Part 2: East Asia’s place in the history of capitalist development and its current trajectory

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The see-saw evolution of East Asia historically (1700-2006)

We have situated the development of East Asia within the historic context of the ascendant and decadent phase of capitalism and also within the framework of the development of state capitalism and the region's integration into the imperialist blocs during the decadent phase. We must now try to understand why this region has managed to reverse its historic trend towards marginalisation. The table below shows that in 1820 almost half the wealth produced in the world (48.9%) was concentrated in India and China but that by 1973 the figure was no more than 7.7%. The colonial yoke, followed by capitalism's entry into its decadent phase reduced India and China's share of world GDP six-fold. In other words, when Europe and the new states were developing, India and China were retreating. Today it is the exact opposite; whereas the developed countries are in crisis, East Asia is recovering to the point that in 2006 it raised its contribution to the production of international wealth to 20%. So there is a definite see-saw development historically: when the industrial countries have strong growth, Asia experiences a downturn and when the crisis takes a permanent hold in the developed countries, Asia experiences an economic boom.

Table 4 : The share of different world zones in % of world GDP

 

1700

1820

1870

1913

1950

1973

1998

2001

Europe and "new countries" (*)

22,7

25,5

43,8

55,2

56,9

51

45,7

44,9

Rest of the world

19,7

18,3

20,2

22,9

27,6

32,6

24,8

(°)

Asia

57,6

56,2

36,0

21,9

15,5

16,4

29,5

 

India

24,4

16,0

12,2

7,6

4,2

3,1

5,0

5,4

China

22,3

32,9

17,2

8,9

4,5

4,6

11,5

12,3

Rest of Asia

10,9

7,3

6,6

5,4

6,8

8,7

13,0

(°)

(*) New countries = USA, Canada, Australia, and New Zealand

(°) = 37,4 : Rest of the world + Rest of Asia

Source : Angus Maddison, L'économie mondiale, OCDE, 2001 : 280

East Asia's development after World War II

This see-saw movement is also evident in the development of China's growth rate in relation to the rest of the world following World War II. Tables 3 and 5 (below) show that when the developed countries experienced sustained growth, India and China lagged behind: between 1950 and 1973, Europe did twice as well as India, Japan did three times as well as China and four times as well as India and the growth of the latter two countries was less than half of the world rate. But then the situation was reversed: between 1978 and 2002; the average annual growth rate in Chinese GDP per head was more than four times higher (5.9%) than average world growth (1.4%) and India increased its GDP fourfold although global GDP increased by only 2.5% between 1980 and 2005.

Table 5 : Mean annual growth rates of per capita GDP (in %)

 

1952-1978

1978-2002

China (corrected for over-estimates)

2,3

5,9

World

2,6

1,4

Source : F. Lemoine, L'économie chinoise, La Découverte : 62.

So it was only when the central capitalist countries went into crisis that the economies of India and China took off. Why? What is behind this see-saw dynamic? Why is it that, whereas the rest of the world is sinking into crisis, East Asia is experiencing renewed growth? How can we explain this episode of marked expansion in East Asia while the economic crisis continues at an international level? This is what we will now examine.

The return of the economic crisis reveals the failure of post-war palliatives

The return of the economic crisis at the end of the 1960s swept away all the growth models that had flourished in the world after the Second World War: in the East the Stalinist model, in the West the Keynesian model and the national-military model in the Third World. It laid low the pretensions of each one, to have found a solution to the insoluble contradictions of capitalism. The aggravation of the crisis throughout the 70s marked the failure of neo-Keynesian measures in the OECD countries, it led to the implosion of the Eastern bloc the following decade and it revealed the impotence of all "third worldist" alternatives (Algeria, Vietnam, Cambodia, Iran, Cuba, etc). All the models that supplied illusions during the halcyon days of the post-war boom fell under the buffeting of repeated recessions, so showing that they were in no way a means to overcome the intrinsic contradictions of capitalism.

