_Journal of World-Systems Research_: Volume 1, Number 11, 1995
http://jwsr.ucr.edu/
ISSN 1076-156X
Models of Integration, Models of Development in the Pacific
John Borrego
Board of Community Studies
College 8
University of California
Santa Cruz, California
95064 USA
Fax: (408) 459-3518
Email: borrego@cats.ucsc.edu
Copyright (c) 1995 John Borrego
In order to understand the processes related to integration and
development in the East Asian and Latin American societies this
paper attempts to place those processes in the larger context of
cycles of world accumulation. Many of the societies in East Asia,
Latin America, and the South, in general, were integrated into the
world economy during previous cycles of hegemony and accumulation.
However, in the American cycle, and particularly at the height of
this cycle, East Asia was developed while most of Latin America
continued to experience truncated development. How do we
understand these different trajectories? We argue that the best
way to understand the different processes of integration
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and development in these two regions during the current historical
period of global capitalist accumulation is to see them all as
housed in a transition period between the waning American cycle of
hegemony in the world economy and a new, as yet undefined cycle.
We will look at the role that the East Asian region and its
societies are playing in the transition to the next cycle, as well
as analyze why these societies should not be viewed as
successful products of the "modernization process," as proponents
of that theory argue. The "success" of these societies is rooted
in their historical entry point and the geopolitical importance to
the United States of the region in which they were housed, and is
not necessarily repeatable by other Third World societies such as
those in Latin America.
This paper has four parts. First, we address the models of
integration and development in East Asia and Latin America, key
regions of the Pacific Rim, through the mid 1970s. Second, we
analyze how the descending cycle of American hegemony is rooted in
the decline of Post-Fordism and the emergence of what we call
Global Capitalist Accumulation, which has generated a new global
division of labor in the 1980s and early 1990s. Three, we explore
the regional economic structure being generated by the interlinked
national processes of development in Japan, East Asia,
Southeast Asia and the Market Socialist Countries in the late 1980s
and early 1990s. Four, we briefly explore the limitations of
upward mobility in the world system, the possibilities of
regionalism in East Asia and the Pacific Rim, and link this back to
the question of hegemonic succession in the world economy.
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Part I: Cycles of Accumulation, Modernization Theory and
U.S. Hegemony
A. World Capitalist Accumulation
Arrighi suggests three notions about capitalist accumulation which
are useful to our analysis of development and integration within
the Capitalist World Economy (Arrighi, (Forthcoming); 1991: 125).
First, the notion that accumulation is made up of successive cycles
with lengthy periods of financial expansion during which one cycle
ends and another one begins. According to Arrighi, these regimes
of world capitalist accumulation, in the long term, show a
progressive increase in scale, scope, and "velocity" of
transactions [Arrighi (Forthcoming); Arrighi, 1991]. The four
cycles, in their historic succession, reveal that
the size of the geopolitical center and of the geographic catchment
area of the Genovese cycle was smaller than that of the Dutch
cycle, which was smaller than that of the British, which was
smaller than that of the American.
Second, Arrighi presents the notion of a long-term evolution of
historical capitalism in which the powers of global capital
vis-a-vis territorialist organizations are continually expanded
through the internalization of different kinds of costs. This
expansion in the geographic scale of the
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cycles has been associated with an expansion in their scope, as one
cost after another was "internalized" by the dominant regime of
accumulation -- protection costs by the Dutch regime, production
costs by the British regime, and transaction costs by the American
regime. While the scale and scope of the cycles have been
expanding, their length in time has been contracting [Arrighi,
(Forthcoming); Arrighi, 1991: 116]. Assuming that the American
cycle will complete its course over the next decade or two,
it will have lasted less than the British cycle, which lasted less
than the Dutch cycle, which lasted less than the Genovese cycle.
Third, both processes -- the process whereby costs are internalized
by capital and the process whereby interstate competition for
mobile capital is intensified -- are limited by the long term
tendency of intra-business competition to increase. This context
of increased competition world-wide makes it increasingly difficult
for global capital to internalize the reproduction costs, both
human and environmental (Dowd, 1989; O'Connor, 1992).
These three notions define the larger context within which the
nations of the Pacific Rim must be viewed. In that context; 1)
world capitalist accumulation is in a transition period to another,
yet undefined cycle of accumulation; 2) global capital has gained
in power relative to nation-states world-wide; and 3) global
capital will have a very difficult time internalizing reproduction
costs at a time when competitive pressures on its dominant units
are greater than ever.
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B. The American Cycle
The transition from the closing phase of the British cycle to the
opening phase of the American cycle has followed a pattern very
similar to that followed by previous transitions. The escalation
of redistributive and competitive struggles led in the 1920s and
1930s to a dual system of world financial power. This dual system
accelerated the tendency of the British regime of accumulation to
wither away. But it was only after the end of the Second World War
that a new regime of capitalist accumulation, the American cycle,
was established.
Once the American regime was established the process of conversion
of money capital into commodities accelerated. The world economy
had already been globalized in the nineteenth century, therefore
this new boom in the materials expansion of capital could only
"deepen" rather than "widen" the world system of accumulation.
This deepening took the form of a quantum leap in the global
processes of proletarianization and urbanization. Hobsbawm suggests
that ". . . the period from 1950 - to 1975. . . saw the most
spectacular, rapid, far-reaching, profound, and world-wide social
change in global history. . ." (1986:13).
The boom was short and by the late 1960s the first symptoms of a
new phase of financial rebirth were beginning to appear, as
suggested by the sudden expansion of the so-called Eurodollar
market from 1968 onwards.
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This financial expansion was interwoven with an escalation of
competitive growth) and redistributive (equity) struggles
(Borrego, 1990). By the 1970s the limits to the material expansion
of capital under the American cycle of accumulation had been
reached and therefore material expansion had to cease for
profitability to be restored and preserved. The US
government and the Federal Reserve Board adopted expansionary
policies which further depressed profitability in the world economy
in general, and in the U.S. in particular, leading to worldwide
inflation (Arrighi, Forthcoming).
The second oil shock (1979) called further attention to the reality
that the material expansion of capital within the American regime
of accumulation could not continue without serious negative effects
on world-wide profitability . The expansionary policies of the
1970s were abandoned in favor of highly restrictive policies. The
lines of credit, fueled by petrodollars, that had been recklessly
opened by U.S. and other banks to the governmental and business
institutions of one Third World and Second World country after
another were closed just as recklessly in the early 1980s. This
forced them to drastically curtail domestic production in
an attempt to avoid "bankruptcy." In this way the material
expansion of the world-economy was brought to an end in the early
1980s, mostly at the expense of intermediate developing countries
in the Third World. Having accepted and enforced overall global
stagnation as a condition of restored profitability, the centers of
the world system of accumulation did in fact come to enjoy an
unhoped-for prosperity. Prior to the economic
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downturn in the United States and Europe which began in the early
1990s, the industrialized countries had recovered from the deep
recession of the early 1980s to enjoy the longest period of
uninterrupted economic growth in the post-war era (Glyn, 1992: 71).
We now turn to the underlying theories of the U.S. cycle.
C. Modernization Theories, Neo-Modernization and Neo-Colonialism
Modernization theories have guided development and integration
strategy throughout the American cycle of hegemony. There are a
myriad of analyses (social, cultural and economic) that have been
undertaken from the perspective of modernization theory. In the
economic realm, modernization theories were variants of the
original stages of growth idea (Rostow, 1961). The problem of
development from this point of view was how to encourage
traditional economies to reach the stages of "takeoff" into
sustained economic growth. Most prescriptions for increasing
growth required new investments in industry (either import
substituting, as was the mode in Latin America, or export oriented
in East Asia) as a way of generating employment and improving labor
productivity. These models are predicated on the assumption that
as growth occurs, the positive effects of increased production will
"trickle-down," even to those people who are not directly involved
in the dynamic sectors.
These theories suggest a linear development path toward
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"Western-style" market oriented societies. They share the belief
that because of the cultural diffusion of Western
economic/technological processes and because of the
compatibility of social structures, developing countries in the
long run inescapably will come to take on the characteristics of
the developed ones. The idea is one of linear progress in which
traditional societies will eventually advance through the stages
that have been achieved by the developed societies. The theories
assume that the major problems existing are the lack of human
skills and investment capital. In support of this view,
the system of banks and development assistance agencies such as the
IMF and the World Bank are designed to transfer capital for
investment to developing countries who are pursuing these policies.
Simultaneously with these efforts, improvement of education and
other forms of training are advocated to allow for the efficient
utilization of capital.
For the modernization economists, free trade and comparative
advantage are critical. The liberal theory of international trade
concludes that each country and region should specialize in those
products for which it is most favorably endowed in terms of natural
resources, labor skills, cost advantages or other factors. Free
trade among all participants in a competitive world market will
increase everyone's welfare even if the benefits are not equally
distributed among the partners. De Janvry concludes that ". . .
the growth strategy that modernization advocates is
that of liberalization: the promotion of technological change and
human capital formation, a state that is passive in the
marketplace, and the Chicago boys' triple motto: 'Get those prices
right, balance the budget, and open up [to trade]'" (1985:38).
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Modernization theories, especially as they are reflected in
neoclassical thinking, remain at the cornerstone of development
policies that are carried out by the bilateral and multilateral aid
organizations under global capitalist accumulation despite the fact
that they have come under increasing criticism (Bello, 1989; Race
and Class, 1992). Wolf (1982:13) wrote that modernization theory:
"...became an instrument for bestowing praise on societies deemed
to be modern and creating a critical eye on those that had yet to
attain that achievement. The political leaders of the United
States had pronounced themselves in favor of aiding the development
of the Third World, and modernization theorists seconded that
pronouncement. Yet modernization theory effectively foreclosed any
but the most ideologically charged understanding of the world. It
used the term modern, but meant by that term the United States, or
rather an ideal of a democratic, pluralistic, rational, and secular
United States. It said traditional, but meant all those
others that would have to adopt the ideal to qualify for
assistance. As [a] theory it was misleading. It imparted a false
view of American history, substituting self-satisfaction for
analysis."
NEO-MODERNIZATION THEORIES. Recently the relationship between
culture and development has taken on a new twist in what may be
termed "neo-modernization" theory (Berger, 1986: Berger and Hsiao,
1988: Redding,1990). As outlined above, modernization theory saw
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non-Western cultural forms and social practices as barriers to
development in the newly "liberated" Third World.
Neo-modernization scholarship argues that at least one non-Western
culture, an East Asian variant, is capable of generating rapid
economic growth. It suggests that the common Confucian
heritage accounts for the developmental success of Japan and the
East Asian NIEs. The neo-modernization literature suggests that
the tenets of Confucianism (filial respect, and respect for one's
elders and superiors; high value placed on education; a commitment
to meritocratic forms of personal advancement; a capacity for hard
work; and an ascetic commitment to deferred gratification) which
are at the heart of traditional social practices in Chinese
societies, Japan and South Korea, have in recent decades
constituted the basis of a new economic culture. This
position argues that neo-Confucian economic culture, at least in
the context of capitalist economic systems, has played a role
similar to that of Protestantism during the initial rise of
capitalism in Western Europe.
The problem with this new argument is not its monocausality, which
could give way to racist claims or a strange form of inverted
racism, or that it ignores other determinants of East Asian
Development. Instead, we agree with Appelbaum and Henderson
(1992:15-16) that it is impossible to understand the significance
of culture outside of its relationship to other structural elements
of specific societies.
NEO-COLONIAL STATES AND ECONOMIC DEVELOPMENT. In the post Second
World War period governments in economically backward countries
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were "liberated," then forced to participate in a competitive world
system in order to develop economically. This imposed the new and
extraordinary changes of social and administrative centralization,
as well as repressive work disciplines, social upheaval,
revolutions, etc., on these societies. For the populations in the
newly liberated countries, the new disciplines were often seen as
worse than those of the former colony because national
liberation meant having to compete in the capitalist world economy
(Harris, 1992:76).
The capacity of a nation-state to compete in the world economy is
influenced by its relationship to world markets, which determine
its capacity to earn export revenues, which, in turn, are required
to purchase necessary imports. The years after the Second World
War were in sharp contrast to the interwar period because the
possibilities of growth via exports were much greater (up to 1973)
than before the war. The newly independent nations became the
beneficiaries of generalized growth during this period. These
nations often claim that it was political independence that brought
economic success rather than an unprecedented growth in world
demand driven by an expanding world economy.
