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Geoforum 32 (2001) 77±90
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Structural adjustment in East and Southeast Asia: lessons from
Latin America
Jim Glassman a,*, P
adraig Carmody b
a
Department of Geography, Syracuse University, 144 Eggers Hall, Syracuse, NY 13244 1020, USA
b
Department of Geography, University of Vermont, Burlington, VT 05405, USA
Received 22 June 1999; in revised form 3 July 2000
Abstract
One of the main responses to the Asian economic crisis, which began in 1997, has been the adoption of structural adjustment
programs (SAPs), sponsored by the International Monetary Fund (IMF). However, economic liberalization and unmediated integration into global economy were largely responsible for the crisis. Further economic liberalization under the auspices of SAPs,
while seeming to deal with some of the symptoms of the crisis, is likely to exacerbate inequality and future crisis tendencies. This
paper examines the context of the Asian crisis, and the likely impacts of SAPs in Asia by reference to the experience of Latin
America, which has undergone substantial ``structural adjustment'' over the last twenty years. There, outcomes of the process have
included dramatically increased income inequality and dependence. Despite contextual di€erences, similar outcomes are likely in
Asia. If the 2000s are not to become a ``lost decade'' for East and Southeast Asia they must learn from the experience of other
regions with structural adjustment. Ó 2001 Elsevier Science Ltd. All rights reserved.
Keywords: Asia; Latin America; Economic crisis; IMF; Structural adjustment programs
1. Introduction
The Asian economic crisis, which began in 1997, is a
historical watershed. Should the crisis serve to derail the
Asian ``miracle'' economies, it may usher in a new period in the geography of the global economy in which
few, if any, developing countries can be optimistic about
the prospects for rapid industrial growth ± the Asian
newly industrializing countries (NICs) having been the
primary industrialization success stories in recent decades.
The crisis has also had important impacts on development theory and practice, for example with divisions
emerging between the International Monetary Fund
(IMF) and its supporters (Fisher, 1998; Summers, 1998),
and the World Bank and various others who have argued that conventional structural adjustment programs
(SAPs) are ``the wrong medicine for Asia'' (Sachs, 1997;
Stiglitz, 1998). While not questioning the general thrust
of economic liberalization, these critics argue that the
``demand reducing'' elements of SAPs are designed for
*
Corresponding author.
E-mail address: [email protected] (J. Glassman).
countries with large public sectors and substantial public
debts such as those in sub-Saharan Africa,1 Eastern
Europe, and Latin America, but that they are inappropriate for the Asian NICs, which for the most part have
had relatively small states and debts which are largely
held by the private sector.2
We concur with the mainstream critics that the IMF's
approach is the wrong medicine for Asia. However, this
approach has also been inappropriate for countries
elsewhere. Rather than the Asian economic crisis being
the result of ``cronyism'' or corruption, which was then
punished by international capital markets, we argue that
it was the outcome of contradictions inherent in a globalized capitalist economy, and liberalization which
exposed Asian countries to these contradictions. Consequently, further marketization is likely to have
1
In 1980 however central government revenues were only 18.3% of
the gross domestic product (GDP) in the 23 African countries for
which data was available, compared to 30.5% in the Organization for
Economic Cooperation and Development countries (Bratton and Van
de Walle, 1997, 67).
2
Partly in response to criticism over their handling of the Asian crisis
both the World Bank and the International Monetary Fund have
reoriented, in theory at least, to focus more on poverty reduction.
0016-7185/01/$ - see front matter Ó 2001 Elsevier Science Ltd. All rights reserved.
PII: S 0 0 1 6 - 7 1 8 5 ( 0 0 ) 0 0 0 3 9 - 7
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J. Glassman, P. Carmody / Geoforum 32 (2001) 77±90
systematically negative consequences for the Asian
NICs. Seeing what these consequences are likely to be
requires an examination of countries which have already
implemented SAPs.
Not long ago, it was common to see work on development studies which ruminated on what Latin America
could learn from the Asian ``tigers'' (e.g. Evans, 1987;
Jenkins, 1991).3 It is now appropriate to shift our geographic perspective and examine what East and Southeast Asia can learn from the experiences of structural
adjustment in Latin America during the 1980s and
1990s, if more equitable and sustainable development
strategies are to be implemented.
We present our argument in four sections. In Section
2, we brie¯y describe the context and nature of SAPs.
Then we move to describe the growth dynamics of the
Asian NICs and their subsequent economic crisis. In
Section 5, we revisit the process of structural adjustment
in Latin America, highlighting some of its major outcomes and relating these to broader crisis tendencies
inherent in capitalist economies. In particular, we suggest that SAPs have interlocking core-periphery and
class dimensions, as well as potential political consequences, which have negative implications for popular
classes. In Section 6, we return to the Asian NICs,
showing how the features of SAPs which exacerbated
inequality and undermined industrial growth in Latin
America are already having similar e€ects in the Asian
NICs, and how these may increase the risks of future
crises. We conclude by discussing alternatives to neoliberalism.
2. Global structural adjustment
Since the early 1970s the global economy has been in
crisis. In the industrial countries this has been manifest
in deindustrialization and falling real wages for the
majority of the workforce (Bluestone and Harrison,
1990; Castells, 1996). The breakdown of the Bretton
Woods system of ®xed exchange rates in the 1970s unleashed intense competitive pressures worldwide (Brenner, 1998). Subsequently, the introduction of monetarist
economic policies in the core countries in the late 1970s
and early 1980s drove global interest rates dramatically
higher and triggered a debt crisis in the developing
world. Since that time developing countries have been
called on to restructure their economies to correct resulting ``disequilibrium'' under the auspices of the
world's two most powerful international ®nancial institutions (IFIs) the World Bank and the IMF.
3
For a similar analysis of what Africa can learn from the Asian
NICs, see Stein (1995).
Structural adjustment is a policy package of ``free
market'' economic reforms sponsored by the IFIs. Initially structural adjustment programs (SAPs) were introduced to o€set what were seen as temporary balance
of payments problems in developing countries resulting
from increased oil prices and interest rates in the late
1970s. However, with the debt crisis, which broke in
1982, structural adjustment programs became more
widespread and long-lived than was initially anticipated
(Sachs, 1986).
