Tuesday, May 17, 2022

Paper Money, Paper Tigers (1998)

From the June 1998 issue of the Socialist Standard

A Malaysian student posted this question recently on the Internet:
“Forgive me being stupid but can somebody tell me why is our economics suddenly become like this? I thought all the while we are having very good economics growth but why within such a short period everything crash?”
The suddenness with which the “Tiger Economies” became “paper tigers” has left many people baffled and bemused. One minute the Asian economy was being talked up as a “new economic miracle”, the next minute it has fallen in like a house of cards. What on earth is going on?

Global capitalism, in two words. For years Western banks, looking for good returns, have pumped tens of billions into Thailand, Korea, Malaysia and Indonesia, creating a huge boom in the area. Investment in the region had always been encouraged by the US, as evidenced by their tactic during the Cold War:
“The notorious Domino theory was invented specifically for South-East Asia. To shore up the line of teetering dominoes, Washington made every effort to create loyal, capitalistically prosperous, authoritarian and anti-communist regimes . . .” (Benedict Anderson, London Review of Books.)
Powerplays aside, investors have been attracted for years by low-wage costs and poor unionisation in the area—to name two features nowadays more typical of Britain than South-East Asia. Naturally the Asian economy expanded, and its currencies looked solid as gold—a tropical paradise of capitalism, in fact. The credit boom inflated itself like a giant balloon.

Balloons burst, sooner or alter. All you need to burst a credit balloon is a needle of scepticism. If you continually lent money to a friend on the assurance of a fat profit, but you didn’t see any profit, eventually you’d wonder whether you were going to get any of your money back, profit or no profit. If you then discovered that he was maintaining his flat and fancy car with yet more borrowings from elsewhere, and all his supposed “assets” wee borrowed on credit too, you’d start panicking. When it looked like all his other creditors were panicking too, and somebody wasn’t going to get refunded, you’d probably steam in without further delay. Your friend would be in big trouble, and you wouldn’t be interested in accepting his IOUs, that is, his currency, because that would be pretty worthless too.

Something like this process has been going on in recent years in the Far East. When Thai finance houses started to look overstretched last year, alarm bells rang from Tokyo to New York, and bailout talks hurriedly began, but not before banks and investment companies had pulled out, foreign capital flows had reversed, and half-a-dozen local Asian currencies, which speculators had been gleefully trading at a high value, went into a nosedive. Paper money, as it turned out, wasn’t worth the paper it was written on. Speculators dumped the now toilet paper money as fast as they could, in one stroke wiping a fortune off the value of the Asian economy. Share prices collapsed swiftly as the “smart money” headed for the airports, and economic recession rapidly left the surprised working population facing unemployment, poverty and an unpleasant future.

During all this there were furious recriminations all round. At the IMF-World Bank meetings in Hong Kong in December 1997, the Malaysian Prime Minister, Mahathir Mohamed, blamed powerful Western interests for engineering the crisis. The US blamed Japan for not going enough, while the Koreans reacted angrily to US and IMF efforts to squeeze concessions out of them in return for rescue, in other words kicking them when they were down. Certainly there has been a tendency not to rush to aid the Asians, as the crisis presents the West with the opportunity to get the Asians just where they want them, and muzzle the tigers’ teeth. But conspiracy theories against the West don’t take into account that an Asian currency collapse is terrible news for Western banks who have so much cash tied up there, and bad news too for Western economies in that it makes Asian exports cheaper while at the same time Asians are buying fewer Western products of any sort. In fact, the realisation is slowly dawning on the chortling politicians and media of the West that the Asian crisis may well trigger a global crisis. Smiles are slowly being wiped off faces, as the sinking figures come in.

The British owning class is tetchy anyway at present because it is having trouble selling anything abroad, thanks to the strong pound. Worse is coming. This strong pound is making Britain unattractive to foreign companies who were until recently rather keen to take advantage of Britain’s proud status as the worst and cheapest employer in Europe. Hyundai and Samsung have delayed plans to open large electronics factories in Britain which would have given Tony Blair the golden gift of 7,000 new jobs to brag about. Mitsubishi have closed a television factory, laying off 500 workers. Other Japanese and South Korean companies have decided not to proceed with investments. The Bank of Yokohama has sold off Guinness Mahon, a merchant bank, while the collapse of the investment bank Yamaichi has cost 300 jobs in London.

More “Titanic” than “Tiger”
While Blair loses his cool and desperately offers subsidies to the South Koreans, who have 2.6 billion pounds invested already, British exports to South Korea have halved in a few months while imports have risen by a quarter. The Asians may have gone broke, but now the British economy is bleeding from open arteries.

Everything the UK can presently sell to the Asians is taking a hammering. Tourism is falling off, as the number of spending visitors from the Far East drops by an estimated five percent and airlines have to reduce flights while London stores brace themselves for slashed profits. The British education business is also suffering. When it discovered that only its elite universities were attracting Asian students, it went in for a spot of “rebranding” and relabelled all its polytechnics as universities. Blair would call this “more choice”. Cynics would call it “selling mutton dressed as lamb”. The UK higher education system is kept going by foreign students, a quarter of whom come from the Asian area now in recession, and the Honours Degree business stands to lose around £130 million, despite the commercial rebranding exercise.

It would all be very funny indeed if it were just politicians being made to look stupid. But as usual it is the working class that suffers the cutbacks, the reduced standard of living, and the vicious and right-wing reform programmes that every such crisis engenders. Politicians won’t admit that they can’t predict how the economy will go, because they would be admitting they can’t control it. And to admit that is to beg the question: why bother voting for them, and why bother having capitalism at all? Why indeed?

The socialist view of capitalism is that it is essentially a half-way house in production relations on the road to post-scarcity society. when the world has developed its productive abilities to the point of abundance—which it did decades ago—capitalism fulfils its historical role and is of no further use. But to describe capitalism as merely “obsolete” scarcely conveys its sheer destructive power or the tragic effects on individuals of its continued existence. As capitalism consolidates itself all the way round the globe, its frequent booms and slumps—one of its unavoidable features—also become global. The disasters get bigger, and nastier.

Whether the world succumbs this time to an economic seizure, or endures this crisis in order to face the next one, there is no comfort for workers in capitalism’s discomfort. What’s bad for the rich is worse for the poor. That capitalism is chaotic is evident. That the poor had better abolish it before it kills them is a point we need to stress with all possible urgency.
Paddy Shannon

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