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Nigel Harris

The Asian boom economies
and the ‘impossibility’ of
national economic development

(Winter 1978/79)

From International Socialism 2 : 3, Winter 1978/79.
Transcribed by Christian Høgsbjerg.
Marked up by Einde O’Callaghan for the Encyclopaedia of Trotskyism On-Line (ETOL).

Introduction

This journal has argued in the past that national economic development for the backward countries is now impossible. The importance of this argument can scarcely be overestimated. It jeopardizes the whole perspective of national liberation, a struggle which promised that, if only political independence could be won, a country could transform the condition of the majority of its people. National independence requires an independent material base, an independent economy; without it, the claim is mere empty rhetoric. If that independent economy cannot be created, the claims of the new ruling classes of the backward countries to be the right people to rule become spurious. The Left has remained more snared by this argument than the ruling classes of the backward countries. Communist Party strategies still turn upon an alliance between the proletariat and the “progressive national bourgeoisie” (“democratic and patriotic forces” etc.), the definition of the bourgeoisie’s progressiveness being that it has the capacity and will to develop an independent national capitalism (or, what is becoming hardly distinguishable, an independent national socialism).

A cluster of phrases surround the concept – achieving “self-generating growth” (or, in Rostow’s phrase, “take-off”), the idea that, when developed, a national economy can generate full employment within its own boundaries, regardless of the world system. Indeed, the vindication of Stalinism lay less in the abstractions of a debate about “socialism in one country”, and rather more that Stalin refuted the Trotskyists by delivering the goods – the Russian economy was developed, and on the basis of national isolation.

However, if national economic development was the characteristic only of a past phase of world capitalism, much of the politics of the Left in relationship to the backward countries becomes Utopian and, in the strict sense, ‘reactionary’ (that is, harking back to a past time when national economic development was possible). The view of the Bolsheviks in 1917 – that not only was ‘socialism in one country’ impossible, but also that neither a proletarian nor a bourgeois order in a backward country could achieve national economic development – would then be shown to be only premature, not false.

What then, does the phrase, ‘national economic development mean? Without getting involved in the complexities, it is composed of two interdependent processes – the accumulation of capital and the socialization of the labour force. The accumulation of capital demands the increasingly extensive and intensive exploitation of labour. Extensive exploitation means drawing into work masses of people either unemployed or underemployed, extending the perimeter of work to encompass all potential labourers within the country. Intensive exploitation means continuously raising the productivity of employed labour, which in turn requires the accumulation of equipment and the continuous transformation of the techniques of production. This first process has meant industrialization and urbanization.

However, today levels of labour productivity, determined in technically advanced capitalism, ensure that industrial output can be expanded very rapidly indeed without proportionately increasing the employment of labour. Thus, a backward State can promote high rates of growth of output and accumulation without much “socialization of the labour force”. Instead of the industrial economy spreading to encompass the potential labour force of a whole country, it tends to remain limited to a small enclave of high growth with relatively few effects on the mass of the rural population. The enclave acts as the isolated extension or colony of a world system, rather than as the motor of general growth in the country as a whole.

The Bolsheviks in 1917 believed the role of the national bourgeoisie was exhausted. In this context, that means that the bourgeoisie could no longer fulfil its “historic tasks”, namely the creation of capitalism. Nor was it possible for a proletarian State to substitute itself in that role. It was this impasse which lent so much urgency to the task of spreading the revolution beyond Russia’s borders to the heartlands of the capitalist system – the revolution abroad was a vital material necessity for the survival, let alone the advance, of Soviet power. In fact, the Bolsheviks were wrong – or premature. Japan did develop. Furthermore, in the Soviet Union, it was possible for a new class, some of the heirs of the revolution of 1917, to perform the tasks of development in the Soviet Union itself. In twenty-five years, between 1929 and 1954, the Soviet Union was, in material terms, transformed. Reality refuted the propositions of theory.
 

The record of expansion

Thirty three years have passed since the Second World War, a period characterized by the unprecedented expansion of world capitalism. In that period, most of the backward countries secured political independence, and did so in the most favourable economic circumstances – generalized growth. Many backward countries experienced sustained expansion, at rates much higher than those achieved by the advanced capitalist countries in the nineteenth century. A handful of those countries crossed a number of important thresholds (one of the measures is an income per head of US $1,000 annually) – Brazil, Mexico, Roumania, North Korea, Iran, Spain, and four countries in east and south-east Asia. It is these four – South Korea, Taiwan, Hong Kong, Singapore – which are the main concern of this article.

