The crash in East Asia --

what it means to the working class

By Pete Brown
(from Communist Voice #16, Jan. 20, 1998)


. "Market meltdown!" "Financial panic!" "Looming disaster!" For the past few months the headlines have been full of news about the economic crisis in East Asia. And the capitalist soothsayers are busy trying to predict what effect this crisis will have on the economy of the U.S. and the world. But what does it mean to the working class? Should workers be concerned if some real estate tycoons lose a few million dollars on their speculations? Is it any concern of ours -- aside from amusement -- if a few stockbrokers dive out of windows?

. Unfortunately the capitalists are determined to make it our business. They intend to make up for the drop in profits occasioned by the lagging Asian markets by taking it out of our hides. Especially for East Asian workers the crisis means layoffs and lack of work -- with no social safety net, in many cases, to soften the blow of reduced incomes. And for those still employed it means lower wages and more intense work as the capitalists step up their competitive drive to try and hang onto dwindling market share. The capitalists of different countries are competing against one another for sales of products, but they are all united in their drive to step up exploitation of their employees.

. The East Asian capitalists, together with their cronies in government, also intend to make the working class pay for the crisis through taxation. International financiers who are helping arrange bailouts for Asian capital are promoting the U. S. savings and loan bailout of the 1980s as the model program for shoring up shaky financial institutions. Basically this means the government handing out billions of dollars to the financial capitalists to save their hides, and paying for it with increased taxes on the working class. So the Asian workers can expect to take the kind of hit in their taxes that American workers took in the 1980s.

. So workers need to be alert to the ways the capitalists are going to try and slime out of their crisis. Asian workers in particular need to stiffen their backs and step up their economic struggles to avoid being victimized by the capitalist crisis. And workers everywhere need to improve their international ties with workers of other countries, to establish firm bonds of solidarity in these tough times. But most of all we need to use this crisis as an opportunity to reflect on our future under capitalism. Is it really all it's cracked up to be?

. Throughout the 1990s the capitalists and their media have been promoting the "end of history. " Supposedly the collapse of the Soviet Union meant the worldwide victory of private, free-market capitalism. Supposedly the world's people were now free to march into the paradise of free-enterprise capitalism with no more doubts and no serious contenders. And supposedly we would live happily ever after if we just gave ourselves up to the wisdom of the marketplace. The promotion of East Asian capitalism played a big role in this mythmaking. Supposedly the East Asian "tiger" economies had learned the secret of continuous growth under capitalism, a growth that supposedly spread prosperity to all.

. There was always a good bit of fiction to this story about East Asia. For the working class any improvements in standards of living were paid for by putting in very long hours of very intense labor. Beyond their economic struggle, poor and working people had to face all the grim "externalities" of capitalism -- pollution of their environment, discrimination against women, crime, prostitution, drugs, the degradation of children as they're dragged into exploitation, etc. And many workers, despite their struggles, remained at subsistence-level standards of living. Now, today's spreading financial crisis throws into doubt all of the promises of capitalism. Can it really provide steady long-term employment? Can it modernize countries in a way that brings improved livelihoods for everyone? The bursting of the East Asian bubble shows us, once again, that capitalism remains a system of exploitation; and that it grows by driving the masses hard while careening anarchically from one crisis to another, boom followed by bust. This means constant insecurity for the working class as long as our social and economic well-being rests in the hands of the capitalist exploiters.

Background to the crisis

. Prior to 1996 the export-oriented economies of East Asia had been booming for some years. Financial capital from developed countries poured into the developing economies of Southeast Asia. Capitalists from around the world rushed to take advantage of the low wages and friendly government policies there. The "tiger" economies (South Korea, Taiwan, Hong Kong, Singapore), which had developed through low-wage exploitation, themselves became exporters of capital to the newly emerging tigers, or "tiger cubs" -- Thailand, Malaysia, Indonesia, the Philippines. Capital also poured into Vietnam and China as the state-capitalist regimes there rushed to embrace an export-driven market economy.

