The "Asian Dragons" run out of steam

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The recent strikes and economic difficulties in South Korea have overturned one of the bourgeoisies arguments in its ideological campaign to refute marxism. Disappointed by the end of the Japanese “miracle”, the bourgeoisie seized on the considerable growth rates of the “Asian dragons” (South Korea, Taiwan, Hong Kong, Singapore) and the rise of new “tigers” (Thailand, Indonesia, Malaysia). Wasnt their prosperity the “proof” that underdeveloped countries can quickly emerge out of poverty, and that the credit for these successes lies with capitalism and its market laws? And how many times have we been shown striking workers who carry on with their work while wearing an armband to mark their discontent? The “devotion to the interests of the company”, the “legendary discipline” of the south east Asian workers has been presented to us by the bourgeoisie and its media as one of the secrets of the economic success of these countries and as the living proof of the emptiness of the marxist theory that class conflict is inevitable.

With the collapse of the eastern bloc and the demise of Stalinism, which has been falsely presented as the end of communism, the whole bourgeoisie announced the triumph of the “market economy” and promised a new era of prosperity. But the brutal realities of the crisis, austerity measures and mass redundancies on a scale not seen for 25 years, are there to contradict these triumphant speeches and to disperse the ideological fog of these phony promises about a future of “prosperity”. More than ever, the bourgeoisie urgently needs models of success in order to keep its myths alive and hide the historic bankruptcy of its system. It has to do all it can to prevent the proletariat, its mortal enemy, from becoming aware of the real roots of the crisis, from understanding that capitalism has no other future than one which drags humanity into growing impoverishment and into increasingly murderous military conflicts. This is why, after the more and more evident exposure of its German and Japanese models, the ideological pimps of the bourgeoisie have been promoting the south east Asian examples as new poles of growth. This is one of the new mystifications in vogue today.

The Third World in the decadence of capitalism

Only a global analysis of the decadence of capitalism can enable us to understand the place and significance of the relative economic development of the south east Asian dragons and how they constitute an exception to the rule of massive deindustrialisation in the third world and to the general incapacity of the capitalist mode of production to develop the productive forces. The figures are very eloquent here: the third world only returned to the level of industrialisation per inhabitant it had in 1750 two centuries later, in 1960. Despite all the bourgeoisies triumphant talk about the dynamism of south east Asia and third world development, during the period of decadence the gap between the industrialised countries and the rest of the world has grown bigger and bigger: it has more than doubled, going from 1 to 3.4 in 1913 to 1 to 8.2 in 1990. Whereas during the ascendant phase of capitalism the population integrated into the productive process grew more rapidly than the population itself, today we are seeing a growing mass of workers being ejected from the system. The end of capitalisms progressive role can be measured, among other things, by its inability to develop one of its main productive forces: labour power. The small burst of industrialisation in the third world during the years 1960-70, which was vigorous enough in terms of growth rates, in no way overturned the overall situation. It was limited in time and space, it depended entirely on the mode of accumulation in the developed countries, and in the end proved very costly and pernicious for the third world itself. But apart from a few exceptions, mostly localised in south east Asia, most of the attempts to create a real industrial base failed. And no wonder, since the established industrial powers hardly wanted to see the generalisation of new competitors.[1]
Without developing here on a question which we will have to return to on another occasion, we want to recall that the brunt of industrialisation in the third world has been concentrated in only five countries: Brazil and the four dragons.
[2] Together, these five countries supply nearly 80% of exports of manufactured goods from the third world, even though they make up only 6% of the latters population. Looking at the four dragons alone, the imbalance is even greater: in 1990 they supplied two thirds of exports of manufactured goods from the whole of the third world, but represent only 3% of its population. Limited in space, this development was also limited in time. The brief reversal of the general dynamic in the years 1967-77 (cf the table below) has again given way to an increase in the relative gap: the growth of production in the third world went back to a rate lower than that of the industrialised countries. Entire zones even stopped growing, since production per capita simply went into decline. The 1980s, real lost years for the third world, put a definite end to the illusions. The few exceptions which escaped this general evolution did not refute the overall tendency. The 1980s saw a quasi-stagnation in per capita production (0.7%) in the countries of the southern hemisphere

Why was there a development in South-East Asia after the Second World War?

Its only in the general context described above that we can pose the question of the cause, scale and nature of the growth that took place in south east Asia. First of all, we must exclude Japan from the growth figures in this region: Japan was the only country in the region which went through an industrial revolution in the 19th century and freed itself from any major direct or even indirect colonial domination. This country, which went through its capitalist transformation via the Meiji revolution of 1867, has to be seen as one of the economic powers that emerged during the ascendant period of capitalism.

