THE INTERNATIONAL MONETARY Fund “bailout” of Korea could not be more of a misnomer. The IMF program aims to bail out not Korea, but the U.S., European and Japanese banks that made bad loans to Korean capitalists.
The crisis that exploded in South Korea in 1997 is partly of its own making, partly a product of ever more difficult conditions in overstocked world manufacturing markets, partly a result of international bankers’ proclivity to withdraw their credit at the slightest inkling of trouble—and entirely the result of the unbridled, anarchic profit-seeking activities of Korean and international corporations and banks.
In response, rather than lend a hand to the Korean economy in crisis, the IMF intends to destroy that economy as currently organized, and force its restructuring along neoliberal lines—to facilitate its penetration and takeover by multinational corporations and international banks.
Liberal U.S. Congresspeople and populist critics are opposing the IMF program for Korea because it makes U.S. taxpayers pay to insure the profits of some of the world’s largest and richest financial institutions. They are unquestionably on strong ground in so arguing; still, they are addressing in fact a secondary aspect of the issue. There’s a twofold struggle unfolding: The U.S.-dominated IMF is confronting Korea’s national economy, and simultaneously forming a united front with that economy’s ruling class against the Korean workers.
The IMF bailout of Korea is a case of U.S. imperialist intervention against a political economy which had the gall not only to embark on a statist, highly protected national path of development, but to make a smashing success of it. As an act of U.S. aggression, this forced opening up of Korean industry and finance to U.S. business interests must be strongly opposed.
But opposition to the U.S.-IMF intervention must have an even higher priority: supporting Korea’s militant unions in their struggle against the plans of the Korean ruling class to use IMF pressure as a pretext for abolishing secure employment, carrying out massive layoffs, and more generally shifting the cost of their crisis on to Korea’s working class.
The IMF program in Korea marks the first instance in which U.S. imperialism has attempted to decisively roll back one of the state-regulated, “organized capitalisms” of East Asia, including Korea, Taiwan and Singapore, as well of course as Japan. Having rid the world of statist “socialisms,” it is now going after statist capitalisms.
Unlike most other IMF targets, South Korea is no longer a “developing country” in the usual sense of the word. In the space of four decades, it has climbed from abject poverty to reach levels of productiveness and standards of living which approach, and in some cases surpass, those of the poorer developed countries of southern Europe, like Greece or Portugal. Korea has, moreover, achieved its trajectory of economic development largely by flouting Anglo-American free market principles and by keeping U.S. and international capital, to a significant degree, at arms length.
Since World War II, the U.S. hegemon has deepened and systematized the imperialist mission beyond anything even contemplated by any previous dominant power. With the slogan of anti-Communism and in the name of the “liberal” ideal of the unimpeded flow of commodities, direct investments and loans, it has come to define its role far beyond the defense of particular U.S. business interests—although it has rarely let such interests down.
The American civilizing mission has been to secure the general conditions for capital accumulation, on a world scale, by advanced country multinationals and banks. It has therefore gone far beyond preventing or if need be obliterating successful anti-capitalist revolutions. It has sought to implement, as far as possible, a vast program of keeping the world free of independent-minded nationalist states.
Although such states might not show the slightest hostility to private capitalist property, nevertheless they manifest the subversive notion that the national economy should be subject to the control of “the nation,” which almost always means the nascent class of industrial capitalists and the local capitalist state.
Such notions and such states cannot be happily be tolerated by the U.S.—-although they obviously must, in some cases, be endured—for they tend to implement such illiberal policies as protecting their home market, limiting and controlling foreign direct investment, and even presuming to maintain effective state control over the nation’s financial sector against outsiders’ inroads.
From the time of the Russian Revolution, U.S. capital, of course, did see the destruction of private property in the Communist countries—not to mention working class revolution anywhere in the world—as intolerable. The restoration of capitalism in the Communist world was a consistent, if long term, goal.
