KOREA INC (long version) (1998)




The Asian crisis will eventually be seen as a milestone in the “inexorable trend towards market capitalism.” This is how a very satisfied Alan Greenspan, Chief of the US Federal Reserve and former associate of free market fundamentalist Ayn Rand, summed up the situation at the beginning of April. ‘Inexorable trend’, this is seriously fundamentalist language, and in this instance its furtherance was achieved by a ruthless display of superpower geo-financial might. He went on to say: “The economies in crisis did not use central planning of the pervasive Soviet Union style. They relied on markets in most respects, but they also used elements of central planning in the form of credit allocation and those elements…turned out to be their Achilles heel.”[i] This Achilles heel, he said, took the form of an overproduction of goods that neither domestic nor foreign consumers want. This statement is a series of quarter truths but does at last come clean about the phrase ‘crony capitalism’ used with overkill for the last few months as the standard western explanation for the crisis. It turns out to mean anything that does not accord to free-market self-idealization.

‘Crony capitalism’ (with its weird echo of Trotskyist rhetoric) was coined as an apt description of ex-President Marcos at the very same time the USA had begun to see him as a liability.[ii] In the present period it  re-appeared in November 1997 and by grouping together the gross kleptocracy of President Suharto and Japanese banking scandals with a liquidity crisis in Korea, tarred them all with the same brush in a process of softening  up for the imposition of unprecedented IMF conditions to the benefit of Western finance capital. The phrase also served the purpose of either rebutting the argument that the crisis was one of massive unregulated global flows of credit finance, or of reducing it to minor importance.[iii] There was a third function too, it diverts attention from the fact that ‘crony capitalism’ describes global capitalism  itself in its present oligarchic and increasingly voracious condition. The ever-increasing concentration of capital and arrangements between discrete large corporations makes the notion of a free market absurd. These corporations demanding constant reductions in government planning, it is they themselves are the great Ten Year planners as Panzieri pointed out thirty years ago. As to cronyism, what of the financing of US politics; the Savings and Loan scandal whose perpetrators were not punished; its pervasivion of the western armaments industry, or the lobbying for Azerbaijani oil interests by major government officials from the Carter era to the present.[iv] In the Asian crisis the full panoply of ‘crony capitalism’ in the US-dominated management of the crisis and the gains it has made from, has been clearly visible.




The crisis began when the problems of Thailand’s banks caused by over-lending to the property sector which had been known for a year, reached a point where the Thai government in effect had to recognise it.[v] A new Governor of  its Central Bank discovered and revealed that the Bank’s loans to the country’s largest finance company Finance One were out of control. We know about the dangers of a ‘frothy’ property market in the UK, in the Thai instance it was on a far bigger scale relative to the country’s economy.[vi] Lenders, domestic and foreign, who had rushed into this ‘frothy market’ rushed out following the lead of hedge fund managers, who with better sources of intelligence than the IMF for example, led an attack on the Thai baht whose value had been pegged to the US dollar for 13 years. The peg was finally abandoned on July 2nd and over the next four months there was a self-perpetuating ‘flight of capital’ and other regional currencies came under attack. At first wiseguys in the Western press called it a blip, and then irresistably a spot of Asian flu, the cliché given some grounding by a flu panic in Hong Kong leading to a mass slaughter of chickens.[vii] Finally it became a crisis when the pegged currency of Hong Kong (which emerged relatively unscathed) came under assault. It was a crisis out of all proportion to problems in Thailand’s property market.

The standard explanation for what happened is that there was some collective realization that East Asian economies were riddled with ‘crony capitalism’ and inherently unsound. Other related and divergent causes have also been raised: the renewed strength of the dollar since 1995, and East Asian currencies being pegged to its exhange rate. These pegged rates are seen as an anomaly in a world of floating exchange rates (itself a form of deregulation that is seen to mirror the free market globally), but pragmatically from the Asian point of view, a source of stability. In the rewrite of its World Economic Outlook at the end of 1997, the IMF talked of countries like Thailand holding on  to their pegged rates for too long and it was this that encouraged reckless, unhedged lending. In that pick ‘n mix style characteristic of free-market ideology, a different attitude was taken to Hong Kong’s defence of its pegged rate perhaps because the Han Seng index is breathlessly reported on Radio 4 every day and had fallen by 25% in four days in October. Donald Tsang, it’s Financial Secretary emerged as hero of the financial press when a speculative attack on the currency was seen off. The Financial Times commented, “Such staunch support for the fixed-exchange rate might seem curious from someone with Mr Tsang’s ‘laisser-faire’ credentials. But he insists the small territory needs an exchange rate for stability.”

Such stability was not possible for other currencies with greater private capital indebtedness and lesser foreign exchange reserves. Once the pegged rates had been abandoned a self-perpetuating spiral was set in motion when dollar and yen loans made on the assumption of a continued pegged rate became sharply more expensive to pay. Much of this borrowing had been speculative by both foreign and domestic borrowers who facing low dollar and rock bottom Japanese interest rates borrowed in these currencies to lend at higher short term rates in the rest of East Asia.  In this spiral,  the betting against currencies was a one-way gain. In an extraordinary article by William Rees-Mogg,  (“Capitalism of the Casino”, The Times 12/3/98) he describes the relationship between hedge funds and major international banks, with the hedge funds acting as trend-making speculative pioneers on currencies. “The profits,” he says, “are made when a strong trend is established which occurs when the international banks pile in behind a market movement that has already started.”[viii]




This headline appeared in the International Herald Tribune on the 15th December 1997 and the crisis-from flu to fire, now focussed on South Korea. The attack on its currency began when the government nationalised the Kia Motor Company in October after banks refused to provide the company more loans. The US-based international credit rating agency Standard & Poor which had seen nothing wrong with East Asian debt until the crisis was underway, promptly downgraded South Korea’s sovereign debt rating. By November 17th the Won had dropped below 1000 to the dollar. On the 21st the South Korean government, refused bilateral credit by the USA and Japan had been forced to turn to the IMF for standby loans of $20bn. The IMF’s package at the end of November was imposed in an extraordinarily heavy-handed way. A demand was made that all 3 presidential candidates promise in writing to Michel Cadmessus that they would obey the proposed agreement, until a compromise was reached whereby they could promise the South Korean finance minister.[ix]The terms of the agreement were equally heavy-handed. “The Fund turned a dangerous situation into a calamitous situation by very publicly and ostentatiously closing banks, raising interest rates, tightening credit, and signalling to anyone who didn’t see it before, that these economies would go into free fall.” (Jeffrey Sachs, Harvard University, Herald Tribune??)[x] Given that one of the IMF’s claims is that if its prescriptions are followed, private capital will come, the opposite must apply and the tone and content of its agreement be capable of causing a further exodus, which is what did happen.

