Whither Asia’s Economies?
Throughout the 1950s, 1960s, and early 1970s big business made the mistake of letting
the U.S. government assume the major responsibility for bending Southeast Asia to
capitalisms will. Because of the incredible heroism and determination of the
Vietnamese people, supported by the moral indignation expressed by an ever-increasing
number of Americans, the effort was not successful, despite the expenditure of tens of
billions of dollars and the sacrifice of over 58,000 American lives.
A lesson was learned. Today the U.S. government plays a more secondary role in the
conquest of Southeast Asiaindeed, all of Asiawith soldiers and ordnance no
longer spearheading the invasions. Money has replaced them, with increasing effect; unless
curbed, the manipulators of capital may yet generate the "light at the end of the
tunnel" General Westmoreland falsely claimed to see.
Since last July, the economies of the Southeast Asian countries and Korea, and to a
lesser extent Japan, have been in a tailspin. Currencies, real estate values, growth
rates, and job security have declined precipitously, and the more progandistic media
reports suggest that the "Asian Miracle" of development has ran its course. The
major business journals know better. Perhaps genuine development has ended in Asia, but,
as a careful reader of those journals can discern, not in the ways most people are
inclined to believe, nor are the causes of the current economic problems what they
initially may seem to be.
Virtually all of the economic analyses of the situation place the blame on the
countries themselves: corruption, "crony capitalism," and "Asian
authoritarianism" characterize the way business is conducted there, and the situation
will not change until and unless free market "reforms" enforced by the IMF and
the U.S. are firmly in place.
China is supposedly the exception. While growth has slowed from its high of 11 percent
to 13 percent a few years ago, it remains an altogether respectable 8 percent and a recent
article in Business Week deems it, "The last great hope of the region."
But this makes the explanation for the economic woes of the other countries suspect,
because China certainly has no shortage of corruption, "crony capitalism," and
There is a fairly simple, factual explanation for why China has not suffered the woes
of its neighbors, which simultaneously reveals the true source of those woes: Chinas
currency (the renminbi) is not fully convertible, hence is not available on the
international market for speculation by high-rolling currency traders and deep-pocket
speculative investors, whose activities have nearly brought the other countries to their
knees, with countless (and increasing) suffering by millions of people in the region who
are blameless for their plight.
Contrary to the Business Week expression of optimism, the Chinese economy is in
serious difficulties, and the most rational (i.e., non-economic) analysis must be that the
situation will probably only worsen. Former economic "czar," now Premier, Zhu
Rongji, has reined in an overheated economy, reduced inflation to the vanishing point, is
attempting to curb the influence of the corrupt "princeling faction" and is
moving to radically restructure both the large stateowned industries and the banking
But these are largely Band-aid measures. Chinas problems run much deeper, from
massive un- and under-employment to increasingly starker income inequality; from grain
production shortfalls to increasing minority dissent in border regions; from environmental
degradation that grows more nightmarish with every passing day to the somewhat more
whimsical continuing spell of the ages-old cultural belief in ghosts, who depress property
These and other problems cannot be considered in isolation, however, because the
Chinese governmentcorrupt, cronyist, and authoritarian or otherwiseis not free
to deal with these problems on its own; its options, despite the size and importance of
the country in world affairs, are greatly constrained by those same high-rolling traders
and deep-pocket investors who have wrought so much havoc in Southeast Asia and Korea. Thus
any serious analysis of Chinas economic and political prospects must first place
them in the context of a fuller economic and political analysis of what has happened to
its neighbors, and why.
In one sense the countries of East and Southeast Asia should not be lumped together, as
is commonly done. Income inequality is fairly low in Malaysia, sickeningly high in
Thailand; Indonesia has been the recipient of much U.S. largesse while Vietnam has
suffered cruelly from the U.S. sanctions imposed on it after the war ended; Korean
politics are currently as open as Myamnars (Burmas) are not; corruption is
virtually non-existent in Singapore, rampant in Indonesia; Japans economy is crucial
for the worlds economy, while the Philippines are largely irrelevant.
These and other significant differences notwithstanding, the Asian countries share many
features, chief among them being governmental control over capitalist development which
followed the Japanese model, wherein corporate success was measured in terms of production
and employment, rather than follow the U.S. model in which consumption and return on
investment constitute the bottom line. For the latter, profit maximization is all that
counts; the former also takes income distribution into account.