But it was not to prevent the spread of socialism—which, regrettably, was no threat—and often not even to preserve private property, that the United States launched most of its long string of politico-military interventions. Simply to make the world safe for the unimpeded penetration by the corporations and banks of the advanced capitalist economies, the U.S. military and CIA crushed nationalist projects in places like Iran (1953), Guatemala (1954), the Dominican Republic (1965), and so on.
More recently, its endless stream of IMF “stabilization programs” imposed neoliberalism throughout much of the developing world.
Within the developing world of the post-World War II epoch evolving under U.S. hegemony, then, the flagrantly illiberal rising capitalisms of East Asia were a blatant anomaly. They were enabled to arise—in Japan, then Korea, Taiwan and Singapore—in large part because in East Asia the strong imperialist interest in imposing free markets came into conflict with the even stronger imperialist interest in stopping Communism.
The Cold War thereby created breathing space, not (god forbid) for democracy or workers’ rights, but at least for the flourishing of forms of national economy not usually deemed acceptable. South Korea and Taiwan, like Japan, stood on the “front line” against China and the Soviet Union. U.S. capital therefore saw the rise of strong states and effective economies in those places as necessities for anti-Communist “containment,” as it obviously did not in places like Central America.
The political economies of Japan, as well as Korea and Taiwan, exploited their unexpected opening to the fullest. Postwar land reforms wiped out the previously existing landlord class. Forms of capitalism could thus emerge in which the “developmental state” played a central role. Above all, the state controlled, directly or indirectly, the systems of finance, the basic condition for pursuing a developmental path with more than token independence from the multinationals and banks of the advanced capitalist world.
The state could therefore secure the essential condition for development by seeing to the channeling of massive funds for investment to export-oriented corporations. In Korea, as in (but with important differences from) Japan, these corporations tended to be huge, and linked to one another in giant conglomerates (chaebols), which eventually developed their own institutions of finance. Complex forms of merger of bank and manufacturing capital thus came to complement a statist capitalism.
Rather than accept their supposedly predestined role as producers of raw materials or labor-intensive goods in which they possessed, according to the Anglo-American prophets of the free market, a “natural comparative advantage,” the states of Korea and Taiwan, as well as Singapore, following the Japanese example, sought to create comparative advantage in ever more sophisticated forms of manufacturing for the world market.
To do so, the Korean state engaged in a high degree of planning and “industrial policy,” directing investment funds and subsidies to great corporations so that they could develop ever more advanced, higher productivity manufacturing lines, and move up the ladder from apparel, footwear and textiles to steel and petrochemicals, to cars and memory chips.
On the other hand, the state demanded that the corporations export as much as possible, so as to subject them, as beneficiaries of countless privileges from the state, to the price-cost discipline of international competition. Korea’s exports make up no less than 40% of its Gross Domestic Product, and such a high degree of export dependence has unquestionably been one major key to its rapid growth. Indeed, fast-growing exports facilitated the emergence in Korea of a large and dynamic manufacturing sector; the manufacturing sector has, throughout the advanced capitalist world, long provided the best opportunities for rapidly increasing productivity.
Perhaps most galling to U.S. capital, the Korean state imposed a broad system of regulation to limit the leverage of advanced country multinationals and banks over the domestic economy. It protected not just infant industries, but a wide range of other manufacturing lines. Beyond that, it rigidly limited and controlled foreign investment, which never amounted to much.
No doubt most important, although the state encouraged Korea’s corporations to make massive recourse to the world’s money markets, where cheaper credit could be had, it imposed the strictest and most detailed controls over corporate overseas borrowing, in the interest of both stability and autonomy. Meanwhile, it made large expenditures on education, training of skilled workers and engineers, and research and development.
Last, but not least, the Korean authoritarian state—like those of Taiwan and Singapore, as well as Japan in the immediate postwar period—took viciously repressive action to keep down working class resistance, so as to provide a cheap and docile labor force for the corporations. A militant labor movement nevertheless arose in the face of what was, especially in the realm of industrial relations, a police state, and was able to make a powerful impact.
