Asian "Tiger" Economies Slow; China Privatizes id BAA24929; Tue, 16 Sep 1997 01:12:33 -0400 Via NY Transfer News Collective * All the News that Doesn't Fit source: Green Left Weekly #289 9/10/97 Are they merely paper tigers? [The sharp fall in currencies and stock markets in south-east Asia in recent weeks have raised serious questions about the future of the ``newly industrialising countries'' (NICs) or ``Asian tigers''. The article printed here, by CHOW WEI CHENG, is excerpted from ``Lessons of the East Asian NICS'', which appeared in issue number 8 of Links, the international journal of socialist renewal.] The statistics on the NICs' performance are widely available. They depict rapid growth - double to triple that of the US, Japan and Germany in the 1960s to 1980s, rapid productivity growth, quick industrialisation, a high degree of investment and capital formation and a high propensity to export; manufacturing and machinery account for a larger share of exports than light manufacturing and agriculture. These countries have also begun exporting capital in the form of investment and production facilities in China, Vietnam and other countries in south-east Asia. However, it is important to place these achievements in context. According to Satoshi Ikeda (in The Age of Transition, Penguin, 1996), Taiwan, South Korea, Singapore and Hong Kong are the only Third World countries to have grown rapidly enough to close the relative income gap between themselves and the advanced capitalist economies. The NICs account for only a tiny minority of Third World countries. Despite their successes, the combined GDP of South Korea, Taiwan, Hong Kong and Singapore was only 16% of Japan's GDP in 1994. Government intervention The NICs' key to success was marrying imported technology and cheap labour to an export market. That cheap labour advantage is disappearing, and export markets are tightening. In 1993 the World Bank released its analysis of the causes of the NICs' development in The East Asian Miracle - Economic Growth and Public Policy. It states: ``Private domestic investment and rapidly growing human capital were the principal engines of economic growth. High levels of domestic financial savings sustained ... high investment levels ... ``In most of these economies ... the government intervened - systematically and through multiple channels - to foster development, and in some cases the development of specific industries ... targeting and subsidising credit to selected industries, keeping deposit rates low and maintaining ceilings on borrowing rates to increase profits and retained earnings, protecting domestic import substitutes, subsidising declining industries, establishing and supporting government banks, making public investments in applied research, establishing firm- and industry-specific export targets, developing export marketing institutions, and sharing information widely between public and private sectors.'' The NICs also engaged in ``financial repression'': interest rates were kept low to cheapen borrowing by firms. Thereby savers, the majority of whom are households, subsidised corporate borrowers. The World Bank counsels tax and investment incentives to encourage business profitability; guaranteeing banking profits to ensure a ``stable and secure'' financial system; spreading private investment risks to the public by state guarantees of the financial viability of investments; and granting subsidies to and bailing out distressed strategic firms. The World Bank also notes that these governments have been ``less responsive than other developing economy governments to organised labour's demands to legislate a minimum wage''. False explanations One pseudo-explanation of the NICs' growth is that it was due to a high level of domestic savings, which allowed national capitalists and governments to fund investment without reliance on foreign finance. It is certainly true that increased savings can assist existing economic growth by providing cheap finance. However, it is not true that a greater pool of savings necessarily leads to greater economic growth. This depends on factors such as profitability, investment and access to markets. The critical combination in the NICs' case has been between high domestic rates of profit (dependent mostly on low real wages) and high demand abroad. A high savings rate is a consequence of growth and cannot be raised until that growth occurs in the first instance. In the 1960s South Korea had a much lower savings rate than Taiwan, Singapore and Hong Kong, and investment was overwhelmingly funded out of foreign savings in those years. This led to increased foreign debt, but it didn't hinder growth. The savings-growth relationship has been empirically tested by the World Bank itself in regard to Asian NICs and the US from the 1950s to 1988. It found that real per capita growth rates underpinned increases in the savings rate, not vice versa. Numerous studies have analysed the causes of the NICs' economic growth and associated increases in labour productivity. The NICs grew mainly from increases to the industrial work force and physical capital stock, such as increasing education and more investment in machines. Alwyn Young (NBER Macroeconomics Annual, 1992) found that simple increases in inputs accounted for about two thirds of growth, rather than any change in technology or efficiency. In the case of Singapore, increased inputs accounted for 98% of growth over the 1970 1990 period. Further productivity growth came from the process of industrialisation itself, relocating the country's resources from sectors of low productivity to high productivity, namely from agriculture to industry. World Bank researcher Hollis Chenery concluded that the relocation of capital and labour to sectors of higher productivity accounted for about 20% of average growth. We have thus accounted for about 85% of the NICs' growth ``miracle''. The