On the figures, the case seems clear-cut: all four are well on the road of economic development. The performance has been as remarkable as any in the history of capitalism. To take the four in turn:
 

South Korea’s 1962 population was 27 million, the labour force 8.3 million, and the income per head, US $87 annually. In 1978, the population was about 37 million, the labour force 13.2 million, and the income per head crossed the US $1,000 benchmark (current prices). In the period 1962–1978, the sectoral source of the gross national product changed as follows:

Thus, in terms of the value of output, a decisive structural change had taken place. But what of the “socialization of the labour force”? The change in the distribution of the labour force was as follows:

Thus, on the face of it, although the change is less dramatic, the socialization of the labour force was in the process of being accomplished.
 

Taiwan presents a comparable picture over a longer time period. The 1952 population of 8.1 million (labour force 2.9 million) created an annual income per head of US $45. The 1978 population of 17 million (labour force 6.8 million) produced an income per head of US $1,168 (current prices); in real terms, that represented a change from under 5,000 New Taiwan dollars to 16,890, the fourth highest income per head in Asia.

The sectoral source of the net domestic product was as follows:

The distribution of employment was:

The proportion employed in manufacturing was roughly the same as in Belgium, France, the Netherlands, Japan and the United States. Furthermore, in both South Korea and Taiwan, the fastest recent expansion is in heavy industry. 50.8% of Taiwan’s industrial output is now in heavy industry and basic chemicals, 43% of South Korea’s.
 

Singapore had a population of 1.9 million (labour force 0.6 million) in 1967. It reached 2.3 million in 1977 (labour force 0.92 million). Average income per head crossed the US $ 1,000 mark in 1971. The change in the source of net domestic products is as follows:

In terms of the distribution of employment:

About 58% of those employed in manufacturing produce heavy industrial output and chemicals.
 

Hong Kong presents a similar picture but with a slightly larger population, 4.5 million (labour force 2 million), but with the difference that its heavy industry and chemicals are almost non-existent. [1]

The two city States are very different. Hong Kong is the nearest approximation to a “free economy”; it is almost completely dependent upon being continually reshaped like plasticine by the world market. Government action is restricted to maintaining high levels of infra-structure for industry, finance and tourism, maintaining low labour costs.

In South Korea, Taiwan and Singapore by contrast, the State plays the main role in seeking to guide accumulation in particular directions. In the case of Taiwan and Korea, this direction is determined in the main by military priorities – to build an independent and self-reliant economic base to support a military posture vis-à-vis China (for Taiwan) and vis-à-vis North Korea (for South Korea). In 1952, Taiwan devoted 60 per cent of the budget to the military and police, and that share was still nearly 40 per cent (on the official figures) in 1976. South Korea maintains 600,000 men under arms, the fourth largest armed forces in the world (but with a population of only 37 million) – as well as 1.2 million in reserves, 2.7 million in paramilitary forces, backed by universal military conscription (and 20,000 in the notorious Korean CIA).

The figures of growth represent a spectacular performance. In some cases, industries have doubled in capacity every two or three years, and sustained that pace for ten years. Furthermore, all four States maintained expansion (even if at lower rates) through the downturn of 1974–75, when the rest of the world was in the main contracting.
 

The Role of the State

The South Korean State maintains tight control over the economy. Planners instruct business on three monthly output targets, markets, type and rate of expansion of capacity, and inspect the quality of the output. All companies depend very heavily on bank loans (and directly on public finance in heavy industry) – and the government has made itself the major shareholder in all lending agencies. The government has nominated a dozen leading business groups as ‘General Trading Companies’, equivalent to Japan’s zaibatsu, each group covering a range of manufacturing, trading and banking companies. Monthly, the President (Park Chung-hee) meets businessmen from these corporations, and in particular, the leading three (Hyundai, Daewoo and Samsung) to plan the monthly export campaign, set the targets, plan how to overcome obstacles etc. The system operates by a mixture of bribery and bullying, backed by lavish government investment in infrastructure that is devoted single-mindedly to the needs of expanding output and exports. The country is now dotted with specialized industrial estates where a very high quality of infrastructure is provided.