In addition, two world wars and the Great Depression created a
paradigm of development that assumed that state power should
supersede markets. The language of state power was invoked from
Stalin's Soviet Union (where development, or "constructing
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socialism," combined with preparation for war) to the mild form of
corporatism in Britain during the 1930s (culminating in the labor
government after 1945). The common theme was control or
suppression of market forces. Thus the intellectual
inheritance of the developing countries in the postwar period
became one of an overwhelming emphasis on the role of the state.
In this context it is hardly surprising that extreme forms of
economic nationalism became almost universal among developing
countries. These forms emphasized import controls, overvalued
exchange rates, large-scale public ownership and investment
incentives, direct investment with managed interest rates,
prices and wages, etc. (Harris, 1992: 77). In the competitive
world context after WWII economic nationalism was embraced
regardless of political ideology and was driven by the perceived
importance of external competition rather than domestic social
priorities.
However, success in building national competitive capacity through
economic development had a contradictory result. In settings where
the domestic private sector was allowed to survive in order to
accelerate growth, a strong capitalist class was created to the
extent that the government was successful in propelling
development. In turn, this capitalist class ultimately became
capable of challenging the priorities of State policy where these
were in conflict with its interests. The increase in the social
weight of the national capitalist class was not the only
implication. As the capitalist world economy became more
integrated, the national capitalist class began to operate
internationally and to merge increasingly with global capital. The
liberation of national capital from the mass of restrictions which
national governments sought to impose on it in
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order to capture a larger share of any surplus made this possible.
In sum, national liberation freed the State, then restructuring and
liberalization, in turn, freed national capital to operate globally
(Harris, 1992: 78).
National economic development driven by the rivalries within the
nation-state system also produced a new component in the market
system that, in turn, partly contradicted the independence of the
State. States became preoccupied with retaining powerful national
companies within their borders and sought to beg or bribe
international (multinational, transnational) and recently global
corporations to invest there in order to secure privileged access
to the surpluses generated by global rather than national capital.
In this setting the nation-state moved from being the central
incubator of capitalism to one of its many and frequently changing
bases of operation (Harris, 1992:79).
Still, the role of the State remains important to the economy
because global capital will locate in a country only if the state
can guarantee certain conditions of production of goods, the
reproduction of labor of a certain quality and price, and effective
management. Competition by states in the world economic field has
shifted from geographically specific advantages (such a raw
material endowments or even labor costs) to less tangible
elements (access to technology, flexible management techniques,
marketing strategy, closeness to consumers, speed of response to
changes in the markets place, etc.) (Julius, 1990: 82; Gordon,
1994). All these are firm/corporate specific, not
territorially/nationally based .
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The type of public sector and state developed in the core's
industrialized countries between 1930 and 1960, and those
constructed in the semiperipheral and peripheral developing nations
in the postwar period, emerged in response to systemic rivalries in
the world; capital was assumed to be nationally identifiable and
loyal. Since the 1950s, however, at different times and in
different sectors (e.g., finance, capital movements, and commodity
trade) these assumptions were proven wrong as capital accumulation
began to assume an international/global form. This transformed the
conditions for effective macroeconomic policy, rendering all the
machinery constructed to protect a national economy redundant for
the task of increasing the power of any particular nation-state in
the integrated capitalist world economy. This radical shift threw
all economies into continuous "restructuring," seeking to adjust
national policy and structure to the new structure of the
capitalist world economy. This process further transformed the
state's role from "implementation" to "facilitator" (Harris,
1992:80). The continuing deregulation and privatization of the
industrialized countries, the structural adjustment of
much of the developing countries, and the massive changes in
Eastern Europe and the Soviet Union, are all part of the ongoing
process of "creative destruction" - the destruction of structures
of the earlier period and creation of the conditions for a new
cycle of capitalist accumulation in the world system.
One of the first signs of the emergence of the new world economy in
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terms of trade was the rapid growth of East and Southeast Asia, the
focus of part III below.
D. U.S. Hegemonic Impact in East Asia and Latin America
To understand capital accumulation in East Asia and Latin America
during the period of U.S. hegemony we must integrate the theme of
geopolitics with the economic imperatives in U.S. foreign policy.
Here we briefly explore the regional variations of U.S. policy
during the construction of U.S. hegemony after World War II. It
was during this period that the United States undertook the
reconstruction of the world capitalist economy and sought to
integrate different regions - Europe, Asia, Latin America,
the Middle East, Africa - within the U.S. orbit. Our goal is to
understand how the different trajectories of early stages of
industrialization in East Asia and Latin America were influenced by
U.S. hegemony.
EAST ASIA AS A COHERENT REGION.
U.S. designs to maintain stability in Asia and to preserve as much
of the region as possible for participation in world capitalism
required the reintegration of Japanese core capital and
industry. The immediate obstacle to overcome was the dollar gap.
Japan did not have sufficient dollars to buy U.S. goods. If the
dollar gap could not be overcome, the U.S. feared, then Japan might
form a soft currency trading bloc with other parts of Asia which
would ruin U.S. plans to construct a relatively open trading system
based on multilateralism. The persistence of the dollar gap
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threatened to close off markets to U.S. manufacturers and
agricultural, oil and raw mineral producers, and thus
lessen U.S. power in Asia as a whole. To reverse the dollar gap,
the U.S. needed to reestablish the former division of labor between
the industrialized capitalist countries and the Third World,
whereby advanced capitalist countries exchanged manufactured
products for primary products. The goal was to reduce Japanese
dependence on American primary products, which was a major part of
the dollar gap problem. The reestablishment of these trading
patterns was predicated on the revival of Japanese industry and
its economy. In order to preserve Japanese capitalism, Japan
required an Asian periphery, initially held under U.S.
political auspices, but ultimately inherited by Japanese capital
(Cumings, 1993: 204). This meant reestablishing Japan's old
sources of markets and raw materials in order to revive them as
industrial producers (McGlothen, 1993: 191-192).
Also, by taking over security requirements for Japan, the U.S.
could both ensure itself some political leverage and use military
aid to guarantee the other policies fundamental to U.S. planners -
an open door to trade and
investment in Asia, and the world. The question was, how to
implement the plan? This geopolitical and economic setting is
critical to understanding Acheson's comment in 1954 that "Korea
came along and saved us," and his later statement that the war in
Korea was "the greatest four weeks in American history" (Cumings:
63 in Deyo, 1987; Borden, 1984: 50). The central point here is
that intervention in Korea did not merely fulfill U.S. security
requirements is Asia, but, in an important sense, it also fulfilled
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crucial U.S. economic goals as well. Korea allowed the U.S. to
fuse economic and security concerns in the post-war era. The
Korean War was the equivalent of a Marshall plan for Japan and
parts of Asia, enabling the reconstruction of Japan as the regional
workshop of Asia. The Korean War did much more to aid Japanese
recovery than to establish an integrated division of labor in East
and Southeast Asia. In fact, the rise of the East Asian region
came about only in the 1960s (Cumings, 1993: 50).
The vacuum left by the defeat of Japan in the summer of 1945 was
extremely destabilizing. The communist revolution in China, the
partition of China (into PRC and ROC), the partition of Korea and
the subsequent Korean War, and the partition of Vietnam and the
Vietnamese and Indochina wars were all to some extent generated by
the "fall" of the Japanese empire and U.S. attempts to fill that
vacuum (Gills, 1993: 204).
The Cold War and the ascendance of U.S. hegemony produced deep
economic and political changes in East Asia. The United States
played the key role, in alliance with conservative elites of East
Asia, in preserving enclaves of capitalism in China, Korea, and
Indochina, and all three were partitioned via U.S. intervention.
The fact that the United States fought major wars after the Second
World War in East Asia attests to the great importance that the
United States accorded the region in its global hegemonic strategy
to preserve a capitalist economic sphere in Asia. Attempts to do so
by non-military and political means failed, because of the great
strength of indigenous communism in East Asia, compelling
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the U.S. to resort to war in Korea and Vietnam. The remaining
potential revolutionary situations (e.g., the Philippines and
Indonesia) "were contained" without recourse to full-scale U.S.
military intervention (Gills, 1993: 205). The war in Vietnam
effectively prevented any economic development, because as
President Richard Nixon once said, "the U.S. had to destroy Vietnam
in order to save it." However, the countries of capitalist
Southeast Asia were well prepared to become the new NICs of the
1980s and 1990s (as will be discussed in Part III below).
The preservation of capitalism in East Asia by political-military
means was inseparable from the accommodation of a restructured
Japanese core into the global capitalist core. However, the
political legacy of Japanese militarism made it virtually
impossible for Japan itself to undertake the active
military-political tasks of counter revolution in post-war Asia.
Consequently much of the of the post-war period's energy was taken
up by the massive political-military task of preserving and
stabilizing the capitalist sphere in the East Asian region. During
this period Japan depended, as in earlier periods of
industrialization, on U.S. markets and technology for the
production of exports, especially for its rationalization
policy of "upgrading" these goods with infusions of advanced
technology (Hein, 1993:108).
The capitalist elite in South Korea, Taiwan and South Vietnam were
profoundly anti-democratic and yet supposedly committed to the Free
World and its cause of democracy and individual freedom. The
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elites of these capitalist states saw themselves as part of a
"natural" transnational class alliance. Their ideology of
anti-communism was functional for the repression of the domestic
left, the military confrontation with rival communist regimes, and
domination of the state over civil society and over domestic
capital and labor. In this sense the regimes are the direct
successors of Japanese militarism. It is not merely coincidental
that Korea and Taiwan, former colonies of Japan, emerged as the
proto-typical East Asian NICs. Post-war "guided capitalism", and
its neo-mercantilist state-capital alliance, was the legacy of the
Japanese militarist experience (Johnson, 1982).
Manufacturing Shifts to East Asia and not Latin America
When South Korea and Taiwan began their rapid rise up the wealth
hierarchy in the early to mid-1960s, several circumstances came
together in the world economy that facilitated their rapid
development (Wade, 1992:310). First, transport costs and trade
barriers in core markets (North American and Northwestern Europe)
were dropping rapidly. Second, competition intensified within the
U.S. market, especially after the entry of Japanese manufacturers.
Third, the accumulation of high skills in the core work force made
"unskilled" labor scarcer and therefore more expensive, which
enhanced the comparative advantage of lower income countries with
a less-skilled labor force and created a demand for imports
produced by such labor. All three factors combined to prompt U.S.
buyers to search out low-cost suppliers offshore. At the time two
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possibilities were Latin America and East Asia. Latin America was
an unlikely candidate for supplier of cheap labor manufactured
exports for several reasons. Its abundant natural resource
endowment reduced the need to export any kind of manufactures
because enough foreign exchange came from natural resource exports
to finance imports. This is why the total volume of manufactured
exports from Latin America remained small. Therefore production
was skewed toward products that required highly skilled labor and
away from cheap labor products that required large amounts of
skilled labor. The skill mix of the labor force was also an
important factor. Latin America had a relatively low
ratio of basically skilled to unskilled people and a relatively
high ratio of highly skilled to basically skilled people. This may
have been caused by the ownership pattern of natural resources and
the resulting politics. Governments controlled by an elite that
owned the natural resources saw no particular need to extend basic
education throughout the labor force, for the exploitation of the
natural resources did not depend on a large supply of basically
skilled people. But the elites did want to expand tertiary
education sufficiently to professionalize their own children.
Hence, secondary education was often expensive; tertiary
education was often cheap. Notice that this explanation implies
that Latin America's notorious inward-looking trade regime emerged
as a result, rather than a cause, of the region's poor performance
in manufactured exports. This runs counter to the neoliberal
argument (Wade, 1992: 311).
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By contrast, South Korea and Taiwan benefited from the opposite set
of initial conditions. They had no natural resources to cause a
negative effect on the exchange rate and wages or to encourage a
government controlled by owners of natural resources to neglect
education. Labor was their only resource, and therefore their
populations were unusually eager for education. In addition their
timing was lucky. They began to experience limits of further
primary import substitution later than Latin America, just
as the U.S. buyers were beginning to hunt for foreign producers
using cheap labor. By that time they had developed highly
productive agriculture from which resources for further
industrialization could be squeezed without imperiling food
security.
