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Lessons of the East-Asian NICs: A rejection of Jomo Sundaram’s model

By Chow Wei Cheng

Introduction

This article rejects many of the assertions and conclusions made by Dr. Jomo K. Sundaram in his article "Lessons from the East Asian NIC Experiences" (Links No. 4), by undertaking three tasks.

  • Firstly, it attempts to clarify some of the contradictions and limitations in his "social corporatist model", which has no place in the struggle for socialism and is unviable as a general schema for capitalist development.

  • Secondly, I re-examine the economic development in the Newly Industrialising Countries (NICs) of Asia and try to unravel the "mystery" of their economic performance. Central to this discussion is determining whether the NIC model can be repeated, even partially, by other underdeveloped countries. And, even if it can, is it a model for socialists to support?

  • Thirdly, in contrast to the two capitalist variants on offer, I try to vindicate an alternative development strategy for the Third World. Institutions such as the World Trade Organisation and International Monetary Fund advocate outright free market agendas, while others (some of whom consider themselves on the left) advocate a more interventionist or corporatist model, of which the NICs and Scandinavian Social Democracy are supposed examples. Sundaram belongs to this camp. The path I advocate is a revolutionary transformation which breaks from both capitalist variants and begins developing the economy along planned, socialist lines.

Given the "end of communism", this orthodox revolutionary strategy—Leninist if you like—has been abandoned by many on the left as impractical or simply unfashionable. Among them the hunt is on for some "third way". But this "third way" can only be a version of the interventionist model, decorated with notions of people’s democracy.

The question avoided is the old one of whether the working class, peasantry and the broad masses of the people need to seize power in their own right in order to lay the social and political foundations of development. I argue that, while more difficult in today’s "post-communist" world, the revolutionary mobilisation of the people for power remains essential if the crying need for growth is to be met generally—instead of via the lottery of uneven capitalist development. The motor forces of growth—investment in technology and new machinery and in the education and training of the people—are best mobilised by a people that is in control of its own economic and social destiny.

Sundaram’s position summarised

Without wanting to abandon all reference to socialism, Sundaram believes capitalism is the "only game in town" for years to come. He therefore proposes a form of nationalist "social corporatist" model of development and acknowledges this as "an argument for class compromise, rather than class struggle, as well as an argument for a variant of capitalism, not socialism".

His model includes the following features:

  • high levels of domestic savings similar to the NICs to fund investment and development;

  • an interventionist state, based on a "social corporatist" outlook. This state can substitute for a strong national bourgeoisie and would invest in production rather than speculation. The state would have strong elements of protectionism, welfare and planning;

  • the state would intervene to assist the economy to "carve niches and make inroads in the world economy with well-planned integrated initiatives";

  • the economy would be a mixed economy with "socialised" and private forms of ownership, including state ownership, cooperatives, and other ownership forms to increase worker involvement and democratic management and accountability. It would include private ownership and "market augmenting" to encourage "genuine entrepreneurs" to invest in productive activities and balance the state’s bureaucratic favouritism;

  • state intervention would be "democratically and popularly rooted, not at the expense of labour or basic civil liberties"; and

  • "effective corporatism can only develop with some kind of social democratic ideology, in moral or ethical garb, if necessary."

Sundaram doesn’t want to abandon socialism, but by advocating this version of "class compromise" and this "variant of capitalism", he simply ends any socialist perspective, because:

  • the fundamental purpose of his argument is to find an alternative to revolutionary seizure of power; and

  • his preferred model isn’t presented as a step along some other "path to socialism".

Integral to this exercise is the jettisoning of such fundamental Marxist tenets as the basic irreconcilability of class contradictions under capitalism and the bourgeois nature of the state. On both these counts Sundaram adopts the postulates of his new development ideology, Social Democracy.

Secondly, questions of theory apart, Sundaram’s basic error, his basic naïveté, lies in the assumption that components of the NICs model can be readily abstracted from South Korean and Taiwanese history as "lessons" and applied without incurring the fundamental costs of the NICs development path—political repression and the super-exploitation of labour. Yet without these "unfortunate features" there would have been no NICs.

The underlying source of Sundaram’s errors is his lack of an explicit historical, theoretical and hence strategic framework in which to view the struggle for development on the part of the imperialism-oppressed countries of the Third World. Does imperialism in general continue to retard the possibilities of Third World development or not? If the answer is yes, as it was for Lenin, then the struggles of oppressed nations still form an integral stage in the historically necessary struggle for socialism. Indeed, the national liberation struggle can’t be completed without passing over into the stage of socialist struggle. However, if "national liberation" and development can be achieved within the context of existing imperialist power relations, what point is there in even talking about a "struggle for socialism"?

Also, given this lack of perspective it’s inevitable that Sundaram holds up the "mixed economy" as a development model in abstraction from real class relations. But whose "mixed economy"? And to what end? For Marxism an economy with a wide range of ownership and market forms is a necessary, even prolonged, phase on the road to industrialisation, but always with the view that it will increasingly "wither away" as rising productivity and producer control of the economy allow increasing socialisation. By contrast, Sundaram’s mixed economy, even with some democratic forms, is a perpetuation of capitalist domination and in such a context "socialisation of production" is a mere phrase.

The NICs successes—high growth explained

The statistics on the NIC’s performance are widely available. They depict rapid growth—double to triple that of the US, Japan and Germany in the 1960s to 1980s, rapid productivity growth, quick industrialisation, a high degree of investment and capital formation largely funded from domestic savings, and a high propensity to export, with consumer durables and machinery accounting for a large share of exports. These countries have also begun exporting capital in the form of investment and production facilities in other developing countries such as China, Vietnam and other countries in South-East Asia (see Table 1).

