Overview: Encirclement

In order to fully understand the convergent crises that resulted in China’s incorporation into the material community of capital, it is essential to get a clear picture of both the larger trends in global capitalism and the theoretical details of how we understand such a transition to have taken place. In this first part, we emphasize the breadth of history, reviewing capitalism’s overall development in East Asia. At the same time, we introduce some of the key concepts that will be essential to our narrative, especially as they relate to the inherent crisis dynamics built into capital’s basic laws of motion.

The basic picture is that of an early potential for capitalist transition on mainland East Asia under the Qing being rapidly outcompeted by a similar transition underway in Japan, which had become the main regional competitor by the late nineteenth century. The result was a region split between commercial enclaves dominated by European capital and a rapidly industrializing nexus of colonies run by Imperial Japan. The First World War only accelerated this trend, leading ultimately to the great battle over the Pacific between the Japanese Empire and the rising US hegemon. Though ending in defeat for Japan, the beginning of the Cold War ensured that the Japanese industrial project in the region would continue under the tutelage of the US military. Combined with changing conditions in the West, the foundation was laid for another period of rapid international expansion. This took the material form of a Pacific Rim territorial-industrial complex, dominated by the rise of new logistics technologies, the most important of which was a ring of container ports and their adjacent industrial hubs.

Since the emphasis in this section is on long-term trends within the capitalist world, the profit rate and its relation to crisis play a central theoretical role. We take no strict positions here on the many debates concerning the profit rate: how best to measure it, the strength of its tendency to fall, or the exact relationship between micro-economic dynamics among firms and the macro-scale trends in the rate of profit. Instead, we emphasize the basics. Already apparent in the data is that the profit rate has tended to fall over time, and in oscillating waves. Its decline in the productive sector has been particularly pronounced, and this has repeatedly induced crisis. There have been a few counteracting tendencies, the most important being firms’ efforts to restore their profit margins by expanding their markets and finding new sources of labor that can temporarily be super-exploited—what is generally referred to as a “spatial fix.”

This spatial fix results in the creation of new territorial-industrial complexes. Since the abstract logic of capital unfolds in the real world, it necessarily distributes itself in space. Driven by the falling rate of profit, distinct blocs of fixed capital take shape. At the larger scale, this takes a national form, as new economic competitors, unburdened by obsolete facilities and equipment, are able to use the most state-of-the-art techniques to challenge the old guard within respective industries. This old guard then finds its profit margin drawn down by obsolete plant and machinery, resulting in local crises that often manifest as trade wars between blocs, even as they drive further global expansion. But the same occurs at a more local scale: within countries, new territorial-industrial complexes reshape the region’s economic geography in line with capital’s demands. The process often includes mass migration to key hubs, nodes and corridors. When such complexes grow obsolete, however, they rapidly turn to rustbelts, and their fundamentally inhuman nature is made evident.

Rather than the win-win benefits of comparative advantage, it was actually crisis, war and colonization, driven by zero-sum competition, that lay behind the rise of Japan in the region, followed by the “Tiger Economies” of Hong Kong, Singapore, Taiwan and South Korea. Below, we trace out the details in this history, clarifying how the ascent of the Pacific Rim relates to falling profitability and the slow geographic movement of capital eastward, composing new territorial complexes along its edges and leaving hollowed rustbelts in its wake. It was this process of encirclement and crisis that would create the opening through which China’s ossifying developmental regime would be able to pass into the material community of capital.

 

The Failed Transition

China began a stalled and uneven transition to capitalism in the late Qing, marked by low levels of industrialization and pervasive political instability. This first period of incomplete transition ultimately instigated a political collapse accompanied by civil war and a rising revolutionary movement that would go on to found the socialist developmental regime, temporarily halting the region’s subsumption into global capitalism. Despite its failure, this first transition transformed migration patterns, trade routes and industrial geography in irreversible ways, exerting an inertial force that often exceeded the revolutionary regime’s attempts to contain it. This period (dating roughly from the late Qing through the Republican Era and Japanese Occupation) left the region with a deeply divided industrial structure, contributing to many of the periodic crises that plagued the later developmental regime.[1] In a way, this inertia outlasted the developmental regime itself. When the second transition to capitalism began in the 1970s, the country would see the revival of many of the same industrial clusters, trade routes and migrant networks that had defined the first period a century prior.

