FIERY DRAGON in the PACIFIC Andre Gunder Frank

HAOL, Núm. 5 (Otoño, 2004), 93-102 ISSN 1696-2060

PAPER TIGER IN WASHINGTON: FIERY DRAGON IN THE PACIFIC

Andre Gunder Frank Luxembourg Institute for European and International Studies, Luxembourg. E-mail: [email protected]

Recibido: 11 Julio 2004 / Revisado: 18 Agosto 2004 / Aceptado: 13 Septiembre 2004 / Publicado: 15 Octubre 2004

Resumen: With the end of the cold war in 1989 now onwards across the Pacific back to East and the subsequent decline of Russia as a Asia, as observed in my "Around the World in serious immediate contender, as well as the Eighty Years"2. Let us inquire further into the so decline during the 1990s of the hype of Japan as far last part of this historical process. 1, two other regions, states and powers came into contention. One is the United States whose 1. PAPER TIGER. THE UNITED STATES fortunes and prospects seemed to have declined IN THE WORLD after 1970 but recovered in the 1990s; and even so it is a Paper Tiger. The other is East Asia, The US still has the world's largest economy, despite its post 1997 crisis, and especially China which saw boom times during much of the -the Fiery Dragon-. This article analyzes the 1990s, and its has unrivalled military power economic and geopolitical keys that orient the exceeding the total of the next dozen or more strategies of both contenders. The examination military powers combined. Moreover, the of the world economy and of the predominant present Bush administration makes use of both place in it of the East Asian points to the most of them in unilateral policies to impose its will fundamental bases of contemporary economic on the rest of the world, friend and foe alike, to developments in the region and also presages all of which Bush threw down the gauntlet of important world economic ones for the "you are either with us or against us." With foreseeable future. means you do as we say, and against means you Palabras Clave: EEUU, fiery dragon, Pacific, are under threat to be destroyed economically paper tiger, Washington. and politically, as well as militarily if we wish. ______In case there be any doubt about our intentions and capabilities, Russia and Argentina are prime examples on the economic front as are Iraq ith the end of the cold war in 1989 through the boycott, Serbia and Afghanistan are and the subsequent decline of Russia so on the military front as well. The latter -but Was a serious immediate contender, as really both- are what President Bush father well as the decline during the 1990s of the hype called "The New World Order" when he of Japan as #11, two other regions, states and bombed Iraq in 1991. I termed it "Third World powers came into contention. One is the United War" in two senses, one that it takes place in States whose fortunes and prospects seemed to The Third World and secondly that this war have declined after 1970 but recovered in the against the Third World constitutes a Third 1990s; and even so it is a Paper Tiger. The other World War3. is East Asia, despite its post 1997 crisis, and especially China -the Fiery Dragon. In global The prosperity and welfare of the American terms, we could regard this as a process of people rests primarily on its position in the continued shift of the world center of gravity world today as Britain's did in the nineteenth west-ward around the globe, from East century. That observation is fundamentally Asia/China to Western Europe, then across the different from the political and media hype Atlantic to the United States, and there then about the sources of American exceptionalism from the eastern to the western seaboard, and that are supposedly in its genious, morality,

