The Chinese character for “crisis” combines the ideas of danger and opportunity. In the span of about one year, a regional economic “miracle,” with its promise of continued high economic growth and opportunity for all, was transformed into a severe regional, and potentially global, economic collapse. It has seriously endangered the livelihood of millions of people, causing untold misery and suffering.
The Asian economic crisis has not been simply a matter of movements in the global markets. Geopolitical factors have also been at work. This article will consider the ways in which the crisis has been linked to the reassertion of U.S. strategic power and supremacy in the region, through the increasing internationalization of capital. The East Asian crisis shows how, in the so-called new era of “globalization,” there is intense interstate conflict over the form and direction of regional and global patterns of capitalist development. Central to U.S. strategy is the imposition of a specific neoliberal model of restructuring. In the context of recent crises, state-directed and controlled forms of political economy have been, and are being, pressured to liberalize. This general pattern can be identified not only in the recent developments in Asia, but also in the restructuring of Latin America following the debt crisis of the early 1980s, and in strategies to transform the communist-ruled states of Eastern Europe and the former Soviet Union in the early 1990s.
Thus, the East Asian crisis represents the third phase of a longer process involving the reassertion of U.S. strategic dominance. So on one level, the crisis is that of an authoritarian state-directed capitalism that blocks a specific type of internationalization of capital. The U.S. aim is a global free enterprise system, which allows large institutional investors and giant transnational corporations to gain greater control over future profit-flows in the region, insuring freer labor markets which can better exploit labor.
This scenario requires governments in the region to continue to act, and actually be able, to maintain political order, because the process of structural adjustment is, and will continue to be, a wrenching one. Whether these governments will succeed remains to be seen. It is in this context—despite the obvious dangers of repression in a region characterized by authoritarian and dictatorial governments—that the crisis is opening up opportunities for new political forces to organize further. It also allows for the possibility of alternative forms of development based, for example, on concepts of human advancement and democratization of the state and the economy.
The “Usual Suspects”: Ideology and the Imposition of Neoliberalism
As in the Latin American and Eastern European cases, when crises emerged, there was a debate among the G7 nations (the advanced capitalist countries: Britain, Canada, France, Germany, Italy, Japan and the United States) about strategic responses. Ideology has played a major part in this debate, which has been dominated by strategists of the liberal approach. I call these strategists the “usual suspects”—as in the phrase from the movie Casablanca, in which the French police inspector would routinely order his policemen to “round up the usual suspects” when a crime had been committed, ostensibly so they would report to the occupying Nazi authorities.1
In the debate over East Asian restructuring, there is a lineup of experts who are regularly wheeled out whenever a crisis occurs. At least in the mass media and politics of the West, these usual suspects advocate a liberal framework for the internationalization of capital. They are invariably drawn from the International Monetary Fund (IMF), the U.S. Treasury and Federal Reserve, Wall Street, Ivy League universities, think tanks, mega-corporations, and the governments of North Atlantic nations.2 All of the usual suspects advocate some form of structural adjustment, although there is some debate about the nature and scope of the role of the IMF in this process. What this effectively does—its negative ideological function—is to present the question as if there is no alternative to the orthodoxy of Wall Street and the so-called “Washington consensus.” The positive dimension of this ideology is that it gives identity and political direction to the processes of power, class formation, and restructuring.
Thus, the usual suspects have persistently criticized the East Asian model for giving unfair advantage to local (as opposed to foreign) firms, because East Asian firms obtain cheaper, state-subsidized supplies of capital while foreign firms are denied full market access. Some of the usual suspects have argued that the crisis is caused partly by too much overseas borrowing (especially of short-term funds) and bad investments linked not only to state-subsidized crony capitalism, but also to inadequately supervised and poorly regulated banking systems. Some of what they argue is true, of course, as the huge pyramids of bad debts in various countries indicate.3
For the usual suspects, however, the solution to the current crisis is self-evident: it involves a shift away from state capitalism toward a free market system based on investor interests and the maximization of shareholder value. They claim this system is more efficient. What they fail to emphasize is how deregulation, privatization, and liberalization are a means of strengthening a particular set of class interests, principally the power of private investors. Structural adjustment allows for a redistribution of claims on future profit-flows that enable foreign capital to gain power and control over regional development patterns.