It could be argued that the IMF was simply locked into a mind-set, that it knew only the medicine of structural adjustment policies in one form or another. This however does not take into account the other strings attached and later re-inforced. It demanded a wholescale re-structuring of the financial sector on western lines and opening it up to international finance capital, labour market deregulation, a freeze on central bank credits, independence for the central bank and so on. Not only did these further reduce confidence in the won, it promised huge gains for international finance capital. Such conditionality was unprecedented (except perhaps in its new role in Russia) and it was widely believed in Korea that it had been written by the US Treasury Department. It followed a change in the IMF’s articles of association (demanded by Congress in return for agreeing the most recent tranche of of IMF funds) whereby the Fund is compelled to demand that member countries remove any obstacle to the free movement of capital.

The IMF has attracted much hostility over the years, but it is an institutional tool to be used or not used by US-led Western capital as is required. In this instance it was used for several reasons. For one thing, unlike the Mexican bail-out of 1995, the US could not finance the rescue itself. In fact it has contributed less than either Europe or Japan to the ‘rescue’ under the Fund’s auspices. Equally important the US had leant heavily on Japan to drop its idea for an Asian Monetary fund which might be disbursed on different criteria to those of the West.[xi]   The Fund was also used as Francois Godement put it, “to conveniently take the blame and serves as a shield for the prinicipals should events turn sour.” It is also a handy shield in the theatre of US politics in which the supposed weight of cocky free market true-believers has to be struggled against by responsible officials living ‘in the real world’. One true believer, useful in his time, Milton Friedman had turned up at the IMF/World Bank annual held in September in Hong Kong when the crisis was still a blip to denounce the institution. The IMF, he said, had outlived its purpose. It had become a lender of last resort to countries ‘making the same old mistakes of government interference.’[xii]

The original hard-nosed IMF-South Korea package of the 3rd December , did, as Jeffrey Sachs predicted, serve only to make the situation worse to the point that South Korea had to beg for a swifter disbursement of credit from the IMF and donor nations. On cue the fundamentalists spoke up. The old chesnut of American isolationism was pulled out as a threat despite the increasing imporance of foreign trade to the US economy. Republican Presidential hopeful Jack Kemp attacked the IMF’s handling of the crisis and demanded a comprehensive de-regulation of Asian economies coming to it for help. When  this was precisely what it was getting. Ed Yardemi, chief economist of Deutsche Morgan Grenfell (the very name telling of the global concentration of finance capital) was especially aggressive. “The truth of the matter is that Korea Inc is already bankrupt, all that’s left is to file the papers. This is a zombie economy.” The adolescent brashness of this particular fundamentalist is caught by ‘Korea Inc, as if  a country of many millions of people with the 13th largest economy in the world, was just one more corporation in which the only right was that of shareholders for constant short-term profitabilty.




The South Korean call for a swift disbursement of funds after the catastrophic impact of  the IMF package which saw the value of the won more or less halve in the month following the Fund’s involvement, was initially resisted by Robert Rubin. Rubin is an epitome of crony capitalism, formerly a ‘top’ trader with Goldman Sachs and now US Treasury Secretary. For most of December he stuck to a No Concessions position until the reduction of Korean state and corporate bonds to junk bond status by the US arbiter of creditworthiness, Standard & Poor, and the subsequent  non-stop fall in the value of the won, made the possibilty of a default on debt repayment real. It was at this point that the ‘fragilty’ of global credit finance was recognised. Once the threat of a default and its repercussions had been dealt with, this fragility was once again presented as being of secondary importance, in a crisis that was just a matter of a few rotten apples in East Asia.

Given the present triumphalism, it is worth remembering how mainstream this concern was. A Financial Times leader of 22nd December talked of what was happening as “demonstrating the fragility of today’s financial system.” On the same day a Washington Post leader in critical defence of the IMF talked of the possibilty of “a global financial meltdown on a scale that has never been seen.” On December 23rd the won fell to nearly 2000 to the dollar and an emergency meeting of  American crony capitalism was held in the Situations Room of the White House. It is in this room that the tactics and strategy of militarized US geo-politics have been determined over the years. The Herald Tribune described the meeting as New Age foreign policy. It was US ‘crony capitalism’ stepping out from behind the IMF shield in an emergency.

Analysis of the situation was presented not by the CIA but by analysts of JP Morgan bank, with inputs from Rubin and the US Treasury team, and the Federal Reserve Board. Even though they may have been present only in a secondary role in what had once been their exclusive turf the State and Defence Departments were present, as was the National Security Advisor. Simultaneously JP Morgan were leading a meeting of US banks including Citibank and Chase Manhattan to agree a roll-over of South Korean debt repayments. Of the Situation Room meeting and its outcome- the IMF and donor nations would advance $10bn to South Korea- the Herald Tribune commented:- “The new bail-out plan represents a consensus within the financial establishment-the secretive, clubby world of finance ministers, the IMF and powerful private banks-that emergency steps were needed to prevent the South Korean banking crisis from becoming a wider global problem.”

Perhaps then, when it comes to the west we should talk not of Crony but Clubby Capitalism. Secretive certainly, which makes the rhetoric of transparency, which the West was to take up as a partially applied mantra, especially brazen.