Export incentives are said to add ten per cent to the return to exporters, and the proportion is much higher in heavy industry. Some sources suggest that up to 70 per cent of the capital investment in heavy industry and shipbuilding comes from the State. When companies flounder, the State uses its banks to bail them out and keep them afloat. Wages are low and the State makes almost no provision for measures of social welfare; heavy indirect taxation on the mass of the population produces a revenue that is almost completely devoted to defence and sustaining profit margins.

Take some of the key examples:

1. Shipbuilding. In the 1960s, the industry’s output was of relatively small scale ships and relatively poor quality (20,000 gross tons per year). From 1971, the State forced a vast expansion (to 700,000 gross tons capacity in 1976). South Korea muscled aside the leading work producers in a rapidly contracting market to secure 2–3 per cent of the world market. [2] Most other shipbuilding industries were facing large scale collapse. Korea aims to secure 10 per cent of the market by 1981 (when the industry will have displaced the Swedes as second largest producer after Japan). In fact, the target remains although the government has cut its original 1973 ambition of building nine giant tanker (half a million tons or more) yards; it is now building only three. Yet even so, only a quarter of the shipbuilding capacity has been used since; 1970 (except in the years 1973 and 1974 when it rose as high as 60-per cent): a level of operation that means massive closures and/or massive government subsidies. In fact the government is massively subsidizing, gambling that the shipping slump will end before the public exchequer collapses.
    
2. Steel. Here the situation is similar. The world industry (except Brazil, Taiwan and Mexico) experiences massive losses and closures, but South Korea has increased output from one million tonnes output in 1971 to 6 million this year and a target of 8.5 million is aimed for in 1981. The government has just announced the building of an additional gigantic 12 million tonne plant, designed and tooled by Japanese and German firms, a plant which will be a technical advance on the existing largest plant in the world, Japan’s Yawata (14 million tonnes). Again, public finance is achieving this miracle.
    
3. Petrochemicals. The world output is inundated with cheap ethylene (raw material for most petrochemical output), produced by the giant naptha crackers of the world’s leading companies. Efforts are underway to establish a world cartel so that some of the crackers can be shut down to hold the price (and profits) up. Korea began with a 100,000 tonne cracker, has now added a second of 350,000 tonnes, and is planning a third, each the nucleus of a major petro-chemical complex. Only the government can pick up the bill since world demand is so low, and the domestic market is small.
    
4. Vehicles. The Korean industry began in 1971, and now – thanks to the tooling and technical advice of British Leyland – has a current capacity of 220,000 vehicles, with a target output of 2.1 million (900,000 of them for export). Yet, despite the expansion of output, still only a third to a half of capacity is used. Costs of production in cars are said to be a third higher than equivalent Japanese models, but the export price in foreign markets is lower. Indeed, a Hyundai official claimed that there was a loss of £400 on every car exported. Again, the government waves its magic wand.

The subsidies underpin a drive to establish an independent heavy industrial base of a size where the greatest economies of scale are made. That entails that much of the output must be dumped abroad. The internal market is very small, and deliberately squeezed by high taxes to keep it so. The government’s strategy is now dedicated to a major expansion of the machinery industry, sophisticated electronics and shipbuilding, while running down textiles and cheaper electronics.

In Taiwan, the same direction is pursued. The process of growth has been sustained over a longer period and, given its much smaller size, Taiwan is more advanced than Korea. The Taiwan regime is planning its fourth naptha cracker (the output of petrochemicals expanded 138 per cent between 1975 and 1978) and starting to develop nuclear technology. In steel, capacity is rapidly being expanded. In shipbuilding, the country has just completed two 100,000 ton yards and is planning a 300,000 ton one; Taiwan is one of the very few serious rivals to Japan in the giant tanker field. Finally, vehicle capacity is just rising to 300,000 units per year, with the intention of exporting 100,000. As with South Korea, Taiwan’s exports soared in 1976 when the US restocking “mini-boom” took place – they expanded 53.8 per cent in that year alone. But, again like South Korea, private investment has been declining since then, and foreign investment is stagnating.

