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Economic Crisis in Asia: The Case of ThailandAuthor(s): Jim GlassmanSource: Economic Geography, Vol. 77, No. 2 (Apr., 2001), pp. 122-147Published by: Clark UniversityStable URL: http://www.jstor.org/stable/3594061
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Economic Crisis in Asia: The Case of Thailand*
Jim Glassman
Departmentof Geography, Syracuse University,Syracuse,New York13244-1020
Abstract:The economiccrisis n Asiahasbeen analyzedby neoliberaland neo-Weberian cholars s a financialrisis,with theneoliberalsassertinghat ts causesare nternalo the countriesnquestion,heneo-Weberiansassertinghecauses obe external.Thispaperoffers an alternative,Marxianexplanation f the crisis,focusingon theoutbreak f the crisis nThailand.UsingHarvey'sdeasaboutcap-italist crisesand capitalswitching,alongwith conceptionsof crisisdynamicsn
peripheralocietiesbased n the worksof economicgeographersnddependentdevelopmentheorists, argue hat thecrisis n Thailandwas a fullyeconomiccri-
sis involving ll circuitsof the economy, inkingdomesticand internationalccu-mulation rocesses,andstemmingnpart romstruggles verappropriationf the
surplus.In order to demonstratehis, I analyze he crisisin Thailandat bothnationaland internationalcales and show that it was rootedin decliningprof-itability f manufacturingn a contextof increasedglobalexportcompetition nd
overcapacity. his contextcreated the strong ikelihoodof economicdownturn
throughouthe region,withThailandfalling irstbecauseof its specific iabilities,and othercountries eingpulled ntothe maelstrom f devaluationhrough inan-cialcontagion ffects.
Key words: Marxian risis heory,economiccrisis,Asia,Thailand.
As befits an event of the informationera,the Asian economic crisis has quicklygen-erated a plethora of interpretations. The
majorityof these interpretationshave con-formed to one of two broadly"mainstream"
approaches:a neoliberal approach, cham-
pioned by the International MonetaryFund (IMF) and others,which sees the cri-sis as caused by factors "internal" o thecountries in question; and a neo-Weberian
approachthat sees the crisis as driven
largelyby factors"external"o these coun-tries. The neoliberal approach tends to
* I would like to thankDavidAngel,PeterBell, Eric Sheppard, and two anonymousreviewers orhelpfulcommentson earlierver-sionsof thispaper. wouldalso iketo acknowl-
edge the researchsupport providedby the
Department f Geography nd the MacArthur
Programt the Universityf Minnesota,s wellas the Izaak Walton Killam Postdoctoral
FellowshipProgram tthe Universityf BritishColumbia.
focus on policy mistakes committed bystates (e.g., Fisher 1998; Summers 1998);the neo-Weberian approachtends to focuson the volatility and unpredictability ofinternational capital flows, as well as therole of the IMF itself (e.g., Jomo 1998;Wade and Veneroso 1998). Both
approachestend towarda sharpdistinctionbetween "internal"and "external" factors
(i.e., national and international factors),and both identify the crisis primarilywith
problems in the financial sector, which
they accord a high degree of autonomyfrom "the real economy."'
I present here an interpretation of theeconomic crisis that differs from thesemainstream interpretations in both its
analysis of events and its implications. In
particular, I articulate a broadly Marxian
1Some Marxists avealso dentified he crisis
as fundamentallyinancial.See, for example,Webber 2001).
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ECONOMIC CRISIS IN THAILAND
analysis of crisis tendencies and the waysthey have been expressed in the context of
capitalistdevelopment in Thailand,wherethe crisis firsterupted in 1996-97. As such,I interpret the crisis in Thailand as rooted
in-though not narrowlydetermined by-class and class-relevant struggles over
appropriationof the surplus. Moreover, I
argue that the processes regarded as"financial"and those regarded as part of"the real economy"are deeply and inextri-
cably intertwined. Finally, I focus on rela-
tionships between processes that are typi-cally regarded as taking place at different
geographic scales-in particular, the
national and international scales-and inthis context I payparticularattentionto the
ways in which Thailand's"peripheral" ta-tus within the global economy has affectedthe specific features of its domestic crisis.2
The Dynamics of Economic
Crises in Capitalist SpaceEconomies
As a startingpoint for this discussion, I
begin with a brief outline of Marxian,geo-graphical-historicalperspectiveson uneven
development and economic crisis tenden-cies in capitalist space economies. I relyheavily on the work of Peter Bell (Bell1977; Bell and Cleaver 1982) as well as thework of David Harvey (1982, 1985) andNeil Smith (1984, 1986), and the first partof the discussion is primarily a concise
summary of certain points in their argu-ments. Since the theoretical approach to
crisis they develop is couched in generalterms and is most readily applicable to a
single-and fully capitalist-social forma-
tion, I move in the second part of the dis-
2 In the parlanceof ImmanuelWallersteinand other world systemstheorists,Thailand
mightmoreproperlybe construed s "semipe-ripheral." he distinction s not crucial o myanalysishere, since whatboth peripheraland
semiperipheralocialformations hareis sus-
ceptibility o the effects of politicaleconomicdynamicsn the coreof the worldsystem.
cussion to an analysisof specific features of
capital accumulation on the peripherywhich modify the process of uneven devel-
opment and the manifestationof crisis ten-
dencies.
Capitalist Crisis Tendencies in the
Core
The startingpoint for a Marxisttheory of
capitalistcrises is recognitionof the centralrole played by profits-and thus exploita-tion-in drivinginvestment and economic
growth (Bell 1977; Harvey 1985, 1;O'Connor 1987). On this account, it is
changes in the profit rates of enterprises,industries, sectors, regions, and countriesthat signal the evolution of changes inaccumulationpatternsand the maturingor
superseding of crisis tendencies. Marx
argues that declining profitabilityis a gen-eral tendency of maturingcapitalistindus-
try, rooted in an increase in the organiccomposition of capital, though the ten-
dency may be countered by a number of
factors, including geographic expansion of
accumulation and the incorporation ofnoncapitalistareas into the global capitalistspace economy (Marx 1973, 1977, 1981a,1981b; Harvey 1982; Sheppardand Barnes
1990). The task of geographical-historicalanalysisis thus not to simplistically dentify
empirically discernible falling profit rateswith the general tendency but rather to
explain how this tendency works itself outin a specific context against the various
countervailingfactorsat work (cf. Fine andHarris1979).
Bell (1977) outlines three distinctapproaches to analysis of declining prof-itability and capitalist crises: (1) neo-Ricardianapproaches which focus on thedistribution of the surplusin the context ofclass struggle; (2) underconsumptionistapproaches,which focus on realization cri-sis (the inability to find adequate marketsfor output); and (3) falling rate of
profit/organic composition of capitalapproaches, which reject underconsump-
tionist approaches and focus on Marx'sanalysisof the law of value. Bell argues per-
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ECONOMICGEOGRAPHY
suasively that each of these approaches,when taken as monocausalexplanationsof
independent factors leading to crisis, are
partial
and
overly rigid.
The
importantthing to grasp, for Bell, is how the factorsidentified in each of these approachesinteract in the general class processes thatare part of capitalist accumulation. Thus,there is an overarchingbut complex set ofclass-relevant factorscreating general crisistendencies within capitalist production,but many different specific forms in whichcrisis can develop (Bell 1977, 171).
Similarly,there is an overarching unity of
production and circulationwithin the eco-
nomic process and a variety of ways inwhich the relationshipsbetween these canbreak down (Bell 1977, 175-76). Thus, the
purpose of Marxian crisis analysis is tochartspecific forms andpatternsof crisisinrelation to the broad crisis tendenciesinherent in capitalismas a consequence ofclass (and class-relevant) struggles (cf.Cleaver 1979).
Harvey and Smith provide geographi-cally oriented theoretical tools for such an
examination by delineating various pat-terns of capitalist response to decliningprofit rates. As they note, the fact thatuneven development and crises of dispro-portionalityare inherent in capitalismdoesnot mean that capitalist societies have noinherent abilityto deal with disproportion-alities. Rather, there is a dialectic within
capitalism between tendencies towardimbalance and tendencies toward equilib-rium (Harvey 1982, 417-19; Smith 1984,148-52). One of the major equilibratingmechanisms is what Harveycalls the shift-
ing of capital between different "circuits."The primarycircuit is the circuit of imme-diate production of commodities, the cir-cuit which Marx's work analyzes in themost detail (Harvey 1985, 3-6). The sec-
ondary circuit is the circuit of fixed assetsand consumption fund formation, the cir-cuit identified with the development of abuilt environment which facilitates
expanded production and collective con-
sumption (Harvey 1982, 236; 1985, 6-7).Harveyalso identifies a tertiarycircuit, the
circuit of social infrastructure, which isidentified with investment in science and
technology and with such requirements forthe
reproduction
of labor as investment in
health and education (Harvey 1982,398-405; 1985, 7-8).