The consequences of this failure and the response to it were very different. From 1978-80 the western countries redirected their policies towards an unregulated state capitalism[1] (the neo-liberal turn as the media and leftists called it). On the other hand, the rigidity of Stalinist state capitalism meant that a similar process could occur in the Eastern countries only after this system collapsed. It was also due to the unbearable pressure of the economic crisis that various countries and "models" in the third world were dragged down either into endless barbarism (Algeria, Iran, Afghanistan, Sudan, etc). Others simply went bankrupt (Argentina, several African countries, etc) or ran into difficulties that destroyed their pretensions to be successful models (the Asian tigers and dragons). However, at the same time a few countries in East Asia, such as India, China and Vietnam, managed to introduce gradual reforms which brought them into the bosom of the world market by allowing them to enter into the international round of accumulation that began in the 1980s.

These different responses had different results and we will restrict ourselves here to what happened in the Western countries and in East Asia. We should point out that, just as the reappearance of the crisis showed itself first in the central countries and then reached the peripheral countries, it is the economic upturn that took place in the developed countries at the beginning of the 80s which determined the place taken by the countries of the East Asian sub-continent in the international round of accumulation.

The arrival of unregulated State Capitalism and "deformed" globalisation 

None of the neo-Keynesian measures for economic recovery used during the 1970s managed to improve the profit rate, which was halved between the end of the 1960s and 1980 (see graph 6 below[2]). This constant fall in the profitability of capital led many firms to the brink of bankruptcy. States that had already run into debt in order to support the economy almost reached the point of suspending payments. The transition to unregulated state capitalism and a "deformed" globalisation was the consequence of this situation of virtual bankruptcy at the end of the 1970s. The essential axis of this new policy was a massive and frontal attack against the working class in order to increase the profitability of capital. From the beginning of the 1980s the bourgeoisie launched a series of massive attacks against the living and working conditions of the working class: they did away with a number of Keynesian recipes and obliged the workforce to compete internationally through delocalisation and the introduction of international competition (the loosening of regulation). This enormous social regression produced a spectacular recovery in the rate of profit to the point where it even exceeded that achieved during the post-war boom (see graph 6 below).

Graph 3 below demonstrates this policy of eliminating regulation whole sale, a policy that enabled the bourgeoisie to lower the wage mass as a proportion of GNP by +/-10% internationally. This reduction is no more than the concretisation of the spontaneous tendency towards an increase in the rate of surplus value or the rate of exploitation of the working class[3]. The graph also shows the stability of the rate of surplus value in the years preceding the 1970s. This stability, together with a significant increase in productivity, was behind the post-war boom. The rate dropped during the 70s as a result of pressure from the class struggle, which had reappeared massively from the end of the 1960s. 

This reduction of working class wages as a proportion of total production is really much greater than it seems from the graph because the latter includes the salary of all categories, including that of the bourgeoisie[4]. Although income was modest during the post-war boom, it began to increase again after them. Thereafter it was the workers who were the most badly affected by wage reductions. In fact, statistics compiled on the basis of social category show that for many sectors of workers - the less qualified on the whole - this reduction was so great as to lower their wages to their 1960 level. This was already the case for production workers in the United States (weekly income). Although their real wages almost doubled between 1945 and 1972, they then dropped again to stabilise at their 1960 level.

 

For a quarter of a century we have witnessed a massive and increasingly generalised tendency towards the absolute pauperisation of the working class internationally. On average wages' share of GDP fell dramatically by between 15% and 20%. In addition to this, workers suffered a serious decline in their living and working conditions. As Trotsky said at the 3rd Congress of the CI: "The belief was held that the theory of the pauperisation of the masses had been eliminated at the contemptuous whistle of bourgeois eunuchs engaged in their university debates and by the opportunist intellectuals of socialism. Now we are experiencing, not only social pauperisation but also psychological and biological impoverishment in all its hideous reality". In other words, what Keynesian state capitalism conceded during the post-war boom - because real wages more than tripled between 1945 and 1980 - unregulated state capitalism is taking back at break neck speed. With the exception of the post-war interlude, the whole trajectory confirms the analysis of the International Communist Current and the Communist Left according to which there can no longer be real, and above all lasting  reforms in the decadent phase of capitalism.