Singapore is a much smaller economy, but important in world and south east Asian trade – it is the fourth largest port in the world, the centre of the Asia-dollar market (which is about 6 per cent of the size of the Eurodollar market), and is a large tourist centre (two million tourists annually). It is a very important centre for oil refining, the manufacture of oil drilling equipment, for the repair and servicing of tankers. As in South Korea and Taiwan, the State is pushing the economy towards more capital and skill intensive industries, concentrated in exceptionally well serviced industrial estates. The city government is trying to run down the textile industry (the island failed to fill its quota of the US market), saw mills and cheap electronic plants, and build up aircraft components, fine chemicals (the go-ahead has just been given for a very large Japanese petrochemical complex, the first in Singapore) and advanced electronic equipment. As in the case of the other two countries, the State sees its role as a leading one in all fields. Singapore pushed containerization of its docks well before other ports, building three freight stations (225,000 square feet) between 1968 and 1972, and smashing through all docker opposition. The government provides, again, very high standards of infrastructure, using public spending to keep up activity in the downturn of 1974–75. Even tiny little market stalls are now regularly checked by public health’ inspectors lest foreign tummies turn the tourist trade.
 

Labour

Between 1955 and 1965, the unprecedented scale of the boom in the advanced capitalist core of the world system exhausted the immediate supply of labour within the advanced countries. As a result, a two for-process developed – the attraction of immigrants from the backward areas of the system into the advanced, initially to do “immovable” jobs: in agriculture, mining (in West Germany), construction, social services; secondly, the development of “moveable” jobs by the companies of the advanced sector in backward areas. Along the north Mexican border with the United States there are now a series of “in bond plants” where US firms are permitted by the Mexican government to import freely for production purposes, to employ Mexican workers at Mexican wage rates, provided the firm exports all its output. In effect, in-bond operations are simple extensions of the US economy giving access to labour much cheaper than that available in the States. Of course, American trade unions should have followed the same logic by organizing the Mexican workers concerned in order to strive for parity of pay between Mexican and American workers; in fact, the politics of the trade union leadership produced the opposite reaction – a denunciation of cheap Mexican labour “stealing American jobs”. By now, in-bond plants or, better known as, “export processing zones” are scattered round the globe, and a host of governments compete to get foreign manufacturing companies into them.

South Korea, Taiwan and Singapore were pioneers in this process. But the faster the three grow, the greater is the likelihood of some relative labour scarcity producing a rise in wage levels that deters foreign capital. More likely is a grave scarcity of skilled labour which drives up skilled earnings which then pull up unskilled pay. Dictatorship is thus inevitable in this context. The most vicious regime, the one that destroys militants most ruthlessly, is the one most likely to scoop its rivals abroad. Indonesia, Malaysia, the Philippines and Thailand have authoritarian regimes, but in all cases, the regimes lack the political and economic power to concentrate public finance on infrastructure and industrial promotion and to guarantee high rates of return to foreign business.

Of the four countries discussed here, the two smallest – Hong Kong and Singapore – are the most “threatened” by labour scarcity. Hong Kong receives some immigrants from most of east Asia, particularly the People’s Republic of China, and is now negotiating for the import of Filipino immigrant workers. [3]

Singapore’s economy relies heavily on an Untouchable caste of immigrant workers (possibly 120,000 in all, with an unknown number of “illegal” immigrants), most of them from neighbouring Malaysia, but with others from Indonesia, Thailand and the Philippines. Immigration is divided between low and high paid labour. The first enters on three year work permits (six month work permits for jobs in construction). Work permit holders have no right of permanent settlement, may not change their jobs for three years (if they lose their job, they are liable to deportation), are not eligible for public housing or welfare and medical services; many, six to a room, housed in makeshift shacks near their worksite, work seven days a week, ten to twelve hours a day, for a pittance. They are forbidden to hold trade union office, and militancy can also evoke deportation. Work permit holders are forbidden to marry without special permission from the labour commissioner; permission may only be granted to those who have worked five years in Singapore with a “clean” record and who sign a bond accepting that both partners to the marriage agree to be sterilized after a second child is born. Prime Minister Lee Kuan Yew justified the policy on straight 1930s “eugenics” grounds that “The better educated and more rational” are not replacing themselves because of their low birth rate; whereas “a multiple replacement rate at the bottom [leads to] a gradual lowering of the general quality of the population”.