It worked, which is why everyone refers to it as the "Asian Miracle." Those
manufacturers whose exports competed successfully on the world market prospered, were
favored by their governments, and given incentives to expand, which they did, thereby
further increasing employment, job security, wages, and standards of living. It was still
capitalism, of course: Many of these corporations were owned and/or directed by members of
the government, or their relatives, or their friends, hence the epithet "crony
capitalism." Many of these owner/managers became very rich (but not ever equaling
their U.S. counterparts in terms of high-low income distribution within a corporation),
some of them were much more sympathetic in dealing with trade unions than others, and
opposition political parties were initially suppressed, brutally in some countries.
But it remains that the system had many salutary consequences: employment, job
security, wages, and living standards did increase throughout the region, and the extremes
of poverty were reduced significantly, albeit much more so in some countries than others
(virtually nil in Japan, Korea, Malaysia, and Singapore, still very high in Thailand, and
relatively so in Indonesia and the Philippines).
Throughout the late 1970s and 1980s, these successful corporations expanded into other
areas, using their profits and securing loans guaranteed by their governments to further
increase wages, employment, and living standards. That they were altogether successful in
this regard is evidenced by the fact that by 1990, overseas speculative investors
(including Japan) were pushing tens of billions of dollars in easy loans on these
profitable corporations to encourage them to expand still further.
And they did, but now much less wisely. South Korea borrowed $U.S. 100 billion,
Thailand $70 billion, Indonesia $55 billion, and Malaysia $22 billion, much of which, with
some outside encouragement, was used to speculate in real estate, build unneeded office
buildings, luxury apartment complexes, and golf courses, and build factories to produce
new products (i.e., automobiles) for which the market was already becoming glutted.
Thus these latter speculations did not quickly bring returns, and as the loans came
due, governments/corporations became concerned to increase exports in order to repay them
with much-needed foreign exchange. But many countries were now exporting the same
products, so the only way to compete successfully would be to devalue the national
currency, thus decreasing the costs of production. But that didnt (couldnt)
work, as Thailand was the first to see. The tale was told succinctly by the Washington
Post: "Currency speculators thought it was inevitable that Thailands
currency [the baht], which was pegged to the U.S. dollar, would be devalued to boost
Thailands exports, and began selling the currency in hopes of bringing about a
"But the Thais had borrowed billions of foreign dollars. A baht devaluation would
make those loans far more expensive to pay off. So for several months the Thai government
fought off speculators, buying mountains of baht to prop up the currency. On July 2 
the government announced it was surrendering and would let the baht drop."
Thus the meltdown began and became a self-fulfilling prophecy. Taking Thailand as
typical of all the Asian economies, the herd mentality took over, and, in unprecedented
amounts, currency speculators began dumping the Indonesian rupiah, Malaysian ringgit, and
Korean won as well.
As recently as January Indonesia, not having learned Thailands lesson, was
attempting to keep the speculators at bay. While the rupiah was fluctuating wildly between
7,100-7,800 to the dollar one day, two Indonesian banks bought rupiah in large quantities,
temporarily driving the rate down below 7,000. The Far Eastern Economic Review
was indignant at this effort of a country to aid its own economy, calling Indonesias
effort "a blatant attempt to distort the market." Equally indignant were the
speculators: within a few days the rupiah fell to over 8,000 to the dollar, and was over
10,000 by mid-March.
The media would thus have it appear that the governments and corporations of the Asian
countries are largely responsible for their current problems, aided and abetted only
slightly by foreign traders and investors. But the reverse is more nearly the case. The
economies of East and Southeast Asian countries are sound if we examine their real
economies, that is, if we look at them in terms of actual goods produced, services
provided, and how these are bought, sold, and traded both domestically and abroad.
Continuing through the early 1990s these economies grew at an average of around 8 percent,
with inflation averaging less than 5 percent, and unemployment at all-time lows. Even the Far
Eastern Economic Review concurs with this assessment, as a recent article noted:
"… [T]he hard work, entrepreneurship, high savings, low taxation, family values,
and flexible labor markets that helped the region grow at 7 percent-8 percent a year for
more than a decade are still in place. So too the highways, factories and office towers
these countries built at breakneck pace."