However, it is important to place these achievements in context. As the World Bank (1995) says, "Apart from most, but not all, East Asian economies, it has been rare for Third World economies to make much advance on the First World. Some poor countries, especially in Africa, actually had a lower level of real output per head at the end of the 1980s than at the start."

According to Satoshi Ikeda, Taiwan, South Korea, Singapore and Hong Kong are the only Third World countries to have grown rapidly enough to close the relative income gap between themselves and the advanced capitalist economies.(1)

The NICs account for only a tiny minority of Third World countries and despite their successes the total gdp of South Korea, Taiwan, Hong Kong and Singapore together were equvalent to only 16 per cent of Japan’s gdp in 1994. (2)

The NICs’ key to success was marrying imported technology and cheap labour to an export market. That cheap labour advantage is disappearing and export markets are tightening. Furthermore, the long-suppressed costs of high-speed growth now begin to emerge.

These costs, such as the severe exploitation and repression of labour, are most vividly displayed by the recent Korean workers’ general strikes. January 15 saw over 600,000 workers on general strike against repressive labour laws and attempts to further curtail democratic rights. Strikers came from most manufacturing industries, hospitals, public transport, media, and the public sector, with news polls indicating that the vast majority of those surveyed supported the strike. However, the strike was the culmination of a structural crisis with roots that go back a decade. Between the northern summer of 1987 and late 1989 Korean workers launched over 7000 strikes (close to 10 per day), a record for a country of this population.

In 1993 the World Bank released its analysis of the causes of the NICs’ development in The East Asian Miracle—Economic Growth and Public Policy. The purpose of that document was precisely to outline what lessons could be learned by other Third World countries from the NICs’ experience. It states:

What caused East Asia’s success? In large measure the hpaes (High Performing Asian Economies including Japan, the four NICs and Indonesia, Malaysia and Thailand) achieved high growth by getting the basics right. Private domestic investment and rapidly growing human capital were the principal engines of economic growth. High levels of domestic financial savings sustained the hpaes’ high investment levels. Agriculture, while declining in relative importance, experienced rapid growth and productivity improvement. Population growth rates declined more rapidly in the hpaes than in other parts of the developing world. And some of these economies got a head start because they had a better educated labour force and a more effective system of public administration. In this sense there is little that is "miraculous" about the hpaes’ superior growth record; it is largely due to superior accumulation of physical and human capital.

But these fundamental policies do not tell the entire story. In most of these economies, in one form or another, the government intervened—systematically and through multiple channels—to foster development, and in some cases the development of specific industries. Policy interventions took many forms: targeting and subsidising credit to selected industries, keeping deposit rates low and maintaining ceilings on borrowing rates to increase profits and retained earnings, protecting domestic import substitutes, subsidising declining industries, establishing and supporting government banks, making public investments in applied research, establishing firm- and industry-specific export targets, developing export marketing institutions, and sharing information widely between public and private sectors.2

The NICs also engaged in "financial repression" where interest rates were kept low to cheapen borrowing by firms. Thereby savers, the majority of whom are households, subsidised corporate borrowers. Balanced state budgets were also required to bear down on interest rates and inflation.

The World Bank counsels policies that encourage macroeconomic stability and high investment rates, namely tax and investment incentives to encourage business profitability; guaranteeing banking profits to ensure a "stable and secure" financial system; spreading private investment risks to the public by state guarantees of the financial viability of investments; and granting subsidies to and bailing out distressed strategic firms.

The World Bank also notes that these governments have been "less responsive than other developing economy governments to organised labour’s demands to legislate a minimum wage."

Sundaram’s position is essentially the same:

Domestic private sectors will need to be encouraged to make long term investments in the national economy, especially to enhance the economy’s productive capacity…Besides capital flight, another consequence of investor unfriendly policies has been more investments in short-term, quick return activities, such as property, share market and other speculation, largely at the expense of the development of the real (productive) economy. Hence, a nationalist alternative would encourage private capital accumulation, especially by genuine entrepreneurs investing in productive economic activities. (3)

In other words, both these positions seek to run the economy in the interests of private investors and their profits rather than in the interests of workers and peasants. Supposedly the labouring classes will be better off in the long run as wealth created "trickles down" to the workers through higher wages and increased employment.

False explanations of NICs’ growth

One pseudo-explanation that has arisen to explain the NICs’ growth, endorsed by Sundaram, is that growth was due to a high level of domestic savings, which allowed national capitalists and governments to fund investment without reliance on foreign finance. This reduced reliance avoided the debt-dependency spiral that afflicts many Third World countries, and also the profit repatriation that accompanies foreign investment in domestic businesses.

It is certainly true that increased savings can assist already existing economic growth by providing cheap finance. However, it is not true that a greater pool of savings necessarily leads to greater economic growth. This depends on a multiplicity of factors, such as profitability, investment and access to markets. The critical combination in the NIC’s case has been that between high domestic rates of profit (dependent most of all on low real wages) and high demand abroad.

Just because an economy enjoys access to finance does not automatically mean that profitable, high-growth investment results. A high savings rate is a consequence of growth and cannot be raised until that growth occurs in the first instance. While high domestic savings can facilitate growth, the ability to grow in the first instance must be in place, which—as the history of the NICs indicates—depends on a whole range of factors, not the least of which is the attitude of the imperialist powers towards access to their markets.

We can note in passing that in the 1960s South Korea had a much lower savings rate than Taiwan, Singapore and Hong Kong, and that investment was overwhelmingly funded out of foreign savings in those years: this led to increased foreign debt, but it didn’t hinder growth, confirmation that high levels of domestic savings, although useful in reducing exposure to the moods of foreign investors, are not the key to growth (see Figure 1 and Figure 2).