Structural adjustment consists of two distinct elements: macro-economic ``stabilization'' the purview of
the IMF, and ``structural adjustment'' which entails the
restructuring of the economy towards export-orientation under the auspices of the World Bank. Together the
combined package is commonly known as ``structural
adjustment''.
The stabilization phase of adjustment focuses on
demand restraint policies, usually e€ected by large
reductions in government expenditure via measures
such as subsidy removals, public sector employment cuts, and the introduction of user fees (for social services). . .. Structural adjustment involve(s) a
realignment of the real exchange rate (through devaluation), privatization, liberalization of interest
rates, and tax reform, including reductions in import/export barriers (removal/reduction of tari€s,
quotas, and taxes) in order to improve the economy's relative trading position (Haddad et al.,
1995, p. 882).
In the last 20 years, the vast majority of countries in
the developing world have undergone a structural adjustment program (Porter and Sheppard, 1998). With
the onset of the Asian economic crisis a number of
countries there have also adopted them. However, before investigating the impacts of SAPs it is necessary to
examine the causes of the Asian crisis to understand the
context which led to their introduction.
3. The geography of the Asian crisis: capital switching and
competition in a globalized economy
Unlike other regions of the world, East and Southeast
Asia, until recently, seemed to bene®t from the phenomenon of globalization. While rates of economic
growth slowed dramatically in the North Atlantic
economies from the mid-1970s, and the economies of
Latin America and Africa contracted under the weight
of the debt crisis in the 1980s, East and Southeast Asia
were a dynamic pole of the global economy (Dicken,
1998). Indeed, until the Thai government announced the
¯oating of its currency (the baht) on 2 July, 1997, thus
calling attention to the crisis in one of the leading
J. Glassman, P. Carmody / Geoforum 32 (2001) 77±90
``tigers'', the Asian NICs had been commonly regarded
as ``economic miracles'' (World Bank, 1993).
While the crisis took most of the policy-making and
academic world by surprise, we argue that it is understandable in terms of general crisis tendencies inherent
in capitalism and the particular historical conjuncture
faced by the NICs in the 1990s.4 Asian ``exceptionalism''
was not a miracle, but was rather a burst of growth
exemplifying capitalism's dynamism and unevenness,
enabled by a variety of geographically and historically
speci®c factors (Bernard and Ravenhill, 1995). Although
the factors which facilitated industrialization di€ered
somewhat among and between the ``®rst-tier'' East
Asian NICs (Hong Kong, Singapore, South Korea, and
Taiwan) and the ``second-tier'' Southeast Asian NICs
(Indonesia, Malaysia, and Thailand) we can identify
several broad commonalities.
First, most of the Asian NICs, and especially those of
Southeast Asia, have long been part of a ``Chinese network of capital'' (McGee, 1984; Yeung, 2000), which
links the leading sectors of the capitalist class with each
other and with markets in mainland China. This has not
always meant robust economic growth but it has facilitated very long-standing patterns of regional and international trade, which have in turn made it much easier
for some of the Asian NICs to shift to a high-gear export drive when conditions become favorable (Jomo,
1997; Pasuk and Baker, 1998). Second, historical links
with Japan made it possible, once animosity created by
the Japanese invasion during World War II abated, to
rapidly expand trade with (and court investment from)
one of the world's most dynamic post-war economies
(Jomo, 1997). Moreover, in East Asia, Japanese colonialism had an important e€ect on social structures (see
Cumings, 1984) and on the character of the state, creating both the social foundations of industrialization
and, in South Korea, basic structures of the developmental state apparatus which carried forward industrial
planning, often using models very much in¯uenced by
the Japanese (Woo-Cumings, 1995).
As front line authoritarian capitalist states in the
Cold War, the Asian NICs also bene®ted from enormous in¯ows of US military and economic aid, which
were crucial to the early stages of industrial growth
(Woo, 1991; Hart-Landsberg, 1993). The ®rst-tier NICs
also undertook land reforms and disciplined capital in
ways which would have been dicult outside of the
Cold War context (Evans, 1987). Moreover, the NICs
were able to foster rapid capital accumulation at least in
part on the basis of highly exploitative labor practices,
4
For theoretical dimensions of this argument, especially in relation
to Thailand, see Glassman (1999). For a similar argument, focusing
especially on Thailand and South Korea, see Bernard (1999).
79
especially of women workers (Ogle, 1990; Hart-Landsberg and Burkett, 1998).
By the 1970s, these conditions and limited global
export competition, enabled the NICs to make their
mark as rising stars in global manufacturing (Cumings,
1984; Deyo, 1989; Jenkins, 1991; Crotty and Dymski,
1999). The latter-day Southeast Asian NICs lagged behind somewhat, in part because of their ability to base
growth on export of their more abundant natural resources (Jomo, 1997).
While national mercantilist development policies (see
Amsden, 1989; Wade, 1990) and the regional context
were critical to the rise of Asian NICs, global economic
restructuring also played an important role. With the
global economic crisis of the early 1970s, some core
country manufacturers began countering falling pro®tability by selectively o€-shoring labor-intensive assembly operations to select developing countries (Steven,
1996). Much of this investment, in electronics for example, went to Asian countries such as Singapore, given
the favorable conditions for capital there (Henderson,
1989).
In the mid-1980s, in an attempt to reverse its trade
de®cit and reassert its economic dominance the US
forced the revaluation of the Japanese yen. This increased the costs for Japanese manufactures, many of
whom also responded by o€-shoring labor-intensive
functions. By the 1980s the ``second-tier NICs'' received
massive Japanese foreign direct investment (FDI) because of their geographical location, low wages, and
capital-friendly, pro-Western credentials (Jomo, 1997).
Japanese FDI in the three Southeast Asian NICs
reached record levels in this period, and was followed
quickly by a large in¯ux of FDI from the ®rst-tier NICs,
whose companies were also reacting to rising labor costs
and the lure of cheaper export bases in Southeast Asia
(Clark and Kim, 1995; Jomo, 1997).