Furthermore, the NICs were blessed by advantageous geopolitics,
located as they are on the "fault line" of post-Second World War
global politics, adjacent to communist Asia. The resulting
strategic importance to the
U.S. translated into concern for their economic growth (more than
for that of Latin America), and that concern, in turn, translated
into massive aid, access to the biggest, richest market in the
world, U.S. tolerance of their import barriers, and state support
for U.S. companies wishing to invest there. However, this location
on the "fault line" became increasingly less important than
proximity to Japan, which became the most dynamic economy of
the world by 1960. Proximity, cultural affinity, and historical
familiarity all helped to create an important regional growth
dynamic, not only in terms of trade but also in that Japan became
a model to emulate (for a comparison of this emulation process
between Japan/East Asia and the United States/Latin
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America see Fajnzylber, 1990). In addition, South Korea and Taiwan
had state apparatuses that were both internally disciplined and
authoritarian in relation to their subjects, and that used their
power to pursue the goals of military strength and national
economic wealth.
SUCCESSFUL COMBINATION.
In short, rapid development was possible in Korea and Taiwan
because a combination of elements came together to
create just the right conditions at the right time in both
societies. First, there was the discipline of the market and
private property. Because the economy's productive assets were
controlled by private capitalists, the state had to pay close
attention to how its decisions affected profits. Second, they had
a rapidly growing pool of technically educated labor. This rapidly
growing technical pool provided the civil service with an
ample supply of well-educated managers and professionals who also
provided a growing source of outside technical commentary on
government policies via a press that was fairly free to voice
technical criticism. Third, compared with many other developing
countries, South Korea and Taiwan were fairly unified culturally,
removing a common source of indiscipline and making the creation of
a strong nation-state that much easier ( Wade, 1992:313).
No other developing country in the world economy achieved this
combination. Korea and Taiwan alone managed to obtain not only the
economies of scale that came from acting in a wide economic space
and the innovations induced by competitions, but also the
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advantages of protection and selective industrial promotion. Both
were able to ride the wave of transnationalizing capitalism
(Fordism), while at the same time imposing strong controls over
resource allocation within the national territory - creating a near
"war economy". They thereby integrated and transformed the
production structure faster than would have occurred had
the controllers of capital been allowed to operate within an
unconstrained logic of global profit maximization. The advantages
of inserting some buffers between the international economy and the
national economy were not just economic in the narrow sense.
Buffering (but not insulating) people from the disruptions of
market volatility helped to sustain the legitimacy of the
market-based social order. That in turn helped to avoid
the harsh social and political instability that tends to
characterize societies undergoing high speed economic growth. This
concern for the social impact of rapid economic change made South
Korea's and Taiwan's economies more sustainable.
MILITARY STATE ELITES AND CLASS FORMATION.
Another critical aspect of the political economy of East Asia's
"gang of two" (South Korea and Taiwan) is the relative autonomy of
military state elites from other classes. Indeed, one can speak of
the role of the state in creating classes and capital groups.
The left was effectively wiped out in the two countries, in South
Korea after the occupation by the U.S. and in Taiwan after the KMT
fled there following the Chinese Revolution in 1949. In this
context, the U.S. began an even larger infusion of aid into both
[Page 23]
countries. The state military elite, supported by the U.S., was
the dominant domestic actor. Also, because of the security threat
from China and North Korea, land reform was carried out in both
countries, effectively destroying the power of the landlord class.
The coercive capacities of the state were immense, fueled
by outside aid. The power of social classes and civil society was
extremely weak. The state had much greater autonomy for action
independent of social classes than in Latin America.
By contrast, in Latin America after World War II there was no
reconstruction of a regional workshop, as in Asia. Instead, Latin
America was firmly under the thumb of the new hegemonic power, the
United States. Since there was no security threat to the U.S. from
within Latin America (until the Cuban revolution), no land reform
was carried out. U.S. policy was aimed at ensuring a continued open
door to trade and investment as the U.S. already had a long history
of direct foreign investment in Latin America. At the same time,
under Kennedy's Alliance for Progress program, the U.S. helped
train and educate the Latin American military, under the pretext
that national security was threatened by internal enemies made up
of subversives and communists. The state in Latin America was weak
relative to both domestic actors and the states of East Asia.
While East Asian aid programs helped give state elites more
autonomy from society, in Latin America, the Alliance for Progress
(responding to the Cuban Revolution) was coupled with preemptive
counterinsurgency (through CIA penetration of the Agency for
International Development's Office of Public Safety), which led to
[Page 24] Journal of World-Systems Research
the rationalization and sometimes setting up of death squads. The
U.S. in Latin America became allied with comprador classes linked
with rigidly
unequal class structures, especially functional dualism in
agriculture
(Moreira Alvez, 1985; De Janvry, 1981). (Functional dualism is the
process
whereby small farms - minifundios - support large capitalist
estates -
latifundios - by supplying them with cheap labor and food.)
The regional variations in hegemonic patterns also go a long way
toward
explaining the different outcomes of economy building in the two
regions. In East Asia, Korea and Taiwan both received high levels
of
U.S. aid and benefited later from the rebuilding of Japan as the
regional workshop of East Asia, a process helped immensely both by
the Korean and then the Vietnam War and by Japanese FDI, trade,
technology transfer and the transborder expansion of Japan's
subcontracting firms (Arrighi,Ikeda and Irwin, 1991).
The transborder expansion of Japan's multilayered subcontracting
system involves the interaction and subordination of small and
medium subcontracting groups to large corporations, allowing for a
strategy of flexible accumulation and "just in time" production.
"[Behind] Japans' great industrial firms stand a loyal legion of
'independent' subcontractors without whose assistance Japanese
business would flounder and sink. Japanese automakers, for
instance, have become the world's top auto exporters because of the
thousands of subcontractors which supply them with parts. A single
large automaker typically deals with as many as 170
[Page 25]
primary subcontractors, which in turn consign parts manufacturing
to 4,700 secondary subcontractors. The secondary concerns enlist
the help of 31, 600 tertiary subcontractors even further removed
from the parent automaker." Beneath this level there are also
pieceworkers in the home [Okimoto and Rohlen (eds.), 1988].
Initially, rising prices of land and labor led to Japan's
transborder expansion in the 1970s. World economic crisis and
growing competition furthered the search for new production sites
that had competitive advantages. Transnational car production
throughout the world began a push into the periphery and
semiperiphery [Third World]. The competitive conditions of East
Asia for manufacturing, and the organizational efficiency of the
Japanese subcontracting system, help explain the dramatic export
drives in these countries, as do the benefits they reaped from
production driven by the Vietnam War. Many of the lower value
manufacturing sectors in Japan and other advanced capitalist
countries moved to East Asia in 1972-1973, like textiles, metals,
and electrical machinery. Part of the attraction for Japan as well
was that Taiwan and South Korea also had unusually open access to
the U.S. market, the carrot offered to these countries by the U.S.
to draw them towards export production (Jung en-Woo, 1991).
In the 1970s, with the Nixon doctrine of pulling troops out of
Vietnam while escalating the air war, the move to reliance on
regional powers, support for authoritarian states, and the opening
[Page 26] Journal of World-Systems Research
to China, East Asia's gang of two moved to a deepening of
export-oriented industrialization. Effective state intervention
combined with structural world market opportunities in the 1950s
and 1960s (during which there was a rapid expansion of world
trade), the transborder expansion of subcontracting in
the 1960s and 1970s, and the benefits of receiving production
orders from the Vietnam War in large part explain the dramatic
growth of the Korean and Taiwan economies. As Amsden (1987)
argues, Korea got "relative prices wrong" by using export
incentives, government investment,subsidies on imports and so
forth.
In Latin America, on the other hand, a mainstay of American policy
has been the open door to free enterprise and free trade.
Currently, Latin America elites are praising neoliberalism and
privatization as they attempt to emulate the East Asian miracle.
As many have argued, this view is based on a serious misreading of
the East Asia experience, the actual history of Import Substitution
Industrialization (ISI) in Latin America and the effects of
neoliberalism (Villareal in Gereffi and Wyman, 1990; Wade, 1990;
Wade, 1992). Hence, Latin American elites tied into the networks
of global capital are moving in the direction of completely
open economies with no protection and initiating wholesale
privatization of state industries. Far from imitating East Asia,
which carried out selective protection with ISI policies and
cautious opening to the international market, Latin American elites
are instead following the opposite approach.
[Page 27]
Why has Latin America learned the wrong lessons?
The Newly Industrializing Economies (NIEs) in both Latin America
and East Asia have been motivated by the principle of turning their
diverse initial comparative advantages into dynamic sources of
competitive advantage. Most research in the past decade comparing
the economic performance of the East Asian and Latin America argue
that the superior economic performance of the East Asian over the
Latin American NIEs is rooted in the different economic policies in
the two regions. Specifically, it argues that East Asian NIEs
have adopted "outward-oriented" export oriented policies while
Latin American countries have been wedded to "inward-oriented"
import substituting industrialization, and that the East
Asian NIEs have been characterized by market-oriented policies
whereas those of Latin America have involved substantial
"distortions" as a result of extensive state intervention in
economic activity. The consensus is that Latin America should
follow the example of the East Asian NIEs by liberating their
economies and reducing the role of the state.
The argument that East Asian NIEs' success required "getting the
prices right" and a minimal role for the state has been widely
challenged, particularly for Singapore, South Korea and Taiwan
(Amsden, 1985; Harris, 1987; Pack and Westphal, 1986; White, 1988).
The only area in which the free market ideology appears to prevail
in practice is in the labor market, which could be a reflection of
an authoritarian industrialization strategy in which the influence
of trade unions is minimized.
[Page 28] Journal of World-Systems Research
Nor is it the case that the East Asian NIEs (except for Hong Kong)
have adopted general free trade. The contrast between
export-oriented industrialization (EOI) and import substituting
industrialization (ISI) is an oversimplified dichotomy.
Singapore, South Korea and Taiwan all experienced periods of ISI
before launching their successful export drives. Moreover, these
countries both promoted exports and provided considerable
protection to producers for the domestic market (Wade, 1988;
Luedde-Neurath, 1988). Fajnzylber also suggests that when policies
toward direct foreign investment are considered, it is South Korea
and Taiwan which appear "inward oriented" in comparison with Latin
America (1981).
There is strong empirical support for the view that state
intervention has in fact been substantial in the East Asian NIEs,
and that this has played a crucial role in their successful
industrialization. In addition, Jenkins (1991) argues that the
better performance in East Asia is not simply due to
differences in trade orientation or the degree of state
intervention, but rather to the effectiveness of that intervention.
This effectiveness, he argues, is rooted in the relative autonomy
of the state and the structuring of the state apparatus in the two
regions, e.g., the historically determined class structure and the
international context which led to much greater state
autonomy in East Asia than in Latin America. Consequently the
state in East Asia played a major role in directing investment into
productive activities with a view to long-term development, which
[Page 29]
contributed to rapid industrial growth in East Asia. Conversely,
truncated development in Latin America resulted from less effective
state intervention.
Jenkins (1991) notes that effective national industrial policies in
East Asia are characterized by four key features which contrast
sharply with the situation in Latin America: flexibility,
selectivity, coherence and an emphasis on promotion rather than
regulation.
1) FLEXIBILITY. Flexibility is expressed in the willingness and
ability of East Asian NIEs to change policies when they are not
producing the desired results. Latin American industrialization,
on the other hand, is full of examples of government policies
continuing to support industries despite substantial foreign
exchange costs and inefficiency.
2) SELECTIVITY. East Asian countries have operated policies that
have been highly selective, favoring particular industries and
even particular firms at different times (Wade, 1988:53;
Ludde-Neurath, 1986). These highly selective and protectionist
policies of East Asia have been contrasted to the indiscriminate
protection given to consumer goods in Latin America (Anglade
and Fortin, 1987:219; Wade, 1989).
3) COHERENCE. There is a high degree of coherence and agreement on
economic goals and policies have been coordinated to achieve those
ends in the East Asian NIEs. In Latin America, on the other hand,
policies are often inconsistent and contradictory (Macomber,
1987:478).
4) PROMOTION. The policies in the East Asian NIEs have been
directed towards the promotion rather than the regulation of
private enterprises. One aspect of this is the reluctance of
[Page 30] Journal of World-Systems Research
governments in East Asia to bail out firms that get into
difficulties. This stands in sharp contrast to the Latin
American situation where states often rescue firms from bankruptcy
in order to maintain employment (Balassa, et al., 1986:137). In
Latin America, controls prevent behavior which is regarded by
government as undesirable rather than promoting what is desirable
as in the case of East Asia.