This initial period of transition was shaped by accidents of history as well as much older patterns of commerce in the region. The southern coastline had long played an important role in regional trade and, after the decline of the Silk Road (with the fall of the Tang Dynasty in 907 CE), coastal trade had grown to dominate pre-capitalist commerce.[2] But there also existed strong countervailing tendencies in each dynasty that helped to mute the power exerted by the forces of commercialization. One of the most persistent threats was the transformation of these semi-illicit trade networks into independent pirate navies. By the time of the Qing (1644-1912), this threat took on the character of an anti-Manchu rebellion, led by the Ming loyalist Zheng Chenggong (known as Koxinga in the West), who had fled to the sea as the Qing armies invaded Fujian. Zheng overturned Dutch rule in Formosa (Taiwan) and turned the island into a base for his rebel navy. In response, the Qing not only banned all coastal navigation (rendering illegal a bulk of the region’s international trade), but also depopulated the coastline, deporting the population inland and razing the deserted villages in an attempt to cut off Zheng’s supply lines.[3]

Once Zheng’s rebellion was put down (in 1663 with the conquest of Taiwan), the coastline was gradually repopulated and maritime navigation resumed. This began to re-open the mainland market more directly to the nascent trade networks of the Europeans, which would soon begin to take on a distinctly capitalist character.[4] At the height of the dynasty, the mainland not only ran a healthy trade balance with the West, exporting tea, porcelain, silk and various manufactures, but also sat at the center of regional trade, with even isolationist Japan dependent on imports of raw materials from the Qing.[5] But the state had become circumspect about trade, fearing the growing power of merchants, the possibility of renewed rebellion, and the increasing capacities of the Europeans. The court therefore imposed rigorous monopolies on key goods and began to restrict foreign trade to an ever decreasing number of official customs ports. This trend reached its apex with the Canton system, from 1757 to 1842, when all foreign trade was funneled through a single port and its attached stores and warehouses (the “Thirteen Factories”) in Canton (Guangzhou). The system was only abolished through unabashed European incursion, as growing colonial empires sought more direct access to the mainland market. These incursions, the most dramatic being the two Opium Wars (1838-1842 and 1856-1860), ended in the establishment of unequal treaties between the Qing and the European powers. As part of these treaties, trade was opened again, concentrated in a series of “treaty ports” along the coastline.[6]

Larger and larger military defeats, accompanied by internal rebellions, would see the Qing crumble over the course of a century. Large waves of refugees pulsed out of the mainland in these years, feeding early capitalist industry’s demand for labor, particularly in the Americas. At the same time, the domestic labor supply (as well as raw materials and land for agriculture) became increasingly attractive to European colonists and neighboring polities. Factory districts would be established in most of the major coastal cities, with Shanghai and Guangzhou playing particularly important roles. As they were slowly incorporated into the new global trade networks of industrial capitalism, such cities gained de facto autonomy from the Qing state, becoming important sites of modernization under subsequent warlord and Republican rule. Meanwhile, sections of Shandong were essentially ceded to the Germans, who financed a number of new industrial enterprises nationwide. The region’s early capitalist infrastructure was therefore largely in foreign hands, and the coastal cities are best understood as highly internationalized colonies, linked to domestic production networks that were dominated by European and Japanese capital: alongside the lucrative opium trade, “by 1907, 84 per cent of shipping, 34 per cent of cotton spinning and 100 per cent of iron production were in foreign hands. Westerners controlled even vital strategic assets, owning no less than 93 per cent of the railways.”[7] Even the handful of large, domestically-owned industrial conglomerates, such as the Hanyeping Coal and Iron Company, were entirely dependent on imported machinery and capital provided by German and Japanese financers.[8]

By the interwar period, Shanghai had become a regional center for both commercial capital and the mainland’s early labor movement, with Guangzhou (known as “Red Canton”) following close behind. But without the binding force of a strong domestic polity, these early sites of the capitalist transition were dominated by foreign capital or a particularly parasitic class of domestic capitalists acting as intermediaries and subcontractors for European and Japanese firms. The failure of the capitalist transition on the mainland was, then, not simply the result of the Qing’s suppression of commercial pressures, but also a product of the dictates of capitalist economic expansion in Europe, which drove the Age of Imperialism and thereby gave birth to the particularly violent regimes of plunder and exploitation established across the Pacific. It was the barefaced brutality of these regimes that, in turn, stoked the flames of the anti-imperialist rebellion that would ultimately halt the capitalist transition on the mainland. Nonetheless, the heritage left by this first, failed transition would help to shape the character and geography of the second transition that followed the socialist era.

 

Constructing East Asia

In Japan, by contrast, European pressure had resulted not in political collapse but instead in the Meiji Restoration (1868-1912), which began a full-scale transition to capitalism, including massive industrialization and widespread reform of the political and social system.[9] The success of Japan’s reforms was made evident with the country’s quick victory in the first Sino-Japanese War, in 1894-1895. Fought over the Korean Peninsula (at the time a tributary state of the Qing), the war pitted the modernized Japanese military against the dynasty that had long been the strongest regional power in Asia, with most predicting a rapid loss for the Japanese. But the Qing’s most advanced military force, the Beiyang Army, proved no match against the invaders, who not only took the Korean peninsula but also the neighboring Liaodong peninsula, launching invasions deep into the Qing homeland of Manchuria. At the end of the war, the Qing was forced to both cede influence over Korea and to sign the island of Taiwan over to the Japanese despite intense local opposition. Japan invaded the island in 1895, fighting a war of occupation against guerrilla resistance forces for the next several years and quelling a series of rebellions in the early 20^th century.

