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Globalization on Trial

Crisis and Class Struggle in East Asia

David McNally teaches political science at York University, Toronto, and is author of Against the Market: Political Economy, Market Socialism and the Marxist Critique (1993).

Can someone find me an economist who knows what’s going on?

Ali Atlas, Indonesia’s Foreign Minister

What a difference a year makes. As recently as last summer, economic pundits and global investors were singing the praises of the “Asian tigers.” The World Bank basked in the glow of its 1993 report, The Asian Miracle. Throughout ruling circles, the “Asian model” was touted as proof that open markets and the free flow of capital would be the salvation of humankind.

Today, more than a year into the region’s devastating economic crisis, the World Bank is preparing a new report. Rethinking Asia’s Miracle it is to be called. Small wonder some rethinking is in order. Every day, 10,000 South Korean workers receive layoff notices—300,000 per month. The Indonesian economy is in a state of near-total collapse, merely 22 of the 282 companies on the Jakarta stock exchange still viable. Japan is mired in its deepest recession in twenty-five years. Malaysia and Thailand remain in financial shock. Overall, more than $600 billion has been wiped off the balance sheets of the region’s stock markets. With national budgets and public policy increasingly dictated by the International Monetary Fund (IMF), East Asia’s increased integration into the world market now looks like the route to a new form of dependency.

The hype about “globalization” that has dominated economic analysis even on much of the left now stands severely shaken. True, capital’s relentless drive to restructure—downsizing and “leaning” of production, outsourcing, casualization of much work, the creation of new capital markets, establishment of new trade and investment pacts—has reshaped the terrain of struggle and resistance. But rather than altering capital’s essential dynamics and contradictions, the crisis in Asia reveals just how explosive those contradictions can be. In fact, the Asian crisis tells us much about two fundamental contradictions of capitalism in the age of “globalization.” First, it reveals the severe problem of overaccumulation and overcapacity that plagues globalizing capital today. And, secondly, it illustrates how accelerated capital accumulation can give rise to powerful new working classes capable of fighting back against capital’s dictates.

Globalization on Trial

If any region is a test case for establishment claims about globalization it is East Asia and its newly industrializing countries—South Korea, Thailand, Indonesia, Malaysia, and Taiwan in particular. Look at much of the world and claims for economic globalization seem laughable. After all, despite all the hype about globally-mobile capital, international capital continues to concentrate production and trade in the industrially developed nations. With a few exceptions, only parts of Asia have been more systematically incorporated into the global circuits of capital. Between 1980 and 1991, for instance, the share of world trade for which Asia (excluding Japan) accounted rose from 9 to 15 percent while the developed nations’ share slipped from 72 to 63 percent. But the rest of the world economy—the “less developed countries” of Africa, Latin America, and the Caribbean in particular—experienced a catastrophic drop from 28 to 13 percent of international trade (United Nations, World Economic Survey, 1993). By 1994 East Asia was the destination of more than half of all investment flows to developing countries.

Take Asia away, therefore, and there was no globalization thesis; it was the sole success story. And East Asia’s crisis now puts that at risk. More than that, events in Asia pose a serious threat to the world capitalist economy as a whole, “the biggest threat to global prosperity” since the 1970s as Business Week puts it (January 26, 1998).

Contrary to the facile descriptions of the business press, however, the collapse in East Asia is not fundamentally about corruption, crony capitalism, or overly regulated markets. Rather, it is about the classic problem of capitalist overaccumulation (and the profit squeeze that accompanies it). The enormous capital flows into Southeast Asia in recent years have contributed to a huge build-up in productive capacity, much of which cannot be profitably utilized. Capitalist development of the forces of production, in other words, is running up against its inherent limits. Yet, as market competition has intensified, corporations have responded by adding even more new capacity—new factories, mines, mills, and mega-farms, new infrastructure and service industries.

Adding new capacity at a time of general overcapacity may seem irrational—and for the system as a whole it is. But for the individual capitalist firm caught in the logic of market competition it is the only rational course. The objective, after all, is to insure that someone else fails in the scramble for market share. The survivors are likely to be those with the right combination of lean production, new technology, labor discipline, relatively low wages, and ready market access. So new capacity is added to achieve these, to construct the most efficient capitalist enterprises, despite the problem of overaccumulation as a whole.