© Historia Actual Online 2004 93 Paper Tiger in Washington Andre Gunder Frank productivity, and other characteristics that In fact, the world already is in depression, from allegedly differentiate America from the rest of which so far only the United States is the world. On the contrary, America rests on substantially and Canada and Western Europe two -maybe three- pillars: partially exempt. And the latter is so, because of the privileged position of especially the 1. The 'dollar' as the world currency whose American economy within the global one, from monopoly privilege the US has to print whose mis-fortune Americans have been at will, and deriving the benefits of that position, which to 2. The 'Pentagon' with its unrivalled repeat is essentially derived from the privilege military capacities. of printing the world currency with which 3. A third pillar perhaps is the government, Americans can first buy up the production of the educational and media fed 'ideology' rest of the world at depressed deflationary prices that obscures these simple facts from and then have the same dollars be returned from public view. Moreover each supports abroad to be invested in Wall Street and US the other: It costs dollars to maintain the Treasury certificates for safe-keeping and/or Pentagon, its bases in 80 countries higher earnings than are available elsewhere. around the world, and the deployment of its military forces around the globe. In the mid 1980s James Tobin -the inventor of Military expenditures are the prime the Tobin tax on financial transactions- and I causes of the twin American deficits, in were to my knowledge the only ones already to the federal budget and in the balance of published predictions of de-flation as the trade. Conversely, Pentagon strength coming world economic danger. Economic helps sustain global confidence in the policy makers however ignored these warnings dollar. and this risk -not really risk, but necessary consequence- while continuing their policies But this same mutual reliance for strength designed to fight in-flation. Nonetheless, since therefore also constitutes two mutually related then commodity prices have fallen sharply and American Achilles heels. The dollar is literally a consistently and more recently industrial prices Paper Tiger in that it is printed on paper whose have fallen as well. Moreover in World value is based only on its acceptance and economic terms, high inflation in terms of their confidence in the same around the world. That national currencies -pesos, rubles, etc.- and their confidence can decline or be withdrawn sharp devaluation against the dollar world altogether almost from one day to the next and currency has been an effective de facto major cause the dollar to lose half or more of its value. de-flation in the rest of the world. That has Apart from cutting American consumption and reduced their prices and made their exports investment as well as dollar-denominated cheaper to those who buy their currencies with wealth, any decline in the value of the dollar dollars, primarily of course consumers, would also compromise US ability to maintain producers and investors in -and from!- the and deploy its military apparatus. Conversely, United States. These additionally, which is any military disaster would weaken confidence hardly ever mentioned!, can and do buy up the in and thereby the value of the dollar. Indeed, at rest of the world with dollars that 'cost' only the 2003 World Economic Forum in Davos, the their printing and distribution, which for assembled world political and business elites Americans have virtually no cost. (The $100 expressed very serious fears that the mere dollar bill is the world's most used cash currency deployment of the US military, e.g. against Iraq, on which runs the entire Russian economy, and would bring on a world depression. Time there are two to now three times as many of Magazine this week reports on a comprehensive them circulating outside as inside the US). The study of the US airline industry, which American boom and welfare and then 'balanced' concludes that a war against Iraq would drive federal budget 1992-2000 Clinton half of it into immediate bankruptcy. If so, what administration, contrary to its populist claims, of still weaker non-American airlines? The only happened to coincide with this boom. The insecurity that comes with military saber rattling also same 8 year long prosperity of the United and threats undermine confidence in the dollar States was entirely built on the backs of the and put brakes on investment. And no amount of terrible depression, deflation and thus generated ideology is sufficient completely to obscure that marked increase in poverty in the rest of the economic situation. world. During this one decade, production declined by over half in Russia and Eastern

