Doug's problem--and I use the word advisedly--is that he has not fully grasped the seriousness of the situation. I have been reading LBO for well over a decade and have been involved in public and private exchanges with him for the better part of four years, so I am somewhat of an expert on Henwood-thought.
Doug's problem is that he has--without probably understanding it fully--tried to synthesize Marx and Keynes. From Marx, he appropriates the analytical tools. Thus, his "Wall Street" is viewed universally as a magisterial treatment of the world of finance. But his political understanding owes much to standard Keynsianism with some Marxish phraseology. It amounts to a defense of welfare state measures, including pump-priming, to reduce unemployment and build the self-confidence of the working-class. This has very little to do with Marx, who was only interested in overthrowing all capitalist states, including "nice" ones like Sweden or the Netherlands. Of course, what sustains the niceness of such welfare states is the plunder of the third world, especially its oil, but I will leave that aside for the time being.
The problem with this eclectic political-economic program is that it begins to fall apart when you run into a genuine crisis. In a genuine crisis, pump-priming is virtually useless. The reason for this should be obvious. In a general collapse of demand amid deflation, no amount of deficit spending can make a difference. The South Korean government will not print money to keep Hyundai afloat. It is in the interest of South Korean government to see excess production liquidated.
Doug has tried to find a silver lining in the global economic crisis in order to keep his Marx-Keynes synthesis afloat. So when he invited a professor from Columbia University on his radio show the other week to discuss the problem of bad loans in Japan, the general drift of the conversation was one of "debunking" the financial crisis. Japan was not in such bad shape at all, the professor said. The trillion dollars in bad loans was nothing but scare-mongering.
If you can not come to grips with the real situation in Asia, which was Doug's favorite example of a confirmation of chapter one of the Communist Manifesto, then you are in danger of falling into denial. (By the way, I always recommend to people that they read the second chapter of the CM as well, which calls for the destruction of this wondrous capitalist system which has the ability to leap over tall buildings with a single bound. Or was that the Superman tv show I was thinking of?)
Marxists must have the courage to see things as they really are. The NY Times today described the situation in East Asia in an unblinking manner. If the term crisis does not apply to this key sector of the world economy, then the term has no meaning at all.
September 16, 1998
Experts Say Some Asian Countries Are in Depression
By SHERYL WuDUNN
TOKYO -- As statistics and despair pile up in the countries of Asia, it is becoming clear that the region's recession is deepening, along with the economic and social devastation it brings.
The number of people out of work is rising, and economic output is sinking at its fastest rate in years -- in leading countries like South Korea and Japan, it has been decades since there has been a decline so severe and so widespread. Banks in many nations are shaky, and corporate failures are feeding a sense of gloom. Stock markets in much of the region have fallen by more than half from their peaks; Malaysia's is down 80 percent in two years.
Unemployment has soared. Soup kitchens and rice lines are appearing around the region, and parks and boulevards are filling up with the new homeless.
As governments across East Asia have released half-year report cards in the last few weeks, hopes that there will be a recovery anytime soon have vanished.
"A handful of countries are under depression," said Tim Condon, regional economist at Morgan Stanley Dean Witter in Hong Kong. "People's expectations are adjusting downward. They're close to the point of despair."
Condon is one of a number of economists beginning to call the predicament of some Asian countries a depression. He does not compare it, yet, to the Great Depression of the 1930s, but says it is much more severe than a mere recession, which has been the common experience in the era since World War II and is usually characterized by a relatively short and shallow fall in output that leads to a moderate rise in unemployment.
In particular, Indonesia, South Korea, Thailand, Hong Kong and Malaysia are undergoing severe contractions in their economies and spikes in unemployment. Countries with stronger economies are being affected as well. Governments are trimming their growth projections to about 1 percent in the Philippines and Singapore, which do not have the same structural problems as the countries now in recession.
Nor has China emerged unscathed. Its pace of growth for the first half of 1998 slowed to an official 7 percent, the lowest since 1991. The Chinese government tried to maintain its 8 percent growth target for this year -- in part with a plan to increase home ownership across the country -- but had to scale back that ambition because of the fallout from the surrounding region.
Even Taiwan, which has become an important potential source of capital throughout the region, now predicts its growth will reach only 5.3 percent, compared with 6.8 percent in 1997.
The agony of Indonesia is virtually in a class of its own. Millions are slipping below the poverty line. In the first half of this year, Indonesia's economy was officially estimated to have shrunk, on an annual basis, by 12.2 percent. For the year, the government says the fall in output is expected to be 13 percent, but private economists say it could be as severe as 20 percent.
Falling currencies make the declines much more stark in dollar terms. While all the statistics at this point are somewhat dubious, the Indonesian government has said that in dollar terms, output per person is expected to fall to $436 in 1998, from $1,055 in 1997.
"I don't think Europeans or Americans could really understand how bad things are," said Simon Mahadevan Flint, a Singapore-based economist who is head of research at IDEA, an independent economic consulting group. The Indonesians, he said, "are experiencing massive contractions in the economy from an already low base, with extensive discrepancies between rich and poor." People who had moved out of mud huts and into wooden shacks as the economy surged have now been thrown back into the fields, he said.