According to Jenkins, the key to superior industrial performance in
the East Asian NIEs is in the ability of the state to direct the
accumulation process in the direction which is required by
capitalist development at particular points in time. On one hand,
this requires a developmentalist state with a high degree of
relative autonomy from local class fractions. On the other
hand, as a state becomes successful in promoting industrialization
its autonomy is reduced relative to the domestic capitalist class.
For example, within Latin America, the Brazilian state,
particularly under the military, displayed a greater degree of
relative autonomy than either the Mexican or Argentine state. It
was also more successful in controlling labor during the
1960s and 1970s. In this respect Brazil, at that time, was much
closer to the East Asian Model than either Mexico or Argentina.
Parallels have been drawn between South Korea and Brazil. In
short, the relative autonomy of the state is a critical factor in
explaining rapid industrial development in the NIEs.
Many of the lessons which have been drawn from the East Asian
development experience are false lessons, because they have been
[Page 31]
based on a number of myths concerning the East Asian NIEs.
THE DEVELOPMENT MYTHS.
East Asia's rapid development is rooted in:
(1) outward orientation (protection, export incentives, exchange
rate policy);
(2) getting prices right (interest rates, labor markets, good
markets);
(3) the role of the state (state intervention, control of foreign
capital, state enterprises).
THE LESSONS LEARNED.
Latin America has lagged behind the East Asian NIEs because it: 1)
has an inward orientation involving excessive protection and
overvalued exchange rates; 2) lacks incentives to savings
and efficient investment; 3) has an excessive state role in the
economy (Belassa et al, 1986:19).
THE PRESCRIPTION.
Three major changes in development strategy are required:
1) adopt an outward orientation through competitive exchange
rates, the avoidance of excessive protection, and the use of
internationally accepted export incentives;
2) savings must be increased through positive real interest rates,
reduced budget deficits and incentives to foreign investment and
the removal of controls on foreign capital;
3) the role of the state in the economy must be fundamentally
changed through deregulation and privatization (Balassa, et al.,
1986: 13-14.)
In short, the solution has become the imposition of the
neoclassical orthodoxy which reflects the recent development
[Page 32] Journal of World-Systems Research
strategies of the IMF, World Bank and IDB which are promoting:
1) outward orientation;
2) modernization through private sector development;
3) reduction in government expenditures and a technocratic state
and
4) human resource development (NACLA, 1993:16-17).
Attempts to impose neoclassical orthodoxy on the Latin American
countries, in the guise of learning from the East Asian NIEs, will
do nothing to resolve the fundamental economic problems of the
region. According to Fishlow (1989:127-128) the correct conclusion
is thus not the uniform application of orthodox remedies to promote
the economic recovery of Latin America. That is to draw the wrong
lesson from East Asia by focusing to narrowly on specific exchange
rate, interest rate and other policy instruments. "The right
question is how to construct a Latin American developmentalist
state than can consistently implement the right policies, not just
register the right prices."
Conclusion
The relative success of East Asia involved a complex interweaving
of variables and levels of analysis: world historical and
geopolitical factors, temporal factors (booming world trade in the
1950s and 1960s), the role of international corporations and
institutions, especially the IMF, the U.S. military and military
spending (especially during the Korean and Vietnam wars), the role
of relative state autonomy and effective state intervention in
the economy, and spillover effects such as the transborder
[Page 33]
expansion of the Japanese subcontracting system. Some of these
variables (U.S. hegemony, military aid, rapidly expanding world
trade of the 1950s and 1960s) are obviously "one time only." Other
factors, like effective state intervention, are also particular and
historical. Lessons can be learned and policy changes attempted,
but one needs to be aware of the reasons why policies could be
pursued in some locations and not elsewhere. One more point is
central both because of its effects and due to its neglect in the
literature: we refer here to the interactive power of the IMF and
the World Bank, U.S. military aid, global corporations and global
banks. All these actors are deeply opposed to limitations on
Foreign Direct Investment (FDI), renunciation of debt, and
protectionism in national economies. They constitute the essence
of global capitalism.
Part II: Global Capitalist Accumulation
The capitalist world economy of the early 1990s is a highly
polarized system of power rooted in the domination and control of
capital investment, production, management, markets, labor
processes, information and technology by a few core nations and
global corporations (Borrego, 1981; 1990. The world economy as a
whole has become more volatile, more complex and more tightly
interconnected. In this new system a growing number of economic
activities have meaning only in a global context. This has defined
a new global division of labor and suggests that the economic well
being of nations, of regions, and of cities across the globe,
[Page 34] Journal of World-Systems Research
including those on the Pacific Rim, depends increasingly on what
happens within the overarching structures of capital
accumulation within the world economy (Wallerstein, 1979; Taylor,
1989; Borrego, 1990). We now turn to an analysis of the structure
and dynamics of Global Capitalist Accumulation.
a. Global Capitalist Accumulation - structure and dynamics
In global capitalism the organization of production and of economic
activity in general changes from standardized mass production to
flexible customized production, and from vertically integrated
large-scale organizations to vertical disintegration and horizontal
networks between economic units (Lipietz, 1987; Scott, 1988). The
above transition in the world economy - from Fordism to
Post-Fordism - began in the mid- 1970s. Fordism referred to a
system of mass production and mass consumption based on a stably
employed and well-paid labor force in core countries and
sectors, intensive exploitation of labor and resources in the Third
World, and relatively large and concentrated production units
(Lipietz, 1987; Piore and Sable, 1984). The central characteristic
of the Post-Fordist regime is the concerted effort to diminish
rigidity and increase flexibility. Although this tendency
involves many multi-sided processes, one of its most decisive
dimensions with widest impact is the effort to eliminate
constraints to the free mobility of capital and to maximize its
speed of movement. In the 1980s, the new business-government
partnership emphasized weakening or eliminating the state's
capacities to regulate the environment for capital accumulation.
[Page 35]
It has also intensified "deregulatory" and "re-regulatory"
pressures throughout core societies and has led to many important
victories for capital, often at the cost of the underclasses and
other groups that lack political voice and representation.
Most important, Post-Fordism has been implemented internationally
and is integrally linked to the increased "globalization" of
capitalism.
The five processes that have led to the development of Global
Capitalism are all related to the strategy of maximizing
flexibility (Borrego, 1981; 1990; Bonanno et al., 1993):
1. Production is decentralized and fragmented. Under Global
Capitalism the Fordist firm is decomposed into many subunits and
subprocesses carried out by many firms spread throughout
communities, regions and nations world-wide (Mengione 1991; Harvey
1990). This strategy enhances corporate control. For example, by
divesting certain aspects of the productive process, firms are able
to break the bargaining power of unions, transfer risk to other
producers, exploit inexpensive labor or resources of other
strategically located firms (Borrego, 1990; Ross and Trachte, 1990;
Reich, 199l). Capital also enjoys greater leverage in bargaining
with the state. Smaller decentralized operations are more
flexible and are free to choose locations where regulatory and
welfare costs are low and organized labor is weak (Strobel, 1993).
Workers understand that higher wage demands or the unwillingness to
accept cuts will "force" the operations to be relocated.
Communities operate with the same awareness when it comes to tax
bases. In addition, the global
[Page 36] Journal of World-Systems Research
decentralization of production is also used to make centralized
financial holdings more profitable and secure (Sassen, 1993).
2. While production is dispersed in many communities, regions, and
nations, the financial and research capacity and control remains
firmly concentrated within the "world cities" and countries of the
First World (Sassen, 1993; Mengione, 1991; King, 199; Smith and
Feagin, 1987). Global capitalism's world-wide flexibility depends
on the maintenance of a strong interlinked network of control
points that house the most critical fiscal and intellectual
resources which underpin accumulation. These control points -
world cities/core countries - orchestrate and control
production and maintain or access research and development
activities worldwide. For example, the "temporary" use by global
high technology corporations of pools of highly skilled
technicians from institutes in the former Soviet Union and high
technology centers in Bangalore, India are cases in point of both
global scanning and global resource utilization for the purposes of
maximizing capital accumulation (New York Times, 1993; Brauchli,
1993: A8). Although these activities are tied to the core
countries to some degree, these facilities are increasingly
spreading into world-linked enclaves embedded in the semiperiphery
(e.g., Hong Kong, Singapore and Mexico City). The primary problem
under global capitalism is that the increased flexibility requires
stronger coordination (e.g., G-3/7).
3. Spatio-temporal compression under global capitalism facilitates
[Page 37]
maximum extension and velocity of economic processes (Harvey,
1990). Geographically dispersed, decentralized production, combined
with centralized ownership and control, requires new forms of
instant communication, transport, credit, and other innovative
technologies that connect distant operations and rapidly changing
locations to the control points. The global network of
transactions is much more complex and depends on extremely
sophisticated and flexible informational and financial
linkages. These new technologies have also accelerated the speed
with which material commodities are moved globally. As Thrift
suggests, "[I]t is a world-economic order which is addicted to the
knife-edge. It is a world economic order hooked on speed" (1989:
16). In addition, global corporations armed with new forms of
technology and organization are able to take advantage of lower
production costs and more favorable environmental legislation
existing in some Third World countries in order to supply the
affluent markets. The spatio-temporal compression also
reduces the importance of political boundaries, thereby increasing
the speed of movement of goods and information. Neoliberal
policies oriented toward opening markets and corporate strategies
that by-pass local protectionist policies are facilitated under
global capitalism (NACLA, 1993).
4. The spatio-temporal unity of the polity and economy,
characterizing the earlier phases of capitalist development, has
been fractured. The State's capacity to mediate between market and
society has been weakened. In particular, global capitalism has
[Page 38] Journal of World-Systems Research
substantially reduced the local, regional and national State's
control over its economic and non-economic environments (Ross and
Trachte, 1990). Post-Fordist firms seek settings with "good
business environments." While this concept can suggest
qualities such as a skilled labor force and highly developed and
maintained infrastructure, it can also mean low wages, weak unions,
and lax regulation of the work place and environment which
disempower people and communities. In this setting, States use tax
abatements and various other subsidies to attract or simply hold
businesses. "Economic development" often means States encouraging
competitive rollbacks in all these areas which force communities
into "placewars" in order to attract globally mobile capital
(Mingione, 1991; Donald Haider, 1992: 127-134).
5. The numerical reduction of industrial workers and the
transformation of the nature and quality of work (Pugliese, 1991;
Morrow, 1993). Full-time employees are being replaced by part-time
and temporary workers, manufacturing and farming operations are
being replaced by service positions, generating a multiplicity of
employment arrangements. Part-time or temporary laborers are hired
and fired according to market conditions and keep the operation
running continuously without overtime pay. They also reduce the
costs of benefits and of step-increases on job ladders. In
addition, the workday is reconfigured to enhance flexibility.
This labor regime has generally reduced the bargaining power of the
remaining full-time workers. Older workers are aware that they
would not be able to find equally favorable employment if they
lost their current positions. Consequently, they are more likely
[Page 39]
to accept "givebacks" in order to maintain job security. Overall,
the Post-Fordist reshaping of work has meant poorer working
conditions, lower wages and benefits, and less job security for the
vast majority of workers. Low wage (and especially minimum wage)
jobs are being created much more rapidly than high wage ones
(Harrison and Bluestone, 1988), and workers are working longer
hours with less vacation time and sick leave. Lipietz
(1991:105) argues that the postwar capital-labor accord has been
restructured into a one-sided vision of the worker as a commodity
which can be freely "borrowed and declined at will by the
employer." This notion of the pliable worker is at the heart of
Post-Fordism's coercive flexibility.
A new form of global capitalism has emerged, which is qualitatively
different from the Fordist type of multinational capitalism
(Borrego, 1981, and 1990; Friedland, 1991; Picciotto, 1991; Reich,
1991). A growing number of economic activities have meaning only
in a global context, e.g., autos, electronics, and
textiles/garments (Henderson, 1989; Dicken, 1992). In global
capitalism, maximum flexibility means operating as purely as
possible in accord with the bottom line. It has the following
characteristics:
a. Global Capitalism suggests a fundamental revision of the
concept of the state, a concept hitherto inextricably linked to the
nation and national government. With the emergence of global
corporations, it becomes necessary to think of an emergent global
[Page 40] Journal of World-Systems Research
state (Chase-Dunn, 1989; McMichael and Myhre, 1991). The
proliferation of global firms capable of eluding the regulatory
control of national bureaucracies presents a global challenge.