94 © Historia Actual Online 2004 Andre Gunder Frank Paper Tiger in Washington Europe and life expectancy in Russia declined total amount owed by rolling it over at higher by 10 -ten- years, infant mortality, drunkenness, rates of interest. The idea of declaring US crime and suicide increased as never before in chapter 11 or 9 type insolvency is however peacetime. Since 1997, income in Indonesia finally catching on. declined by half and generated its ongoing political crisis. That is dissipation of entropy Thus, deflation/devaluation elsewhere in the generated in the US and its export abroad to world has like a magnet attracted speculative those who are obliged to absorb it in ever greater financial capital from the rest of the world -both disorder. It would be difficult to find better American owned and foreign owned- into US examples -except the destruction of the entire Treasury certificates -stopping up the US budget society in Argentina, Rwanda, Congo, Sierra deficit- and into Wall Street. That is what fed Leone, previously prosperous and stable Ivory and supported its 1990s bull market, which in Coast- not to mention the countries that have turn has increased, supported and spread wider a been visited by destruction through American speculative and illusory in increase in wealth for military power American and other stock holders and through this also illusory 'wealth effect' has supported All this has among others the following higher consumption and investment. The consequences: in the US it can export inflation subsequent and present bear market decline in that would otherwise be generated by this high stock prices nonetheless is a still a profit boon supply of currency at home, whose low rate of for enterprises who issued and sold their stocks inflation in the 1990s was therefore no miracle at bull market high and rising stock prices. For result of domestic 'appropriate' Fed monetary they are now buying back their own stocks at policy. The US has been able to cover its twin what for them are bargain basement low prices, balance of trade and budget deficits with cheap which represent an enormous profit for them at money and goods from abroad. The US trade the expense of small stock holders who are now deficit is now running at over 500 billion dollars selling these stocks at low and declining prices. a year and still growing. Of that, 100 billion are The US 'prosperity' now rests on the knife edge covered by Japanese investment of their own also of an unstable enormous domestic corporate savings in the US that saves nothing and which and consumer -credit card, mortgage and other- the Japanese may soon have to repatriate to debt. manage their own banking and economic crisis - especially if an American war against Iraq Moreover, the US is also vastly over-indebted to causes a n even temporary spike the price of oil foreign owners of US Treasury certificates, Wall on whose import Japan is so dependent. Another Street stock and other assets, which can be $100 billion comes from Europe in the form of called in by foreign central banks who have various kinds of investment, including direct been keeping reserves in US dollars and other real investment, which could dry up as the foreign owners of US debt. Indeed, it is the very European recession continues, the Europeans US policy that has contributed so much to become exasperated with American policy, or destabilization elsewhere in the world -e.g. they have any number of other reasons to reduce through the destabilization of Southeast Asia their dollar reserves and put them into their own that undermined the Japanese economy and Euro currency instead. A third 100 billion is financial system even more than it would supplied by China, which first sells the US its otherwise have been- that now threatens and cheap manufactures for dollars and then now soon makes much more likely that accumulates those dollars as foreign exchange especially Japanese and European holders of US reserves -thus in effect giving away its poor debt must cash it in to shore up their own ever producers' goods to rich Americans. China does more unstable instable economic and financial this to keep its exports flowing and its industries systems. The liabilities of the US to foreigners going, but if it decided to devote these goods to now equal two thirds of annual US GNP -and expanding its own internal market more, its therefore can and will never be paid off. people would gain in income and wealth, and However any hick in rolling this debt over and the United States would be out of luck. The over, can result in foreign attempts to get out as remaining $200 billion of deficit are covered by much money as they can -resulting in a crash of other capital flows, including debt service from the dollar. the poor Latin Americans and Africans who have paid off the principal of their debts already Another major consequence is that the US -and several times over and yet keep increasing the world!- economy is now in a bind from which it

© Historia Actual Online 2004 95 Paper Tiger in Washington Andre Gunder Frank most probably can not extricate itself by in contrast to the above summarized previous resorting to Keynesian pump priming and much period- NOT avoid generating a further SUPER less to full scale macro-economic policy and trade balance particularly if market demand falls support of the Us and Western/Japanese further and pressure increases abroad to export economy, as the Carter and Reagan to the US demand/er of last resort. But this time, administrations did. Military Keynesianism, there will be NO capital inflows from abroad to disguised as Friedman/Volker Monetarism and rescue the US economy. On the contrary, the Laffer Curve Supply-Sideism, was begun by now downward pressure to devalue the US Carter in 1977 and put into high gear in 1979, dollar against other currencies would spark a when Carter the Fed was run by Carter capital flight from the US, both from US appointee Paul Volker, who in October 1979 Government bonds and from Wall Street where switched Fed monetary policy from high money significant stock price declines generate further creation / low interest price thereof to attempted price declines and deflation in world terms even low money creation/high interest -to 20 percent if the US attempts domestic inflation. monetary!- to rescue the dollar from its 1970s tumble and attract foreign capital to the poor The price of oil is yet another fly in the political US. At the same time, Carter began Military economic ointment, whose dimension and Keynesianism in June 1979, which was then importance is inversely proportional to the escalated further by President Reagan In that health or illness of the ointment itself. And they then succeeded. today that is quite sick and deteriorating already. The world price of oil has always been a two It is highly unlikely however that analogous edged sword whose double cutting edges can be policies could succeed again now. The US de-sharpened with the help of successful would need to invoke the same re-flationary alternative economic and price policies. On the policy again for itself and its allies, now. But it one hand, oil producing economies and states can not do so! The Fed has already lowered the and their interests need a minimum price floor to interest rate so far that it cannot go much lower produce and sell their oil instead of leaving it and is not likely to stimulate investment by underground and also postponing further oil doing so. On the other hand, raising the interest productive investment while waiting for better rate to continue to attract funds from abroad times. The US is a high cost oil producer. A would risk choking off all domestic investment high oil price is economically and politically and working capital. Brazil tried that, admittedly essential also for important states like Russia, with extravagant monetary interest rates at 60 Iran and especially Saudi Arabia, as well as US percent to attract foreign capital, and ruined its oil interests. On the other hand, a low price of domestic economy. oil is good for oil importing countries, their consumers including oil consuming producers of The US may -should? must??- now attempt a other products, and supports state macro repeat performance of the 1980s to spend itself economic policy, eg in the US, where low oil and its allies -now minus Japan but plus prices are both good politics and good for the Russia?- out of the present and much deeper economy. These days, the high/low price line world recession and threatening globe between the two seems to be around US$ 20 a encompassing depression. The US would then barrel -at the present value price of the dollar! again have to resort to massive Keyenesian But nobody seems to be able to rig the price of deficit -using September 11 as a pretext for oil at that level. The present conflict, long since probably military- re-flationary spending as the no longer within OPEC, is primarily between locomotive to pull the rest of the world out of its OPEC that now sells only about 30 to 40 percent economic doledrums. However, the US is of the world supply and other producers that already the world consumer of last resort, but it supply 60 percent, today especially Russia but can be so with the savings, investments and also including the US itself as both a significant cheap imports from abroad, which themselves producer and a major market, although that is form part of the global economic problem. increasingly shifting to East Asia. Recession in both and the resultant decline in demand for oil Moreover, to settle its now enormous and ever drags its price downward. US strategy and wars growing foreign debt, the US may chose also to against Afghanistan and Iraq. is to gain as much resort to in-flationary reduction of the burden to control of oil as it can and for now to share as itself of that debt and its also ever growing little of it as it must with Russia in Central Asia, foreign debt service. But even the latter could - Caspian Sea and Persian Gulf regions. And that

