By Eva Cheng
Six of the most powerful countries — the US, Germany, France, Britain, Canada and Italy — put more pressure on Japan to take concrete steps to ease Asia's economic crisis when they met on February 21 under the auspices of the Group of Seven club of imperialist nations. Japan's finance minister, Hikaru Matsunaga, immediately expressed his regret at these powers' failure to "fully understand" or "properly evaluate" Japan's efforts in this direction.
In the same meeting, International Monetary Fund managing director Michel Camdessus prescribed fiscal stimuli in Japan — government spending to boost economic activities and/or tax cuts to encourage consumption. This prescription was written into an official G-7 communiqué.
In fact, these six powers could do much to help Asia's troubled economies — opening their markets to Asian exports, for example, or using fiscal measures to stimulate their own demand for Asian products. But such steps are unlikely because they would increase the G-7 countries' trade and budget imbalances.
Rather than helping Asia, these governments give priority to helping their own capitalists. Under the guise of "helping Asian importers", they planned to provide an extra US$10 billion of public money to compensate their capitalists if Asian buyers fail to pay up. This will keep these G-7 capitalists' production rolling, and help defend (or even increase) their market shares.
But the conflicts of interest between capitalists of different nations can be intense, as evidenced by PM John Howard recently joining Australian exporters in publicly accusing their US competitors, whom Washington recently backed by providing extra credit insurance, of "looting" their market share.
The focus on Japan at the February 21 meeting highlighted that country's economic weight in Asia. Although only 12.7% of Asia's exports went to Japan in 1995, down from 16.5% in 1985, Japan was still the biggest destination of Asian exports after the US (whose intake of Asian exports also declined to 19.6% from 26.3% in the same period).
In 1995, Japan took the largest share (30%) of Indonesia's exports, and the second largest share of Thailand's (17%) and South Korea's (14%) exports.
More than 40% of Japan's merchandise exports, which totalled US$687 billion in 1995, went to Asia. The bulk of Japan's capital exports — productive investments and bank lending — also headed for Asia. They represented a big chunk of these economies' imports.
It is common for the other Asian countries to run a trade deficit with Japan because the latter's economy is more than twice the size of the rest of Asia together, and seven times China's.
Price inequalities in favour of capital goods, which account for the bulk of Japan's exports, disadvantage other Asian countries, which are mostly primary commodity and cheap manufacturing exporters. But a more critical factor is their dependency on Japan for its technology, designs and crucial parts.
Japan's capital exporters often back up the country's merchandise exports — not surprising since big industrial and finance capital in Japan often interlock. Its industrial capitalists have long been shifting labour-intensive production overseas, mainly to Asia, to minimise costs.
These overseas offshoots receive their production inputs mainly from Japan. Similarly, Japanese banks with fat wallets (more so after the yen's super appreciation in 1985), offering soft loans with exceptionally attractive repayment terms and other assistance from the government, often required Asian borrowers to use Japanese technology and equipment.
In this context, Japan could help the troubled Asian economies by contributing its capital, technologies and equipment at generous prices, with no strings attached, thereby helping to reduce their economic dependence.
Prioritising job creation rather than private profits, and opening Japan to imports from these countries, would bring real benefits to broad layers of their populations.
Creating a means of international payment that (unlike the US dollar) does not serve the interests of one country's capitalists would make Asian currencies more stable.
On their own, these measures would not solve Asia's economic problems. Nothing short of reordering world production on the basis of meeting people's needs rather than generating private profits and centralising planning in a world government can do that. But even these limited measures have no chance of being implemented because it is against the interests of Japanese capitalists and their government.
The six nations' prescription revolves around fixing Japan's economy through state intervention to boost demand. But in the four years to 1996, Tokyo announced no less than seven packages of increased public works involving 58 trillion yen, boosting its budget deficit to 7.3% of GDP and its gross public debt to 91% of GDP. Instead of tax cuts to increase workers' purchasing power, last April Tokyo increased the consumption tax from 3% to 5%.
Yet these steps didn't ease Japan's mammoth economic problems, which exploded in the spectacular collapse of its sky-high property and stock prices in 1990.
Prices started to skyrocket in 1985 when, within six months, the yen was forced up from around 250 to US$1 to less than 100. That completely changed the game for Japanese capitalists: investment was made in productive activities only when the return was likely to exceed the yield from alternative, especially liquid, investments. As well, a super yen made Japanese exports, and therefore investments in production in Japan, unattractive.
Stocks and real estate became the home of a ballooning mass of accumulated profits, which moved in and out of these and other speculative vehicles in search for higher profits. The demand for stocks and real estate far outstripped supply, and property prices in six major cities more than tripled in the five years to 1990.
With a limited domestic market, only overseas sales could provide an adequate outlet for the products churned out by Japan's powerful productive machinery. After the second world war, the US, keen to strengthen Japan as a bastion against Soviet and Chinese communism, provided the initial market. The Korean War of 1950-53 also gave Japan's economy a decisive boost.
Although it still had a current account deficit in 1980, determined mainly by trade, by 1985 Japan's trade surplus had reached unbearable levels for the other major imperialist countries, prompting them to create the super yen. The collapse of the market in 1990, intended to bring bubble prices closer to reality, left Japan's banking system with a mountain of bad debts.
A central problem in Japan's economy today is the banks' desperation to lend (productive enterprises requiring only limited borrowings). More lending was made based on collateral of questionable value — property and stocks — than on borrowers' ability to generate a stable income to service the debt. This debt was added to the banks' traditional stock holdings in companies in the same monopoly conglomerate.
Generous accounting practices and the fact that Japanese banks could maintain secret reserves helped conceal the true extent of bad loans. As more businesses collapsed, pushed along by US pressure since 1995 to force up the value of the yen, Japanese banks' problems grew. In the last few years, Washington has threatened to impose trade sanctions on Japan for not opening its market enough to US capitalists.
Asia's economic crisis spells more trouble for Japanese banks, which have a US$276 billion exposure (32% of all foreign bank lending in the region).
In November, Tokyo had to let three key financial institutions fold — a departure from previous managed rescues — despite the risk of destabilising its system further.
Last month, in an attempt to justify more public money being used to help banks "clean up" bad debts, the government revealed that the latest bad debt tally was 77 trillion yen (around A$900 billion), from 40 trillion previously.
No amount of rescue funds or fiscal stimuli can solve Japan's, or its Third World Asian neighbours', structural economic problems. More austerity is inevitable.
But as big businesses and their governments force the people to pay for their gambling losses, resistance is growing, most noticeably in Indonesia and South Korea. This resistance is part of a social movement that has the potential to break the imperialists' chains on the Third World.