In terms of the real world of "cabbages and kings" then, there are relatively
few problems in and among Asias economies. Rather the problem lies with the
"fools and things" increasingly dominating world affairs. Malaysias Prime
Minister Mahathir Mohammed blamed the problem on George Soros; hyperbolic to be sure, but
if we make it "George Soros and his fellow super-rich friends," Mahathir is
pretty much on the mark.
To see why this is so, we must first understand that speculative currency trading can
be extremely profitable, usually much more so than investment in production. This explains
why currency trading has gone from 80 percent involvement in the real
economyexchanging currencies for imports and exports, etc.as recently as 1975
to less than 3 percent today, as Noam Chomsky and others have pointed out; 97 percent of
all current money trading is purely speculative, having little to do with productive
It follows that only very large corporations will be willing to invest in the real
economies of foreign nations; those corporations, that is, that also have a large
financial services organization as part of their conglomerate holdings. Consider, for
example, an English corporation that wants to build and operate a factory in Indonesia
manufacturing pesticides for the domestic market. Assume it undertakes a thorough market
analysis and the results are favorable. It therefore makes the investment, in English
pounds of course. But the manufactured pesticide will be paid for in local currency, the
rupiah. Hence sales will not be the determining factor with respect to profits and return
on investment, for if the rupiah drops significantly with respect to the pound, any and
all profits will evaporate. Bernard Lietaer has noted this point well: true market risk
(i.e., that which deals with the real economy) has given way to foreign exchange risk
(pure speculation), much more difficult to assess rationally, or to change; the potential
profit differential is too great.
It is for this reason that the quantification techniquescounting goods and
services provided, bought, traded, and soldso beloved by economists, have become
increasingly irrelevant for understanding contemporary economic activity; what matters now
are the hopes, fears, dreams, calculations, beliefs, and gambling instincts of the super
rich in the financial market. The Asian Wall Street Journal provides an example:
"… [O]ne popular trade among institutional investors was to sell the ringgit
against the dollar and simultaneously buy the rupiah against the dollar; the dollars
canceled out and the investor was left with a pure bet on the performance of the rupiah
against the ringgit."
The article goes on to say that this bet "made sense" at the time, because
Indonesias Suharto seemed to be complying with the IMFs wishes, while Mahathir
was railing against Soros. But now that Mahathir has backed off a bit while Suharto has
dug in his heels, the trade is reversed.
All of this has been explained differently by Michel Camdessus, head of the IMF, in
statements that are models of obfuscation. Troubles began to brew, he observed, when
"Markets" began "to look more critically at weaknesses they had previously
considered minor, or at least manageable." And again, "Market doubts were
compounded by a general lack of transparency. In the absence of adequate information,
markets tended to fear the worst." Thus the Asian countries are solely responsible
for their problems, because they have not acknowledged their "weaknesses," nor
increased the "transparency" of their financial dealings.
But "markets" are a conceptual construct; they are not living things. Having
no eyes, they cannot "look" for economic weaknesses, or anything else. And
lacking minds, they can neither "doubt" nor "fear" what any government
may do with respect to its economy.
Human beings do these things, and some business journals are less dissembling than
Camdessus in saying so. Business Week allows that speculators "felt" a
weakness in Asias economies, the Asian Wall Street Journal that there was a
"perception" of it, and the Far Eastern Economic Review averred that
hedge-fund investors "smelled" the weaknesses.
In one respect these feelings, perceptions, and smells were on target: Korea and the
Southeast Asian countries were (and are) heavily overcommitted with debt. But given that
the real economies of these countries were performing welland not just within
"bubbles"it was not obligatory to call in the loans; why not merely extend
them under generous terms? Seen in this light, the high-rolling traders and investors
werent just gambling last year: the primary function served by the massive sell-offs
was to weaken Asian governments abilities to exercise control over their economies.
Prior to last Summers "attacks" on their currenciesand that is
exactly what they are called in the jargon of tradersthose governments, in order to
focus on production and employment, largely prohibited foreign majority ownership of
corporations and banks, placed constraints on exporting natural resources, limited foreign
profit repatriation, and obliged foreign owners to hire local workers. In enforcing these
controls a number of government officials in most, if not all of these countries, became
corrupted, granted huge economic favors to their "cronies," and were not averse
to some authoritarian actions to maintain their control. All of which is to be condemned.