Describing the same Situations Room meeting Jeffrey Garten of Yale Management School commented , “For all the talk about free markets and the spreading of American style capitalism, the fact is that global finance has become the quintessential interweaving of public and private institutions, mechanisms and interests.” Except for the blandness of ‘public and private institutions’ this is a reasonable summary. At the level of public institutions, this crisis has shown up realities that go beyond technical economic explanation. The Situations Room agreement was announced on Christmas Eve, 24th December. On the 26th the Won’s value rose 23% against the dollar.

Confidence is an uneasy concept for free market ideology, an irrational if real enough phenomena as described by Keynes. As a form of capitalist utopianism, this ideology assumes a world of rational individual choice, a Panglossian world in  which all is for the best. In the world of exchange rates however, an exception can be made. In the 1970s in the new era of floating exchange rates, those Western countries seen as being not strong enough in disciplining the working class, like Italy and the UK, found their currency under attack. The market had lost confidence and the arbiters of confidence, those who spoke in its name were those hardnuts of the US Treasury, William Simon and Gerald Parsky.

This time around it has been their successors, the clubby capitalists of the US Treasury, Robert Rubin and Lawrence Summers who have been arbiters of confidence. Pick ‘n mix free market ideology can now accommodate the notion of confidence-or, grotesquely, ‘market sentiment’- so long as it remains truly of the market and proclaims fatalism as a reality: that’s the way it is kid. Now it can almost accommodate the idea that a rumour of a possible rise in Japanese interest rate might have contributed to the loss of confidence in the pegged rates of its neighbours. What it cannot accommodate is the obvious, the determining of  confidence in currencies by American-led  western clubby capital in which, although hedge fund managers might have access to high standard private intelligence, they also need spokesmen of and for Market Sentiment.

As with the Gulf War the management of the blip that became a crisis in Asia was American led, no more. Despite the hostility to the Japanese ‘model’ and its present policies or lack of them, there was, certainly from the European side, greater unanimity than in that war. The evidence is that the exposure of European and Japanese banks to East Asian debt was greater, and that their contributions to the bail-out was likewise. There was certainly international co-ordination within clubby capitalism. While JP Morgan led a consortium of US banks in agreeing postponements of debt repayment, Deutsche Bank was doing the same in Europe, while the top ten Japanese banks spoke as a group directly with South Korean Central Bank Governor Kyong Shik Lee to the same end. Lawrence Summers of the US Treasury called it “the financial community…taking responsibilty”.[xiii]

That the US should assume the leadership role in this was taken as natural. True, the Japanese suggestion of an Asian Monetary Fund to manage the crisis had to be beaten down, but what matters is the weight of the US in being the world’s mono-superpower and having the dollar as the world’s largest reserve currency.  There are ‘technical’ economic reasons for this, the sheer size of its domestic economy most of all, but the two roles are interdependent. On the one hand it was this role of the dollar which enabled the US to continue massive arms spending even when carrying chunky budget and Trade Balance deficits. On the other, the position of the dollar as a self-perpetuating fait accompli “without any backing other than the credibility and coercive political force of the country,”as Fidel Castro put it[xiv] In moments of geo-political crisis, the exchange rate of the dollar rises as a ‘safe haven’. During the course of the crisis this relationship was articulated by William Cohen when he too, the Defence Secretary, was wheeled out to persuade Congress to increase US funding to the IMF. “Security breeds stability,” he said. “Stability attracts investment. Investment yields prosperity, and the more prosperity, the more security and stability.”[xv] On the other hand we have Simon Opus, Chief Economist of SBC Warburg Dillon Read talking“the dollar in the Asian region becoming like a bowl of rice in a famine.”[xvi] The fetishisation of money here is breathtaking,  said just as the price of rice in Indonesia had shot up and the IMF sought the removal of subsidies on basic foods, but it is not money in general, the yen or the pound sterling everyone wanted, it was the dominant dollar.





Kim Dae-Jung’s election as President of South Korea just before the Situation Room meeting was assured before the crisis began but if the crisis were to result in genuine democratic structures in Singapore and Malaysia and in particular the overthrow of the brutal kleptocracy of President Suharto and the creation of such structures, then real gains would be made in those countries. So far, in the case of Indonesia this looks like wishful thinking. Not only has the IMF re-written the conditionality of its credit provision there three times despite fears that this will undermine sticking to conditions elsewhere, and in sharp contrast to its approach to South Korea, but there are no other serious signs that this will happen.  Benedict Anderson[xvii] argues that: “Suharto is perfectly aware that he is regarded as a major problem…that Clinton would like him gone,” but that there is no idea with whom or what he can be replaced.  In the meanwhile we have Indonesian opposition leader Megawati Sukarnoputri [xviii]writing to Clinton asking why US Special Operations soldiers are training members of the Indonesian military when it faces no external threat. The US response was that it increased its ability to influence Indonesian troops respect for human rights. On the day her letter was reported Indonesian troops attacked a student march in the city of Solo.

The gains made by US and Western capital, financial capital especially, seem to be much more clear cut. In the Korean situation the IMF  package not only exacerbated its credit crisis but lifted the ceiling on foreign ownership from 50 to 55% and opened up domestic banks to unlimited foreign ownership. This opening up occurred at the very time that both industrial and financial assets had been made excessively cheap by devaluation and their own liquidity crises. There have been divergent opinions as to how much advantage has been taken of this situation by western capital.

Going somewhat against the grain Bill Kaye of Pacific Group argued that there is no firesale in Asia and that the BASF  purchase of the Korean Hanwha Group is an exception. This leaves out Coca Cola having bought an entire country bottling plant in South Korea from Doosan who just a year earlier had declared no interest in selling,  Procter and Gamble’s purchase of the tissue division of Sangyong, and USX seeking a partner to take over an insolvent Korean steel producer to get a foot in that market for the first time. It also ignores purchases and stakes in the financial sector. As early as the 15th December ’97 the herald Tribune reported: “Even as Citicorp stock was being hammered because of expected trading losses in Asia, its executives were bargain-hunting in Bangkok, buying a majority stake in an ailing bank there.” The general sentiment was best expressed by another epitome of clubby capitalism, Adlai Stevenson, former US Senator and now chairman of Chicago merchant bank, SC&M: “The opportunity for investment, whether in production, distribution or portfolio assets, is once-in-a-lifetime.”[xix] It is certainly how it has been perceived in Asia where editorial writers have called such opportunities for investment “The Second Opium War.”[xx] Perhaps out of embarassment other commentators have talked of the door of opportunity for Western banks being short-lived.[xxi]This would seem to fly in the face of ever-greater ‘liberalization pressure on Japan, and the long-term debt mountain that  management of the crisis has imposed on South Korea for example. No such embarassment was shown by the MIT’s Paul Krugman, who had been debunking the ‘Asian miracle for 4 years’ but who now sees big investment opportunities there, especially in countries earning foreign exchange by exporting commodities, singling out Indonesia especially.

