In order to defeat your enemy, you must first know your enemy (Sunzi).
Rakesh Bhandari wrote:
> Henry,
> There may be a "financial" crisis due to the withdrawal of short term
> credits and the near collapse of domestic banking systems but foreign
> direct investment has far from abated. In today's WSJ there is this article
> "Credit Squeeze in Asia Promises Windfall for Cash Rich Foreigners" by Erik
> Guyot:
>
> "Problems in Asia banking system are creating a potential bonanza for cash
> rich US and European firms. Profitable companies here can't get funds from
> their bankers, so they are selling stakes to foreign investors...Across
> Asia US businesses are taking stakes in otherwise healthy companies that
> can't get bank loans. So far this year, US and European concerns have
> invested $8.14 billion in Asian companies outside Japan, according to trade
> publication M and A Asia, up from $3.35 billion last year." p. A26
>
> Again we see the inter-penetration of opposites: monopoly stagnation marked
> by excess capital in the imperialist countries--imperialist aggression in
> the form of the seizure of productive assets abroad through the export of
> capital. This is the ABCs of Leninism, and I would have thought Henry c K
> understood it better.
>
Let me, a professional in direct foreign investment in Asia, give you, an academic Marxist in Princeton, the both the ABCs and DEFs of Leninism.
The Asian financial crises are not mere passing storms or cyclical phases. They are the opening acts of a historic restructuring of the global economic system in which the stakes are very high. Economic globalization requires enlightened nationalism to keep it fair and just. As Lenin insightfully hypothesized, Western imperialism provided the escape valve that postponed the deterministic evolution of capitalism into socialism as predicted by Marx. The collapse of Western imperialism, brought about by the political rise of nationalism, heralded the advent of a wave of socialist economies after World War II in newly independent former colonies and semi-colonial territories, without the historical prerequisite of having first gone through capitalism, as Marx had envisioned. The historical relationship between capitalism and socialism is that capitalism is efficient in creating wealth and socialism is necessary for sharing the wealth that capitalism creates in order for society to be more just and stable. As such, the ripe candidates for socialist systems are the industrialized nations that have already benefited from the productive efficiency of capitalism, not the poor countries that have been ravaged by a century of Western imperialism. There is no economic benefit in socializing poverty. Some reasonable thinkers now accept that capitalism and socialism may not necessarily be concepts fatally adverse to each other, but can be complimentary approaches to keep society prosperous and just. Each nation, according to its historical conditions, must seek the proper mix of these approaches to fit its own developmental needs. Indiscriminate global imposition of Western market criteria or socialist doctrines is not workable or desirable. After the demise of political imperialism, capitalism manages to gain another new lease on life through the transformation of the newly setup socialist planned economies into capitalistic market economies via the expansion of world trade. Some political economists view unbalanced and unregulated world trade as a new form of economic imperialism, benign in appearance, rationalized under the laws of modern economics that hold sacred the principle of maximizing return on capital and the operational dynamics of free markets that favors the strong and perpetually condemns the weak. These concepts give the West an inherently unfair advantage against the capital-starved and ill-equipped third world. The international division of labor as currently constituted in globalization has been driven by wage competition between LDCs with a race to the bottom effect. Countries also compete to reduce taxes, welfare benefits, environmental protection and trade regulations in the name of efficiency in a global market economy. Technology, lowering the cost of communication and managing complexity, now allows central control of highly decentralized operations worldwide. Trade and foreign investment have preempted economic development and aid as the main paths for undeveloped nations to modernize and to prosper.
