Asian crisis: why capitalism is crumbling
By John Percy
The Communist Manifesto ushered in a new epoch in human history. It described and projected the process of change from capitalism to socialism, the coming to power of the working class. That's a process still taking place.
Capitalism has truly provided an appropriate present for Marx and Engels on the occasion of the 150th anniversary of their Manifesto — the Asian economic crisis, on the brink of becoming an international crisis that is really shaking out the arrogant confidence of capitalist ideologues.
All the irrationality, contradictions and instability of the capitalist system are being richly demonstrated as the crisis unfolds.
The crisis kicked off in Thailand in May-June-July, described as a "currency crisis". The Thai currency ended up being slashed in half; 56 of the 58 suspended Thai finance companies were shut completely; many firms have already gone bankrupt, and more will follow. The fastest growing economy in Asia ground to a halt.
The crisis then spread to Malaysia, Indonesia and the Philippines. Currencies and stock markets fell. On October 28 the Hong Kong stock index plummeted, and markets around the world followed wildly. Some rebounded, but one estimate has US$400 billion lost by the end of the year.
The world was assured that South Korea was OK, but of course it spread to South Korea, the world's 11th largest economy, with a vengeance.
Towards the end of December, with scores of conglomerates teetering on the edge of bankruptcy, several banks on the verge of default and overseas vendors demanding cash up front for any new shipments of oil, World Bank chief economist Joseph Stiglitz declared South Korea's economy basically healthy.
"Is he talking about the same country?" asked the South China Morning Post reporter.
When negotiations with the IMF began, Korea's short-term foreign private debt was "reckoned" at US$66 billion dollars; on December 8 the government admitted it was more than US$116 billion; on December 30 it "recalculated" it at US$157 billion.
The sovereign debt of Indonesia, Thailand, and South Korea has been downgraded to junk bond status by the two prime rating agencies.
But it's not just the "tigers" that have been brought down to earth. Japan, the second most powerful imperialist economy, is teetering on the edge of a more serious crisis.
Japan's economy has been in the doldrums throughout the '90s. It has not recovered from the collapse of the inflated financial assets bubble economy.
A major Japanese bank, Hokkaido Takushoku, and Sanyo Securities, Japan's seventh biggest brokerage firm, went broke in early November. On November 21, Yamaichi Securities, Japan's fourth largest brokerage firm, collapsed owing US$24 billion. More bankruptcies are ahead; more banks will go broke.
Then comes the big question of whether Japanese institutions will be forced to cash in their US bonds. Washington is the world's largest debtor, owing the rest of the world more than US$1 trillion, much of it to Japan.
Historical materialism
The Communist Manifesto is not a rigid document irrespective of time and circumstances. Social, economic and political life has changed tremendously over 150 years. But it's remarkable how accurate the analysis is, even how much of the detail is still relevant.
The materialist conception of history, the underlying basis of the document, is still thoroughly correct, and borne out by the intervening 150 years. Its first postulate, "The history of all hitherto existing society is the history of class struggle", is just as valid today.
No other way of analysing the world makes sense. Historical materialism is the only analysis able to explain social change in the past, and able to understand and anticipate the future.
Many have questioned whether the working class is still the revolutionary, progressive class described by Marx and Engels. The reformist and coopted sections bought off by imperialist super-profits have delayed the socialist struggle in advanced capitalist countries, but on the other hand there have been no recent big defeats. The working class is not smashed, and it's larger than ever before, with more potential power. And, given the length of the long downturn since the '70s, the room for manoeuvre by the bourgeoisie has significantly lessened.
Capitalism evolves — that's the nature of the beast. But the fundamental mechanisms of its operation remain the same, first properly analysed in the Manifesto.
Polarisation
The Manifesto describes the polarisation of capitalist society between bourgeoisie and proletariat. The impoverishment of the working class has been a concept much ridiculed over the years by capitalist apologists, and academic professional refuters of Marx.
But look at the reality on a world scale: the immense differences of wealth, both within countries and between them.
Even within the USA, the richest imperialist power, we see extremes of incredible poverty and misery, alongside staggering and disgusting opulence. Among industrialised nations, the USA stands number one per capita:
- in billionaires and in children living in poverty;
- in wealth and income inequality;
- in population without health care;
- in infant mortality, malnourished children and deaths of children under five years old;
- in homelessness;
- in executive salaries and in pay inequality between executives and average workers.
(From We're Number One: Where America stands — and falls — in the New World Order, by Andrew L. Shapiro, Vintage, 1992.)
The gap between rich and poor has widened in nearly every US state since the 1970s, according to a report by the liberal Center for Budget and Policy Priorities.