96 © Historia Actual Online 2004 Andre Gunder Frank Paper Tiger in Washington control, even if it cannot control the price of oil, ball in their league. The answer is simple and is to be used as an important geo-political resolves not only that puzzle but what could economic lever to manipulate against US oil otherwise appear as a rather confused and import dependent allies in Europe and Japan and confusing US foreign policy: (1) Iraq changed ultimately its strategic enemy in China. the pricing of its oil from dollars to Euros in 2000. (2) Iran threatens to do so. (3) North For US Keynesian spending re-flation as well as Korea has changed to deal only in Euros. (4) in-flation can no longer put the floor under the Venezuela has withdrawn some of its oil from price of oil needed today and tomorrow. No dollar pricing and is instead swapping it for policy, but only recovery generated world goods with other third world countries. Besides market demand I- and/or limitations in the an old friend of mine, Venezuela's Fernando supply of oil -can now provide a floor to and Mires at OPEC headquarters in Vienna, prevent a further fall in the price of oil- and its proposed that all of OPEC should switch from deflationary pull on other prices. And further pricing its oil in dollars to pricing it in Euros! deflation in turn will increase the burden of the OPEC has recently re- examined his possibility already vastly over-indebted US, Russian and and now Russia has as well. Nothing else, no East Asian, not to mention some European and amount of terrorism, could be more threatening Third World, economies. to the US; for any and all of that would pull all support out from under the dollar as oil Thus the political economy of oil is likely to add importers would no longer buy dollars but to further deflationary pressure. That would - instead Euros to buy their oil. Indeed they would indeed already does- again significantly weaken want also to switch their reserves out of the oil export dependent Russia. But this time it dollar and into the Euro. Iraq already gained would also weaken US oil interests and their about 15 percent with its switch as the Euro rose partners abroad, especially in Saudi Arabia and against the dollar. And besides, the Arab oil the Persian Gulf. Indeed, the low price of oil states who now sell their oil for paper dollars during the 1990s has already transformed the would be unlikely to continue turning around Saudi economy from erstwhile boom to a bust. and spending them again for US military That has already generated middle class hardware. It is this horrorific scenario that US unemployment and a significant decline in occupation of Iraq is designed to prevent, with income that has also already generated Iran next in line. Curiously, this oil-dollar-euro widespread dissatisfaction and now threatens to 'detail' is never mentioned by the US do so even more at precisely the time when the government or media. No wonder that major Saudi monarchy is already facing destabilizing European states are opposed to Bush's Iraq generational transition problems of its own. policy, which is supported only by the UK, Moreover a low oil price would also make new which is a North Sea oil producer itself. Simple investment unattractive and postpone both new how one little piece of incidental information oil production and eliminate potential profits can make the other pieces of the entire jig-saw from laying new pipelines in Central Asia. puzzle fall into place!

