Walden Bello in Foreign Policy in Focus spells out what many here have been saying:
As goods pile up in wharves from Bangkok to Shanghai, and workers are laid off in record numbers, people in East Asia are beginning to realize they aren’t only experiencing an economic downturn but living through the end of an era.
For over 40 years now, the cutting edge of the region’s economy has been export-oriented industrialization (EOI). Taiwan and Korea first adopted this strategy of growth in the mid-1960s, with Korean dictator Park Chung-Hee coaxing his country’s entrepreneurs to export by, among other measures, cutting off electricity to their factories if they refused to comply.
The success of Korea and Taiwan convinced the World Bank that EOI was the wave of the future. In the mid-1970s, then-Bank President Robert McNamara enshrined it as doctrine, preaching that “special efforts must be made in many countries to turn their manufacturing enterprises away from the relatively small markets associated with import substitution toward the much larger opportunities flowing from export promotion.”
The World Bank endorsed the establishment of export processing zones, where foreign capital could be married to cheap (usually female) labor. It also supported the establishment of tax incentives for exporters and, less successfully, promoted trade liberalization.
In short, export-oriented models were used to jump-start impoverished nations. Japan–like the U.S.–tried to tap into these platforms, using them to re-export goods back to Japan, the U.S., and elsewhere.
One key dimension of this plan was to relocate not just big corporations like Toyota or Matsushita, but also small and medium enterprises that provided their inputs and components. Another was to integrate complementary manufacturing operations that were spread across the region in different countries. The aim was to create an Asia Pacific platform for re-export to Japan and export to third-country markets.
The problem, of course, is that when behemoth China stepped onto the scales, the scales began to break.
If Taiwan and Korea pioneered the model and Southeast Asia successfully followed in their wake, China perfected the strategy of export-oriented industrialization. With its reserve army of cheap labor unmatched by any country in the world, China became the “workshop of the world,” drawing in $50 billion in foreign investment annually by the first half of this decade. To survive, transnational firms had no choice but to transfer their labor-intensive operations to China to take advantage of what came to be known as the “China price,” provoking in the process a tremendous crisis in the advanced capitalist countries’ labor forces.
With cheap credit in the industrialized economies and multinationals re-exporting from China, imbalances spiraled out of control.
This process depended on the U.S. market. As long as U.S. consumers splurged, the export economies of East Asia could continue in high gear. The low U.S. savings rate was no barrier since credit was available on a grand scale. China and other Asian countries snapped up U.S. treasury bills and loaned massively to U.S. financial institutions, which in turn loaned to consumers and homebuyers. But now the U.S. credit economy has imploded, and the U.S. market is unlikely to serve as the same dynamic source of demand for a long time to come. As a result, Asia’s export economies have been marooned.
The industrialized countries are now caught in a bind. To keep the model going, they must stimulate aggregate demand while increasing jobs. Unfortunately, having plugged into the “re-export” model–touting cheap goods–, they are not exactly sure what jobs to create.
At the same time, dependent upon wealthy consumers, Asian export economies are now in the lurch as their wealthy benefactors turn out empty pockets.
The sudden end of the export era is going to have some ugly consequences. In the last three decades, rapid growth reduced the number living below the poverty line in many countries. In practically all countries, however, income and wealth inequality increased. But the expansion of consumer purchasing power took much of the edge off social conflicts. Now, with the era of growth coming to an end, increasing poverty amid great inequalities will be a combustible combination.
In China, about 20 million workers have lost their jobs in the last few months, many of them heading back to the countryside, where they will find little work. The authorities are rightly worried that what they label “mass group incidents,” which have been increasing in the last decade, might spin out of control. With the safety valve of foreign demand for Indonesian and Filipino workers shut off, hundreds of thousands of workers are returning home to few jobs and dying farms. Suffering is likely to be accompanied by rising protest, as it already has in Vietnam, where strikes are spreading like wildfire. Korea, with its tradition of militant labor and peasant protest, is a ticking time bomb. Indeed, East Asia may be entering a period of radical protest and social revolution that went out of style when export-oriented industrialization became the fashion three decades ago.
A noble idea, trade liberalization has it roots in the Johnson era. But all models have built-in contradictions–and this one is no exception.
The sheer size of China–and the rapidity with which exports platforms were built, without any regard to dangerous imbalances–simply crashed the system. Globalization as it was structured and blindly pursued has met a dead and dangerous end. More care should have been taken to process.
Vietnam, not long ago, was hailed as the next stop for the expanding export platform, the next “China.” Barely on the stage, Vietnam finds the theater rapidly emptying. Too much of a good thing is indeed too much.
One side of the world cannot export and the other side consume. It is not a matter of exhorting Americans to save and Chinamen to spend. It is not a matter of telling Americans to shift to other industries, as industry after industry is swallowed up. Nor is it a matter of telling Asians not to grab the brass ring, especially when ring after ring continues to appear.
It is a matter of paying attention to how growth is managed. That simply has not been done.
While corporate greed ran rampant, using export platforms for profit, those in charge of advancing this simple version of globalization cannot be accused of lack of heart. Indeed, they thought all would benefit. Well, no one benefits now. They should have given the process more thought and less heart.
Now, we return to where all ladders start.