A study in July reported that 447 billionaires have wealth equal to the total assets of the poorest 50% of the world's population. The polarisation has increased since Marx's time.
And rather than economic convergence occurring between the advanced capitalist countries and the rest of the world, as some ideologues claim, the reality is the opposite. A recent article by Lant Pritchett, a senior economist with the World Bank, titled: "Divergence, Big Time", states:
"From 1870 to 1990 the ratio of per capita incomes between the richest and the poorest countries increased by roughly a factor of five and the difference in income between the richest country and all others has increased by an order of magnitude."
The state
The Manifesto points out that the bourgeoisie has "conquered for itself, in the modern representative state, exclusive political sway. The executive of the modern state is but a committee for managing the common affairs of the whole bourgeoisie."
We saw this demonstrated yet again with 13 years of ALP government, today with the Howard government, around the world with example after example. The Asian economic crisis is but the latest development.
Despite the hype about globalisation, states still have this key role. Yes, the Asian regimes are helping their cronies and mates. That's not some wild aberration from capitalism; that's the norm; the range of cronies is a lot larger in the advanced capitalist countries.
The US$100 billion plus in IMF funds are being used to bail out banks and finance companies. They talk about rescuing Thailand, or South Korea, but the money's going to the big local capitalists, and especially the big international investors.
These capitalist high rollers gambled and lost, but the money to rescue them, to pay them back what they lost at the capitalist casino, comes from the public purse: from taxes, from cuts to workers' wages, from slashing education and health care for ordinary people.
The December 20 Economist editorial gave its prescription for Japan: "A big tax cut was required to stimulate the economy; and a huge, preferably open-ended, amount of public money had to be made available to keep banks afloat while they are merged, sold, closed or otherwise revamped".
But you also see the other aspect of the policy of the United States ruling class, which says perhaps not all should be rescued: we can't let them all get away with it; they gambled too recklessly and should be taught a lesson.
Behind the piousness is the US ruling class, waving its big stick. They'd let them all go down if it was best for their overall profitability, if they could get away with it and not provoke social unrest. But they are using it to take what they can, against their imperialist competitors, to tighten US imperialism's stranglehold.
The US ruling class, through its dominating influence on the IMF, has imposed terms on the recipients of IMF loans that entail the opening up of their markets, the lifting of restrictions on foreign ownership and penetration of the financial institutions in those countries. US firms are gobbling up choice assets.
A deal was struck on December 13 under the auspices of the World Trade Organisation forcing the 100 governments that signed to agree to dismantle barriers to foreign ownership of banks and securities firms.
Inter-imperialist competition is not a thing of the past. The World Bank structural adjustment programs are often attempts to strengthen US imperialism against its imperialist competitors.
Japan's proposal for a US$100 billion "Asian Monetary Fund" was stomped on by the US and the IMF. The efforts by South American countries to set up Mercosur, their own free trade fortress, get attacked by the US. Market deregulation profits the most powerful imperialist ruling classes.
Overproduction
The capitalist media and bourgeois experts have put forward all manner of explanations for the crisis, and few of them are anywhere near the mark.
It's not caused by currency speculators. It's not a result of cronyism or corruption of the Asian regimes (although there's plenty of that). It's not because these Asian economies were too closed, not unregulated enough.
The root cause has been a phenomenon not unknown to readers of the Communist Manifesto and Marxist economic analysis, the same mechanism always driving the boom and bust cycle of capitalism: a crisis of overproduction, a result of capitalism's thirst for profits and super-profits.
In the midst of worldwide shortages of food, clothing, housing, clean water, power, health care, education — the basic necessities of life — we have a glut of commodities of all kinds, a glut of capital which can't find profitable enough areas to invest in.
We have a crisis of capitalist overproduction, because they can't sell their products at a profit. We have mountains of food that are unprofitable to sell, while each day, 110,000 people around the world die from hunger.
The car industry, apart from being an environmentally disastrous mode of transport, suffers chronic overcapacity around the world. In South Korea, even as the economy tumbled toward the abyss, new chaebols were still scrambling to get into the vehicle business, to contribute their own bit towards production overcapacity.
China, even with the majority of its population mired in poverty, faces looming overcapacity in industry after industry. Every major brewing company around the world wants to get a foot in the door, so massive brewery overcapacity has been built at the prospect of 1.2 billion huddled masses yearning to guzzle Fosters.
"Shipping analysts have forecast an upturn in the dry bulk market for the first time in several years as more ships are being scrapped than are being delivered from shipyards", wrote the London Financial Times on November 29-30. That is, profits are projected to rise from a destruction of capacity.
