Chaos in the Markets?
Andy Kilmister.
IT HAS BEEN GREAT FUN over recent weeks watching capitalists squirming with nervousness
as the financial markets rise and fall.
A month ago we also saw the annual meeting of the World Bank and IMF being disrupted by
a vicious argument between currency speculator George Soros and Malaysian premier Mahathir
Mohammed.
But what is the significance of these developments? Are they the beginnings of a lurch
into instability for the world economy or are they just the result of stock exchange
gambling with few effects elsewhere?
The current currency and stock market turmoil has both short and long term causes. In
the short run two things are important.
Firstly, there are problems in the financial sector in a number of Asian countries.
Risky property lending in Malaysia, Thailand and Indonesia and a growing Thai trade
deficit sparked off the initial selling of currencies.
Unsustainable
This has now spread to Hong Kong where the property market has also been booming in an
unsustainable way. There are growing worries about the future ability of countries like
Thailand to break into the higher value export markets in Europe and the US in areas like
electronics.
The second short term issue is that there is a huge amount of speculative money now
circulating in the global financial markets. This is because there has been a sustained
shift throughout the last decade in the balance between profits and wages throughout much
of the capitalist world.
Yet higher profits have largely not gone into productive investment, except in the USA,
but have been placed in the financial markets. These markets have been expecting a slowing
down of economic activity for more than a year now and are increasingly worried.
As a result speculative activity in both shares and currencies is becoming more
frenzied as traders jockey for position, trying to spot the areas which will fall least
when the bubble bursts and avoid the others.
Asian economies are not the only ones which have been abandoned in this process. In May
and June there was a speculative demand for, and then selling of, the Czech koruna which
led to a massive devaluation and a vote of confidence in the Czech government which was
won by just one vote!
In the same way we can expect to see share prices become increasingly volatile as the
markets prepare for the inevitable realisation that the boom market of the last few years
cannot last for ever.
However, there are some longer term influences which have played a more important role
in the crisis in South East Asia. Four in particular seem especially important.
Firstly, there is the long running recession in Japan. Much of the development of the
Asian economies has rested on Japanese investment. While this is continuing to some
degree, the weakness of Japanese banks and the economy more generally has fed through to
other Asian countries.
Secondly, there is uncertainty about the future role of China in the Asian region, both
politically and economically. Competition from China will have major implications for
countries like Thailand, Indonesia and Malaysia.
Thirdly, questions have been raised about the future interest of the US in Asia. The
USA is currently the fastest growing economy among the major capitalist powers.
Increasingly it appears centred on its own regional economic bloc based on the NAFTA
treaty and relations with Latin America.
There are deep divisions within the Asian countries about how to respond to this, with
Mahathir Mohammed gesturing towards an economic break with the US and the formation of an
East Asian Economic Community, a development strongly resisted by others.
Fourthly, questions have been raised about the underlying basis of the so-called
`economic miracle' in East and South East Asia. Influential US economist Paul Krugman
wrote an article two years ago in the US journal `Foreign Affairs', widely read in US
policy making circles, entitled 'The Myth of the Asian Miracle'.
Krugman argued that growth in Asia has depended not on increased efficiency but on the
mobilisation of more and more resources. Consequently it is bound to slow down
dramatically in the future as the scope for such mobilisation decreases. He drew an
explicit comparison between East Asia now and the USSR and Eastern Europe in the 1950s.
While Krugman's theses are controversial they point to an important change of mood amongst
governments and businesses in the US and elsewhere. The Asian economies are seen less and
less as a model among such people in the way they were a decade ago.
All these factors have come together in the case of South Korea. Widely trumpeted as a
major success story in recent years, including by some on the left, the South Korean
economy has experienced two major bankruptcies this year, with a third, the motor company
Kia, only averted by taking the company into state ownership. The economy is plainly
racked by bad debts and rampant corruption.
Even worse for the markets, the South Korean workers in January had the temerity to
refuse to pay for the crisis by accepting worse conditions and wage restrictions. The
South Korean example increasingly stands as a warning of what might happen elsewhere in
the region.
Repercussions
These tremors are unlikely to be restricted to Asia alone. US and British companies in
particular are now sufficiently involved in the regions to ensure that any widespread
crisis in the Asian financial markets will have repercussions elsewhere.
What are the implications of this for the system as a whole? Does it mean the onset of
a more generalised crisis?
Here we have to distinguish between the currency markets and the stock market.
Currency crises under capitalism are essentially redistributive. If some traders
(either private or government) lose then others must gain. If the markets lose confidence
in the currency of one country they move on to another.
The events of the last few months do not mean that traders have lost confidence in the
system as a whole, but that one particular region is viewed less favourably as compared to
others.
Stock market crashes are quite different. In these cases the signal is that the
capitalist class no longer believes that profits will be as high in the future as they did
before. As a result they are prepared to pay less for a share of such profits.
Such a feeling need not be restricted to one region and it may lead to lower investment
and spending in the present and contribute to the onset of a full scale crisis.
However, it is not inevitable that changes in financial markets have such an effect. A
whole range of other factors interact with them and influence their effect on the economy
as a whole. In particular the build up of debt in the economy is crucial.
The reason why the 1987 stock market crash and the fall in shares in Japan in the 1990s
led to recession was largely the mass of bad debts held by the banking system at the time.
This factor is not nearly so prevalent now and outside specific countries a collapse in
the financial markets is not so likely to lead to a general capitalist crisis on its own.
But that does not mean it is of no significance for socialists. The turmoil in East and
South East Asia provides two important lessons.
Firstly, it disproves the view that capitalism can find a `miraculous' way of
organising the economy which can eliminate the possibility of crisis. The Asian economies
like all others cannot escape the tendencies to disorder and stagnation which are endemic
in the system.
Warning
Secondly, it is a warning to those who believe the view which is increasingly commonly
expressed in the media that somehow the 1990s are `different'; that because of
globalisation, or information technology, or some such development, we are now living in a
boom that can continue without end.
The underlying features of the system in which we live have not changed in that way.
Most importantly, however, the developments of the last few months can only speed the
long run trend indicated by the South Korean strikes of January.
As the 'Asian miracle' moves to an end, and the realities of capitalist development
become as apparent there as elsewhere, so too will the need for organisation and activity
from those who can offer a way forward in the area; the East and South East Asian working
class.
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