Capital may move back and forthbetween the different circuits as partof the
capitalist response to declining profitabilityand maturation of crisis tendencies. Adecline in the profitabilityof investmentsin the primary circuit, for example, mayspurincreasedinvestment in physicalinfra-structure and/ortechnologicalchange. This
shifting of investment has various conse-
quences. In the short term, it may alleviatethe immediate problem of falling profitrates, and it also increases overall produc-tive capacity. Moreover, it creates geo-graphic complexes of productive powerand consumption possibilities, with the
expansion of urban centers and the con-centration of labor (both technically skilledand unskilled) being one of the most obvi-ous manifestationsof this.
What worksin the short term to alleviate
crisis tendencies, however, does not elimi-nate those underlying tendencies. Byenhancing productive capacity,the shiftingof capitalto the secondaryand tertiarysec-tors merely exacerbates the general prob-lem of capitalism'stendency toward crisesof overproduction.When such crises even-
tually mature, then, the development of
greater productive capacity may make the
ensuing devaluation of assets even moresevere. Moreover, the intensive develop-ment of the built environment makes capi-tal more "sticky,"hindering the equilibrat-ing movement of investment to otherwisemore profitable areas by creating agglom-eration economies that are not easily bro-ken down. Thus, there is a contradictionembedded in the nature of the built envi-ronment: on the one hand, the rising wagesand production costs, associatedwith core
regions, encourage capital to seek out
lower-wagelocationswithin core countries,or outside of the country entirely (Harvey
1982, 417-19, 431-38); on the other hand,the sinkingof large amounts of investment
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ECONOMIC CRISIS IN THAILAND
into specific locations which create advan-
tages such as secure access to labor andurban services discouragessuch relocation.As Harvey puts it, the "deadweight of pastinvestments" impedes the geographic dis-
persal which could temporarily alleviate
falling profit rates and creates a "switchingcrisis" (Harvey 1982, 428; 1985, 13).Indeed, as Smith notes, the power of theaccumulated advantages of global core
regions as a whole is such that there is noevidence of equilibratingtendencies work-
ing at the international scale (Smith 1984,151-52). This leads directly to the issue ofcrisis tendencies within a global capitalist
system marked by long-term maintenanceof areas where accumulation is relativelymore robust and "auto-centric" cores) andareas where it is relatively less robust andcharacterized by greater dependence onexternal factors (peripheries).
Capitalist Crisis Tendencies in the
Periphery
The general crisis tendencies which
Harvey theorizes are fundamentallythoseof a single country or a single global econ-
omy with a unitary monetary system,though he does go on to briefly suggestsome of their implications for a globaleconomy of competing capitalist states
(Harvey 1982, 325, 329). What is neededfor currentpurposes is to extend this theo-rizationby discussinghow crisis tendenciesunfold in the context of the global periph-ery, given its geographicallyand historicallyunique position. By this I do not mean an
analysis of how the crises of the capitalistcore playthemselves out through imperial-ism and other forms of geographic expan-sion but rather how the general crisis ten-dencies of capitalism are reproduced andmodified as they take hold on the periph-ery.
The central feature of core-peripheryaccounts that is critical here is the recogni-tion that what marks a countryor social for-mation as peripheral or dependent (rather
than central or auto-centric) is the greaterdegree to which its rhythms of accumula-
tion are structured by forces that do notemanate from within the social formationitself (Palma 1978, 909). Whether these
dynamics
are seen as
generating
underde-
velopment (Frank 1966, 1967), disarticula-tion (Amin 1974, 1976), dependent devel-
opment (Cardoso and Faletto 1979; Evans
1979), or "bloody Taylorization" and
"peripheralFordism"(Lipietz 1986, 1987),the understanding shared by core-periph-ery theorists is that accumulation on the
peripherywill be affected much more fullyby developments in the global core thanaccumulation in the core will be affected
by developments in the periphery. Yet it
would be misleadingto construe all capital-ist peripheries as simply passively reflect-
ing rhythms of the global economy, sincethe development of capitalism in the
peripheryprovides ample basis for the rel-
ativelyautonomous generation of capitalistcrisis tendencies (Brenner 1977; Palma
1978; Cypher 1979). The challenge, then,is to identify specific featuresof the periph-eral social formation which affect the work-
ing out of crises and which mediate
national and international processes ofuneven development.In response to this challenge, I identify
several basic features of peripheral accu-mulation or dependent development thatare needed for elaboratinga theory of cri-sis on the periphery. First, international
capital flows are likely to play a very signif-icant role in the manufacturingsectors of
peripheral countries, whether in the formof foreign direct investment (FDI) and for-
eign loans to manufacturersor in the form
of the need to find large exportmarkets formanufacturedgoods (Porterand Sheppard1998, 412). Second, the need for largeexport markets is in fact virtuallyguaran-teed by the character of peripheral accu-
mulation, which is relativelydisarticulatedin social and sectoral terms and thus doesnot stimulateeither local industryor devel-
opment of the local market to the same
degree as similar industries in the core
(Amin 1974; De Janvry1981). Third, FDI
is generallycrucial to more technologicallyadvanced and globallycompetitive produc-
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ECONOMICGEOGRAPHY
tion of higher value-added products in the
periphery, yet the more capital-intensivethe production process the less labor it is
likely
to absorb and the less it is
likely
to
have backward linkages with the local
economy. Consequently, the moreadvanced and globally competitive theindustrialization process taking place onthe periphery, the more likely it is to be
dependent on inputs from and markets inthe core (Jenkins1987).
Thus,within Harvey'sfirst circuitof cap-ital, what distinguishes the periphery fromthe core is the way the connections withthe international economy enable rates of
manufacturinggrowthwhich would not beattainable on the basis of auto-centric or
domestically based accumulation. Under
patterns of dependent development,peripheraleconomies can potentiallyaccu-mulate capital much more quickly than
they would be able to by relying simply ondomestic sources of investment;and accessto internationalmarkets also allowstempo-rary suspension of realizationcrisistenden-cies through the creation of an external
market which can absorb goods for whichthere is inadequate domestic demand. Formainstream economists (e.g., Balassa
1981), this presents itself as a benefit and avindicationof liberalpolicies towardinter-nationalcapital.However, the rapidgrowththat can be attainedunder these conditionsis not cost-free. When capitalistcrisis ten-dencies begin to manifest themselves, the
greater dependence on internationalcapi-tal flows can exacerbate the crisis-in par-ticular,by making growth rates and recov-
ery reliant on internationally mobile
capital,which can respond to crisisby relo-
cating production outside of this location
entirely. In addition, if the crisis has
regionalor global dimensions, responses tothe crisis by other states may make accessto global marketsmore difficult-as when
competitors devalue their currencies orwhen core countries establish new protec-tive barriersor trade blocs.
Within peripheralcountries, capitalmay
be able to respond to declining rates ofprofitin the primarycircuitby shifting cap-
ital to the secondary circuit. However,without an activist state that disciplinescapital (unusual within developing coun-
tries), the second circuit is
likely
to draw in
capital in a relatively haphazardway whichcan pose as many problems for capitalaccumulationin the future as it poses pos-sibilities. The ubiquity of Third Worldurban environmentalproblems, traffic con-
gestion, and skylines pockmarked byuncompleted high-rises and statusprojectsattests to this problem, which is in part areflection of the comparatively limited
power (orwill) of most peripheralstates. In
addition, the same volatility that can be
generated by internationalcapital flows inthe primary sector can be generated byflows in the secondary sector. Thus, realestate and stock market booms have
accompanied liberalization in some ThirdWorld countries, and while this increasescash flows and supports higher growthrates, it also helps create bigger speculativebubbles-and more severe crashes.
The shifting of capital into the tertiarycircuitin response to declining profitability
is even more problematic than the shift tothe secondary circuit. The extremely longgestation period of investment in items like
education, primary health care, infant
nutrition, or technology development is atodds with the shorter-termprofit rationaleof most capitalist investment. For interna-tional capitalwhich is relativelymobile andwhich can afford to relocate elsewhere, thedesire to stay in place long enough to reapthe benefits of such long-term investmentis unlikely to be strong. In any event such
investment must be organized by the state,but raisingtaxes on internationalizedformsof capital in order to have the necessaryrevenues for this poses problems even
greater than those which already attendtaxation n core countries. Thus, a commonfeature of many (though not necessarilyall)
peripheral countries is weakly developededucational systems, with huge disparitiesbetween the education affordedthe major-ity of the populationand thatwhich is avail-
able to a small number of privileged stu-dents (often trained abroad). In addition,
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ECONOMIC CRISIS IN THAILAND
technology development is generally lim-
ited, and even transnational corporationswith the money to spend on research and
development
are less
likely
to do so in their
peripheral operations than in their core
country sites (Jenkins 1987, 87).
