Date: Sun, 16 Nov 1997 15:12:02 -0500
From: Louis Proyect <lnp3-AT-columbia.edu>
Subject: Re: M-I: The Vortex of the World Market, or Capitalism Sucks


>Of cousre these are profoundly imperfect, and often misleading measures.
>But for most of the Third World, in strictly material terms, the 1980s and
>1990s have been generally worse than were the 1950s-1970s for people at the
>sub-elite level. Do you accept that, Lou?
>
>Doug

Louis P:
The cause of the downturn in the 80s and 90s is political, not economic.
The defeat of Nicaragua, Mozambique, et al has caused a political retreat
in the Workers Party of Brazil and the ANC. This is a case of the domino
theory in reverse.

What will cause an upturn in the class struggle in the impoverished third
world is some dynamic in the opposite direction, such as the deeply
problematic victory of Kabila. If Kabila is forced to adopt more radical
measures by pressure from the masses, this could have an effect on the
class struggle in neighboring countries. It is relatively independent from
the business cycle.

Asia is a somewhat different story, since capitalist development has
approximated "classical" forms in places like South Korea. Speaking of
that, there is a very interesting article on overcapacity in today's NY
Times by Louis Uchitelle that gives us some sense of the difficulties
facing the bourgeoisie during the "end of history":

President Clinton's failure last week to persuade Congress to give him
freedom to negotiate trade deals reflected skepticism among Americans about
the benefits of a global economy -- not only free trade, but an entire
system that allows money, factories and jobs to move anywhere. 

Domestic politics, of course, played a big role in the president's decision
to retreat when he failed to muster enough votes for passage. But the
skepticism is not limited to politicians jockeying for the next election,
or union officials charging that jobs are going south. The worriers are
often the very business executives and international investors who built
today's global economy and now fear that it might backfire. 

There IS something to worry about. The Asian financial turmoil may be the
first stage of a developing worldwide crisis driven mainly by a phenomenon
called overcapacity: the tendency of the unfettered global economy to
produce more cars, toys, shoes, airplanes, steel, paper, appliances, film,
clothing and electronic devices than people will buy at high enough prices. 

"There is excess global capacity in almost every industry," Jack Welch,
chairman of General Electric, said in a recent interview in The Financial
Times of London. 

The problem arises because the global economy sucks businesses into
building too many factories. Allied Signal, for example, a multinational
corporation based in Morristown, N.J., built a polyester plant in
Longlaville, France, in 1993 and expanded it last year. The polyester, used
in nylon carpets and tire cords, is sold in France and shipped across open
borders to customers everywhere in the region. 

But a group in South Korea, an emerging industrial nation seeking to be a
big player in many major industries, opened a polyester plant in Korea
recently. Taking advantage of open borders, the Koreans are shipping their
polyester into Europe and other countries, grabbing away customers and
market share by offering lower prices. And the customers, offered more
polyester than they need, have encouraged a price war. 

Price wars, up to a point, are good for consumers. The inflation rate in
the United States has fallen in part because of global overcapacity, and
business people everywhere complain that they can't raise prices. "That is
what overcapacity means," said Peter L. Bernstein, an economic consultant. 

The danger is that at some point this house of cards must tumble down. In
an open-border global economy nearly every car manufacturer, for example,
is trying to have a presence in every market. But when all the factories
crank out more cars than people can buy, down come car prices. Down go the
profits of car companies. Out go the workers. And down go the number of
people who can afford to buy cars. Economies can spiral downward toward
recession, or worse. That is what is beginning to happen in Asia now. 

East Asia has been the main source of the world's overcapacity in recent
years. Since 1991, countries like Thailand, South Korea, Indonesia,
Malaysia and the Philippines have accounted for half the growth in world
output, primarily manufacturing, according to David Hale, chief global
economist for the Zurich Insurance Group. 

The financing for this new production often came from international
investors moving huge sums across borders. They frequently borrowed the
money at low interest rates in Japan and the United States and then
invested in booming Asia in expectation of earning a high return. Money
borrowed at 1 or 2 percent a year in Japan might typically pay 8 to 10
percent invested in Asia. 

Chunks of this money inevitably went not into factories but into
speculation. Borrowers defaulted. And as the hoped-for big returns failed
to materialize, fear grew, first in Thailand, that money invested in that
country's currency, the baht, would not earn enough to pay debts incurred
in dollars or yen. There was a run on the baht last summer, which spread to
stock prices and to other Asian financial markets. 

And as imports from the region rise (they have risen only slightly so far)
there is downward pressure on prices in the United States and on the wages
of workers who make products that compete with the imports. Just the threat
of an Asian alternative produces this downward pressure, some economists
argue. 

The global economy appears, in effect, to be capable of self-destruction.
That is the view of William Greider, a journalist who writes extensively on
economics and whose recent book, "One World, Ready Or Not" (Simon &
Schuster), has made him a principal voice among those who point to the
dangers of an unregulated global economy. 

"It produces more and more goods even as it suppresses wages at both ends
of the world, in industrial as well as developing countries," he said. "You
cannot do that forever -- producing more and cutting the wages of those who
buy -- without some collapse." 

That view has been attacked by several influential economists, particularly
Paul Krugman of the Massachusetts Institute of Technology. The U.S.
economy, he says, is still mostly self-contained; global trade has not made
that much of an inroad. What's more, he says, workers will eventually share
in the earnings from rising production. 

And finally, Krugman maintains, overcapacity is not a question of too much
supply, but a faltering of demand. 

The Krugman solution is to turn up the demand; central banks do this by
cutting interest rates so companies and consumers can borrow money less
expensively. "There is no shortage of things on which people want to spend
money," Krugman said. "You would have to have a worldwide depression to
shock them into not buying, into sitting on their money." 

That seems unlikely, but in the end it could happen. Already central banks
in Asia, instead of lowering interest rates to encourage spending, as
Krugman suggests, have raised them in an effort to strengthen their
currencies, among other reasons. 

South Korea could be the next country in trouble, analysts say, hurting
Japan in the process. Some of the huge sums invested in Korea were borrowed
from Japanese banks. A loan default in Korea could bring down a Japanese
bank already weakened by the recession in that country. And with its own
consumers already balking, the fresh blow of a bank default would make
Japan even more eager to export its unsold goods -- its overcapacity -- to
the United States. With that in mind, Treasury Secretary Robert Rubin
publicly urged the Japanese government last week to spur domestic
consumption. 

Rubin's concern is understandable, given that the United States is the
alternative if the Japanese don't buy enough -- Americans being the world's
consumers of last resort. The U.S. trade deficit keeps rising as imports
grow, forcing American manufacturers to cut back. Just last week Eastman
Kodak announced 10,000 job cuts, in part to accommodate overcapacity in
film manufacturing, especially competition from Fuji of Japan. 

But the U.S. trade deficit would have to quintuple before the economy gets
into trouble, said David Wyss, research director at DRI/McGraw-Hill, an
economic forecasting service. 

"There is the possibility," he said, "that you can bring in so many
low-priced imports that businesses in this country would have to cut back
and unemployment would rise. But that sure is not happening now." 




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