rest most likely comes from increased technical efficiency such as improved shop floor organisation and gains from specialisation. Very little productivity growth was attributable to improving technology. This has profound ramifications for analysing the NICs' achievements and prospects. A growth strategy based on massive increases in inputs will run into diminishing returns. The economy-wide implications are for the NICs' high growth rates to slow. Technology gap In order to reach the next stage of growth, the technology gap between the NICs and the advanced capitalist economies will need to close. Technology diffusion is often less wide than usually thought. A recent book by noted Japanese political economist Professor Yamamura, Asia in Japan's Embrace, outlines the reality: ``Japan is actually flying further and further aof the regional flock. The division of labour in Asia, based on technological capacity is becoming more, not less, vertical.'' As a consequence of this structural dependency on Japanese technology, two thirds of Taiwan's technology transfer agreements are with Japanese firms. Taiwan, South Korea and the four biggest ASEAN countries all rely on Japan for some 40% of their machinery imports. South Korea's most noted success stories are predominantly dependent on Japanese technology. There is a high dependence on US and Japanese-licensed technology: wafer fabrication in semiconductors, engines and transmission in cars, computer-aided design in textiles and garments, hardware and software design in computers. South Korea combines others' technology with low wages and an efficient manufacturing process, but South Korean firms have been low in innovation and new product development. Technological rents result in fat profit margins for Japanese and US firms and very thin margins for their Korean counterparts. In 1996, Hyundai automotive profit margins (net profit after tax divided by sales) were 1.4% compared to Toyota Motors 2.4% (despite the overvalued yen), Ford's 3.0% and General Motors 4.1%. Despite these shortcomings, NIC growth is still an achievement that most Third World countries cannot attain. The NICs derive this growth from their specific role within a regional division of labour, a role from which many other countries are excluded. Imperialism The US policy for the region after the second world war was ``containment'' to stop the spread of communism. In particular, US policy for South Korea and Taiwan was to build up these states as centres of capital accumulation. The US pumped in a vast amount of economic, military and food aid. South Korea and Taiwan were given preferential access to US markets for their exports, US technology and assistance from US technocrats and planners. During the US occupation of South Korea, the left and unions were severely weakened. >From 1945 to 1979 South Korea received US$13 billion in US military and economic aid and Taiwan $5.6 billion. South Korea's 1946 78 total of nearly $6 billion in US economic grants and loans compared with a total for all of Africa of $6.89 billion and for all of Latin America of $14.8 billion. US military deliveries to Taiwan and South Korea between 1955 and 1978 (excluding the Korean War) totalled $9.05 billion. In the 1950s, this US aid financed a staggering 95% of Taiwan's trade deficit. In South Korea, US aid accounted for nearly 15% of GDP and paid for over 80% of imports. In 1951 74 South Korea's receipt of $8 billion in US food shipments meant wages could be kept artificially low, and prices of exported commodities lower. Military assistance flowed in at twice the rate of economic aid, allowing South Korea and Taiwan not only to maintain basic economic and social order but also to invest substantially in infrastructure, especially education. Direct aid from the US for both countries ended in 1960s, to be replaced by increased dependence on Japan. During the 1970s Japan accounted for 25% of South Korean exports and 38% of imports. Together Japan and the US gave preferential access to their markets and accounted for two thirds of South Korean exports and 70% of imports. This entire program had a huge influence on the ability of these countries to develop. The scale of aid, the preferential access to US markets and the degree of technical assistance represented a temporary easing of the main sources of imperialist exploitation and competition. Without these conditions, the ``miracles'' would never have started. Labour exploitation The super-exploitation of workers is integral to the NICs' growth. In 1987, before the present decade of union struggles broke out, hourly pay in South Korea was 11% that of US workers. Today the average work week is around 54 hours, and there is minimal investment in safe working conditions. In 1989 South Korea had the highest rate of industrial accidents in the world, with five workers killed and 390 injured per day. Women are super-exploited, being paid around 50% of the male wage. South Korea's work force is subject to military discipline within the firm and by state intervention through repressive laws which give the government power to void any union decision, and through the creation of yellow unions. Military intelligence also plays a large role in the surveillance and selection of union personnel. Taiwan has a more dispersed industrial structure, with 90% of industrial enterprises having fewer than 30 employees. Over 80% of the employed labour force work in these shops. The Labour Union Law prohibits union activity in companies with fewer than 30 employees. Taiwan and South Korea's key asset started to lose competitiveness in the early 1980s, as the rural labour supply dried up and growing labour militancy put upward pressure on wages. New NICs? It's clear that the main factors preventing a general spread of the NICs phenomenon is the changed stance of the major imperialist powers, especially the US, and