Overproduction: Trouble in Asian Markets Via NY Transfer News Collective * All the News that Doesn't Fit ------------------------- Via Workers World News Service Reprinted from the November 13, 1997 issue of Workers World newspaper ------------------------- UNDERLYING CAUSE OF STOCK FALL: OVERPRODUCTION AND THE ASIAN MARKETS By Fred Goldstein Wall Street's wild swings have subsided and the market has stabilized for the moment. Hundreds of billions of dollars have still been lost. Big-time parasitic speculators have boosted their fortunes by selling high at the onset of the crisis and buying low after the crash. The losses to workers' pensions, the bankruptcies and ruination caused by the drop are being hushed up. The Clinton administration, Treasury Secretary Robert Rubin, Federal Reserve Chair Alan Greenspan, and the money managers are all breathing a sigh of relief that they escaped total disaster. But while there is relief on Wall Street, there are wreckage, anxiety, pain and anger in Latin America, Russia, Eastern Europe--and particularly in Asia, where it all began. Furthermore, the shock of October was only an early warning of future crises. Because the underlying cause, capitalist overproduction, is not going to go away. It will only worsen. MOODY'S DEADLY MESSAGE The almost universal explanation for the crisis is that it was a correction of overvalued stock prices. There is no question that the mad chase after profit by Wall Street speculators and their counterparts across the globe creates wildly inflated stock prices that are extremely unstable and can come crashing down at any time. But to get to the underlying cause of this latest crisis it is best to go back to where it began. The first event in the chain that led to the trillion- dollar October drop took place in April. "Despite personal pleas from government officials," wrote Seth Mydans in the April 10 New York Times, "Moody's Investor Service lowered its long-term credit rating on Thailand on Wednesday, a sharp new confirmation that one of Southeast Asia's highest fliers has run into tough economic times. "Moody's lowered its rating from A3 to A2, saying the downgrade was based on `incremental deterioration' of the economy including falling competitiveness in export industries and the crises in its financial institutions." A lowered credit rating forces the country to pay more interest in order to borrow. Soon afterward the attack on the Thai baht began. The government spent billions in dollar reserves trying to defend the currency. But by July it gave up. On Aug. 11 the International Monetary Fund, with Japanese finance capital in the lead, agreed to give Thailand a $16- billion loan in return for austerity measures against the masses. These measures included cutting social spending, increasing taxes and reorganizing the banking system. The devaluation of the baht led to a wave of devaluations in the region--including the Malaysian ringgit, the Indonesian rupiah, the Singapore dollar, the Philippine peso and the Taiwanese NT dollar. The drop in the currencies was accompanied by huge stock market losses. The final attack came on the supposedly untouchable Hong Kong dollar. Then came the Hong Kong stock market crash on Oct. 22, which triggered the three-day Wall Street sell-off. What was behind the attack on the southeast Asian currencies? A growing glut in the markets and decline in export growth. The so-called "tigers" have been built up as export platforms for the giant imperialist multinational corporations. They also serve as markets for exports from the imperialist countries. So long as the boom in exports was strong, loans and investments from the banks and corporations flowed in as at high tide. Once the creeping crisis of overproduction threatened profits and foreign currency earnings, investors began pulling capital out. Bankers squeezed credit. Corporations slowed their projects. The stock market crisis spread around the world. And the Asian masses were left to bear the brunt of the crisis. AUTO GLUT Thailand had $90 billion in foreign debt, half of it to Japan. On Oct. 30 the French News Agency wrote: "About 30,000 car workers could lose their jobs as auto sales plummet next year amid the country's worst economic slump since World War II. "Total vehicle sales are expected to drop by 33 percent this year, according to an official of Toyota Motor Thailand, the lead auto company in the country." Annual auto production in Thailand is expected to drop from last year's 500,000 to 340,000 this year. Toyota, Honda, Mitsubishi and Nissan dominate the Thai auto market. But there is a section of Rayong, Thailand, that is called "Detroit East," according to a report in the Nov. 1 issue of The Economist. General Motors is building an assembly plant right next door to a Ford plant. "A few months ago, these firms thought they were moving into one of the world's fastest-growing car markets. Now car sales in Thailand are in free-fall," The Economist reported. But the auto glut goes beyond Thailand. "More than $5 billion of recent car-producing investment will be sloshing around in a regional market where demand for cars threatens to be slower than anyone expected." SEMICONDUCTORS: FROM HIGH PROFITS TO CRISIS The glut also extends to what has been called "the crude oil of the information age": semiconductor memory chips. The Economist commented on the growing crisis in south Korea, the 11th biggest economy in the world: "The country's misery began when the spot price of 16-megabit memory chips fell from a high of more than $50 to less than $10 in a year. "As the market crashed one of the world's most profitable businesses became one of its most ruinous. In 1995, the semiconductor operations of Samsung, Hyundai, and LG were the stars of South Korea's conglomerates, spinning off $5 billion