Chomsky on
"the Asian Crisis"

On the charge that Mahathir did not admit "that the Asian crises is the fault of the local governments irresponsible financial and economic policies and has nothing to do with the West," it seems to be about half right (putting aside what Mahathir may have actually said). The crises have a lot to do with "irresponsible" financial/economic policies of the local governments, and a lot to do with "irresponsible" financial/economic policies of Western investors -- and the governments that they know will bail them out (either directly, or via the International Financial Institutions), if they get into trouble. There was a vast flow of speculative capital and careless lending by Western banks/investors, but that means careless borrowing too.

Furthermore, there is huge capital flight. I suppose a fraction of what the Suharto family has put in Western banks could easily cover the Indonesian crisis. And a lot has to do with liberalization of financial markets, which tends to increase volatility of markets, herd behavior, meltdowns, etc. Not a big problem for the really rich and powerful, because they will be bailed out by taxpayers in the rich countries and the suffering poor, who bear the burden of all of this, in the poor countries.

But there is plenty of blame to go around.

On the use of the crisis to "recolonize Korea," that's no secret. You can read criticisms of it in the eminently conservative and respectable Financial Times, for example. Korea could probably have exported its way out of the current crisis, or simply defaulted on loans (leaving people who made risky loans to pay the costs, as supposed to happen in theoretical market systems).

But those outcomes would not have benefitted Western investors and financial institutions. So instead, policies are being imposed that will place the burden on the Korean people, and sell the country off at bargain rates. At least, that's one expectation. They may have the wherewithal to resist.

The question whether "the risk of anti-Americanism is too high" begs a lot of questions. How high should it be? Why is it a risk? (would we speak of the "risk of anti-fascism"?). I suspect there may be a backlash, if the anticipated consequences (mentioned above) are realized, but maybe those are healthy reactions.

On the People's Daily report, I half agree. The US (and the West) are plainly going to use the crisis to extend their power over Asia to the extent they can (what else is new?). But that they helped "jump-start the crisis" seems to me very doubtful. It's a very risk affair for them, even if they had the capacity to do it (which is doubtful) or the will (also).

Noam Chomsky

 

Chomsky on Asian Crises and Finance generally...

There's a lot involved in the Asian crises, including the whole export-oriented development model. And I think you are quite right in identifying the effects of speculative capital flow, which has increased astronomically since the US (with the cooperation of Britain and Canada, sometimes others) dismantled the postwar (Bretton Woods) economic system that was based crucially on the right and duty of governments to regulate capital flow. Since that time, markets have become far more volatile and unpredictable and financial crises have increased markedly in frequency (about 3/4 of the 180-odd IMF members have experienced them in varying degrees of severity); that's exactly counter to the confident predictions of "conservative" economists. But other predictions have been fulfilled, notably those of those who designed the BW system in the first place (Keynes and White): the liberalization of financial capital has been associated with (and presumably was a substantial causal factor in) a notable decline in growth of GDP, productivity, and trade, and has led, as predicted, to sharp attacks on the social contract and on freedom of trade, led by the US, with its British junior partner tagging along. That's presumably a reason for the very poor performance of the US economy in recent years, with the slowest recovery in postwar history, growth of GDP per capita somewhat below the OECD average through the '90s, stagnation or decline in wages for the majority of the population, a huge increase in debt (uncorrelated with growth of the economy, historically unprecedented), and enormous profits and "asset inflation" in stock markets, benefitting a tiny sector of the population.

For less advantaged countries with more perilous economic situations, the effects are far more severe. One can't describe Asia with a single broad brush. The countries are different.

Indonesia is basically a family-owned enterprise, ruled by the threat or use of violence; the Suharto family and their cronies could overcome the current financial problems from their own deep pockets. Malaysian development is overwhelmingly based on foreign-owned export industry. Thailand is a disaster from many respects. South Korea and Taiwan, in contrast, developed sound economies (with considerable violence and repression), though rather different ones; in both cases, with spectacular economic progress. In South Korea, state-directed industrial development based on huge conglomerates (chaebol) shifted in the '80s to more power for the chaebol and more reliance on market forces, including liberalization of capital forced on them by the US, which also intervened since the late '80s to try to destroy their export-based economy by harsh protectionism and forcing South Korea to open its markets to US exports, notably lethal drugs (tobacco) -- this is politely called "aggressive unilateralism," essentially administration of markets based on force, where the US calls most of the shots. The effect has been a sharp shift in SK from large positive to large negative trade balance. The liberalization of finance exposed them to the extraordinary irrationality and market failures that have plagued other countries compelled to adopt the same course (in some areas, like Latin America, compelled by military dictatorships and their own elites). South Korea also never overcame its dependency on Japanese technology, despite its industrial development. And as the chaebol gained more power, there was an increase in corruption and cronyism, as throughout most of the region.

There is no simple single explanation for the whole range of crises, but I think you are right in identifying financial liberalization as one significant cause -- with notable effects in the rich countries as well. Are there solutions? Right now there is a curious right-left coalition calling for dismantling the IMF -- which does, indeed, function to socialize risk and cost. I think some care is needed here, however. One of the sharpest and most incisive analysts of all of these things for many years, international economist David Felix, has been making for some time what seems to me a more persuasive case: instituting measures (like the Tobin tax) to penalize and but back short-term speculative flows (bear in mind that about 80% of capital transfers have a turn around time of about a week, most of that a day or even hours or minutes). There are various technical debates about these ideas, which have been on the table for 25 years but kept out of the policy agenda by the great power of financial capital and the interest of even manufacturing capital in the utility of these devices to undermine democracy and public welfare (the weakening social contract). These seem to me more constructive alternatives for the left, short of the longer-term goal of dismantling and eliminating these illegitimate private tyrannies altogether.

Noam Chomsky