ASIAN MONEY: A NEW QUALITY
Abstract
Rephrasing Mao Zedong, we could say that Eastern money is getting the better of Western money. This refers to a rather unusual situation that has evolved in the world economic and financial system in the new millennium. To evaluate the lineup of forces in the global economy as well as the role that the Central Asian republics and Russia could play in this economy, we need to make a brief digression into the economic development period that began after World War II. In the 1950s, world GDP growth rates sharp-ly increased, to 5.0 percent, including to 4.1 percent in developed states and 5.2 percent in developing countries.1 In the West, the main factors in this process were the reconstruction of national economies and the introduction of essential innovative technology (nuclear energy, petrochemistry, jet aviation, television, etc.). In addition, the normalization of international trade and the evolution of capitalism itself, whose contradictions were losing their antagonistic character, also played a role here.
Formation of the welfare state reduced inequality in income distribution, which for its part expanded the domestic market, facilitating mass consumption. the same time, Western ruling circles reviewed their approaches toward the periphery. The relative depreciation of fixed capital in developed states and the anticipated expansion of the foreign market 2 had, by the early 1960s (as industrialization gained ground), created an economic base for the provision of development aid to peripheral (economically speaking) countries, including state credits, personnel training programs, etc.
In the 1950s-1960s, however, economic growth rates in developing countries were mainly based on internal factors. Achievement of political independence, elimination of discrimination, liquidation of extra-economic coercion, reduction in the claw-back of the net product, the lifting of restrictions on external competition, and other measures implemented at the time created favorable conditions for economic revival in these countries. The role of the nation-state modified. It eliminated the most archaic relations, put in place the essential elements of infrastructure and industry, and pro-moted domestic enterprise. In a number of small countries and territories, the state was highly instrumental in launching export orientation mechanisms.
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In the 1901-1950 period, the world’s GDP grew at an average rate of 2.2 percent.
The main impediment to development in the course of economic reconstruction was capital, while in the subsequent period it was the market.
In the developed world, GDP growth rates were 3.4 per-cent.
See: A. Madison, The World Economy. A Millennial Perspective, OECD, Paris, 2001, p. 126.
S.A. Byliniak, “Mirovoy dolgovoy krizis: obshchie zakonomernosti i osobennosti proiavlenia na Vostoke,” in: Strany ASEAN: na grani dolgovogo krizisa? Nauka Publishers, Moscow, 1988, p. 37.
See: Joseph E. Stiglitz, Globalization and its Discontents, W.W. Norton & Company, New York, London, 2002,pp. 98-99.
In the 1980s, there was virtually no net capital inflow into developing countries: Everything was spent on debt servicing (see, e.g.: P.R. Krugman, Pop-Internationalism, The MIT Press, Cambridge, Massachusetts, London, 1999, p. 62).
“What makes speculation profitable is the money coming from governments, supported by the IMF ... but speculators as a whole make an amount equal to what the government loses. In a sense, it is the IMF that keeps the speculators in business,”Joseph E. Stiglitz points out, going on to say: “The billions of dollars which it [the IMF] provides are used to maintain exchange rates at unsustainable levels for a short period, during which the foreigners and the rich are able to get their money out of the country at more favorable terms... The billions too are often used to pay back foreign creditors, even when the debt was private.
hat had been private liabilities were in effect ... nationalized. In the Asian financial crisis, this was great for the American and European creditors (Joseph E. Stiglitz, op. cit., pp. 198-199, 209. Here and hereinafter quoted with permission from W.W. Norton & Company Publishers).
See: V.S. Vassiliev, “Globaliziruiushchaiasia ekonomika: razvitie po vtoromu nachalu termodinamiki?” Ekonomiches-kie strategii, No. 1, 2004, p. 16.
See: V.S. Vassiliev, “Globaliziruiushchaiasia ekonomika: razvitie po vtoromu nachalu termodinamiki?” Ekonomiches-kie strategii, No. 2, 2004, p. 23.
See: V.S. Vassiliev, op. cit., No. 1, p. 14; No. 2, p. 25.
One distinguishing feature of Japan, which stands somewhat apart from Western countries, is that its corporations were,as a general rule, managed by engineers, as compared to accountants and lawyers in the United States. In the late 1980s, top executives in Japan made 10 times as much as factory workers, as compared to 500 times in the United States (see: J. Risen, “Why Can’t America Catch Up?” Los Angeles Times, 14 January, 1990).
It is noteworthy that in 1985, the PRC (following an open discussion in the mass media) rejected a $200 billion loan from the World Bank, offered under the “Borrow and Prosper!” slogan.
H. Blommestein, “Major Policy Changes in Developing Exchanges in Emerging Economies,” Financial Market Trends,OECD, No. 85, 2003, pp. 125-126.
The capital accumulation rate in Eastern countries grew from 14.2 percent of GDP in 1950 to 26.5 percent in 1980. In 1995, it was 27.6 percent and in 2000, 24.6 percent (see: A.I. Dinkevich, “Ekonomicheskaia modernizatsia tretyego mira: itogi,protivorechia, perspektivy,” in: Materialy konferentsii “Genom” Vostoka: opyty i mezhdistsiplinarnye vozmozhnosti, Gumani-tariy Publishers, Moscow, 2004, p. 6). In CIS countries (except for Kazakhstan, Turkmenistan, and Azerbaijan) said indicator is substantially lower.
The law on the National Bank of China, adopted in 1995, stresses that its principal objective is to maintain the purchas-ing power of the national currency in the interest of ensuring rapid economic growth.
It ought to be pointed out in this context that at the height of the latest inflation explosion in the PRC in the 1993-1995,the bank loan rate at state controlled banks (approximately 10 percent) was below the level of inflation (about 17 percent). Mean-while, banks paid yields on term deposits at an annual rate of around 9 percent, thus attaining the main objective—preserving public trust. Not surprisingly, bad debt built up within such a system. True, the acuteness of the problem should not be overstated:
t is alleviated somewhat by, among other things, dynamic economic growth.
For more detail, see: I.M. Sofiannikov, Valiutnoe regulirovanie v Kitayskoy Narodnoy Respublike, Cand. Sc. Thesis,Moscow, 2003; A.V. Shakhmatov, Evoliutsia valiutno-finansovoy politiki v Indii v gody nezavisimosti, Institute of Oriental Stud-ies, Moscow, 2004.
E. Bem-Baverk, Kapital i pribyl: Istoria i kritika teoriy protsenta na capital, St. Petersburg, 1909.
We cannot but agree with Joseph E. Stiglitz’s conclusion about the cause of the 1997-1998 Asian monetary and financial crisis: “capital account liberalization was the single most important factor leading to the crisis” (Joseph E. Stiglitz, op. cit., p. 99).
Not surprisingly, convertible currencies were dubbed “mad money” (see: S. Strange, Mad Money. When Markets Out-grow Governments, Ann Arbor, New York, 1998). Suzan Strange is the author of a controversial book, Casino Capitalism (1984).
t is worth noting that markets did not overgrow governments, while multinationals did only in some places (for more detail, see:
.K. Shirokov, A.I. Salitskiy, “Rynok, monopolii, gosudarstvo: zapadnaia i kitayskaia modeli ,” Vostok, No. 1, 2004).
In 2003 alone, appreciation of the ruble’s real exchange rate against the backdrop of its declining purchasing power on the domestic market brought down Russia’s price competitiveness at least 25 percent.
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