hankyoreh

Professor C.P. Chandrasekhar of India’s Jawaharlal Nehru University speaks during the development economy section on the second day of the Asia Future Forum at the Conrad Hotel in Seoul

With the 2008 financial crisis, and more recently with the Brexit and the election of Donald Trump as US president, it appears that the age of globalization, with trade openness and financial liberalization as its hallmarks, is now coming to an end. Asian economies like South Korea, Japan, and India have been buffeted by the harsh waves of globalization over the two decades since the foreign exchange crisis tore through East Asia in 1997. Beyond any prognosticating over the future of globalization, though, there are also the deep and widespread scars it left on societies and economies in individual countries in the form of income polarization and inequality.

Progressive development economists from all over Asia presented and participated as discussants in the development economy section on the second date of the 2016 Asia Future Forum at the Conrad Seoul hotel on Nov. 24, where they argued that the trends of openness and liberalization steered by global financial capital over the past several decades have resulted in inequality, polarization, and economic crisis for Asian countries.

Professor C.P. Chandrasekhar of India’s Jawaharlal Nehru University stressed the dark side of his country’s emergence alongside China is one of the global economy’s major production and demand sources.

“After India rose to become an emerging market in the ’00s, speculative international financial capital flooded into it on a massive scale, which resulted in excess liquidity in the financial market. Banks found themselves in a situation where they had to make a profit with huge amounts of market liquid funds, and looked to individuals and households as a new target for loans,” he explained.

“As a result of this, India’s has become a ‘debt economy,’ shored up by debt, with the total amount of loans continuing to increase as a percentage of gross domestic product,” he added.

Prior to the 2008 crisis, the percentage of household loans among all loans at Indian commercial banks stood between 4% and 5%. After the crisis, it rose to 25%. Emerging economies often welcome being regarded as attractive investment targets for foreign capital - but the reality described by Chandrasekhar is one where this leads to a bubble economy in the financial worlds as the countries end up drawn deeply into the overseas investors’ profit calculus.

According to Chandrasekhar, India’s economic growth is not export-driven so much as the result of a credit bubble formed by overseas capital. The loans themselves are unhealthy: stressed assets, with around 11% of all make loans not performing.

“The governments of Asia are afraid a lot of the foreign capital will temporarily leave all at once if they implement capital controls, but the prospects for Asian economies look bleak unless we shake it off,” Chandrasekhar said.

Next was Musashi University professor Nobuharu Yokokawa, who presented on the economic experience of his home country of Japan. Yokokawa used a “wild goose formation” model to explain the ebbs and flows of the state in driving East Asian economies like South Korea, China, and Japan. One case involved the textile and machinery industries since the 1980s, where the position of model state at the forefront of a V-shaped formation of other “geese” shifted from Japan to emerging industrial economies like South Korea, Taiwan, Hong Kong, and Singapore - and then again to China.

“The long downturn in the Japanese economy, which still has yet to recover its vitality since the ‘90s, cannot be separated from the influence of capital financialization,” Yokokawa said.

“With the transformation into a finance-driven globalization economy, the links in the positive feedback loop of growth have been destroyed,” he added. “Now, wage income remains stagnant or even declines even as labor productivity rises.”

According to Yokokawa, Japan is now facing the same kind of situation as other Asian countries: key IT and knowledge-based industries - and even domestic demand sectors - are swept up in a wave of openness, resulting in a deepening divide of imbalanced growth within industries. The engine for demand-centered growth based on rising wages has broken down, he explained, resulting in growing disparity and inequality between wage income and corporate income.

“Our task right now is to minimize these parasitic aspects of financial liberalization, which diminishes innovation and productivity in real industry sectors like manufacturing and causes polarization,” he said.

South Korea has faced a similar experience in terms of the damages wrought by financial liberalization.

“After liberation [from Japan], the South Korean economy achieved a relatively egalitarian form of growth based on land reforms and expanded social mobility after the Korean War, but the nature of growth changed completely after the 1997 [foreign exchange] crisis,” said presenter Lee Kang-koo, a professor at Japan’s Ritsumeikan University.

Not only has polarization intensified within wage labor, but inequality in labor and the distribution of capital have reached irreversible levels. From the ’70s to the ’90s, the gap between the annual growth rates of household labor income and corporate capital gains stood at just 0.1%; by the ’00s, it had jumped to 17.1%.

“South Korea has succeeded in some measure of growth through neoliberal reforms like deregulation and labor flexibility, but its growth model, like those of other Asian economies, carries within it a mechanism for increasing socioeconomic inequality,” Lee said.

“About the only route to restoring egalitarian growth would be the establishment of a democratic welfare state,” he argued.

By Cho Kye-wan, Director of Trend Analysis at the Hankyoreh Economic Research Institute

Please direct questions or comments to [english@hani.co.kr]