Victory in the Korean peninsula and incursions into Manchuria were seen by neighboring imperialist forces in Russia and Germany (which held territory in Shandong) as a threat to their own prospects in the region. At the time, Japan responded with appeasement, ceding the Liaodong peninsula, allowing the formation of a nominally independent Korean Empire and helping the Western Powers crush the Boxer Rebellion in 1900. But tensions in the region soon led to the outbreak of the Russo-Japanese War (1904-1905), resulting in another unexpected victory for the Japanese, this time over a major imperialist power. The peace treaty signed with the Russians was, however, still geared toward caution and appeasement. No substantial territory was ceded and Russia was not forced to pay serious reparations. This result instigated widespread nationalist protests within Japan, signaling not only continuing popular opposition to Western colonialism in the region but also the fusion of this anti-colonialism with Japan’s own imperial project.

Though Japan did not lay a direct colonial claim to Korea or Manchuria in the peace treaty, Korea was named as a “protectorate” and the Kwantung Army, a semi-autonomous Japanese military, formed to oversee the region. The Kwantung Army would soon become an effective occupying force, often intervening in local affairs without direct oversight. Meanwhile, reforms were gradually introduced into the Korean protectorate, each ceding more political and economic power to the Japanese until, in 1910, the territory was formally annexed by the Empire. A similar series of events took place in Manchuria, with increasing economic influence followed by more and more direct military interventions against local warlords, resulting in the invasion of 1931 and the establishment of the Japanese puppet-state Manchukuo.

In Japan, this was all accompanied by rapidly growing domestic support for militarism, reaching its apex in the idea of a “Greater East Asian Co-Prosperity Sphere” helmed by Japan, led by the “Yamato race,” and organized in a strict ethnic hierarchy. Though the basic logic of this imperial strategy had its cultural underpinnings in both racial pseudoscience and an indigenous form of racial-civilizational discourse common to East Asia, Japanese imperialism cannot be reduced to its cultural components, nor can its roots be found in the authoritarian underpinnings of leftover “feudal” class fragments.[10] The Japanese Empire was not a continuation of the tributary imperial states that had long dominated the region, but was instead a distinctly modern product of the Meiji Restoration’s transition to capitalism, similar in character to the imperialist empires of the capitalist West. Within several decades, capitalist development in Japan had simultaneously resulted in saturation of the domestic market, the growth of a strong managerial-military state, and the dominance of the economy by four major “zaibatsu” monopoly corporations. All of these features facilitated the push for military and economic expansion along traditionally imperialist lines. As in Germany and Italy, then, Japanese militarism and imperial expansion was a product of capitalist crisis and the weakening of the political hegemony held by the British Empire.

Within the new regional hierarchy, Japanese capital (increasingly alloyed with the military state) was the driving force, facilitating territorial conquest, the construction of massive infrastructure projects and the financing of coordinated industrialization drives. The earliest colonies of Taiwan, Korea and Manchuria became the preferred sites for much of this investment, with peripheral countries in Southeast Asia and parts of China treated as subordinate puppet states for the opening of new markets and the supply of essential industrial resources (such as oil in Indonesia) or agricultural goods (as in the Philippines). The massive decline in global trade that accompanied the Great Depression further incentivized imperial expansion, as growing protectionism cut Japan off from alternative sources for primary goods.[11] In the midst of this general decline, trade actually increased within the new “yen bloc” formed by Japan, its colonies and the various puppet-states and weaker countries within the “Co-Prosperity Sphere.”[12] While exports to Japan had composed 20 percent of total exports in Taiwan in 1895, by the late 1930s the number had grown to some 88 percent.[13] Interregional trade was organized in a spoke-and-wheel pattern, with Japan at its center and its colonies and subordinate trade partners encouraged to specialize their production in accord with Japanese interests, discouraged from trading directly with other countries within the region and rewarded with varying degrees of Japanese infrastructural development.

