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Geoforum 32 (2001) 77±90 www.elsevier.com/locate/geoforum 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 dierences, 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 78 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 eects 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 oset 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 eected 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 taris, 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 diered 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 eect 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 dicult 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 diculty 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 suered 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 eorts 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 aect 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 eect 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 eects 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 eects 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 dierences 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 eects 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 eorts to bail out insolvent local ®nance companies (Bullard et al., 1998). Overall however, these measures were insucient 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 eorts 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 dierences 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 dicult, 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 taris (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 eects of the crisis and the SAP have been, there can be little doubt that workers and the poor have borne the brunt of the diculties. 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 dicult 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 dierent 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 dierent 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 dierently, depending on the context. For example, in the Asian NICs undergoing adjustment, there have been substantial dierences 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 eective 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 suers 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. 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