The crash in East Asia

by Pete Brown
(from Communist Voice #17, April 20, 1998)

. (The following speech was delivered on February first at a meeting called by the Detroit Workers' Voice to discuss the East Asian crisis. The author has edited it for publication in CV.)

. For the working class, surviving in a capitalist economy is like sailing on the Titanic. As long as the ship is sailing the bourgeois experts tell us, "Don't complain! Progress is being made, and eventually we'll all arrive in a better land for everyone." So we keep sailing along -- until the ship runs into an iceberg. 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. This is exactly what's happening today in Asia.

. In the 1980s and 90s bourgeois journalists called East Asia's economic growth a "miracle." Supposedly this "miracle" proved that capitalism could bring an economy up from third-world levels to developed-world levels without crisis and without class contradictions.

. When we were told this we were supposed to overlook a few little problems in the East Asian countries. Like the massive destruction of the environment -- the cutting and burning of the rain forests, the smog and water pollution. Or the exploitation of children, dragged into factory work at a young age. Or the extreme overwork -- workers required to put in workdays of 12-16 hours, seven days a week. Or the extremely low wages paid to many workers and the lack of benefits or social security systems. Or the political repression that stands behind this harsh exploitation.

. A perfect example is Indonesia. The government there is a fascist dictatorship. President Suharto came to power by way of an army coup that killed hundreds of thousands of people. Opposition political parties and independent trade unions are suppressed; East Timor is subjected to a bloody military occupation; and the rain forests are rapidly being destroyed. But none of this bothered the Western bourgeoisie and governments. They relied on Suharto as a staunch enemy of communism and revolutionary currents in East Asia. They invested in Indonesia and helped it achieve relatively high growth rates in the economy.

. Just a couple years ago economists were predicting that Indonesia would be the next "tiger" economy following in the wake of South Korea, Taiwan, Singapore and Hong Kong. Supposedly if the workers just kept their noses to the grindstone, Indonesia would finally rise above its third world level and everyone there would enjoy higher standards of living. Of course, in order to get there the workers for Nike, Reebok and other companies would have to endure horrible working conditions for horribly low pay for years on end. But wouldn't they be glad to sacrifice for the greater glory of Suharto and his family of billionaires? President Bill Clinton certainly thought so, which is why he strengthened U.S. relations with the Indonesian military and happily took campaign contributions from Indonesian financiers. But today the onset of economic crisis has exposed the weaknesses in Suharto's rotten system.

Overproduction crisis

. The crisis in East Asia is basically a capitalist overproduction crisis. Capitalism has overreached itself, creating an engine of production of goods that cannot be sold, at least not sold at a profit. This is particularly true in the hi-tech industry of computer and chip manufacture. In the last couple years the price of memory chips for personal computers has dropped drastically.This is due to the new factories churning out chips in South Korea, Taiwan and other countries.The world market is being flooded with computer components. Prices on computers and related equipment are dropping, so more and more can be sold, but at some point the market gets glutted.

. Sales of exports from East Asia began slipping in 1996. And exports are an important part of the economies of all these countries. As exports stalled, uncertainty settled onto the equities markets -- stocks and real estate. Stock markets and real estate had been in a giant boom during the 1990s, with prices soaring. But now the reverse happened. Stocks and real estate went bust.

. This led to the currency crisis of last summer (continuing until now). With the price of their assets dropping, manufacturers and real estate speculators could no longer repay their loans. This put local banks into trouble and made it questionable whether they could repay what they had borrowed from foreign banks. At this point international currency traders began rushing for the door, trying to avoid being the last ones out. They began dumping East Asian currency as quickly as they could. The result was devaluation of the currencies, beginning with Thailand last June. After that a series of competitive devaluations occurred. Currencies fell like dominoes.

. The crash in Asia is proof once again that capitalism is characterized by anarchy of production. Through experience the capitalists have learned to expect a boom-and-bust cycle. But they never know when, exactly, the boom is going to end. And they don't know how deep the crisis is going to be. As long as the boom continues they want their capital involved, yielding maximum profit. So they keep pumping more air into the balloon until it finally bursts.