In tandem with this, from the early 1970s falling rates
of manufacturing pro®tability in the core of global
economy displaced the capital to ®nancial circuits in
search of higher pro®ts (Sassen, 1998). Much of this new
global ®nance was also to ®nd its way into ``emerging
markets'', particularly in Asia during the 1990s, as the
previous manufacturing growth booms there made their
prospects appear good (Bernard, 1999).
Particularly within Southeast Asia, however, the
boom of the late 1980s and early 1990s quickly encountered barriers of its own creation, as growth taxed
inadequately developed infrastructures and drove up the
costs of prime real estate (Bello, 1998; Dixon, 1999;
Pasuk and Baker, 1999). Also, the explosive growth of
industry in Southeast Asia quickly led to labor shortages, which in combination with a more active labor
movement drove up labor costs (McNally, 1998). This
occurred at a time when productivity growth was
slowing and the limitations of dependent development,
80
J. Glassman, P. Carmody / Geoforum 32 (2001) 77±90
such as diculty in systematic technological upgrading,
were being felt (Crafts, 1999). Thus, whereas labor costs
had been low relative to productivity growth throughout
the 1980s in Southeast Asia, they suddenly and dramatically outstripped labor productivity growth in the
1990s (Fig. 1). This, combined with a general problem of
overcapacity throughout the region (discussed below),
resulted in falling rates of pro®t (Fig. 2).
In Thailand the declining rate of pro®t in manufacturing led to some geographical relocation of capital,
but at ®rst primarily to capital switching between sectors. Domestic capital sought out markets which
promised high returns and short turnover times ± principally the stock market and real estate (Bello, 1998;
Dixon, 1999). Foreign investment in major industries
began to drop o€ somewhat in the early 1990s; then,
beginning in 1994±95 there was a great surge of more
speculative real estate investment (Fig. 3). Over the same
period, portfolio investment began to outstrip FDI, with
capitalization of the Stock Exchange of Thailand (SET)
exceeding GDP by 1994 (UNCTAD, 1997).
Ultimately pro®ts in ®nance are dependent on the
continued pro®tability of production, and this disjuncture was to trigger the Asian crisis. An important factor
in this regard was the massive growth of manufacturing
in China, which absorbed increasingly large amounts of
Hong Kong, Taiwanese, and Japanese FDI in lower-end
industries, which might otherwise have gone to the
``second-tier'' NICs (Hsing, 1998; Lo, 1999). The Chinese government's devaluation of the yuan in 1994 made
China's exports cheaper and this put ``pressure from
below'' on the Southeast Asian NICs (Bello and Rosenfeld, 1992; Tabb, 1998). Thailand's lower valueadded manufactures already su€ered from glutted global
markets, and tremendous overcapacity in almost all industries by the mid-1990s (Fig. 4). Furthermore, the
Thai central bank had intentionally kept the baht informally pegged to the US dollar to insure that capital
in¯ows would not be discouraged by the threat of rapid,
unpredictable currency depreciation. This lead to an
overvalued baht, as the US dollar rose against other
regional currencies from the mid-1990s, and further
helped undercut the competitiveness of Thai exports
(Bello, 1998; Bernard, 1999). Combined, these pressures
were responsible for the declining share of garments in
total exports and the failure of a number of textile and
garment ®rms in Thailand by 1995±96 (Voravidh, 1996;
Rigg, 1997). The loss of export competitiveness, bringing with it a widening current account de®cit pre®gured
the breaking of the crisis in Thailand and, in turn, other
countries in the region.
The depreciation of the yen relative to the dollar from
1995 put ``pressure from above'' on the ``®rst-tier'' NICs
as Japanese exports became more competitive, and
Fig. 1. Percent increases in manufacturing labor productivity and wages, southeast asian countries, 1990±1995. Source: UNIDO.
Fig. 2. Pro®t rates for Indonesia, South Korea, Thailand, 1988±1996. Source: Claessens et al., 1998.
J. Glassman, P. Carmody / Geoforum 32 (2001) 77±90
81
Fig. 3. Inward DFI, Thailand (millions of constant 1988 baht). Source: Bank of Thailand, various years.
Fig. 4. Capacity utilization, Thailand, 1985±87. Source: Bank of Thailand, various years.
Japanese markets less able to absorb imports. There was
also what might be called ``pressure from within'' and
``from the side''. As part of its US-promoted liberalization e€orts in the 1990s, the South Korean government
abandoned its control over large-scale investments that
had been used to prevent excess competition domestically (Pieper and Taylor, 1998; Cumings, 1998). This
resulted in excess capacity in such key sectors as cars,
ships, steel, petrochemicals and semi-conductors. Korean exports are heavily concentrated in these sectors,
particularly semi-conductors, which accounted for 20%
of the total exports when prices were high (Pieper and
Taylor, 1998). Increasing competition led to overcapacity and falling international prices. There was 30% global
overproduction of semi-conductors in 1997 (Seguino,
1999). This was partly the result of increased production
within Korea itself, which has 40% of the global market
share, but was also a result of the entry of new producers
of semi-conductors, particularly Taiwan (Pieper and
Taylor, 1998). Prices for 64-megabit dynamic random
access memory chips fell from US$ 60 in early 1997 to as
low as US$ 8 in 1998 (Wall Street Journal, 1998, cited in
McNally, 1998). In Korea, industrial bankruptcies were
also driven by excessive and short-term foreign borrowing by banks and ®rms, as a result of capital account
liberalization in the 1990s, a problem also seen in Thailand (Pieper and Taylor, 1998; Bello, 1998). Thus the
growth dynamics of ``fast track capitalism'' in the region
created enhanced competitive pressures and indebtedness which, when combined with liberalization, undermined the productive structures of the NICs.
