Dpression Dulls the "East Asia Edge"

It was not too long ago when Herman Kahn and other liberal intellectuals were singing the glories of the market economies of the Pacific Basin. Two Harvard gurus, Roy Hofheinz Jr. and Kent E. Calder, even coined a flashy word for the dynamism of the world's fastest growing area: the "East Asia edge."

The last two years, however, have seen disappointment and alarm supplant the buoyant rhetoric of the futurists. The realization is beginning to set in that one of the key reasons for the East Asia edge - the region's tight trade and capital links with the U.S. and Japan - has become its Achilles Heel in a period of international depression.

The message has not been lost on area leaders. Singapore's Lee Kuan Yew, long a symbol of the area's vibrant capitalist energy, recently told a Japanese newspaper that "prolonged depression can cause great unrest and lead to an increase in insurgency" in the area.

The Debt Bombs

Encouraged by the World Bank's assessment that the region's economies had "a high absorptive capacity," foreign capital - in the form of investment and credit - rushed into the region throughout the sixties and seventies. But that capital, a source of dynamism in those decades, has become the region's cross in the eighties in the form of accumulated debt.

Two economies, South Korea and the Philippines, are ticking "debt bombs", to use Time Magazine's image. In December, a Japanese newspaper set off a mild alarm in Tokyo business circles when it reported that the Organization for Economic Cooperation and Development (OECD) had warned the Japanese Government that South Korea could default on payments on its $36 million external debt. A month earlier, a Wharton School study sent similar shivers up the spine of the international financial community when it raised the specter of possible default on the part of the Philippines, whose external debt now comes to $16.6 billion.

South Korea, whose debt-service payments of $15.7 billion in 1983 will eat up close to 50% of the value of its exports, is number four on the list of debt-strapped countries, after Brazil, Mexico, and Argentina. The Philippines, number 11 on the list, will pay out 57 billion in 1983, an amount that comes to an astounding 79010 of export proceeds. Thailand, with a debt of $8 billion, is not yet on the "critical list." But it is likely to be there in two years, says a former director of Thailand's Central Bank, when the debt will triple to $24 billion.

The Demise of Export-Oriented Growth

Japan is one of the two "locomotives" that haul the rest of the region along. The other engine - which drags even Japan - is the U.S. economy. The depression and rising protectionist barriers to Japanese imports in the U.S. has made 1982 one of Japan's most stagnant years in terms of growth. Unemployment, now standing at slightly over 2%, is expected to inch upward in 1983 as new hiring slows down and non-competitive industries like petrochemicals sink deeper into "structural depression." In addition, underemployment is expected to increase as "redundant employees" are "reshuffled" or "voluntarily retired."

In the sixties and seventies, the strength of the satellite economies lay in their export-oriented structures and industrial strategies, which were forged partly at the advice of development agencies like the World Bank. But "export-oriented industrialization" has now been transformed into their tragic flaw. With their two giant markets sputtering, the so-called "mini-dragon" economies or "little Japans" have seen their growth rates sag. In South Korea, where exports make up 33% of GNP, export industries have not snapped out of a recession which began in 1979. Declining exports have also savaged Taiwan, 50% of whose GNP is accounted for by exports. Last year, Taiwan's GNP growth rate was down to 4%, from an average of over 7% over the last 20 years. In another "economic miracle," Hong Kong, where exports come to over 90% of GNP, 20% of the work force is now either unemployed or underemployed. Recession-induced underemployment in the Crown Colony, according to one estimate, has translated into a 20 to 30% cut in the average worker's monthly wage of about $200.

Perhaps most disastrously affected by the worldwide slump is the Philippines, whose export-fueled growth was just beginning to take off in the early eighties. GNP grew by only 2.8% in 1982 - a very low rate for a developing economy. And in 1983, business analysts expect a record number of bankruptcies and a significant rise in the number of unemployed and underemployed, who now make up 30% of the work force.

The Cure: More Doses of the Disease

Authorities in the region have responded to the crisis in ways which are remarkably similar. The Philippines, Taiwan, Indonesia and South Korea have all devalued or plan to devalue their currencies, on the theory that "cheaper" export prices would fetch a greater export volume and thus more foreign exchange earnings. Aside from triggering an initial, momentary spurt in exports, however, competitive depreciation no longer seems to work. Instead, its main impact is to make Third World currencies even more worthless in international markets.

Most governments have also stepped up their efforts to woo foreign investors. The key here is keeping the labor force in line. Over the last 2'/z years, the Chun Doo-Hwan regime has maintained a tight lid on workers' wages in South Korea, resulting in a decline in real wages. In the Philippines, where effective workers' organizing has increasingly alarmed the American Chamber of Commerce, strongman Ferdinand Marcos has unleashed a wide-ranging crackdown on labor which has temporarily decapitated the militant May 1st Movement (KMU) the spearhead of the labor-organizing drive. Never has the correlation of a hospitable foreign investment climate, labor repression, and authoritarian dictatorship been clearer.

The other major move being taken to please foreign capital is "liberalization," or the elimination of all vestiges of protectionism and economic nationalism. South Korea has assured U.S. firms that it will soon open up several protected industries to foreign competition from imports. Both Thailand and the Phillippines have World Bank-financed "Structural Adjustment Programs" which seek to lower or eliminate protective tariffs and expose local manufacturers to increased competition from the multinational firms. A Korean technocrat rationalizes, in neoclassical fashion, that liberalization "will enhance the quality of Korean products." The most likely result, however, will be the destruction of the domestic entrepreneurial class and total domination of the domestic market by the multinationals - a process which is already far advanced in the Philippines.

It is striking that while Japan, the U.S., and Europe are erecting protectionist barriers to Third World imports, the satellite economies of East Asia are lowering their barriers and integrating themselves more fully into the international capitalist market. During a worldwide slump, this is nothing short of suicidal. The "irony" of the situation has not been lost on President Marcos who complains that "while other nations are putting up protectionist barriers of all sorts to protect their own workers, the Philippines has been lowering tariffs in accordance with the principles of free trade." But contrary to the dictator's claim that his actions are motivated "by the Philippines' desire to stand by its principles," it is the World Bank and the International Monetary Fund (IMF) - the two guardians of international capital - which are masterminding the final assault on protectionism in East Asia. And their aim is to assure the maximum conditions of profitability for Western capital in the Third World at a time that these conditions have vanished in the metropolis.

Depression and Change

The spreading depression in East Asia has not yet created the organized movements of urban discontent that Lee Kuan Yew fears, except in the Philippines. In this regard, the Philippines provides a confirmation of the old politically volatile situation. The current revolutionary upswing in the Philippines is a product of the conjunction of a declining economy and the skilled political organizing on the part of the National Democratic Front and New People's Army, which have created a powerful mass movement tying together urban workers, the middle class, religious workers and peasants.

But the depressed economic conditions are a crucial precondition for political mobilization especially since almost all of the region's strongmen - Chun, Marcos, Chiang-Ching-Kuo of Taiwan, Suharto of Indonesia, and Lee - have staked their legitimacy on the promise that their tight, authoritarian regimes could deliver prosperity sooner and more efficiently than traditional democracies. 0

Walden Bello is co-author of Development Debacle: The World Bank in the Philippines. He writes regularly for Afrique-Asie, Le Monde Diplomatique, and Pacific News Service.