Unplanned, anarchic production

. Capitalists did not foresee this crisis occurring when and where it did. And even after it started they did not foresee the depth of it. Despite warning rumblings in 1996, economists and investment analysts were still bullish on Asia well into 1997. Despite the fall in asset prices, most investment advisers continued to tell their clients that "the fundamentals are strong" and the value of assets will "bounce back." Even after the currency crisis began, last summer, they continued to sing this song.

. Conservative free-market ideology misled the investment analysts here. Free-market ideology told the capitalists that if the government simply leaves things alone and allows the free market to operate, then markets will eventually put themselves aright. And free-market ideology told them that the basic cause of a currency crisis is a government's deficit spending, inflating the currency. If a government keeps its budgetary house in order, then the currency should be basically sound. Some small changes in exchange rates may be necessary from time to time, but there won't be any large fall in currency values, and the economy will continue to produce prosperity for investors.

. When it comes to government policy, the Asian countries were actually paragons of free-market ideology. Governments did not take on excessive debt, as the Latin American countries did in the 1970s. The governments did not overspend -- in fact, they were noted for being cheap, for refusing to provide basic social services for the masses and for refusing to regulate the exploiters. They gave investors a free hand. Governments in the region usually kept their budgets in balance, did not run a deficit, and did not inflate the currency. So according to free-market ideology "the fundamentals" were sound.

. But despite these assurances, currency traders last summer hastened to dump Asian currencies and to accelerate the crisis. In this they weren't guided by an ideology but simply by the fear that things were not right with the Asian economies, and they didn't want to be the last ones out. So Asian currencies continued to plummet through the summer and into the fall.

. Through late summer official predictions -- for example, by economists at the International Monetary Fund -- continued to call for an average growth rate in these countries of 7% for 1998.But in the fall it finally became obvious that investment was being scaled back, that foreign banks were no longer extending loans and credit, and that new projects were being postponed or cancelled. Then the process of scaling back growth predictions began. Instead of 7%, new estimates of 6.5% or 6% began to appear. Then 5%. In late October, after the fall of the Korean won, figures of 4% began to appear. And by year's end this was the official prediction of the IMF -- 4% growth for 1998. By this time IMF bailouts had been agreed upon for the most hard-pressed countries, and it was felt these would be enough to sustain growth.

. But now, after one month of 1998, rosy predictions of continued growth are no longer being made. Working out a bailout plan for Korea is taking more time than anticipated. And for Indonesia the bailout plan seems to make things worse. So now the economists are reluctant to make precise predictions. They say, "perhaps zero growth, perhaps negative growth." For Indonesia, it may be even worse. Right now the Indonesian economy is at pretty much a standstill. By late December, after six months of decline, the Indonesian rupiah had fallen to about half its value of last summer. But now, after just another month, its value has been cut in half again. So Indonesian capitalists, to repay their $65 billion worth of short-term foreign loans, must now earn four times as many rupiah, to be converted into dollars, as before.

. Suharto has been playing a game of hide-and-seek with the IMF. Suharto asked for and received an IMF bailout plan months ago. But he's been very slow to implement its provisions. Suharto is reluctant to follow through, since the IMF is demanding, among other things, breaking up the conglomerates controlled by Suharto's children. But aside from that, the IMF demands are simply more of the same conservative free-market ideology that was already in control of Indonesia. The IMF demands no government deficit spending -- this at a time when companies are going bankrupt and laying off thousands of workers. Thus the government has no means to support social welfare spending or make-work projects, even if it wanted to.

. When Suharto resists the strictures of the IMF, the rupiah falls, due to "uncertainty" -- international investors are leery of putting money into a country that doesn't conform to the IMF. But when Suharto agrees to the IMF plan, the rupiah also falls, this time due to political uncertainty -- everyone knows that following through on the IMF plan will probably produce a depression in Indonesia and make Suharto even more unpopular than he already is.

. Some people have tried to see in this crisis a conspiracy against the so-called upstart Asian tigers, an attempt on the part of old-time international finance capital to reassert its dominance. The prime minister of Malaysia and Indonesian President Suharto maintain that everything is fine with their economies, that it's just a matter of international currency speculators manipulating prices. But the international and Western-based capitalists, economists and investment analysts themselves did not see this crisis coming and didn't know how to respond to it. Now, once it's arrived, they fall back on the law of the Titanic: take to the lifeboats, every man for himself, and to hell with anyone who falls behind. Western investors are going to use the IMF bailout plans primarily to protect their own investments. But this doesn't mean they planned the crisis; they would have been quite happy to go on making profits.