At the broadest level the Asian crisis may be explained with reference to the contradictions within a
globalized capitalist economy between the highly advanced material forces of production and the embedded social relations of production, which leads to
problems of overproduction/underconsumption when
capitalists are successful in keeping wage growth below
the productivity growth, and leads to wage-squeeze
pressures on pro®ts when they are not successful. In
the export-led Asian NICs, decades of success in
keeping wage growth low relative to productivity
growth has contributed to a regional and global crisis
of overproduction/underconsumption, with the NICs
being highly dependent upon other countries to take
exports for which they possess inadequate local demand (Tabb, 1998; Lo, 1999). When wage growth in
Southeast Asia ®nally began to outstrip productivity
during the 1990s ± in what could be seen as a process
of correction for decades of arti®cially low wage
82
J. Glassman, P. Carmody / Geoforum 32 (2001) 77±90
growth ± pro®t rates declined and capitalists began to
look for lower labor cost locations, particularly in
China (Lo, 1999; Glassman, 2001). Structural adjustment is now proposed as the cure for this collapse of
Southeast Asian competitiveness.
4. Embedding structural adjustment programs in place and
class: theoretical issues
The IMF and its structural adjustment policies have
been criticized from a variety of perspectives. In particular we want to focus on the implications of SAPs for
core/periphery and inter-class relations, as well as suggesting the gendering of some of their outcomes. The net
results of structural adjustment are to subordinate peripheral economies to transnational corporations
(TNCs), international banks, and core area governments; to generate greater inequality in the distribution
of wealth and income between classes; and frequently to
place a disproportionate share of the burden of adjustment on women. We also argue that in order to gain
implementation against popular disapproval, structural
adjustment frequently takes on politically authoritarian
characteristics.
The global economic crisis which began in the 1970s
has been worked out by the burden of adjustment being
passed down from economically stronger areas and social forces to weaker and less politically organized ones.
In the ®rst instance, the IMF's insistence on currency
convertibility and liberalization fosters domination of
the periphery from the core by allowing relatively
stronger capitals to dominate weaker capitals on an international level. This is largely so because liberalization
of capital ¯ows increases the power of international over
domestic investors within a national economy. Meanwhile open trade and capital regimes help capital dominate labor by providing tools to resist working class
demands for improved wages and social services. Thus
SAPs typically allow local elites to pass the costs of
adjustment onto the popular classes, because the participation of these elites is necessary in order for the
IMF's agenda to be implemented (Pastor, 1987). Within
the popular classes, insofar as gender relations are already inegalitarian, women frequently end up taking on
a disproportionate share of the burdens of adjustment
(Shiva, 1989; Elson, 1992). These tendencies are illustrated in Latin America.
5. Economic and social restructuring in Latin American
NICs under liberalization: deindustrialization, poverty,
and income inequality
Two of the most pressing needs in developing countries are to reduce the level of unemployment and to
diversify economies so that they are better able to
withstand external shocks. One of the best ways to meet
these needs is through the development of a competitive
manufacturing sector that is labor-absorptive. However,
structural adjustment causes deindustrialization in a
number of ways. High interest rate policies detract from
productive investment and negatively a€ect the balance
sheets of companies already in debt.5 Simultaneously
other ``demand reducing policies'' result in contraction
of the domestic market, and trade liberalization may
expose domestic producers to competitive displacement
from overseas.6
The experience of Chile is often invoked to justify the
policies of the World Bank and the IMF. However,
General Pinochet's post-1973 ``stabilization'' of the
economy under IMF guidance resulted in deindustrialization, an absolute reduction in the number of manufacturing jobs, low investment and the reduction of
productive capacity (Barros, 1989). The situation came
to a head in 1981 as it was no longer possible ``for ®rms
to continue paying annual average real interest rates of
25±30%, while during the previous six years (1975±81)
output had grown at an annual rate of only 7%'' (Barros, 1989, 17). In some cases ®nancial repayments rose
to 50% of the total sales for ®rms. Consequently in 1982
there were record numbers of plant closures, capital
¯ight and a ``desubstitution of imports''. From 1967 to
1982, total manufacturing employment fell from 327 013
to 223 138, with some sub-sectors, such as textiles particularly hard hit.7
In Chile, as in East Asia, economic liberalization was
associated with the development of a ®nancial ``bubble''.
According to Barros (1989, 68) external debt increased
signi®cantly after 1974, but much of this was not being
used to ®nance domestic capital formation, but rather
increasing amounts of non-traditional imports. This led
to an appreciation of the real exchange rate, and a
massive increase in the current account de®cit. In the
Southern Cone of Latin America, the IMF and World
Bank have ``repeatedly supported combinations of exchange rate appreciation and capital market liberalization which were doomed to fail'' (Pieper and Taylor,
1998, 10).8
SAPs also tend to be highly regressive in terms of
their impact on income distribution. Indeed the moti-
5
Monetarist economic policies were one of the principal factors in
the loss of three million manufacturing jobs in Britain from 1979±83
(Marais, 1998).
6
For discussions on deindustrialization in Africa under structural
adjustment see Stein (1992), De Valk (1996) and Carmody (1998).
7
Employment in textiles contracted from 46 000 to 19 000 during
that period.
8
Perhaps this has happened because the ®nancial sector in the major
industrial economies were pushing them in that direction (Pieper and
Taylor, 1998).
J. Glassman, P. Carmody / Geoforum 32 (2001) 77±90
vation of such programs is partly to increase the pro®t
share to ``revive'' the private sector economy (Lensink,
1996). In response to the crisis which was driven by
liberalization, Chile implemented the SAPs during all
but one year between 1983 and 1990. Whereas the Asian
NICs were noted for their ``growth with equity'', with
often rapidly rising real wages (Fei et al., 1979), in Chile
from 1981 to 1990 real wages dropped at an annual
average of 5%, ending up 10% lower than they had been
in 1970. Unemployment averaged 20% during 1974±
1987, compared to 6% in the 1960s, and by 1990 the
richest 10% of Chileans had increased their share of the
national income to 47% (Collins and Lear, 1995, 83±85
and 256). Meanwhile, whereas only 17% of Chilean
households lived below the poverty line in 1970, this had
increased to 38% in 1986, declining only slightly (to
35%) by 1990 (Collins and Lear, 1995, p. 266). When the
newly elected democratic government took over in 1990,
it adopted a signi®cantly less liberal policy regime (see
Castells, 1996, p. 125±129).