Similar challenges emerge from the fact that industrial pollution
does not respect national boundaries, nor does the relentless
search for low-wage manufacturing havens throughout the poorer
regions of the world. All these conflicts create a growing need
for global institutions and organizations. As cooperation among
states gives way to rivalry, and as states weaken vis-a-vis global
institutions and corporations, we can expect the formalization of
supranational institutions to deal with global conflict
(Attali, 1991:117-130).
b. The hegemony of Global Capitalism is reflected in the formation
of international bureaucratic alliances designed to guide and
regulate the movement of capital across the globe. GATT, the IMF,
and the World Bank are the watchdogs of global capital investment,
alternatively expanding and restricting investment flows, aware of
the class interests of the global capitalists while keeping an eye
on the overall process of global capitalist accumulation (Girling,
1985; Broad, 1988; Friedman, 1991). This process of global
regulation has accelerated the "rediscovery" by
developmentalist states of liberal ideology in support of global
capitalism (NACLA, 1993; Business Week, 1993 and 1994).
c. Global Capitalism requires the existence of weaker states - or
open borders to capital, production locations, and commodities
throughout the various zones and layers of the global capitalist
[Page 41]
system. These weaker states are forced to move from focusing on
national economic integration to opening up to the world economy
and attempting to attract hypermobile global capital at any cost.
In this way, different locations across the globe are pitted
against each other, resulting in rapidly rising and declining
communities and regions, recreating an uneven mosaic of development
within and across national boundaries throughout the world system
(Borrego, 1981)
d. Another integral part of Global Capitalism has been the
extensive utilization of women in world market factories (Theroux,
1993; Sklair, 1992; Ruiz and Tiano, 1991; Sassen-Koob, 1989; Dixon,
Martinez and McCaughan, 1985, Nash and Fernandez-Kelly, 1983;
Fuentes and Ehrenreich, 1983: 6). Today, from Guandong, China to
Cuidad Juarez, Mexico to Penang, Malaysia, young Third World women
are providing a vast pool of cheap labor for the global
corporations. They constitute a strategic labor force for Global
Capitalism in the 1990s. For example, within the 100 or so Free
Trade Zones throughout the world 80 to 90 percent of the light
assembly workers are women. Women are preferred by the global
corporations because they are believed to be a labor force
which is "docile, easily manipulated and willing to do boring
work." (Morawetz, 1981).
e. Global Capitalism has two central movements. The first is a
"widening" or outward movement, where the significant loci of
capitalist accumulation are fragmented and relocated horizontally
[Page 42] Journal of World-Systems Research
from the core into fertile terrain of the semi-periphery and
periphery. This serves to re-discipline regions of the core within
the world economy. The second, occurring simultaneously, is a
"deepening" or downward movement as capitalist development moves
vertically through the three-dimensional matrix of the world
social formation. In this process it fragments production into
smaller units within enclaves and export platforms, as well as
households, in regions throughout the world system. The
restructuring of the world capitalist system into this fragmented,
dispersed, interpenetrated, fine-grained, multi-layered
social/spatial form of accumulation has been made possible by the
emergence of the global corporations which control the significant
mechanisms of capital, technology, the labor process, communication
and marketing (Borrego, 1981; 1990).
In sum, under Global Capitalism, capital investment, production,
management, markets, labor processes, information and technology
are organized world-wide. This economic and organizational
transformation has been driven by one of the most significant
technological revolutions in human history. Its core is
information technology - informatics, microelectronics, and
telecommunications - surrounded by and aiding scientific
discoveries in other fields, such as biotechnology, new
materials, lasers and renewable energy. The revolution in
information technology has combined with organizational changes at
the global level to produce a globalized capitalist system with a
global division of labor.
[Page 43]
b. Global Division of Labor in the early 1990s
The global division of labor is generated by the above structure
and dynamics of Global Capitalism, which increasingly depends on
the capacity to create new knowledge and apply it rapidly, via
information processing and telecommunications technology, to a
wide range of human activities globally (Castells, 1993). This
capacity clusters nations according to their work within the world
capitalist economy. Of special importance to us here is how this
analytical framework helps clarify the role of the nations on the
Pacific Rim - especially Japan and the NICs in East Asia as well as
Latin America and the large continental economies of China and
India.
1. THE INDUSTRIALIZED CORE.
Both the demand for new products and the capacity to create and
design them are still concentrated in the industrialized core. The
core however is differentiated: U.S. hegemony developed in a period
when closeness to large markets and economies of scale in
manufacturing determined a nation's comparative advantage, as
other national economies - notably Japan and, at the core of the
European Economic Community (EEC), West Germany - exploited the
scientific knowledge and management skill to compete successfully
under conditions of more flexible, export-oriented manufacturing.
As a result, U.S. hegemony has been replaced by a multipolar system
of economic power that benefits several dominant countries and
regions. These regions are involved in fierce global competition
[Page 44] Journal of World-Systems Research
(Cohen, 1993; Thurow,1992).
2. A second tier of efficient producers of electronic goods and
high technology hardware has sprung up in Asia, again built on a
base of high-level technology and management skills and a
commitment by the state to the promotion and application of those
skills. Economies such as those of South Korea, Taiwan, Hong Kong
and Singapore have made astounding gains since the early 1960s.
They, along with Japan, constitute the most dynamic pole of the new
global economy (Ozawa, 1993; Chen,1993).
3. At the other end of the spectrum, much of Latin America and
Africa have suffered because of changes in the world economy
(Roddick, 1988; Bello, 1989). The heavy borrowing that nations in
these regions undertook to overcome their structural problems in
the 1970s became their huge debt burden of the 1980s. This
financial crisis occurred at the very moment when large
investments were needed in technology, local production,
institutional reorganization, schooling, worker training, and
research. Effectively, debt burdens prevented such investments,
leaving many economies (e.g., Brazil, Mexico, Argentina, Nigeria,
Venezuela) far behind in the process of change, and thrusting
others (e.g., low income, predominantly agricultural economies of
Africa, Asia and Latin America) even further outside the core
processes of world capitalist development.
4. In the capitalist world economy of the 1980s and 1990s, the
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Third World has been restructured and sorted out according to
different area's ability to produce goods and services integral to
the information based global capitalist system (Castells, 1993).
They fall into four groups: a) the clear winners - the rapidly
growing, newly industrializing countries in East and Southeast
Asia; b) the potential winners, such as Mexico (now part of the
North American free trade zone) and Brazil; c) the large
continental economies of India and China which, because of their
potentially huge markets and large stock of highly skilled human
capital, are on their way to integrating into the new capitalist
world economy; and d) the clear losers - the remaining majority of
the Third World made up of marginal rural economies and sprawling
urban peripheries.
Within this world system the future of the potential winners and
large continental economies in large part depends on how the
domestic state transforms their economic and educational
organizations and how they relate their existing but rudimentary R
& D to production. The results in these two regions will, in turn,
have an enormous impact on the rest of the Pacific Rim and the
world economy. What happens in the remainder of the Third World
remains to be seen and depends on whether the dominant paradigm -
trickle down, free enterprise ideology - pushed by the major
international agencies (GATT, IMF and the World Bank) leads to
development in the Third World or leaves it worse off in the future
(Race and Class, 1992).
Another concern is whether the command economies of Eastern Europe
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and the former Soviet Union can be developed and integrated into
the capitalist world economy. To date, the continued economic and
political disintegration of the former Soviet Union and the
inability of the industrial core to mobilize sufficient capital to
prevent it may further deepen the world economy's current crisis.
However, if this can be turned around, and the vast markets and
trained labor forces of the former Soviet Union can become
developed and integrated into the world economy, this would
have a major impact on the advanced core economies and the newly
industrialized countries in East Asia and Latin America by
expanding the size of the world economy.
The structure and dynamics of global capitalism alone do not
explain why and how development and integration occurred in
particular developing countries. Here it is the specific internal
conditions and how they interacted with external forces generated
by global capitalism that matter. We now turn to part III, where we
analyze the processes of national development and regional
integration in East Asia's original "Gang of Four," Southeast Asia
and the new Market Socialist Countries of Asia, while noting the
lessons for Latin America and the South in general.
Part III: Japan, East Asia, Southeast Asia and the Market
Socialist Countries
East Asia has gone through three stages of development and
integration after WWII. First it benefitted from anti-communist
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development and processes of integration sponsored by the newly
hegemonic United States after World War II, which led to the
re-development of Japan in the late 1940s and 1950s. Second, and
closely linked to the first, as Japan developed and industrialized
during the 1960s and 1970s, Hong Kong, Taiwan, South Korea and
Singapore industrialized, partly on the basis of the then new
international division of labor, involving subcontracting.
Both of these phases were integral to consolidating U.S. hegemony
and correspond to the development of the Fordist model of
capitalist accumulation discussed in Part I. In the third phase,
Japan transcends its regional hegemonic role and becomes a global
actor, while the countries of Southeast Asia (Malaysia, Thailand,
Philippines, and Indonesia) are being integrated into the regional
and global system of subcontracting, trade and investment during
the 1980s and early 1990s. In addition, the Market Socialist
Societies (China, Vietnam and North Korea) are being re-
integrated back into the capitalist world economy. The third phase
is the focus of Part III.
During the third phase, East Asia provides us with a window for
viewing the dynamics of the transition to the next world cycle of
accumulation. East Asia, which now generates over 50% of the
world's capital accumulation, represents the latest and most
dynamic pole of capitalist accumulation within the world economy.
Within East Asia, Japan is no longer just a regional power, it is
now a world power currently in competition with the U.S. and
Western Europe in a period of protracted world-wide recession. It
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has become globalized through foreign direct investment and
production systems spanning the world economy. It is
involved in Europe, Asia and the Americas. In short, it is a
powerful force in the globalization of capitalism and fully
involved in the global search for labor, resources and markets in
the world economy (Borrego, 1990).
Industrialization in the global periphery (Third World) has been
highly uneven, and limited, at least so far, to a relatively small
number of countries, the so-called "Newly Industrializing
Countries" (NICs). The NICs are not all the same. There are great
differences, for example, between the original "Gang of Four,"
Southeast Asia, and the new Market Socialist Countries. That
conditions appear very bright for development and integration in
Southeast Asia, Latin America and Market Socialist Countries at
this point, is, in part, related to the fact that these
countries share the existence of strong repressive, authoritarian
governments that have created supportive environments for rapid
capital accumulation, and are therefore currently enjoying a
massive investment influx of global capital (Estevez, 1993: 7).
These nations and regions are developing rapidly by becoming the
current workshops of the world as other nations and regions are
de-developed and restructured to fit the new reality of global
capitalist accumulation (Borrego, 1990; Theroux, 1993). The
"creative destruction" that Joseph Schumpeter (1954) called the
defining feature of nineteenth-century American capitalism is on
display in these nations and regions in the early 1990s.
[Page 49]
A. The status of the East Asian "Miracle" in the late 1980s and
early 1990's
Three distinct and interconnected regional economies are emerging
in the developed world. A North American region built around the
United States, Canada, and now Mexico accounts for about 25 percent
of world GDP. A Western European region (anchored by Germany) also
represents about 25 percent of global GDP. An Asian region, led by
Japan and the NICs - the fastest growing region of the three by a
considerable margin - has about 18-20 percent of world GDP (Borrus,
1993: 166). Despite talk of expansion of global interdependence
(Trilateral Commission, 1991), each regional grouping appears to be
increasingly focused inward. This is obvious from the Free Trade
Agreements in North America and the latest moves toward European
integration (the 1992 program). Moreover, for Europe and Asia,
trade outside the region is a quite limited part of the GDP of
each. Since 1986, trade within each region has been growing more
rapidly than inter-regional trade (Borrus,1993: 166). However,
even interregional trade is shifting; for example, in the current
(1994) slow recovery, it is not Germany and Japan that are
benefiting the most from U.S. imports but "[M]exico and other Latin
countries plus China and the smaller Southeast Asian economies
[that] have gained market share at the expense of Germany and
Japan" (The Wall Street Journal, Monday, May 2, 1994: p.1).
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East Asia's Regional Division of Labor
In 1989 Japan became the world's largest direct investor in terms
of investment flows ($44.1 billion), surpassing the United States
($31.7 billion). In manufacturing, one half of Japanese overseas
ventures were set up in other Asian countries (in 1989, for
example, 895 of Japan's 1,829 new manufacturing ventures, 48.9
percent, were located in other Asian countries) (Ozawa, 1993).