Malaysian workers in Singapore are contract labour, consisting of young women working in electronics assembly and textiles (possibly 40 per cent of the labour force), and men employed in construction (about 70 per cent of those employed), shipbuilding and repair, and all the dirtiest and hardest jobs. As usual, getting the contract often means that the worker is permanently in debt to the recruitment agent. The jobs immigrants work on have the poorest safety provisions in a city not known for its safety standards in industry – one worker in every 33 employed in manufacturing had an accident in 1973, and one in every 16 in construction. On October 13th this year, for instance, an explosion on a moored Liberian tanker killed 48 of the workers cleaning it, and injured at least 50 more.

The discrimination against immigrants (and women) permits the permanent depression of the lowest wage levels which ensures all unskilled pay rates remain low. Pay is between one tenth and one third of European levels. The system is structured by a permanent incomes policy for unskilled pay, administered by the National Trade Union Congress through a so-called “tripartite” National Wages Council. Strikes are not illegal, but detailed control ensures that most strikes are strangled at birth. Despite the crisis of 1974–75 when there were large scale layoffs, the government held the man-days lost in disputes (running at 388,219 in 1963) down to under 5,000. Relatively low pay rises are awarded, but they continually evaporate under a much higher rate of inflation.

People earning over 750 Singapore dollars per month enter the country, not on work permits, but on ‘employment passes’, a form which means they miss the mass of restrictions. Because skills are in short supply, an almost indefinite rise in skilled and managerial pay is permitted. As a result, differentials are extreme (in Phillips Electrical for example, the range is said to be 1 : 20).

Despite the elaborate machinery of control, rapid growth in the economy constantly tends to turn it over. A Bank of America study estimates that an 11 per cent growth rate would require a 20 per cent growth in immigration. Nonetheless, politically, Singapore’s ruling order needs harsh measures against immigrants to cement the loyalties of Singapore natives, even though it contradicts the economic interests; of Singapore capitalists. Recently, the government gave permission to US companies to import women workers from Thailand, provided the employers made a deposit of 4,000 Singapore dollars per worker with the government and instituted six monthly medical checks of the workers; if any were found to be pregnant, they would be expelled and the 4,000 dollars forfeited.

In South Korea and Taiwan, immigrants do not play the same role. There it is the contract and women workers who are the means to hold down unskilled wages. Women get 43.9 per cent of the average male wage, and work extraordinarily long hours. An International Labour Organisation survey of 60 countries puts South Korea well ahead of any other in the number of working hours per week – an average of 58 hours. At the bottom of the heap are 12–13 year old girls, working up to 18 hours a day, seven days a week, in wet cellars, for between £12 and £16 per month. In textiles which mainly employs young women, some 73 per cent of the workers receive under £30 per month. As a result of inflation, real wages have fallen 20% since 1961.

By contrast, top technician’s pay rates are as high as £680 per month (the Bank of Korea estimates the minimum household subsistence pay at £85 per month). This leaves out of account the numerous perks, bonuses and premia that white collar workers are often entitled to. This is not to speak of the astonishing incomes of the rich. When a recent survey of women workers shows that a quarter of them were paid under £25 per month, the top 1977 income in South Korea went to the chairman of the Hyundai group, Chong Juyong: a cool £8.2 million! The second highest income went to the chairman of another business group, Hanjin: that was only £3.8 million.

Labour is policed, as in Singapore, by the government controlled Korean Federation of Trade Unions. Strikes and collective bargaining are illegal under the 1971 National Defence Act, and the Korean CIA harass any guilty of “indiscipline”. The figures on unskilled wages make no allowance for the ‘social wage’ – welfare, medical benefits, housing etc., of which there is almost none in South Korea. All government expenditure is devoted to defence and industry. There is no unemployment pay, and only a tiny minority are eligible for retirement pensions or medical insurance. As with Singapore, safety standards in industry are appalling (last year, even in the most modern shipyard, that of Hyundai at Ulsan, 11 workers were killed). There is no public using programme. Pollution is severe because of the lack of enforcement of existing regulations – one British expert estimated that the tributaries of the Han river which flows through the capital, Seoul, had double the level of organic pollution of London sewers!