Consequently, even rapidly developingperipheral countries frequently lack not
only control over leading technologies but
adequate numbers of engineers and tech-nicians to sustain on their own a longer-term process of growthin highvalue-addedindustries.
Caution is needed here in generalizingabout the fluidity of international capital
invested in peripheral locations. Like capi-tal invested in the core, capital in the
periphery can acquire certain forms of"stickiness"-for example, larger projectsmay have significant sunk costs that needsubstantial ime to be recouped. Moreover,there may be important differencesbetween different industriesin this regard,with small-scale or less capital-intensiveindustries being more likely to relocatethan larger and more capital-intensive
firms. Claims about the mobilityof interna-tional capital on the periphery, therefore,need to be placed in a longer-term and
comparative perspective. The claim madehere is not that capital on the periphery is
absolutely mobile but that it is less likelyover the longer term to have the level ofcommitment to peripheral economieswhich it is likelyto have to core economies.Insofaras this is the case, moreover, it has
important consequences for the develop-ment of peripheral technological and pro-ductive capacity in response to decliningprofits-and thus for the longer-termprospects of growth and development onthe periphery.
To summarize my argument, then, thecondition of being peripheral is likely tomake the process of tapping into interna-tionalcapitalflows both a more volatile anda more limiting affair.Peripheralstates canoften facilitate FDI and export-led growthand can also facilitatethe shiftingof capital
into the secondary circuit through liberal-ization measures, but they cannot readily
control the behavior of capitaland can onlywith difficulty exercise the discipline nec-
essary to move capital more fully into the
tertiarycircuit-a task in which few
besides a handful of East Asian newlyindustrialized countries (NICs) have
proven successful in recent decades.
Moreover, as the state itself becomes"internationalized" and oriented toward
facilitatingaccumulation for the most pow-erful investors (regardlessof their national-
ity), it is less likely to even attempt to playthis disciplinaryrole, its emphasis being on
facilitatingrapidaccumulation and enhanc-
ing shorter-term competitiveness (Cox1987; Panitch 1994; Glassman1999a).
Class Struggle and Economic Crisis
Tendencies on the Periphery
None of the foregoing discussion has
adequatelyspelled out the classdimensionsof capitalist crisis tendencies, yet a crucialfactor determining expression or nonex-
pression of such tendencies-and indeedone that underpins them-is the intensityand specific contours of struggle overappropriation of surplus (Bell 1977;Cleaver 1979; Bell and Cleaver 1982). It isthe fact that variousoptions for distributingthis surplus result in specific kinds of dis-
proportionality hat relates variouspossibil-ities of class struggle to different patternsof crisis. For example, within a single, uni-fied capitalist economy, if capitalists suc-
cessfully defeat or subdue labor strugglesand keep wage increases well below
increases in productivity-thus ensuringsatisfactoryprofits in the short term-theymay face the longer-term problem of real-ization crisis.At the same time, if they havesubdued labor largely through mechaniza-tion (the replacement of living with dead
labor), the crisis may be recognizable as afall in profitabilityrelated to an increase inthe organic composition of capital. On theother hand, if labor successfully strugglesto increase wages at a rate that outstrips
productivity, this may directly reduceprofit rates in the short term, dampen
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ECONOMICGEOGRAPHY
investor sentiment, and lead to capitalstrike.3
The virtuous circle of Fordism reflectsan attempt to balance productivity and
wage growth so as to avoid these possibili-ties of disproportionality,yet maintenanceof a Fordist mode of regulationhas provena (perhapsintractably)difficult task-in nosmall part because both capitalists andworkerscontinue strugglingto tip the bal-ance in their favor, even within Fordistsocieties of the global core. In cases of
export-led growth on the periphery, bycontrast, the problem of social disarticula-tion-and thus of inadequate growth in
wages and effective demand relativeto thevalue produced-is resolved throughreliance on foreign markets. This enables
capitalists investing on the periphery to
potentially realize particularlyhigh profits,while also subjecting workers to fairlysharp limits in the prospects for wagegrowth-except under conditions where
exportsare expandingdramatically as wasthe case for the Asian NICs until 1996). Yetthis specific form of dependency alsomeans that realization crises lie
justbelow
the surface of the accumulation processand can strike whenever global demandbecomes inadequate to absorb the
exportable surplus product at a price con-sistent with profit expectations. It alsomeans thatwages are generallyregardedasa cost more than as a source of demand,and capitalists will consequently tend to
strongly oppose wage increases.It should be emphasized that in a global
political economy, and especially in a
peripheral context, the class struggles cru-cial to accumulation dynamics are not
alwaysnarrowly (or even primarily)those
3 Note that in anyactualhistorical ases of
capitalaccumulation-where he complexitiesof struggles ver the surplusnclude he inter-sections and articulationsof varied labor
processes,genderand raceconflictsoverdistri-bution,place-based evelopment lliances, ndso on-one cannot alwaysexpect a simple,transparent ictureof these classstruggleandcrisisdynamicso emerge.
which can be conceptualized at thenational scale. Class struggles in coreeconomies and class struggles that tran-scend national boundaries
mayaffect the
behavior of internationalized capital in
ways relevant to the crisis dynamics of
peripheral economies. Thus, for example,the movement of record amounts ofNortheast Asian capital into the SoutheastAsian manufacturingsector during the late1980s-in parta response to domestic class
struggle and rising wages in NortheastAsia-transformed the terrain of both cap-ital accumulationand class struggle withinSoutheast Asia. Similarly, the success of
U.S. capitalists in restoring profit rates byundermining the Fordist labor accord has
given them access to an enormous rein-vestable surplusin the context of slow U.S.economic growth. Under the new forms of
imperialism emerging in the post-cold warworld of "globalization," his surplus hasbecome part of the enormous mass of
money capitalwhich circles the globe look-
ing for "emergingmarkets."In short, class
struggle itself is a process that can be con-
ceived on multiple scales, and this meansthat introducing international dimensionsinto the analysis of peripheral economiccrises by no means implies moving totallybeyond the realm of class relations for
explanationof crisis tendencies.
Economic Meltdown in
Thailand
In illustrating he relevance of these the-
oretical considerations, I analyze the eco-nomic crisis in Thailand as a simultane-
ously national and international
phenomenon.4 In doing this, I show howthe national and international dimensionsof the crisis were both integrally interre-
4 For the mostpart,I do not attempthere to
explicate n anydetail the long-termhistorical
developmentof Thailand'spolitical economyand the relationshipf thisdevelopmento the
outbreakof the crisis. For discussionof theseissues,see Glassman1999b)and Dixon(2001).
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ECONOMICRISIS N THAILAND
lated and in fact mutually constitutive ofone another. I thus highlight the futilityof
narrowly ascribing responsibility for thecrisis to either "internal" or "external"
causes. Throughout the discussion, I paymuch attention to the role of the state inthe Thai crisis, while highlighting the
importance of class and class-relevant
strugglesover the distributionof surplus.
Declining Profit Rates and Crisis
Tendencies in Thailand
As indicated above, a central theme inMarxian heories of economic crisis is the
movement of the profit rate, analysis ofwhich involves a variety of complications,both theoretical and practical. In the for-mer categoryis the issue of whether or notto measure the profit rate in price terms
(Devine 1994) or in value terms (Shaikhand Tonak 1994). While the theoreticalissues underlying this debate are signifi-cant, it turnsout thatempiricalestimates of
prices and labor values generally find that
they are highly correlated (Sheppard and
Barnes 1990, 50), so for analysis of thetrend in the profit rate (as opposed to theabsolute value), the choice of measures
may not be significant.It is only the profitrate trend which is analyzedhere, since themeasurement of fixed capital stock-onwhich the Thai government publishes no
estimates-poses practicaldifficulties, andthis makes estimates of the absolute levelof profitabilityof somewhat limited value.Profit rates are reported here in priceterms,though the value rate of profitshows
the same trend.
Conceptually,there are differentwaysof
discussing profitability. Gerard Dumeniland Dominique Levy (1993) distinguishbetween the profit margin,the profitshare,and the profitrate.The profitmargin s theratio of profits to production costs. AsDumenil and Levy note, this measure isuseful in that it relates profits to the priceof inputs, such as raw materials, energy,and labor,but it does not measure the abil-
ity of a stock of capital to yield profit(Dumenil and Levy 1993, 21). Profit share
refers to the percentage of the total value-added in production that goes to capital(the remainderbeing the share paid out tolabor in
wages).
This is a straightforwardmeasure of distributionof the surplus, butit does not reflect the ability of capital tomake a profit (Dumenil and Levy 1993,20-21).