Thus, under conditions of crisis (when loans are required, to deal with balance-of-payment difficulties or a wider financial crisis), the usual suspects press the U.S. government (and thus the IMF and World Bank), to deal with what are euphemistically called “structural rigidities” on a “case-by-case basis” then they press for “more fully developed securities markets” (so they are allowed to buy local assets and raise capital in those markets), arms-length bankruptcy laws (so that assets can be bought cheaply in distress and workers can be laid off), and the elimination of restrictions on insider influence and what they call “crony capitalism” (so that foreign investors receive equal treatment).
Another issue the usual suspects rarely talk about—at least publicly—is the relationship between structural adjustment and fundamental questions of power and geopolitical strategy—that is, how the Asian crisis has been a means for the United States to strengthen its strategic interests worldwide.
Mystification and the East Asian Model
There is much mystification about the nature of the regional political economy. In fact, despite what the usual suspects claim, there is no single East Asian model but a complex of national and regional development practices, developed in a particular geopolitical context. Between 1945 and the early 1990s, this context involved decolonization, the Cold War in Asia and, later, the growing influence of Japanese capital on export-led regional development. (By the 1990s, Asian exports accounted for roughly 30 percent of Gross Domestic Product [GDP], making Asia the world’s most export-dependent region.) Economic development generally took place under dictatorial or authoritarian governments. Nevertheless, not much of the capital that flowed into the East Asian region from the West after the Second World War involved a large shift in the control over industrial structures, which allowed the state and local capitalists to forge a “catch up” strategy of late-comer industrialization.
The post-1945 industrial and export-led expansions were associated with Cold War structures and were state-directed and -controlled. The Korean and Vietnam Wars each gave an economic boost to many of the nations in the region. Also, the anticommunist East Asian Newly Industrialized Countries (NICs) were supported by the United States, and dictatorships and authoritarian regimes, with strong militaries and secret police forces, were installed to sustain anticommunism. These regimes maintained local political conditions that allowed for the security of U.S. military bases. Thailand also provided bases for “rest and relaxation” for U.S. troops—that is, the origins of today’s regional sex trade.
In return, the United States and, more reluctantly, its Western European allies provided access to their markets, again partly for geopolitical reasons. Over time, this allowed for rapid industrialization in the region—or what some have called “dependent capitalist development.” In this way, the political and class structures of each state interconnected around the central axes of primarily U.S., and secondarily Japanese, political and economic power in this diverse region.
So what is changing in East Asia? As noted, what is at issue is not the presence or supply of foreign capital and power in the region as such, but a change in the form of that power, toward a more market-based system, or a shift from one pattern of capitalist development to another.
Leaving to one side the political differences between Anglo-American and state capitalist models (for example, the lack of democracy and individual freedoms in much of East Asia), both are “capitalist” in the sense that each system is premised on the maximization of profit-flows over time. However, the differences between the two become apparent in conditions of crisis and restructuring, or what the IMF calls “adjustment.” In situations of crisis, the Anglo-American financial markets tend to shape the economic response in the United States and the United Kingdom. They are characterized by what has been called a “capital-market” system (sometimes known as a “fluid” capital system).4 This means that the supply of capital for investment is provided mainly by stock and bond markets, and this in turn reflects the interests of shareholders or investors: the private property owners call the shots. In such a case, if a company fails, it is made bankrupt, workers are immediately unemployed, and the firm is liquidated.