This savings-growth relationship has been empirically tested by the World Bank itself. Conducted by Summers and Heston >(4) the Granger causality testing of Asian NICs and the US from the 1950s to 1988 showed that real per capita growth rates of Gross Domestic Product underpinned increases in the savings rate and not vice versa.

Behind the growth statistics

In the long run, sustained growth and the advancement of the level of productive forces must be associated with increasing levels of labour productivity. The main sources are primarily increasing the percentage of the workforce in industry, increasing the education and skills of that labour force and adding more machinery to the production process. To measure these effects, statisticians subtract the effect of increased labour and physical capital stock and calculate a residual that is termed total factor productivity (TFP).

Numerous studies have been released which analyse the causes of the NICs’ economic growth and associated increases in labour productivity. The NICs grew mainly from increases to the industrial workforce and investing in more machines. Alwyn Young (5) found that such simple increases in inputs accounted for about two thirds of growth, rather than any change in technology or efficiency. In the case of Singapore, increased inputs accounted for 98 per cent of growth over the 1970–90 period.

In short, the World Bank is right: the NICs displayed "a superior accumulation of physical and human capital". Further productivity growth came from the process of industrialisation itself, relocating the country’s resources from sectors of low productivity to high productivity, namely from agriculture to industry.

World Bank researcher Hollis Chenery (6) observed this process and cites numerous statistical regression studies done between 1950 and 1973. These show, in virtually all cases, that the shift of resources out of agriculture in the developing and semi-industrial countries is associated with increased growth. He concluded that the relocation of capital and labour to sectors of higher productivity account for about 20 per cent of average growth.

We have thus accounted for about 85 per cent of the NICs’ growth "miracle". The rest most likely comes from increased technical efficiency such as improved shop floor organisation and gains from specialisation. Very little productivity growth was attributable to improving technology.

This conforms with international experience. When TFP is broken down into technological change and technical efficiency, TFP growth in advanced capitalist countries is largely due to technology change. For example, growth theorist Robert Solow has found that technological progress accounted for 80 per cent of the long-term rise in US per capita income. Increased investment in additional physical capital accounted for the majority of the remaining 20 per cent.

This has profound ramifications for analysing the NICs’ achievements and prospects. A growth strategy based on massive increases in inputs will run into diminishing returns: the first bulldozer added to a production site will make a huge difference, while the twelth bulldozer will make little. The economy-wide implications are for the NICs’ high growth rates to slow and there have already been numerous reports (such as those of the Asian Development Bank) which already cite a slowing down in productivity growth.

Paul Krugman (7) has compared the NICs’ growth with studies of the high growth rates in the former ussr. These studies also indicated that much of the Soviet growth was associated with an enormous increase in inputs, rather than with gains in efficiency or technology. This explained the persistent productivity gap between the US and ussr. Krugman also states that the strength of the Soviet economy was its ability to mobilise resources, not use them efficiently or innovate technology. As input-driven growth is inherently limited, Soviet growth was virtually certain to slow down, as it did by the 1970s.

Krugman also notes that Japan’s growth was due to both an increase in inputs and high rates of efficiency growth. He believes Japan is still catching up to the US, and this catch-up has slowed due to the lower rates of growth experienced since 1973. He states:

Japanese economists generally believe that their country’s rate of growth of potential output, the rate that it will be able to sustain once it has taken up the slack left by the recession, is now no more than three per cent. And that rate is achieved only through a very high rate of investment, nearly twice as high a share of gdp as in the United States. When one takes into account the growing evidence for at least a modest acceleration of US productivity growth in the last few years, one ends up with the probable conclusion that Japanese efficiency is gaining on that of the US at a snail’s pace…in other words, Japan is not quite as overwhelming an example of economic prowess as is sometimes thought.(8)

Table 2 shows the comparative sources of growth for South Korea, Japan, West Germany and the US and clearly bears out the conclusions outlined.

In order to reach the next stage of growth, the technology gap between the NICs and the advanced capitalist economies will need to close. Their experience shows that technology diffusion throughout the world is often less wide that usually thought. A recent book by noted Japanese political economist Professor Kozo Yamamura, Asia in Japan’s Embrace,(9) outlines the reality: "Japan is actually flying further and further ahead of the regional flock. The division of labour in Asia, based on technological capacity of each nation is becoming more, not less, vertical." Yamamura argues that Japanese capital and technology are based on a "grand production alliance" in Asia. Japan’s government promoted a corporate regional strategy around a division of labour based on the parent company in Japan supplying the most technologically advanced components in production while the other Asian countries supply the less sophisticated parts. For Yamamura, Japanese capital is particularly careful about control of technology diffusion and its ability to export capital due to the high yen further enhances its control.

As a consequence of this structural dependency on Japanese technology, two thirds of Taiwan’s technology transfer agreements are with Japanese firms. Taiwan, South Korea and the four biggest asean countries all rely on Japan for some 40 per cent of their machinery imports.

Korea’s most noted success stories are predominantly dependent on Japanese technology. Japan accounts for 60 per cent of technology licences and 50 per cent of joint ventures in the Korean car sector, with US and Europeans accounting for the rest. In other industries there is a high dependence on US and Japanese licensed technology: wafer fabrication in semiconductors, engines and transmission in cars, computer-aided design in textiles and garments, hardware and software design in computers.

Korea combines others’ technology with low wages and an efficient manufacturing process, but Korean firms have been low in innovation and new product development. In key exports for example, 85 per cent of the value of a Korean tv and 70–90 per cent of the value of a laptop computer come from Japan and account for 60 per cent of the price. These technological rents result in fat profit margins for Japanese and US firms and very thin margins for their Korean counterparts. A cursory glance at the Fortune 500 list of the largest world companies lends weight to this conclusion, albeit with aggregated figures. In 1996, Hyundai automotive profit margins (net profit after tax divided by sales) were 1.4 per cent compared to Toyota Motors’ 2.4 per cent (despite the overvalued yen), Ford’s 3.0 per cent and General Motors’ 4.1 per cent.

