The Young Tigers: An Endangered Species
FOR MANY years, at least since the early 1980s, the view gained ground that the Pacific Rim was to become the centre of gravity of the world economy. The old Anglo-Saxon axis centred on the United States had had its day, according to this view, and economic leadership was going to pass to Japan.
While the West stagnated, riding the roller coaster of boom and bust, the Pacific Rim powered ahead. Nothing seemed to hold back this progress. Even when these economies slowed down from time to time, their growth rates still exceeded the best on offer in the West.
It appeared that these economies had overcome the cyclical nature of capitalism. This was attributed to specific features which seemed to be absent from the Anglo-Saxon economies and found only partially in the German and French economies. These included extensive cross-holding between companies forming a bank of companies – for example, the chaebol in Japan – close links between banks and industrial companies, state-directed and state-assisted investments, and finally corporatist links between companies and their workforces, anchored mainly on the guarantee of jobs for life.
In a word, these structures gave rise to what came to be known as the "long term view". This differed sharply from the short-termist view of profitability in the West, where investments had to yield an immediate profit or investors would punish companies by selling their shares. Hence, while Western companies refused to build market share at the expense of profits, or invest in future profits, companies from the Pacific Rim took their chance to do so, sometimes waiting years for the first sign of any return.
Events turn Into their opposite
It would also lead to an inability to adopt the kind of counter-crisis measures needed to lever these economies out of recession. From being a source of growth, these structures have become an obstacle to revival. In the words of the populists, these economies have become mature and require adult responses to the crisis. (Unfortunately space does not allow us to comment on this childish view of what constitutes a mature economy. Suffice to say that the world has been turned on its head, as the goal of a free market is seen as the end result of capitalism, with anything seeking to restrain it being characterised as primitive or a leftover from the past.)
It is therefore beneficial to examine this overaccumulation in greater detail by first looking at the Anglo-Saxon economies and their response to the post-1980 recessions. Far from imitating the structures found in the Pacific Rim, under Reagan and Thatcher the US and Britain pursued a policy 180 degrees away from them. Their agenda was to render the free market as free as possible, and by market we refer to both the capital and labour market.
The idea was to remove any and every barrier which interfered with the movement of demand and supply by opening up competition. The main enemy of competition is always its victim, the proletariat. Accordingly, the first drive to open up competition meant a frontal attack on organised labour. This involved domesticating the trade union movement and creating a more or less permanent reserve army of unemployed labour.
Once labour had become flexible, that is "willing" to be moved in and out of work, between occupations and plants, and through traditional demarcations, the bosses could concentrate on restructuring their business, or as it came to be known – re-engineering. Particularly in the US, companies were shaken out from top to bottom through delayering, unbundling and new work practices. Companies that failed to make this pilgrimage were severely punished.
There can be no doubt that this shake-out of labour, including layers of management, together with more efficient techniques of production like teamwork, had a tremendous impact on the rate of exploitation. Firstly, new work practices improved the efficiency of exploitation by placing more responsibility for production on the shop floor. Secondly, the use of information technology to cull layers of junior and middle management significantly reduced the quantity of unproductive labour in each company. All of this, combined with the relentless purge of older capital, meant that the rate of profit rose to levels not seen since the onset of the first postwar series of recessions in the early 1970s.
Paralleling these developments in industry, the state invaded the cosy arrangements and cartels of the old world of finance capital, whereby groups of financiers shared out their ill-gotten profits via "old boy" networks. The stock exchanges were Big Banged to reduce their "costs" and improve transparency. Demarcations between the wholesale and retail capital markets were torn down. This freeing-up of capital made it more mobile with a better nose for profit.
Finally, both the US and Britain, the world’s leading international investors, began to attack the biggest barrier to the movement of capital itself – international borders. Contrary to popular belief, the jet age had not ushered in an epoch of international capital. Even in the 1980s, foreign investment as a percentage of GDP still lagged behind the level prior to 1914, exchange rates were more unstable and banking capital was more housebound.
However, the trend towards the integration of the world economy was unmistakeable. International trade consistently outgrew domestic trade by a factor of two to three. Consequently foreign trade as a percentage of GDP became increasingly significant. Most importantly, the fastest growing economies were those that had best succeeded in integrating themselves into the world economy.