This huge wage reduction had two consequences. On the one hand, it made possible an enormous rise in surplus value which enabled the bourgeoisie to re-establish its profit rate. In fact it attained, and even overtook, the level it had reached during the post-war boom (see graph 6). On the other hand, by drastically reducing wage demand by between 10% and 20%, it considerably lowered the relative number of solvent markets at an international level. This led to a serious intensification of the international crisis of over-production and to a fall in the accumulation rate (the growth of fixed capital) to an historic low. (See graph 6). This two-pronged movement; the search for greater profitability in order to increase the profit rate and, at the same time, the need to find new markets to get its production circulating, gave rise to the globalisation phenomenon which appeared in the 1980s. According to the leftists and other "alternative-worldists", globalisation is a consequence of the domination of (bad) unproductive finance capital over the (good) productive industrial capital. According to the leftist version of the argument, finance capital should be abolished and they misuse Lenin's Imperialism the Highest Stage of Capitalism in order to justify what they say.  According to the anti-globalist or left social democratic brand, it should rather be controlled and taxed (Tobin tax). In fact their claims as to the cause of globalisation are completely false.

The historic significance of globalisation today

In fact all that is written about globalisation, whether by the right or the left, the anti-globalists or the leftists, presents it as a remake of the conquest of the world by means of trade relationships. Often well-known passages from the Communist Manifesto are quoted, where Marx refers to the progressive role of the bourgeoisie and to the global expansion of capitalism. It is presented as a vast process of dominating and commercialising all aspects of life through capitalist relations. We are even told that it will be the second globalisation after that of 1875-1914.

According to this view of the current phenomenon of globalisation, the whole period from the First World War to the 1980s was no more that a huge interlude, either isolationist (1914-45) or regulated (1945-80). It was a period that made it possible to carry out social policies in favour of the working class - according to the leftists - or which prevented capitalism from entirely fulfilling its potential - according to the liberals. The "let's get back to the good old days" of the former is the mirror image of the "let's  get rid of regulation" and "let's liberalise to the hilt" of the latter, who claimed that by giving "complete freedom and power to the markets", the whole world would reach growth rates equal to those in China. If we would only accept the working conditions and the wage levels of the Chinese workers, we would throw open the gates to a paradise of strong growth. The way the question is presented by the leftists or the liberals could not be further from the truth. There are several reasons for this and they can be summed up by showing that the roots of the present globalisation phenomenon has nothing in common with capitalism's tendency to spread internationally in the 19th century:

  1. The first period of globalisation (1880-1914) corresponded to the formation of the world market and the profound penetration of its commercial relations throughout the world. It expressed the geographic extension of capitalism and its domination at a world level; it constantly increased the level of accumulation by raising wages and international demand. Whereas the dynamic of 19th century swept capitalism up into a whirlwind of ever greater heights, the present globalisation is no more than a vicissitude of capitalism, which has run out of steam as far as its international accumulation and growth rate is concerned. It is in decline, it depresses growth and lowers the wage mass, so reducing solvent markets. Today, globalisation and the loosening of regulation are just measures taken to palliate the devastating effects of the historic crisis of capitalism. The "neo-liberal" policies of slackening restraints and globalisation are no more than the umpteenth attempt to overcome the failure of previous palliatives, whether Keynesian or neo-Keynesian. Today there is no trace of the triumphant capitalism of the 19th century; the system is continuing the slow agony that began in the 1970s. The fact that the constriction of the international circle of accumulation since the 1970s includes the local development of the Asian sub-continent in no way changes the deformed nature of this globalisation because the development involves only part of the world, can only last for a limited period of time and is the corollary of a vast and massive social regression at an international level.
  2. The first period of globalisation marked the conquest and penetration of capitalist relations of production throughout the world, drawing in its wake more and more new nations and strengthening the domination of the old colonial powers. Today's trajectory is essentially limited to the Asian sub-continent and weakens and endangers the economies of both the developed countries and of other Third World countries. Whereas the first globalisation marked the geographic extension and deepening of capitalist relations, today it is no more than an aberration in the general process of worsening international crisis. It develops only a part of the world - East Asia - while leaving the other countries adrift. Moreover, this interlude of very localised development in the Asian sub-continent can only last as long as the conditions that generate it. By now its days are numbered (see below and the following sections of this article).
  3. Whereas the first globalisation period was accompanied by a general rise in the living conditions of the working class with a doubling of real wages; the current globalisation brings with it massive social regression; the lowering of wages, absolute pauperisation for tens of millions of proletarians, the massive degradation of working conditions, a huge increase in the rate of exploitation, etc. Whereas the first globalisation brought progress for humanity, the current one spreads barbarism throughout the world.
  4. The first period of globalisation integrated a larger and larger mass of workers into relations of production based on wage labour. However the current one eliminates jobs and undermines the social tissue in those countries and among those sections of the international working class that are the most experienced, even if it does give rise to a young and inexperienced proletariat in the peripheries. Although the first period of globalisation tended to unify conditions and solidarity within the working class, the current one increases competition and "every man for himself" in the context of generalised decomposition in social relations.

