economies are in the process of recovering and in consequence, albeit very slowly, reducing poverty, misery and degradation. Yet we should also recognise that weaker economies such as Indonesia may have been set back by something like a decade. Importantly, as noted, there is no immunity within the system from such a calamity repeating itself. We should therefore hope and expect that many start to seriously question the nature of their economies and societies, and go further by building strong opposition. The East Asian crisis has contributed to the puncturing of neo-liberal hegemony, and events since Seattle have brought widespread vociferous opposition that has led to the coalescing of an overtly ‘anti-capitalist’ movement. [72] This should feed back, not just into East Asia, but also into the rest of the world. What is needed is clarity about the alternatives – indeed, that there is an alternative, not just to ‘crony capitalism’ but to capitalism itself. The East Asian left has suffered for far too long under the dead weight of Stalinism. There now appears to be the prospect of significant numbers breaking free from this straitjacket and drawing the lessons of genuine revolutionary socialism. The more Seattles, Pragues and Genoas there are, the greater will be the confidence in East Asia and elsewhere to resist the onslaught of globalisation, of IMF/World Bank ‘reforms’, and of their rulers’ connivance in these – that is, to resist a system that constantly produces crises that wreak perdition in their aftermath, in sum, confidence to fight for a better, socialist alternative.

Notes

1. World Bank, The East Asian Miracle: Economic Growth and Public Policy (Washington 1993). for a critique of this analysis see the reviews in World Development, vol. 22, no. 4 (1994), especially S. Lall, The East Asian Miracle: does the bell toll for industrial strategy?, pp. 645–654. Also see R. Wade, Japan, the World Bank, and the art of paradigm maintenance: The East Asian Miracle in political perspective, New Left Review 217 (May/June 1996), pp. 3–36.

2. For a critique of this view, see M. Haynes and R. Husan, National inequality and the catch-up period: some “growth-alone” scenarios, Journal of Economic Issues, vol. 34, no. 3 (September 2000).

3. An indication of this can be found in the website, What caused Asia’s economic and currency crisis and its global contagion, by Nouriel Roubini of the Stern School of Business, New York University (www.stern.nyu.edu/~nroubini/asia/AsiaHomepage.html). [Note by ETOL: This link has not been checked.] This lists over 700 links to papers on this subject. Such a level of theoretical attention was not forthcoming, for example, as to the causes of the collapse of the Stalinist economies post-1989 – an event, indubitably, of greater historical significance.

4. UNCTAD, World Investment Report 1999 (New York 1999), p. 136.

5. K. Annan, Foreword, in United Nations, Economic and Social Survey of Asia and the Pacific 1999 (New Yor, 1999), p. iii.

6. See C. Sparks, The eye of the storm; S. Gyoung-Hee, The crisis and the workers’ movement in South Korea; R. Hoveman, Financial crises and the real economy, all in International Socialism 78 (Spring 1998); and A. Callinicos, World capitalism at the abyss, International Socialism 81 (Winter 1998).

7. UNDP, Human Development Report 1999 (New York and Oxford 1999), table 5, p. 130.

8. The Human Development Index (HDI) is a recent indicator (starting in 1990), formulated by the United Nations Development Programme, that attempts to overcome the narrowness of purely income per capita figures by encompassing two further elements (alongside per capita income) – life expectancy and educational attainment (combination of literacy rate and school enrolment). Though itself a crude measure, it does provide a more rounded view of global human development. Indeed, the annual Human Development Report is highly recommended reading. No other official report captures the contradictions of global capitalism so well.

9. UNDP, Human Development Report 1999, op. cit., indicator tables 6 and 11.

10. Ibid., indicator tables 4, 8, 20 and 26.

11. World Bank, East Asia: Recovery and Beyond (Washington 2000), table 1.1, p. 5 (www.worldbank.org/html/extpb/earecovery.htm). [Note by ETOL: This link has not been checked.]

12. Ibid., ch. 3.

13. Ibid., from table 3.1, p. 46.

14. Although South Korea was an exception as it maintained restrictions on FDI.

15. World Bank, East Asia: Recovery and Beyond, op. cit., from table 3.7, p. 56.

16. P. Krugman, The Return of Depression Economics (Harmondsworth, 2000), pp. 44, 48.

17. S. Radelet and J. Sachs, The East Asian Financial Crisis: Diagnosis, Remedies, Prospects, Brookings Papers on Economic Activity, 1 (1998), p. 24.

18. F. Nixson and B. Waters, The Asian crisis: causes and consequences, The Manchester School, vol. 67, no. 5 (Special Issue, 1999).