By contrast, the Japanese and East Asian financial systems tend to be “credit-based,” or dedicated capital systems. Historically—in Japan and in the East Asian NICs—these have tended to be bank-centered, highly concentrated, and state-directed systems. In a crisis, the government generally has tended to negotiate adjustments amongst affected groups (“stakeholders”) within society, including workers. This is also largely true in Germany. Here, the government, in conjunction with business networks and groups (e.g., Japanese keiretsu; South Korean chaebol), historically has organized a response to economic crises (like the oil crises of the 1970s) that is based on the general socialization of risk and informal workouts, with the help of business networks.
The Restructuring of East Asia and the New Geopolitics of Finance Capital
The Japanese and East Asian systems had been slowly moving in a liberal direction during the early 1990s, of course, but the key turning points (which accelerated liberalization) were probably 1994, when the Chinese renminbi was massively devalued to promote its labor-intensive exports, and 1995, when the Japanese yen began to depreciate against the dollar.5 This began to put pressure on exchange rates in the region. One reason for this was that when China devalued, it undercut rival Asian manufacturers in export markets like the United States, exposing the region’s overinvestment. (Investment levels were massively higher than anywhere else in the world.)6 This immediately turned much of its production platform into surplus capacity—i.e., it revealed chronic overproduction. At the same time, vast sums had been borrowed abroad, some of which were used to finance real estate and other high-risk forms of investment. That is, a business mentality more fully in tune with the gambling or casino aspect of capitalism had begun to take hold in the region. However, the economic dimension of the crisis was and is structural: it is fundamentally a problem of excess supply, or overproduction.7
When the crisis broke, under these conditions, the IMF moved in, not only to deal with questions of macroeconomic restructuring and exchange rates, but also to institute deeper structural reforms. As it had in Mexico in 1994 and 1995, the IMF assured foreign investors and banks that their debts would be repaid, and it moved to roll over short-term into long-term debt, compelling various governments in effect to socialize private debts. The fund also sought to break up the cartels, privatize or dismantle state-owned enterprises, create flexible labor markets (allowing workers to be fired more easily), and eliminate food subsidies in places like Indonesia, where per capita incomes have been halved to around $150, and where millions of farmers faced starvation because of drought.8
The socialization of private debts to foreign investors, accompanied by removal of food subsidies to the poorest, shows the limits of the commitment to pure free-market polices when the interests of Western capital are endangered. It also illustrates the class bias of the process as a whole.
So how does this process of “economic” restructuring relate to the strategic issues facing the region? This question can be answered best by looking at the Japanese government’s failure to create an Asian Monetary Fund (AMF) to deal with the economic crisis.
After the debt crisis in the early 1980s, the IMF subjected more than sixty countries to austerity measures under strict conditionality. In this way, liberal adjustment measures became relatively universal. In the 1990s, similar programs were applied in Eastern Europe and the former Soviet Union. In the East Asian crisis, the IMF has applied harsh conditionality once again.
Of course, it is well-known that it was the U.S. Treasury which blocked Japanese proposals to create the AMF. The United States wanted to ensure that the international rescue operation was run on U.S. lines. As the Financial Times put it on January 15, 1998, “there was a dangerous moment before the Korean collapse, when the momentum was building in Asia behind a Japanese-led plan for a special regional bailout fund…Mr. Summers [Deputy Secretary of the Treasury in the Clinton Administration] managed to kill off the proposal and leave the IMF at the forefront of the bailouts—the critical element of the U.S. approach.”
What was significant about the Japanese plan was that it would have imposed a gentler form of adjustment in the region, while consolidating Japanese political influence. This was at a time when the relationship between Japan and the United States was under pressure. This was in part because of the chronically weak condition of the Japanese economy, as well as a result of the continued resistance of Japanese leaders to fully open up their domestic structures to deeper penetration by U.S. capital.