For all these reasons, it is quite wrong to present the current globalisation phenomenon as a remake of the period of capitalism's glory. It is also quite wrong to do so by quoting well-known passages from the Communist Manifesto, in which Marx describes the progressive role of the bourgeoisie in his time. Capitalism has now had its day; it has produced the 20th century, which was the most barbarous in the whole history of humanity. Nor do its social relations of production work towards human progress; they rather drag humanity down more and more into barbarism and the risk of global ecological destruction. In the 19th century the bourgeoisie was a progressive class which developed the productive forces. Today it is obsolete; it is destroying the planet and is spreading nothing but misery, to the point that it has even hocked the future of the world. This is not really globalisation, it is more correct to call it deformed globalisation.

The political significance of globalisation and the loosening of regulatory restraints

The media and left critics characterise the policies carried out by the bourgeoisie since the 1980s that are aimed at relaxing regulation and liberalising, as leaning towards neo-liberalism and as globalisation. In fact these labels are charged with an ideological content that is a complete mystification. Firstly, the so-called "neo-liberal' loosening of regulation was enacted at the initiative and under the control of the state, and it by no means entails a "weak state" and control by the market alone, as is claimed. Secondly, as we have shown above, globalisation today has nothing to do with what Marx was describing in his writings. It corresponds to a stage in the deepening of the crisis internationally and not to a real and progressive extension of capitalism as was the case during the ascendant period of the system. It is a deformed globalisation. This obviously does not exclude a brief and localised development of commercial relations and an increase in the number of wage earners (as in East Asia, for example). The fundamental difference is that this process is taking place in a dynamic that is radically different from that which prevailed during the ascendant period of capitalism.

These two policies (unregulated state capitalism and deformed globalisation) are not the expression of a capitalist renewal or the setting up of a new "finance capital', as the vulgar leftists and anti-globalists claim. Above all, they reveal the worsening of the world economic crisis in that they proclaim the failure of all the measures of classic state capitalism that were used previously. At the same time, the constant appeals on the part of the bourgeoisie to broaden and generalise these policies even more, is equally a clear admission of their failure. In fact, more than a quarter of a century of unregulated and globalised capitalism has proved unable to rectify the economic situation internationally. For the whole time that these policies were in place, the international per capita GDP has continued to decline decade after decade, even if at a local level and for a limited time, and this has enabled East Asia to benefit and so to experience spectacular growth.

