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The Asian financial meltdown, when it reached front-page proportions in late 1997, was rightly called the most serious of any we have had since the 1930s. A mountain of paper assetsestimated at more than a trillion dollars-was swept aside. Subsequently there was substantial recovery in some of the region's markets and investors sorted out specific strengths and weaknesses, differentiating among national economies. There have also been new frights caused by basic weaknesses in China and Japan. This paper considers the East Asian financial crisis as reflecting two familiar patterns. The first is the crisis tendencies of unregulated capitalist markets in which speculative excess is part of the very nature of the system. The second is the way such crises are the opportunity for stronger capitalists to profit from the problems of those unable to withstand the downturn.
The questions of the moment relate to the extent to which these economies will be restructured. To what degree will the forces of transnational capital realize their demands on the economies of the region? Who shall pay for the downward adjustments? To what extent will progressive forces be able to organize against the austerity that capital is imposing on the people of the region? What will the longer-term effects of the crisis be? How such questions are answered will have substantial impact on the world political economy well into the twenty first century.
East Asia has been the most rapidly growing, really the only rapidly growing, area of the world economy for decades, which explains the frequency with which two new words have entered the conversation, sending shock waves through prevailing investor optimism. The first of these is "overcapacity"; it is increasingly realized that overinvestment in plant and equipment in Asia has generated potential for more dramatic problems. With global overcapacity in everything from steel to paper products, wages have been forced down and companies have become leaner and meaner in most parts of the world.
The second word is "deflation," which has not been a worry since the Great Depression. Deflation, if it spreads, could get serious. Gently falling prices are one thing, but if Asians initiated a continuing competitive devaluation cycle in order to export more in the face of a global glut of productive capacity,...