File spoon-archives/marxism-international.archive/marxism-international_1997/marxism-international.9711, message 411


Date: Sun, 23 Nov 1997 13:29:56 -0800
From: Mark Jones <Jones_M-AT-netcomuk.co.uk>
Subject: Re: M-I: Global Financial Crisis


I am crossposting this interesting piece by Dennis R Redmond from WSN, to make
two comments about it.

Mark
__________________________________________
Subject:
          Re: Asia's crisis
    Date:
          Sat, 22 Nov 1997 15:22:22 -0800 (PST)
   From:
           <dredmond-AT-gladstone.uoregon.edu>
      To:
          WORLD SYSTEMS NETWORK <wsn-AT-csf.colorado.edu>




On Sat, 22 Nov 1997 kjkhoo-AT-pop.jaring.my wrote:
>
> Would anyone care to offer an analysis of the Asian meltdown in the
theoretical
> framework(s) in use by WSNers, or whatever? It does seem a shame that what
> threatens to be a critical event in the development of the contemporary world
> system (used loosely) should pass by without discussion.

OK, I'll take a preliminary shot at this (I apologize in advance for the
long post, if you want to skip the history, check out the three points at
the bottom). The main reason for the Asian meltdown is, I would argue, the
end of the American Empire. For the past fifty years, the world economy
has been organized and managed by the Americans (politically as the Cold
War, economically as military Keynesianism and the Bretton Wood accords
which enshrined the dollar as world reserve currency, socially as
American-style consumerism and the mass media).

American hegemony seemed to leave newly-industrializing countries with
only two choices: either they allowed the Americans to run their
accumulation regimes (the Brazilian option), or chose autarky (like the
Soviets and Chinese). In reality, there was a third option, chosen by
Japan, the tiger states and Central Europe: what might be called
export-platform autarky, i.e. a strong developmental state leashed the
power the capital, redistributed the social surplus to workers, invested
in the markets of the future, etc. I don't think this was a conscious
decision or anything, but rather a strategic improvisation, which made
sense only in hindsight.

Well, Central Europe and East Asia got filthy rich by keeping imports at
bay, funding plush welfare states to stimulate internal demand, and
exporting like mad to American markets (e.g. VW's Beetle, or the Japanese
car exports of the late 1970s). Their economies were basically giant
condensation-chambers of capital, designed to efficiently recycle
export-earnings into domestic investment (via keiretsu bank-industry
alliances, long-term shareholdings, strategic trading firms like the
Japanese soga sosha). Typically, this involved inordinate amounts of bank
equity, as Japanese and German firms, for example, borrowed huge amounts
of local cash in the hopes of striking it rich in global (i.e. mostly
American) markets. What this meant was that the Central European and East
Asian systems had very high debt-to-equity ratios, and were very dependent
on American markets as a source of final demand.

Well, this system began to fall apart in the Seventies, because East Asian
and European businesses were kicking the ass of American corporations,
resulting in economic crisis for US firms (especially in the
machine-tools, metalworking and chemicals sectors). Nixon's response was
to scrap the Bretton Woods accord, thus allowing the yen, D-mark and
related currencies to strongly appreciate in foreign exchange markets. So
those countries got richer, but their export earnings got stomped. Their
response, in turn, was twofold: (1) shift to higher value-added exports,
like medium-class and luxury cars and electronics; (2) move low-tech stuff
like textiles, mining, smelting etc. to cheap Third World sweatshops; and
(3) insulate themselves against further depreciations by directly
investing in America.

The result was the creation of the Euro-periphery (Eastern Europe,
southern Italy, Iberia) and a Nippo-periphery (Hong Kong, Singapore,
Taiwan, Korea) which did a lot of subcontracting for the rising
metropoles. Caught between the hammer of low-priced, high-quality exports
from the EC and Japan, loss of market share to transplants, and the anvil
of low Southeast Asian/South European labor prices, the US economic
decline continued. In 1985, the US became a global debtor; today, the US
is $1 trillion in debt to the rest of the world on its net investment
position (creditors include Japan, at $800 billion, and Switzerland and
Germany, at around $200 billion each). American consumers can no longer
purchase the net output of Asian exporters, period.

This suggests three things:

1. East Asia and the EU must become the new sources of final global
demand. America is deep in rentier debauchery and decadence, and
can't fulfill this role any longer. South Korea will be saved not by
exports to America, but by exports to Japan (admittedly a tall order).