In many cases, Asia has been the testing ground for much of the latest wave of capital accumulation. Auto, steel, electronics, computer chip, and fiber optics plants have been built pell-mell in the expectation that cheap labor, easy financing, and business-friendly governments with draconian labor regulations would guarantee good rates of return. Once the boom reached its limits, the results were predictable: enormous excess capacity and serious problems of profitability.

Take the case of the world automobile industry. Global excess capacity in autos today is around 21-22 million cars. That’s roughly a 36 percent overcapacity relative to world markets, the equivalent of 80 efficient state-of-the-art plants. Yet, despite those realities—indeed, in capitalist logic, because of them—auto companies have been frantically building new capacity throughout Asia. Before the crisis broke, in fact, automobile firms planned investment projects that would see a doubling of Asian car manufacturing capacity outside of Korea and Japan, which are already staggering under excess capacity.

Similar problems of overaccumulation—of the creation of productive forces that cannot be utilized profitably—plague industries such as computer chips, semi-conductors, optical fibers, chemicals, and steel. The world market in dynamic random-access memory chips (DRAMs) is another case in point. Analysts estimate that the oversupply of DRAMs will be 18 percent this year, compared with zero as recently as 1995. The result has been a devastating collapse in prices (especially damaging for South Korea, which controls 40 percent of the global DRAM market). Prices of 64-megabit DRAMs plummeted from $60 in early 1997 to $20 by the end of the year. This year, prices have fallen as low as eight dollars (Wall Street Journal, June 4, 1998). The root cause of the Asian economic crisis is this sort of downward pressure on prices and profits brought on by overproduction. That’s why, sensing that an adequate return on further investment in these sectors was improbable, some investors got cold feet. They began to hedge their bets by reducing Asian holdings. Slowly but surely, plugs were pulled in precisely those areas, like East Asia, where hectic accumulation, exacerbated by huge inflows of speculative capital, had been the order of the day. “Market forces” responded, in other words, to real problems of overaccumulation of capital. Rather than the result of inadequate marketization of society, then, the Asian crisis is all about the contradictions inherent in the capitalist market. It is, in short, a product of capitalist globalization, of the extension and intensification of capitalist contradictions on a world scale.

All of this has been exacerbated further by flows of short-term financial capital. For while Latin American markets remained shaky, as Japan’s stock and real estate markets were melting down, international banks and lending agencies saw great profits to be made in East Asia. They saw factories going up, new technologies being brought on stream, explosive growth of highways, airports, telecommunication systems, and luxury hotels—and they wanted in on the boom. As financial capital poured into the region, making it relatively cheap and easy to raise funds, manufacturing and construction firms kept bringing new projects on line. East Asia’s economic upswing thus acquired all the classic characteristics of a speculative boom. As each new mega-project was announced to euphoric prediction, the bubble grew larger.

Inevitably, some investors bet against the euphoria. They recognized that too many factories, agri-businesses, mines, hotels, and highways were being built in a context of world overcapacity. Quietly at first, they withdrew from new investment projects in Asia. They pulled cash out of stock markets; they dumped Asian currencies. Once kick-started, the process snowballed. Whereas private capital flows into Indonesia, Malaysia, the Philippines, South Korea, and Thailand had nearly quintupled between 1990 and 1996, soaring from $20 billion to $95 billion per year, those countries experienced in 1997 a net outflow of private capital to the tune of $20 billion. The crash was on, beginning with the run against the Thai baht last summer.

Suddenly, the business community discovered that East Asian debt—the very debt created by the offerings of global capital—was a festering problem. Only last summer, even after the collapse of the baht was underway, economists at the World Bank, the IMF, and a number of foreign banks all proclaimed the fundamental soundness of the Indonesian economy. No Thai-type problems were to be expected there. A few months later the capital flight began and the world market pronounced its verdict on the country’s $80 billion foreign debt. So severe has the flight been that the devaluation imposed by global capital has now moved things to the edge of catastrophe, pushing the ratio of foreign bank debt to gross domestic product from 35 percent to 140 percent (Economist, March 7, 1998).