The arrival of unregulated state capitalism and deformed globalisation is a clear expression of capitalist decadence

The persistence of the crisis and the continual fall in the rate of profit throughout the 70s has damaged the profitability of capital and of businesses. Towards the end of the 70s the latter got badly into debt and many of them are on the brink of bankruptcy. Together with the failure of neo-Keynesianism to re-launch the economy, this situation of bankruptcy obliged the bourgeoisie to abandon Keynesian measures in favour of unregulated state capitalism and a deformed globalisation, whose main purpose was to raise the rate of profit and the profitability of companies and to open up the international market. This re-orientation of economic policy on the part of the bourgeoisie marked, more than anything, a stage in the worsening of the crisis internationally. It was not the beginning of a new period of prosperity, made possible by the "new economy", as the media is constantly telling us. The gravity of the crisis was such that the bourgeoisie had no other choice but to return to more "liberal" measures, although in reality these only accelerated the crisis and the slowing of growth. Twenty-seven years of unregulated state capitalism and globalisation have resolved nothing but have rather aggravated the economic crisis.

There are two pillars of deformed globalisation, which accompanied the setting up of unregulated state capitalism from 1980 onwards. Firstly, the frantic search for places where production can take place with low labour costs, in order to raise companies' profit rate (sub-contracting, delocalisation, etc). Secondly, the desperate hunt by each country for demand that is "external" to it in order to attenuate the lessening of demand coming from wages within the country, a demand that has been reduced because of the austerity measures aimed at raising the profit rate. This policy worked to the good of East Asia, which was able to adapt and take advantage of this development. From then on, the spectacular growth in East Asia, rather than helping to raise international economic growth, has in fact been an added factor in depressing final demand by reducing the wage mass world-wide. In this way, these two policies have greatly contributed to the worsening of the international crisis of capitalism. This can be clearly seen from the graph below, which shows a constant and coherent relationship between the development of production and that of world trade since the Second World War. This is interrupted only in the 1990s when, for the first time in about sixty years, there is a divergence between world trade, which takes off, and production, which remains flat.

  

Therefore trade with the Third World, which had halved during the post-war boom, took off again from the 1990s following globalisation. However it involved only a few countries in the Third World, those that were transformed into "workshops of the world" turning out goods with low wage costs[5].

The fact that the recovery of world trade and of percentage exports since the 1980s is not accompanied by an increase in economic growth, is a clear illustration of what we are saying: unlike the first period of globalisation in the 19th century, which extended production and increased the wage mass, the current one is deformed in that it lowers the wage mass and restrains the basis of accumulation internationally. The fact that the current "globalisation" boils down to a bitter struggle to reduce production costs by savagely lowering real wages, shows that capitalism no longer has anything to offer humanity except misery and growing barbarism. The so-called "neo-liberal globalisation" has nothing to do with a renewal of world conquest by triumphant capitalism as in the 19th century, but reveals above all the bankruptcy of  all the palliatives employed to confront an economic crisis that is leading capitalism slowly but inexorably towards bankruptcy.

[1] We refer the reader to our articles on this question for a better understanding of the terminology used here.

[2] In n°128 of this Review, we published two graphs showing the evolution of the profit rate over a century and a half in the United States and France. They show clearly this halving of the profit rate between the end of the 1960s and 1980. It is one of the most spectacular falls in the rate of profit in the whole history of capitalism and it was an international phenomenon.

[3] The rate of surplus value is no more than the rate of exploitation which relates the surplus value (SV) appropriated by the capitalist to the mass of wages (VC =  Variable Capital) which he pays out to the wage workers. Rate of exploitation = Surplus value/Variable Capital.

[4] This graph is taken from the study carried out by Ian Dew-Becker and Robert Gordon, Where did the Productivity Growth Go? Inflation Dynamics and the Distribution of Income, Washington DC, September 8-9 2005. It is available from the internet at the following address: http://zfacts.com/metaPage/lib/gordon-Dew-Becker.pdf. : The graph shows the evolution of wages as a percentage of GDP. It includes all wages for the European Union and all wages less the top 5% for the United States".

[5] It is because these goods are "low cost" that exports, as a percentage of production remained high between 1980 (15.3%) and 1996 (15.9%). In fact they are even higher if calculated, not in value, but in volume: 19.1% in 1980 and 28.6% in 1996.