The biggest and widest gain by Western capital however was made for the long-term in the massively under-reported  World Trade Organization deal on the liberalization of financial services. The deal was pushed through in mid-December, between the IMF programme imposed on South Korea and its rescue at the Situations Room meeting. The Wall Street Journal, which did report it, said that just when it looked like 50 years of free trade momentum had ground to a halt (a reference to the US Congress blocking President Clinton’s most recent fast-track trade negotiation plans) “the shambles in Asia got it going again.” The Financial Times was even more explicit: developing countries which had been shunning foreign participation in their own financial services, had been forced to change their minds by the crisis. It also followed pressure from clubby capitalism. In the face of earlier ‘Third World’ opposition to the deal “executives of groups including Barclays, Dresdner bank, Societe Generale, Chubb Insurance, Citicorp and Ford Financial Services…agreed discreetly to impress on finance ministers around the world the benefits of the WTO deal.” (FT 10/4/97)

The deal was signed by 102 countries, will affect 142 and come into effect in 1999. It universalises the conditions imposed on South Korea.. The USA had walked away from these same negotiations in 1995 because not enough concessions were being made. Even this time it went right to the wire on the specific issue of 51% foreign ownership rights in Malaysian insurance companies. This was specifically demanded by Maurice Greenburg, the ‘czar’ of the US insurance industry (his nickname wilfully proclaiming the oligarchic nature of and his role, that of the power of clubby capitalism).[xxii] At the conclusion of the deal US Trade representative, Charlene Barshefsky was in triumphalist mode. “It’s the biggest deal the US will ever do because there’s no sector in the US economy that will ever come close to the financial services sector.” As Reginald Dale was to say (IHT 20/1/98), the US “is establishing ever more dominance over the world’s supply of capital. This followed news that the South Korean government had turned to Goldman Sachs and Salomon Smith Barney for its ‘economic hired guns’ in negotiations with US banks over the terms of debt re-secheduling.




…our bodies lay among

the people we had killed and never seen.


This is the voice of a World War II bomber crewman in Randall Jarrell’s “Losses”. This time there are no American bodies in Asia, just the colonial-voice whinging of Michael Brown of the US Chamber of Commerce, demanding soon after the IMF conditions had come into force, that Koreans should like foreigners, that their government “should educate the public on the benefits of foreign investment.”[xxiii]

Those suffering in the region are never seen by bankers making their margin in the abstract worlds of derivatives and currency trading. Their suffering is real enough. In a region with almost no social security, unemployment is especially painful as at least recognised by the World Bank with its $8bn earmarked to set up such systems. In February alone South Korean factories laid off 482,000 workers. In Indonesia official unemployment stands at 8 million and the state-backed trade union is talking of this becoming 40 million, numbers that are hard to grasp in the west. All this is worsened by drought and the removal of subsidies on basic foods. As in the Gulf War, those who suffer most are migrant workers. Some of the horror of forcible repatriation of Indonesian workers from Malaysia have been picked up by the western press. The fate of workers from the Indian sub-continent there, Indonesians in Singapore or of Burmese in Thailand have not featured despite Thailand announcing it would repatriate 300,000 of 1 million illegal immigrant workers.

What is also being lost is a whole development model, that of the Newly Industrialized Countries, a model that has been renamed by the wiseguys as ‘crony capitalism’ but which has been remarkably successful in terms of undifferentiated economic growth. Though income per head figures can disguise massive inequalities, in South Korea it rose from 25% to 66% of UK levels since 1973. The share of the East Asian region in the world economy has also risen in dramatic fashion.[xxiv] It is the very pace of this growth which has become another focus, or rather another version of the Asian-Western argument as to the cause of the crisis. Early in December, soon after the IMF-South Korean original deal, a chaebol spokesman, asking if the dissolution of conglomerates had ever been demanded by the IMF in any other country, talked of its demands having “the aim of holding Korean firms in check in the world market.” In January the Chinese People’s Daily talked of  US/IMF demands “easing East Asia’s threat to the US economy.”[xxv] Under the umbrella of ‘crony capitalism’ the West talked of weak and corrupt banking practices; government interference; ‘poor quality’ growth; and, as Alan Greenspan put it, the overproduction of goods that consumers did not want.




“It is not as though the high debt to equity ratios of Korean chaebol was anything new,” Philip Bowring wrote a few days after the IMF-Korean deal.[xxvi]What Wade and Veneroso argue is that not only was it well known, but that the high debt to equity ratio  has been central to the Korean development model. They argue that this is because the levels of domestic savings is so much higher than in the west and that these take the form of bank deposits, but that in certain circumstances this ratio can make companies vulnerable, for example when interest rate is above that of gross profit.[xxvii]They are a bit blasé about the inevitability of  corruption and white elephants in this system but are surely right  to point precisely the unmatched scale of improvement in living standards it has made for. More importantly, they pin down the lie, clearly articulated by Alan Greenspan with his liberalisation mantra, that it was ‘central planning in the form of credit allocation’, which brought down this system. Rather, they argue, it was a weakening of  this ‘bank-firm-state collaboration’ in the name of liberalisation that brought on the crisis by allowing for an explosion of foreign debt ‘from very little in the early 1990s to roughly $160bn by late 1997.