19. World Bank, East Asia: Recovery and Beyond, op. cit., from table 2.1, p. 26.

20. IMF, World Economic Outlook May 2000 (Washington, 2000), table 2.2, p. 51.

21. World Bank, East Asia: Recovery and Beyond, op. cit., p. 7.

22. World Bank, World Development Indicators 2000, CD-ROM (Washington, 2000).

23. Ibid., table 6.1, p. 116; World Bank, World Development Indicators 2000, op. cit.

24. Poverty in China using the international (dollar a day) poverty line actually increased by 3 million between 1996 and 1998 (from 211 to 214 million). Ibid., table 6.4, p. 120.

25. Definitions of poverty from Asian Development Bank, Asian Development Outlook 2000 (New York 2000), p. 180.

26. World Bank, East Asia: Recovery and Beyond, op. cit., p. 114.

27. The unemployment figures need to be treated with caution. We are familiar with the significant underestimation of the unemployment rate in the West as this is based upon the claimant count – but not everyone unemployed claims, or is eligible to claim, so large numbers are excluded from the official figures. In East Asia there are simply no claimants, so any figures for unemployment are very rough estimates.

28. I. Diwan, Labor shares and financial crises, in an unpublished draft paper for the World Bank (Washington 1999), cited in World Bank, East Asia: Recovery and Beyond, op. cit., n2, p. 138.

29. In fact only Korea operates an unemployment insurance scheme, but this only covered 10 percent of the unemployed in 1999: World Bank, East Asia: Recovery and Beyond, op. cit., p. 124. For an informative discussion of unemployment insurance schemes in East Asia and other developing countries see E. Lee, The Asian Financial Crisis: The Challenge for Social Policy (Geneva 1998), ch. 4.

30. For example, a survey on Thailand found that mass layoffs in 1998 mainly took place in the textiles and electronics industries, where 90 percent of workers were women: A. Asvananda, Women workers hit hard, Bangkok Post, 20 December 1998. Also, for a useful discussion of the changing role of women workers in Thailand, see G.J. Ungpakorn, Thailand: Class Struggle in an Era of Economic Crisis (Bangkok 1999), ch. 5.

31. Thus 250,000 foreign workers left Thailand within a year of the start of the crisis, 50,000 left South Korea in 1998, and a similar number left Malaysia in 1998. Cited in United Nations, op. cit., p. 121.

32. For example, in Malaysia many more women were choosing government hospitals to deliver their babies in 1998 as they could no longer afford private hospitals. Cited ibid., p. 122.

33. Ibid., p. 126.

34. World Bank, East Asia: Recovery and Beyond, op. cit., p. 114.

35. United Nations, op. cit., pp. 113, 125.

36. From Asian Development Bank, Asian Development Outlook 1998 (New York 1998), p. 16.

37. Ibid., box 1.3, pp. 21–22.

38. From United Nations, op. cit., ch. 3.

39. As Stiglitz makes clear, ‘Let us be frank with ourselves: we will not be able to prevent all crises.’ J. Stiglitz, Responding to economic crises: policy alternatives for equitable recovery and development, Manchester School, vol. 67, no. 3 (Special Issue 1999), p. 425.

40. See P. Krugman, The myth of Asia’s miracle, Foreign Affairs, November–December 1994. Reprinted in P. Krugman, Pop Internationalism (Cambridge MA 1996), ch. 11.

41. Ibid., pp. 174ff.

42. See A.H. Amsden, Asia’s Next Giant: South Korea and Late Industrialisation (New York 1989); R. Wade, Governing the Market: Theory and Role of Government in East Asian Industrialisation (Princeton 1990).

43. W. Bello and S. Rosenfield, Dragons in Distress: Asia’s Miracle Economies in Crisis (San Francisco 1990), ch. 2. Clearly Bello and Rosenfield use this epithet because they think there is a similarity between East Asia and the ‘command economies’ of the former Eastern bloc, but Bello certainly does not extend the logic to thinking that the latter are also variants of capitalism (specifically of state capitalism) – instead arguing that these are examples of ‘centralist socialism’. See W. Bello, Dark Victory: The United States and Global Poverty (London 1999), p. 111.

44. The incidence of moral hazard is not just confined to the crony capitalism of East Asia. The infamous example of the collapse of the US hedge fund Long Term Capital Management (LTCM) in 1998 is an important example of how this also afflicts the West. See Financial Times, 26–27 September and 28 September 1998 for the LTCM fiasco.