. Capitalism means anarchy of production. This doesn't mean that nothing can be known about it, or that everything happens in a haphazard, arbitrary fashion. There are objective laws at work in its development. In fact these objective laws are now asserting themselves despite the subjective wishes of the bourgeoisie. Everyone involved -- Suharto, the Indonesian capitalists, the IMF, U.S. investors and government spokesmen -- wished for and predicted a resurgence of the Indonesian economy in December. But it continued down, despite their best wishes.

Workers' attitude: to hell with capitalism!

. The main lesson of the Asian crisis for workers is, "Don't put your faith in capitalism." We are told to work hard, keep noses to grindstone, and eventually everything will get better. And for years the "Asian model" has been promoted to us with its "Asian family values" and "Buddhist work ethic." But now, as the capitalists rush to the lifeboats, Asian workers are being left to go down with the ship. Suharto's children will have to make do with a little less, with millions instead of billions, as their conglomerates are broken up. But for Indonesian workers laid off from their jobs, it's not a question of losing a little status; it's a question of survival.

. So for the Asian proletariat the question of struggle is definitely on the agenda. Our task should be to support them and in particular to help orient that struggle, to keep it directed at revolutionary goals. Asian workers will be going into the streets to demand job security, payment of wages owed them, unemployment insurance, welfare payments and government-created work projects. All of this is fine, and we should support these struggles. At the same time, as part of this support, we should clarify that there is no real stability for workers as long as their lives are controlled by capitalist anarchy. The only real solution to the instability of life under capitalism is to replace it with socialism.

Discussion following the presentation on East Asia

. (Below are notes on the discussion, grouped by subject for the readers' convenience.)

Details on East Asian countries

. One comrade asked for more information about the extent of the crisis in particular countries. Are these countries going into a depression?

. In reply, a comrade gave some details about Indonesia. The economy there is practically at a standstill. Foreign exchange transactions aren't being made, which freezes foreign trade. Banks aren't making loans to industrialists and merchants. Many businesses are laying off employees, and workers remaining on the job are having their wages severely cut. To make matters worse, workers who do have money can't buy needed goods, as the shops are practically bare of food, drink, kerosene and cooking oil. There is also a political crisis facing President Suharto. It's questionable whether he can rely on his own generals.

. On Korea, a comrade explained that many banks are being closed or consolidated through mergers. This is leading to large-scale layoffs in the banking industry. Since the banks in South Korea were state-owned, this means a crisis for government employees. Credit from the banks is also severely tight, so industrialists will be laying off many employees. A number of the giant industrial monopolies -- the chaebol -- are in financial crisis, unable to repay their loans and on the verge of bankruptcy. This includes Daewoo and Kia Motors. This opens up the prospect of Korean chaebol (or significant shares of them) being bought up by U.S. multinational corporations. For example, Ford and GM have previously owned shares in Korean auto companies, and may expand these.

. This raises the question of whether this entire crisis is an imperialist conspiracy engineered by the U.S. and other Western imperialists to break into these countries' markets and dominate them. The comrade explained that no, this crisis had objective causes and was not expected by the imperialists any more than by the domestic capitalists. Nonetheless, in a crisis the imperialists naturally work to protect their own interests first. The IMF bailout plan is designed first of all to protect the Western banks' loans. Secondly, the imperialists will use the crisis to buy out some of the domestic capitalists. This is a natural capitalist process: big fish eat the smaller ones. The interests of the workers -- protection from layoffs, etc. -- are not considered.

. But the workers have not been silent. There have been demonstrations against layoffs and the IMF bailout plan. But the protests may have been stopped for now. There are two main trade-union federations in South Korea; one of them is closely attached to the government, while the other is social-democratic reformist. The latter held some protests against the IMF plan and threatened a general strike, but last week when IMF officials came to South Korea to hold further discussions, these trade-union leaders were invited. They went, and issued some vague "agreement" about the plan. So it's questionable whether these union leaders will authorize further protests.

