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. --- from list marxism-international-AT-lists.village.virginia.edu ---
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