2. The European Union is neither a purely symbolic gesture nor a utopian
dream, but serves an essential function in stabilizing the economic
contradictions between the core and the periphery of Europe. Ireland and
Portugal have received billions of ECU from the core countries, which has
kickstarted their development; the same thing is happening in Eastern
Europe, where West German subsidies to the former GDR are powering a
mini-boom. Note that currency crises in the Europeriphery have been milder
and the consequences less ugly than in Asia.

3. Mahathir is dead right about one thing: East Asia is going to find that
unless they develop a euro-style united currency and a transnational
system of welfare handouts from the rich to poor countries (an
"Asiastate"), speculators and fickle market forces are going to stomp them
just like the Latin American and African economies got stomped. United,
East Asia has the resources to bail itself out of its mess; divided, they
fall prey to the bond ghouls and vampires of Wall Street. Which is it
going to be?

-- Dennis

___________________________

Comments/questions.

Dennis says 'Nixon's response [to EC/Japanese competition] was 
to scrap the Bretton Woods accord, thus allowing the yen, D-mark and
related currencies to strongly appreciate in foreign exchange markets. So
those countries got richer, but their export earnings got stomped.'

Japan and Germany could have competitively devalued instead. There were many, 
especially on the left, who argued for this. It was well understood the heavy 
social price to be paid for choosing the high currency value/domestic deflation 
strategy (today Jospin is dealing with 25% youth unemployment in France, as the
direct result of this deflation). The core countries' ruling classes were
resolute in refusing this. They reaped the rewards, accumulating huge
dollar-denominated balance of payments surpluses, which have fuelled the 
present disastrous speculative surge. The common people paid the price.

China's recent devaluations have showed how successful that strategy can be, at
least in the short term. China's huge dollar earnings and the fabulous growth of
its coastal regions are down to this. The collapse of Asian currencies are also
largely down to this: it is a wave of competitive devaluations, not chosen as
acts of policy and implemented in a controlled way, but happening in the form 
of a speculative melt-down, but that's still what it is. 

Now, Dennis, compares favourably the European core-periphery experience with 
that of Asia: but the example is flawed. Imagine if Russian reforms had 
produced an explosive economic growth as in China: then the meltdown would 
have hit Russia's closest Euro-competitors, the peripheral states of Central
Europe and the Iberian fringe. So it isn't down to German cleverness that 
Poland, Spain and Ireland are still afloat, but Russian failure.

This brings me to a second point: Dennis has the idea that under certain
conditions there can be an outflow of capital: a wall of German money, flooding
into Greece, southern Italy, Iberia, Poland etc. This is how he reads a possible
longterm consequnce of the global defeat (if that is what it is) of US 'rentier,
debauched' capitalism (which is still, however, the world's number one competitve
and technological power, Dennis). 

But I do not see any circumstances under which
this can happen. The example of German investment into the ex-GDR is the
exception that proves the rule. It was done for political and nationalistic
reasons, and there is some doubt about whether it has actually worked. It
certainly has not enthused the German capitalist class with a desire to flood
more money into Poland, Romania etc. Even the vaunted investment in places like
Ireland is a typical core-periphery thing, aimed at using low-wage economies as
assembly-platforms, which makes German capital more competitive and also helps,
as it were, hold the feet of German workers to the fire. 

If there is any ultimate logic in Dennis's thinking at all (and I am grateful to
him for the clarity of his thought) it is to replace a unipolar American world
hegemony with three blocs which presumably will deploy protectionism, or how
else will they preserve their economies against the uncontrolled round of global
competitive devaluations which protectionism and blocs always must produce?

Earlier this year I argued for ultra-imperialism, admittedly without much
conviction.

The fact is the if the US imperium collapses, it will bring down the world
market as a whole and usher in a period of great turbulence (putting it mildly).
Social-democratic false optimism about the possibilities of German-led or Asian
led growth in their respective co-propsperity spheres, is a snare and illusion.
The deepening world crisis is a result of a vicious battle to the finish between
competing rival imperialisms, now full unmasked by the collapse of the Soviet
bloc. In a perverse way, Lenin was right: peaceful coexistence was a guarantee
of world peace. The disappearance of the Soviet Union has put history back on
track. The unrestrained anarchy of clobal capitalism wil do its worst, and we
better prepare to meet the consequences.



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