The profit rate refers to the relationshipbetween profitsand the capitalstock-that
is, the amount of money invested in a par-ticular line (Dumenil and Levy 1993,20-22). Mathematically, t can be rendered
by the formula
r=
P/K=
(Y-
W)/K,where r stands for the profit rate, P standsfor profits, K stands for capital stock, Ystands for output (or value-added), and Wstandsfor total compensation (wages). The
profit rate can thus be decomposed intotwo parts, the profit share and the output-capitalratio,
r = (P/Y) x (Y/K),
where P/Y is the profit share and Y/K is the
output-capitalratio. Profitrates will tend todecline if there is either a decline in the
profit share (i.e., labor claims a largershareof the surplus) or a decline in the output-capitalratio (i.e., the output per amount offixed capitalstock decreases).
Figures 1 and 2 show the movement ofthe profit rate in Thailand, along with the
profit share and the output-capital ratio,over the period from 1970 to 1997. The
profit rate in manufacturing shows anuneven
longer-term trend,but rises
markedly at the end of the 1980s anddeclines in equally marked fashion in the1990s.5 Notably, the profit rate outside of
manufacturings lower than in manufactur-
ing and has declined consistently since1970. The decline in the manufacturingprofit rate duringthe 1990s can be decom-
5 A WorldBankstudyof returnon assetsforall businessesnThailandindsa similar attern
for 1988-96 (Claessens,Djankov,and Lang1998).
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ECONOMICGEOGRAPHY
0.6
0.55
0.5
0.450.4
0.35
0.3
0.25
0.2
0.15
1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996
I Manufacturing---
Non-ManufacturingI
Figure 1. Profit rates,Thailand, 1970-1997. Sources:Gould (1952, 1953); NESDB (1960-2000);U.N. National Accounts Statistics (1970-80). For an explanationof the method of calculationused
for this figure, see Appendix.
0.85
0.8
0.75
0.70.65
0.6
0.55
0.5 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1
1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996
I* Output/Capital-*- ProfitShare I
Figure 2. Determinants of manufacturingprofit rate, 1970-1997. Sources:Gould (1952, 1953);NESDB (1960-2000); U.N. National Accounts Statistics (1970-80).
posed into declines in both the profit shareand the output-capitalratio,indicatingbothan increasingclaim on the surplus by labor
(albeitafterstartingat relatively ow levels)6and an apparent decline in the aggregate
6 For a cross-country comparison of profitshares, showingthat Thailand'srateshistorically
productivity of capital. During the late
1980s, by comparison, profitsgrew becauseof both an apparent ncrease in the produc-tivityof capitaland stableprofit share.
have been very high, see UNIDO (1992, 45). Bythe early1990s, f the U.N. NationalAccountsStatistics (U.N. 1980-96) are accurate,
Thailand'sprofitsharehaddeclined o approxi-mately he averageordeveloping ountries.
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ECONOMIC CRISIS IN THAILAND
The numbers here suggest the possibilityof a relatively long-term trend of decliningprofitability,but the data series is shorterthan would be
requiredto establish this.
Thus, I do not infer a long-term crisis of
declining profitabilityrooted in increasingorganic composition of capital-indeed,there is no evidence for such a classicallyMarxistdecline in profit rates.7Short-term
changes in the manufacturingprofit ratebetween the mid-1980s and mid-1990s, onthe other hand, might be seen as corre-
7 Theorganic omposition fcapital-i.e., the
constantvalue of capitalstock dividedby theconstant alueofwages-actuallydeclines romthe mid-1980s to the mid-1990s.FollowingWebber and Rigby (1996), I have also
attemptedo measure he valuecomposition f
capital,adjusted or turnover imes.Turnovertimes can be estimated or some, but not all,recentyears,based on data in the Industrial
Survey (NSO 1982-95). My estimates forturnovertimes, includingextrapolationsor
yearsnot covered n the surveydata,show noconsistentrend n turnovers etween he early1980sandthe mid-1990s.There s alsono con-sistent rend nthe valuecompositionf capital,though here s anapparentlyharpallbetween1991and1993,andsubsequently sharp ecov-
ery.
sponding to a business cycle, a view that is
supported by the figures on capacity uti-lization in manufacturing,trade, and con-
struction, which are available from 1977.8
Figure 3 illustrates these changes in ratesof capacity utilization, which by the mid-1990s had returned to approximatelytheir1985 (pre-boom) levels.
Thomas Weisskopf (1979, 342) providesanother method of decomposing the profitrate which adjusts for changes in capacityutilization, an approach that can be usedwith the profit series from 1977 to 1997.
Weisskopf defines the profit rate as
r = P/K =(P/Y)
X(Y/Z)
X(Z/K),
where Z, potential output (or capacity), is
equivalent to output divided by capacityutilization. Thus, the profit rate is a func-tion of the profit share (P/Y), the rate of
capacityutilization(Y/Z),and the capacity-capital ratio (Z/K). These three compo-nents of the profit rate are basicallyequiv-alent to the factors emphasized by
sThere stypically strong
tatistical elation-
shipbetween heprofitrateandcapacity tiliza-tion (Glyn1997, 597), and the latterchangesmorein response o the businesscyclethan in
responseo longer-termrends.
95
90
85
8075
70
65
60 I I II I III
i \ /1 1 1
1985 1986 1987 1988 1989. 1990 1991 1992 1993 1994 1995 1996 1997
I 4- AllIndustries -*-Textiles &Apparel * MachineryI
Figure 3. Capacity tilization,manufacturing,985-1997.Source:Bankof Thailand, roduction,Investment,and Employmentin Manufacturing,Trade,and Construction Sectors (1985-2001).
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ECONOMICGEOGRAPHY
(respectively) the neo-Ricardian, the
underconsumptionist, and the falling rateof profit/organic composition of capital
approachesoutlined
byBell. Thus, the
profit share is taken by Weisskopf to indi-cate the immediate significanceof exploita-tion and class struggle, the rate of capacityutilizationto indicate the immediate signif-icance of realization problems, and the
capacity-capitalratio to indicate the imme-diate significance of changes in productiv-ity growth and increasing investment in
labor-savingtechnology.9The effects on manufacturing profit
rates of changes in these three determi-
nants are illustratedin Figure 4. As can beseen, virtually all of the net increase in
profitabilitybetween 1985 and 1990 is dueto increased capacity utilization. Between1990 and 1997, both capacity utilizationand profit share fall, contributing to thedecline in profit rates, while the capacity-capital ratio, though varying from year to
year, remainsvirtuallythe same by the endof the period as at the beginning. In short,
profit rates only improvedin the late 1980s
because of increased capacity utilizationand declined after that because of both
declining capacityutilization and decliningprofit share.
The Crisis as a Realization Crisis
The changes in capacity utilizationshown here and their relationship to
declining profitability indicate downward
pressure on profit rates because of realiza-
tion failure-the inabilityto find adequatemarkets in which produced commoditiescan be sold at prices that cover productioncosts and expected profit margins(Weisskopf 1979, 346). This interpretationis supported by evidence regardingdevel-
9 LikeBell,Weisskopf cknowledgeshatallof these factorsare interrelated ndnot strictlyseparableas causes of decliningprofitability.The point of disaggregations thus only to
sharpendiscussion f the relationship etweeneachof the various actors.
opments impinging on the Thai economyfrom the late 1980s onward-particularlyincreased internationalexportcompetition,which has made it more difficult for Thai
and other Southeast Asian exporters to
expandtheir shareof foreign markets,evenas their output (and that of competitors)increased dramatically. Thailand and itsEast Asian export competitors have collec-
tively participated in creating thisincreased export competition, with each ofthem engaged in relatively disarticulatedand foreign market-dependent growth.This growth, moreover, has involved rela-
tively limited complimentaritybetween the
Asian exporters,thus intensifyingthe com-petition for markets outside of the region.As a consequence, there has been a bur-
geoning contradiction between regionalovercapacityand tightening global marketsthat places increasing pressure on all of theAsian export economies and manifestsitself in declining prices for key exports(Brenner 1998;World Bank 1998; Bernard
1999; Glassman and Carmody2001).The lower-end Asian exporters have
been particularly profoundly affected byone of the major economic events of thelate twentieth century, the rise of China asan export manufacturing power. The
importanceof the Chinese networkof cap-ital has been discussed in much recentwork on Asian economic growth (e.g.,McGee 1984; Hsing 1998; Dicken and
Yeung 1999). While in the past this net-work has been seen as facilitatingeconomic
growth in Thailand (Pasuk and Baker
1998), the opening of China to capitalismand the movement of large amounts ofinvestment by Hong Kongese andTaiwanese capitalists into southern Chinanow poses a threat to the continued devel-
opment of Thai manufacturing,particularlyin low-wage, labor-intensive industriessuch as textiles and garments (Doner and
Ramsay1994). Moreover, it is not only theChinese network of capital that has
increasingly centered its activities onsouthern China: Japanese investors have
also turned to China as a base for offshoreproduction (Steven 1996), leading to the
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ECONOMICRISIS NTHAILAND
140
130
120
- 100x0)
90 ._ {
80 " ,/ -\
70 1 1 1 1 1 98 I 1991 1 993 995997
1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997
I- Capacity/CapitalRatio -- ProfitShare -- Capacity Utilization
Figure 4. Determinants of manufacturingprofit rates, 1977-1997. Sources:Gould (1952, 1953);NESDB (1960-2000); U.N. National Accounts Statistics (1970-80); Bank of Thailand,Production,
Investment,and Employmentin Manufacturing,Trade,and Construction Sectors (1985-2001).
enormous rise in inward FDI in Chinashown in Table 1.