. But as in all capitalist booms, the rush of capital to profit from the boom itself gave rise to a bust. As more and more exports from East Asia flooded world markets, it became more and more difficult to sell them. The rush to build factories and offices had given rise to a real estate boom which netted some speculators millions in profits; but this eventually helped stall out the boom by making land prices prohibitive. Industrial capitalists were forced to float risky short-term high-interest loans in order to get the capital they needed to continue expanding. But stagnating exports made these loans riskier than ever, a disaster waiting to happen. A similar phenomenon occurred in local stock markets, which had shot up to dizzying heights. To stay competitive during the boom, the developing economies borrowed money from imperialist metropolises with which to build factories and buy industrial machinery. But as paper values of stock and land shot up and export markets tightened, it became more and more questionable if they could repay these loans.

. Finally, tremors of the coming earthquake began to be felt in late 1996. Exports from Thailand stalled for the first time in nearly a decade. Employers in Thailand tried to save their skins by cutting workers' year-end bonuses. This produced angry reaction from their employees; for example, workers at a factory owned by Samsung, the Korean firm, burned it to the ground. In the Philippines local stock markets fell by about 25% at the end of the year. In South Korea the capitalists, squeezed by rising labor costs at home and the fall-off of investments in the tiger cubs, tried to legalize increased exploitation by passing a new labor law. This law would have made it easier for them to lay off employees, increase working hours, and delay the recognition of labor unions for years. To counter this law hundreds of thousands of workers went out on strike -- the largest strike in South Korea's history.

The currency crisis

. Questionable export markets and pressing foreign loans put increasing pressure on the tiger cubs' national currencies in 1997. Currency speculators began dumping local currencies, which put pressure on the governments concerned to devalue their currencies. The governments involved, concerned about maintaining a stable investment climate, refused to devalue and insisted they never would. But finally in June a run on the Thai baht forced the government of Thailand to devalue. The other tiger cubs followed suit, as they tried to out-devalue one another to maintain their positions in export markets. Devaluing a nation's currency makes its goods cheaper in international markets, and so makes them easier to sell. Thus Malaysia could not afford to maintain an inflated currency after Thailand devalued; it would have lost too much market share to Thai-based exporters.

. The spiral of devaluations eventually reached Hong Kong, a major financial center for East Asian capitalism. Speculators tried to force a devaluation of the Hong Kong dollar, which is tied in value to the American dollar. The government of Hong Kong has tens of billions in hard currency reserves and was able to withstand the siege by buying back its own currency from speculators. But also, to prop up its currency, Hong Kong raised interest rates through the roof. This meant putting clamps on the economy, and so the Hong Kong stock market began to slide downward in late summer. And other major East Asian markets, in Korea and Japan, slid with it. The slide became a drop in October, when the Hong Kong stock market index lost 35% of its value. In late October the panic sell-off spread from Hong Kong to stock markets around the world. The stock market in New York had its biggest one-day drop on October 27. This was followed by a bounce back up, but many markets stagnated or continued to decline in November.

. From late summer until November, the Tokyo stock market lost nearly one-third of its value. This is a major world market, located in the world's second largest economy, and represents an enormous loss of values. The crisis also spread to other economies around the globe, many of them with no direct connections to East Asia. In Brazil the stock market fell by 40% in November. Mexico and Argentina also suffered severe losses. In Russia the stock market also plunged. In many cases these drops did not stem from any direct Asian connections, but to a general worldwide loss of confidence. Capitalist investors and international lenders were suddenly very worried about their investments and refused to extend credit or give new loans.

. Meanwhile, back in Asia, competitive devaluations of currency continued into November and December. The South Korean won, which had stood aloof from previous devaluations, suddenly began a precipitous slide downwards. This made it even harder for Korean banks and other institutions to repay their foreign loans on time, since they were now required to cough up billions more in won to pay to foreign (hard-currency) lenders. The result was a massive threatened default on loans. Much of Korea's foreign debt -- tens of billions of dollars worth -- is in short-term loans, due in less than a year, so the devaluation of the won aggravated an already precarious situation. Practically every day there was news of another major Korean institution on the verge of bankruptcy. The government of South Korea admitted it was in total retreat, with no idea how to save the situation, and asked for assistance from the International Monetary Fund. The IMF had already designed bailout plans for Thailand and Indonesia, which was due to receive some $40 billion in loans. But the Korean bailout was unprecedented, even larger than the Mexican bailout of a couple years ago. South Korea is the world's thirteenth largest national economy, about the same size as Mexico, and has close ties to Japan and the U.S. , so the IMF ponied up some $55 billion in loans to stave off the threatened default. It also arranged for foreign lenders to restructure the loans, to give Korean debtors more time to repay. Of course along with the IMF bailout goes the typical IMF supervision and control of austerity budgets, cutbacks and layoffs.