A similar argument is made by Cambridge economist Ha-Joon-Cheng in a demystification of the notion of ‘crony capitalism’ as applied to South Korea.[xxviii]Over-capacity and corporate collapses have arisen, he argues, precisely because Seoul abandoned two established policies: investment co-ordination and managed competition. It was after this abandonment in the early 90s that there was a borrowing spree by corporations which fuelled the creation of 30 merchant banks half of which are less than two years old.[xxix] It was when government guidelines were abandoned, he argues, that a ‘free-for-all of shady political exchanges’ ensued, ‘crony capitalism’ as a consequence of western demanded liberalization.

The demands now are different. They are for prudential styles of banking, which in effect means an enforced abandonment of the high debt to equity model in favour of western –style company financing and banking more in line with the Basle rules on bank lending ratios. These demands mean indebted companies having to sell off their assets to build up their equity just when these assets are cheapest for those holding dollars.

At the same time the unwritten assumption of the IMF-US treasury axis is that it is these foreign financial institutions will put South Korea’s house in order. “But these are the same institutions,” as Ha-Joon Cheng puts it, “which lent so much to its badly managed merchant banks,” and which “are now defying ‘market logic’ by asking seoul to assume a large proportion of private sector debt.”

It goes further than that, these demands come when Western banks are seeking and using ways around the Basle rules on lending to  asset ratios. “Banks have been complaining for years…that this standard requires them to hold more capital than they really need to cushion them against the risks they run…regulators have let banks adjust capital adequacy…by allowing them to count hybrid securities which look more like debt than equity as part of their core capital-Tier 1 capital in the Basle terminology.”[xxx]At the same time the Alliance for Financial Modernization pressure group in the USA is pushing for the repeal of the Glass-Steagall Act. Wiseguys commenting on recent concentration mergers in US banking say that that ACT was of the Depression period but the central demand is for banks to be able to buy into financial companies and keep these under the protection of the Federal Insurance Scheme something that mirrors exactly those East Asian practices that the same wiseguys say allows for corruption there.




Bankers need to lend money: capital accumulation is a restless non-stop dynamic. This is not to be determinist, but describes what the evidence tells us and is reflected in media coverage of the profit figures of corporations and companies.[xxxi]In this era the needs of financial institutions have become the dominant form of this dynamic, as if there has been a need for capital to escape the process of production, which involves lending as much money as possible. But all this assumes productive processes which can realize the profits which sustain this dynamic.

Triumphalist Mr Greenspan says that the East Asian crisis is one of over-production of goods people do not want caused by government intervention. A hundred and thirty years ago Marx describing a credit system infintesimally small by today’s standards, saw it as ‘the main lever of over-production’ and of the crises that ensued, this “because the reproduction process which is elastic by nature, is here forced to its extreme limits.”[xxxii]

This was not the only speech Mr Greenspan made at the time. Another was analyzed by our ‘Korea Inc’ fundamentalist Ed Yardemi as if he were a spy of the Cold War period reading between the lines of Chinese or Russian Journals to see what shift of policy or personnel might be hidden. He read in this fashion at a time when the price/earnings ratio of US equities stand beyond what is supposedly prudential, and counted the number of times Mr Greenspan had used the word Deflation. He did this because by his estimate there was global over-production of toys, plastics, paper, electronics, micro-chips and cars. “The world needs all the yuppies it can muster,” he said of this situation, as if in recognition that the widening gap between rich and poor both globally and within ‘developed’ countries meant that a modern version of Keynesian policy would depend on the spending power of the relatively rich.

The case of micro-chips is especially relevant to the specifics of this crisis. The start-up costs of the most up-to-date chip producing plant have risen as fast as their selling price has fallen. This fall in price is seen to have had an effect on the costs of production in a much wider variety of sectors which free-market ideology cannot escape seeing as a good thing and which it thus does not call deflationary but ‘disinflationary. The global fall in price has been cited as a cause of South Korean  Balance of Payments problems. One of the accusations aimed at South Korea especially has been that it over-invested and was reckless in its borrowing for investment. US chip producer Intel was one of the first US corporations to follow the free-market fundamentalist cry at the time of the IMF-Korean deal, complaining that it was a a ‘bail-out’, one which would allow them to go on over-producing chips.[xxxiii]They have talked of the recklesness and megalomania of Samsung in the chip market, their obsession with sales growth, but by 1996 its semi-conductor division was generating $300m per month in positive cash-flow. Its plan has been to spend $5bn in the auto industry and keep its lead in electronics, calculating that 30% of a cars values is in electronics and that this will rise to 50%. This, western pundits have called-emphasising the truly cynical pick ‘n mix nature of free market ideology- competitive suicide.[xxxiv]

This particular story gives weight to the Chinese accusation that the West wanted to check the development potential of East Asia. It is also another piece in placing the blame for global deflationary tendencies on East Asia which has subsequently focussed on Japan.




Samsung is obviously not representative of East Asian productive capacity nor South Korea of East Asia, though for a period the chaebol (always in exotic italics) were presented as the epitome of ‘crony capitalism’. Speaking of Indonesia in late January Grahn Nielsen, chief economist of Paribas Bank, said “It will slide back down the value-added chain from making electronics to making footwear again.”[xxxv] This is to slide from the low to the very low and reflects existing weaknesses in these economies in particular the lack of investment in education by Thailand, Indonesia and the Philippines. It is recognized even by Wade and Veneroso despite the very different thrust of their argument. [xxxvi] They too, like Anderson though coming from very different viewpoints, also allow that Korea, and to a lesser extent Taiwan are special cases, in that their development models have created self-sustaining ascents of the ‘value-added chain’. These countries like Japan and the USA, though on a much smaller scale, were investors in industrial development in the rest of the region. As Anderson puts it, “All were looking for low wage, submissive and non-unionised workers…the manufacturing plants they devloped had very weak back-linkages into the domestic economy and society.”[xxxvii]

