Only a few months ago, economists, businessmen, politicians and journalists were singing the praises of a “miracle economy” and then almost out of nowhere … wham! The Asian “miracle” economics went into a downward spiral that had ripple effects around the world, from India to Brazil to Russia, Europe and the United States.
In October, the U.S. stock market experienced the worst single drop in its history, almost 10 years to the day of the crash of October 1987. Had circuit breakers not been put in place to prevent another crash, the drop percentage-wise surely would have surpassed the drop in 1987.
And while it rebounded in the days that followed, it has yet to climb back to the 8000 mark it had reached before the drop. Moreover, the volatility in the last couple of weeks because of the continuing slide of the Asian economies – which by now has hit the stronger economies of South Korea, Japan, Hong Kong, Singapore and Taiwan – and the uncertain effect it’s going to have on the U.S. economy, have shown that the rosy picture of the “miracle economy,” which they were painting only a few months ago, is not so rosy.
Yet it was only this past March that The Washington Post wrote, “The U.S. economy seems to have entered a new period of stability in which recessions no longer seem inevitable.” Paul McCully, an investment banker, was quoted in Businessweek as saying, “The economy has entered a golden age in which growth modulates endlessly between soft landings and soft takeoffs.”
And just before the financial crisis first began to break this summer, Money magazine featured a story about investing titled, “How to Cash In on the Asia Boom; Every Investor Today Ought to Take a Hard, Close Look at the Dazzling Promise of the Pacific Rim.”
Finally, four months ago, well into the crisis, the International Monetary Fund released a report praising the Korean and Indonesian economies.
Of course, a lot of these same commentators are now coming out and saying how the present crisis was inevitable. That the Asian model of growth was bound to go bust because of corruption, lack of democracy and free markets, speculators, etc. Anything but the capitalist system itself.
The fact is, virtually every time capitalism has climbed out of recession and entered a period of growth, businessmen and their politicians, journalists and economists have proclaimed the end of the business cycle and the emergence of a new period of sustained growth.
A few weeks before the stock market crashed in 1919, a prominent economist said, “American industry and business have reached the status of well-being where it no longer has to fear a recurrence of the radical spreads from prosperity to depression that formerly afflicted business and industry.”
More recently, in the late 1980s, it was talked about in terms of the triumph of capitalism over communism (Francis Fukyama’s The End of History) and the “New World Order,” but the message was the same: with communism out of the way, capitalism would now bring peace and prosperity to the far reaches of the globe.
But before we knew it, the United States was leading the largest military mobilization since Vietnam, civil wars were raging across the former Soviet Union (as well as other parts of the world) and the global economy was mired in another, much deeper, recession.
The 1991-’92 global slump was so much deeper than the previous recessions that Japan and, to a certain extent, Germany – two of the engines of capitalism in the 1980s – have yet to emerge from them. In the United States, the recovery was first said to be a “jobless recovery” and then it became “joyless recovery.”
More than 100 years ago, Karl Marx observed that the most optimistic forecasts of the economy seem to always emerge just before it goes bust. He said, “Business always appears thoroughly sound until the debacle takes place.” The reason, he explained, was that these believers in the free market refused to recognize that such booms and busts were a central feature of capitalism.
Because there is planning within individual companies, but anarchy in the system as a whole, there is overproduction. That is, because several companies producing the same product can only estimate what the prices and demand will be a few months down the line, they always end up producing more goods than there are buyers to buy them.
This in turn squeezes profits because capitalists, in competing with each other for a smaller number of customers, are forced to lower their prices. Lower profits mean less investment, which in turn means wage cuts and layoffs, lower sales, bankruptcies, plant and office closings, mergers and acquisitions, and so on until there are only a few companies left competing and prices of labor and raw materials are low enough that investors feel confident enough to begin investing again and the whole cycle starts anew.
Sadly, it’s workers and the poor who pay for the crisis while employers and politicians are, as the crisis in Asia has shown, bailed out. Workers are told that there is not enough to go around and that everyone needs to make some sacrifices. But, as Park Mi Kysng, a small restaurant owner in South Korea, put it: “It will be ordinary people not the ruling elites who will be forced to do belt-tightening.”
The more than $100 billion that the IMF has committed to bailing out Thailand, the Philippines, Indonesia and South Korea is not for the workers of these countries who have been devastated by the crisis. It is to bailout their corrupt and authoritarian rulers and employers who, in many of these countries, are either directly or indirectly related.
The U.S. government has, of course, whole-heartedly supported and, in the case of Indonesia, added to the billion-dollar bailouts. The justification it provides is not that the fall of the Asian tigers risks taking the United States down with it, but that Indonesia and the region is of “strategic” importance.
You would think this would put the United States in a difficult position since it would be supporting undemocratic regimes. But that has never bothered the U.S. government. It has given brutal dictators like Indonesia’s Suharto economic and, more importantly, military aid for several decades, while turning a blind eye to his campaign of terror against thousands of his own people and, more significantly, the plight of East Timor, occupied by Indonesia for more than 20 years.
It is clear that the reason the United States has backed the bailouts is the same reason it bailed Mexico out of a similar crisis in 1995: a deep economic crisis in one part of the world can bring down the entire global economy. When such a crisis spreads to the 11th- and second-largest economies, South Korea and Japan respectively, you can bet that even the “booming” U.S. economy eventually will be hit.
It is difficult to say when and to what extent it will be effected (the Economic Policy Institute predicts 1.1 million U.S. jobs will be lost as a result of more imports from Asia and less exports). But we can be certain – particularly in light of the dismantling of the social safety net under Clinton – it will have the same devastating impact on ordinary people’s lives as it is having in Asia.
The hope amidst the horror of all this is, as we are beginning to see with the numerous strikes and demonstrations across the world, from the UPS strike here to strikes by the unemployed in France, to those in Asia, that those who create the wealth in society, the working class, will resist being made to pay for a crisis the rich created. In the process of so doing, it will begin fighting for a society which meets the needs of the vast majority and not the few, rich, greedy capitalists as it does today. In short, this means fighting for a socialist society.
-The writer is a sophomore undecided on a major.
This article appeared in the January 26, 1998 issue of the Hatchet.