45. S. Radelet and J. Sachs, op. cit.

46. J. Stiglitz, op. cit., p. 425.

47. See R. Hoveman, op. cit., for an elaboration of this.

48. S. Claessens, S. Djankov, and L. Lang, East Asian corporates: growth, financing and risks over the last decade, in World Bank, Policy Research Working Paper 2017 (Washington 1998).

49. For a readable account of the spread of the crisis, see P. Krugman, The Return of Depression Economics, op. cit., chs. 6, 7.

50. S. Claessens, S. Djankov, and L. Lang, op. cit., table 1, p. 4.

51. For example, in the October 1998 meeting of the World Bank and IMF, World Bank president James Wolfensohn made a thinly veiled attack against the IMF by arguing that it was time ‘to go beyond financial stabilisation ... where mathematics will not dominate humanity’: AFP, Geneva, 19 October, 1998. Stiglitz contrasts the World Bank having staff working in developing countries and listening to various people there, to those (referring to the IMF staff) who stay in five-star hotels for a few weeks. Cited in D. Moberg, Silencing Joseph Stiglitz, www.salon.com/news/feature/2000/05/02/stiglitz/index.html. [Note by ETOL: This link has not been checked.] This is not entirely convincing, for it begs the question, who do the World Bank personnel in developing countries listen to more and base their actions upon – those with power or those without it? No prizes for guessing the right answer.

52. D. Moberg, op. cit.

53. From Bretton Woods Project, 14 June 2000, www.brettonwoodsproject.org/issues/kanbur.html; [Note by ETOL: This link has not been checked.] and S. Ambrose, 50 Years is Enough: World Bank is divided over poverty policy, The Nation (Bangkok, 7 May 2000), cited at csf.colorado.edu/mail/wsn/2000/msg01274.html. [Note by ETOL: This link has not been checked.]

54. Cited in M. Wolf, Banking for the World’s poor, Financial Times, 20 June 2000.

55. Ibid.

56. S. Radelet and J. Sachs, op. cit. In a sarcastic piece written in early 1999, Sachs gave the IMF a score of five out of five – that is five big rescue packages set up by the IMF since mid-1997 and five big failures! (Thailand, August 1997; Indonesia, November 1997; Korea, December 1997; Russia, August 1998; and Brazil, November 1998): The Guardian, 16 January 1999.

57. G. Soros, The Crisis of Global Capitalism (London 1998).

58. Ibid., p. xxvii.

59. For a discussion of Polanyi, see M. Haynes and R. Husan, The state and market in the transition economies: critical remarks in the light of past history and the current experience, Journal of European Economic History 27:3 (Winter 1998), pp. 609–646.

60. P. Krugman, The Return of Depression Economics, op. cit., p. 113.

61. ILO, World Labour Report 1997–98: Industrial Relations, Democracy, and Social Stability (Geneva 1997), table 1.2, p. 238. Unfortunately latest figures are not readily available. For example, the ILO’s World Labour Report 2000 does not provide union density figures.

62. The discussion on Indonesia has been intentionally kept to brief generalisations. For detailed and excellent analyses, see C. Fermont, Indonesia: the inferno of revolution; C. Bambery, Report from Indonesia; T. Cliff, Revolution and counter-revolution: lessons from Indonesia; and Three interviews from Indonesia, all in International Socialism 80 (Autumn 1998); also see J. Rees, The socialist revolution and the democratic revolution, International Socialism 83 (Summer 1999), pp. 61–77; and interview with Dita Sari, Between Force and Freedom, Socialist Review 234 (October 1999), pp. 18–19.

63. S. Gyoung-Hee, op. cit., pp. 44–45; P. Ranald, Analysing, organising, resisting: union responses to the Asian crisis in East Asia, South Korea and the Philippines, The Journal of Industrial Relations, June 1999, p. 303.

64. Ibid., pp. 304–312.

65. G.J. Ungpakorn, op. cit., pp. 22, 29.

66. The Guardian, 23 January 2001.

67. Information on Thailand from G.J. Ungpakorn, op. cit., pp. 28, 40.

68. From P. Ranald, op. cit., pp. 314–318.

69. P. Krugman, The Return of Depression Economics, op. cit., p. 117.

70. Cited ibid., p. 20.

71. Quoted by J.B. Schlesinger, Wall Street Journal, 28 August 2000.

72. Which is not to say that this movement is united in its goals. For a discussion and critique of the differences, see C. Harman, Anti-capitalism: theory and practice, International Socialism 88 (Autumn 2000), pp. 3–60.

 
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