Closely associated with Foreign Direct Investment (FDI) are the
flows of technology from Japan to the rest of the world,
particularly to its neighbors who are Japan's major group of
clients. The Asian Pacific region is not becoming a bloc in the
traditional sense, but rather a "highly organized and increasingly
integrated production economy," whose intent is to penetrate the
markets of other regions via exports as the following analysis
suggests (Borrus, 1993: 167).
TRADE AND INVESTMENT.
Over the last decade, Asia has progressively become a
Japan-centered trade and investment region. Japan, rather than
the United States, is the dominant economic player in Asia. It has
surpassed the United States in terms of regional presence and
possible influence. Japan is the region's technology leader,
primary supplier of capital goods, dominant exporter, its largest
annual foreign direct investor and foreign aid supplier, and,
increasingly, a vital market for imports (though the United States
remains the largest single import market for Asian manufactures).
Japan's trade with Asia in 1989 surpassed its trade with the United
States, having more than doubled since 1982. By the end of
1992, Asian markets accounted for 41 percent of Japan's total
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trade, while North America accounted for only 30 percent. This is
a significant change from the 35 percent share each region had five
years before (Borrus,1993: 167). By 1990 Japanese industry was
investing about twice as much as American industry in Asia as a
whole, and over three times as much in the eight fastest growing
economies (four Asian NICS and four ASEAN countries). From 1984
through 1990, there was as much direct investment in Asia as in
the previous thirty-three years, doubling the cumulative total.
Japanese investment grew by 50 percent in the Asian NICs and by
100 percent in the ASEAN nations. Between 1988 and 1990, Japan's
direct investment in Taiwan, Hong Kong, Thailand, Malaysia,
Singapore, and Indonesia reached $17.6 billion as opposed to only
$4.6 billion by U.S. industry. This level of Japanese FDI in Asia
has remained steady through the early 1990s.
The Asian countries (primarily the NICs and the ASEAN) have
increased their share as FDI recipients throughout the 1980s over
other regions (Ozawa, 1993: 130). This rise in share was realized,
in part, by intra-regional flows from Japan to the rest of Asia
and, more importantly, from the NICs to other developing Asian
economies, notably to the new NICs in Southeast Asia. In addition,
investment shifted, growing significantly in China, Indonesia and
Vietnam as it declined elsewhere in the world. Finally, the
dollar's preeminence as the trading currency is being
threatened by the yen, driven by the dominance of Japanese products
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and investment. The yen's use expanded sharply, growing at 50
percent per year since 1988 (Borrus, 1993: 167).
REGIONAL PRODUCTION.
One of the results of the above trends is a network of component
and production companies that make Asia an enormously
attractive location. Regional production networks appear to be
hierarchically structured and dominated by Japan (Ozawa, 1993).
According to Ozawa (1993: 129-130, 144), Japan emerged as the
regional growth center, "recycling" its lower value/labor intensive
industries and trade surplus across Asia through FDI and other
means as it moved up into higher value goods. This generated
periodic domestic restructuring of the Japanese economy which, in
turn, brought renewed regional growth (Ozawa, 129-130, 141-144).
Whether this regional system can be reproduce forever is in
question, but that the current "snow-balling" of incomes derived
from this recycling of industries and markets in Asia is hard to
deny (Reifer, 1993: 37).
The Japan-controlled supply structure lies at the heart of an
increasingly dense and symbiotic relationship between Japan and its
major Asian trading partners. Japanese companies supply
technology-intensive components, subsystems, parts, materials, and
capital equipment to their affiliates, subcontractors and
independent producers in other Asian countries. These are then
assembled into products that are sold via export in third country
markets (primarily in the United States and other Asian countries).
In return, non-affiliated labor intensive manufactures, and
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affiliated low-tech parts and components, flow back into Japan from
other Asian producers (Borrus 1993: 167).
Japan's Crisis and Restructuring in the late 1980s
The prosperity experienced by Japan and the "Gang of Four" in the
1980s and early 1990s is in part rooted in the expansion of the
Japanese multi-layered transborder subcontracting system of the
late 1960s and early 1970s (Arrighi, 1991). The current "economic
miracle" is also linked with the world-economic crisis which
prompted that transborder expansion and eventually triumphed over
alternative and competing forms of transnational capitalist
expansion (Arrighi, 1991). An important aspect of this triumph was
the major revaluation of the yen, which began in September 1985 and
had by 1987 raised the value of the yen relative to the US dollar
by 64 per cent (Stevens, 1990). That revaluation accelerated the
rate of overseas expansion by Japanese capital in the late 1980s
into the early 1990s, just as a previous revaluation did between
1971 and 1973 (Stevens, 1988).
THE IMPORTANCE OF SOUTHEAST ASIA.
The distinctive feature of the late 1980s lay in the role played by
Southeast Asia in reviving the profits of Japanese exporters eroded
by the strong yen, and in attenuating conflict with the U.S. and
Europe. The components required by newly established Japanese
factories in the core nations could be made cheaply and imported
from low-cost Southeast Asian countries rather than the
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more expensive subcontractors in Japan. The victims of the strong
yen crisis in Japan were the workers, whose money wages became
higher than those of U.S. workers, but whose real living
standards became 60 percent of their U.S. counterparts'. As
capital moved to the U.S. and Southeast Asia for lower wages,
further pressure was placed on the jobs and living standards of
Japanese workers, growing numbers of whom endured conditions
comparable to those of Southeast Asia in the late 1980s
(Deyo, 1990). Layoffs were greatest in the industries affected by
the rising yen, since this is where the major "hollowing out" of
Japanese industries occurred as a result of that wave of FDI
(Stevens, 1988: 35). This effectively peripheralized the working
classes in those relocated sectors.
In 1987 two main changes occurred in approved Japanese FDI: (1)
regional changes included a concentration on the advanced
countries, as well as the NICs of Asia and Latin America; and (2)
industrial changes included a massive escalation of investments in
finance, insurance, and real estate, mainly in the advanced
countries. In addition, there was a rush of Japanese investment
into Southeast Asia in response to the strong yen, a change that
was clearly revealed only in 1987 (Stevens, 1988: 37). At
that point a rapid shift in FDI occurred not simply away from the
advanced countries but also away from the NICs towards Southeast
Asia, where extremely low wages offered opportunities to recapture
the competitive power Japanese capital lost with the rise of the
yen.
[Page 55]
With the rise of the yen, the lower wages of Southeast Asian
countries proved more attractive to Japanese capital than the
relatively advanced infrastructures of the "Gang of Four" or the
greater purchasing power of the core countries. Particularly in
manufacturing, Japanese capital's profits in Southeast Asia have
traditionally been higher than anywhere else in the world economy,
and the strong yen had brought this option front and center once
again. Clearly, the New York Stock Market slump in October of 1987
further reinforced the trend out of the U.S. and into Southeast
Asia (Stevens, 1988: 39).
The new stage of rapid growth in Japan's FDI in the 1990s is being
supplemented by the outflow of capital from the "Gang of Four,"
which has also demonstrated a strong preference for low-income
Asian locations such as Southeast Asia and the southern provinces
of China, especially those adjacent to Taiwan and Hong Kong. For
example, in 1990, the largest investor in Thailand was Hong Kong
(with 50.7 percent of the total inflow), followed by Japan (19.2
percent), the United States (7.7 percent), and Taiwan (5.4
percent). In Malaysia, Taiwan was the leading investor (37.8
percent), followed by Japan (with 28.5 percent), Singapore
(5.2 percent) and the United States (3.0 percent). In the
Philippines, Japan took the top position (31.8 percent), Hong Kong
was second (with 21.7 percent) and South Korea third (14.6
percent). Similarly, in Indonesia, Japan was the largest investor
(25.7 percent), followed by Hong Kong (11.4 percent), South Korea
(8.3 percent), Taiwan (7.1 percent), and Singapore (4.0 percent)
(Ozawa, 1993: 130). Now the "new" new NICs,
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notably Thailand and Malaysia, are starting to invest in the "new"
NICs such as China and Vietnam.
Southeast Asia's Apparent Success - Is it the model?
Based on the above intensity of FDI in Southeast Asia, it is easy
to see why Southeast Asia is growing so rapidly. It is also easy
to see why Hawes and Liu (1993) would argue that Southeast Asia is
1) very successful, and 2) provides a more appropriate set of
development models for the Third World than those of Japan or the
original Gang of Four (or those of Latin America, for that matter).
In the past, few have advocated that the Third World follow Latin
America's lead. Many, however, have suggested that Northeast Asia
is an appropriate model for Third World development. But Hawes and
Liu (1993:631), along with many others, have questioned the
prospect of replicating the experience of Northeast Asia. Hawes
and Liu go one step further and suggest that Southeast Asia may
have developed more appropriate models of development for the rest
of the Third World. Why?
They argue that because the countries of Southeast Asia are growing
rapidly, they have obviously done something right. Over the last
twenty-five year period between 1965-90, "their growth rates have
been among the world's fastest. . . . The economy of each of these
countries has experienced a transformation, so that today the share
of industry in total production . . . in every case is larger than
the share of agriculture.
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Along with growth in industry has come a dramatic increase in
exports; . . . and imports." Furthermore, they argue that
Southeast Asia is not following in the footsteps of Northeast Asia
(South Korea and Taiwan) or the Latin American NICs (Mexico and
Brazil). The high level of diversity within the region and a
number of other attributes make the development models
within Southeast Asia more appropriate for the Third World (Hawes
and Liu, 1993).
First, the economies of the region do not depend exclusively on low
wages and manufactured exports. They are relatively well balanced
because of their mining and agricultural sectors, and manufacturing
exports are matched by large and growing service sectors, including
tourism and labor exports. Nations such as South Korea and Taiwan
have open, diversified economies similar to those of Latin America.
At the same time, the nations of Southeast Asia lack the economic
size or the political predisposition of the Latin American
governments, which have periodically sought self-reliant growth.
Second, the states of Southeast Asia, while relatively strong, are
not nearly as autonomous as the states of Northeast Asia (South
Korea and Taiwan). The bureaucracies of the region, like those of
most Third World states, are subject to penetration by societal
forces. And because these are multi-ethnic societies with ethnic
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minorities very active in the economy, public sector-private sector
relations have often been conflictual. Meanwhile, foreign capital
plays an important role in the region, but not to the degree that
it has in Latin America (that is, most of Southeast Asia has
avoided the problems brought on by high levels of external
indebtedness) (also see Kuttner, 1990:246). Rather, in Southeast
Asia, as in most of the Third World, the influence of the world
capitalist economy is felt mainly through foreign direct investment
and such global regulators/actors as the World Bank and the
International Monetary Fund (also see Broad, 1989).
Third, historically and structurally, Southeast Asia shares with
most other Third World countries the experience of having been
colonized by Western European powers. Likewise they share similar
patterns of decolonization, except Thailand which was never
formally colonized but was subjected to analogous patterns of
foreign domination and economic exploitation. In contrast,
Northeast Asia was colonized by Japan, and Latin America has been
"independent" for well over a century and a half (but went through
an experience similar to that of Thailand). The states
of Southeast Asia have lower levels of social and political
mobilization than Latin America and smaller working and middle
classes than Taiwan and South Korea (Wolf, 1982; Worsley, 1984).
In the absence of a favorable international economic environment
(such as the one created during the Korean and Indochinese wars),
and lacking a strong, autonomous state or the cultural homogeneity
of Northeast Asia, most Third World nations will not be able to
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imitate the experience of Northeast Asia - Korea and Taiwan (Hawes
and Liu, 1993:657).
Hawes and Liu further argue that the countries of Southeast Asia
have experienced a very enviable pattern of economic growth and
that they are engaged in a major transformation toward continued
industrial growth. Southeast Asia has achieved this record in ways
that do not mimic the experience of either Latin America or
Northeast Asia. For example, Southeast Asia has attracted more
direct investment during the last decade than has any other region
of the developing world.
Southeast Asia's current success is perfectly consistent with the
above regional analysis. At first Japan went through the 10
percent per year "miracle" when it experienced reconstruction and
re-integration into the capitalist world-economy in the 1950s under
U.S. auspices. Then Taiwan and Korea attained 10 percent growth
rates during their "miracles" in the 1960 and 1970s. Now Southeast
Asia (especially Thailand and Malaysia) and South China are going
through their "miracles" with an over 10 percent growth phase in
the late 1980s and early 1990s. However, it is important to
remember that as the wave of integration passes lower growth
rates begin. This is because the rates of capitalist accumulation
decrease as the society matures, the labor pool becomes more
skilled and receives higher wages, and the overall society becomes
more prosperous. This process is already beginning to happen in
Southeast Asia, so that Vietnam, North Korea and the former Soviet
Union will most likely be the next to be integrated into the
overall industrial logic of the region (Gills, 1993: 206-207). It
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is hard to imagine the applicability of any of the individual
models in the region without the overall regional process. We will
explore this further in Part IV below.
