THE BANKRUPTCY of Yamaichi Securities, the fourth largest Japanese stock exchange broker and Hokkaido Takushoku Bank, the tenth largest commercial bank in the country represent a further deepening in a seven year financial crisis.
Only three weeks ago another leading broker, Sanyo Securities, the seventh largest, also failed. The view that Japanese capitalism represents a way forward for the United States and Europe seems ever more distant.
At the same time South Korea, Japan's closest follower in economic policy and structure in the region, is now being bailed out by the largest IMF loan in history.
The tough conditions likely to be attached to this loan are expected to push the South Korean economy into recession next year, which will further worsen the region's crisis. Yet what really lies behind the difficulties faced by Asian capitalism?
The roots of the Japanese failures lie in the collapse of the 'bubble economy of the late 1980s. Reckless lending in property and other speculative ventures, backed up by the use of shares as security for loans, led to disaster when property prices and the stock market both tumbled.
However, Japan was by no means unique in facing such developments at this time. United States banks in this period also built up a mass of risky corporate and household debt, as did banks in Scandinanvia, Australia and other countries.
The main reasons why the problems have been so difficult to resolve in Japan are political.
In a capitalist economy there are essentially two ways of dealing with a financial crisis. One is to allow the weakest part of the financial sector to collapse.
This automatically writes off the majority of problem loans and the wiping out of capital in the sector raises the rate of profit on the remaining institutions. The costs of resolving the crisis are borne in this case by workers and depositors in the collapsed banks and by the owners of those banks.
The second approach is for capital in general through the state to assume responsibility for recapitalising and restructuring the banking system. Bad loans are written off and the banks restored to financial health through public subsidy.
The costs of this approach are borne initially by the state and are raised through taxation. This taxation is either raised from capital or from labour. Normally labour bears most if not all a the burden of the crisis but is LT sets: ase this depends on te tate cet i workers and empires In the USA in the 1980s both methods were used to deal with the developments in the banking system. On the one hand weak banks were allowed to fail leading to a massive wave of merger activity in the sector which has fundamentally reshaped the US financial landscape and is still continuing.
On the other US taxpayers have had to bail out the Savings and Loans industry (similar to British building societies) at the cost of about $150 billion in present day money. The combination of both these strategies has been to dramatically increase profitability in US banking.
In Scandinavia in contrast the state assumed almost complete responsibility for reorganising the banks in the early 1980s. In Norway, Sweden and Finland banks were either nationalised, restructured or subsidised and are now being restored to the private sector.
The problem for the Japanese government has been that they have not felt able politically to go in either of these directions. Bankruptcy remains rare in Japan and merger activity is low. Japanese capitalism hasefor years been based on 'managed decline' for troubled industries such as textiles and basic materials.
Using cartels and subsidies this approach has avoided significant upheavals through high rates of business failure. To adopt a different approach to the financial sector would represent a dramatic shift for the Japanese government - one which up until now they have not felt confident enough to undertake.
The government has also felt unable to intervene to restructure the financial sector itself. In a country like Japan where savings rates are very high as a result of low welfare and pension provision, the anger at financial institutions who have risked people's money with dubious loans is considerable. Any attempt to use taxpayers money to bail such companies out will be unpopular.
During this decade Japanese governments have mainly been weak coalitions and the dominant governing party, the Liberal Democratic Party, is largely based on rural voters and sipall business people = bo are precisely bose most bastile is tbe banks. In addition, the Japa nese are facing powerful external pressure from the USA to deregulate and remove government influence from the financial system.
As a result of this the Japanese government has been unable for years to decide what to do about the financial crisis. An example of this has been the lengthy argument about the 'jusen' housing companies set up by the banks coniunction with agricultural cooperatives. These are now being bailed out to the tune of $20 billion of public money, after years of indecision. This indecision has made the crisis considerably worse, as a vicious circle has arisen with the weak state of the financial sector pulling down the stock market, which in turn further worsens the balance sheet of the banks.
The events of the last few weeks appear to indicate that the Japanese government has finally begun to Come towards allowing a major part of the financa ssier io go under. In theory this could allow an erentual resolution of the crisis. But the costs of this will be very severe and The crisis arrives with a whimper and a bang. (Above)Crying all the way from the bank: Yamaichi president Shohei Nozawa laments the end of the gravy train. (Below) The crisis in South Korea has brought angry punch-ups not restricted to the financial sector.
A market based approach to this kind of structural change, with associated high levels of bankruptcy and business failure, will mean the end of the kind of partnership between industry, finance and the state which has typified Japanese capitalism over the last forty years.
It can by no means be ruled out that the government will back away from such a consequence and will shift back towards its former indecision or towards an attempt to rescue the failing institutions. Whatever decision is made, the potential for conflict within Japan over who should bear the cost of the crisis is obvious and the scope for alternative views of the future direction of Japanese society greater than for many years.
The South Korean case is in many ways similar to that in Japan, but has some important differences. The speculative boom in South Korea was more short lived than that in Japan, really only lasting through 1994 and 1995.
However, while in Japan the large manufacturing companies remained largely immune to the worst excesses of financial speculation this was not the case in South Korea Bad debt in Korea is not restricted to finance and property companies but goes right to the heart of some of the major manufacturing groups, or chaebols.
The IMF is likely to insist on restructuring the chaebols and closing large numbers of banks. This will not simply mean higher taxes but also a major onslaught on job security, working conditions and wages. At the same time the South Korean trade union movement remains the most assertive and well organised in East and South East Asia.
It would be wrong to see the financial crises in East Asia as the end of capitalism in the region. That will not come through developments in the financial sector alone.
But they may well mean the end of a certain kind of capitalism - a kind that has both been fearsomely exploitative and has also been taken to be a model by many in the USA and Britain, including some who see themselves as being on the left.
The space opened up by the failure of this model and the need for the ruling class in these countries to. manage a traumatic and complex change is bound to open up space for socialist ideas and activities.
The extent to which such ideas are put into action and can affect the resolution of the East Asian crises will be important for left wing forces not just in Asia but throughout the world.