in cash which paid for these firms' heady expansion into such businesses as cars and telecoms. Two years later those profits have probably been transformed into outright losses." South Korea is heavily hit by the crisis. Six of its giant conglomerates, called caebols, have gone bankrupt in the past nine months. The government has had to shore up the near-bankrupt Kia auto company. Two steel companies have gone under. Over 4,000 medium to large south Korean firms will go bankrupt this year--twice the number of last year. "The trouble started," according to the Oct. 18 issue of The Economist, "in late 1995 and early 1996 with the downturns in the semiconductor, metals and petrochemical businesses." Today there are $27 billion in corporate assets from 60 firms in receivership at the district court in Seoul. South Korea's foreign debt has doubled to record levels over two years. Malaysia was also a producer of semiconductors for an array of multinationals. Seventeen U.S. companies--Motorola, the pioneer, Hewlett-Packard, Intel, Fairchild, National Semiconductor, Texas Instruments and others--moved into Kuala Lumpur and Penang. Japanese competitors have also set up there. The glut of semiconductor capacity in the region heavily affects the crisis in Malaysia. "In this proud and surging country," the Oct. 22 New York Times reported, "the first twinges are being felt in a sharp economic downturn that has swept through Southeast Asia. Economists say the real pain--the bankruptcies, the rising prices, the job losses--is still to come." Malaysia is being forced to cancel plans to build 10,000 miles of badly needed roads, a national railroad, dams and other important infrastructural development. It is under heavy pressure from bankers to cancel a national car project. SHIFT THE CRISIS All debtor countries whose currency has slid lower are in crisis because their loans have to be paid back, either in dollars or yen. Indonesia has $55 billion worth of debt. It has been forced to ask for an IMF loan. The government is being told to abandon a national car project, which it has already sunk $2 billion into. That is because the giant auto companies would rather sell their own cars in Indonesia. The same applies to Indonesian investment for a commuter plane. The East Asian slide can only bring great hardship to the masses. All these countries rely heavily on imports. They will suffer higher prices in consumer goods because of the high cost of capital, accompanied by unemployment due to overproduction. The accelerating economic crisis has caused a resurgence of the workers' movement in both Thailand and Indonesia. There have been mass protests against the austerity measures. Harsh IMF-imposed agreements could widen the resistance in the region. This is a truly worrisome crisis for U.S. multinationals. Asia has two-thirds of the world's population. In many ways the strategic thinking of the U.S. and European ruling classes, as well as Japan's, is that their future prosperity as a class is based upon exploiting and selling to Asia. They are afraid the crisis will spread beyond the so-called "tigers" to Japan, China and beyond. The business press tries to downplay the "Asian problem" in this latest crisis. But in the first eight months of the year, exports to seven smaller Asian countries--excluding Japan, China and India--amounted to $62 billion or 14 percent of all U.S. exports. For Japan the proportion is much higher. Each of these countries will try to export its way out of its crisis. But if the glut increases and spreads further in Asia--and also puts Latin America under pressure with competitive cheap exports--the potential for a much bigger crisis of overproduction looms. Bourgeois pundits quickly try to reassure everyone that the Asian problem is only minor because, after all, the exports to these smaller countries are only a small portion of U.S. national output. But that is not what is really at issue. It is not the size of the problem at the moment that is crucial to the fate of capitalism. The issue is whether production is expanding beyond the possibility of the markets. The pursuit of profit in the auto industry and the semiconductor industry, as well as the steel and chemical industries, has caused overproduction--enough overproduction to bring an immediate crisis to seven countries with a combined population of 410 million people. No capitalist groupings want to be left out where they can sniff a profit. They will rush in and build new plants. They will push loans if they think they can make a profit. They will completely disregard the national needs of the country they are in, including their own, and position themselves to exploit workers and sell goods. Can any bourgeois economist show that this tendency is diminishing? Don't the capitalists rush ahead to beat each other out--even when they know it will probably end in disaster? They just try to work it so that the disaster falls on their competitor. And when everything falls apart, don't they always let the masses of workers take the heat? The fact that the stock market crash started in a part of the world experiencing the most advanced symptoms of capitalist overproduction shows that the crash was more than just a correction. It reflected a deep-rooted malady that will spread and take its toll on the workers until they put an end to capitalism and all its anarchy, crisis and hardship. - END - (Copyright Workers World Service: Permission to reprint granted if source is cited. For more information contact Workers World, 55 W. 17 St., NY, NY 10011; via e-mail: ww@workers.org. For subscription info send message to: info@workers.org. Web: http://workers.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 ================================================================= nytlab-11.07.97-04:01:28-9836