Mexico's experience with SAPs was similar. The
previous development strategy was one of import-substitution. However with the advent of the debt crisis,
Mexico implemented SAPs in six out of eight years between 1983 and 1990. In contrast to predictions, however, this resulted in a shift not to export-oriented, but
to import-oriented industrialization (Dussel Peters,
1996).
From the late-1980s the share of foreign direct to
portfolio investment in Mexico declined dramatically.
Mexico was able to attract substantial portfolio investment because it had previously met all the IMF conditions, and, as in many of the Asian NICs, the Mexican
government pegged the peso to the US dollar (Martin
and Schumann, 1997). This led to an overvaluation of
the exchange rate which hurt Mexico's export competitiveness and encouraged imports. Consequently the
trade de®cit increased from 0.51% of GDP in 1988 to
6.98% in 1992 (Dussel Peters, 1996, p. 69).
Given the over-valued exchange rate, and the consequent cheapness of imports, there were disincentives to
invest in productive economic activity. Within the
manufacturing sector dualism increased, as those subsectors associated with transnational investment or domestic oligopolies experienced rapid growth, whereas
many more traditional domestically-oriented industries,
such as textiles experienced a process of deindustrialization. According to (Dussel Peters, 1996, p. 80) the
main features of structural change in manufacturing in
Mexico ``are its heterogeneity, concentration and exclusion as well as a signi®cant tendency to lose backward and forward linkages within the domestic
economy''. This may forebode the future trajectory of
much of the manufacturing sector in East and Southeast
Asia, as foreign investors have rushed in to buy up
highly indebted companies at bargain prices after the
83
devaluation of the region's currencies (Wade and Veneroso, 1998).
In terms of income distribution in Mexico: after the
®nancial crisis of 1982±91, the purchasing power of the
minimum wages dropped by 66%, in part the e€ect of
repeated currency devaluations. This reduced the purchasing power of the minimum wages to just half of
what it was during the years 1936±38 (Barry, 1992, 96±
98).
While structural adjustment has been catastrophic for
Mexico's popular classes, it has opened up new opportunities in trade and ®nance for the elite and increased
the scale of concentration in the industrial sector. From
1988 to 1994 the number of billionaires in US dollar
terms rose from 2 to 24 and by 1994, assets of the richest
individual in Mexico exceeded the combined assets of
the poorest 17 million (Weiss, 1995). Moreover, the renewed ®nancial crisis of 1994 forced another round of
devaluation and pushed worker's wages down further
yet (Henwood, 1995). Falling incomes for working class
families have forced many young women to ®nd work in
the burgeoning maquiladora sector at very low wages
and under highly exploitative and patriarchal conditions
(see Cravey, 1998).
While new in¯ows of capital to Latin America had,
during the early 1990s dulled memories of previous
crises, these have once again been rekindled by the ®nancial crises of Mexico and more recently of Brazil,
which have illustrated how tenuous are the putative
gains from openness to international capital ¯ows
(Palma, 1998). Moreover, on each occasion where crisis
has emerged, the core-periphery e€ects noted earlier by
Payer (1974) have been prominent. For example, Mexico's bail-out package was accompanied by measures
that gave the US Treasury de facto control over the
proceeds of the Mexican national oil company, Pemex
(Henwood, 1995).
6. The short-term consequences of structural adjustment
in Asia
In Latin America, SAPs have had the e€ects described here because they altered neither the structural
conditions of dependence nor the class relations which
led to or exacerbated economic the crisis ± a situation of
weak domestic demand (relative to market values produced) and heavy reliance on volatile global ®nance and
increasingly competitive export markets. In fact SAPs
exacerbated economic inequality and deepened poverty,
thereby further weakening domestic markets. SAPs also
increased the susceptibility of local economic processes
to control by the most powerful international economic
forces, particularly multi-national corporations and
global ®nance, thus undermining much productive indigenous enterprise. In doing so, SAPs simultaneously
84
J. Glassman, P. Carmody / Geoforum 32 (2001) 77±90
serve the interests of the global economic core and certain fractions of international and domestic capital
within the periphery.
While we recognize the speci®c di€erences between
various Asian NICs and those of other regions, we do
not believe that their successes exempt them from the
broader dynamics we have described at work in the rest
of the global capitalist economy. Though it is still too
early to discern the medium and long-term e€ects of
SAPs in Asia, we can note their results to date.
Along with mandating exchange rate ¯exibility,
Thailand's SAP originally emphasized cuts in central
budget expenditures (even though debts were overwhelmingly held by the private sector), with a targeted
budget surplus equal to 1% of GDP for 1997/98 (IMF,
2000). Capital in¯ows were initially to be encouraged
through high interest rates and eased restrictions on
equity participation in troubled ®nancial institutions.
Restructuring of the ®nancial sector included the closure
of ®fty-eight insolvent ®nance companies. Wage increases were to be pegged to in¯ation, whereas in actuality the purchasing power of the minimum wage fell.
The state also announced its intention to encourage
privatization of state enterprises in the energy, transportation, utility and communications sectors (Lauridsen, 1998).
As the economic situation in Thailand worsened
throughout 1998, with GDP declining by more than 8%,
some changes were negotiated with the IMF. High interest rates, that encouraged a continuing sense of crisis
amongst foreign investors and had crushed many local
businesses, were slowly lowered, and the state was allowed to run a budget de®cit equivalent to 5% of the
GDP during 1998/99. These re¯ationary measures
helped the economy with the GDP growth for 1999 estimated at 3±4% (Bank of Thailand, various years).
More direct measures ensured that certain ``private''
interests would be bailed out with public money. The
IMF funds were used to pay o€ the central bank's obligations and to indemnify foreign investors, as well as
to restore currency reserves which had been depleted, in
part, by e€orts to bail out insolvent local ®nance companies (Bullard et al., 1998). Overall however, these
measures were insucient to save many domestic capitalists, to the bene®t of foreign investors who have been
able to buy Thai assets at ®re sale prices (Hewison,
1999). Nonetheless, certain well-positioned Thai elites
have also been able to take advantage of the opportunities presented by the crisis through activities ranging
from arbitrage to new joint ventures with foreign investors (Glassman, 1999).