Indeed, there is an even more immediate urgent All of these present problems and developments need for the US to control Iraqi oil reserves, the now threaten to -will?- pull the rug out from second largest in the region and the most under- under US domestic and international political drilled with a large capacity to increase oil economy and finance. The only protection still production and drive down prices. But that is not available to the United States still derives from all or even the heart of the matter. Many people its long since and still only two pillars of the were surprised when President Bush added Iran 'New World Order' established by President and North Korea to his "axis of evil." Though Bush father after 'Bush's Gulf War" against Iraq they may not be so surprised at American efforts and the dissolution of the Soviet Union in 1991. to promote a coup and change of regime in President Bush son is now trying to consolidate Venezuela, which supplies about 15 percent of his father's new world order -no doubt with the US imports. So what do these countries have in latter still as a power behind the throne- common, many people ask. Well, three of them beginning with the War Against Afghanistan have oil, but not North Korea. So what is its and threatening once again against Iraq, and the threat that puts it in Bush's axis. Surely not Bush-Putin effort now also to construct a US- geography or alliances -Iraq and Iran were Russian Entente -or is it Axis. mortal enemies, and North Korea does not play

© Historia Actual Online 2004 97 Paper Tiger in Washington Andre Gunder Frank The dollar pillar is now threatening to crumble, God/Allah forbid that any of these nor their as it already did after the Vietnam War but has Holy War against Islam blow us all up or so far remained standing through three decades provoke others to do so. of remedial patch work. But as we have seen, the US is now running out of further economic However that may be, US imperial political remedies to maintain the dollar pillar upright. military blackmail may still blowback on the It's only protection would be to generate serious United States also, thus not out of strength but inflation in the short run by printing still more out of the weakness of a truly Paper Tiger. So US dollars to service its debt, which would then who shows any strength? The Chinese Dragon! undermine its strength and crack the dollar pillar And that is now the primary pre-occupation and and weaken the support it affords still more. preparation of the Pentagon and of far sighted American strategists like Zigniev Brzenski who That would leave only the US military pillar to has taken up the century oild Huntington -not support US political economy and society. But it the clash of civilizations one but a previous and reliance on it also entails dangers of its own. one!- thesis about the geo/economic political Visibly, that is the case for such as Iraq, need to control the Inner-Eurasian core. Steps to Yugoslavia, and Afghanistan and of course all that are not only the war against and control of others who are thereby deliberately put on notice Afghanistan and the string of military bases to play ball by US rules in its new world order there and in a half dozen former Soviet on pain of eliciting the same fate for themselves. Caucasus and Central Asian republics that are But the political blackmail to participate in the now converted into US client states under the new world order on US terms also extends to US Orwellian PfP rubric of "Partnership for Peace." -especially NATO- allies and Japan. It was so Nor is it only controlling Central Asian oil and exercised in the Gulf War -other states paid US the pipelines for its export westward to Europe expenses so that the US made a net profit from and southward to the Indian Ocean and Asia, but that war-, the US war against Yugoslavia in also precluding pipelines eastward in growing which NATO and its member states were competition with China and its growing thirst cajoled to participate, and then by the War for oil. It also includes maintaining military against Afghanistan as part of President Bush's presence in the Korean Peninsula and Japan new policy pronouncement. He used the early including especially Okinawa, and returning to Cold WAR terminology of John Foster Dulles the Philippines. All under the cover of fighting that 'You Are Either With Us Or Against Us". 'terrorism' and countering 'rouge' states, the But US reliance on this, the then only overall US strategy is to encircle China remaining, strategy of military political militarily and to straight jacket it economically blackmail can also lead the US to bankruptcy as as far as still possible. But how far is that? the failing dollar pillar fails to support it as well; and it can come also to entail US 'overstreetch' 2. FIERY DRAGON: CHINA IN EAST in Paul Kennedy terms and 'blowback' in CIA ASIA and Chalmers Johnson terms. A financial and economic crisis erupted in East In summary and plain English, the US has only Asia in 1997 and brought evident relief to many two assets left to rely on, both admittedly of observers in the West. As a result and mis-led world importance, but perhaps even so by day-to-day press media reports and short insufficient. They are the dollar and its military term business and government analysis and political assets. For the first, the economic policy, even 'informed' public opinion in the chickens in the US Ponzi scheme pyramid of West changed again. Now the former "East cards are now coming home to roost even in the Asian Miracle" is said to have been no more United States itself. than a mirage, a dream for some and a nightmare for others. The previously supposed The second pillar is now in use to prop up the ëxplanations and sure-fire strategies of success new order the world over. Most importantly are being abandoned again as quickly as they perhaps is the now proposed US/Russia entente had come into fashion. We hear less about Asian against China instead of -or to achieve?- a US values or guarantees from the magic of the defense against a Russia/China -and India?- market and no more security from state entente. The NATO War against Yugoslavia capitalism. So much the better I would say, generated moves toward the latter, and the US since these supposed explanations and correct War against Afghanistan promotes the former.