Can the Region Keep Growing and Expanding?
This migration of capital within the Asian region suggests that in
the next decade or two we will witness a repeat of the East Asian
economic miracle of the 1970 and 1980s. However, Arrighi (1991)
suggests several reasons for being skeptical about this
possibility, which are rooted in the political,
economic, and organizational transformations that are in process
within the Japanese system.
First, Japanese direct foreign investment no longer consists - as
it did in the early 1970s - of predominantly small/medium
corporations driven to expand their operations in a limited number
of neighboring territories as a matter of economic survival.
Instead Japan, in the 1980s and 1990s, consists of large and
powerful global corporations endowed with the capability to: 1)
take the whole world as the relevant domain of their
investment decisions; and, 2) organize production processes
throughout a world-wide network of territories and political
jurisdictions. To these global corporations, investment in any
particular nation, region or city of the world economy is a matter
of choice rather than necessity. This puts them in a stronger
bargaining position relative to local business and governmental
entities world-wide. The global corporations are in a much
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stronger position than the Japanese overseas investors were in the
early 1970s.
Second, the systemic circumstances under which the current wave of
direct foreign investment has been unfolding are altogether
different from the systemic circumstances of the wave in the early
1970s. The collapse in the early 1980s of the outflow of capital
from North America and Western Europe to low and middle income
countries created a worldwide shortage of liquidity in hard
currencies. This shortage, in turn, has provided the
global enterprises that have come to control world liquidity (among
which Japanese enterprises figure most prominently) with unique
opportunities to obtain at bargain prices production facilities and
supplies from almost any location in the periphery (Third World),
semi-periphery (Developing Countries), and core (Advanced Core
Nations) of the world economy.
The world-wide scale and scope of the current wave of Japanese
direct investment, together with the stronger bargaining position
of its corporations relative to business and governmental entities
in host countries, is creating a different pattern of direct
foreign investment in Southeast Asia in the 1980s and 1990s than
the pattern created in East Asia during the 1960s and 1970s (see
Part II above). The pattern of multiple partnerships between small
and medium Japanese and local corporations under the leadership of
trading companies was crucial to developing South Korea and Taiwan
[Page 62] Journal of World-Systems Research
in the 1960 and 1970s. The intense Japanese investment activities
in Southeast Asia and South China in the late 1980s and early 1990s
have created a highly centralized industrial structure, "a de
facto trade grouping, in which different Southeast Asian nations
specialize in technologies that will feed Japan's biggest
industrial giants." In 1991 the New York Times suggested that
"Southeast Asia thus seems to be well on its way toward becoming
Japan's manufacturing backyard" (March 6, 1991: A1, D6).
In contrast to many US corporations, Japanese companies are still
willing to tread lightly, do not insist on majority ownership, and
are less fazed by occasional political instability. "In most cases
they exert careful control doling out technology." (Although this
may be changing within the hierarchy of the region, as suggested
below.) These strategies, however, are no longer "the weapons of
the weak" which they were in the 1970s (Arrighi, 1991: 35).
Instead, they represent the changed power relations within the
world economy and the new commanding position of the Japanese
corporations in global processes of capital accumulation. They
are an expression of the desire and capacity by Japanese capital to
stay as mobile and as flexible as possible so that they can exploit
profitable investment opportunities as they appear world-wide. "As
Thai and Malaysian labor costs rise, Japanese businesses are
scrambling for access to Indochina, especially poverty stricken
countries like Vietnam . . . desperate for hard currency" (New York
Times, March 6, 1991: D6). By 1993 U.S. corporations, also seeing
the potential in Vietnam, were pressuring the U.S. government to
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end the trade embargo so they could
access the cheapest labor in the region, "a dollar a day or less
for factory help" (Brauchli, 1993: A-10).
Consequently, countries that temporarily host global capital
industrialize very rapidly, but the income gap that separates them
from the core countries does not narrow because as a soon as it
does, the expansion of production capacity is shifted to
yet-unexploited low-income (therefore low-cost) locations, of which
there is an ample and growing "reserve" both regionally (in Asia)
and world-wide. In addition, Japan's utilization of Southeast Asia
helps resolve some accumulation problems and political problems as
its relations with East Asia become tense, as suggested below.
JAPAN's PREDATORY TRADE PRACTICES ANGER ASIANS.
After decades of focused exporting to the United States and to a
lesser extent Europe, "Japan is now in a race to dominate trade in
East Asia, the world's fastest growing region. And it is
succeeding with a strategy that is as well crafted as it is
irritating to many of the region's countries" (Sterngold, 1993:
C1). The source of anger is Japan's trading practices, which worsen
Japan's already difficult relations with its Asian neighbors. At
the core of the difficulty are Tokyo's so-called "predatory export
policies" as well as the barriers to selling foreign products in
Japan. In short, Japan's trade surpluses have become a source of
tension not only with the United States but with the Asian region
as well.
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Japan's corporations have built their products into the engine
which drives this region's growth not only by selling consumer
goods like electronic gadgets and cars, but also by selling the
industrial equipment and manufacturing technology on which Asian
exporters depend.
Consequently, Japan's trade surpluses with South Korea, Taiwan and
Southeast Asian countries are rising far more rapidly than its
surpluses with Western countries. "We're hooked on Japan, I'm
afraid," commented Lee Sang Tul, director general of the
international trade bureau at the South Korea Ministry of Trade and
Industry (Sterngold, 1993: C1). He elaborates, "when the Korean
economy was just beginning to develop, we had to rely on Japan for
technology and parts. Once we had their systems, we kept buying
them. So as our exports to the rest of the world increased our
imports from Japan had to grow."
Over the last four years Japan's trade surplus with East Asia has
more than doubled, to $42 billion last year (1993), from $18
billion in 1989. By contrast Japan's surplus with the United
States declined in that period, from $45 billion in 1989 to 43.7
billion last year (1993). Last year Japan's exports to East Asia
of $116.4 billion exceeded its exports to the United States, which
came to over 95.9 billion (Sterngold, 1993: C1). In short,
Japan is shifting the trade surplus problem into its own back yard
in order to reduce tensions with the United States and Europe.
This has further reinforced the tendency toward regionalization in
Asia.
The problem of trade surpluses is complicated by the fact that many
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Asian nations, especially South Korea, are very protectionist.
Many of the "Gang of Four" rely heavily on exports while keeping
their own markets relatively closed to imports. This has created
a situation in which South Korea, which boasted an overall surplus
of $8.9 billion in 1988 - including a 3.9 billion surplus with
Japan - by 1993 had its trade deteriorate to a deficit of $5.1
billion, primarily because of its $7.9 billion deficit with Japan.
This turnabout was rooted in a large increase in Koran machinery,
while Japanese purchase of goods decreased. No small part
of the tension is the fact that South Korea is losing face by
"finding itself dependent on an ancient rival" (Sterngold, 1993:
C1).
This structural dependency developed as Japan used a variety of
methods to expand its trade throughout East Asia. One, it sends
more than half of its $13 billion a year in foreign aid to East
Asia, and that helps build good will that ultimately benefits
commercial relations. Two, Japanese companies are by far the
largest foreign investors in Asia, primarily through moving
factories to countries in the region with lower wages.
Three, possibly more important, some of Japan's aid to East Asian
countries for years has been used to buy goods and services from
Japan, and clearly some of that money was used to buy Japanese
manufacturing technology, which began the cycle of dependence.
(This is very similar to how the U.S. dealt with Europe in the
Marshall Plan.) What has angered some manufacturers is Japan's
reluctance to sell its most advanced manufacturing technology,
because, Mr. Lee said, "Japan is afraid of the boomerang effect,
that products from Korea made with their technology
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would come back to take over the markets" (Sterngold, 1993: C1).
Commenting on protectionism in Korea, Mr. Tukio Kitzame, director
of the Northwest Asian division of Japan's Ministry of
International Trade and Industry (MITI) said, "China is more open
than Korea . . . if Japanese companies could set up 100 percent
owned subsidiaries and sell their products in the Korean market,
then they would provide high technology" (Sterngold, 1993: C1).
Clearly Japan and the other core nations are increasingly
interested in gaining access to the markets, resources, and cheap
labor havens in Southeast Asia, China and so forth, while
maintaining their control of high technology. This control of high
technology production processes, in turn, helps maintain their
position in the hierarchical structure among the region's nations.
GLOBAL CAPITAL ATTRACTED TO ASIA's RAPID GROWTH.
U.S. and European capital are attracted to the rapid growth in the
Asian Pacific, in part, because of the needs of its industries for
growth opportunities. For example, Indonesia's Makhakam River
delta has become the cornerstone of French state-controlled oil
company TOTAL SA's plans to meet an expected boom in gas demand in
Asia (Lichtblau, 1993: A5A). They argue that "the area constitutes
the lion's share of TOTAL's upstream Asian activities." A handful
of American companies have already entered the race to compete with
Hong Kong-based Star TV for market share in satellite television in
a region with two-thirds of the world's population, and with some
of its fastest growing economies (Shenon, 1993: F12). In
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addition, U.S. electric companies are becoming key competitors in
the rapidly burgeoning overseas market for electricity generation
and distribution. Faced with projections of 1.9% growth at home
through the end of the century, they are attracted by world-wide
growth projections which indicate that from now through the year
2000 there will be a need for a staggering 630,000 megawatts,
nearly as much as the total installed U.S. capacity. This
projected growth, in combination with a wave of privatizations, is
adding to their opportunities. Many nations in the developing
world and in the former Soviet Bloc are moving rapidly to sell
their state-owned utilities and want private capital and technical
expertise to do the job. In addition, deregulation at home is
making it easier for U.S. electric utilities to operate worldwide.
One manager of strategic planning says, "It's part of the strategy
of going out there . . . We want to play in the Pacific Rim and
Southeast Asia" (Brannigan, 1993: B4).
This high rate of direct investment is due in part to the fact that
the region has been a safe zone for investment, given that the rest
of the capitalist world economic system has been thrown into severe
crisis throughout the 1980s and into the early 1990s. Neither
Latin America, nor Eastern Europe, nor the former Soviet Union has
been or will soon be ready to reproduce scarce global capital as
efficiently as the three tiered engine for capital accumulation
constructed in Asia by Japan. Japan, as a global player, is at the
pinnacle, the Gang of Four in the middle, and Southeast Asia and
South China at the base, with the poor countries of the Pacific Rim
edge waiting in reserve.
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Indeed the entry of Vietnam, North Korea, China (and other
socialist countries of Eastern Europe and the former Soviet Union)
into the competition to provide the best conditions for global
investment has greatly contributed to reducing the bargaining power
of the whole Third World vis-a-vis global corporations. Ironically,
the conservative regimes in Southeast Asia now fear China not for
"exporting Communism" but for its ability to draw capital away from
them. With its great reserves of labor and unparalleled labor
discipline provided by the Communist Party apparatus, China, in
particular, is capable of beating all newcomers at keeping down
the price of labor. Indeed, who would have expected just a
few years ago that Chinese workers seeking to win disputes with
foreign firms would be told by the authorities that "it will be
beneficial for workers to respect and protect the interests of
capital, and accept exploitation because economic development will
help the country" (Sing Tao International, 1988: 2, from Bello,
1989).
C. The Market Oriented Socialist Societies
As some of the original Gang of Four industrialized and became more
wealthy, they developed a middle class, which in turn has demanded
more democratic forms of government (Kristof, 1992: 2). In
addition, higher wages commanded by the workers in those societies
have driven down the profits to be made in the manufacturing
sector. Consequently, certain sectors of the economy are
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increasingly being moved into lower cost nations and regions within
East Asia. This accounts for the massive migration of Japanese,
Taiwanese, South Korea and Hong Kong Capital into the Market
Socialist societies on the Pacific Rim such as mainland
China, Vietnam and the former Soviet Union (Hoon, 1993: 44, 46).
Recently North Korea has also begun its search for foreign
investment (Sanger, 1993: A4).