All eyes turned next to South Korea. East Asia’s major industrial power outside of Japan now appeared terribly vulnerable, especially in light of the long downward slide in the value of the Japanese yen brought on by Japan’s crisis. Since South Korea competes directly with Japan in industries like autos, steel, and electronics, it has much to fear from the declining prices for Japanese exports that a lower yen creates. South Korea thus found itself in a conundrum: despite booming export growth, its export revenues stagnated as a result of downward pressure on prices. In 1996-97, for instance, South Korean exports rose by 37 percent while export revenues crept up a mere 5 percent. But such meager increases were not adequate to finance the borrowing Korean businesses had done to build and retool factories. By the end of 1996, the top thirty chaebol—the industrial conglomerates that dominate the economy—had an average debt to equity ratio of 400 percent. As the crisis hit and exports and earnings slumped, prospects for financing those debts dimmed. More than one-quarter of the chaebol have now collapsed, including the automotive conglomerate Kia and the Halla Group, involved in ship-building, engineering and auto parts.

Meanwhile, the crisis in East Asia fed back into Japan where it had started. The Japanese slump began in the early 1990s with huge collapses in stock and real estate markets. After contracting about one percent in 1997, Japanese output slumped a staggering 5.3 percent in the first quarter of this year. Corporate profits and capital investment are down, business bankruptcies are soaring, and consumer spending is in a deep funk. Department store sales are falling at a rate of about 15 percent each month. Meanwhile, bad loans held by Japanese banks exceed $1 trillion and corporate debt averages four times equity, compared with 1.5 times in the United States (Business Week, May 18, 1998). All of this despite an injection of $1 trillion in government spending over the past six years to kick-start the economy. So pessimistic has much business opinion toward Japan turned that Paul Summerville, chief economist at RBC Dominion Securities, predicts (as he has since 1992) that Japan’s slump will last fifteen years. Needless to say, that is more bad news for the “Asian tigers” for whom exports to Japan and local Japanese investments have been crucial. And it is one reason the crisis is unlikely to end any time soon.1

Across the region, a wave of stock market crashes, plant closings, mass layoffs, government cuts, and currency depreciations are wreaking havoc on the lives of millions. Massive capital investment and accumulation are colliding with the logic of production for profit. As a result, East Asia is now in the grips of “an epidemic that, in all earlier epochs, would have seemed an absurdity—the epidemic of overproduction.”2 That epidemic is now imposing untold hardship—and producing resistance and revolt.

Working People and the Natural Environment:
Some Dimensions of the Crisis

More than five million Indonesian workers have been laid off since July of last year. The country’s jobless number is likely to hit twenty million by the end of 1998, by which time nearly three million will be unemployed in Thailand, almost two million in South Korea, and a million in Malaysia alongside 1.5 million migrant laborers facing expulsion.

In concert with the layoffs goes the destruction of living standards. Between August and December of last year, average incomes were halved in South Korea. That pales beside what’s happened in Indonesia where the annual per capita income has plummeted from $1200 to $300. In Surabaya, the country’s largest industrial city, the daily minimum wage has collapsed to less than thirty cents from two dollars a year ago. And this at a time when, as a result of the dictates of the IMF, food and fuel subsidies are being eliminated and prices are soaring. By year’s end the number of people living below the poverty line will double to 58 million. And Indonesia is by no means alone. In Thailand, prices of rice and flour jumped 47 percent in February, spelling a calamity for the poor. More than simply shifts in trade and investment figures, the economic crisis in East Asia is fundamentally about soaring poverty, unemployment, malnutrition, and rates of disease. Relief workers in Indonesia report that many mothers, no longer able to afford milk which has tripled in price, are feeding their babies with tea. Rates of malnutrition and school dropouts are soaring. Young women have been particularly hard hit, as factories and stores close and girls are pulled out of schools. In Thailand, the crisis means that thousands more rural families will feel the pressure to sell their daughters into prostitution in Bangkok where, some experts suggest, as many as one million young women work in the sex trade, many of them susceptible to an AIDS crisis the government largely denies.