The south east Asian exception can only be understood in the context of the deadly struggle between the two military blocs (NATO and the Warsaw Pact) which came out of the second imperialist world war. Contained in Europe in the immediate post-war period, the expansion of the eastern bloc was displaced towards Asia. The USSRs support for the Maoist bourgeois faction which came to power in 1949, plus the war in Korea, led the USA to develop a policy aimed at blocking the expansion of its imperialist rival in this part of the globe. Aware that economic and social poverty was one of the main arguments used by the pro-Soviet nationalist factions who came to power in certain Asian countries, the USA created zones on the very borders of China (Taiwan, Hong Kong, South Korea and Japan) which could serve as outposts of western prosperity. The priority for the USA was to establish a cordon sanitaire against the advances of the Soviet bloc in Asia. Contrary to its policies in the rest of the world, the USA was to use an impressive arsenal of measures to sap the objective bases of social discontent in these countries. Thus, whereas almost everywhere in the world America had violently opposed agrarian and institutional reforms and had supported the most retrograde factions of the ruling bourgeoisies, it promoted revolutionary economic and social policies in the four Asian countries we have mentioned. These policies were completely determined by its geostrategic interests in the region. South Korea, for example, did not have any particular economic strong points. Lacking in raw materials, and with most of its industrial base limited to the north, the country was drained dry at the end of the war: production had fallen by 44% and employment by 59%. Sources of fresh capital, intermediate means of production, technical competence and managerial capacities were virtually non-existent. Only the imperatives of the cold war pushed the USA to support South Korea to the hilt. Against the stupid assertions about the formidable self-development of south east Asia, the growth of the ‘dragons’ was the pure product of American imperialist interests in the context of the cold war. There is no doubt that without the massive aid of the US from the beginning and for long years afterwards, these countries, and particularly South Korea and Taiwan, would not have survived as national states.