As one example, South Korea's spiraling costs from 1988 onward have
priced many of its industrial items out of the market. In
addition, inadequate research and development by industries further
weakened South Korea's overall competitiveness. The strong yen has
recently allowed South Korea to increase its trade and investment
within the booming Chinese economy, which grew 71.4% in 1991,
l64.7% in 1992, and 155.6% in the first quarter of 1993. In the
first quarter of 1993, China was the biggest importer of iron and
steel products and the second biggest importer of cars from South
Korea. South Korea accounts for 171 projects worth US $141
million, bringing total investments in China on an operating basis
to US $205 million at the end of 1992. These investments were
concentrated mostly in six northeastern areas, which included
Shangdong and Tianjin, and grew by an impressive US $140 million in
1992 alone.
Vietnam attracted 11 projects worth US $4.2 million last year,
bringing the cumulative total to US $16.8 million in eight projects
- mostly small scaled garment factories - since diplomatic
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relations with South Korea were opened in 1992. It is Vietnam that
stands out in growth potential, with more trade and investment
delegations visiting Hanoi and Ho Chi Minh City in 1993 than ever
before in anticipation of the lifting of the US imposed embargo.
Once the embargo is lifted, foreign economists and bankers suggest
that Vietnam "will have an economic boom that will end its
distinction as one of the world's most impoverished nations"
(Greenberg, 1993: A14; Shenon, 1992: Y3). That potential acts as
a powerful magnet for investors. Vietnam's population of 71
million is 90% literate, and many speak English and French. The
people are hardworking and wages are low - a dollar a day or less
for factory help (Brauchli, 1993: A10). A small but growing middle
class has created a market for consumer goods, and Vietnam is
attempting to attract foreign exchange by encouraging international
tourism (McDowell, Edwin 1993: 13). The socialist government,
committed to economic reform, has eased its investor law and is
allowing the setting up of a stock exchange (New York Times,
Thursday, December 24, 1992: C6; Steiner, 1993: A11). It is
because of this economic climate that Daewoo is expected to
go forward with a $60 million hotel project in Hanoi and a TV
component factory in Ho Chi Minh City, Lucky Goldstar is
undertaking a telephone switchboard project, and Pohang Iron and
Steel has agreed to expand its share of investment in a joint
venture called Posvina (producing steel) after a short and
successful operation. Observing the changes in Vietnam, Dr.
Duong Quynh Hoa, Health Minister in the underground Communist
Government of South Vietnam from 1969-1976, comments, "[w]e fought
for freedom, independence and social justice . . . [n]ow all is for
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money" (Kamm, 1993: A4).
Political uncertainties in the former Soviet Union have dampened
investments, limiting the cumulative investments to 19 projects
worth US $22.5 million through 1993. But the potential for large
projects such as energy extraction continue to lure the Chaebols,
South Korea's big industrial conglomerates (Hoon, 1993: 46). The
gradual collapse of North Korea's economy has already started to
force subtle changes and its wealthy neighbors, including South
Korea, are eyeing the North's disciplined workers (who are paid
under $50 a month), its natural resources and its strategic
location. In 1992 North Korea opened its doors to a group of 145
Japanese, Chinese, American and South Korean academics, business
executives and journalists. When asked to explain the sudden
interest in foreign investment, Kim Dal Hyon, the Deputy
Prime Minister, said, "We are one of the few countries following
the Socialist ways . . . We are one of these. But we want to
develop our technology." He added, "[I]t is for our own survival.
The world is changing" (Sanger, 1993: A4). Chaebols sent
representatives who scouted the North's ports and talked about how
to rebuild them once economic ties are permitted or the long
divided country is reunified.
The net effect of this re-integration of the socialist societies
into the capitalist world economy has been to increase competition
for global capital, driving down the cost of labor world-wide and
further eroding the situation in the less competitive regions and
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countries of the South. In this way the Market Socialist societies
are helping resolve the contradictions of global capitalism during
the late stages of the American cycle of accumulation. As U.S.
hegemony declines, "hypermobile" global capital has had to claw
back wages and benefits from workers in the core (e.g. the
U.S.) (Glyn, 1992: 71), in part in order to move this capital into
more profitable regions in the expanding semi-periphery (e.g.,
Southeast Asia, including Malaysia), market socialist countries
(China) and Latin America (Mexico, etc.). At the same time East
Asia's original Gang of Four are beginning to experience the
"clawing back" and "relocation" of capital as they too become an
increasingly inefficient location for capital accumulation. We now
turn to China as an example of one of the market socialist
countries.
Reintegrating China
China has emerged as the world's third largest economy, according
to a new ranking system by the International Monetary Fund (New
York Times, May 23, 1993: F13), and has Japan and the United States
as its first and second largest trading partners (WuDunn, 1993, p.
E3). In the first quarter of 1993, China's GNP grew at an annual
rate of 14 percent. In the fourteen-year period since the adoption
of economic reforms in China (1979-1992), China's real GNP per
capita has grown at 7.5% and its volume of exports has grown at
over 10 percent annually. These rates are on par with East Asia's
NICs. By 1992, China's exports amounted to US $85 billion,
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surpassing those of South Korea and Taiwan. China in 1993 was the
thirteenth largest exporter by volume in the world (Sung,1993:
105). The impetus behind China's new global economic presence is
rooted in foreign investment, especially foreign-invested firms in
China which have become a major source of new and more competitive
exports. Joint ventures of foreign firms with assembly and/or
processing agreements with Chinese enterprises have contributed
over 60 percent of China's exports between 1978-1990 (Sung, 1993:
109). The key players in this investment are the United States,
Japan and the Asian NICs, with the United States being the key
market, Japan supplying China with raw materials and capital goods,
and the Asian NICs providing appropriate technology and access to
markets.
CHINA's INTERNAL UNEVEN DEVELOPMENT.
The confirmation of China's enormous economic power obscures,
however, the unevenness of the nation's economic development.
China has the world's fastest growing economy, at 12 percent a year
(Brauchli, 1993c, p.1). It may be on its way to being the world's
largest market, but that growth represents primarily the activity
along the coast of the Pacific Rim, from the northeastern tip of
Manchuria all the way down past Hong Kong. The engine driving most
of China's growth is centered in the southern provinces, a coastal
region with 290 million people, where the government has
established five Special Economic Zones (SEZs) (Theroux, 1993: 34).
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Viewed from a distance, such changes seem impressive, but up close
the story turns out to be messier and more complicated (Bochuan,
1991).
"The Chinese economic miracle has been a deranging process and an
ecological disaster . . . . In some places the air quality is the
worst to be found on the earth. To make way for cities erected in
a matter of months, mountains are being moved, rice paddies filled
in, forests cleared: a process that has caused devastating floods
in South China" (Theroux, 1993: 34-35; Bochuan, 1991).
What has emerged over the last few years is a two-tier economy that
is broadening the gap between the rich and the poor. This is
worrisome to China's leaders. During its Communist period, China
was relatively egalitarian compared to other countries, because no
one had very much. Indeed, the economic restructuring initiated in
1978 by Deng initially created a more equal society by stimulating
growth in the countryside and raising living standards closer to
those of the cities.
Recently, Deputy Prime Minister Zhu Rongji warned that in the first
half of 1993 disparities between China's different regions had
"widened to some extent." That seems understated as income
disparities have been growing since the mid-1980s, and the pace is
now accelerating. "That could provoke a great deal of
disenchantment and impatience among those whose lives are lacking"
suggested Carl Ruskin, a China specialist (WuDunn, 1993b: E3).
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Endowed with different resources, China's 30 provinces have always
been unequal, but under the communists resources were redistributed
from the rich regions like Shanghai to the poorer regions. This
policy has shifted dramatically since 1978, however, and now the
contrast in wealth between the provinces has sharpened. The coast
is vibrant, with executives striking thousands of deals every day
with the outside world. By contrast, the interior is crawling -
admittedly faster than before - yet even the Chinese refer to this
four-fifths of the nation as "China's third world" (WuDunn, 1993b,
p. E3). The difference lies in the fact that the successful
combination of foreign know-how and capital with China's resources
has been largely confined to the coastal areas. In contrast, a
large part of the Chinese economy, especially the big state
enterprises and heavy industries, are still mired in bureaucratic
red tape and inefficiency. "The reforms have achieved spectacular
success in selected coastal areas, but nationally the picture is
less sanguine" (Sung, 1993: 127).
The disparities are creating strains. Conspicuous consumption is
growing in the coastal cities, leading official newspapers to
denounce "money worship." The process has set into motion huge
migrations, as millions of peasants flock to the coastal region in
search of work. In the past China restricted labor movements, but
it has relaxed those rules, partly in order to allow urban
economies along the coast to soak up surplus labor from the
countryside. This surplus labor could reach a total of 180 million
for the period between 1988-2000 (Lippit). One result has been a
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talent drain from the China's poorer inland regions in the
Northwest. Another is that the floating population has made it
more difficult to control the birth rate. The inequities may
provoke unrest, but it is argued by the CCP that even the
poor are better off than before and will not challenge the system
(WuDunn, 1993b: E3).
When China opened its coastal cities to overseas investors in 1978,
the idea was that foreign capital and know-how would trickle inland
and enrich China's poor heartland. More than a decade later, even
with most of China now open to investment, about 85% of
foreign-investment projects remain in the coastal provinces
(McGregor, 1993, p. A10). The primary reason is that China's
transport system is too unreliable to deliver inland goods to
overseas markets. This is destined to change in the 1990s
as rising wages and rocketing real estate prices on the coast are
sending factory owners in search of cheaper inland locations.
Transport is improving and foreign-invested factories are no longer
required to export most of what they make. Recently the central
government in Beijing began encouraging foreign investors and
home-grown entrepreneurs to invest in the heart of China by
designating the Yangtsi River Basin, which cuts a 4,000 mile path
across China's midsection and is home to half a billion people, as
the country's paramount development priority (McGregor, 1993, p.
A10).
Since October, 1992, when the Communist Party's 14th Congress
designated "the socialist market economy" as China's central goal
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in its five year plan, all signs point to what could be called
"state corporativism." "The idea is to allow private businesses to
flourish, while maintaining government clout, by turning state
enterprises into efficient businesses motivated by profits instead
of ideology. This will lead, as well, to the deregulation of the
labor market. Bureaucrats will be relegated to regulating
commerce, not meddling in company operations. And state enterprises
will be rejuvenated by selling minority stakes to the public and
foreign investors" (McGregor, 1992: A12). The plan aims to
transform the socialist state into a profit making venture.
In addition, for the first time since the communists came to power
in China, the government is allowing the "iron" rice bowl to break.
State run enterprises across the country are laying off millions of
workers, increasing economic efficiency and risking labor unrest.
Nevertheless, the government seems determined to proceed with
layoffs among its 108 million state workers (WuDunn, 1993, p. A4).
The coal industry alone has said it plans to lay off 400,000
workers over the next three years (Kristoff, 1992), and the central
government says it will lay off one fourth of its 34 million
employees (WuDunn, 1993, p. A4).
Class formation in China is changing under the impact of the
introduction of capitalist practices subsequent to the economic
reforms of the late 1970s. Drawing from the Shenzhen experience,
Sklair (1991: 209) distinguishes three strata which have particular
significance to the evolving Chinese social structure; first, the
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state officials who negotiate and deal on a day-to-day basis with
foreign (predominantly Hong Kong) capitalists; second, private
entrepreneurs, many of whom have business dealings with foreigners;
and third, the "red capitalists," who live in Hong Kong
and elsewhere abroad and work for Chinese state agencies and
companies.
An important question for the future raised by Sklair is where
these strata are likely to emerge as a "new class" [see Milovan
Djilas (1956) for a similar analysis of Eastern Europe and Mao Tse
Tung (1957) for a similar critique of China, both almost 35 years
earlier. For Djilas it was the "New Class," for Mao Tse Tung it
was "a handful of Party people in authority taking the capitalist
road" who were causing all the trouble and who had to be stopped].
Sklair also asks whether, should these strata emerge as a new
class, they are likely to confront the less corrupt, more
altruistic "socialist entrepreneurs," who are genuinely committed
to the development of socialism "with Chinese Characteristics."
Should such a struggle emerge, it is likely to have enormous
implications for the human consequences of China's capitalist
practices.
CHINA's LINKAGES TO THE WORLD ECONOMY.
China's opening to the capitalist world economy is occurring
simultaneously along several fronts. First, it is becoming more
deeply linked with Hong Kong and recently Taiwan; second, it is
deepening its linkages |