Devastation of the natural environment massively compounds the suffering. Frantic industrialization and grandiose mega-projects have already inflicted staggering environmental damage. The Asian Development Bank in Manila describes the continent as the “most polluted and environmentally degraded” in the world. Asia’s rivers contain an average of twenty times more lead than do those in the West. The human toll is immense. According to the World Health Organization, more than 1.5 million lives are lost every year as a result of Asia’s air pollution. Another 500,000 lives are claimed by untreated water and poor sanitation. The economic crisis will lead to further environmental degradation as companies, desperate to stay alive, reduce costs and cut corners on safety and pollution control. Recent events in Indonesia are a dire warning of what may be in store.

In sheer scale, commercial logging eclipses all other industrial undertakings in Indonesia which is home to 10 percent of the world’s tropical rainforests. About sixty million people live and work in these forests, a third or more of them practicing slash-and-burn farming which has been sustainable for thousands of years. Yet millions of these people are being displaced by commercial logging, mining and the like. One third of the country’s land mass—roughly sixty-four million hectares—is occupied by logging companies which routinely set forests ablaze as part of their logging and planting operations. The privatization and destruction of lands and forests has caused massive displacement of people. During the 1970s, for instance, more than 2.5 million indigenous peoples across Kalimantan were displaced. By the mid-1980s perhaps ten million people were “resettled” from Java to other islands. Last summer almost two million hectares were set afire in the lowland tropical rain-forests of Sumatra and Kalimantan. The results have been devastating: global warming, weather changes, adverse affects on coffee, cocoa farming, and the fishing industry. Up to seventy million people in Indonesia, Singapore, southern Thailand, Brunei, Malaysia and the southern Philippines have been affected and thousands have sought treatment for respiratory problems, asthma, and skin and eye irritations.3

Also devastating has been the impact of mega-mining projects, none more so than the copper and gold mines run by New Orleans-based Freeport McMoRan. The company, which has been charged with abduction, torture, and murder of indigenous peoples, operates the richest mine in the world in West Papua. The corporation extracts vast amounts of ore from Puncuk Jaya Mountain and the tailings have poisoned the Ajkwa River, killing fish and forests. The company now plans to double the output of the mine, something we are likely to see more of as debt-strapped governments sell off natural resources to raise cash for the IMF and global investors.4

Intensified destruction of the natural environment is a direct consequence of the intensification of market imperatives throughout East Asia. Industrial overaccumulation alongside the gyrations of financial capital have led to classic capitalist assaults on working people and the environment, “simultaneously undermining the original sources of all wealth—the soil and the worker,” as Marx puts it.5

Resistance and Revolt: Asia’s New Workers’ Movements

Yet none of this is happening without resistance. The period of the last fifteen to twenty years, the area of the celebrated “Asian miracle,” has seen enormous growth in the size of the employed working-class and major progress in working class self-organization and struggle across the region. Throughout the economic South, or the so-called “developing world,” the number of industrial workers alone increased from about 285 million in 1980 to over 400 million by 1994, much of this growth concentrated in Asia. Moreover, during this period women in East Asia entered the paid workforce in huge numbers. Today, women constitute 42 percent of all wage-laborers in the region and often an overwhelming majority in key industries like garments, electrical goods, and electronics. On top of this, the late 1980s saw widespread growth in union organization. During the years 1987 to 1989, for example, the number of organized workers increased by 27 percent in Bangladesh, 38 percent in the Philippines and fully 100 percent in South Korea. Over the years 1986 to 1989 the number increased more than 50 percent in Taiwan.6

But it’s not just numbers that matter here. The working class throughout East Asia has also developed forms of militancy and self-organization that often put western labor movements to shame. Frequently, young women have been in the forefront of these struggles. And in many cases, these movements have involved new, independent unions and labor federations which reject the collaborationism of the older, state-tolerated and state-regulated unions. In Taiwan, a new federation of independent unions emerged in 1988, while another was formed in South Korea in 1995. Meanwhile, unions like the National Garment Workers Union in Bangladesh and the Center for Indonesian Labor Struggle, an illegal workers’ organization, have spearheaded major battles in those nations.