This hierarchy was ordered by perceived racial characteristics as much as simple geography, with cultural proximity to Japan reconceived as a measure of ethnic purity. The divisions within the trade bloc thereby encoded pseudoscientific theories of race and national origin into material differences between territories that had, up until that point, been relatively alike in terms of their productive output, levels of education and susceptibility to disaster, invasion and colonization, despite cultural differences.  By conceptualizing “East Asia” as an organically hierarchical racial-cultural continuum, united both by the historical adoption of the Chinese writing system and a particular Neo-Confucian idea of antiquity, the Japanese imperial project thereby constructed a recognizable region out of new circuits of capital.[14] Though ultimately unsuccessful in regard to its own imperial ambition, this early Japanese expansionism succeeded in creating an Eastern center of gravity for global capitalism, defined by unequal trade relationships between the island archipelagos and littoral economies bordering the Pacific. In the Cold War order that followed, this center of gravity would be reinforced as a bulwark against the spread of communism. Capitalist East Asia would thereby slowly encircle China’s postwar developmental regime, the pull of this new hub of accumulation helping to facilitate China’s own ultimate transition to capitalism.

 

Total Wars

The rise of the far right in Japan was a product of distinctly capitalist dynamics, its character defined by a general crisis in profitability. The Japanese economy had undergone an unprecedented boom in the late 1910s, meeting demand in the West and expanding in the space left by the waning influence of the war-stricken European empires. Between 1914 and 1919, Real GNP grew at an average rate of 6.2 percent, although inflation increased apace. But this early boom was followed by an early crash, as growth began to stagnate in the 1920s followed by a plummet in the Showa Financial Crisis of 1927.[15] There have been several different methods used to measure the Japanese profit rate[16] in this period, but all show a rapid decline moving into the 1920s, followed by either further decline[17] or stagnation.[18] The ratio of investment to GNP also drops over the same years, from a peak in the early 1920s to a period of stagnation over the later decade, followed by a plummet in the Showa Depression of 1930, caused by the global economic collapse.[19]

But since Japan had begun to face the reality of the crisis slightly earlier than other countries, it also established key financial reforms in the later 1920s that allowed for a more rapid recovery following the Showa Depression. Banks had been consolidated and the state had already begun the process of stimulus spending. The Showa Depression, caused by both the global economic collapse and Japan’s ill-timed return to the gold standard, was severe but brief. As early as the winter of 1931, Japan had begun what would later be known as the Takahashi Economic Policy, a period of Keynesian spending and controlled monetary depreciation helmed by Finance Minister Takahashi Korekiyo. Fiscal stimulus was paired with a decoupling from the gold standard (first the departure from the gold standard, then the stabilization of depreciation by pegging the exchange rate to the pound sterling), allowing for increased competitiveness due to a depreciated yen—and also making possible the construction of a yen block in East Asia. Between 1932 and 1936, when the Takahashi Policy was in full effect, GNP growth returned to 6.1 percent, nearly as high as the boom years and paired with much more moderate inflation.[20] The ratio of investment to GNP recovered over the course of the 1930s, returning to its pre-crisis peak by the end of the decade.[21]

But while the Keynesian stimulus was able to pull the economy out of the worst of the depression by increasing investment, expanding the state and stabilizing the yen while retaining its competitiveness, its effects on the rate of profit were more marginal, stimulating only a slight recovery.[22] This, alongside firms’ continuing dependence on state spending, signals that the Japanese economy of the 1930s had not truly escaped the crisis. Instead, the decline in profitability had been met with an expansionary program similar to that soon undertaken by Germany and Italy, and later by the United States. Declining profitability could only be offset by expansion of the state, buoying the private sector domestically while also facilitating (and in fact making more and more necessary) the growth of the military and the push for colonial expansion. Thus Takahashi’s Keynesian era helped to incubate the hyper-militarism of the late Empire. When he sought to reign in government spending in 1935, fearing runaway inflation, he raised the ire of this newly-strengthened military and was soon assassinated in an attempted coup by members of the Kōdō-ha (“Imperial Way”) faction led by young officers within the army. Though it ultimately failed in its goals, the coup did result in the transfer of more power to the military and the end of attempts to cut state spending. This began the era of Japan’s wartime command economy, which saw continued high GNP growth, but now paired with ever-increasing inflation.[23]

The large zaibatsu monopolies retained their power throughout the Depression, and a number of new zaibatsu arose through the new colonies. Economic inequality skyrocketed, and the Imperial military was soon seen as an uncorrupt corrective to the decadence of the large financiers. Japan’s political atmosphere thereby skewed even further to the right. The Kōdō-ha faction within the military, though ousted after 1936, had advocated an openly fascist vision for Japanese development in which democracy would be thoroughly dismantled, corrupt bureaucrats and greedy zaibatsu capitalists would be purged and the state would be run directly by the Emperor. Their politics were founded on a mythic vision of returning to the organic hierarchies of pre-capitalist Japan and they were therefore vigorously anti-communist, advocating an immediate pre-emptive invasion of the Soviet Union.[24] The looser coalition that was formed to oppose the Kōdō-ha was called the Tōsei-ha (“Control Faction”), which called for a cautious policy in regards to the Soviet Union and more coordination with the zaibatsu, but which was itself nonetheless dominated by an essentially fascist politics. After the purge of the Kōdō-ha in 1936, military administration was transferred to the Tōsei-ha.