  1. The sheer scale of military and economic support from the US amounted to a Marshall Plan for Asia. The growth that took place during the 1950-70 period was based on record-breaking levels of US aid (it was only surpassed, in relative terms, by the aid given to Israel, for similar strategic reasons). From 1945 to 1978, South Korea received some 13 billion dollars, or 600 per inhabitant, and Taiwan 5.6 billion, or 4.5 per inhabitant. Between 1953 and 1960, foreign aid contributed almost 90% of fixed capital in South Korea. The aid given by the USA reached 14% of GNP in 1957. In Taiwan between 1951 and 1965, American civil aid reached 6% of GNP and military aid 10%. In the 1950s, more than 80% of Korean imports and 95% of Taiwans trade deficit were financed by American aid. This aid ceased in 1964 for Taiwan and only in 1980 for Korea. But even then forms of natural aid continued. Cereals and other supplies were given to Korea as a reward for its voluntary restrictions on textile exports. American food surpluses helped keep wages low in these two countries. In south east Asia, aid was also relayed in other forms in the 1970s: through direct overseas investments (essentially American then Japanese) and above all by external debts (see the table below); then, for Korea and Taiwan, industrial exports were able to take up the torch.
  2. Just as in Japan, agrarian reforms were imposed by American military governments, and this had profound consequences for the class structure of these countries and for the relative autonomy of the states. Thus in Korea, agrarian reform began in 1945 with the decision of the American military government to redistribute to former farmers and growers the lands previously controlled by the Japanese. Agrarian reform thus helped ensure political stability by suppressing any danger of peasant riots. In Taiwan the Americans demanded the agrarian reform drawn up by the Sino-American Commission for Rural Reconstruction. This was granted exceptional powers and its budget was in US hands.
  3. Numerous institutional and social reforms were pushed through in order to sap the bases of the old regime and dynamise society. In contrast to the systematic support given to the land-owning bourgeoisie in other third world countries, and notably in Central and South America, American policy in south east Asia served to disintegrate such factions, thus getting rid of a political and economic obstacle to industrialisation. Thus, in 1959, the dismemberment of the big landed properties and their redistribution as small plots without any real compensation, was relatively equitable in South Korea[3] and helped to destroy an hereditary class system (Yangban) founded on landed property.[4]
  4. But the USA did not restrict itself to supplying military, financial and technical aid to these countries; it also took charge of the whole management of the state and the economy. In the absence of real national bourgeoisies, the only social body capable of carrying out the modernisation that the USA wanted was the army. A highly effective form of state capitalism was installed in each of these countries. Economic growth was spurred on by a system which closely linked the public and private sectors through a quasi-military centralisation, but with the sanction of the market. In contrast to the east European version of state capitalism with its absurd bureaucratic excesses, these countries allied state centralisation with the sanction of the law of value. Numerous interventionist policies were carried out: the formation of industrial conglomerates, laws protecting the internal market, trade restrictions at the frontiers, a form of planning that was imperative but also incited further efforts, state management of the distribution of credit, the orientation of capital and resources towards the key sectors, the handing out of exclusive licenses, management monopolies etc. Thus in South Korea, it was thanks to a unique relationship with the chaebols (equivalent to the Japanese zaibatsus), great industrial conglomerates often founded through state aid or initiative,[5] that the public authorities orientated economic development. In Taiwan, public enterprises supplied 80% of industrial production in the 1950s. This was a rate which easily matched that of the east European countries! After falling in the 1960s, this ratio increased again in the 1970s when the state took charge of the programme of building heavy industries.
    Far from being a counter-example, south east Asia is in fact a magnificent illustration of one of the fundamental characteristics of the decadence of the capitalist mode of production: the impossibility for the spontaneous development of an autonomous national bourgeoisie. In an era in which the bourgeoisie no longer has a progressive historical role, it is the state - which is in the hands of the army, the only structure that has any force and coherence in the third world - that takes on the role of society’s tutor, a tutor trained, installed and financed by the world’s leading power in the context of the inter-imperialist configuration after 1945. If all these circumstances had not come together, we can imagine, especially for South Korea and Taiwan, after their long decline under the Yin and the Manchus, that these countries would have ended up in the same impasse as the rest of the third world. This is what makes the four dragons (and Japan) examples which cannot be repeated. This is what provides the answer to the ridiculous claims of Internationalist Perspective about the capacities for local bourgeoisies to emerge on the peripheries with the ability to industrialise and compete with the old industrial countries.
  5. To ensure the economic success of these Asian countries, the USA guaranteed that its market would be open to them. South Korea, but above all Taiwan, also benefited from the Japanese-American economic competition which has developed over the years, notably through the customs privileges granted in paragraph 807 of the US customs code, enabling components assembled or re-worked abroad to be re-exported to the US. This is why numerous American firms have relocated their assembly operations abroad in order to benefit from the lower wages and in doing so have blocked the flood of cheap Japanese imports into the US. Thus, towards the end of the 1960s, half of American imports took place under the cover of this paragraph 807, and for the most part they came from American enterprises in Mexico and Taiwan. But the Japanese have responded by doing the same thing in Taiwan. Furthermore, American support has extended as far as tolerating the protectionist measures that South Korea and Taiwan adopted to protect their industries from substitute imports, despite advice to the contrary from the IMF, the World Bank and the GATT. Later on, when these countries went over to industries geared towards export, it was the USA which directed and organised this change-over by dictating practically all of the necessary reforms.
  6. Finally we should point out that this economic growth is above all the product of the ferocious exploitation of the working class in south east Asia and of an extreme militarisation of social life: low wages, long working hours, intense flexibility, permanent social control through tying the wage-earner to the company, military occupation of the factories in response to any social conflict, etc. This is without doubt one of the most savagely exploited fractions of the world proletariat: the workers have paid in flesh and blood for the economic miracle. South Korea has the highest rates of industrial accidents and work-related illnesses in the world. The south Korean women workers, whose wages are not even a half of their male colleagues, have been the bosses favourite sector, especially young single women who have some basic education. These facts explain the low rates of demographic growth, 1.4% per year, the source of which lies in the exploitation of women and not, as is claimed, in the high levels of development. In contrast to other third world countries, the dragons have not had to deal with a demographic explosion that has held back economic growth (4% growth alongside a demographic growth of 3% ensures 1% growth per inhabitant). Furthermore, the thirty years of growth in these countries have engendered a real ecological catastrophe which has to be added to the frightful living conditions.

Contrary to the great claims of bourgeois propaganda about the dynamism of capitalism and the possibility for new arrivals on the world market to industrialise and compete with the older powers, the development of south east Asia is no mystery. Japan and the four dragons were chosen by the USA to revitalise eastern Asia and to form a barrier against its Chinese and Russian rivals. These military or one party states enjoyed a breathing space after the second world war that was available to very few others. This development, bracketed in time and space, confirms the thesis that the decadence of the capitalist mode of production is characterised by inter-imperialist conflicts, by a deadly economic struggle over a saturated world market and thus by the overwhelming weight of militarism and the war economy.