. Meanwhile, Hong Kong is getting ready for another siege on its currency. Last fall the Hong Kong dollar, which is pegged to the American dollar, was put under a lot of pressure to devalue. Hong Kong was able to avoid this, but at a cost; interest rates in Hong Kong were sent skyward. By late fall the crisis seemed to be over, but recently Hong Kong's currency has been put under increasing pressure. Publications such as the Wall Street Journal are worried about this, since if Hong Kong were to devalue, this could put a serious crimp in China's economy, and would also seriously hurt Japan.

. On Japan: right now its economy is stagnant but not in crisis. Japan is a question mark. Many of the loans granted to East Asia were from Japanese banks. If these loans turn out bad, Japan's stagnation could turn into a severe financial crisis. Already some major banks and brokerage houses have declared bankruptcy. So now the government has announced a plan to allow banks to get rid of bad loans. This is roughly based on the U.S. savings and loan bailout of the 1980s. In December the government estimated it would have to aid banks to the tune of about $240 billion. More recently the government revised this estimate to $600 billion! Like the U.S. S&L bailout, this plan amounts to massive government welfare for the rich corporations and banks.

. What happens in Japan is crucial to the world bourgeoisie. If the crisis in Japan were to reach the proportions of, say, Indonesia or Korea, then the entire world financial system could come crashing down. Japanese banks are deeply exposed in Korea and other Asian countries. The crisis is very close and very dangerous to them.

. One comrade expressed the conviction that this crisis proves once again the correctness of Marxism. Listening to the bourgeois media, you can hear a note of fear in the commentators' voices. They know that they don't know what's going to happen, and this doubt and fear comes through in their voices. The rapid fall of markets in East Asia sent a gasp of fear throughout the bourgeois world. They sense that this may be it, that the genie is out of the bottle. And though they don't say so, this is a backhanded salute to Marx.

Depth of the crisis

. One comrade raised the question of how serious the present crisis is; how does it compare, say, to the gold crisis of the early 1970s? Will it reach the level of the Great Depression of the 1930s?

. A comrade expressed the view that this was the most serious economic crisis of capitalism since World War II. The crisis will have many international ramifications. For example Malaysia is expelling one million Indonesian laborers who have been laid off from their jobs. So you have a million workers, with no money and no prospects for work, dumped back into Indonesia, where there is also no prospect for work and a shaky political situation. The East Asian countries are now headed into deep recession and maybe depression. And this was the region that world capitalism had been glorifying and was counting on for continued growth.

. Another comrade compared it to the Mexican crisis of 1994, when Mexico devalued. Like Mexico, the East Asian countries will eventually make a comeback, but growth will be slow for years. And even when growth does revive, as in Mexico it won't help the masses very much for a long time. Wages will be depressed for years.

. Another comrade pointed out that it's similar to the Latin American debt crisis of the 1980s; but in this case it hit the entire region all at once. Through the 1980s and 1990s, East Asia was pointed to as the model for Latin America. Now it's reversed; the East Asians are in the dumps, and Latin American countries are showing some growth. But it should be remembered that Latin America had its "lost decade" of the 1980s, and even now the region is far from recovered. And there's another similarity to Latin America: in both cases there wasn't a lot of direct investment in the countries involved by the imperialist powers. There were loans. In Latin America the loans were made to government agencies, while in Asia the loans were to private or semi-private banks and financial institutions. But in both cases the imperialists themselves are not greatly exposed, directly.

. Another comrade compared it to the U.S. savings and loan crisis. In the S&L crisis, American workers weren't directly affected very much. Over the long run they're forced to pay for the crisis in higher taxes, but at the time they weren't forced out of work or forced to accept lower wages. But this is what is hitting the workers of East Asia; they're facing something much worse than the S&L crisis.

. One comrade speculated that this crisis could mark the beginning of worldwide stagnation. Bourgeois pundits have been glorifying the "great bull market" of the 1990s, but this might be the end. They've been talking about "the new economy" as something that was immune to business cycles, immune to boom-and-bust cycles, immune to recession. This has all been proved wrong as far as Asia is concerned, and this could be the beginning of a worldwide crisis.

Bourgeois solutions for a bourgeois crisis

. Another similarity to the Latin American debt crisis was noted: the prescription being given to the people of East Asia by the IMF is the same prescription meted out to Latin America. In both cases the IMF and big powers tell them the free market is the solution to all problems. They must get rid of state industries, cut back government budgets, privatize publicly owned enterprises, open up their markets to more competition, etc.