Korea is, paradoxically, also an exporter of labour, workers on Korean construction contracts in the Middle East and elsewhere. The government target revenue for overseas construction in 1978 was 4 billion US dollars, but the target had already been exceeded by June of this year. Some 60 to 70,000 Koreans are currently working in the Middle East. As a result, there is a grave shortage of skilled workers in Korea. In May, the government was obliged to ban temporarily hiring people to work abroad (it also limited the construction contracts it permitted to be signed, and banned the export of cement). Even so, it was obliged to increase the wages of certain key groups of workers in order to try and nail them down in Korea – Pusan bus drivers were given a 70 per cent pay increase. Not long ago, Korean workers in Iran agitated against low wages, and Park was forced to set a minimum wage for overseas work of £240 per month (of which workers are obliged to remit 80 per cent to South Korea). Thus, Middle Eastern wages threaten to overturn the tight control within South Korea itself. Pay increases for a minority intensify the scramble for housing and goods, driving up inflation (now running at around 14 per cent officially, but popular impressions are that it is really 30 per cent). The mass of low paid workers are then driven to rebel just to survive.

Despite the unremitting battering given to all critics and the savagery inflicted upon opponents, opposition remains considerable. In the last open Presidential elections, the opposition candidate polled 46 per cent of the vote. There have been seven counter coups against the regime. This year, there have been a string of student demonstrations, illegal as are all demonstrations, and despite waves of arrests and brutality, it seems impossible for Park to eliminate them. The same is true of the staggering courage of a group of women textile workers in Inchon who have been agitating over factory conditions since 1972.

If Park cannot hold down the mass of wages, Korean capitalism loses out to its Far Eastern rivals. There are already small signs that US electronic companies may be ready to move – many of them have exhausted the generation of capital equipment located in Korea, and are now looking for even lower wages for the new generation of investment. The Philippines and possibly Malaysia have lower wages and authoritarian regimes. China is now signing contracts with Japanese and Hong Kong firms to start export processing plants (in electronic components, radios and television sets, cassette tapes and stereo equipment) in China itself. From the viewpoint of foreign business, China has a virtually infinite supply of very cheap and relatively disciplined labour, no trade unions [4] or collective bargaining, and a politically strong regime. Furthermore, it is offering exceptionally favourable terms – the Chinese government will pay 70 per cent of plant capital costs, guarantee both minimum 20 per cent profit rate and the right to import all components from abroad. H.T. Vong, leader of the Hong Kong group that just signed a set of contracts, commented: “The terms of the deal are very attractive. The land for the new plant will cost almost nothing, and overheads and labour costs will be very low.”
 

Dependence and Imperialism

All four countries depend for their growth overwhelmingly on the world market, and in particular, on Japan and the United States. They also depend heavily on a continuous supply of foreign direct investment and loans. The three “State directed” economies all used foreign loans consciously to keep up growth in the world downturn of 1974–71 (South Korea borrowed a billion US dollars a year), and to direct their respective economies in particular directions – towards heavy industry. When foreign direct investment stagnated – as it did after 1974 – foreign loans, disbursed domestically by the State, were used to compensate.

American aid to its client States in east Asia was important in the 1950s. Taiwan received an average of 1.5 billion US dollars in economic aid (this ceased in 1965) and some 2 billion dollars in military aid. In the early 1970s, about half the investment in the main growth industry, electronics, was American, and another thirty per cent from other countries abroad. About a third of total foreign investment in industry is American (1952–77), 16% Japanese, and 23% other foreigners (and 30% Overseas Chinese, i.e. non Taiwan residents). By industry, this is distributed: in electronics (33%), chemicals (14%), machinery and instruments (8%), services (8%), metal products (7%).

In Korea’s case, the contribution of “foreign savings” to the total savings declined from 84.4% in the early 1960s to 40% in the early seventies; it now oscillates – between a peak of 43% in 1974 to 18% in 1977. Foreign companies control about a third of direct industrial investment, 82% of this American and Japanese, and most of it is concentrated in the key exporting industries, particularly electronics. Profit rates are very high – Korean companies tend to pay a 40% rate return to shareholders, and US banks have just announced the rates of return on their Korean operations, 1974–1977, as around 100% per year.

Possibly 70% of all activities (industry, banks, hotels etc.) in Singapore are foreign-owned – 77% of the metal trades, electronic and chemical industries; 41% of petroleum and petroleum products. The largest investors are American companies (a third of all foreign investment) followed by the Japanese (with the fastest rate of increase; 16% of the current total), Britain (15%), and the Netherlands (14%). Singapore offers the most favourable terms for foreign capital – completely free remittance of profits, a ten year tax holiday for priority projects, no restrictions on the proportion of shares of a company owned by foreign interests.