However, despite these shortcomings NIC growth is still an achievement that most Third World countries cannot attain. The NICs derive this growth from their specific role within a regional division of labour, a role from which many other countries are excluded. This leads to the question of why the NICs could gain this role in the first place.

The NICs and imperialism—an Asian Marshall Plan

To understand whether replication of the NIC experience is possible it is vital to grasp the historical context of their development, particularly the attitude of the imperialist powers.

The US policy for the region after the Second World War was "containment" to stop the spread of the communism in the region. In particular US policy for South Korea and Taiwan was to build up states as centres of capital accumulation, but without military power.

An Asian version of the Marshall Plan was developed. The US pumped in a vast amount of economic, military and food aid. South Korea and Taiwan were given preferential access to US markets for their exports, US technology, and assistance from US technocrats and planners. During the US occupation of Korea the left and unions were severely weakened, the presence of military and security forces stepped up, local infrastructure developed, economic plans formulated, protectionist measures tolerated and the US puppet Syngman Rhee installed as the constitutional dictator.

The scale of aid was massive. From 1945 to 1979 South Korea received $13 billion in US military and economic aid and Taiwan $5.6 billion ($600 per capita in South Korea and $425 per capita in Taiwan (10)). South Korea’s 1946-78 total of nearly $6 billion in US economic grants and loans compared with a total for all of Africa of $6.89 billion and for all of Latin America of $14.8 billion. US military deliveries to Taiwan and South Korea between 1955 and 1978 (excluding the Korean War) totalled $9.05 billion. All of Latin America and Africa received $3 billion over the same period.

In the 1950s, this US aid financed a staggering 95 per cent of Taiwan’s trade deficit. In South Korea US aid accounted for nearly 15 per cent of gdp and paid for over 80 per cent of South Korean imports. In 1951-74 Korea’s receipt of $8 billion in US food shipments of cheap surplus grain, meant wages could be kept artificially low, and prices of exported commodities lower.

Military assistance flowed in at twice the rate of economic aid, allowing Rhee and Taiwan’s Chiang Kai-Shek not only to maintain basic economic and social order but also to invest substantially in infrastructure, especially education. The military in both countries gave disciplined training and basic literacy to a mass of young people, while rearing officers and managers who later populated state bureaucracies and big corporations. The well-trained, sizeable bureaucracy was interwoven with the army, and its core filled with US-educated economists and foreign experts working for the World Bank and imf.

Direct aid from the US for both countries ended in the 1960s, to be replaced by increased dependence on Japan. During the 1970s Japan accounted for 25 per cent of South Korean exports and 38 per cent of imports. Together, Japan and the US gave preferential access to their markets and accounted for two thirds of South Korean exports and 70 per cent of imports. Direct investment in South Korea by Japan increased and credits and loans were extended. Indeed, between 1963 and 1972 Japan’s ten largest trading firms handled as much as 50 per cent of exports and 60 per cent of imports to and from South Korea.

This entire program had a huge influence on the ability of these countries to develop. In reality the scale of aid, the preferential access to US markets and the degree of technical assistance represented a temporary easing of the main sources of imperialist exploitation and competition. Without these conditions the "miracles" would never have started.

In today’s world economy, with no stable world order and intensified inter-imperialist competition, no imperialist power need be so generous. Indeed, tensions now rise between the US and South Korea over such issues as the alleged dumping of South Korean products on US dometic markets. And on a global scale there simply isn’t the level of aggregate demand to accommodate ten or 20 new NICs.

The cost of growth—the rate of labour exploitation

Increased growth ultimately derives from the investment of surplus value to expand productive capacity. As labour is the source of surplus value which funds investment and growth, then it is not difficult to understand why the super-exploitation of workers is integral to the NICs’ growth. Cheap labour was their only "comparative advantage": in 1987 before the present decade of union struggles broke out, hourly pay in South Korea was 11 per cent that of US workers. Today the average work week is around 54 hours (ILO) and there is minimal investment in safe working conditions. In 1989 South Korea had the highest rate of industrial accidents in the world with five workers killed and 390 injured per day. (11) Women are super-exploited, being paid around 50 per cent of the male wage. Table 3 shows hours worked in manufacturing in the NICs.

South Korea’s workforce is subject to military discipline within the firm and by state intervention through repressive laws such as the Labor Union Law, which gives the government power to void any union decision, and through the creation of yellow unions. Military intelligence also plays a large role in the surveillance and selection of union personnel.

Taiwan has a more dispersed industrial structure with 90 per cent of industrial enterprises having less than 30 employees. Over 80 per cent of the employed labour force are found working in these shops. The Labor Union Law prohibits union activity in companies with under 30 employees, thereby excluding unions from 80 per cent of the labour force.

Taiwan and South Korea’s key asset started to lose competitiveness in the early 1980s, as the rural labour supply dried up and growing labour militancy put upward pressure on wages. By 1988, for instance, the average monthly wage stood at $643 in Taiwan, and $610 in Korea, whereas it was only $132 in Thailand, $129 in Malaysia, and $209 in Indonesia.(12)

In both Taiwan and South Korea the left has been weakened or destroyed. In Taiwan the Kuo Mintang consolidated political power early; in South Korea the Marxist left were eliminated early and the coup of 1961 centralised control under martial law.

