Beware of Your Cronies
BROCKWAY, GEORGE P.
The Dismal Science BEWARE OF YOUR CRONIES By George ? Brockway The papers say the East Asian Debacle (previously known as the East Asian Miracle) was caused by something new under the...
...The theory is both callous and erroneous...
...If the Japanese demanded yen, which we didn't have, they had to sell yen to us for dollars, which we didn'thave...
...If the bailout is successful, our bankers and businesspeople may get our money back, or most of it, without learning a thing from the experience...
...The cronies could not have done it alone...
...yet it sounds to me pretty much like regulation and bureaucratic intervention and all that Old Democratic New Deal stuff that we're trying to clear away as we prepare the bridge to the 21 st century...
...For the rest of us, the lessons are with us always, because we don't seem to leam them...
...One must wonder how policies said to be bad for us can be good for East Asians, particularly since the IMF combines deregulation and privatization with balanced budgets and high interest rates to produce austerity...
...This is the world of Thomas Mann's Buddenbrooks, in which everyone of importance knew everyone else of importance...
...Most East Asian banks can own industries, play the stock market, dabble in real estate, and do other speculative things American banks hope to do in the next century...
...It is these people whom the International Monetary Fund, prodded and abetted by us, is trying to rescue...
...The East Asian Miracle was erected on the backs of American working men and women who lost their jobs because of the wage spread, and the East Asian Debacle will fall on the backs of East Asian working men and women who are now losing their jobs because of the notion that austerity is good...
...Although we have kowtowed to the various swarms of cronies in the past, and hope to be able to do so in the future, it is not their skin but ours that we are trying to save...
...Wright Mills, a sociologist as liberal as Schumpeter was conservative, published his analysis of what he called The Power Elite...
...President Suharto and his family in Indonesia may lose a few fortunes, but they will still have many left...
...The story of the young man who got whipped in Singapore may have had only a tangential bearing on economics, but the story of how Nike sports shoes are made is certainly relevant, and it is only one of many such stories...
...Treasuries that paid 15 percent interest ormore...
...American banks and businesses were not hijacked, as by Malay pirates of yesteryear...
...It depended on controlling imports at the same time that exports were promoted...
...So the East Asians restricted imports as the way to get rich...
...At about the sametimeC...
...During the past few years, as our stock exchanges have become crowded with baby-boomers driven frantic by the prospect of bleak golden years, dozens of mutual funds and investment trusts have also become active players in East Asian markets...
...Do you suppose he was the only American banker who knew what the score was...
...And it did...
...The theory is that otherwise the poor and middle classes will spend any money they are allowed to have on food, clothing and shelter, thus depriving entrepreneurs of money to invest...
...It may not be successful...
...Invariably austerity, while it may cause the leisure class some annoyance, is devastating in its effects on everyone else...
...Ten years ago I attended a conference at Brigham Young University on the ethical problems of doing business with the Pacific Rim...
...Nor do I understand why the Debacle was a surprise to anyone who reads the papers occasionally...
...The saving reduced home demand for consumer goods and gave the banks a little extra to speculate with in real estate...
...The East Asian bailout may cost us billions of dollars—many billions more than the Mexican bailout of two years ago, and perhaps more than the Savings & Loan bailout of only yesterday...
...Joseph A. Schumpeter, once the intellectual guru of conservative economics, in his presidential address to the American Economic Society just before his death in 1950, said: "Capitalism does not merely mean that the housewife may influence production by her choice between peas and beans...
...and someone (say, the IMF) should be watching to see that things are done right...
...An excess of exports over imports is defined, in conventional economics, as an increase in Gross National Product...
...or that the youngster may choose whether he wants to work in a factory or on a farm...
...Most of those present had done business on the basis of figures that later proved to be largely imaginary, had contracts changed on them in midstream, and had difficulty getting a straight answer from a trading partner...
...Next to "supply and demand," the two most holy words in contemporary economics are "market discipline...
...This advice seems reasonable enough...
...Following the advice of Western (why is that word acceptable, while "Oriental" isn't...
...In that case we might be swamped, too, dragged down into a worldwide depression...
...Since what is consumed at home can't be exported, domestic consumption was discouraged—first by holding wages down, and second by energetic pro-saving propaganda...
...or that plant managers have some voice in deciding what and how to produce...