The blocking of the AMF is analogous to the struggles over the future direction of Europe when communist rule collapsed in the late 1980s. For example, West Germany, because of its close economic links with and geopolitical proximity to Eastern Europe and the Soviet Union, proposed a gradual program of reforms to make the former communist-ruled states into capitalist political economies. This proposal was a type of long-term Marshall Plan approach which would have cemented the economic and political interests of Western Europe and Eastern Europe. The German plan contrasted with the strategy of rapid transformation or “shock therapy” associated with Anglo-American proposals. In other words, there was a struggle over how these societies would be reintegrated into both regional and global capitalism. The process was eventually dominated by the Anglo-American approach, reflected in the policies of the IMF, the World Bank and the new European Bank for Reconstruction and Development.
What was at issue, in a geopolitical sense, was the prevention of a restructuring that would allow greater regional political cohesion (under a German leadership that promotes a form of “stakeholder” as opposed to “shareholder” capitalism), and thus would limit the prospect of European regionalization developing beyond U.S. control. These reform measures were therefore accompanied by NATO enlargement, so that the military and strategic context would continue to be under the control of an alliance structure dominated by the United States.
Another historical example is significant. In the Latin American debt crisis of the 1980s, a transnational political coalition which included the powerful G7 governments (led by the United States), international financial institutions, large banks and institutional investors in alliance with local political leaders, was able to force restructuring on these societies. This occurred in part so that these societies’ debts would be repaid, and in part so that their markets and social structures would be open to exploitation by foreign capital. One universal result of these policies was a rapid widening of social and economic inequality in already extremely unequal societies. Greater external dominance was also a consequence.
Thus, in the context of the Asian regional crisis, the United States strengthened political and military links with China, partly as a means to influence Chinese power, and partly to offset the potential for a Japan-centered regional bloc that might, like the European Union, create more autonomy in relation to the United States—a regional bloc that might, for example, eventually create its own currency as a rival to the dollar. However, particularly in the context of the humiliation Japan suffered in the Gulf War of 1991 (when it was forced, like Germany, to pay a huge financial tribute to support the U.S. war effort), the defeat of the Asian Monetary Fund proposal showed once again the enormous subordination of Japan to U.S. power. Thus the regional geopolitical situation now involves a strong element of realpolitik between the capitalist and communist superpowers: China increasingly needs U.S. markets and supplies of high-technology equipment and weapons systems, the United States needs China to help to contain Japanese power and to prevent a form of regionalization that can threaten U.S. globalism.
In the East Asian crisis, while many of the economic and social problems were clearly indigenous, an opportunity arose for the power of the United States and Western capital to be brutally exerted in the region. It is too early to know precisely how the political situation will develop. But at least now we know that the crisis is producing political contradictions because of, first, its impact on authoritarian governments (insofar as it undermines dictatorship) and second, its effects on the working classes and peasants of the region. While it creates demands for alternatives, it undermines the potential for real democracy as workers suffer.
The political situation is complex and the reactions to neoliberal globalization come from both right and left. The political right in the region (Malaysia, for example) has used capital controls. Controls have also been actively considered by the Japanese government. In mid-December 1998, the Japanese government revived the AMF proposal, but it remains to be seen whether the United States will once again block a regional effort.9 Instead, intense Japanese and regional frustration with the United States was reflected on January 22, 1999, when the key official in the Japanese finance ministry, Eisuke Sakakibara (known in global financial circles as “Mr. Yen”), delivered a speech entitled “The End of Market Fundamentalism.” Sakakibara cited Keynes and Polanyi in his indictment of the usual suspects and their Anglo-American, neo-classical approach to restructuring.10 So whether the United States will be able to sustain its regional dominance and block the Japanese challenge (or heresy) may turn out to be very much an open question. Others, on the left, have proposed taxes to regulate international capital mobility. In some contexts, remobilized labor movements and left-wing parties have started to cooperate with domestic capitalists to resist structural adjustment and austerity. In other words, they have opted implicitly for a return to a reformed state capitalism.