While Sundaram does not deny the character of these states, he dodges the issue by trying to plant a nicer capitalist democratic superstructure onto his model. He mentions Scandinavian Social Democracy as an example, but this is mere daydreaming. Not only is Scandinavian Social Democracy limited from the left’s point of view, it is also completely inadequate to the brutal tasks a developing capitalism requires. The option of using Social Democracy is only available to countries which already have a level of material wealth substantive enough to create a layer in society content with their standard of living. As such Social Democracy has only been a real force in advanced capitalist countries.

Imperialist or dependent states?

To clarify the extent of success of the NICs in being able to forge an independent path it is useful to discuss to which Marxist category the NICs belong. Are they imperialist countries, with a relatively large degree of economic independence by virtue of control over other markets, or are they dependent countries, subordinated to the interests of the imperialist bourgeoisie? In his Imperialism Lenin argued that the countries of the world had become divided into two fundamental categories, oppressor and oppressed nations. Ernest Mandel (13) argues that the NICs constitute a subdivision under the oppressed category. According to Mandel, these countries are more industrialised, have a certain degree of economic independence from imperialist capital and even exhibit some characteristics of imperialist countries such as the manufacture and export of means of production. However, their comparative economic development compared to the rest of the Third World does not mean they are imperialist countries.

It’s vital to grasp at the outset of this discussion this means that being an imperialist power is not just a consequence of economic development but also of the economic domination of another country’s market. There are, for example, comparatively industrially backward countries that are and have been imperialist by virtue of their economic domination of other countries’ markets. Portugal and Spain are the classic examples. The semi-colonial countries that are experiencing some industrialisation, do not dominate other countries economically, although they may be exporting small flows of finance and engaging in unequal trade in a limited fashion with some poorer nations.

The carving up and domination of Third World countries has already taken place. Any reorganisation of markets to accommodate a new oppressor nation will most likely require war, as in the case of Israel. Until such a time, and without breaking from their existing military dependence on the US and other imperialist powers, the NICs will not have graduated from being industrialised countries to being imperialist powers.

Moreover, these countries still suffer from imperialist domination in various ways. The advanced capitalist economies lay down the principal avenues for access to and accumulation of capital, regulate access to world markets, try to restrict access to technology, and provide the military framework within which the world economy exists.

It is also vital not to overestimate the NICs’ economic power and to look closely at the exact state of capital concentration prevailing in their economies. Hong Kong and Singapore can in no way be described as imperialist countries, despite high capital outflows. Their very existence depends upon an international division of labour that has assigned them the role of financial centres and regional sub-headquarters for transnational corporations. They have an insignificant domestic ruling class, with foreign capital being all-pervasive. The only large domestically owned firms (with sales of at least A$200 million) are those that relate to their role as financial centres: these include airlines, banking, property and construction, electricity and telecommunications utilities, and trade. As such, they are truly “dependent” economies.

A closer look at South Korea and Taiwan yields a similar conclusion, despite their having a much more extensive domestic industry. Firstly, each economy displays a high degree of monopolisation. The data for South Korea is shown in Table 4.

However, despite their successes, the average debt to equity ratio of Korean-listed companies is around 205 per cent compared to the standard listed company in an advanced capitalist country of around 30 per cent. This figure indicates that Korean industry is highly dependent on debt for finance from the state that controls most of the banking capital. Without this assistance these firms could well be in technical bankruptcy.

The technological dependency of each of their key industries has already been mentioned. Korean industry is still largely technologically dependent on imperialist countries and its imports of producer goods like machinery and transport equipment has been increasing as a proportion of total imports, from 12.2 per cent in 1960 to 36.5 per cent in 1994. (14) Both South Korea and Taiwan’s main imports are electronic and non-electronic machinery, and their main import partners are the US and Japan.

In addition, both country’s growth rates are largely dependent on the growth of exports. While there has been a large reorientation to Asian markets, the US and Japan still account for the largest market share of nic exports. In 1992, 48 per cent of Korean exports went to imperialist countries and 64 per cent in the case of Taiwan. Fifty-nine per cent of Korean imports come from imperialist countries and 69 per cent in the case of Taiwan. (15)

The NICs and Marxist theory

It is often said that the theory Marxist of imperialism could not explain the growth of the NICs and thus new theories needed to be developed. This view is largely due to confusing "dependency theory" with more classical Marxist theories of imperialism.

Dependency theorists (like Paul Baran and André Gunder Frank) characterise the Third World as locked into specialisation in the world market, typically in exporting primary industries, with dependence on the First World for markets, technology and capital. Imperialist capital dominates these countries transferring any surplus back to the imperialist centres either through profit repatriation, licensing fees, royalties, transfer pricing or debt repayments. This prevents an accumulation of surplus by the underdeveloped country and so inhibits its ability to grow. In the event that a surplus does develop in the underdeveloped country, there is usually no productive channel of investment for that surplus, as wages are too low for a significant market to exist. The surplus therefore is typically invested in non-productive or speculative activities at home or abroad: thus the noose of dependency is tightened around the Third World. Obviously such a theory leaves no room to explain the rise of the NICs.

Without revisiting all the intricacies of the debate within Marxism on imperialism, aspects of the dependency model do characterise the majority of relations between First and Third World economies. These relations are manifested in debt burdens and foreign ownership. In the case of the NICs the US fostered development and permitted an indigenous bourgeoisie to develop, retain and reinvest the accumulated surplus. Their development has been dependent upon imperialism through aid, preferential access to US and Japanese markets, military and technical assistance, and the tolerance of protectionist and other measures. The US did this for specific political reasons, and because it could afford to. Therefore, the NICs are the exception that prove the rule, namely that it is imperialism’s needs that set the ground rules of development.