But it is easy to believe that a much larger group of government officials in all of
these countries cooperated with enforcing such policies not to become personally
richthey haventbut because they were decent human beings who had daily
evidence that these policies were effectively raising the living standards of a
significant number of their fellow citizens; again, thats the meaning of the
"Asian Miracle." Yet it is clear that in attempting to achieve this social goal
directly, rather than by purely economic "trickle down" results, "market
distortions" would be inevitable, where "distortion" is to be read as
"not solely profit-maximizing."
Thus the sell-offs, attempting to get the Asian governments to cease and desist once
and for all regulating their economies and shielding their peoples from harsh exploitation
by foreign investors. Those governments must promise to stop "distorting"
markets, and must allow the IMF and the U.S. to take whatever measures are necessary to
see to it that the promises are kept.
Only by so doing, says the Far Eastern Economic Review, can they "stem the
rot" that supposedly characterizes these economies: "Investors say its
time for Asian governments to get real about their problems." But the lie is given to
"rot" and "real" by a much more honest account in a recent Business
Week article: "For American companies, the opportunities are breathtaking.
Asias crisis gives them a chance to grab strategic groundon their own
terms<W0>in economies still expected to be among the worlds biggest
growth markets in the 21st century."
The quote should be re-read, for what it says is that the heavy-hitting currency
traders and investors know perfectly well that the economies they have disrupted are
fundamentally sound; all that is wrong with them is that they have not been open enough to
foreign exploitation. Hence, in a very real sense the currency sell-offs werent a
gamble, because they had more political than economic objectives; the debt overrun
provided the opportunity to attack.
For the exploiters, the tactic is working, the invasion is in full swing. The Business
Week article continues: "Real estate is also getting snapped up. Regent Pacific
Group Ltd., a Hong Kong-based mutual fund house, has brought 500 new Jakarta apartments
for 10 percent to 15 percent of their price before Asias troubles began…."
To those who know well the horrors perpetrated by Suharto, his family, and the Army,
first in 1965 against other Indonesians (largely ethnic Chinese), and against the East
Timorese since 1975, foreigners buying real estate at fire sale prices may not generate
any indignation. But it will not be Suharto and his fellow thugs who suffer from the
"Invasion of the Bargain Snatchers" (the title of the above-quoted Business
Week article), it will be the Indonesian people. Moreover, even the Indonesian
government has not been concerned solely with the creation of wealth for a few, but also
to distribute it with at least a modicium of fairness. While one small statistic can by no
means tell a full story, it can be significant: in 1997, office personnel in Indonesia
were given, on average, 21 percent of their annual wages as bonuses; middle managers 15
percent, senior managers 13 percent. Contrast this percentage bonus distribution with the
U.S. for the same period: office workers 8 percent, middle managers 15 percent, senior
managers 30 percent.
With the Asian governments now being obliged to take orders rather than issue them,
there is good reason to fear that greed and exploitation will soon be uncontrollable, not
only in Asia, but world-wide. The IMF is but the stalking-horse for the Multilateral
Agreement on Investment (MAI), currently being worked out by the 29 nations of the
Organization for Economic Cooperation and Development (OECD). If implemented, the
super-rich will be even more "free" to exercise their "rights"
world-wide than they currently are in Asia.
It would be naive to think that "market discipline" might check this greed,
because the super-rich are increasingly able to impose the discipline rather than having
to submit to it, as their machinations in Asia make clear.
Returning to economics, Bernard Lietaer has shown how and why, if youre rich
enough, and can invest in the tens of millions of dollars, market risks become minimal.
Consider currency trading again. First, Lietaer points out, those whose risk is greatest
are those holding a single currencyi.e., the vast majority of the human race. If
that currency declines, whatever assets you have lose value. However, if some currencies
fall, at least some others must rise, hence those who can afford to hold large quantities
of a number of currencies do so with much less risk. Wealthy Mexicans holding a large
number of U.S. dollars, pounds, or deutschmarks suffered not at all when the peso
collapsed in December 1994.
Lietaer also points out that currency transactions, are cheap, easy, and less subject
to "correction" than, say, stock transactions. They are cheap in that
transaction costs are less than a tenth of what they are for stock purchases or sales.
They are easy because, armed only with your computer (and a fat bank account) you can make
money playing the currency swap game 24 hours a day. And they are relatively correction
proof. Betting large amounts of money on stocks quickly will just as quickly affect the
stocks price; stock exchanges are fairly sensitive to big trades. In the currency
market, however, trillions of dollars are played with every day, so buying or selling even
ten million or more dollars of a currency at one time would not even raise a blip on the
screen. (And when youre investing at this level, even a penny rise in the currency
will return a handsome profit overnight. If this means another of your currencies may fall
a penny, no problem; just keep the currency until the next fluctuation raises it).