Thus the regional collapse is provoking some rethinking about alternative forms of development—considerations that were not seen as crucial in the hyper-materialist era of the “miracle,” when growth rates were rapid, incomes were increasing, and few leaders worried about democratization, the ecological and social costs of development, or the conditions of workers and peasants. Indeed, a fundamentally different alternative would have to involve democratization of the state and the economy. It would also presuppose some solution to the debt bondage that has gripped much of the world in the 1980s and 1990s (in Latin America, for example). This requires a challenge to the national and international structures of power. It also involves rounding up the usual suspects and informing them that they are no longer needed.
Author’s note: I would like to thank Jonathan Nitzan and the editors of Monthly Review for their comments on the draft of this article.
- At the end of the movie, the “usual suspects” were rounded up by the Inspector to divert the attention of the Nazis away from leaders of the Resistance as they escaped from Casablanca.
- Wider “public” and “private” efforts to construct a consensus that is commensurate with the general geopolitical and economic interests of the world’s largest corporations come together in forums such as the Trilateral Commission and the annual World Economic Forum in Davos, Switzerland. On the former, see Stephen Gill, American Hegemony and the Trilateral Commission (Cambridge: Cambridge University Press, 1991).
- Debt defaults, like that of Russia in 1998, seem increasingly likely, despite the massive IMF-led bailouts. Total exposure of banks that reported to the Bank for International Settlements in 1998, for developing Asia, Latin America, and Eastern Europe, was approximately $800 billion; Russia owed about $140 billion in hard-currency debt; Brazil and China owed approximately $60-70 billion each; Korea nearly $100 billion in bank debt. European banks had much the largest exposure to emerging market debts. More generally, the “identifiable debts at risk in the world [that is, risk of default] could easily total $1 trillion,” including $500 billion in Japan and $250 billion in China. Source: Bank Credit Analyst Research Group, Special Report: The Asian Crisis After One Year, Montreal, August 1998, pp. 10, 16-17. Quote on p. 17.
- See John Zysman, Governments, Markets, and Growth: Financial Systems and the Politics of Industrial Change (Ithaca: Cornell University Press, 1993).
- The renminbi devalued by 50 percent in 1994 and the yen depreciated by 50 percent after mid-1995. See the Bank Credit Analyst Research Group, Special Report: The Asian Crisis After One Year, p. 4.
- By the mid-1990s, investment spending accounted for an astonishing 40 percent of GDP for the emerging Asian economies and, in 1996, reached 35 percent for Asia as a whole. (The figure for the rest of the world was roughly consistent between 1980 and 1998 at around 24 percent of GDP.) This led to excess capacity, increased competition, and a drop in rates of return, contributing to the buildup of problem loans for the banks in the region. Bank Credit Analyst Research Group, Special Report: The Asian Crisis After One Year, Chart 1, pp. 3-4.
- For an account that links the problem of overcapacity in East Asia to overcapacity throughout the world, as well as to threats of global deflation and the potential for depression, see William K. Tabb, “The East Asia Financial Crisis,” Monthly Review, vol. 50, no. 2 (June 1998), pp. 24-38.
- On some of these issues with special reference to Thailand, South Korea, and Indonesia, as well as an insightful overview of the process as a whole, see Mitchell Bernard, “East Asia’s Tumbling Dominoes: Financial Crisis and the Truth about the Regional Miracle,” Socialist Register 1999: Globalization and Democracy, edited by Leo Panitch and Colin Leys (Merlin Press, 1999). Bernard and McNally (see note 11) stress the importance of the massive ecological damage to the region and its role in forging resistance to neoliberal globalization.
- See Financial Times, December 16, 1998.
- Sakakibara’s paper was presented at the Foreign Correspondents’ Club, Tokyo, on January 22, 1999. I am grateful to John Mage for this reference.
- For an account that stresses the emergence of “An Asian Model of Resistance” linked to massive mobilization of workers, including increasing numbers of women workers, as well as social movements throughout the region, see David McNally, “Globalization on Trial: Crisis and Class Struggle in Asia,” Monthly Review, vol. 50, no. 4 (September 1998), pp. 1-14.