98 © Historia Actual Online 2004 Andre Gunder Frank Paper Tiger in Washington policies were never more than ideological shams problems and alleged meltdown of Japan, anyway. Korea, and Southeast Asia.

The historical evidence presented in this book But the dismissal of East Asian and particularly shows that no one particular institutional form or Chinese economic strengths and prospects may political economic policy offers or accounts for be premature and certainly is based on a success -nor failure!- in the competitive and ever shortsighted neglect of the historical evidence as changing world market. The contemporary presented in my 1998 book Reorient4 and further evidence shows the same. In that respect, Deng pursued in my present work on the 19th century, Xiao-ping's famous aphorism is correct. The as well as on a serious misreading of the question is not whether cats are institutionally, contemporary evidence. I believe that this latest let alone ideologically, black or white; the real quick dismissal of Asia is mistaken for the world issue is whether or not they catch following reasons among others: economic mice in competition with others in the world market. And that depends much less on 1. Since Asia and especially China was the institutional color of the cat than it does on economically powerful in the world its opportune position in the world economy at until relatively recently, and new each particular place and time. And since the scholarship now dates the decline as obstacles and opportunities in the competitive really beginning only in the second half world market change over time and in place, to of the nineteenth century, it is quite succeed the economic cat, no matter what its possible that it may soon be so again. color, must adapt to these changes or fail to Contrary to the Western mythology of catch any mice at all. Among these different the past century, Asian dominance in the institutional forms including relations among world has so far been interrupted by an state-finance- productive and sales only relatively short period of only a organizations, perhaps the most attention and century or at most a century and a half. positive evaluation has been devoted abroad to The oft-alleged half century or more those of Korea and then of Japan but also of decline of China is purely mythological. Greater China including its vast network of 2. Chinese and other Asian economic overseas Chinese. But the very fact that they success in the past was not based on differ, and in Taiwan, Singapore, Malaysia, Western ways; and much recent Asian Indonesia and elsewhere as well, should already economic success was not based on the forewarn us against privileging one institutional Western model. Therefore, there is also form over all others. no good reason why Japanese or other Asians need or should copy any At best and that is already very much, the Western or other model. Asians can evidence is that none of these institutional forms manage their own ways and have no is necessarily an impediment or insurmountable good reason to now replace them by obstacle to success on the domestic, regional Western ones as the alleged only way to and world market. Most noteworthy perhaps in get out of the present economic crisis. view of the widespread Western propaganda On the contrary, Asian reliance on other about its own alleged virtues is the demonstrated ways is a strength and not a weakness. fact that no Western model need or should be 3. The fact that the present crisis visibly followed by Asians in Asia or even elsewhere. spread from the financial sector to the productive one does not mean that the The significance of position and flexible latter is fundamentally weak. On the response in the world economy is particularly contrary, the present crisis of important during periods of economic crisis B overproduction and excess capacity is phase that is in Chinese of -negative- danger and evidence of the underlying strength of -positive- opportunity. In the present economic the productive sector, which can crisis so far, the focus has been far too recover. Indeed, it was excess capacity predominantly on its undoubtedly serious and productivity leading to over- negative consequences. But the opportunities it production for the world market that poses have received insufficient attention, initiated the financial crisis to begin except perhaps in the United States and China, with when Asian foreign exchange both of which are seeking to reap competitive earnings on commercial account were advantages from the political economic