Indonesia is clearly a crucial case, given the growth of political dissent which brought on the student-led uprising that toppled dictator Suharto (who came to power in 1965 in a bloody coup during which at least half a million leftists were murdered). A crucial role in the street-level mobilizations that toppled Suharto was played by the banned People’s Democratic Party (PRD) and its student allies in the Students in Solidarity for Democracy in Indonesia (SSDI). Significantly, the PRD, whose supporters are young radical democrats, champions the independence of East Timor, invaded by Suharto (with U.S. support) in 1975. And during the uprising against Suharto, the PRD distinguished itself by arguing against attacks on “our Chinese sisters and brothers” as tactics which “will only weaken our struggle and benefit Suharto” (PRD Statement, May 14, 1998). Radically democratic perspectives such as these galvanized a movement whose courage was truly inspiring, as students waged months of daily protests, including hunger strikes, demonstrations, and occupations of government buildings in the face of club-wielding police and tear gas-firing soldiers who turned to bullets (and killed a number of students) during Suharto’s last days.

But what most commentators on the Indonesian events missed was the emergence in recent years, alongside this youth- and campus-based opposition, of a small but militant workers’ movement. In July of 1995, for instance, the banned Indonesian Center for Labor Struggle (PBBI), which has ties to the PRD, led a 13,000-strong strike of garment workers in Bogor. Last July, the union launched a strike and community protest movement of 20,000 in Surabaya. Then, last October, when the economic crisis led to rumors of IMF-dictated layoffs, the PBBI organized a strike of 16,000 workers at the state aircraft company in Bandung.

These may seem like small accomplishments. But in the context of police and military repression the militant determination of Indonesian workers is nothing short of inspiring. And in the aftermath of the popular movement that toppled Suharto, workers’ organizations are becoming more confident and self-assertive. During the struggle against Suharto, workers and the urban poor joined students on the streets on many occasions. On May 3, for example, 300 factory workers from Tangerang in East Jakarta responded to a student invitation to demonstrate against the regime. Moreover, the post-Suharto government’s decision to free jailed union leader Muchtar Pakpahan has not quelled workers’ protests. Workers at Garuda Airlines in Jakarta have taken strike action, as have 50,000 workers at Maspion Corporation in Surabaya. In fact, the strikers at Maspion organized the biggest protest since the fall of Suharto when, on June 8, more than 10,000 workers rallied and clashed with police in Surabaya. At the same time, transport workers in Jakarta struck the Public Transport Authority (PPD) and shut down seventy-three bus lines. At the height of their strike more than 9,000 workers demonstrated outside the PPD offices. Actions such as these raise hopes that the radical opposition among the young will take on an increasingly class character as workers’ organizations come to the fore in the fight against poverty, layoffs, and the dictates of the IMF. Nowhere is that prospect greater, perhaps, than in South Korea.

Beginning in the late 1980s, a tremendous working-class upheaval swept South Korea. Between 1986 and 1990 union membership doubled from one to two million in the course of a huge strike wave. That classic weapon of militant working-class struggle—the sit-down strike—became increasingly common. In the industrial cities of Masan and Changwon a virtual workers’ revolt took place in 1987-88 when company assaults on a group of women strikers provoked an outpouring of solidarity strikes and the joining together of thirty new independent unions. So impressive was the solidarity and so widespread the militancy that radical workers described Masan-Chawong at the time as a “liberated zone.” Then, after formation of the (illegal) Korean Confederation of Trade Unions (KCTU) in November 1995 with over half a million members, came the largest-ever mass strikes. The first round came in December 1996. That was followed, in January 1997, by a month of mass strikes involving 630,000 workers protesting new labor law restrictions and legislative changes that would make mass layoffs possible. In a mere decade, the South Korean working class had built one of the most combative union movements in the world. That movement is now being severely tested as a result of the current economic crisis.

The biggest challenge came when, as a condition of its $57 billion aid package, the IMF insisted that the South Korean government implement mass layoffs. Given that this question had prompted general strikes a year earlier, the state convened a tripartite commission of business, government, and labor leaders to negotiate an agreement. Representatives of the KCTU were invited, along with those of the more moderate Federation of Korean Trade Unions. On February 6 of this year, much to the dismay of many union activists, the leaders of the KCTU signed an accord which, in exchange for modest concessions, accepted mass layoffs and all the basic terms of the IMF bail-out. Within days, hundreds of angry KCTU delegates rebelled, voting down the agreement, removing the leaders who had signed the deal, and setting the date for a nationwide general strike. Only a few days later, however, the strike call was reversed as militants realized they did not have adequate support for the action.