The present difficulties in south east Asia

Certainly, this bracket has marked a kind of success, which no doubt went beyond America’s post-war predictions; to some extent it has even backfired against its instigator at the economic level. But this situation can only be temporary. Despite the delay, just like Japan, these islands of prosperity in south east Asia are set on a course towards recession. The present difficulties in these countries shows that this region of the world is no exception. They are gradually entering into a zone of economic turbulence. The recent economic problems and social conflicts are trebly illustrative. To begin with, they show that the crisis of capitalism is indeed world-wide and that, even if has to some extent spared certain geographical areas for a while, it is now hitting every country in the world, though still to varying degrees. Exceptions are becoming increasingly rare and the crisis is making all situations more and more homogeneous. This is a first blow struck against the myth of the so-called south east Asian model. Secondly, the strikes in Korea are a striking refutation of all the claims about the integration of the Korean workers, which aim to divide the world proletariat. They show the international unity of interests of the working class, against the myths of an Asian working class that is entirely subservient to a higher national interest. Finally, the crisis and the social conflicts are undermining another myth, the myth of an economic solution inside of capitalism.

Today, with the saturation of the world market and the economic difficulties of the US itself, the period in which the dragons could profit from the opening up of the US market is now over. The tolerated conquest of the American market by the dragons after the war had as its corollary a growing dependence on American policies. Thus, South Korea - and the situation is analogous for Taiwan - is a very outgoing country and thus highly dependent on the world market (in 1987, its exports accounted for 40% of GNP), and above all on the American market (in the same year the US market absorbed 40% of South Koreas exports). Overnight, the South Korean economy could enter violently into recession as a result of a slow-down in world trade, a major shift in exchange rates or protectionist measures. This dependence is all the greater, and all the more threatening of economic failure, in that it is the falling trade surplus with the US that has to finance the growing trade deficit in equipment and technology with Japan - goods that are needed to ensure the competivity of Korean capital. Here a new obstacle appears: since the success of the dragons is based on technology which has proven its worth but which is produced at low cost, these countries, in their efforts to negotiate the turn-around to a higher value production, have to pile up their debts and thus fall into technological dependence on Japan which is more and more controlling the economy of the whole region.

Furthermore, the continuation of the success of the two decades after the war was to a large extent possible thanks to the old recipes of public deficits and debts (see tables above) which have strongly fueled inflation.

As with other third world success stories, growth since the onset of the crisis is a balloon puffed up by debt and could burst at any moment. The big investors are well aware of this: Among the reasons the richest industrial countries have been so anxious to double the IMFs emergency credit lines to 850 billions is that a new Mexico-style crisis is feared, this time in the Far East. The upsurge in the Pacific economies has stimulated enormous private sector capital flows, which have been substituted for domestic saving, leading to an unstable financial situation. The question has been which Asian tiger would be the first to fall (Guardian, 16.10.96). Every time the crumbling of one myth threatens to expose the failure of the whole capitalist system, the bourgeoisie conjures up new ones. A few years ago it was the German and Japanese miracles; then, after the collapse of the eastern bloc, the bright new tomorrow offered by the new markets in eastern Europe and Russia. Today the dragons are in vogue. But the recent and future difficulties in the region show and will show to the working class that these little emperors are also naked, tearing a little bit more of the veil behind which the bourgeoisie tries to hide the bankruptcy of the capitalist mode of production.

C Mel

Sources: Aseniero Georges, Le contexte transnational du developpment de la Coree du Sud et du Taiwan, an article published in Mondialisation et Accumulation. LHarmattan, 1993; Bairoch Paul, Le Tiers-Monde dans limpasse, Gallimard 1992; Myths et paradoxes de lhistoire economique, La Decouverte, 1994; Banque Mondiale, annual Rapport sur le developpment dans le monde; Coutros and Husson; Le Destin du Tiers Monde, Nathan, 1993; Chung H Lee, La Transformation economic de la Coree du Sud, OECD, 1995; Dumont and Paquet, Taiwan, le Prix de la Reussite, La Decouverte, 1987; Lorot and Schwob, Singapore, Taiwan, Hong Kong, Coree du Sud, les Nouveaux Conquerants?, Hatier 1987; PNUD Rapport mondial sur le developpment humain, Economica, 1992

1 Thus, if the whole of the third world had exported per inhabitant as many manufactured articles as the middle ranker of the four dragons, this would have almost been the equivalent of the total consumption of the developed western countries!

2 While South Korea and Taiwan are two countries that regroup respectively 44.5.and 19 million people, Hong Kong and Singapore are both island city-states founded by the British colonialists and only have 6.1. and 2.9 million inhabitants.

3 It is estimated in fact that on average, the income of the 80% made up by the poorest farmers increased by 20 to 30%, while the income of the 4% made up by the richest went down by about 80%.

4 Other ambitious changes were initiated under US guidance, such as the great education programmes aimed at producing a well-trained work force.

5 The first and most important source of finance was the acquisition by the chaebols of assigned goods at prices well under their value. Just after the war this made up 30% of what South Korea inherited from the Japanese. Initially placed under the control of the American office of assigned goods, they were distributed by the office itself and by the Korean government.