However, imperialism should not be viewed as fixed and static. Lenin defined imperialism very generally as the monopoly stage of capitalism. It was not reduced to a theory of relations between nations, but denoted the totality of economic and political relations within capitalism as monopoly became the rule; part of these relations involved the division of the world into oppressed and oppressor nations.

But individual economies and the world economy are subject to combined and uneven development. Today, as throughout the twentieth century, there is as much probability of absolute underdevelopment of the Third World as there is absolute immiseration of the working class in an advanced capitalist country. Just as there are countervailing forces contradicting the absolute immiseration of the working class, there can be no ruling out the industrialisation of Third World under certain conditions.

George Novack’s work Understanding History explains this law of uneven and combined development:

The law of uneven and combined development is a scientific law of the widest application to the historic process. This law has a dual character or, rather, it is a fusion of two closely connected laws. Its primary aspect deals with the different rates of growth among the various elements of social life. The second covers the correlation of these unequally developed factors in the historic process.

The principal features of this law can be summarised as follows: the mainspring of human progress is humanity’s command of the forces of production. As history advances, there occurs a faster or slower growth in productive forces in this or that segment of society, owing to differences in natural conditions or historical connections. These disparities give either an expanded or compressed character to entire historical epochs and impart varying rates and extents of growth to different peoples, different branches of economy, different classes, different social institutions and fields of culture.

The variations among the multiple factors in history provide the basis for the emergence of exceptional phenomena in which the features of the lower stage are combined with the superior stage of social development. These combined formations have a highly contradictory character and exhibit marked peculiarities. They may deviate so much from the rule and effect such an upheaval as to produce a qualitative leap in social evolution and enable a formerly backward people to outdistance, for a certain time, one more advanced. (16)

Can the NICs’ experience be repeated?

In the light of the preceding discussion it’s clear that the main factors preventing a general spread of the NICs phenomenon is the changed stance of the major imperialist powers, especially the US, and the long-run slowdown in world economic growth. These vital elements are nearly always missing from the plethora of studies of the NICs that have appeared in recent years. In their absence all the other reasons that are usually cited for the NICs’ rapid growth (from the "Confucian work ethic" to the "communitarian" approach of Asian capitalism) are at most contributing factors.

For example, in his work The Rise of the Korean Economy, Byung Nak-Song lists eight characteristics as "the most important components of the Korean model and necessary base for countries attempting to grow at high rates over a sustained period of time". These include "a long-term national vision", "communitarian capitalism", "competent leaders", "an ability to manage change and innovate" and "cultural congruency".

The fundamental determinants outlined above—the massive US subsidies, the preferential access to US markets, the super-exploitation of labour and suppression of union organisation—are either absent or simply mentioned in passing as points of detail. Thus, according to its apologists, with suitable adjustment for varying cultures and traditions, the model becomes reproducible and "as both the internal and global economic environment rapidly changes…the model suggested here may be applicable to any developing country." (17)

However, with the collapse of the Soviet Union there is no basis for a strategy of containment and pumping up economies to be bulwarks against "Communism". Capitalist development in the "periphery" now takes place under conditions of intensified interimperialist rivalry among the poles of the "Triad", with the economies of the Third World largely constrained to a subordinate role in relation to this or that pole. In the words of Doug Henwood, editor of the Left Business Observer:

Each member of the Triad has gathered under itself a handful of poor countries to act as sweatshops, plantations and mines: the US has Latin America; the European Community, Eastern and Southern Europe and Africa; and Japan, Southeast Asia. In a few cases, two Triad members share a country—Taiwan and Singapore are split between Japan and the US; Argentina, between the US and the ec; Malaysia, between the ec and Japan; and India is shared by all three…

Only about 25 countries fit into this clustering about the Triad, leaving 100 mainly small and poor countries on the margins. Though being a member of one of these clusters is no guarantee of prosperity, being left out is worse. (18)

The economic policies the NICs undertook were also greatly facilitated by the long wave of post-Second World War expansion, but today a long recessionary wave continues to prevail in the world economy, intensifying competition among all those countries aspiring to be NICs. For all the "players", whether mature or new NICs, it is much harder to have a strategy of export-oriented growth. Unsurprisingly, average growth rates for the NICs, although still much higher than elsewhere, are declining.

South Korea’s access to US markets is now being contested by the US itself. Byung-Nak Song himself notes this prospect:

The rapid growth of the Korean economy in the future has the potential to become a source of contention, especially with Korea’s major trade partners. Korea needs to consider possible repercussions from major trade partners. Korea is, as already mentioned, under pressure from the United States and other countries to open markets for goods such as agricultural products in which Korea has severe comparative disadvantages. Korea may face increasing pressure from America and other countries.

The limits of an export push strategy are shown by the restricted conditions of market access under the wto and the rise of non-tariff barriers among the three major trading and investment blocs. These agreements will hamper developing economies’ use of policies that are viewed as "unfair" by major advanced capitalist countries. For example, subsidies to exports and directed credit programs linked to exports are not generally consistent with wto and may therefore invite retaliation from trading partners. (19)

The conclusion to the World Bank’s report on the "East Asian Miracle" recognised that the world economic context today is different from the 1950s to the 1970s. It states:

Economic growth in industrial economies was rapid, barriers to trade were declining and global efforts to spur free trade under gatt were the order of the day. Times have changed. Economic growth has slackened in the mature economies that traditionally provided the main markets for developing economies’ exports.