Worker militants in South Korea now confront a dilemma. The scale of the economic crisis has shocked most Koreans. National pride has been deeply offended by the image of the IMF dictating national policy. Hundreds of thousands have responded to government calls for people to donate gold or U.S. dollars to state reserves. Incidents of people attacking foreign-made cars are frequent. In the midst of this patriotic upsurge, KCTU activists have found it difficult to mobilize against the South Korean state and ruling class. Yet, that is precisely the task confronting the radical workers’ movement: to develop a political program of action that targets international capital (and its agencies, like the IMF) and the Korean ruling class. To the traditional patriotism invoked by the Korean government, the radicals need to counterpose an anti-imperialism which is working class in character, one which calls for socialization of the economy and workers’ control of industry.

That will require the development of independent working class politics alongside the new labor movement. There is no easy road to that goal. Prospects for mass resistance are made difficult as layoffs and economic collapse demoralize workers and grind down their confidence to fight back. Trying to raise the political horizons of struggle—to forge a class-based political opposition to the IMF and the local ruling class—is a daunting task under such circumstances. But a decade of struggle has created a militant and combative workers’ movement with tens of thousands of dedicated union activists. And in the context of layoffs, economic crisis, and continued agitation for mass action by thousands of KCTU militants, there are real prospects for building working-class resistance. In fact, after stumbling in the early winter, unions are recovering their capacity to fight back. On May 27-28, about 120,000 workers in the KCTU participated in strike action against layoffs. Further mass strikes are now being planned. And on the heels of that mass strike, workers at Kia Motors forced concessions from management after waging a three-week series of strikes against wage cuts. Whatever the short-term outcome of the current struggles, a militant working-class leadership is being forged in the heat of struggle against economic crisis and IMF austerity.

An Asian Model of Resistance?

The working-class and the poor throughout East Asia now find themselves locked in a ferocious battle with international capital. Economic and political struggles of immense importance—food riots, student demonstrations for democracy, workers’ strikes against layoffs—are widespread. These struggles will not be easy ones. But in the crucible of the decaying “Asian miracle,” forces of resistance are being constituted. The next few years will show if they are able to mount a major battle against the ravages of globalizing capital.

Already, however, the tremendous militancy and self-organization of East Asian workers ought to command respect. Strikes by young women in garment factories in Bogor and electronics plants in Kuala Lumpur, by aircraft workers in Bandung against IMF-directed layoffs, mass demonstrations by tens of thousands of workers in Surabaya, and weeks of strikes by workers at Kia in South Korea are all signs of working-class resistance to downsizing, austerity, privatization, unemployment, and poverty. East Asia has become the focal-point of the international class struggle. Out of these struggles a new “Asian model” may emerge—a model of working-class resistance to capitalist globalization. We have much to learn from these struggles. And we owe them our solidarity and support.

Notes

  1. It is outside the bounds of this article to explore the unique dynamics of developments in China. Recent announcements of dramatic falls in China’s growth rate and the layoff of millions more public employees, as tens of thousands of state enterprises close, suggest that major problems are in store, problems which will have reverberations throughout the region and the world economy as a whole.
  2. Karl Marx and Friedrich Engels, The Communist Manifesto (p. 73)
  3. Dianne Feeley, “Who Set the Fires?” Against the Current 72 (January-February, 1998), p. 17; and Curtis Runyan, “Indonesia’s Discontent,” World Watch, May-June 1998, pp. 12-23.
  4. Information on Freeport McMoRan comes from Runyan.
  5. Karl Marx, Capital, v. 1, trans. Ben Fowkes (Harmondsworth: Penguin Books, 1976), p. 638.
  6. Much of the data in this paragraph, and much of what follows on South Korean labor, is indebted to Kim Moody, Workers in a Lean World (London: Verso, 1997), p. 202. In addition to Moody’s important book, useful sources are Jeremy Seabrook, In the Cities of the South (London: Verso, 1993) and Stephen Frenkel, ed., Organized Workers in the Asia-Pacific Region (Ithaca: ILR Press, 1993).