. At the end of the year major questions remained about how extensive the crisis might become. Would Japan be able to withstand the earthquake and quiet the shaky markets of East Asia? Would China's rapid capitalist development continue, and if so what effect would this increased competition in export markets have on the tiger cubs? In the tiger and tiger cub economies, how would the working class react to the layoffs and austerity budgets brought about through IMF bailout plans?

Cause of the crisis

. Many theories have been put forward as the cause of the current crisis. When Thailand and South Korea were hit by labor troubles in late 1996 and early 1997, the main explanation among bourgeois pundits was that the governments there were simply blowing it. Too much politicking, too much infighting, too much sneaky maneuvering. Supposedly if the politicians there just learned to be honest and aboveboard (like American politicians?!), economic troubles would fade away and the workers would be happy.

. But then the currency crisis broke out. A popular idea among East Asian leaders then was to blame the currency speculators who were forcing them to devalue their currencies. The prime minister of Malaysia, in particular, made headlines with his denunciations of international speculators, and he has since proposed controls on speculation to the United Nations. There may be a certain logic to this call. But speculators only take advantage of an underlying economic weakness; they don't create it. Blaming the speculators is sort of like shooting a bearer of sad news.

. As the crisis deepened it became apparent that there were underlying economic weaknesses in East Asia. These pointed to a classic crisis of overproduction, the type of capitalist crisis that has broken out fairly regularly in the Western capitalist economies since the early 1800s. Consider the computer industry. In the 1980s South Korean conglomerates jumped into the semiconductor business. With help from government policy-makers who felt it was important for South Korea to be an important player in this industry, Korean capitalists set up factories to produce computer chips. But this occurred at the same time that Taiwanese manufacturers of chips were also expanding production, and American firms too were struggling to maintain market share. The result was a glut of chips and an intense competitive struggle for profits in chip production. In just the last two years the price of a DRAM (Dynamic Random Access Memory, the memory chip most commonly used in personal computers) has fallen from $60 per part to $3. 50. This played a role in wrecking the South Korean economy, since when prices were high chips accounted for some 20% of Korean export earnings. And this in turn helped generate the international debt crisis, since much of the Korean industrial expansion was financed by loans from foreign banks.

. Or consider the auto industry. Auto capitalists, especially Japanese, have been feverishly expanding in East Asia. Foreign firms are pushing auto sales even in countries like Laos and Myanmar, which barely have roads. Toyota, GM and Ford were all planning new factories for Thailand before the crisis hit (these have since been abandoned). Local capitalists were also trying to jump onto the auto sales bandwagon. Malaysia set up a state-capitalist firm to produce a national car, the Proton, which was sold not only in Malaysia but also in neighboring countries, and the government hoped to begin exporting Protons to Latin America in the late 1990s. Indonesia also set up a state-backed enterprise to produce autos. This company (headed by a son of President Suharto) bought out the Italian luxury sports-car firm of Lamborghini to gain technological expertise and, before the crisis hit, was still considering producing cars. But this massive production of autos has produced a glut. Worldwide capacity for the production of autos is millions more units than can be sold (at least, can be sold at a profit for their capitalist manufacturers). With the Japanese and South Koreans competing strongly throughout East Asia, and firms from all over the world now setting up shop in China, there is no way the average consumer in East Asia (who still subsists at a low-wage level) can absorb all this production. One of the first Korean firms to go under in the recent crisis was Kia, the country's number three auto manufacturer.

Asian exceptionalism?