If regional and global markets were
expanding at an adequate rate, the devel-
opment of manufactured exports fromChina would pose less of a threat to the
manufacturing sector in countries likeThailand. However, the limited develop-ment of consumption in Japan (Steven1996; Bevacqua 1998), exacerbatedby the
stagnationof the Japaneseeconomy in the1990s (Bernard 1999, 192), has meant that
Table 1
Inward FDI Flows, 1981-1996
(in Millions of $U.S.)Host Country 1981-86 1987-96
China 1,021 16,736
Hong Kong 646 2,008India 69 751
Indonesia 240 2,242South Korea 170 1,033
Malaysia 984 3,310
Philippines 74 882
Singapore 1,409 4,673Taiwan 212 1,201Thailand 277 1,729
Vietnam 5 606Source:UNCTAD (1997).
Thailand remains highly dependent on
export markets in the United States and
Europe, relative to its imports from Japan.For example, from 1990 to 1997, Japanaccounted for some 30 percent of Thai
imports
but received only 17 percent of
Thai exports, whereas the United Statesaccounted for only 12 percent of Thai
imports but received 21 percent of its
exports (U.N. International Trade
Statistics Yearbook 1991-99).As such, increased competition from
China in the U.S. market is a moment of
great consequence. It is crucially mportantthat China has taken a larger share of theU.S. import market over the 1990s,
increasingfromjust 3.1 percent of the total
market in 1990 to 7.8 percent in 1998,while over the same period, by contrast,Thailand's share of the total U.S. market
stagnated at 1.4 percent (U.N.International Trade Statistics Yearbook
1991-99; U.S. Bureau of the Census
1991-99). Moreover, the Chinese stateexacerbated the competitive pressures in1994 when it devalued its currency-amove that occurredin the same year as theNorth American Free Trade Agreement
(NAFTA) went into effect, solidifyingMexico'sposition as a production base for
0C6
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ECONOMICEOGRAPHY
low-wage exports to the United States. In
sum, increasedglobalcompetition, particu-larlyfrom China,and the difficultieswhichthis created for expansionof
exports
in an
export-dependent economy helps explainthe overcapacityevident in the Thai manu-
facturing sector by the mid-1990s. But
overcapacity only explains part of thedecline in profitabilityof Thai manufactur-
ing.
The Crisis as a Profit-Squeeze Crisis
As shown in Figures 2 and 4, decliningprofit share after 1990 also placed down-
wardpressureon wages. Whatexplainsthisdeclining profit share? First of all, from atleast the early 1990s, business leaders
expressed concerns about a tight labor
market, especially for skilled labor, whichwas driving up labor costs (Economist
Intelligence Unit 1992, 14). Analystshaveeven proposed that there is somewhat of a
shortageof unskilledlabor for manymanu-
facturing industries, though this is a phe-nomenon in need of careful analysis, giventhe abundance of labor
remainingin rela-
tively low-wage agricultural occupations.Another importanttheme in the 1990s hasbeen a resurgence of labormilitance,regis-tered in increasing numbers of strikes and
workdays lost from 1990 to 1997 (Pasukand Baker1998;Glassman1999b, 310-11).Labor militance mightbe seen as reflectingthe increased bargaining power of laborunder conditions of relative laborshortage,or as an overdue response to years of wagerepression (Thai manufacturing wagesincreased very little between 1945 and1990), or as a combination of these factors.It can alsobe seen aspartof the emergenceof more democratic forces in Thai societythat have pushed for political liberalizationand demilitarization (Ji 1997). However
interpreted, it is clear that the increase inmilitanceplaced upwardpressureon wagesin the leading industrial sectors with the
largestunions.
Again,however, risingwages do not nec-
essarily mplythe unfoldingof an economiccrisis-indeed, for Keynesian theory, rising
wages might well help stimulate domestic
consumption and thus set in motion thevirtuous circle of demand-led investmentand economic
growth. Rising wages onlyrepresent a problem in the context of
socially disarticulated and export-led accu-
mulation-particularly if wage increasesare not outstripped by productivitygrowth,in which case rising wages will contributeto immediate declines in the profit rate.Yet capital accumulationin Thailand, as in
many other peripheral countries, has notbeen marked by the kinds of consistent
productivityincreases which can lead to a
virtuous circle of demand-stimulated eco-nomic growth-a matter discussed in thenext section.
Here it is also importantto reemphasizethat the Asian NICs compete with oneanother in the same majorexport marketsand have limited complimentarity, each
being dependent upon exporting a largesurplus that cannot be consumed in thedomestic market.10Though Thailand hasnot been successful in improving its
regional competitiveness through produc-tivity gains, it was more successful thanmost of its competitors at keeping wagegrowthwell below growthin laborproduc-tivity throughout the 1980s (Fig. 5). In the
1990s, however, rapidwage increases out-
stripped increases in labor productivity, a
phenomenon also seen in the other rapidlygrowing Southeast Asian NICs (Fig. 6).While such wage rises could be beneficial if
sustained over time (through their effectson the domestic market),in the short term
they have not been sufficient to allow Asian
exportersto consume all that they produce,and have instead simply undermined the
price competitiveness of many exports.
10It is not unusual, n recentyears,to hearbusinesseaderslamentinghelimiteddomesticmarketandthe need to build it in the face of
increasing lobalcompetitionn exportmarkets
(e.g.,TheNation(Bangkok), September1997;BangkokPost, 18 June 1998).
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ECONOMIC CRISIS IN THAILAND
South Taiwan Thailand Indonesia HongKorea Kong
SingaporeMalaysiaPhilippines
I LaborProductivity * Wages
Figure 5. Percentagencreasen laborproductivityndwages,by country, 980-1990.Source:UNIDO database(2000).
ISouthoaISouthKorea Taiwan Thailand Indonesia Singapore Malaysia
I LaborProductivity * Wages |
Figure 6. Percentagencreasen laborproductivityndwages,1990-1995.Source:UNIDO data-base(2000).
The Crisis as a Crisis of Productivity
It remains to be asked why, in this con-
text of increased wage pressure, there wasnot a comparable, countervailingincreasein the productivity of capital. To answer
this question, it is important to highlighthistorical features of Thailand'sdependent
development. Industrializationn Thailandhas for many years been built heavily
around low-wage labor. Real wage growthwas extremely limited between the end ofthe Second World War and 1975, and wasfar slower than labor productivitygrowthfrom 1975 until 1990 (Sungsidh 1989, 67;
Sungsidhand Kanchada1996, 238; Nikom
1995, 9-10). Thus, firms investing inThailand could enjoy extremely high profit
rates with relativelylimited investment inproductivity enhancement (Morell and
120
100
80 -
60 -
40 -
20 -
0 -
350
300
250
200150
100
50
0
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ECONOMICGEOGRAPHY
Chai-anan 1981, 194-95; Sungsidh 1989,79).11
This is not to say that technological
changeand
upgrading
have not occurred
throughout the postwar period. Certainly,more laborin Thailandhas been harnessedto new productiontechnologies, and this isreflected in labor productivity increases
that, while not on a par with those of theother Asian NICs, are nonetheless signifi-cant (Figs. 5 and 6). Moreover, even totalfactor productivity-which mainstreameconomists take to indicate technologicalupgrading through innovation or imita-tion-has improved in Thailand over its
recent decades of rapid growth (WorldBank1993; Crafts1999). Nonetheless, as isto be expected for a country engaged in
"catching-up"growth, the majorsource of
productivity change is not innovation butrather simply increased utilization (largelythroughforeign direct investment) of moreadvanced machinery,along with the trans-fer of labor out of agricultureinto manu-
facturing (Krugman 1994; Crafts 1999;Warr1999).
In this context, a large number of firmsin Thailand have remained focused on the
advantages to be gained from relativelycompetitive wages, rather than on invest-ment in increased productivityof capital.Indeed, as several studies have illustrated,even larger foreign firms in Thailandhavemade only limited effortsto trainpersonneland upgrade technology used in their Thai
manufacturing operations (Limqueco,MacFarlane, and Odhnoff 1989; Deyo
1995), a problem exacerbated in thepost-World War II period by the policiesof the Thai state (cf. Hewison 1989; Donerand Ramsay 1994; Pasuk and Baker 1995;
1 A WorldBanksurveyof firms n nine Eastand SoutheastAsiancountries,alongwith theUnitedStatesandGermany,oundThailand ohavethe highestrate of returnon assets n the
period 1988-96-and also to have the most
rapidlydecliningratesof return n the 1990s(Claessens,Djankov, ndLang1998).