It was these material trends that underlay the ideology of neo-liberalism. According to this ideology, economies that were not export-oriented, that did not structure themselves into the world economy, were doomed. Economies that granted concessions to their workforce could not compete, and were also doomed. The world proletariat was ordered to sacrifice itself on the altar of the free market, with events in the former Soviet Union being used to demonstrate that there was no alternative to the market as the guarantor of prosperity.
Even by the mid-1990s, however, the doctrine of neo-liberalism had not conquered the whole world. The most significant exception was the Young Tigers who, though successfully exporting, still had not opened their economies to imperialist exploitation. Despite the US increasingly knocking on their door, they were able to continue in their traditional way due to the growth of their economies.
Until a year ago the debate continued to rage as to whether neo-liberalism or the corporatist structures that dominated the Pacific Rim would win out. Would the more agile Western economies or the better-orchestrated economies of the East sustain their growth rates longer?
As early as 1989, this author, against the prevailing view, predicted the triumph of the Anglo-Saxon economies. He claimed that it would be the "agile" Anglo-Saxon economies that would best succeed in the 1990s at the expense of that giant of corporatism – Japan.
The reason was not hard to find. In the recession of the late 1980s the Anglo-Saxon capitalists were best placed to implement counter-crisis policies. Their ability to fire workers was not encumbered by traditions of lifetime employment or other paternalistic practices. The lack of cross-holdings meant that surplus capital could more easily be depreciated, bankrupted and bought up by surviving capitalists. Hence the barriers to restoring profitability could be dealt with more easily by the Anglo-Saxon capitalists than by their counterparts in the East.
Nothing illustrates this better than comparing the land crisis in the United States and Japan. When prices fell in the US in the late 1980s, bankrupting thousands of Savings and Loans banks, the state acted swiftly to write off tens of billions of dollars of bad debts and to bankrupt insolvent lenders. Within three years land prices had begun to recover. In Japan, where bankruptcies were avoided at all costs and losses hidden, land prices have been falling for seven years with no end in sight. Similarly the Japanese stock exchange languishes at a level less than half of its 1989 peak, whereas the Dow Jones has quadrupled. Finally, the US banks improved their insolvency (though clouds are on the horizon), whereas the Japanese banking system remains insolvent.
Overaccumulation and lack of purging
A point is reached when accumulation comes up against the limit set by profits. This limit as always is the absolute fall in the rate of profit, that is the contraction in cash flow. This is experienced indirectly by each company as an absolute contraction in the mass of profits. This means there is less and less cash coming in to cover outgoings; consequently, there is a rise in unused capacity as working capital contracts.
This cash contraction began to be experienced during 1997 in the Young Tigers. As the experience of other countries in the past shows, companies facing cash flow problems become increasingly dependent on external funds, mainly short term borrowings. In the case of the Young Tigers much of this borrowing was dollar denominated. By the second half of 1997 the inevitable could no longer be postponed, as many of these loans began to fall due for repayment.
International speculators, sensing this cash flow crisis, waded in, making a bad situation impossible and accelerating the crisis. The spectacular runs on the currencies in the region, amounting to the virtual collapse of many of them, precipitated economic turmoil. Contrary to expectations, these well-orchestrated economies proved incapable of dealing with the crises, making them dependent on the largesse of the international banks and the support of the International Monetary Fund.
At last the opportunity presented itself to the imperialists to kick down the doors of these economies and assert control over them. Not only did this rescue operation guarantee the outstanding funds of the international banks and investors, it also placed these economies on the drip-feed of international finance capital.
The outlook for the world economy
The collapse of the Young Tigers has led to varied predictions for the world economy. These range from prophecies of disaster, for example by the doyen of international speculators George Soros, who foresees a period of deflation (depression) and hence international financial collapse, to the sort of optimistic view offered by the chairman of the US Reserve Bank Alan Greenspan, who sees a largely beneficial impact from the East in so far as it will cool an increasingly overheated US economy.
An analysis of the world economy must begin with the US economy and not with the Young Tigers, which so many left commentators have concentrated on. The key question is whether the US economy has the capacity to absorb the financial fallout from the East and withstand the expected rush of cheap imports from there. Such an analysis must also include Japan.