While half the world starves or lives in poverty, billionaire capitalists are flush with cash without profitable areas for investment.
Some bourgeois commentators came clean on the real dynamic of the crisis. "Analysts say the root cause of the crisis is pretty simple", according to a November 17 International Herald Tribune article. "Too much money flowed into Asian economies in recent years, and too much of it was wasted on bad investments and needless imports. Asian markets became little more than financial bubbles waiting to be popped."
Dead end
Since the end of the long boom in the early '70s, capitalism has passed through a long period of stagnation and downturn, with chronic problems of overcapacity and declining profitability.
The Asian economic crisis has put paid to delusions either that the Asian tigers were models for the rest of the world to escape from poverty and backwardness, or that Asia was an area for the excess capital of the west to find profitable investment.
In spite of the IT hype, the reality of the last 30-40 years has been one of scientific and technological stagnation. Scientist Eric J. Lerner writes, for example: "Since 1960 there has not been a single major qualitative breakthrough in physical technology". Only in biology in the recent period has genetic engineering brought about a qualitative advance.
Overcapacity means capitalists' billions go to speculation, to takeovers, not to new productive facilities which could drive new scientific and technological advances.
Solar energy, for example, is technically very feasible, economically very efficient, ecologically very necessary, but for capitalists it's not profitable. Any treatment of the greenhouse effect mustn't threaten profits.
The big corporations are staking claims to more and more of the natural wealth of humanity, appropriating it for private profit — the land, the forests, the minerals of the earth, the very life on earth: patenting the flora, the fauna, even the gene pools of whole peoples.
The environmental crisis gives a whole new dimension to the irrationality of capitalism, the very real and present danger to life on earth.
Capitalism means planned obsolescence. The best minds go to making crap, and discovering ways to make crap break quicker, to stimulate demand for ever more crap. The second best minds go to inventing ways to sell and package crap, to convince "consumers" to buy ever more crap, the latest model crap.
Capitalism is at a cultural and intellectual dead end. About which TV shows or movies or music or art can you honestly say: "That was an uplifting and exhilarating experience"?
Most intellectuals under capitalism act as hired hacks — producers of mystifications to order, regurgitators of old themes, or blind pompous followers of intellectual fads. Independent honest academia is in decline.
There's an upsurge of spiritualism and irrationality — tarot cards, astrology, Druids, witchcraft, Christian fundamentalism, Islamic fundamentalism, Jewish fundamentalism, Scientology.
There's an accelerating social decline. Human values, solidarity, are replaced with the glorification of greed.
Violence, aggression, crime are positively portrayed by the bourgeois media. Alienation, unsatisfying work or unemployment, a consumerist culture are often the only prospect facing young people, whose resort is an escape to drugs and cynicism. Sport glorifies competitiveness, aggression, passivity, commercialism.
Everything is commodified under capitalism. Education becomes a knowledge factory.
Health care for profit becomes the norm, available for those with the money. Care of the aged, the sick, the disabled gets thrust back on to the individual, or onto the family.
Capitalism is at an impasse, in spite of the hype. The jitters at times of crisis betray the reality.
Blow to the system
In 1998 we can expect the capitalist crisis to deepen and extend.
We can't make any absolute predictions about how the workers' struggle will be affected. Certainly in places like Indonesia and South Korea, where there is already organisation and consciousness, there will be fights back against the austerity measures, the job cuts, the repression dictated by the IMF and Washington.
The most significant and long-lasting impact already, in all countries, is in the blow that this crisis has dealt to bourgeois confidence and arrogance about the stability and permanence of its system.
It raises the possibility of breaking the psychological barriers to struggle that have been erected by resignation, apathy and the bourgeois ideological offensive against the very idea of change or challenge to their system. It starts to engender a crisis of capitalist legitimacy.
But it's not automatic. It's up to us and other socialist forces around the world to understand, to explain, to lead.
Capitalism still has immense resources at its disposal, and can take out its problems on the backs of the working class and the poor, to make us pay for the irrationalities of the system and the greed and foolishness of capitalists. That's what they intend doing, to make the public — workers, poor, the oppressed — pay for their problems, through the IMF-imposed cuts to public works and welfare, rising taxes, huge job losses.
Workers around the world can be radicalised by these developments, shedding illusions about capitalism's strength and confidence, and being sparked to action by attacks on previously won gains and conditions.
[This article is excerpted from a talk to the "150 years of the Communist Manifesto" conference held in Sydney in early January. John Percy is the national secretary of the Democratic Socialist Party.]