the long-run slowdown in world economic growth. With the collapse of the Soviet Union, there is no basis for a strategy of containment and pumping up economies to be bulwarks against ``communism''. The economic policies the NICs undertook were also greatly facilitated by the long wave of post-second world war expansion, but today a long recessionary wave continues to prevail in the world economy, intensifying competition among all those countries aspiring to be NICs. For all the ``players'', it is much harder to have a strategy of export-oriented growth. Average growth rates for the NICs, although still much higher than elsewhere, are declining. South Korea's access to US markets is now being contested by the US itself. The limits of an export push strategy are shown by the restricted conditions of market access under the WTO and the rise of non-tariff barriers among the three major trading and investment blocs. These agreements will hamper developing economies' use of policies that are viewed as ``unfair'' by major advanced capitalist countries. In summary, the prospect for NICs and aspiring NICs is for slowing growth amidst heightened competition. As the more developed NICs lose their cheap labour advantage, they are forced into more direct competition with the advanced capitalist economies. To equip themselves for this competition, the ``communitarian'' and ``social'' aspects of Asian capitalism have to be sacrificed: such is the root cause of the 1996 97 strikes in South Korea. Of course, it is not excluded that South Korea or other actual or aspiring NICs can continue to harvest what growth the system continues to generate. However, it is a fantasy that the NICs, with all their necessarily brutal forms of super-exploitation, can be a general development model for the Third World, even though this illusion is such an important tool in coercing the working people of the Third World to accept unending sacrifices. * Growing privatisation of Chinese economy By Eva Cheng Ever since Beijing's turn toward the market in 1978, top Communist officials have repeated a ``determination'' to defend socialism and that state ownership would remain the ``mainstay'' of the economy. Beijing's key measure of ``socialism'' is that the state formally owns a quantitative majority of the production units. Within this mechanical definition, it proclaims China socialist. But since 1978, economic activities have been less and less geared towards the needs of the majority. To move towards socialism, production would need to be planned around social priorities, on the basis of public ownership of the key means of production. Democratic participation of the producers is critical in this process. But Beijing's bureaucratic rule runs counter to that. It seriously distorted China's transformation after 1949. Yet despite that, China was qualitatively closer to a just society than the capitalist world of ``dog eat dog''. But after 19 years of reliance on the market, private gain has increasingly become the driving force of economic and social decisions. Until at least 1978, the bureaucracy had a fundamental interest in defending China's property and social system, deriving from it enormous consumption benefits. With the overhaul of the economic order, some sections of the bureaucracy have less incentive to defend public ownership. More of them find their interests best served by pushing China further towards capitalism. Regardless of the wishes of the leaders in Beijing, private gain dominates economic decisions in the provinces, led and pushed along by fledgling capitalists, many of whom came from or are still linked to the Communist Party. Rural production In the countryside, where the bulk of the population lives, economic and political decisions after the 1949 revolution were shaped by Beijing's bureaucratic control. But aside from exceptional periods, like the years immediately after the Great Leap Forward of the late 1950s, basic needs were met, on the basis of socialised production, organised around communes. But this superior system of production was rolled back by Deng Xiaoping. Communes were disbanded and farmers were sent to produce as individual households, on land leased from the state. This is a massive reversion to petty commodity production, which did not help to improve the production of food. Many farmers gave up farming because it was not economically worthwhile. Many ``sold'' their land entitlements. This led to a concentration of land in the hands of the richer farmers, or property developers and speculators. Those who did well from this were either part of the local bureaucracy or well connected to it. They are a minority against the growing sea of impoverished rural families, many of which toil for subsistence in rural or urban sweatshops, often quasi-privately owned and using primitive technology, if they are lucky enough to find a job. Theft The key industrial production was in the hands of urban state enterprises. But the dismantling of central planning, legalisation of private businesses and the residual state subsidy and control of key supplies have shifted the self-interest of many local bureaucrats to the wholesale milking of state assets for private benefit. Bank loans and subsidised supplies came readily with the right political connections. Poor accounting scrutiny means resources may not be put to productive use. Losses can be conveniently allocated to the public, and they further entitle a firm to tax deductions. That more than a third of state firms are in the red is no sign that their managers, who often are Communist Party officials, are impoverished. The National Administration of State Property revealed two years ago that state property worth 300 million yuan (US$36 million) ``disappeared'' each day. Other official figures revealed that the accumulated loss in the 10 years to 1994 amounted to 500 billion yuan (US$60 billion). The