Most of the intellectual leaders within the now-unchallenged faction were strong supporters of the total war theory of central economic and military planning, modeled on Germany, and all factions advocated continuing imperial expansion within China and elsewhere.[25] These theorists had long allied themselves with a group of reform bureaucrats headed by Kishi Nobusuke, economic manager of Manchukuo and a follower of fascist theorist Ikki Kita. It was through this alliance between reform bureaucrats and total war militarists that the economic blueprint for Japanese regional imperialism (the “Greater East Asia Co-Prosperity Sphere”) would be born. Experiments in industrial development and management within the Sphere ranged from the heavily state-controlled command economy of Manchuria (favored by the militarists) to the more zaibatsu-friendly investment regimes at home and in some of the peripheral colonies (favored by the reformers), but all were guided by the firm belief in a totalitarian state driving colonial expansion.[26]

Each of the development programs undertaken by the Japanese state had a lasting influence on the region as a whole. In “Sorghum & Steel,” we explored how the large, military command-economy firms of Manchuria shaped the early industrial structure of the Chinese developmental regime. But it was the reform bureaucrats, led by Kishi and informed by the total war theories of the Tōsei-ha, who would play a central role in the construction of capitalist East Asia after the war. Following a brief period of postwar economic decline under the US occupation, Japan’s economy began to revive with the Korean War, as US policy decisively shifted in favor of strong economic development in the region as a bulwark against communism. In order to secure this economic growth, the US restored power to many of the same figures who had led the country under the Empire, including Kishi, by then a notorious war criminal.[27] Released from prison, Kishi went on to found the Liberal Democratic Party with the support of the US. He was elected as Prime Minister in 1957, and his administration subsequently received secret campaign funds from the CIA with the endorsement of President Eisenhower.[28] As the first Japanese leader to visit the countries of Southeast Asia after the war, Kishi began to promote a plan for regional development that drew directly from his older vision for the Co-Prosperity Sphere. With US backing, he and his technocrats could now pursue their old economic policies under the auspices of a new anti-communist military bloc fighting a different kind of total war.[29]

 

The Export of Capital to the East

The United States itself had long had a colonial interest in the region, evident in its annexation of the Hawaiian Islands and the brutal occupation of the Philippines, both beginning in the late 1890s. This interest was driven by some of the same economic pressures as Japan’s own colonial project, as an economy stagnating under the pressure of the top-heavy Gilded Age monopolies sought cheap sources of natural resources and new markets. Half a century later, with Japan defeated and China now within the socialist bloc, the US secured its power across the remainder of the region. But its interests had undergone a fundamental shift. Partially, this was due to the new conditions imposed by the Cold War, with state-backed economic development programs seen as an integral piece of a larger strategy to contain the socialist bloc. But it was also a matter of a changed technical composition of production. The war had revived heavy industry in the US from its depression-era stagnation. At the same time, it had led to a massive upsurge in research and development, and created both the transmission mechanisms to introduce new inventions to the civilian economy and the economic stability required to begin implementing a backlog of new technologies that had accrued in preceding decades of speculation and crisis. These included advances in aeronautics, petrochemicals, fertilizers, power generation and automobiles.[30] Meanwhile, wartime logistics networks began to be systematically transferred to civilian use, building the trade networks that would soon undergird the Pacific Rim economy.[31]

As more US firms moved farther up the production chain, the producers’ goods industries that had been stimulated by the wartime boom sought new markets for the export of capital goods, rather than the consumer goods that had dominated US trade with imperial territories like the Philippines. But while consumer goods exports required little more than the opening of foreign markets, the export of capital goods (particularly for heavy industries) required that the importing economies be undertaking large-scale, structural development drives. The US therefore found both political and economic interest in facilitating the rise of dictators to oversee capitalist developmental states in the Asia-Pacific for much the same reason that it cultivated the Marshall Plan and subsequent welfare states in Europe. Reconstruction efforts brought rapid economic development, which created large markets for US metals, machinery, automobile and aeronautics industries suffering from overproduction in the postwar economy. Centuries of violent colonization had already created the scaffolding for a truly global capitalist system, and the hard work of imperial influence could now be largely managed through a combination of market influence and military policing.

In East and Southeast Asia, the new international order of production had a clear hierarchy, helmed by the US, but essentially making use of the same trade relationships and industrial hubs built by the Japanese Empire, minus the territories that had seceded into the socialist bloc. This involved the uneven distribution of development funds to preferred locations, creating differential comparative advantages between countries that ultimately encouraged local specializations in accord with the trade needs of countries higher up the economic hierarchy. Given its more developed industrial structure and the vigorous anti-communism of its political establishment, Japan itself was the first preferred site for redevelopment and thereby became a leader in the new regional hierarchy, providing both financing and the political model that would soon be used by other developmental states in the region.