. This plan may well exacerbate the crisis in East Asia. Precisely at a time when millions of workers are losing their jobs, Indonesia for example is supposed to cut its budget, not spend any money on welfare, state subsidies, or state-sponsored work projects. Nor is it allowed any deficit spending to try and stimulate the economy. This is crazy; this is just asking for trouble. In the U.S., the bourgeois economists agree that a recession is one time when you have to allow some deficit spending, have to allow some expansion of welfare spending. But they're not going to allow any such thing in Indonesia. Their plan will only increase the misery of the masses and make it more likely that the entire country will blow up.

. One comrade noted that even Jeffrey Sachs, the noted bourgeois "shock therapist", thinks that the IMF is being too harsh on East Asia. Sachs was hired as an adviser to Poland when the Solidarity government first came into power. Sachs was a strong advocate of "shock therapy", to force Eastern European economies into the free-market system by jumping in headfirst without any lifeboats for the masses. But Sachs has made headlines recently by opposing the harsh IMF plans for East Asia. Sachs notes that the IMF was totally wrong in its predictions about East Asia; they were looking at things through rose-colored glasses and expecting high growth rates even after the devaluations started. So they didn't know any more than anyone else in East Asia. Yet now they're demanding harsh cutbacks that will make things worse. The IMF "bailout" plan will guarantee bank loans, the loans made by Western banks, but will kill production and markets.

. Another comrade pointed out that Canada has been practicing balanced budget austerity for a number of years. Yet the Canadian dollar has been steadily losing value during these tight-money years, and now has reached an historic low. This proves that austerity is no guarantee of financial stability.

Insecurity for the working class

. One comrade pointed out that this crisis is not just a crisis for the bourgeoisie. It's scary for workers too. All our pension funds are wrapped up in the stock market. Our futures are tied up in the market.

. Other comrades agreed and gave examples of this. It was pointed out that many companies -- for example the U.S. Postal Service -- are switching responsibility for pensions from company-paid group plans to plans that are based on individual responsibility, where the individual worker invests a certain amount. This puts the individual in a bad situation in case something goes wrong in the stock market. Nothing is guaranteed; there's no secure future. It was also pointed out that in the midst of the current debate over Social Security, that some congressmen are proposing that Social Security be privatized, so that all our pension money will be tied up in the stock market. It was pointed out that these proposals are based on the so-called success of this system in Chile, where it was adopted under the fascist dictator Pinochet. For a number of years the bourgeois experts were touting the Chilean system as a great success. But recently the stock market in Chile has declined drastically, and now nobody's talking about this "model" any more. It was also pointed out that, even with so-called guaranteed pension plans, companies often reneged. Very often companies blow their employees' pension plan money and simply don't pay. Even big blue-chip corporations like General Motors renege on promises to their retirees; GM had promised to pay their retirees' full medical benefits, but recently they cut back on this.

. This insecurity for the working class is due to the fragility of the market system. The entire population is affected by what happens in the stock market. It used to be that the government was afraid to tie funds to the stock market. But today everything is being hitched to the stock market, and so everything is affected by the market's volatility.

Shock therapy -- a way out?

. Getting back to the discussion of Jeffrey Sachs and "shock therapy", one comrade raised the question if shock therapy might be the solution to East Asia's economic troubles. According to news reports, it seems to have worked in Poland.

. In reply, one comrade noted that the situation in Eastern European countries is very mixed. Some countries are doing much better than others in the transition to free-market economy. The ones that are doing best, such as Poland and Hungary, are the ones where the free-market economy already existed to a large degree before the big change of the 1990s. These countries seem to have survived the shock therapy and are now doing OK. But in some other countries such as Albania, Bulgaria and Russia, the situation is simply horrible. This is not to mention Yugoslavia, where civil war blew up; or the civil wars that have broken out in the former Soviet Union. But just economically, Russia is in a severe depression and has been so for years. And if Poland is now back to about where it was before the shock therapy, it should be borne in mind that the working class had to pay a terrible price during the transition period. Jobs disappeared, wages went unpaid or declined drastically in value, pensions and savings disappeared. The latest such example is China, which is privatizing with a vengeance. But many protests have already broken out in China. The workers there are angry about being forced to bear the burden for this transition.

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Last changed on October 17, 2001.