national body held officials as the chief culprits, and identified 10 key ways that such disappearances can occur and 58 ways that booty can be concealed. Assets often vanish when state firms form joint ventures with foreign capitalists or when they are partially privatised. A lack of proper audit is the norm. Officials often seriously undervalue - or even count as costless - land and other assets that the mainland partner contributes to the venture. Their readiness to do so is linked to the extent that they can benefit, often under the table. Some booty resurfaced as bigger villas, Mercedes cars, golf club memberships; some went into productive activities. Officially, the Shenzhen Special Economic Zone admitted in 1994 that 4 billion yuan left the zone in the previous four years, but the unofficial estimate is much higher. One official told a Hong Kong newspaper off the record that much of the funds had been invested in new enterprises in inland provinces. Last year, US$12.1 billion from China went into the purchase of US Treasury bonds. The big ticket purchases by mainland Chinese of property and other overseas assets are visible, but not the smaller transactions and their holdings in overseas bank accounts. Company shares Thousands of state firms were turned into share companies, allowing for different extents of private or quasi-private shareholding, including by foreign capitalists. Only hundreds of them were listed on the stock exchange, but they cover some of the most strategic parts of the Chinese economy. They often have access to lucrative concessions or privileges. There are two stock exchanges in China, in Shanghai since 1990 and Shenzhen since 1991. Two classes of shares exist. ``A'' shares are restricted to mainland Chinese buyers and ``B'' shares to foreigners, including those from Hong Kong. But the restrictions for B shares have loosened up over the last few years; basically they can be bought by those who have access to foreign currency. But A shares remain traded only in yuan, and demand for them hugely exceeds supply. This is a measure of the funds not going into productive activities. The Shanghai B companies include the firms operating key development zones around Shanghai, a telecommunications equipment producer, China's largest mobile phone system producer, the power plant operator in Heilongjiang province, China's largest medium output engine supplier, China's second largest tour agency, leading producers of textile machines, compressors, cement, and consumer durables such as refrigerators and washing machines. Also listed are a key hotel chain and a taxi group in Shanghai, as well as manufacturers of a range of other consumer goods. The stocks listed in Shenzhen are less in heavy industries and more related to property and consumer services. Those listed in Hong Kong are the biggest and of the most strategic importance. They include the operators of expressways in Anhui, Jiangsu and Zhejiang provinces as well as Shenzhen; producers of telecom cable, ships, power equipment, iron and steel, petrochemicals, trucks and machine tools from various parts of China. A smaller number of state firms are also listed in New York, but the most traded stocks are listed in Hong Kong and China. In most cases, the state retains over 50% of the shareholding in these firms. But this is no measure that their production is geared to the essential needs of the economy. They produce and/or speculate for profits. If that means taking away from workers their means of livelihood, so be it. Vacuum Electron Device, a B stock listed in Shanghai, plans to reduce its work force by 40% this year. The public purse will bear 75% of the compensation expenses. Gone with the job in a state firm in China are usually housing and other essential welfare. The state helps foreign investors to maximise their profits in many other ways. The profits tax payable by these listed firms is mostly, for several years, 18% less than the national norm of 33%. Some companies pay even less, or are completely exempted. Cheap loans from state banks are also available. State firms State firms now have little regard for social responsibilities or the welfare of their workers. They are also fast losing their weight in the economy. In 1995, they accounted for only 34% of industrial production, down from 78% in 1978. From non-existence in 1978, foreign firms' weight increased to 2% in 1990 and 12% in 1995. But given foreign capital's influence on listed state firms, they exert more influence than those figures suggest. In 1995, they accounted for 31% of China's exports and 48% of imports. The share of other private or quasi-private capital in industrial production increased from 22% in 1978 to 54% in 1995. State firms, however, still account for a bigger proportion of employment. They employed 65% of workers in 1995, foreign firms 3% and other categories together 32%. While the pockets of the managers are filled, many state firms have delayed paying or underpaid their workers and pensioners. Some aren't paid at all. Many still manage to live in company housing, but probably not for long. Unconfirmed reports prior to the 15th Communist Party Congress indicate Beijing's plans to expand the scope of privatisation and shed another 110 million state workers over the next few years. -30- Six-month airmail subscriptions (22 issues) to Green Left Weekly are available for A$80 (North America) and A$90 (South America, Europe & Africa) from PO Box 394, Broadway NSW 2007, Australia http://www.peg.apc.org/~greenleft/ e-mail: greenleft@peg.apc.org ================================================================= NY Transfer News Collective * A Service of Blythe Systems Since 1985 - Information for the Rest of Us 339 Lafayette St., New York, NY 10012 http://www.blythe.org e-mail: nyt@blythe.org ================================================================= nytas-09.16.97-01:12:35-2722