...Led by Japan (which, after all, had been sufficiently Westernized to defeat Russia in 1904-5 and had taught its neighbors the work ethic in the Greater East Asia Co-prosperity Sphere in the 1940s), the East Asian Miracle was a remarkable phenomenon...
...But if the banks and businesses are not rescued, we will, as Treasury Secretary Robert E. Rubin and Chairman Greenspan warn us, suffer at least a slowing of our economy, and this will, as always, be most damaging to those among us least able to bear it...
...But the system was fundamentally unstable...
...Austerity and economics, of course, are mutually contradictory ideas...
...That was fun, but of course the interest was paid in dollars...
...On a much less exalted level, I must confess that in my days as head of a publishing house I couldn't boast with Will Rogers that "I never met a man I didn't like," and I found it much easier to do business with people I did like...
...One of the most articulate speakers was an officer of one of the largest American banks...
...In general ethics, what we do unto others we do to ourselves...
...So I don't see what's so new about crony capitalism...
...They eagerly took well-understood chances because they counted on the spread between American and Asian wages to make pots of money for them very fast...
...To be sure, the latter is supposed to lead to the former, but there is really no reason to expect it to do so and there is little evidence that it ever has, except in wartime or in some command societies...
...However that may be, all the big American banks are now at least somewhat entangled in the East Asian Debacle, as are scores of American producers and retailers, especially of sporting goods, electronics and T-shirts...
...When the balloon burst in the early 1990s, Japan went into a recession it has yet to shake...
...Such devastation is intended...
...At best, they might come away with a fuzzy sense that crony capitalism is not all it's cracked up to be, and a warm feeling (which is not the same as contrite gratitude) that Uncle Sam will take care of them no matter what they do...
...economists, the East Asian countries embarked on ambitious export programs...
...But there was no discipline in this Debacle, and no significant penalty is proposed for anyone but the poor and defenseless...
...so in the end all they had to show for their hard work and ingenuity was a lot of money in their banks, by far the biggest in the world...
...Our business press is nevertheless full of good advice for the East Asians: Their banking systems should be more "transparent" (meaning, I suppose, that bankers shouldn't talk in conundrums like Chairman Alan Greenspan...
...In Japan, whose area is slightly less than that of Montana, the value of real estate ballooned to double that of the entire United States...
...Congressmen oppose an East Asian bailout on the ground that it will use our money to save banks and businesses from the consequences of foolish or greedy investments...
...The low wages had the essential advantage of improving the East Asian competitive position in the world markets...
...They could use quite a few dollars to buy oil and other things they needed for their industries, but they still had billions of dollars left over...
...In the special branch of ethics that is economics, any system built on the shaky backs of the downtrodden will be forever unstable...
...How, then, were we to pay them for their exports...
...A comparatively small group of men (almost exclusively men), well known to each other and generally congenial, they controlled what Lenin referred to as the "commanding heights" of industry and finance...
...From every point of view, it was more successful than the contemporaneous development programs of India and South America (which stagnated), and of Sub-Saharan Africa (which slid backward...
...How many cases can you cite where producers of mass-market goods achieved success by expanding production when no one among the masses had any money to spend...
...their industrial accounts should conform more closely to practices generally accepted in the First World...
...It seems you have crony capitalism when one man (guided by family values and assisted by sons, nephews, in-laws, and pals) runs the show, which includes not only the government but most of the standard and all of the illicit ways of making money...
...And I particularly fail to understand why it was a surprise to American bankers and businessmen and politicians, their economic advisers, and even to the journalists who reported on crony capitalism before it had a name...
...What's so new about all that...
...It means a scheme of values, an attitude toward life, a civilization—the civilization of inequality and the family fortune...
...In the wonder-working years of former Federal Reserve Board Chairman Paul A. Volcker they happily used many dollars to buy U.S...
...The Dismal Science BEWARE OF YOUR CRONIES By George ? Brockway The papers say the East Asian Debacle (previously known as the East Asian Miracle) was caused by something new under the sun called "crony capitalism...
...Economics has to do with the production and distribution of goods and services, and austerity means not consuming or using them...
...Its callousness accounts for the success of the East Asian Miracle, and its fallacy accounts for the Debacle...
...I had my cronies, and I don't doubt that J. P. Morgan had his too...
Vol. 81 • January 1998 • No. 1