Unger 1998).12The Thai state's relativelypoor performance in spurring scientificand technological research and develop-ment (R&D) is reflected in the fact that as
of the mid-1990s Thailand had only 0.2R&D scientists and technicians per 1,000members of the general population-alevel not only much lower than that of com-
petitor states such as South Korea(2.9) and
Singapore (2.6), or even China (0.6) andVietnam (0.3), but also lower than the
averagefor all countries categorized by theUnited Nations Development Program as
exhibiting medium human development(0.7) (UNDP 1999, 176-77). To be sure,
there have been modest increases recentlyin the proportion of government spendingon education and science and technologydevelopment. But in spite of this, produc-tivityof capitalremained stagnantbetween1985 and 1997 (Figs. 2 and 4)-a continu-ation of the relativelylow productivity pat-tern that has marked Thai accumulation
throughoutmost of its recent history.The ability of the Thai state to pursue
this comparativelylow social capital devel-
opment path has deep roots in the coun-try's abundant land and natural resource
base, which has allowed several decades ofrobust export growth on the basis of pri-mary commodities-particularly rice
(Pasuk and Baker 1995; Jomo 1997).Thailand'sdevelopment path also has deeproots in the effects of the cold war on theevolution of the Thai state and its formsand functions. Thailand's developmentunder U.S. umbrage gave it various formsof wherewithal to discipline labor while
promoting rapid growth that was under-
pinned originally by substantial aid flowsand later by FDI and favorable terms ofaccess to the U.S. market. This meant that
high profit rates and opportunitiesfor eco-nomic growth could be maintained for
many years without disciplining capital or
developing the capacityto force capitalinto
12 A 1998study ound hatThaifirmsare less
productivehanregionalcompetitorsn placessuch as MalaysiaBangkok ost,18June1998).
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the tertiary circuit-for example, throughhigher effective rates of corporatetaxationto support greater expenditure on educa-
tion, training,and
technology development(Glassman1999b). Thailandin fact has oneof the lowest rates of effective corporatetaxation in the world (Warr and
Bhanupong 1996, 75-76), but until the1990s it countered the problems this posesfor the state's capacity to invest in skills
upgradingand technology development bymaintaining a labor force so disciplinedthat it had one of the lowest wage shares of
any labor force in the developing world
(UNIDO 1992, 45; Jansen 1997, 34-35).
When this changed in the 1990s, under theimpact of tighter labor markets and moremilitant labor struggle, neither the Thaistate nor most of the private sector had
developed substantial capacity to respondto rising wages with labor-displacingtech-
nological innovation. Instead, even thoughsome largerfirmsinvested in "catching-up"technological change, a great number offirms simply ratcheted up investment and
production on the basis of existing, labor-
intensive technology, attempting to out-compete one another through "perspira-tion rather than inspiration"(Crafts 1999;Warr 1999).13
It is also important to emphasize the
pace at which the realization and overca-
pacitycrisishas evolved-unfolding largelysince the early 1990s-which has meantthat countries attempting to maintainthemselves as exportbases have to respondquickly and harshly to rising productioncosts and rapidly
deteriorating
terms of
trade (World Bank 1998). The simplemeans of doing this is to constantlydevalue
13 It is worthcautioning ere thatproductivityincreasesn corecountries-to whichcountrieslike Thailandhave been unfavorablycom-
pared-may be overratedn someof the litera-ture, since total factorproductivity oes not
separate uttheeffectsof innovation nd mita-tion from he effectsof less-efficient irmsexit-
ingormoretechnologicallyfficient irmsgain-
ingmarkethare Webber ndRigby1996,394,401-2).
the currency;the more difficultmeans is tomove rapidly from lower value-added
products suffering from increased compe-tition into
higher
value-added lines that are
(somewhat) less competitive. The speedrequired of the transformationprocess inthe era of "globalization"-a reflection ofwhat Harvey calls "space-time compres-sion" (Harvey 1989)-is important to
emphasize because, again,it is not the casethat firms in Thailand have totallyneglected efforts to increase productivityor move into higher value-added lines, noris it the case that the Thai state has totallyneglected efforts to spurindustrialdeepen-
ing (Deyo 1995; Pasuk and Baker 1998,43-45; Warr 1999). However, in a contextof historically satisfactory profits ensured
by repression of labor and minimal disci-
plining of capital, investors and state plan-ners have simply been unable to respondwith the timeliness or seriousness requiredby contemporary global capital flows
(Doner and Ramsay 1994, 189-94; Bello,
Cunningham,and Poh 1998, 55-70).
The Crisis as a Financial Crisis
Realization failure, rising wages, and
stagnant productivity in the early 1990s
provide a crucial context for understandingthe Thai economic meltdown of 1996-97,but they do not by themselves explain thecrisis or its onset. Indeed, the very fact that
pre-boom profit rates may have been simi-lar to post-boom rates without the econ-
omy going into the sort of decline seen in1996-97 suggests that something addi-
tional must have occurred in the 1990s totrigger collapse. Here the issue of capitalswitching is important.As Figure 7 shows,one of the most noteworthy features ofFDI inflows during the early 1990s is thedecline of new investment in manufactur-
ing industries and the explosion of invest-ment in real estate, which began in 1994and continued through 1996. It is alsoworth noting that this investment in realestate-which quicklyled to a glutted mar-
ket-is not matched by comparableinvest-ment in construction,indicatingthat much
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of the real estate investment may haveinvolved speculative land deals (cf. Bello,
Cunningham,and Poh 1998, 161). Indeed,the national accounts indicate that, com-
pared to the period 1987-91, growth ratesof value-added in the manufacturingandconstruction sectors declined much more
during 1991-95 than did rates in banking,insurance, and real estate (Fig. 8).Moreover,duringthe early 1990s portfolioinvestment overtookFDI, reachinga level
equal to the total GrossDomestic Product
CDC.)
0co0)
r-
.,_CcO
c-
OC
0
O
c-
?
(GDP) by 1993 (Fig. 9). All of these indi-catorspoint to the development of a much
higher level of speculative, nonproductiveinvestment by 1993-94. This movement of
capital into speculative activities is not
entirely surprising,given the lower rates of
profitin productivesectors outside of man-
ufacturing.14
14 Bangkokwasalready rguably verbuiltbythemid-1990s,o thatshiftingmoney nto more
45,000
40,000
35,000
30,000
25,000
20,000
15,000 -
10,000 -
5,000 -
0
IEElectrical ChemicalsETextilesMMachineryB Real Estate I
Figure 7. InwardFDI, by industry,1988-1998. Source:Bank of Thailand,Monthly Bulletin ofStatistics (1988-2001).
ManufacturingConstruction Commerce Services Banking,Insurance,Real Estate
E 1987-1991 1991-1995
Figure 8. Increase in value-added,by industry,1987-1995. Source:NESDB (1987-95).
Q)
u)CD
o0
rO
c"
U)
0)
cUD
140
120
100
8060
40
20
0
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ECONOMIC CRISIS IN THAILAND
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
1989 1990 1991 1992 1993 1994 1995
| Direct Investment MPortfolioInvestment
Figure 9. Foreigndirect nvestment ndportfolionvestment, 989-1995.Source:UNCTAD(1997).
The phenomenon of increasing specula-tive investment is described in mainstream
analyses of the economic crisis as the
development of the "bubble economy."Analysts acknowledgethat the shift of cap-ital into more speculativeventures not only
set up the subsequent crash in real estatevalues-particularly since such investmentwas swelling at a rate much faster than the
growth of the overall economy, which was
slowing during the early 1990s-but also
represented a diversion of capital from
employment in productive sectors like
manufacturing (Pasuk and Baker 1998,316-17). What needs to be furtherempha-sized, however, is that the timing and
weight of the movement of capital intomore
speculativeinvestments seems
quiteplausiblyto imply a response by investorsto declining profit rates in manufacturingby the early 1990s. Firms in the manufac-
turing sector were finding the prospectsless attractive than in the late 1980s, pre-
constructionprojects in the nation'scapitalwould have made little sense. A World Bank
report during1998 foundresidential acancyratesof 28 percentand officevacancy atesof23percent, he latterpredictedo rise to 39-42
percentby the end of the century (BangkokPost,23 May1998).
cipitating slower growth in investment,while extraordinaryrates of overall eco-nomic growth up until 1990-and
respectable rates after that-had attractedthe attention of institutional nvestors look-
ing for emerging markets within which to
parknew short-terminvestments (Bernard1999, 191). Had manufacturingprofitabil-ity not been declining by the early1990s, itis conceivable that various investors
(including institutional investors such asbanks and finance companies) would have
put more money directly into manufactur-
ing activities and that rates of manufactur-
ing growthwould have continued at levelsthat could more effectively sustain theboom in the stock market and the property
sector.15 Thus, the crisis which broke out inthe financial sector during 1996-97 whenreal estate values collapsed was not a nar-
15PasukPhongpaichitndChrisBaker 1998,101)note thatbetween1992and 1993 he aver-
age price-earningsatioof companiesisted onthe Stock Exchangeof Thailand SET) rosefrom16 to26,while hatofbluechipcompaniesrose to over30. This exuberanceprovedunsus-tainablewith slowingmanufacturingnd con-
structiongrowth,and SET prices fell consis-tently rom1994on (Hewison1999,29-30).