This is all classic stuff, cheap labour is used with governmental concessions and Export Processing Zones, and then left behind revealing the shallowness of industrial development. Or, it is renewed with labour in an even weaker position than before with even greater foreign ownership of productive plant. In wiseguy explanations of the crisis a sub-text emerged of a lack of ‘creativity’ in the Asian model, one example being Malaysian software developers.[xxxviii]This in part reflects the renewal in American productive confidence that has come with its dominance of the IT sector, that of the only three countries with a trade surplus in intellectual property rights, its massively dwarves the other two. The smugness of the ‘creativity’ subtext makes no reference to the sheer weight of capital required to be at the top of the ‘value-added chain’, or why US software firms can pick off the cream of Indian maths graduates  and the creativity of Ukrainian software skills. It is this sheer weight of capital that Korean corporations understood they needed to make ‘a quantum leap up the world hierarchy in technology and scale’, and why they were prepared to borrow to ‘non’prudential’ levels.[xxxix]

The ‘value-added chain’ (or ladder as the Financial Times calls it) is indeed a slippery one and if  one is clinging on the bottom rungs then it is rates of exploitation that take the exclusive spotlight. For many years the subtext of all those books and speeches in the West extolling ‘Asian values’ and the ‘Asian work ethic’, has been to put the frighteners on workers in the Western world in order to increase the intensity of their labour.[xl] Now that Taiwanese and Korean wage levels are achieving parity with those of South Wales for example, the subtext has shifted and been renewed by a focus on China. Thus in the Malaysian section of its review of the East Asian crisis, the Financial Times talked of the ‘quality’ of its economic growth deteriorating in recent years and referred to wages rising faster than productivity and the competition it faced from China and other low-cost countries.”[xli] According to Ken Chan of the Nikko Research Centre, “The absolute wage level is still cheaper in China. Even in the coastal region the wage level is at most parallel with Thailand and the Philippines. In other areas there are very, very low wages.”[xlii]At the low-rungs of the ladder it is not a question of electronics down to footwear, they are both at the bottom of the pile even in China. Under an IHT headline (25/3/98) FITTEST SURVIVE IN CHINA’S FIGHT GAINST FALL-OUT FROM CRISIS, the sub-head reads “Lower value sectors feel most pain”; shoes and electronics are given as the examples. The sectors that will survive the best are “those with low labour costs and imported components.” In other instances both China, Vietnam and Burma are cited as effective competitors.

What has been much less remarked on is Korean labour militancy and the assault on its national currency, a relationship that loomed large in ‘market sentiment’ in the 70s and that attacks on the pound sterling and the lira. Though South Korea is a different case, one feature was the same: even before the crisis wages were outstripping productivity there as well as Thailand Malysia according to Jean-Michel Severino of the World Bank. In their development model account, Wade and Veneroso present it in classless fashion, despite notoriously authoritarian labour relations there and the emerging militancy of Trade Unions. At the same time underneath the ‘crony capitalist’ version of the chaebol, they have been criticized by western analysts for not being concerned enough with cost-cutting. It must have been galling to such analysts that here was a successful full employment economy. Earlier in 1997 however the wave of labour strikes and demonstrations was against moves to lay-off workers prompted by the chaebol themselves.[xliii] The money markets and the IMF have made the conditions for them to do this but at great cost to the chaebol and the national development model. The evidence is clear, though Korean unions are not taking it lying down: the final agreement with the JP Morgan led consortium of banks for a roll-over of debt followed an acceptance in January of lay-offs. A report by the ubiquitous Mckinsey management consultants talks of a future of restructuring, foreign investment and a heavy round of lay-offs that has already begun.




“What we’re seeing today around the region and the world, deflation and unstable currencies, is the delayed shock of 1.2 billion Chinese entering the world economy.”[xliv] Until fairly recently China has been seen by western capital as the next bonanza, both as a source of unlimited cheap labour which contributes to labour discipline globally; and as an unlimited market. The contradictions described above for the realisation of profits is magnified on a new scale. There is already some disillusion about the unlimited market, despite Kodak looking to persuade Chinese households to shoot a whole rather than half a roll of film a year, something which alone would double its global sales. On the other hand 80% of Chinese households already have TVs and TVs are also being over-produced globally, a great many in China itself, and Rupert Murdoch is for once being questioned about what he is actually getting from his obsequious attitude to the Chinese government.

This government has been widely praised for not devaluing the yuan, while figures from the Bank Credit Analyst Group show price deflation internally. This praise came amidst repeated Western fears of  ‘competitive devaluation’. Given that massive devaluations have been enforced in the region by international finance capital, this can only occasion grim mirth. What it does touch on however is the export-led’ nature of the development model of East Asia and the recognised high propensity to save in the region, which in turn throws some light on the ambiguous attitude towards Japan, its being of the west and not of the west. Keynsian reflation policies are being urged on Japan in the most public manner by free-marketeers while it continues to mark up massive Balance of Payments surpluses as it has done through seven years of ‘stagnation’. The subtext here is that export-led growth is all very well for developing countries but not for the ‘mature’ economy.

Early in the crisis one of the main concerns of Western wiseguys was that the problems of Japanese banks arising from its particular variety of crony capitalist corruption combined with their exposure in the region, would see Japan liquidize its fabled ‘wall of money’ ($100bn plus) invested in US Treasury bonds, money that has enabled the US to run Balance of Payments and, until recently, budget deficits, that have enabled the US to further enable its mono-superpower status with  its continued high level of defence spending.[xlv]  Since this did not happen the pressure on the Japanese government has intensified, Japanese yuppies must be encouraged to save the day and stave off potential global deflation. Given that western policy has created recession in the rest of East Asia, created downward pressure on jobs and wages in the region thus reducing level of domestic demand, it is a tall order. All these contradictions are to be resolved by the additional liberalisation of the Japanese financial market: while the Japanese yuppie must spend more, the Japanese saver (accompanied with rafts of demographic detail about ageing populations) must be given a fair crack of the whip. The saver, stuck with internal interest rates of 0.5% and the structure of the development model, will be rescued by  Merrill Lynch entering the domestic retail market and offering something better. Japanese investment in the US state is no longer enough, its savings must be mediated by Western finance capital.