The question whether a regionalised world presents any opportunities for new NICs is then considered. The reply depends, first, on whether markets are sufficiently large and, secondly, on whether they are accessible. (20)

The report concludes that markets in imperialist countries are sufficiently large, but are not necessarily easily accessible given the current trading climate. The markets are "highly competitive" on price, quantity, and technology. Furthermore, the wto’s policies to reduce dumping, protection, and subsidisation of exports, increases the difficulty of implementing an interventionist NIC model:

Industrial economies are increasingly applying anti-dumping and countervailing duty measures to developing economies’ exports. These measures will make it more difficult to follow the example of Japan or Korea which protected domestic industry in order to subsidise exports…Developing economies that seek access to the emerging regional trade blocs may find it comes tied to increasing obligations that could inhibit adoption of interventionist policies. For example, interventionist versions of the export-push model could not be implemented with the ec with its current stringent rules on state aid and its provisions for allowing for the free movement of capital and for the community to implement competition policies. Moreover, no economy exposed to European competition could operate an effective infant industry strategy.

In summary, the prospect for NICs and aspiring NICs is not for no growth, but for slowing growth amidst heightened competition. As the more developed NICs lose their cheap labour advantage they are forced into more direct competition with the advanced capitalist economies, and to equip themselves for this competition the "communitarian" and "social" aspects of Asian capitalism have to be sacrified: such is the root cause of the 1996-97 strikes in Korea. (21)

Of course, it is not excluded that Korea or other actual or aspiring NICs can continue to harvest what growth the system will continue to generate. However, it is a fantasy that the NICs, with all their necessarily brutal forms of super-exploitation, can be a general development model for the Third World, even though precisely this illusion is such an important tool in coercing the working people of the Third World to accept unending sacrifices. Indeed, it’s what Byung-Nak Song’s "long-term national vision" really means.

Strategic implications

Sundaram continues to vindicate the role of nationalism in the anti-imperialist struggle in the Third World. A "two-staged agenda for social progress", as he describes it, has "the first stage usually defined in terms of the task of establishing genuine national independence and political democratisation. Economically this is usually conceived in terms of a planned mixed economy, usually involving land reform, a sizeable state sector and some central planning co-existing with protected locally owned enterprises producing for the national economy." (22)

However, Sundaram takes this analysis and turns it into its opposite by attempting to incorporate the successes of the NICs’ capitalist economic strategy. He replaces a revolutionary strategy in the Third World with a strategy based on conciliation with the national bourgeoisie.

By contrast, a Leninist appreciation of nationalism in oppressed nations locates its progressive content in its place in the struggle for socialism. Nationalism can play a progressive role if it mobilises the working class and peasantry for the purpose of winning political independence from an oppressor nation or economic independence from imperialist domination.

However, the victories of the working class and peasantry in these domains will be shortlived unless they break from the ideological influence of their national bourgeoisie. This influence is expressed in the notion that as a nation, all the "people"—bourgeoisie, working class and peasantry—have a common interest based on national geographic and economic boundaries. This ideology strives to subjugate the independent interests of the oppressed classes to the interests of the domestic bourgeoisie.

This ongoing ideological enslavement is needed to curtail the substance of freedoms won in an anti-imperialist struggle, in order that the economy should function in the interests of national capital still tied to imperialism by a thousand threads.

To complete their liberation the majority of the people will need to "raise itself to the position of ruling class, to "win the battle of democracy", as Marx put it. Therefore bourgeois nationalism is only progressive up to a certain point. The alliance with the national bourgeoisie against the oppressor nation’s bourgeoisie is merely a tactical alliance, after the success of which the struggle becomes increasingly waged against the national bourgeoisie itself.

An argument for class compromise and nationalism per se, without this class-struggle context, is an argument for capitalism not socialism. And Sundaram admits this. Furthermore, he even rejects the national democratic stage of revolution—a break from imperialism’s grip—by calling for the NIC model of integration into imperialism. This is simply a recipe for generalising mass misery, whatever the future of the present NICs and the arrival of new contenders.

Conclusion

What should be the stance of socialists in the light of these prospects? To fantasise, as Sundaram does, of "miracles without Mahatir", of NICs shorn of the very features that make them possible—sweated labour zones ruled over by authoritarian regimes? Or to find the way, in the new conditions of "late industrialisation", to rebuild the national liberation and socialist struggles?

No realistic and sober socialist will have any illusions about the difficulties confronting this second course. A successful socialist revolution in Indonesia, the Philippines or South Korea would immediately face massive counterattack from the imperialist powers: the history of the twentieth century, from the Russian revolution to Nicaragua, is witness to that truth.

But the NICs have also created a new, vibrantly militant working class which, through its struggles against the cruelties of the NIC model, gropes for an alternative to its present pain and exploitation. Across the South-East Asian region the "labour question" increasingly dominates politics and what politics the rising unions will adopt increasingly permeates labour movement discussion. Moreover, faced with a capitalist offensive that takes on global and regional forms, the labour movements of the NICs are being forced to develop their defence strategies on the same scale.

Fertile conditions exist for the renaissance of socialist consciouness, socialist culture and socialist struggle among vast layers of the working people and poor masses of the newly industrialising world. But a precondition for that revival is the rejection of the Social Democratic model profferred by Jomo Sundaram.

 Bibliography

  • Asian Development Bank, Asian Development Outlook, 1995-1996. Oxford University Press, Hong Kong, 1995.

  • Bello, W and Stephanie Rosenfeld. Dragons in Distress, Penguin, Harmondsworth, 1992.

  • Byung-Nak Song. The Rise of the Korean Economy, Oxford University Press, Hong Kong, 1997.

  • Chenery, H. "Growth and Transformation", in Industrialisation and Growth—a Comparative Study, World Bank Research Publication, Washington, 1986.

  • Deyo, F. The Political Economy Of New Asian Industrialism, Cornell University Press, Ithaca, 1987.

  • Engels, F. Origins of Private Property, the Family and the State, in Selected Works of Karl Marx and Frederick Engels, Progress Publishers, Moscow, 1983.