As a consequence of the enormous demand for labor, as well as strong resistance to capital by the labor movement, living standards rose very sharply. By the mid-1990s, Korea was the world’s eleventh ranking industrial power, and in the top twenty-five in terms of per capita income, with its citizens making on average over $7000 per annum, twice that of Mexico and three times that of Brazil and Chile.
With the elimination of the Soviet and Chinese alternatives and “threats,” however, the United States has found itself able to be ever less tolerant of the statist and regulated forms of capitalism of East Asia, and has exerted growing pressure upon them to open their markets and de-regulate their controlled financial and industrial systems.
Partly as a consequence of such pressure, and partly as a result of the desire of their domestic firms for cheaper finance through unimpeded access to world money markets, the Asian economies have begun in the 1990s to de-regulate, to a lesser or greater extent. Korea, in particular—partly to satisfy the demands of its corporations and partly in order to gain admission to the Organization of Economic Cooperation and Development (OECD), the prestigious club of advanced capitalist nations—came to allow its domestic firms essentially unimpeded access to the world money market....with catastrophic consequences.
Over the whole decade 1985–1995, helped out by the skyrocketing yen which made its manufactured exports ever more competitive vis a vis Japan’s, Korea had enjoyed truly extraordinary export, investment and GDP growth, and won the plaudits of the various international capitalist economic institutions. However, in 1994 and 1995-1997, first China, then Japan sharply devalued their currencies, in response to growing downward pressures on their own manufacturing profits.
Korean producers now found their profits squeezed by falling prices in “low end” labor intensive production by the Chinese and in “high end” high-technology production by the Japanese. The response of export-dependent Korean corporations, however, was to try to expand further, even in the face of overstocked manufacturing markets. To facilitate this acceleration, Korean corporations made a huge turn to world money markets, accumulating massive short term debt, denominated in foreign currencies.
This tactic, it must be emphasized, only a few years before would have been ruled out by government financial regulations.
According to a thesis widely-disseminated by U.S. politicians and corporate leaders, as well as world “opinion makers” totally in the thrall of the neoliberal myth, it was only the insulation of Korea’s “overregulated, overpoliticized, and corrupt” corporations from market rationality that allowed them to make these loans. Thus it is only the IMF and its free market medicine that can put an end to Korea’s “crony capitalism “—the system of state regulation/protection and the close interpenetration of the state and the conglomerates—and bring the economy back to health. But these arguments could hardly be more wrong-headed and self-serving. State control was the key to the high levels of investment, the relatively disciplined use of that investment to sharply and continually raise manufacturing productivity through export led growth, and the restrictions on the multinationals and international banks which were the basis for Korea’s spectacular growth trajectory.
Besides: If the Korean corporations over-borrowed only because they were by shielded from the ostensibly infallible market by Korea’s “crony capitalism,” what accounts for the irresponsible over-lending by the supposedly market-disciplined advanced capitalist banks?
In reality, booms and crises, driven by overborrowing and overlending, are built into capitalism’s very functioning. Firms overborrow and banks overlend because they want to get into a market as fast as possible while values are still going up, always convinced they will be able to get out before values start to sink. But the aggregate effect of everyone doing this at the same time is often great financial bubbles, which burst before all but the privileged few can get out.
In this case, although the international banks led the charge to withdraw their assets from the Korean economy, even they did not get out fast enough...and are having to be bailed out precisely because the free market was allowed to function without any impediment.
In its annual report for 1997, issued only three months before the crisis broke, the far-seeing IMF “welcomed Korea’s continued impressive macroeconomic performance [and] praised the authorities for their enviable fiscal record.” This notwithstanding, already in 1996, Korea’s corporations had seen seeing their earnings plummet—not because they were particularly unproductive or inefficient, but because they had massively overexpanded and faced falling world export prices.