“US preachiness (to East Asian governments) might be better received if it weren’t such a debtor itself, dependent on the excess savings of East Asia.”[xlvi] That is one viewpoint. The more conventional subtext of commentary on the crisis has been that the US is doing the world a favour by being a debtor, that in this role it keeps global economic growth going. To this has been added that its finance capital is more honest and efficient in the mediation between savings and investment despite the under-reported evidence of its chafing at Basle Rules regulations as described above. This has been re-inforced by that aspect of the attack on ‘crony capitalism’ that has operated under the mantra of Transparency.

In June 1997 the World Bank put out its annual World Development Report entitled “The State in a Changing World”. Making allowances for the fact that its Chief Economist Joseph Stiglitz has proved to be something of a maverick within the Bank, the report appeared to abandon its support for the minimal state and talked (in what must now be embarassing terms, confirming free-market fundamentalist mistrust of it and all trans-global public institutions) of the role of government having been vital in “the dazzling growth of East Asia…An effective state is the cornerstone of successful economies.” It talked of its role in investing in basic social services, and a welfare safety net, themse the Bank has taken up in East Asia since the New Year. It also talked of the role of the state in establishing a foundation of law and Mr Stiglitz talked of it being “essential for putting in place the appropriate institutional foundations for markets.” This has been narrowed down to a demand for the state to be institutionally competent in the matter of business law and accountancy. The IHT (12/12/97) talked of Thailand being typical of emerging countries in the globalized era in  not having “regulator agencies, banking controls, transparency, bureaucratic professionalism and civil society to keep such a system stable and reasonably fair.”












[i] See The Wall Street Journal 3rd April 1998

[ii] See Benedict Anderson, From Miracle to Crash, London Review of Books Vol20 Number 8, 16th April 1998. “Between 1972 and 1986, the Marcoses and their entourage, relying on continued American support, systematically pillaged the not very strong Philippine economy. In the process they precipitated a debilitating seperatist rebellion in the Muslim south and a Maoist insurrection that spread in due course to almost all parts of the country. By the beginning of the Eighties, cooler heads in the Reagan White House recognised that the Marcos dictatorship had to go: it was ruining the country politically and economically, with no benefits for the United States. The CIA participated actively in the popular mobilisation against the regime, and it was American military aircraft that finally whisked the hated couple from their palace to gilded imprisonment in Hawaii.”

[iii] Alan Greenspan had previously pointed himself to possible dangers in the global financial process. See Bank of International Settlemets Review No 46, 1997. “While technological changes have enhanced the potential for reduced trading costs…in some respects they have increased the potential for more widespread and rapid disruption.”. The IMF too, in its first 1997 (October) “World Econmic Outlook” , conceded that the flow of capital from the West to emerging markets “is determined by global cyclical conditions and vulnerable to higher interest rates.” In the second hastily re-written version (December) it mentioned a reckless search for higher investment yields but pinned most of the blame for that on Asian investors. More recently Alan Greenspan with a particular political task, the long-drawn out Clinton Administration job of persuading  Congress to agree to a no-questions-asked $15bn increase in US funding to the IMF, talked of the crisis being a defining moment of the new hi-the financial system. Horses for courses. Mr Greenspan is big on defining moments.

[iv] These include Zbigniew Brzezinski, James Baker, Dick Cheyney, Brent Scowcroft, John Sununu, right up to Clinton’s first term Treasury Secretary Lloyd Bentsen, and right across the nominal political divide.

[v] Previous signs of trouble like Somprasong Land being the first Thai company to miss repayments on foreign debt were ignored and ‘liberalize’ Thailand continued to attract what Mark Atkinson called ‘footlosses foreign capital’. See The Guardian 5/1/98.

[vi] This is an instance of ‘crony capitalsim’ at work, that of loose knit conservative groups who had established their power in the Cold War period, as described by Benedict Anderson. See London Review of Books, 16/4/98. His account though, concentrating especially on the Indonesian kleptocracy is partial in not looking at what else was at work in the crisis. There is however one reality that gives real substance to his version of Asian ‘crony capitalism’, the forest fires which started in Indonesia and caused respiratory crises too many thosands of people trapped under the resultant smog. This reality never made it to financial page coverage of the crisis. The voracious appetite of the region’s logging companies was matched by the wholescale pilfering of those Indonesian timber taxes that should have gone to its national forestry and fire prevention services.

[vii] The mass slaughter of chickens in Indonesia in February and March occurred for rather different reasons, the large increase in the price-promped by the quartering of the value of the Ringgit- of chicken feed, a phrse whose use in the West shows in hideous light the disparities in global wealth.

[viii] He notes that currency traders are not in competition with each other but act in collaboration in building waves and that though they correct anomalies they do so ‘at the expense of massive and recurrent destabilisation’. In more sinister fashion he describes the anti-semitic sentiments in Japanese, malaysian and Indonesian tabloids, but in effect encourages this by making some play out of many New York hedge fund managers being Jewish. The justified resentment at the USA taking this form  follows the worst patterns of ant-semitism

[ix] This, and the way the deal was rubber-stamped through parliament is well described by Michel Chossudivsky, Ottawa University. See Teleopolis internet magazine, 22nd January 1998

[x] More recently in his article ‘The IMF and the Asian Flu’ The American Prospect, March-April 1998, he has put it more graphically. “Instead of dousing the fire, the IMF in effect screamed fire in the theatre.’

[xi] At the Davos international Economic Forum the japanese Finance Minister (MORE)

[xii] We might also say that Milton Friedman has outlived his use.(MORE)

[xiii] Community?  This is clubby capitalism’s description of itself, which leaves out the active involvement of the US and other states. In one respect it is like Marx’s description of  the British government of the 19th century having to force capitalists to act in their long-term interest. Not that these banks will lose from debt re-negotiation, except there were protests from smaller banks about this deal. They complained of being strong-armed by larger banks who with their greater capital base and lesser cash-flow constraints, have no problem with these ‘‘oll-overs’’ In this respect, even though it is not government debt this time around, there are similarities to the 1980’s South American debt problem when smaller banks made such complaints.

[xiv] See “The World Economic and Social Crisis,” 1983

[xv] International Herald Tribune…..Very recently the dawning realisation that the Euro is to become a reality has found commentators both in Europe and the USA, talking of  the advantages that have accrued to the US through its control of the reserve currency, now that it is under threat. Pro Europeans have talked of the possibility of an independent foreign policy.