Yet globalization of trade and finance has its critics in both developed and developing countries, but for different reasons. In theory, free international movement of capital through integrated financial markets in a global economy allows efficient allocation of funds towards investments of highest productivity. But truly free markets do not exist in the real world, and even if they do, they operate under narrowly single dimensional rules and historical biases, all of which aim toward maximizing return on capital without due regard for local social, political or environmental consequences or individual national aspirations. Moreover, global financial market pressures tend to supplant the traditional roles local political leaders and government institutions play in formulating macroeconomics policies that safeguard individual national interests. Despite all the noise the United State makes about the benefits of world trade, US export of $564.7 billion (FOB) constitutes only 7.6% of its GDP of $7.6 trillion (1996) and US import of $771 billion (CIF) constitutes 10.1% of GDP. Export to all of Asia amounts to only 2.4% of its GDP of which Japan constitutes 1%. Thus the U.S. can sustain a strong bargaining position in setting the terms of trade on a take it or leave it basis. Excessive reliance on world trade may not be in a country's best national interest, simply because national governments are forced to surrender their power to manage their economy to world market forces, or international trade institutions and agreements. It is an argument put forward not only by the developing nations, but also by isolationists in America, with sufficient public support to deprive President Clinton of his "fast track" authority to settle trade disputes. In contrast, Hong Kong export of $197.2 billion constitutes 121% of its GDP of $163.6 billion (1996), and HK import of $217 billion constitutes 130% of its GDP. It is obvious that a rupture in world trade will impact Hong Kong differently than the U.S. While Hong Kong has no viable alternative to total dependence on trade, it should bear in mind that it is now part of China, and that Hong Kong's national interest is part and partial of that of China where the issue of trade policy in relation to national independence has not been definitive resolved. When capital is mobile, governments are able to enjoy the benefits of fixed exchange rate stability only if they are willing to forego the empowerment of managing the economy through the setting of domestic interest rates and the supply and liquidity of money. This means when global capital flow into a country, local interest rate will fall, sometimes to negative rates, distorting the orderly development of the affected economy. For example, beginning in the mid-1980's, Hong Kong's currency board mechanism created persistent negative local interest rates, causing abnormal investment flows into the property sector, resulting in unrealistic price inflation that became a major problem in the current downturn. Conversely, when investors begin to pull out of a country or sell its currency, local interest will have to rise to counter the flow in order to maintain the exchange rate peg. This invariably weakens the banking and financial system, eventually causing bank failures and institutional bankruptcies. This happened to Hong Kong in October 1997, with disastrous long-term consequences that are yet to unfold fully. Hong Kong will be plagued by excessively high interest rates until the currency board mechanism is abandoned or until the US dollar falls. There will be no sustainable long-term economic recovery for Hong Kong until the HK Monetary Authority regains its power to set monetary policies. Pegging a currency's exchange rate to another currency does not automatically make an economy more stable. If domestic economic policies are inconsistent with the chosen exchange rate, a fixed rate can itself lead to instability. Small economies with less sophisticated financial markets face greater risk from opening to international capital. Sudden capital flight can create economic havoc, as in the European currencies crises of 1992-93, in Mexico in 1994 and in Thailand in July 1997. In the last quarter of 1997, institutional panic caused an abrupt drop of private capital flow, in excess of US$100 billion, to the five most affected countries: South Korea, Indonesia, Thailand, Malaysia and the Philippines. South Korea alone saw its capital flow drop by US$50 billion as compared to 1996. It is projected that the region will experience a net outflow of US$9.4 billion in 1998, after a net outflow of capital of US$12.1 billion in 1997. And contagion effects can hit countries in an economic region and eventually the entire global system. As the economies of the lending nations contract, banks will withdraw urgently needed funds from other healthy economies where liquid markets still operate, thus forcing the healthy economies to collapse. This happened to the Hong Kong market in October 1997. It will happen again and again before recovery is in sight. The threat of Japanese banks retrieving capital from other countries, including the U.S., is very real. There are clear signs that Japan is entering a prolonged phase of serious deflation. When that happens, U.S. interest rates will skyrocket, sending Hong Kong rates beyond reach, foreclosing all hopes of a steady recovery.
The WSJ's quote of M&A Asia, which often manipulate data to create more business for its subscribers, is merely garbage in, garbage out. The fact is: a credit crunch does not mean a total absence of funds. It only means more expensive funds. Much bottom fishing is going on in Asia, but the number of actual transactions are not high and the terms certainly not good for the borrower/seller. No doubt this is predatory, but the objective of DII Group is not to eliminate competition as you conclude, but to increase market penetration into China. The whole thrust of the article represents another of WSJ call for American companies to take advantage of the Asian crisis to open Chinese markets. While it is "excess capital in the imperialist countries", it is not new, this capital left Asia only a year ago. Globalization has made the traditional process of economic imperialism you describe unnecessary. I suggest you read Fareed Zakaria's article in the NYTimes op-ed: Will Asia Turn Against the West (July 10,1998), you will find it in your Princeton library. Zarkaria is managing editor of Foreign Affairs. The point od the article is that even from America's perspective, trade and globalization are on based on politics. Its not that Western capitalistic oppression has ceased, but the manner and structure of it has changed drastically. To deal with it, we must first recognize it.
Henry C.K. Liu (not Henry c K.)
>
> yours, rakesh