There is fierce rivalry for foreign capital between South Korea, Taiwan, Hong Kong and Singapore, as well as the Philippines, Malaysia, Thailand and Indonesia. Singapore’s relative labour scarcity could produce higher wage levels that would price it out of this competition. Perhaps that is a factor, along with stagnating world profit rates, in the decline in the inflow of foreign capital since 1974. Foreign investment peaked at one billion US dollars in 1973, was halved by 1975, and down to a third in 1976.

The whole basis of the growth of the four is exporting. They caught the boom of the 1960s and made fortunes from supplying the US military in Vietnam (Korea earned some 200 million dollars per year for the Korean troops fighting with the Americans there, as well as securing many supply contracts; Japanese firms, constrained by the imposition of a US quota on supplying Vietnam, in some cases migrated to South Korea to fill Korea’s quota). So far, the world down-turn has not, apart from the years of 1974 and 1975, reduced the rate of growth of exports of the four, which means in a contracting market, an increasing share of particular sectors of world trade. However, certain sectors have been hit by protectionism in the advanced capitalist group. Thus, the Multi Fibre Agreement and other restrictions on the textile trades has blocked the expansion of textile exports. This, in practice, exaggerates the crisis since the four economies are heavily dependent on imports from the advanced group; what they earn on textiles is spent and more on imported raw materials and machinery from the advanced capitalist bloc.

Indeed, at the moment the backward countries as a whole have become a major support for the survival of advanced capitalism (in sharp contrast to the picture in the 1960s). Trade within the advanced capitalist group is stagnating (the rate of increase dropped from an annual 12% between 1963 and 1973 to 3% between 1973 and 1977), but that between the advanced and backward is expanding faster than ever (the annual rate of growth increased from 7% per annum, 1963–73, to 12%, (1973–77). Exports to the non-oil producing backward countries now takes 28% of Japan’s exports (15% go to the oil producing countries). For Western Europe the equivalent figure is 15% (10% to the oil producers). For North America the figures are 22% and 11% respectively. In all cases, exports to the backward are much larger than imports – Japan’s exports to the backward countries are ten times its imports, Europe’s five times larger, and North America’s double. The gap is filled by the international banks and by foreign aid.

Japan and the United States are crucial for South Korea and Taiwan. To wildly oversimplify, the two import machinery from Japan and raw materials from the United States, work them up and export them to the States. The results are a large Korean surplus on its trade with the States and a giant deficit on its trade with Japan. As the Yen appreciates and the dollar falls in value, the Japanese surplus grows even larger. Japan, through its monopolistically organized domestic marketing structure, effectively prevents imports, no matter how competitive they may be with domestically made goods. And today, many foreign-made goods are very competitive because of the rise in the Yen – in some electronic goods, US export prices are now half that of the Japanese equivalent. A recent Japanese bank study of South Korea admits that Korean products are more competitive in plywood, textiles, shipbuilding and overseas construction, and becoming more competitive in home electronic appliances, industrial machinery and vehicles. To protect Japan’s position, the bank urges even more Japanese investment in Korea’s industry and negotiating a “division of labour” (which means market sharing). The latest proposal from Tokyo goes much further towards, some might say, a revival of the old “Co-Prosperity Sphere”: a common market, modelled on the EEC, to include the Japanese mammoth, and the tiddlers of Korea, Taiwan and Hong Kong.

In sum, then, the three East Asian economies are “offshore” extensions of Japan (and, to a lesser extent, the United States). Indeed, in terms of trade, perhaps the surpluses on their American trade of Taiwan and South Korea should properly be seen as part of Japan’s enormous surplus with the United States. There are, however, other forces at work. If only trade were at stake, we could see South Korea and Taiwan as simply Japanese offshore conglomerates, completely subject to changes in Japanese capitalism. But in both cases, the governments are struggling to establish independent heavy industrial bases. But this gamble takes place in the least promising circumstances – a stagnating world economy. The gamble requires much more than simply cheap labour and authoritarian regimes to keep labour cheap and obedient.
 