[xvi] International Herald Tribune

[xvii] London Review of Books

[xviii] International Herald Tribune, 26th March 1998

[xix] See??????. See also “What’s next for Global Markets”, The Wall Street Journal, 1/4/98 “International investors in the first quarter made a bundle in Europe and a killing in Asia-if they were lucky enough to buy in Thailand, South Korea, the Philippines and Malaysia at their troughs.”

[xx] This theme has been taken up by Henry Kissinger. “We have to be careful we are not using this opportunity to re-colonize Korea. I am not saying we are doing this, but it could be perceived that way.” See The IHT reporting his speech to the World Affairs Council in Seattle, 9/1/98. Personally I am less sanguine about his motives than Wade and Veneroso in the NLR Issue 228, since in a syndicated column soon after Kissinger talked of the dangers of de-stabilising Indonesia, as if  firmly stuck in a previous Cold War mindset. ‘My enemiy’s enemny is my friend’ has always seemed like a dubious strategy. Similarly William Rees-Mogg.

[xxi] See Laurie Laird, Foreigners cash in on Asia crisis, The Guardian 11/4/98

[xxii] It was reported that it was European Trade Commissioner Sir Leon Brittain who pushed through the final deal. One can almost hear him telling the Americans, come on, never mind Malysian Insurance, this deal is mega.

[xxiii] International Herald Tribune, 6th February 1998

[xxiv] Tommy Koh of the Asia-Europe Foundation estimates it as having risen steadily from 9% in 1965 to 24% in 1993, whereas J-P Lehmann estimates it as 15% in 1955 to 33% now.

[xxv] See the International Herald Tribune 9/1/98

[xxvi] See the International Herald Tribune 9/12/97. Rather less specifically Japanese Deputy Finance Minister Eiseuke Sakaibara at the Davos Conference where the Asian-Western argument was very publicly fought out, said, “Lots of people talk about the structural problems of the region now, but they have known about these things for years, the chaebols in Korea and so on, for years before this crisis nobody said anything was wrong with them, rather the reverse.”

[xxvii] See New Left Review, Issue 228, pps 3-23

[xxviii] See International Herald Tribune 13/2/98

[xxix] “They removed or loosened controls on companies foreign borrowings and investments, abandoned co-ordination of borrowings and investments and failed to strengthen bank supervision.”  Wade and Veneroso, NLR No 223 p.9 They go on to say how strange this decision was, what a reversal of policy it entailed. They refer to anecdotal evidence suggesting that key people were bribed by Japanese and Western financial institutions (if tru ‘crony capitalism’ in real action) and the emphasis the government placed on OECD membership and the liberalization this entailed).

[xxx] George Graham, “Harrassed regulators try to draw the line, Financial Times 6/4/98. In this article he describes a whole raft of methods and loopholes used to et around what the Bank of International Settlements regards as basic principles.

[xxxi] It is also the one phenomena which both the marxist and ecological traditions see as a ‘fundamental’.

[xxxii] Karl Marx, Capital Volume III Ch 27

[xxxiii] A cry taken up later by Italian shipbuilders who wanted to ensure IMF money ‘is not poured into the Korean economy and used to salvage Korean shipyards’ whose over-building they said, was a cause of the crisis. See Financial Times 24/3/98

[xxxiv] See Financial Times, 2/4/98. This also sheds some light on the key importance of the position of  Kia Motors in which Samsung has a stake.

[xxxv] The Guardian, 25/1/98. On the other hand Paul Krugman, now respected as a sceptic of the ‘Asian miracle’ was recommending Indonesia as a place for Western investors on account of its commodity exports, which apart from implying yet more logging, means oil. There has been almost no reference made during the crisis to the historically low price of oil, which was presumable beneficial toKorea and Thailand but can only have worsened the Balane of Payments situation of Indonesia and Malaysia.

[xxxvi] Both they and Benedict Anderson point to the low level of Thai secondary school enrolment, less than half that of Taiwan where per capita income is approximately the same. They also point to a skills shortage in Malaysia.

[xxxvii] Wade and Veneroso, though they appear to make the Korean development model synonymous with an ‘Asian development model’, say “The economies have continued to engage in the world industrial economy largely as sub-contractors, largely for Japanese firms.” Here again we see the ambiguous position of Japan which, while now under fire from the West for its own economic policies and resisting the ‘crony capitalism’ line taken by the west to explain the crisis, has been most keen to avoid a default situation in Indonesia because of the scale of its investments in the rest of the region.

[xxxviii] See International Herald Tribune 22/1/98

[xxxix] See Wade and Veneroso pps7-8

[xl] A whole raft of books from the publisher Nicholas Brealey extolled these ‘Asian’ virtues in which capitalist there were more red-blooded and without social conscience. In this country successive governments have stressed the need to compete with East Asian countries in contrast to a German model perceived as social democratic.

[xli] Financial Times survey, 13/1/98

[xlii] ???????????. See also Norman McRrae, Sunday Business, 5/4/98. “Toyota reckons that, after a few years experience, a Chinese factory worker is now three-quarters as productive as a Japnaese factory at a tenth of the cost.”

[xliii] There was an extraordinary glee in BBC reporting of those events.  Korean workers were going to have to face up to ‘the real world’ , as if they had become pampered. The unstated assumptions of its reporting were those of the capitalist mentality so well described by Michael Kalecki in 1941, the belief that its discipline of workers is of paramount importance, and that full employment undermined it. I have seen no acknowledgement of the essay in reams of material about globalisation and insecurity, a relationship that has been brutally asserted in this crisis.

[xliv] An anonymous Hong Kong investment manager cited in the IHT, 12/2/98. The previous absence of this population under Maoist autarchic policy is seen by Benedict Anderson as one of the conditions that previously allowed growth in the rest of East Asia. However in the 90s he argues, “China was finally in a position to outcompete South-East Asia in manufacturing exports, a situation which seems certain to continue indefinitely.”

[xlv] See NLR

[xlvi] Philip Bowring, IHT 8/12/98.