While some of the edges were taken o€ Thailand's
SAP to facilitate the restructuring of capital, there have
been fewer e€orts to directly rescue others. As the SAP
took hold, unemployment more than doubled ± from
1.9% of the workforce in 1997 to 4.2% in 1999 (Bank of
Thailand, various years).9 Other estimates place the
1999 rate even higher at 5.1%, while estimating a loss of
1.4 million construction and 140 000 manufacturing jobs
between 1997 and 1999 (NSO, 2000, various years). Real
wages for manufacturing workers fell from US$ 188/
month in 1996 to US$ 133/month in 1999. Consequently
the poverty rate is estimated by some to have doubled
from around 10±20% of the population (Chang Noi,
1998). Unemployment insurance has not yet been developed, and a major program of poverty alleviation
was not put in place until 1999 (Sauwalak, 1999).10 Thus
the Thai state has primarily relied on rural society to act
as a shock absorber by ®nding work and residence for
those laid o€ from urban-industrial occupations (Chang
Noi, 1998).
South Korea's SAP had similar outlines to the one
implemented in Thailand, in spite of important di€erences in the industrial and political structures of the two
countries. Again, reductions in government spending,
increased foreign equity participation in ailing ®nancial
institutions, trade liberalization, and privatization
measures were emphasized. The ®rst letter of intent to
the IMF (3 December, 1997) made restructuring of the
®nancial sector the ``centerpiece'' of the SAP (IMF,
2000). Legal changes spurred by the SAP approved of
hostile takeovers which will allow foreign investors to
purchase up to a third of the shares of Korean companies as well as the establishment of subsidiaries of foreign banks and securities ®rms. Other changes
eliminated the requirement for government approval of
foreign takeovers involving Korean ®rms with more
than 2 million won in assets, except in key industries and
defense (UNCTAD, 1998). As a consequence, Korea's
recovery, which has so far been more robust than that of
the other two Asian NICs undergoing adjustment, may
result in the displacement of a signi®cant number of
formerly protected domestic producers by foreign ®rms
through direct investment and imports from overseas.
Deindustrialization would appear to be underway in
some branches of manufacturing as textiles, motor vehicles, machinery and equipment, and particularly
clothing production have been especially hard hit. Production of ``wearing apparel'' in South Korea was only
54.8% of its 1995 level in 1998 (Bank of Korea, 1999).
9
Absolute ®gures on unemployment are at best unreliable ±
particularly because of the large seasonal migration of labour from
agricultural areas and occupations to urban-industrial jobs. If one
factors in underemployment in agriculture and those laid o€ from
urban jobs who return to villages and are not counted as unemployed,
the rates would be substantially higher. The important point here,
however, is not absolute levels but trends.
10
Some elements of retraining under this programme have been
controversial; such as teaching women laid o€ from textile factories
how to make and sell sweets (Wehrfritz and Handley, 1999).
J. Glassman, P. Carmody / Geoforum 32 (2001) 77±90
Particularly important to the SAP was the attack on
Korea's powerful labor unions under the guise of improved ``labor market ¯exibility''. The strong resistance
of Korean labor to such demands was met by bringing it
to the table in tri-partite (government, business, labor)
bargaining sessions (Cumings, 1999). While this represented a political gain for labor, it was used to impose
concessions on it which increased the burden of unemployment, which rose precipitously from 2.6% in 1997 to
a high of 8.6% in the February of 1999. Even with signi®cant economic recovery by the end of the year, the
number of workers still unemployed was twice of what
had been before the crisis (NSO, 2000). During the crisis
women were laid o€ at a rate seven times that of men,
illustrating one of the ways in which class processes
connected to restructuring are gendered (South Korean
Women Lose Past Gains, 1998). Income inequality has
also jumped dramatically, with the richest 10% of urban
households having incomes 8.5 times higher than the
poorest 10%, up from 6.9 times two years previously
(Back with a boom, on to the polls, 2000).
As in Thailand, the economic situation in Korea deteriorated more rapidly than expected in 1998, with a
nearly 7% decline in GDP. This forced some changes in
the state budget, with the small surplus of 1997 turning
into de®cits equivalent to 5% of GDP during 1998 and
1999. Much of this de®cit was the result of increased
spending in support of ®nancial sector restructuring,
along with support for small- and medium-sized enterprises and export promotion (Planning and Budget
Commission, 1998). But the strength of Korea's labor
unions and the need to try to limit their opposition to
the SAP also helped produce an increase in spending on
unemployment and social safety net programs (Cumings, 1999). At the same time, however, spending on
education and civil service salaries declined in both the
1998 and 1999 budgets (Planning and Budget Commission, 1998).
In Indonesia the structural adjustment process has
been even more dicult, helping to precipitate a continuing political crisis. Structural adjustment in Indonesia also followed an agenda of exchange rate
¯exibility, state expenditure reductions, ®nancial sector
restructuring, wage discipline, and privatization/liberalization. However, the Suharto regime, in spite of a
general commitment to the SAP, vacillated during the
key moments where the interests of powerful cronies
were at stake, thus earning the distrust of much of the
domestic and international investor community, precipitating the regime's violent downfall (MacIntyre,
1999).
In spite of this political turmoil and the economic
free-fall which accompanied it, the Indonesian state did
in fact implement a comprehensive package of structural
adjustment policies, including eliminating the foreign
shareholding limit of 49% for ®nancial ®rms, approving
85
full foreign ownership of non-banking ®nancial ®rms,
lifting restrictions on foreign ownership of companies
listed in the Jakarta stock exchange, cutting public
spending (particularly on large infrastructure projects),
eliminating a number of import monopolies, and cutting
tari€s (UNCTAD, 1998; MacIntyre, 1999). The severity
of the economic crisis, however, has made new opportunities for foreign investors less attractive, with the
economy contracting by an estimated 13.7% in 1998
(CIA, 2000).