C)
0c-o
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ECONOMICGEOGRAPHY
rowlyfinancialphenomenon but ratherwas
directlylinked to the behavior of capitalistsin response to declining profitability of
manufacturing
nvestment.
The capital switching described hereindicates the international dimensions ofthe issue. It was the switchingof East Asian
capital from manufacturingFDI into realestate and stock markets-along with theinflow of financial capital from Westernbanks and emerging market funds (itself aform of switching from reinvestment in
slower-growing Western countries)-which triggered the development ofThailand's bubble. To point out these
international dimensions of the bubbleeconomy, however, is not to say that inter-nationalcapital simply ran roughshod overthe Thai state. Rather, the Thai state was
very much an actor in the process, and inorderto encourage rapidinflows of foreigncapital and bridge a projected savings-investment gap, it had undertaken a num-ber of financial liberalization measures
during the early 1990s (Bello 1998; Bello,
Cunningham,and Poh 1998, 18-20; Pasuk
and Baker 1998, 98, 116-17, 318-19;Unger 1998, 95-97; Bernard 1999, 191).First, the state deregulated domesticfinance and removed constraintson portfo-lio management, including loosening ruleson capital adequacy requirements and
allowing commercial banks and financialinstitutions to expandtheir fields of opera-tion. Second, the state dismantled most
foreign exchange controls and opened the
Bangkok International Banking Facility,which allowed offshore borrowing in for-
eign currencies and reconversion into Thaibaht, thus increasing the flow of capitalinto Thailand from countries with lowerinterest rates. This was further facilitated
by the thirdpolicy, thatof keeping the baht
pegged to a weighted basket of currencieswhich favored the dollar, thus makingdol-lar-denominated loans artificiallycheap asthe dollar rose againstthe yen. Fourth, thestate kept interest rates high to attract for-
eign capital.
In sum, while the financial dimensionsof the crisis clearlyimplicate volatile inter-
national capital flows, the development ofcrisis tendencies in the Thai economy indi-cates a more complex process than signaled
by
the conventional
story
of international
capitalrunamok. Aside from the importantimmediate roles of Thai capital and Thailabor in the development of crisis tenden-
cies, international forces were themselvesconstituted in part by the actions of Thai
capitalists and the Thai state-includingtheir export performance and their finan-cial maneuvering in the post-cold war
process of liberalization. The financial cri-sis was integrally connected to crisis ten-dencies within "the real sector" and was
simultaneouslyproduced by "internal"and"external"orces.
The Crisis as a Unity-in-Diversity
The different aspects of the economiccrisis discussed above are not separableand independent causal forces, but, rather,
dialectically interconnected phenomenathat give the crisis in Thailand its specificform. Moreover, the crisis is simultane-
ously a national and internationalphenom-enon; indeed, the Thai economy as anational entity contributed to the creationof many of the regional and international
dynamicsthat have acted back on the accu-mulationprocess in Thailand.
To summarize and synthesize, then, the
picture of the economic crisis as a unity-in-diversitylooks something like this: The cri-sis in Thailand had roots in a decline in
manufacturingprofitability.This decline in
profitabilityresulted from the interaction
of realization failure (the consequence ofovercapacity in a context of increasingexport competition), profit squeeze from
rising wages (the result of tighter labormarkets and increased worker militance),and relativelystagnant productivityof cap-ital (the result of limited capacityfor tech-
nological upgrading,which is the legacy of
dependency and specific historicalfactors).The growth boom that started in 1987 hadin effect quicklyled to overinvestment and
inadequate productivity growth. In thiscontext, rising wages ensured declining
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ECONOMIC CRISIS IN THAILAND
profit rates while further exacerbatingthe
problem of competition from lower-wagecompetitors.
These manifestationsofunderlying
crisistendencies enabled a full-blown meltdownin the financialsector, triggeredby the col-
lapse of a speculative economic bubblebuilt up throughlarge flows of both foreignand domestic capital into the real estatesector and the stock market. The statefacilitated both the originalboom in manu-
facturingFDI, which led to record growthrates during 1988-90, and the dramaticinflow of hot money during 1993-94 as the
manufacturing sector cooled somewhat
and investorsbegan to look elsewhere. The
phase of open crisisbeganwith the collapseof real estate values and manufacturingexport growth during 1996, which led todisinvestment from the stock market and
speculative pressure on the baht-manyinvestorshavingdecided that the currencywas in need of devaluation in order for
exportsto regain competitiveness.From this point, the crisis began to take
on a regionallife of its own, which I do not
have space to analyze here. One conclud-ing point about the regionaldimensions ofthe Asian crisis is in order, however. Noneof the countries affected by the regionalcrisis had Thailand'sprecise mix of liabili-
ties, andthis, coupled with the fact that cri-sis in other countries was clearly trig-gered-though not necessarily caused, in
anynarrowsense-by the herd behavior of
panicked investors, has meant that finan-cial contagion effects emerged as the pre-
dominant focus of attention (e.g., Jomo1998). While there can be little doubt thatfinancial contagion did in fact ignite themeltdown of currencies and stock markets
throughoutAsia, the analysishere suggeststhe need to examine the bases of the
regional crisis in problems of overcapacityand declining profitability.Given this con-
text, it is entirely possible that a regionalcrisis could have been triggered by down-turn elsewhere in the region, though per-
haps not on the same timetable or in pre-cisely the same fashion.
Possible Futures for Thailand
The analysisof crisis tendencies outlinedhere helps to make sense of the course of
the crisis in Thailand since 1997. Hewingto mainstream analyses and prescriptions,the Thai state focussed heavilyon financialand monetary issues, closing two-thirds ofall finance companies, attempting to clean
up and liberalize the banks, and allowingcontinued devaluation of the baht, which
temporarilyboosted the staticcompetitive-ness of certain export industries. The Thaistate also used funds from the Bank ofThailand and the IMF to underwrite pri-
vate debt and bail out leading investors,while carryingout a structuraladjustment
program designed to reduce wages and
public expendituresand open the economyto foreign investment (Glassman 2000;Glassman and Carmody 2001). As thesemeasures were implemented, the economycontractedby more than 8 percent in 1998and posted zero growth in 1999, onlybeginning to recover by 2000. Official
unemployment more than doubled-pri-
marily
because of massive
layoffs
in the
construction sector and reduced employ-ment in manufacturing-and as of the endof 2000 it remained more than twice the1996 level, while real wages were 10 per-cent below 1997 levels (Bank of Thailand,
Monthly Bulletin of Statistics, 2001;
BangkokPost, 19 September 2000).These measures were carried out with
particularzeal by the neoliberal regime ofChuan Leekpai, which regained power inlate 1997 and became more-or-less openly
the local agent of the structuraladjustmentagenda (Pasuk and Baker 2000). As the"realeconomy" contracted, however, pop-ular discontent with this agenda grew. Thedecline of manydomesticallyoriented Thai
firms, and the increasingpower of transna-tional investors within the Thai economy(Hewison 2000), ensured that the discon-tent was felt not only among the poorestsegments of the Thai population but
among relatively powerful elements of the
Thai professional and business communi-ties. One consequence of this has been a
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ECONOMICGEOGRAPHY
populist backlash against neoliberalism.Elections at the beginning of 2001 broughtdown the Chuanregime, replacingit with a
regime
headed
by
multimillionaireThaksin
Shinawatra, who has promised state
largesse for ailing sectors of the economyand variousdisadvantagedgroupsthrough-out Thai society. The efficacy and cohe-siveness of this populist project are doubt-
ful, particularly given the extreme
opposition of transnationalcapital and its
representatives within Thailand, but the
veryfactof broad-basedpopulardiscontentwith the Chuan administration suggeststhat the crisis has been experienced as far
more than a narrow financial crisis. Thedepth and breadth of the opposition toneoliberalism also suggests that the crisishas been experienced as a class-relevant
phenomenon with an important core-
peripherydimension.None of this clarifies, however, the pos-
sible course of development in the future.What has happened so far is not an across-the-board collapse of industrybut a selec-tive decline or stagnationof certain indus-
tries and sectors. "Sunrise"ndustries,suchas automobile parts and electronics, seem
positioned to survive this ongoing processof restructuring. For example, Japaneseautomotivefirmsmaintain substantialcom-mitment to Thailand as an automobilepro-duction hub (Edgington and Hayter2001).Thus, despite a collapse of automobilepro-duction in 1997-98, there has also been anew burst of FDI in industries such as
machinery (which includes automobiles)and electrical components, and this mayshore up the position of these industries inthe future (Fig. 7; Bangkok Post, 6November 1997, 8 January1998; BangkokPost 1998 Mid-Year Economic Review;
Bangkok Post Yearend Economic Review
1998). In the case of automobile produc-tion, however, the longer-term prospectsalso need to be weighed against the factthat just as the crisis was developing theThai state was forced by General Motors
(as a condition for building a new plant)
and by the World Trade Organizationtoscrap its requirement for cars built in
Thailand to have 54 percent local content
(Bangkok Post, 23 February 1998). The
president of the Thai Autoparts
ManufacturingAssociation estimates that
as a result some 80 percent of the country'sparts producers will lose business and layoff staff (BangkokPost, 15 October 1999).Thus, should automobile productionresume strong growth in the future it is
likely to do so with fewer backwardlink-
ages and thus with less benefit to the Thai
economy as a whole.16 This sort of problemis probably even more daunting in elec-
tronics, where there has been even less
development of strong supplier industries
than in automobiles (author interviews,
managers of electronics firms in theNorthern Region Industrial Estate,
Februaryand March2000).Moreover, over the next decade or so,
the greatest threat of industrial decline is
likely to be in more labor-intensive fieldssuch as textiles and garments-a matter of
great significance since these industries
employ half of the manufacturing laborforce and two-thirds of all women in man-
ufacturing.'7 Labor costs in these morelabor-intensive industries range between15 and 20 percent of all production costs,
compared to percentages for more capital-intensive industries ranging from 1.5 forsteel to 5.8 for industrial chemicals and13.9 for non-ferrous metal industries
(ThailandDepartment of Labor Protectionand Welfare 1996). In the context of
upward pressure on wages in Thailandandthe rise of highly competitive labor-inten-
sive industries in China, these wage-sensi-tive industries are likely to face serious
pressures to restructure and downsize.