© Historia Actual Online 2004 99 Paper Tiger in Washington Andre Gunder Frank no longer able to finance its service of with a costly lesson well learned. The the speculative short run debt. lesson must have been learned 4. Not that economic recessions will or can elsewhere as well by comparing how be prevented in the future. They never relatively unscathed China and Malaysia have been prevented in the past even -and as already mentioned for different under state planning in China or the reasons Korea- emerged from the Soviet Union. More significant is that financial crisis. They maintained this is the first time in over a century controls over capital exports, compared that a world recession started not in the to those countries that succumbed to the West and then moved eastward, but that IMF and its lethal medicine by instead it started in the East and then permitting a speculative capital outflow, moved around the world from there. which destroyed their productive And that was precisely because as per apparatus and multiplied unemployment #3 East Asian and particularly Japanese, into an unbearable economic, social, and Korean and then Chinese productive and political problem, especially in export capacity had grown so MUCH. Indonesia. This recession can therefore be read as 6. That underlying political economic evidence not so much of the temporary strength also puts East Asia, and weakness as of the growing basic especially China, Japan and Korea in a economic strength of East Asia to which much more favorable position than the the center of gravity of the world rest of the Third World and even Russia economy is now shifting back to where and Eastern Europe to resist Western it had been before the Rise of the West. blackmail as it is now exercised by the 5. The recession in the productive sector US Treasury Department through the was short, especially in Korea., and so International Monetary Fund, the World far absent in China. But it was also Bank, the World Trade Organization, severe, especially in Indonesia. And the Wall Street and other instruments. shock-waves from the financial sector to 7. The very act and cost of East Asian the productive, consumer and political concessions to this Western pressure ones were visibly -and to all but the during the past recession makes it totally blind, intentionally- exacerbated politically more likely, since it is by the economic shock policies imposed economically possible, that East Asia on Asian governments by the IMF as will take measures, including especially usual following the dictates of the US a new financial bloc and banking Treasury, which systematically institutions, that can prevent a represents American financial interests recurrence of the present situation in the at the expense of popular ones future by escaping from the strangle- elsewhere around the world. The former hold of Western controlled capital World Bank Vice- President, member of markets. Stiglitz observes such efforts the US President's Council of Economic already in his recent private discussions advisers and now Nobel Prize laureate with Asian officials as reported in his in economics, Joseph Stiglitz, has given book. us an insider's view of these intentional 8. Indeed, one of the present battles, first events in his Globalization and its by the Japanese and now also by the discontents5. That also permitted Chinese, is to remodel the world Western interests to take advantage of financial and trade institutions that were declines in productive and financial designed by the United States to work in strength in Korea and elsewhere to buy its favor. Thus, Japan wanted to up assets at bargain-basement fire-sale establish an Asian monetary fund to prices. Even so the underlying strength prevent the East Asian recession from of the Korean economy was such that deepening as it has thanks to the the foreigners were even then unable to International Monetary Fund based in alter the financial, productive, and subservient to Washington. And ownership and state structure China wishes to join the World Trade significantly to their favor. The Korean Organization but also seeks to have this productive and financial machine soon Western dominated institution reformed recovered again to forge ahead, but now to its advantage.

100 © Historia Actual Online 2004 Andre Gunder Frank Paper Tiger in Washington 9. A related political economic struggle is need such emergency measures, since it the competition between the United had received relatively little foreign States and China to displace Japan, capital to begin with. Korea and Southeast Asia in the market 11. Regarding the mainland Chinese by taking advantage of their economy, the President of the Chinese bankruptcies. American capital is Society of World Economy, Pu Shan, buying up some East Asian productive observed already the in the mid 1990s: facilities at bargain basement prices, Results of the economic reform are while China is waiting for them either to remarkable. Real gross national product be squeezed out of the competitive in 1995 increased 4 times that of 1980, market altogether, and if not to engage with an average annual growth rate in joint operations. Indeed it had been close to 10% during that period. Real the devaluation of the Chinese currency income peer capita more than tripled. before 1997 that reduced the world Exports and imports of merchandize market share of other Asian economies trade in 1995 increased more than 7 and helped generate the financial crisis times that of 1980 in terms of US itself. Only time will tell which strategy dollars, while China's share in world will be more successful, but the Chinese trade more than tripled And China and perhaps also some Southeast Asians became the largest recipient lf foreign seem like the better bet over the long direct investment among developing term. Moreover, no matter how deep the countries. It is also noteworthy that the recession in Japan; it is not for that large scale transfer of agricultural labor eliminated as an economic power, to industry has been accomplished especially in Asia. However, there is amind unprecedented prosperity in the evidence that China is trying to rural economy, unlike many other reconstruct the East Asian trade and countries that went through the painful tribute system at whose center it was in process of widespread bankruptcy of the eighteenth and that the ern colonial farmers6. powers dismantled in the nineteenth In the decade since then, most of these century. trends have still continued, though the 10. Equally significant is that India and to rural economy and agricultural income recently to a lesser extent China have have lagged. In particular however, the remained substantially immune from the ten percent annual growth rate has still present recession, thanks in part to the been maintained, which means doubling inconvertibility of their remin ribao and in size in six years, soon to become the rupee currencies and the valve in their world's second largest after that of the capital markets that permits the inflow United States. But China now also holds but controls the outflow of capital. The the greatest single share of the huge and currency devaluations of China's ever growing American foreign debt, competitors elsewhere in East Asia and although it is doubtful that anyone will the reduced inflow into China of ever be able to collect on any substantial Overseas Chinese and Japanese capital part of it. Nor does this mean that that is negatively affected by the China's growth does not also pose recession in East Asia may oblige China immense problems, from gaping to devalue again as well to remain inequality between the coast and the competitive. Nonetheless and despite interior or urban and rural, or its their serious economic problems, the growing demand and import of raw Chinese and Japanese economies appear materials and especially oil and soon of already to have and to continue to be foodstuffs, and the menacing shortage able to become sufficiently productively of water. Japan's major fiscal and and competitively strong to resist and economic crisis of the 1990s has abated overcome these problems. In Southeast and economic performance and Asia, Malaysia has successfully prospects have improved again despite followed the Chinese model of opening the continuing debt overlag. As to India, its capital market to inflows but although its growth has been lagging restricting especially speculative capital behind, it has recently increased and outflows from the same. Korea did not shows promise or at least possibility of