Meanwhile, the outcome of the war had allowed Japan to reinvent its industrial base. The loss of its colonies and the abolition of the military proved to be serendipitous in this regard, keeping the country out of the expensive post-colonial military interventions undertaken by France, Britain and the US while allowing it to nonetheless benefit from the new technologies and trade relationships that emerged from such wars. The development of maritime technologies was particularly fortuitous for the island nation, allowing for the construction of new industrial complexes along the Pacific coastline. The loss of the colonies—in particular Manchuria—also meant that a large quantity of Japanese-financed fixed capital was lost or destroyed and these sunk costs therefore written off. In the long term, this meant that Japanese firms were no longer responsible for the expensive maintenance costs on these increasingly obsolete factories, and there was no expectation of future profitability from the lost industries. This had the paradoxical effect of making the Japanese economy far more amenable to technological change and new capital construction, whereas countries like the US became increasingly burdened by masses of obsolete fixed capital built up earlier in the century.

The “total war” model of industrial development had also left behind a large mass of workers and soldiers, mostly literate and many with some degree of technical training. Out of a population of 72 million in 1948, with 34.8 million employed, there were 7.6 million demobilized soldiers, 4 million demobilized workers who had been employed in military production and 1.5 million nationals who had returned from abroad—13.1 million surplus workers in total, composing some 18 percent of the total population. This was paired with a period of agrarian reform that began to raise agricultural productivity, feeding even more displaced ruralites into urban industry over the following decades. But rather than causing an immediate upsurge in absolute unemployment, the tendency was instead for a growth of informal work and the widespread reliance on small-scale communal networks for subsistence. In 1950, the self-employed, peasants and family workers composed some 60.6 percent of the Japanese workforce, with formal wage-workers making up the remainder.[32] There was thus a massive latent surplus population that could be tapped as a source of cheap labor, and over the course of the following decades it would provide the basis for rapid growth in Japanese industry. Between 1951 and 1973, “Japanese GDP grew continuously and rapidly by 9.2 per cent per annum on average, making it seven times as big as a result.”[33] It was this process that began discussions of a “Japanese Miracle,” often with little attention to the structural features that had underpinned such “miraculous” growth.

In reality, the rapid growth of the Japanese economy was facilitated not only by favorable domestic conditions but also by continuous stimulus from the US-led monetary and military regimes. The costs of energy resources and other primary products plummeted with the postwar exploitation of Middle Eastern oil fields and the opening of war-strangled trade routes. At the same time, the Cold War led the US to vastly reduce reparations payments and offer recovery grants instead. But the key turning point was the Korean War. With Japan as the closest source of industrial goods for the frontline, the US began a special procurement program that lasted from 1950 to 1953, flooding Japanese industry with demand at guaranteed prices. In 1952-53, the special procurement goods composed some 60-70 percent of total Japanese exports, doubling the size of major Japanese industries in just a few years. This experience proved Japan’s capacity as both the regional economic leader and a politically sound partner in the global effort to contain the socialist bloc. The US occupation of the islands formally ended with the Treaty of San Francisco and the military relationship between the two countries was formalized with the US-Japan Security Pact, both signed in 1951 after Chinese intervention in the Korean War had resulted in the retreat of UN forces down the peninsula[34]

After the Korean War, the economic blocs of the early twentieth century slowly gave way, with the volume of world trade increasing at 7.6 percent a year on average between 1955 and 1970. In Japan, this provided a market for exports, the profits from which went to pay for essential imports, including both raw materials and the numerous state-of-the-art capital goods made available by the US. Meanwhile, the Bretton Woods monetary system had pegged the dollar to the yen at a fixed exchange rate, encouraging domestic industrial growth in the 1950s and then making Japanese manufacturing extremely competitive in the world market beginning in the 1960s, after capital goods imports had begun to increase the productivity of Japanese manufacturing.[35] The result was that the profit rate of Japanese industry skyrocketed in this period,[36] with a particularly pronounced peak reached in manufacturing in the late 1960s.[37]