Conclusions

So far as the mass of the population of the four countries is concerned, there have been tangible benefits. “Socialization” has taken place. Wages are very low, life styles austere at best, but in both cases they are an important advance on what was possible in agriculture in the period preceding industrialization. Furthermore, for Korea, since that period included the savage saga of Japanese colonialism, the Second World War and the barbarities of the Korean War, the era of Park can only be seen as a relief. However, industrialization has brought not only a contrast with what existed before, but also with what could exist. No doubt, the economies are a remarkable testimony to the dynamism of the world system in certain limited circumstances, but the generation now entering the labour force no longer has any memory of the bad old days of the Korean War, does have some perception of conditions abroad, and can hardly escape noticing the level of profits and the consistent resistance of the regimes to elementary reforms.

Does the transformation of Korea and Taiwan represent “national economic development”? Is it a recipe for the transformation of the backward countries, for the expansion and flourishing of world capitalism? The second question points up the peculiar circumstances of Taiwan and Korea, in essence in origin US military fortresses in the East Pacific, and in industrialization, basically offshore operations of Japan and the United States. The four countries are testimony to the growth of world development, but not national development. In no respect has “self-reliance” or “self-sustaining growth” been achieved. The local ruling classes have an appearance of independent power that is entirely subscribed by their two giant trading partners.

Nor will heavy industrialization change that, for it is already planned to be on a scale that will make it overwhelmingly dependent upon external markets for survival. Autonomy can only come with political dominance, so that South Korea, say, attains the same relative power in the world as the ruling classes of Japan and the United States – then its export oriented heavy industry may provide the independent basis for military power, and its military power ultimately backs its onslaught on foreign markets. But that is a fantasy. If world trade grows, other small dictatorships may be able to copy South Korea and Taiwan successfully, but this in no way offers an alternative to the mass of backward countries and the majority of rural populations. Above all, it offers no alternative for achieving national economic development.

However, there are other instructive lessons. In three of the countries, the State has used authoritarian power to achieve advanced capitalist levels of labour productivity (with the capital equipment and infrastructure which makes this possible) but at wage levels of a backward country – a staggering scale of exploitation. Advanced capitalism has been eager to support this endeavour whether through direct investment of companies (while retaining the basic technical staff in the heartlands of the system), international bank loans, the export of equipment and expertise. It is essentially foreign capital that has achieved this, within the framework of government interests. The “success” experienced encourages further efforts by Western capital to tap the pool of cheap labour in backward countries on a much more substantial scale, moving, for example, vehicle assembly operations to low wage areas as Ford has done to Spain and Volkswagen to Brazil. International capital is not sentimental about territory, only about profits. But the industry relocated is only one truncated limb of an international operation. It has no life without its parent, no life which could provide vigour to an independent backward economy. Its relocation proletarianizes the labour force of a small minority of the backward countries, reduces job creation in the advanced capitalist countries, uses low wage labour to batter down the wages of labour in advanced capitalism.

In terms of our original theme, the impossibility of “national economic development” is confirmed in the case of these four economies. Not only is “socialism in one country” impossible, so also is “capitalism in one country”. But that does not mean that economic growth within a world division of labour is impossible. The terms for that participation are also shown – dictatorship, the butchery of all opposition, the subordination of consumption to the maintenance of very high levels of profit, levels of profit far above those prevailing in the world market and sustained only by the scale of exploitation.

Notes

1. By way of contrast, look at the Philippines. The 1960 population of 27 million (labour force 8.5 million) reached in 1975, 42 million (labour force 15.4 million).

The decline in manufacturing employment is concealed by a considerable expansion in mining employment in the past ten years.

2. In 1977, the leading shares in the world shipbuilding market were:
Japan 40%; Spain 6.4; UK 4.6; Denmark 2.6; West Germany 2.2; Sweden 8.7; France 4.7; Italy 2.8; S. Korea 2.4; Norway 2.2.

3. The Philippines is becoming an important exporter of labour. 87,000 Filipinos were reported to be working abroad in 1977, 16,000 of them in Saudi Arabia, and many more as maids and hospital workers in the US and Europe, and working as sailors on foreign ships (remember Ravi Tikoo at Le Havre?). It is government policy to lease workers for work abroad, provided the major part of their pay is remitted to Manila.

4. That is, disregarding the institutions in China called “trade unions”, since they are not trade unions but merely the welfare arm of management.

 
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Last updated: 19 February 2020