As broad as the e€ects of the crisis and the SAP have
been, there can be little doubt that workers and the poor
have borne the brunt of the diculties. Estimates of
unemployment vary widely, but some place unemployment for 1998 as high as 15±20% of the workforce in
Indonesia (CIA, 2000). Total reductions in the size of
the formal workforce in 1998 have been estimated at
over 5 million people, with manufacturing and service
sector employment estimated to have contracted by 20%
in 1998. Nominal wages were held constant between
1997 and 1998 and the Suharto regime canceled a
planned 15% increase in civil service salaries and with
dramatic in¯ation real wages declined between 30 and
50%, reducing them to their late 1980s level (Feridhanusetyawan, 1999).
Poverty estimates in Indonesia are highly problematic
(Booth, 1997), but there is a consensus that the crisis has
increased poverty dramatically throughout the country.
The International Labor Organization estimates poverty
at 48.3% (Feridhanusetyawan, 1999), and as elsewhere
in Asia, weak or non-existent social safety net programs
have exacerbated this (McGee, 1999). In spite of the
severity of the crisis, it was not until September of 1998,
that the Indonesian government announced the possibility of developing a social safety net program, with
expenditures on food security, public works, health and
education, and promotion of small and medium enterprises ± equivalent in total to 6.5% of the federal budget
(Feridhanusetyawan, 1999). The development of these
programs, however, is dicult in the environment of
budgetary frugality which has prevailed under the SAP:
even in the context of economic free-fall, the Indonesian
state has limited re¯ationary expenditures and has held
the de®cit to less than 1% of GDP in 1998 and 1999.
6.1. Lessons and future prospects for Asia
Evidence of enhanced opportunities for powerful
domestic and foreign investors and worsening shortterm economic conditions for much of the population
undergoing structural adjustment in Asia is incontrovertible. While it is not possible to determine precisely
how much of this is due to the general crisis and how
much is due to the speci®c measures undertaken as
part of structural adjustment, it is clear that SAPs
have, by design, pushed down wages and opened new
86
J. Glassman, P. Carmody / Geoforum 32 (2001) 77±90
investment opportunities for foreign capital. However,
this is not an attempt to derail the Asian NICs general
export-led growth drive (contrary to assertions by
Malaysia's Prime Minister Mahathir), but to restructure it by enhancing the participation of foreign capital, and to open up the region to Western, particularly
US exports. One US trade negotiator noted that the
US had achieved more by way of opening the South
Korean market for car parts in six months of bail-out
talks than during ten years of bilateral trade negotiations (Green, 2000).
In this context, what is important to the analysis of
SAPs and their possible longer-term consequences is not
merely the empirical evidence, but the explanation of the
power relations that push in the direction of worsening
income distribution and increased dependence. Some of
the same kinds of general forces and outcomes which
played out in Latin American under structural adjustment in the 1980s and 1990s are beginning to show in
Asian countries undergoing SAPs. These forces, while
instantiated in speci®c ways in di€erent contexts, are
likely to weaken the position of the popular classes while
making the economies as a whole more dependent on
Western capital ¯ows.
Problems of dependency are likely to be the greatest
in Thailand and Indonesia, which have relatively rudimentary levels of technology development and will be
increasingly dominated by the decisions of TNCs, but
even in South Korea this is an important issue. While
the chaebol are far more technologically advanced and
sophisticated than their counterparts in Southeast Asia,
they retain a strong dependence on technology imports
from Japan.
While the necessity is for further economic diversi®cation and up-grading in Asia, SAPs will also reinforce
an emphasis on competition through low-labor costs. In
the short-term this will exacerbate underconsumptionist
tendencies in the global economy and over-reliance on
volatile export markets. In a global market, sustained
competitive advantage is dependent on the introduction
of new skills and technologies to raise productivity
(Porter, 1990). Even if SAPs in Asia restore growth, and
growth succeeds once again in raising wages, in a liberal
environment, capital may respond by moving o€-shore.
All of this points more generally to the dangers of a
development strategy based on foreign capital in¯ows.
Apart from its greater spatial mobility and the dependence this creates on decisions taken outside the national economy, foreign capital has other disadvantages.
Many commentators now emphasize the importance of
foreign direct over portfolio investment. Due to greater
sunk costs, FDI has a longer-term commitment to an
economy. It may also bring new skills and technology,
but FDI is highly import-intensive and consequently
current account de®cits often tend to rise more than
FDI in¯ows (Jansen, 1995).
FDI is also meant to be a cheap form of ®nance,
however the rate of pro®t remittances from FDI can
also easily exceed international interest rates, implying a
net loss for the national economy when comparing
foreign debt to FDI as a source of capital for industrialization, at least on this score (Lall and Streeton, 1977
cited in Jansen, 1995). Whereas South Korea made
substantial use of foreign debt to ®nance its industrialization, it was channeled through the state and tied to
performance standards on the part of ®rms (Amsden,
1989). Once there was substantial capital account liberalization domestic ®rms in Korea accrued heavy foreign debts, making them vulnerable to devaluation in
the context of ¯oating exchange rate regime. Structural
adjustment will further reinforce this risk.
Foreign portfolio investment is particularly dangerous, because it ¯ows mostly into stock markets and results in their appreciation in value, increases domestic
stockholders' wealth. In the context of an open trade
regime, this contributes to increased demand for imports, thereby worsening any trade de®cit. Furthermore,
in¯ows of foreign capital may contribute to an appreciation of the real exchange rate, thereby undermining
export growth and making imports cheaper. Yawning
current account de®cits served as triggers for both the
®nancial crises in Mexico in 1994 and Thailand in 1997
as international investors feared currency devaluations11
which would reduce the hard currency value of their
investments. If Korean and other local ®rms are displaced by imports, as a result of trade liberalization, this
may make the region's ®nancial markets more fragile,
while simultaneously increasing dependence on speculative and volatile portfolio capital as a source of
growth. Mexico's previous experience is particularly
instructive in this regard.