The domestic market grew alongside international demand for Japanese goods. This caused a consumption boom among Japanese workers (particularly the better-paid workers in core industries, whose lifetime employment guarantees were the result of labor militancy in the late 1940s), including the widespread adoption of automobiles and home appliances. At the same time global markets were gradually flooded with Japanese manufactures, beginning with textiles and basic industrial goods, then machinery and electronics. Between 1957 and 1973 the Japanese share of all exports of manufactured goods in the world market increased from 5.5 percent to 11.5 percent, and domestic private investment in fixed capital (here plant and equipment) increased at an annual average of 22 percent between 1956 and 1973, financed by both a stock of industrial profits and rapidly rising shares of personal savings funneled through banks offering zero or negative real rates of interest on deposits. Continuous public spending on industrial infrastructure was therefore paired with financial over-lending to industrial firms to create the conditions for a truly remarkable expansion of fixed capital. This was the period in which the ratio of investment to GNP in Japan would reach its all-time peak. Both gross domestic fixed capital formation and specifically non-residential investment had hovered around 12 percent of GNP in 1950. By the time the ratio peaked between 1970 and 1975, gross fixed capital formation was just under 35 percent of GNP, while non-residential investment sat just under 25 percent—the decoupling of the two signaling the very beginnings of the rise of the real estate bubble that would later contribute to the catastrophic collapse of the first of Asia’s “miracle” economies.[38]

 

Stagnation

Theorists have given many names to the long period of stagnant growth that overtook the core economies after the end of the postwar boom.[39] Some, such as the Japanese Marxist Makoto Itoh, characterize it as a new “Great Depression.”[40] Others designate it a “Long Depression” marked by sluggish growth rather than spectacular collapse, comparable to the first “Great Depression” in 1873.[41] Many have simply referred to it in descriptive terms as a period of “persistent stagnation,”[42] or a “long downturn.”[43] Regardless of the name, both GDP growth and profit rates in many of the core economies had begun to decline as early as the 1960s,[44] with the US manufacturing profit rate reaching a postwar peak in the middle of that decade.[45] In Japan, both the national and manufacturing profit rates reached their peak sometime between the mid-1960s[46] and 1970.[47]

The slowdown didn’t hit all economies at once, though, nor did it affect them equally. The postwar boom itself had been uneven, leaving high-GDP nations burdened early on with expensive, increasingly obsolete stocks of fixed capital that discouraged the incentive for new domestic investment, even while they were not yet so unprofitable as to be viably cleared through large-scale layoffs and factory closures. The result was that much of the long boom was in fact sustained by growth in the later-developing economies, encompassing reconstruction efforts in Europe and the postwar growth of Japan. When these growth spurts began to hit their initial limits, the stagnation that had already begun in the largest core economies could no longer be offset by growth in international trade. After this point, both the pre-war core economies and the later-developing economies of the postwar period (now also effectively core countries) not only saw persistent stagnation in growth and falling profit rates but also found themselves competing for a shrinking share of global accumulation. This resulted in rising unemployment, public fiscal crises and the unusual phenomenon of stagflation, all worsened by an oil crisis and ever-more-expensive military expenditures.

At the global level, international industrial competition took the form of a rapid sequence of back-and-forth recessionary cycles. With growth slowed, the share of total value that could be captured by different national economies shrank, and these cycles would therefore increasingly take on the character of zero-sum “trade wars” or “currency wars” between the US and its competitors. Each phase in the cycle was therefore spurred by key geopolitical changes in international currency and tariff systems. At the same time, the overall character of the competition was determined by the opening of new industrial hubs for labor-intensive production, each of which provided a short-term spatial fix for the problem of low profitability while also creating new potential competitors in the long-term. Two years were particularly important: 1971, which saw the beginning of the departure of the US from the gold standard and the Bretton Woods system of pegged exchange rates, and 1985, in which the Plaza Accord was signed, increasing the value of the Japanese yen and German mark and devaluing the dollar. It’s important to remember, however, that policy decisions do not and cannot fundamentally create or ameliorate crises within capitalism. They can only push it in various directions or, at best, delay it somewhat (and thereby make the crash worse when it does happen). Geopolitics is the attendant of the material community, not its master. Such decisions did not by any means create the general crisis, then, but they did mark important shifts in which countries would experience its worst effects.

The end of the Bretton Woods system made exchange rates more volatile and initially decreased in the competitiveness of US manufacturing, which stimulated export-led growth elsewhere throughout the 1970s. This shifted the trade balance of the US and both inflation and unemployment grew rapidly, the latter reaching above 9 percent in 1982 and ‘83. Japan, meanwhile, confronted the initial phase of the crisis with massive government spending and the expansion of exports. The US budget deficit in the late 1970s and early 1980s was thereby largely financed by the Japanese surplus, and the growth in both public and private debt in the US provided the market for Japanese goods. The result was “the extraordinary spectacle of Japanese financiers providing the credit required by the US government to finance its budget deficits in order to subsidize the continuing growth of Japanese exports.”[48] In the US, manufacturing exports collapsed between 1980 and 1985, growing at just 1 percent per year. Imports grew at 15 percent per year over the same period, with imports from Japan increasing from 12.5 percent of the total in 1980 to 22.2 percent by 1986.[49] But despite this stimulus to Japanese exports, the manufacturing profit rate never recovered to its pre-crisis peak, instead reaching a lower peak in the early- to mid-1980s before plummeting again in the later part of the decade after the signing of the Plaza Accord.[50] Meanwhile, the general profit rate simply did not recover, instead stagnating until its next precipitous decline in 1990.[51]