16 ThisproblemwasfurtherunderscoredbyVolkswagen's ecision to sourceparts for its
recently opened Thai production facilityentirely romoutside he country see BangkokPost,3 March 000).
17 By comparison, automobile assembly,whichprimarilymploysmen,accounts oronly
a little over 1 percent of the manufacturinglabor orce(NSO 1994).
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The Thai economy's relatively periph-eral status and export dependency affectsnot only its longer-term prospects but nowits prospects for full recoveryfrom the cri-
sis that began in 1997 as well. While GDPhad approximatelyregained its 1997 levelsas of the beginning of 2001, the recentdownturn of the U.S. economy has raisednew concerns about growth prospects andled to a downgradingof estimates for eco-nomic performance in Thailand during2001. Thus, while it is still too early (as ofMarch 2001) to say what the Thai manu-
facturing sector will look like once the
restructuring process begun in 1996-97 is
complete, the extreme volatility and vul-nerability of manufacturing industries is
apparent. Low-end and labor-intensiveindustries are highly susceptible to low-
wage export competition in a context of
inadequate domestic demand, while high-end and capital-intensive industries are
highly susceptible to changing behaviorand demands on the part of foreigninvestors and buyers. It is this sort of
dependence, ratherthan merely the short-term results of crisis and
restructuring,which helps define the meaning of crisis inthe periphery and which will cruciallyshape future patternsof industrialdevelop-ment.
Conclusion
I have outlined a view of the Thai eco-nomic crisis that shows the continued rele-vance of a geographical-historical andMarxianperspective to the understandingof events in the contemporaryglobal econ-omy. I have argued that sensitivity to the
interpenetration of national and interna-tional processes and a focus on strugglesover appropriation of surplus both helpmake sense of the specificities of the crisis,
particularly f we move beyond a classicalMarxistapproach to take account of howuneven development at a global scale gen-erates differences between the features ofcrisis in economic cores and economic
peripheries. Notably, from this dialecticalperspective, the issue of "internal"versus
"external" and "financial sector" versus"real sector" origins of the crisis does notarise. Capitalism is inherently geographi-cally expansive and alwayshas interrelated
developments in the spheres of production,circulation,and consumption;thus it is thestate-mediated accumulation processesfought out by capital and labor within andacross internationalboundaries which gen-erate crises, not simply national versusinternational or financial versus "real"activities.
Aside from its theoretical-interpretivedifferences from mainstreamaccounts, the
implicationsof the account developed here
are also substantiallydifferent from thosearticulated by either neoliberals or neo-Weberians. Neoliberals see the broadercrisisin Asia as calling for a reduced and/ormore efficient performanceby the state sothat the Asian NICs can regain their com-
petitiveness and resume growth alongmore or less the same path they pursuedduring the boom years. Neo-Weberiansalso hope for a returnto this trajectory,but
through a more modest reconfigurationofthe state and more substantial constraintson internationalcapital.
The implications of the account I haveoutlined are somewhat different. While
they do not sanction pessimism about the
prospects of some form of economic recov-
ery and renewed industrial growth, theysuggest that recovery-like growth itself-is likely to be uneven and to have socialcosts. The fact that the first substantial
wage increases for Thai workers in theentire post-World War II period led
quicklyto economic downturnsuggests theproblems of an anti-Fordist accumulation
process that has been predicatedheavilyonthe repression of labor. As workers
throughout Asia have struggled to claimmore of the surplus they have produced,Asian regimes are under great pressure to
quicklyupgrade productivityand figureout
waysto maintainglobalcompetitiveness. Inthe context of dependency, this is an evenmore dauntingtask than it would be other-
wise. Thus, the Asian NICs find themselveson a treadmill that moves faster and faster
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ECONOMICGEOGRAPHY
as global capitalism grows. Success in
restructuringunder these conditions is byno means assured, and even as the AsiaPacific region has
begun
to recover,manypeople within it have experienced the neg-
ative effects of restructuring,as belts are
tightened and new sources of competitive-ness sought (Glassman and Carmody2001). In short,the accountpresented here
emphasizes that capitalistcrises never fullyresolve themselves but simply create thefoundations for new (and perhaps intensi-
fied) social strugglesin the future.
AppendixThe estimation of profits in Thai manu-
facturingand nonmanufacturing ndustriesis straightforward: ompensation of manu-
facturing and nonmanufacturingemploy-ees, as reported in the NESDB's National
Accounts,are subtracted fromthe NationalAccounts' estimate of manufacturingvalue-
added, or MVA,(formanufacturing)andofGDP minus MVA (for nonmanufacturing)for each year in question. The difference is
profit. (The profit series was rendered inconstant 1988 prices.) While some authors
argue that profit rates should be calculatednet of taxes, I had inadequate data to dothis and thus calculated the pre-tax profitrate. Because of the very low rate of effec-tive corporatetaxationin Thailand over allthe years in question, this makesno differ-ence to the analysis.
The more difficult aspect of the profitrate calculation is the estimate of net fixed
capital stock (K), the denominator in the
profit rate ratio. To develop an estimate ofthis, I used the following procedure. TheNational Accounts' estimates of GrossFixed Capital Formation (GFCF) wererecorded for every year between 1946 and
1996, in constant 1988 prices. (Pre-1951estimates were taken from Gould (1952,1953).) To determine how much of this
capitalwas still in use in any given year, I
employed a procedure from Webber and
Rigby (1996, 420). The life of fixed capital
was determined by comparing differentestimates of the level of depreciation (as
1/n of the sum of the last n years GFCF)with the allowances for consumption offixed capital recorded in the NationalAccounts.
Using
the
consumptionallowances recorded for 1980-96, I foundthat a depreciationschedule of n = 25 yearsapproximatedthe consumption allowanceswithin 1.0 percent. Thus, I estimated thatthe average life of fixed capital stock is 25
years, and the total net stock of fixed capi-tal was then calculated using a straight-linedepreciation method, where the value ofthe capital which was formed in a givenyear declines by n/25 n years after it wasformed.The net stock of fixedcapitalcould
thus be determined for every year from1970.
The NESDB's National Accounts do notrecord the percentage of GFCF attribut-able to manufacturing. However, theU.N.'s National Accounts Statistics esti-mated this percentage for the years1970-78. I used the average for these
years-18.2 percent of GFCF-as the esti-mated amount of GFCF attributable to
manufacturingfor other years. If the per-
centage actuallyincreased after the
1970s,this would mean that in reality the profitrate in manufacturing ncreased less in thelate 1980s and fell more in the 1990s than
reported here.
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