. So overproduction has come to be recognized as an underlying cause of the East Asian crisis, at least among some commentators. But the bourgeois pundits, who do not want to admit any underlying problems with capitalism itself, combine this analysis with "Asian exceptionalism", the view that this crisis was a unique result of uniquely Asian conditions. In particular they point to the close connections between capital and government in the East Asian countries and use phrases like "Japan, Inc. " to describe this system. Supposedly, then, the main cause of the crisis was the kind of crony capitalism that flourished in East Asia. Supposedly this allowed unrealistic conditions to flourish which eventually broke out in a crisis. And supposedly the only cure for these problems is -- guess what? -- good old-fashioned free-market capitalism.

. The idea here is that East Asian governments controlled markets, limiting competition through heavy regulation that in many cases excluded foreigners, among others. Cozy relationships were built up between government bureaucrats and local capitalists. The result was that the capitalists were shielded from world market forces and so were able to go on making bad loans and investments for years on end. What they need now to overcome their crisis is a good dose of free enterprise.

. Now, there is some truth to this description of Asian capitalism. There has grown up a kind of model Asian society, first pioneered by Japan and then followed by South Korea, Singapore, Taiwan, etc. in which there is a close connection between government bureaucrats who plan economic growth and the capitalists who carry it out. The economy is dominated by a few large conglomerates (chaebol, zaibatsu), and the government is dominated by one party (or has been until recently). Government policy-makers restrict (by licensing, limitations on imports, etc. ) the production of important items such as autos, steel, tractors, etc. to a few large-scale industrialists, who in turn contribute political slush-funds and bribes to the politicians. Thus the capitalists are guaranteed stable profits, and the politicians are guaranteed positions.

. But this kind of picture, which emphasizes the differences between Asian and Western societies, can easily get carried too far. Is it really that strange or non-Western to have a cozy relationship between government policy-makers and big-time capital? Isn't that what lobbying, the lifeblood of the American system, is all about? Weren't many industries in America built up through restrictive licensing, limitations on imports, etc. ? Just consider the major transportation industries, trucking and airlines, which grew up under heavy government regulation (which was lifted later on). In the U. S. we've had two major gangs of political robbers (Democrats and Republicans) alternating in power for decades. So the U. S. has been "freer" in some respects in the past; but the U. S. also has its own unique kinds of cronyism -- e. g. , institutional racism.

. The promotion of "Asian exceptionalism" tries to divert attention away from the underlying causes of the crisis, which are based in capitalism itself and universal in character, and focus attention instead on relatively secondary characteristics. Part of this is purely ideological, part of the capitalists' promotion of free markets as God's gift to mankind. Part is self-serving agitation on the part of Western capitalists who are trying to break into Asian markets and feel they are facing unfair competition. And part of it, as noted, is accurate, since Asian societies do in fact exhibit some of these characteristics. There are extreme examples such as Indonesia, where President Suharto's family and close friends control many of the major economic enterprises. The IMF's plan to open markets in Indonesia may cut down on some of the old-time corruption and nepotism (though it will at the same time introduce new forms of cronyism attached to international lending agencies).

. All in all, it's ridiculous to promote "freer markets" as the cure-all. Freer markets may open up competition in some industries and allow foreign firms to penetrate, but the first result of this will be a shakeout of the weak competitors. For the capitalists this will mean the small fish get bought out by the big fish; for the workers it will mean layoffs and starvation. And deregulating markets won't by any means end the cronyism that pervades Asian capitalism. The fact is, free markets have never been incompatible with cronyism. A perfect example is the savings and loan debacle in the U. S. In the 1980s the savings and loan capitalists got their cronies in the Reagan administration to pass new rules deregulating their industry. Freed from government restraint on loans, these sharpies rushed into real estate speculation and ended up getting buried in debt. But not to worry: the government at this point came to the rescue of these daring free-marketeers, bailing them out with the workers' tax dollars. Among those saved by government intervention were Senators, Congressmen and the son of George Bush.

. Fact is, the crisis in East Asia was not brought about by excessive government regulation or restrictions on free enterprise. Just the opposite. It was the free world market in semiconductors, with the lure of high profits, that encouraged capitalists from different countries to jump into production and generate a glut of chips (which did away with the easy high profits). It was free enterprise in real estate speculation that drove up the price of land in Bangkok, Kuala Lumpur, Hong Kong, etc. , and left the banks that speculated on these high prices holding the bag, with large portfolios of bad loans. It was the relatively free and open financial markets of East Asia that allowed this boom to get translated into a speculative bubble that drew in finance capital from around the globe. And finally, it was the free market in currency trading that burst the bubble.