The truth lies somewhere between the predictions of Soros and Greenspan. All contractions in the world economy are accompanied by credit contraction, of which one aspect is the sharp depreciation in financial assets. In the 1980s, it was Latin American debt. Today, it is the Young Tigers, including China.
Beside the direct link between the international banks and the Young Tigers, there is an indirect link that passes through Japan. Japan is the biggest investor in both the Young Tigers and the US. During the 1990s the Japanese state extended very cheap credit to the country’s banking sector in order to keep it solvent. Most of this credit was invested in the US rather than Asia due to the security of investment, high interest rates and booming share prices. Such was the export of this credit that the yen, which once seemed likely to overwhelm the dollar, fell to a point where it was the US who asked Japan to support it.
This credit will remain in the US as long as Wall Street is seen to be offering positive returns. Should Wall Street begin to fall significantly, and March is the key month, then the Japanese will take their profits and run. In short it is Wall Street and not, as some have claimed, the market in US government bonds that is vulnerable. It is Wall Street that stands between containment of the financial crisis in the East and its globalisation.
A collapse in share prices on Wall Street will not have a large impact on the companies listed there directly so much as it will affect them through its impact on personal finance. US household debt is even higher now than it was in 1989. Much of it is underpinned by the rise in Wall Street. A fall in share prices will lead to a sharp contraction in personal credit and with it a fall in demand for the goods produced by the companies listed on Wall Street and their suppliers.
Hence US industry will be compressed by falling demand on the one side, and the rush of cheap imports on the other as companies from the East, boosted by cheap currencies, seek to export their way out of crisis. This is unlikely to lead to corporate failures in the US as in the 1980s, although it will result in a severe contraction in profit margins. US corporations are more liquid than they were in 1980 or 1990, and have become experts at taking counter-crisis measures in real time. We can expect an even faster response to falling demand than was experienced in 1990.
In addition, the US Treasury is more solvent than it was. The US is on the verge of turning a persistent budget deficit into a surplus. Projections (albeit based on present economic growth) see a growing surplus for the indefinite future. Hence the long period of expansion, which led to an improvement in both company and state liquidity, means that the kind of depression envisaged by Soros is unlikely. Rather we will see a rapid expulsion of labour, accelerated restructuring and a further contraction in government spending. All of which will fall heavily on the proletariat.
The key question, therefore, is the international working class. During the last recession it was effectively contained by the events in the Soviet Union and the defeats of the 1980s. If the working class is not able to defend itself, then this contraction will be even shallower than the last recession. It will, however, be more extensive, both in its duration and geographical spread. For the weaker economies, for example in Latin America, it will be severe.
The probable outlook for the next three to five years, based on an analysis of the present day balance of class forces, is one of stagnation, of economic growth oscillating around the zero mark, not rising by more than a couple of percent either way. Such stagnation will eat heavily into living standards – standards which did not fully recover in the last period of expansion.
Prospects for the class struggle
Accordingly the most intense class struggles of the period will be found in these countries, which could inflame China. Even Japan faces social problems that are becoming acute. After seven years of stagnation, and with its economy now slipping back into recession, Japan has been unable to introduce the measures, especially restructuring its workforce, that are necessary to lever it out of this stagnation. Its policy of gradualism has run out of time and it will be forced to finally confront its workers and students. While it is unlikely that these expected battles will give rise to a revolutionary period in the East, we may see the first page written in the rebirth of the international proletariat and its combativity – a real turning point.
Capitalism is increasingly being shorn of its social trappings. Job security and social support from cradle to grave have been taken back. This does not mean that capitalism is bankrupt, only that it has become more "normal" following the ending of concessions resulting from the cold war. But it does mean that its social fabric has become more brittle.
While the capitalists exit this century, the century of wars and revolutions, in a shape better than they entered it, an extensive period of stagnation, and with it falling standards of living, will provide tinder for the future fires of class war. In this sense the twenty-first century does belong to the working class, providing that, in spite of the collapse of the first workers’ revolution of 1917, independent parties of the working class can be rebuilt in time.