As the Korean economy began to sink, the government, in keeping with the norms of the regulated system, was obliged, in the early part of 1997, to bail out several major corporations, and this made international investors increasingly edgy about the fate of their loans.
Then, unfortunately for Korea, in the summer of 1997, the Southeast Asian crisis exploded. [Aspects of these events are discussed in Martin Hart-Landsberg’s essay in this issue—ed.] Foreign lenders, now alerted to the overproduction and overbuilding that had gripped the whole region, suddenly began a rush to withdraw their (mostly short-term) capital from Korea, precipitating a run on the money markets.
The withdrawal of almost all overseas credit from the economy made it impossible for Korean companies to honor their loans. Korean firms had (over-) borrowed short-term—and the international banks had (over-) loaned—on the assumption that these loans would be rolled over, with no thought to paying them back all at once on short notice.
The economy turned out to lack the foreign exchange to cover all of its debts when the banks demanded to be paid off. The exchange value of the currency could not therefore be maintained, and the won fell. But, this made things much worse, since it now became more expensive for Korean companies to pay back their dollar-denominated foreign loans and since the value of Korean assets in international terms fell with the currency. The debt crisis thus threatened to bring down the whole economy.
It was here that the IMF stepped in. And the medicine it imposed, as the condition for the “bailout” loans, was doubly lethal. First, the IMF demanded that credit be tightened. But this of course only made the crisis worse. With interests rates raised so much higher, ever greater numbers of firms, whether or not they had been efficiently run or even had sufficient demand for their products, were unable to meet their obligations, sunk toward bankruptcy, and threatened the viability of their creditors and suppliers, exacerbating the domino effect that was already bringing down the economy.
Second, and the key to the first, the IMF sought to impose an extraordinarily broad-ranging “reform” program that would simply dismantle the Korean economy as presently organized, so as to open it up for takeover by multinational corporations and banks.
The IMF is thus demanding, above all, the destruction of the whole existing system of economic protection and regulation. The IMF’s program, in short, is U.S. imperialism at its rawest. The effect if not the conscious intent of its draconian austerity policy is to radically reduce the worth of large sections of Korean industry, or push them into outright bankruptcy as a prelude to their purchase at bargain basement prices by overseas banks and corporations.
Last, but not least, the IMF is demanding the end to corporations’ lifetime employment policies. At the same time, of course, the Korean government and its corporations are not sitting back and absorbing the costs of their crisis and the IMF’s program, but are attempting to recoup at the expense of the working class. Thus already there are signs that unemployment is growing, in a society with no unemployment insurance.
The Korean labor movement has already shown itself more than prepared to resist employers’ attempts to “reform” the system of industrial relations in the interest of defending their declining profits.
At the beginning of 1997, the Korean president pushed through parliament, in a secret session, a series of laws that would have made it much easier for firms to lay off workers. But the Korean labor movement responded with three weeks of ever-intensifying mass strikes demonstrations, and forced the regime to back off and sustain a humiliating defeat.
This time, however, the unions’ task is much more formidable. The top officials of the Korean trade union confederation initially accepted a government plan to relax laws restricting layoffs, which would quadruple the level of unemployment from one-half million to above two million.
In response, the confederation’s constituent unions not only rejected the government’s plan but threw out the old union leadership and replaced it with a more militant one. Still, it is evident that the union movement is under excruciating pressure.
Workers are being told, especially by the incoming president Kim Dae Jung—who isn’t tainted by the brutal record of the old regime—that they must bear “their share” of the cost in the national interest in order to respond to foreign threats to Korea’s sovereignty.
At least initially, it will not be easy for the Korean labor movement to resist this nationalist appeal. On the other hand, there is reason to doubt that the government’s austerity program will very soon compensate Korean workers for their sacrifices, for the road to economic recovery in a world where almost all economies have hitched their fate to successful exports is likely to be difficult.
Clearly, the struggle is only beginning. It is a struggle in whose outcome working people everywhere have an enormous interest.
ATC 73, March-April 1998