A Loyal Retainer for Capitalism in East Asia
Sixty-five years ago, the United States emerged from the Second World War as the undisputed hegemon of world capitalism. But within a generation, neither the American will nor the American ability to continue managing the global capitalist order could be taken for granted. This essay will argue that the key to understanding the repair and continued re-enforcement of American economic and financial primacy since the system-shaking tremors of the 1970s can be found in the postwar experience of Japan and its neighbors. Within that experience lies a paradox: it was precisely Japan’s deviations from orthodox capitalist methods—the distinctive marks that characterize its political economy—that help explain the continuation of an American-centered world capitalist system long after one might have expected its manifest contradictions to bring it down.
Perry Anderson has recently written:
In Japan, Korea and Taiwan, the post-war states were creatures of American occupation or protection, on a front-line of the Cold War. Strategically, they remain to this day wards of Washington—planted with U.S. bases or ringed by U.S. warships—without real diplomatic or military autonomy. Lacking political sovereignty, yet needing domestic legitimacy, their rulers…compensated with policies of economic self-development, keeping foreign capital at bay with one hand, promoting domestic corporations with the other. (1)
In other words, for reasons that go directly to the core political legitimacy of their power structures, these states have deliberately flouted neo-liberal development doctrine with its emphasis on the free movement of goods and capital. Had Japan’s power-holders in particular not felt compelled for political and historical reasons to eschew “liberalization” of their economy—had they allowed capital markets, for example, to determine corporate control while arranging the incentive structure of their system to enshrine financial return as the pre-eminent goal of asset-management—their ability to support U.S. hegemony could have been fatally compromised. Today’s global economic system would be a very different animal.
The era of American hegemony has added another contradiction of capitalism to those already identified by Marx such as tendencies towards overcapacity, overproduction, and a declining rate of profit as capitalists attempt to defend and enlarge market share. Since the emergence of the dollar in the 1940s as capitalism’s dominant currency, we have seen a secular decline in its relative value. Unlike sterling, which maintained its purchasing power through most of the nineteenth century and was disseminated via British capital exports, the global supply of dollars since the late 1960s has stemmed from American current account deficits, thus raising the possibility of an erosion of confidence in the dollar that ultimately could lead to a crisis of confidence in capitalism itself. This contradiction—first foreseen by the economist Robert Triffin in 1956 (he called it a “dilemma”)—was resolved (at least temporarily) by a Japan that had adopted an export-led growth model partly to forestall the full transforming power of capitalist relations. Among other things, relying on export proceeds and domestic savings rather than foreign direct investment to finance development helped ensure that economic and political outcomes were determined by domestic power holders rather than impersonal market forces. But the perpetuation of the export-led growth model required that Japan accumulate dollars that it would not seek to exchange either for imports or for other currencies. Since Japan in a manner of speaking would always be there to serve as the dollar’s buyer of last resort, international capitalism could avoid the contradiction inherent in a global reserve currency whose value continued steadily to decline. This crucial role Japan played in supporting the dollar, however, brought with it its own contradictions for the country in the form of a buildup of dollars that were not adequately translated into domestic purchasing power. To resolve this contradiction, the Japanese authorities deliberately created and fostered asset bubbles. The bubbles, once they imploded in the early 1990s, could not be re-inflated, but the attempts to jolt the economy back into growth with waves of credit creation supplied much of the credit that blew bubbles abroad—first in Southeast Asia, and then in the United States itself. And it has also been this Japanese credit, joined in the last two decades by China, South Korea and other Asian countries, that provided the crucial support the dollar needed to survive the bursting of those bubbles and maintain its position as the dominant world currency….
China and other Asian countries for their own reasons adopted key parts of the Japanese model, but have found themselves facing many of the same contradictions—in particular, a need to prop up the dollar's hegemony lest they destroy the value of their own holdings and wreck the machinery by which their customers finance purchase of their exports. Indeed, the very emergence of China as such an important overseas prop for the U.S. dollar encourages Washington to treat Tokyo as little more than a staging ground for the U.S. military now that Japan increasingly plays second fiddle to China in dollar markets.
But China is a very different country with a very different history. Oddly enough for an ostensibly Marxist-Leninist polity, it often seems less ambivalent in its embrace of capitalist relations. This may be due to the legitimacy enjoyed by the Chinese government, to return to Anderson's point quoted at the beginning of this essay, a legitimacy Tokyo has lacked for so much of the postwar period because of its obvious subservience to Washington. Indeed, Hung Ho-Fung's contention that Beijing has allowed the emergence of a new and influential class of entrepreneurs and financiers based in coastal China with ties to global capital—a class now too powerful to be thwarted—suggests that China may have become, in his words, “America's Head Servant.” (2)
But if so, China will not be the kind of servant that Japan has been. Since the contours of the postwar Japanese political economy took final shape in the mid-1950s, Japan’s power-holders have acted, as we have seen, almost on auto-pilot, at least with respect to overriding national goals. They have coped with challenges and crises by attempts to recreate inherited certainties. Among other things, that meant deliberate efforts to stymie the growth of an independent class of entrepreneurs and business leaders who might balk at bureaucratic direction. Thus when Tokyo found itself faced with the choice of doing what it took to support a global capitalist order revolving around the U.S. dollar or seeing that order collapse, it could and did take whatever measures were necessary, even if that meant depriving Japan’s households of any chance to earn real returns on their savings. The bureaucrats did not have to worry about being undermined by powerful capitalists with their own agendas.
China now faces much the same dilemma that Japan began to wake up to some thirty-five years ago: its economy is now so intertwined with that of the U.S. and it has such a huge position in dollar markets that it cannot walk away from its support for the existing order without doing irreparable damage both to that order and to its own short- and medium-term economic prospects. But China’s leaders may be both more conscious of what they are doing than were Japan’s and—perhaps—less sure of their instruments of control. This may seem paradoxical since China is an authoritarian, one-party state while Japan is theoretically a democracy whose leaders must answer to an electorate. But the rise of provincial power centers that balk at Beijing’s orders, not to mention the swaggering coastal elite of financiers and entrepreneurs that Hung describes, suggests that the Chinese authorities may be less able to emulate the way their Japanese counterparts acted during several crises over the past thirty years: halt runs on the dollar with a few pointed phone calls. Indeed, the very reports that have surfaced in the international press of disputes among China’s power holders over currency and monetary policies point to underlying power struggles and raise questions over how and whether they can be resolved, particularly during periods of crisis. (3)
At the same time, the greater awareness by China’s leadership of what it is doing and why it is doing it may ultimately prove the critical variable in the perpetuation of American hegemony. While Hung’s coastal elite may act from time to time as a break on Beijing’s freedom of action, the state-capital nexus that has emerged in China over the past three decades displays, as Ching Kwan Lee and Mark Selden point out, (4) a formidable capacity to discern threats to its collective control over China’s political economy and a proven capacity to neutralize them. Some of those threats clearly emanate from a Washington that while increasingly dependent on Chinese financial support seems at the same time to have China in its sights as the only serious long term challenger of American primacy in global affairs….
(1) Perry Anderson 'Two Revolutions: Rough Notes' New Left Review 61 January-February 2010, p. 93.
(2) Ho-Fung Hung 'America's Head Servant? The PRC's Dilemma in the Global Crisis' New Left Review 60, November-December 2009.
(3) See ‘China Officials Wrestle Publicly over Currency’ The New York Times, March 25, 2010.
(4) ‘China's Durable Inequality: Legacies of Revolution and Pitfalls of Reform’, The Asia-Pacific Journal, January 21, 2007.