© Historia Actual Online 2004 101 Paper Tiger in Washington Andre Gunder Frank further acceleration: from 1.5 percent cheap labor. Probable political annually during the three decades change in the DRNK may well following independence to 5.5 percent add a new source of cheap labor over all and 3.5 percent per capita in the for this growing pool of labor in 1980s, and 6 and 4 percent respectively the Northeast Asian Region and in the 1990s. For the next half decade, for its Far East Russian also projections range from 5 to 7.5 percent cheap base of ample annually. That is still less than for East metallurgical, forestry, Asia, but sufficient to double in a agricultural and even petroleum decade or so. All of these Asian medium resources. Korean and Japanese term growth rates exceed by far those capital could make that a very ever previously achieved anywhere in attractive regional growth pole the West. in itself and a highly 12. It is noteworthy that the economically competitive region on the world most dynamic regions of East Asia market. today are also still or again exactly the same ones as before 1800 and which All of these in turn were and still or again survived into the nineteenth century. increasingly are important segments of world 1. In the South, Lingnan centered trade and of the global economy. In that sense on the Hong Kong-Guangzhou also and although its story ends in 1800, the corridor, examination of the world economy and of the 2. Fujian, still centered on predominant place in it of the East Asian Amoy/Xiamen and focusing on including Korean economies points to the most the Taiwan straits and all of fundamental bases of contemporary economic Southeast Asia in the South developments in the region and also presages China Sea; and between them, important world economic ones for the 3. the Yangtze Valley, centered on foreseeable future. Shanghai and trade with Japan that is already taking the lead NOTES away again from the southern and northern regions. 1 Vogel, E.F., Is Japan still number one?. Subang 4. But already then there was also Jaya, 2000. 2 a fourth economic region Frank, A. Gunder, "Around the world in eighty around the North China Sea, the years". Journal for the comparative study of quadrangular trade relations civilizations, 5 (2000), 45-98. 3 Id., "Third World War".Project for the First among Manchuria and People's Century, (1991), [journal on line] Available elsewhere in Northeast China, from Internet at: Siberia/Russian Far East, - < http://firstpeoplescentury.net/andre02.htm>. northern?- Japan, and Korea, 4 Id., Reorient: Global Economy in the Asian Age. but also including Mongolia. Berkeley, 2002. Although the first three above- 5 Stiglitz, J., Globalization and its discontents. New named regions are already again York, 2002.. 6 undergoing tremendous Shan, P. et al., Towards a new Asia. Malaysia, economic growth -and political 1994, 174. power?- in the absolute sense, the fourth one around Korea seems to enjoy the greatest relative boom, and within it that of Korean capital as well. It is helping to develop resources in the Russian Far East and as far west as Central Asian Khazhakstan. The Chinese population on the Russian side of the Amur River has been estimated already to exceed 5 million people as a pool of