Structural adjustment also has wider political implications. The conventional wisdom has it that there is a
mutually reinforcing relationship between ``free markets'' and electoral democracy. Thus, it could be argued
that moves towards both political and economic liberalization took place concurrently in East Asia and Latin
America in the 1980s and early 1990s. However, the
timing of the relationship is important. In Latin America it was disillusionment with the structural adjustment
policies of authoritarian governments which was partly
responsible for the shift towards electoral democracy
(Redclift, 1995). In South Korea it was a militant
workers' movement which pressed for political democratization.
In East and Southeast Asia the strictures on structural adjustment may lead to democratic reversals,
rather than democratization, if the state responds to
struggles against SAPs with repressive force, something
11
Currency devaluation is often used to try to correct trade de®cits.
J. Glassman, P. Carmody / Geoforum 32 (2001) 77±90
which has already occurred to some extent in South
Korea and Indonesia.12 Beyond this, there is a clear
move in Asia to ``insulate'' economic policy-making
from ``political interference'', with authoritarian macroeconomic governance by internationalist, neoliberal
elites under an umbrella of formal political democracy.
The hegemony of the neoliberal policies deployed by
these internationalist state managers (Biersteker, 1995),
along with the crucial practical support they garner
from an unaccountable international investment community and the IMF, contradict the notion that liberalization is necessarily a move in the direction of
democratization more broadly conceived. Rather, the
rise of neoliberal hegemony, while helping to disable
some of the more egregious military dictatorships (as in
Indonesia) is supplanting this form of domination with
more deeply entrenched practices of non-military domination; forcing unpopular policies on populations in the
name of economic necessity and ``competitiveness''.
SAPs are an integral component of this anti-democratic,
neoliberal moment and have justi®ably been a target of
popular discontent. It is thus amongst anti-SAP coalitions that the struggle for genuine economic accountability and democratization is to be found (Beckman,
1992).
7. Conclusion
In our view, SAPs are clearly wrong for Asia, not
only because of their demand restraint elements, but
also because of their more general emphasis on unrestricted trade liberalization and openness to international capital which have resulted in the ``globalization
of poverty'' (Chossudovsky, 1998). SAPs have welldocumented and quite consistent outcomes across
di€erent countries, and this consistency re¯ects the relatively stable core-periphery and class characteristics of
the structural adjustment process.
Speci®c SAPs do turn out somewhat di€erently, depending on the context. For example, in the Asian NICs
undergoing adjustment, there have been substantial
di€erences in social safety nets and other co-optive
measures implemented by the state, and with their more
highly developed technological capabilities, Korean
®rms are better placed to compete in the global market
than their Thai or Indonesian counterparts. However all
SAPs issue forth from the same kind of transnational
class coalitions and have the same general purposes.
They largely originate within the core and re¯ect the
relative power of core and peripheral capitals. Given
this, the fact that SAPs seem to consistently worsen income distribution, pose new burdens for working class
12
For an overview of the causes of ``IMF riots'' see Walton (1987).
87
women, and strengthen the position of core area investors is not surprising. To neglect these continuities
would be, in our view, to undermine the political project
of opposition to SAPs and the promotion of alternatives.
These alternatives are many. They range from nationalist initiatives such as those undertaken by the
Malaysian state, which reintroduced capital controls to
enable re¯ation of the economy, to more popularly
based initiatives seeking a transformation in the structures of power, such as the activities of Thailand's Assembly of the Poor. In Asia, some scholars have called
for policies and practices which reorient the region's
economies towards the satisfaction of basic needs, empowerment and environmental sustainability by reducing the scale at which economic activity takes place (e.g.
Bello, 1997). We do not know which combination of
alternatives is likely to take root, but social forces
committed to a more egalitarian and self-directed future
will certainly resist the major features of the SAPs.
To be sure, the global prospects for the implementation of alternative approaches appear to be bleak. In
terms of its core/periphery dimensions, the success of
global structural adjustment in reasserting US economic
dominance is evidenced by the economy growing rapidly
at over 4% for 1999 (The Economist, February 12±18,
2000), with real wages rising for the ®rst time in decades
in the late-1990s (Brenner, 1998). This gives great weight
to the US governments' bullish adherence to the
``Washington consensus'' favoring global neoliberalism.
In order for local struggle to be e€ective it seems
likely that there would need to be new international
institutions which reduce the global power of ®nance
capital. However, the US in particular has blocked recent attempts to reform the international economic
system. This may change in the future as the US economy currently su€ers from some of the same risks that
brought about the crisis in East Asia. As portfolio investment has ¯owed in from overseas to the ``safe haven'' of the US stock market its value has risen. While
the ``new economy'' in the US was partly built on the
basis of a cheap dollar to revive exports in the late-1980s
and early 1990s, the US is now dependent on a strong
dollar to keep the con®dence of international investors.
The former Chairman of the Federal Reserve in the US,
Paul Volker, argued recently that ``the world economy
was currently dependent on the US consumer, who was
dependent on the stock market, which was dependent on
about ®fty stocks, half of which had not shown a pro®t''
(cited in Beatie and Coogan, 1999). Much of the US
consumer demand is being met by imports, with the US
trade de®cit at record levels. If domestic US producers
are displaced by imports, and the connection between
productive and ®nancial returns ``grounds'' in the minds
of investors, the US stock market may fall drastically in
value, creating a global depression. Should that happen
88
J. Glassman, P. Carmody / Geoforum 32 (2001) 77±90
the US government may be forced to reconsider global
neoliberalism. If and when it does, we are sure there will
be no shortage of ideas for alternatives coming from the
people and countries which have had to endure SAPs.
Acknowledgements
The authors would like to thank the MacArthur
Program and the Department of Geography at the
University of Minnesota, as well as the Izaak Walton
Killam Trust and the Department of Geography at the
University of British Columbia, for supporting some of
the research upon which this paper is based. They would
also like to thank Andrew Leyshon and three anonomous reviewers for helpful comments on earlier drafts of
the paper, as well as Philip Kelly, Kris Olds, and Henry
Wai-Chung Yeung for organizing the AAG session
where the paper was originally presented.
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