Time for bit of summarizing and a few thoughts on what is happening in Asia. I've tried to pull together material from the list and a few other sources. There is a picture in Friday's Globe and Mail of one of President Suharto's, nicknamed "Tommy", heading to his Rolls Royce after telling reporters that he accepts the conditions which the IMF has laid down for Indonesia even though it will hurt his business interests and those of the other Suharto children. Tommy is very rich. He is smiling, and looks trim and confident. He does not look as though he expects to be hurt very much. Yet the expectation is that many Indonesians will be hurt. An accompanying article says that they will be in for rising prices, fewer jobs and rising interest rates. At least some of these people will not mind seeing Tommy lose some of his wealth, even though they recognize that their interests are tied to his much like those of mice are tied to cheese on the table. Of course, there is a question of how much Tommy will lose. There is also a question of how badly the current crisis will hurt ordinary Indonesians and other ordinary Asians. Asian economies have experienced growth rates as high as 6% or 7% during recent years and may now have to settle for zero growth under tight IMF imposed restraints. And there is a question of how badly the crisis will affect us all. Is it something regional, relatively short-term and containable, or something that will have global repercussions for a long time to come? I've tried to read as much as I could on the crisis, but have found little that has convinced me that we know what is happening. In a message forwarded to this list, Kim Scipes suggests that the root problem is the imposition of the "American" model on developing Asian countries and the displacement of a more suitable "Japan" model. I'm at a bit of a loss about these models, though I do believe that Japan's rapid growth was based on exporting to the maximum while keeping foreign goods out of domestic markets. But, if so, were the Japanese really that much more insular and protective of their home markets than, historically, the Americans? Another view is that the crisis is a result of a growing global glut of fashionable consumer products such as cars, computers, and TVs. The demand for such products is necessarily limited to relatively well-to-do consumers. Once their demand has been satisfied, there are no buyers left and inventories will build up. Overcapacity is the recurrent theme in William Greider's "One World, Ready or Not." However, not all sources are in agreement about overcapacity. The Economist, well respected in some quarters if not others, dismisses this line of thought rather tersely: "the excess-supply argument is mainly bunk." It then puts forward its own point of view: the crisis is essentially financial. "Asia's biggest economic problem is acute financial fragility. These are economies that have become accustomed to high rates of growth, an environment wonderfully forgiving of bank lending that is incompetent, reckless or downright corrupt. The period of much slower growth that, even on the most cheerful assumptions, must now ensue, is only starting to lay bare the results of these practices: a mountain of bad debt. It is already an ugly sight, and there is worse to come." Harvard's Jeffrey Sachs appears to agree, though he does not see the situation as being quite as ugly: "There is no "fundamental" reason for Asia's financial calamity except financial panic itself. Asia's need for significant financial sector reform is real, but not a sufficient cause for the panic, and not a justification for harsh macroeconomic policy adjustments. Asia's fundamentals are adequate to forestall an economic contraction: budgets are in balance or surplus, inflation is low, private saving rates are high, economies are poised for export growth. ... Asia is reeling not from a crisis of fundamentals, but from a self-fulfilling withdrawal of short-term loans, one that is fueled by each investor's recognition that all other investors are withdrawing their claims. Since short-term debts exceed foreign exchange reserves, it is "rational" for each investor to join in the panic." Whatever the truth, it is generally accepted that the Asian crisis will have more than a regional impact. Kim Scipes refers to a New York Times article on the collapse of Peregrine Investments Holdings in Hong Kong, whose largest creditor is First Chicago NDB Corp., the major bank in Chicago, with an Asian exposure estimated at $100 million. It is only one of many banks that are exposed The story in the New York Times continues, "US banks had a total of $34.24 billion in outstanding loans to Asian countries at the end of 1996, according to the Bank of International Settlements." While banking will suffer most obviously, a variety of other sectors of the international economy will also be affected. Scipes mentions reduced exports of weapons to Asian countries. Sources indicate that a variety of major infrastructure projects which would have been undertaken by western firms will need to canceled or postponed. And according to a recent Globe and Mail article: "Canadian exporters, who dutifully trundled to Asia on Ottawa's trade missions in recent years, have pinned high hopes on its once boundless potential. It's too early yet to see major contract cancellations. But for any company with significant Asian business, future sales will be harder to come by, economists say. ... The pain will spread unevenly across Canada. It will be felt most deeply in British Columbia, which is doubly affected because of its commodities-based economy and because nearly a third of its exports go to Asia. Ontario, on the other hand, exports less than 5 per cent of what it makes to Asia, but will be sideswiped if the U.S. economy is affected or if the North American auto industry suffers greatly from cheaper Asian cars. ... Steel makers, auto manufacturers, forest product companies, gold producers and energy companies are all bracing for tougher times ahead." The IMF has been characterized as more of a hindrance than a help. It has come under considerable criticism for the conditions it is imposing on the countries which it is bailing out. Jeffrey Sachs chastises the IMF for having imposed measures "without any public debate, comment, or scrutiny." He sees the IMF's policies as much more stringent than the situation warrants: "Without wider professional debate, the IMF has decided to impose a severe macroeconomic contraction on top of the market panic that is already roiling these economies." It could be the classic case of the doctor killing the patient with an overdose of good medicine. What are the longer run implications of the current crisis? It would seem that much depends on whether the glass is half full or half empty. Half-empty commentators have seen the crisis as another example of the evils of international capital, confirming the need to hunker down behind national borders which must be strengthened to keep such foul things as transnational corporations, international economic agreements, and international speculators at bay. Some want to prevent capital from moving at all! Dream on, friends, the barn door has been open far too long. The horse has left you far behind. Those who see the glass as half full point to Mexico, and the considerable progress that has been made since the bailout of the mid-1990s. But progress for whom? Why are peasants rebelling in Chiapas? Are the poor of Mexico City really better off? Do they even know or care that, by the standards of bankers, the economy of Mexico is improving? Does it have anything to do with them? It is unlikely that global capitalism will collapse because of the current or any soon-to-occur crisis. It is much too strong. It is the way things are now. It will patch itself up and move on. But where will it move on to? It could continue on its present course, turning out fancy cars, big houses and computers, making the rich richer and the poor poorer, lurching through crisis after crisis like a drunk, leaning on the shoulders of the IMF. Or it could begin to make more sense. There may be overproduction in terms of the needs of the rich world, but it is certain that there is no global overproduction. Most of the world's people still live in hovels, still have no access to decent schools or hospitals, and are still disease and hunger ridden. The problem is that these people do not have the means to pay. They lack "effective demand." Perhaps, at some not too distant time if not next time round, instead of bailing out bankers who should have known better, the international effort might begin to move in the direction of creating effective demand among populations which could never hope to afford fancy cars or big houses, but who have needs nevertheless. How might this come about? I do not think it will happen by a better understanding of economics or a more efficient use of capital or technology, although these things will all be important. I do think that we have to follow the lead of thinkers like Robert Theobald, who suggests that a very major dimension has been missing from our collective global economy - a spiritual dimension. Unless we somehow find this, and build it into how we think and proceed, we will remain trapped in a world that is a continuous crisis for the rich and an everlasting prison for the poor. Ed Weick