What will happen to the Asian peoples when their governments are forced to koutou
to the rich speculators is not hard to discern; it will be very similar to what the
American peoples are already experiencing, and will experience even more because their
government has represented big business for some time now. British Petroleum recently
closed a refinery in Lima, Ohio not because it was losing money, but because it
wasnt profitable enough. Being the towns major employer, BPs decision
was obviously a disaster for the entire local community. Corporate Vice-President David
Atton acknowledged the pain the community would suffer, but defended BPs actions by
saying that its "first responsibility was to our stockholders." BPs
largest stockholder at the time was the government of Kuwait.
More recently Reuters extracted a $1.1 million dollar a year tax break from the city of
New Yorkto run for 23 yearsby threatening to move to New Jersey if it
didnt get the break. Reuters insisted that the city maintain its infrastructure for
the corporation as well, which means raising taxesbut on the workers and citizens of
New York, not the corporation. This is called "externalizing" production costs.
The courts are beginning to feel the pressure of big business flexing its muscles too,
in the social as well as the economic sphere. Having lost a sexual harassment suit,
Burlington Industriesa large corporationpetitioned the Supreme Court for
review, and in its brief included the following oh-so-thinly veiled threat:
"Increasing employers liability for sexual harassment entails significant
monetary costs. Diligent employers already incur substantial costs in attempting to create
a harassment-free workplace….
"Further expanding employer liability would make this economic burden
overwhelming… [T]he burdens which employment discrimination laws place on employers
influence employers decisions to automate production, to outsource duties, and to
locate operations in foreign countries."
The message is unmistakable: either you stop pressing for gender equalitybecause
it is not profit-maximizingor well begin moving our production to Southeast
Asia, whose governments are already beginning to roll out the carpet for us, and where
women are still fighting an uphill battle against cultural biases against them.
What follows from all of this is that the American people have a great deal in common
with their East and Southeast Asian brothers and sisters, not least being a common enemy:
super-rich currency traders, speculative investors, and trans-national corporations. It
follows as well that this commonality will be difficult to perceive when the governments
of these peoples are only described as "corrupt," "cronyist," and
"authoritarian." All of these labels have been appropriately affixed in the past
(with great variability from country to country), but to focus solely on them can only
reinforce the media-manipulated racist image of the "inscrutable oriental,"
thereby obscuring the far greater threat to freedom and democracy. Even the worst of these
governments have done much for many of their peoples, and, intentionally or otherwise,
have encouraged those peoples to more actively participate in affairs of concern to them,
which is increasingly being done. All of these countries have independent trade unions
(excepting Myanmar and Vietnam), opposition political parties, and contested elections.
And more than that: to the extent that the Indonesian military is backing off in its
murderous assaults on East Timor, the reason lies with the incredibly courageous protests
of the Indonesian peoples, certainly not from any qualms expressed by the U.S. government.
Korea provides another example. The government of Park Chung Hee in the 1970s was
occasionally brutal and usually authoritarian. His actions deserve opprobrium, full stop.
But even his strongest detractors admit he was incorruptible, and the results were that
Korea is currently the worlds 12th largest economy and has just elected Kim Dae Jung
as President, whom Parks minions had earlier attempted to assassinate. The
equivalent of this political turnaround in the U.S. would be to have Ralph Nader run for
and win the presidency in the year 2000, with Eugene McCarthy as his running mate and
George McGovern as Secretary of State.
There are many other hopeful signs of freedom and democracy growing in Southeast Asia,
which suggests that it might well be good for these countries to resist the pressures
currently being placed on them by global capital, either by declaring debt moratoria, or
even defaulting on loans and withdrawing, at least somewhat, from international markets
and confining their trade to each other (i.e., the ASEAN countries). Such a course of
action may well be the lesser of two evils, both for the peoples of Southeast Asia, and
the rest of the world as well.
If the analysis offered here has merit, it follows that Chinas problems do not
all lie within its borders. Having a market potential greater than all of its neighbors
combined, the financially very well-to-do can be expected to pressure China to "open
up" just as they have done elsewhere in Asia. Chinas problems, then, have
world-wide significance, and thus affect us all.