. Thus it was capitalism itself that generated the crisis of East Asian capitalism. The bourgeois pundits are wrong when they try to stick the blame for this crisis onto some uniquely Asian conditions. But note that this point also tells against some so-called "leftists", dependency theorists and others, who maintain that economic development in the Third World countries of East Asia wasn't "real" development or that further growth is impossible. The fact that economic development in these countries has reached the point that it can generate a capitalist crisis of overproduction, a crisis that may threaten to engulf the world, is proof that there was real capitalist development there. It's precisely in those countries where capitalist industry has been most rapidly developing that this crisis has struck. Capitalist industrial development doesn't mean that these economies are free of crises -- far from it. Nor does it mean that their further development will mean greater prosperity for all. On the contrary; it means their further development (as capitalist economies) depends on developing more sophisticated and more intense forms of exploitation.

. But there is another possibility. As more workers get drawn into the circle of capitalist exploitation and begin to understand its pitfalls, this development also opens up the road to a new revolutionary socialist movement. Workers begin to see the need to eliminate exploitation once and for all. They begin to see that, if the promises of capitalism are ever going to be met, capitalism itself must be done away with.

Workers need socialism

. The bourgeoisie's plans to "solve" the East Asian crisis are actually very superficial. The major imperialist powers, working through the IMF and other international institutions, are calling for a new mix of government regulations combined with deregulation of some markets to try and overcome the crisis. And some of these measures may produce some results. New regulations on financial markets may end some of the grosser forms of cronyism and corruption, and may help stabilize things. But this will only be temporary, until the next crisis of capitalism breaks out. And it will come at the expense of the working class. The workers will be forced to pay -- through unemployment, lowered wages, intensified labor, tax hikes -- for the structural adjustments needed to salvage the capitalists. Examples from Latin America, Africa, etc. show that IMF bailouts sometimes do work in the sense that the stock markets do sometimes rebound and capitalist profit-grubbing enjoys a comeback. But the same examples also show the workers ground down even farther to feather the capitalists' nests.

. For the working class, surviving in a capitalist economy is like sailing on the Titanic. The class differences are obvious, and we know we're getting a raw deal. But so long as the ship is sailing the bourgeois "experts" tell us not to worry, progress is being made and eventually we'll all arrive in a better land for everyone. And so we keep sailing along -- until the iceberg hits. And then, lo and behold, there aren't enough lifeboats for everyone. The first-class passengers (the bourgeois) get bailed out while the workers get locked in, beaten, shot at and sent to the bottom.

. We need a revolutionary alternative. The bourgeois experts with their phony promises about the glories of free enterprise have been proven wrong once again. History has not ended; in fact it has barely begun. The only way for workers to have a guaranteed future is for the workers themselves to take control of social production, end the cronyism and corruption connected to capitalist economics and build a planned economy that benefits everyone. This is the main lesson of the crash in East Asia.

. But who will build such a society? The ruling classes and governments in East Asia are only concerned with propping up capitalism, so workers cannot look to them for help. And the revisionist, so-called "communist" states of China, North Korea, Vietnam and Laos are no better.These countries are actually state-capitalist regimes with their own peculiar forms of government and economic structures, but workers there too are stuck with exploitation and class control. And today, for the most part, the revisionist regimes are rushing to embrace free-market capitalism as practiced in Hong Kong, Taiwan and Singapore. So the workers cannot look to the revisionist regimes as a model either.

. The main lesson of this crisis is that the workers can only depend on their own struggle, if they are not to be continually thrown back into abject misery and overwork. Capitalist development in East Asia has provided the forces for a new socialist movement there -- the millions and millions of proletarians being pulled into the cycle of capitalist production. When these workers come to realize that capitalism means nothing but continual crisis -- and the revisionist regimes too have nothing to do with genuine socialism -- this will shake up the revolutionary movement around the world.

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Last changed on October 17, 2001.