  • Hong Kong Monetary Authority, "The best of times, the worst of times: developments in productivity", in Hong Kong Monetary Bulletin, August 1995.

  • Krugman, P. "The myth of Asia’s miracle" in Foreign Affairs, Volume 73, No. 6.

  • Lenin, V. Two Tactics for Social Democracy in the Democratic Revolution, in Collected Works of V. I. Lenin, Progress Publishers, Moscow, 1982.

  • Lenin, V. Imperialism, the Highest Stage of Capitalism, in Collected Works of V.I. Lenin, Progress Publishers, Moscow, 1982.

  • Mandel, E. "Semicolonial Countries and Semi-Industrialised Dependent Countries", in New International, No. 5, Pathfinder Press, New York, 1985.

  • Novak, G. Uneven and Combined Development in History, Merit Publishers, New York, 1966.

  • Sundaram, J. "Lessons from the East Asian NIC Experiences", in Links, No. 4, January-March 1995.

  • World Bank. The East Asian Miracle—Economic Growth and Public Policy. World Bank Policy Research Report, Oxford University Press, New York, 1993.

  • World Bank. World Development Report 1996, Oxford University Press, New York, 1996.

  • Young, A. "A tale of two cities: factor accumulation and technical change in Hong Kong and Singapore", in nber Macroeconomics Annual, Sloan School of Management, Massachussetts Institute of Technology and the National Bureau of Economic Research, 1992.

 Endnotes

  1. S. Ikeda, “World Production”, in The Age of Transition, Penguin, Harmondsworth, 1996, p. 41.
  2. World Bank, The East Asian Miracle—Economic Growth and Public Policy, Oxford University Press, Oxford, 1993, pp. 4–5.
  3. J. Sundaram, “Lessons from the East Asian NIC experiences”, Links, No. 4, pp. 49–50, emphasis added.
  4. World Bank, 1993, op. cit., p.
  5. A. Young, “A tale of two cities: factor accumulation and technical change in Hong Kong and Singapore”, in nber Macroeconomics Annual, mit Press, 1992, pp.13–54, passim.
  6. H. Chenery, “Growth and transformation”, in Industrialisation and growth—a comparative study, World Bank Research Publication, 1986.
  7. P. Krugman, “The Myth of Asia’s Miracle, Foreign Affairs, Vol. 73 No.6, 1994, pp. 66–7.
  8. ibid., p. 75.
  9. W. Hatch and K. Yamamura, Asia in Japan’s Embrace, Cambridge University Press, Cambridge, 1996. Cited in the Australian Financial Review, 12 November 1996.
  10. Central Intelligence Agency, Handbook, quoted in F. Deyo, The Political Economy of New Asian Industrialism, Cornell University Press, Ithaca, 1987.
  11. Asian Wall Street Journal, quoted in W. Bello and S. Rosenfield, Dragons in Distress, Penguin, Harmondsworth, 1994, p. 25.
  12. Bello and Rosenfeld, op. cit., Penguin, Harmondsworth, 1994, p. 14.
  13. In “Semicolonial Countries and Semi-Industrialised Dependent Countries”, New International, No.5, pp.149–175.
  14. Byung-Nak Song, The Rise of the Korean Economy, Oxford University Press, New York, 1997, p. 107.
  15. op. cit., passim.
  16. Uneven and Combined Development in History, pp. 5–6.
  17. Byung-Nak Song, p. 235.
  18. “Editorial”, Left Business Observer, No. 49, p. 3.
  19. op. cit., p. 43.
  20. op. cit., p. 360.
  21. op. cit., p. 365.
  22. op. cit., pp. 43–44.


  Table 1:
GDP growth of NICs
1981-90* 1989 1990 1991 1992 1993 1994 1995 1996
Hong Kong 6.9 2.6 3.4 5.1 6.3 5.8 5.5 5.6 5.6
South Korea 10.7 6.4 9.5 9.1 5.1 5.5 8.3 7.3 6.8
Singapore 6.3 9.2 8.8 6.7 6 10.1 10.1 9 8.5
Taiwan 7.8 8.2 5.4 7.6 6.7 6.3 6.5 6.7 6.8
All NICs 9.4 6.6 7.3 7.9 5.8 6.2 7.4 7 6.7
* Average. 
† Estimate.
Source: Asian Development Outlook, 1995 and 1996, Table A1, p. 239, Asian Development Bank, OUP, 1995.

  Table 2:
Sources of growth: South Korea compared to Japan, Germany and the US
Korea
1960-90
Japan
1953-71
Germany
1950-62
US
1948-90
Contributions of inputs 71.4 44.3 44.4 56.3
Labour     42.8 20.5 22.2 18.8
Capital     28.6 23.9 22.2 37.5
Total factor productivity 28.6 55.7 55.5 43.8
Source: Byung-Nak Song, op cit., Table 5.5, p.70.

  Table 3:
Hours worked in manufacturing (NICs)
1980 1989
South Korea 53.1 54
Taiwan 44 41
Hong Kong 49.1 44.5
Singapore 48 49.2
Sources: ILO Yearbook,Taiwan Statistical Data Book, 1990.

  Table 4
Chaebol share in manufacturing capacity and gnp (South Korea)
Manufacturing sector Share in Total GNP Number of Subsidiaries
Value added Fixed capital
1985 1994 1985 1994 1985 1994 1985 1994
Top 5 18.7 24.9 20.4 28.3 5.5 8.9 94 207
Top 10 24.2 30.5 27.9 36.9 7.1 11.7 147 324
Top 20 29.5 35.1 34.4 43.2 8.6 14 218 497
Top 30 33.1 37.8 39.6 46.9 9.7 15.2 270 623
Source: Byung-Nak Song, op. cit., Table 7.9, p.116.

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