(en) The New Capitalism - Gaurdian Article

Shawn Ewald (shawn@wilshire.net)
Sat, 29 Nov 1997 05:04:51 -0700

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Date sent: Sat, 29 Nov 1997 05:38:30 -0500 From: John Whiting <diatribal@compuserve.com> Subject: The New Capitalism


The [London] Guardian November 29 1997


In the new capitalism some players win but never lose

Martin Woollacott

WHEN Wall Street brokers jumped from high floors in 1929, they did so because they had, in the familiar phrase, "lost everything". Now we have another financial crisis, admittedly not on the same scale, but still an anxiety inducing and wealth reducing phenomenon. Nobody is winging past the window this time. Suicides are noteable by their absence, among the creators of this mess. They seem to have lost nothing - not, usually' their positions, not their bonuses, salaries, savings, or their liberty, for none has gone to jail.

The curious language in which the crisis is discussed is hydraulic. There has been, we are told, "a failure to control short-term flows" of funds. An economy "needs an injection" of money, in the form of an International Monetary Fund loan. "Tokyo", a headline in the International Herald Tribune says, "pumps cash into bank system". Or even, to take another headline from the same source, "Asian Storm soaks ratings firms." There is an awful lot of water sloshing about in the global bath tub. It is all to do with bad plumbing. These kinds of metaphor insistently suggest that the problems are the result of the system, and not the consequence of bad or immoral decisions made by individual managers and financiers, or by the politicians who gained or kept power because of economic growth, however dubiously that was achieved.

It is a language which stops us from realising that we are talking about incompetents, fools and knaves, and sometimes about cheats and thieves. And it prevents us from realising just what idiocies we have sanctioned. Take South Korean investment in Britain, for which local authorities have competed so fiercely, offering bribes in the form of cheap sites and tax holidays. What exactly is it that South Koreans have been bringing to Britain, and to many other countries? It is not technology, or at least not new technology. It is not organisation, at least not of Japanese, quality. It is, instead, cheap capital. And now we learn that this capital is largely illusory. Much of it did not exist. What there is left of it will vanish once higher interest rates and reduced economic activity increase the already huge bad loans posted by South Korean financial institutions. Certainly the Korean managers who led this unsound international expansion are culpable. They exported their problems to the world. Equally, the British policy makers who embraced the South Koreans are also culpable, since the fact that South Korean companies were over-borrowed was well known, even if the terrifying details were not. Here you have an example of the combination of Asian deviousness and Western shortsightedness which is the central issue raised by the financial troubles of the last few months.

The East Asian economies have been in world competition. Their firms have driven companies in other countries to the wall, and their investments have created subsidiaries of critical importance to the economies of whole regions elsewhere around the globe. What is beginning to be learned about the Japanese and South Korean economies suggests that this was done to some extent under false pretences. In part, East Asian firms may have been operating on the basis of loans that ought not to have been made, by institutions which did not actually have the money. With credit they ought not to have had, and with their known tradition of ignoring shareholders, no wonder market share could be pursued so ruthlessly, and no wonder so many battles were won.

We have a truly serious situation which, even if it does not lead to a crash, already means that ordinary people in many countries will have more difficult and more uncertain lives, and somehow there is nobody to blame, let alone to punish. Or even to identify, except here and there. Tsugio Yukihura, a former executive in the failed securities firm Yamaichi, tells an investigating committee of the Japanese parliament how for years the firm hid massive losses in specially created 'Subsidiaries. Otherwise, he explained ingenuously, the firm would have gone bust. He cried. He apologised. So did the Japanese prime minister, or rather he expressed remorse but ducked responsibility. That belonged to the firm, Ryutaro Hashimoto said, but he nevertheless "felt shame". At least the Japanese will mention the word, but if there is any shame in Malaysia, Thailand, or Indonesia, or among the bankers and the stock and currency managers and manipulators of the West, it is well hidden.

Instead we get London merchant bankers, men who may well earn a third of a million pounds or more a year, explaining unctuously on television that in order to avert a crash, many billions will have to be poured into the South East Asian and now the South Korean economies. Who knows who will be screaming for help next ? Some say Russia and Eastern Europe, some Brazil. Whose money is this ? It is not merchant bankers' money. The answer is that it is our money. It is global taxpayers' money, either directly handed over by our own governments or disbursed by the world financial institutions. The reports speak of economies being bailed out, but in truth those who are being bailed out are the business classes, especially the financial business classes, of these countries, and, indirectly, of our own. Their peoples will pay the price of lost savings, lost jobs and lost services, as the IMF conditions bear down, but the shrewd operators will be way ahead of all that. For those in the right place, it seems, capitalism is all gain and no pain.

They call the Western money that went into south east Asia and South Korea "dumb money", meaning that it just followed high returns, just as it is now fleeing, incidentally undermining the numerous viable companies that remain. But it is not so much money which does not know as money which does not wish to know. There cannot be many investment managers who were genuinely unaware of the unsound basis of many Asian stocks. They went in anyway, trusting to get out before the problems their own actions were exacerbating came to the fore.

Culpability matters not only because individuals ought to pay some price for foolish or immoral decisions. It matters because the business classes of the world are well on the way to removing risk from their own personal affairs. Their companies may go down, whole economies may go into decline, but the decision makers are largely immune. None of the fund managers and investment experts who fed money into the Asian miracles are going to lose their jobs. Providing they got out in time, they will even have been promoted. If success of this destructive kind has its rewards, so does failure, so that even the most abysmal Western chief executive will be paid off in the hundreds of thousands. In Japan, a few tearful words into the microphone and then back to your retirement home. In South Korea, not even that. What this means is that the thousands of businessmen and financiers, east and west, who made the decisions that created the present crisis have damaged the rest of us but not themselves. They have already half succeeded in persuading everybody that what has happened is the financial equivalent of freak weather - nobody's fault and now we should all pitch in to set things right. Nothing could be further from the truth.

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