Indonesia's economic crisis has been compounded by political turmoil, which in turn has brought about deeper economic troubles. The banking system has essentially ground to a halt. Many corporations simply cannot repay their loans, and those that can are not doing so, partly because the banks to which they owe money may not be around much longer. The result is that bad debts are swelling to as much as one-fourth of all loans, according to predictions by some economists.
In such a chaotic environment, relying on traditional economic measures is extremely difficult. Official figures for unemployment in Indonesia have not been released recently, but economists working from anecdotal evidence say it is skyrocketing and could reach one-fourth or perhaps even 40 percent of the labor force in urban areas next year.
"In terms of real economic growth, inflation and unemployment, the worst is still very much in front of us, not behind," said William Overholt, who assesses the regional economy as head of research at BankBoston NA in Singapore. "If Japan goes into a tailspin, if the U.S. economy slows down, if there are devaluations or the governments fail to save the banking systems, then all bets are off."
Other governments forecasting serious contractions and the declines they expect for the year are Thailand, projecting a fall in output of 7 percent; South Korea, 6 percent, and Hong Kong, 4 percent. The Malaysian government predicts a 2 percent decline. And many private economists expect even worse.
To be sure, recovery may be closer than conventional wisdom now expects. Some economists say -- with caution -- that the first hint of it could come sometime next year if Western economies remain buoyant enough to continue absorbing Asian exports. And some experts see a silver lining in the suddenness of the collapse, pointing out that several Southeast Asian countries have swung sharply from current account deficits to large surpluses in which the countries are once again accumulating foreign reserves.
Whatever the future holds, it is clear that the situation is already far worse than was envisioned when the economic troubles first emerged as a currency crisis in Thailand in July 1997 and quickly spread to Southeast Asian countries and South Korea. One reason was that Japan, the region's economic giant, was caught up in its own economic troubles and could not provide a buffer to cushion the shock. And many say a real restoration to economic health will take a long time.
In South Korea, a turnaround may not come until 2001. "Korea is restructuring its old system," said Munkun Cheong, chief economist at Samsung Economic Research Institute in Seoul. "Old habits are hard to break, so it takes time."
In Korea, the unemployment rate had tripled to about 8 percent by July. In Thailand, official joblessness had nearly doubled from the end of 1997 to May, reaching 5 percent. More recent figures, which are undoubtedly worse, are not yet available. While those levels appear low by comparison with those in Europe, the jump in Asia is startling because it is occurring so rapidly after years of phenomenal growth. And in Asia, the safety nets have big holes or there are simply no nets at all.
It is not just that losing jobs is keeping people from dining out. In South Korea, families are being evicted from homes for not paying rent. In Thailand, workers are flocking back to the rural areas to forage for food in the countryside.
"Even if you leave Indonesia out, other economies are bleeding," said Nilesh Jasani, regional strategist at SocGen-Crosby Securities in Singapore. "In absolute terms, they are really really suffering very badly."
One of the biggest disappointments has been Japan, which has the world's second-largest economy, more than twice the size of the rest of Asia affected by the crisis. A year ago, Asian leaders journeyed to Tokyo to try to persuade officials to revive the Japanese economy so that it could become a locomotive for growth throughout the region.
That has not happened. Japan is now in a recession, the worst since the end of World War II, and economists project a decline of more than 1 percent for this year, with little improvement in sight. Last week, the government said growth declined by an annual rate of 3.3 percent for the April-June quarter.
As the economy contracts, Japan's Parliament is squabbling over how to save the banking system, and corporate earnings are taking their deepest plunge in years.
Last week, Japan's Economic Planning Agency released a report characterizing the state of the Japanese economy as "extremely severe," a notch worse than its August assessment of "very severe." Taichi Sakaiya, head of the agency, added that the global economy was "at the threshold of an extremely difficult phase."
The problem is that both Japan and the rest of Asia are suffering from spreading deflation, which is delivering a double whammy. Prices are tumbling in the everyday world of bread and butter as well as in the financial world of stocks and bonds. In this deflationary environment -- one in which revenues, prices and production are falling in response to a collapse in demand -- Japanese companies are trimming imports and investment. And as they curb their investments, the effects are felt acutely throughout the region.
All this while Japanese banks, unable to clean up their bad debts, are pulling back on all types of lending and cutting off access to funds for many companies elsewhere in Asia. Despite the ostensibly low interest rates in Japan, many companies have little access to funds and are being forced to look abroad to raise money.
So perhaps it is no surprise that Orix Corp., Japan's largest leasing and diversified financing company, is planning to list American depository receipts on the New York Stock Exchange this week. Orix will become the second Japanese financial corporation to gain access to the New York market -- the Bank of Tokyo-Mitsubishi is currently listed -- but it is too soon to tell whether this move will help the company. The results will be closely watched by other financial institutions that have long desired but never dared to tap the stock market in the United States.
Yoshihiko Miyauchi, president of Orix, says the listing will probably be useful because the Japanese economy has been so weak for so much of the 1990s that it is hard to predict when it will finally begin to improve.
The Japanese economy is "at the edge of a cliff, standing there already for some years," Miyauchi said. "We're lucky we haven't fallen yet."
Copyright 1998 The New York Times Company