For the US, manufacturing’s fortunes were briefly revived by the 1985 Plaza Accord, which increased the value of the Japanese yen and German mark and devalued the dollar. US manufacturing became temporarily more competitive in the global market, but the new system wreaked havoc elsewhere. In the midst of general stagnation, global manufacturing trade was becoming more and more of a zero-sum game in which gains in one country occurred at the expense of others.[52] Japan’s average annual change in GDP was halved from 10.2 percent in 1960-1969 to 5.2 percent in the ‘70s and 4.6 percent in the ‘80s. The unemployment rate in Germany grew from an average of 0.8 percent in the 1960s to 2.05 percent in the ‘70s, 5.8 percent in the ‘80s and above 8 percent in the 1990s, following the broader trend in Europe.[53] In Japan, the unemployment rate was kept lower by statistical underreporting, the rapid growth of the tertiary sector, and significant outlays by both the state and large firms to retain workers who would have otherwise been laid off.[54] In contrast, the US saw unemployment halved from over 9 percent in 1982/83 to as low as 5 percent in the later 1980s and 4 percent in the later 1990s.[55]

While the Plaza Accord by no means caused the crisis in Japan, it did show that the country had never quite escaped the strain of overproduction that had first led to the collapse of the profit rate in the early 1970s. The limits to accumulation were met with an influx of new, state-led investment, poured into an already over-invested productive regime. Existing markets had become saturated, so export-driven growth became the only way to briefly recover profitability within manufacturing. Outside manufacturing, however, the only outlet for surplus capital was an increase in speculation led by the proliferation of obscure financial techniques (zaitech) and Keynesian infrastructural projects. Meanwhile, in order to keep profits from dropping further, wages were suppressed. When the Plaza Accords devalued the US dollar in 1985, the price of the yen soared and Japan’s export-oriented production was severely restrained. While the US underwent its own brief industrial recovery, Japanese firms were left with no choice but to direct more and more idle capital to zaitech speculation while also pouring money into global real estate markets and expanding production facilities overseas in order to exploit the cheaper currency rates elsewhere in Asia (many pegged to the dollar). Domestically, this resulted in an unprecedented boom in the stock market, an influx of foreign speculative capital into the yen and a massive bubble in asset prices. The outcome was a definitive collapse of the “miracle” economy into the crisis of the early 1990s, decisively shattering the hope held by many economists[56] that Japan was an ascendant hegemonic power somehow immune to the basic laws of capitalist production.[57]

 

The Flying Geese

While the growth of Japanese global economic power was facilitated by the US and defined by the international monetary system, the regional character of this expansion ultimately followed the older patterns originally laid by the imperial project. As mentioned above, the US-exonerated war criminal Kishi Nobosuke became Prime Minister in 1957, touring the region and establishing the groundwork for what would later become the Asia Development Bank with his own proposal (rejected at the time) for an Asia Development Fund modeled on the Co-Prosperity Sphere.[58] Meanwhile, Taiwan and South Korea had utilized Cold War financing alongside the industrial and financial infrastructure left by the Japanese to jump-start their own national industries. In both countries, variants of the Japanese developmental state were adopted, with South Korea’s chaebols fusing national financing with family-run industrial conglomerates in a fashion reminiscent of the large, first-generation zaibatsu, while Taiwan’s strategy of import-substitution enabled agrarian reform, protection of domestic industry and the import of machinery in ways that recalled the developmental strategy of both postwar and Meiji era Japan.

Talk of the “Japanese miracle” was thereby soon extended to the four East Asian Tiger economies of South Korea, Taiwan, Hong Kong and Singapore. These countries were now envisioned as “flying geese,” with Japan at the head the formation, transferring technology and financing down the chain in a win-win pattern of cascading comparative advantage: when one industry’s labor costs rose too high, that industry was to be shifted wholesale to the less developed neighbor, complete with the most advanced industrial equipment and state-financed infrastructure.[59] Development was therefore linked to the product cycle, and could be conceived of as a gradual evolution of production that operated to the advantage of both countries. The import of capital goods into Japan from the US had begun the process, by the 1970s Japan had already initiated a similar export of capital to the Tiger economies, and by the 1990s it seemed that a similar phenomenon was taking place in Southeast Asia and even mainland China.

The flying geese model does not envision economic crisis playing a major role in this process, aside from a few brief recessions that come with major shifts in the product cycle. Nor does it attempt to account for the influence of the US throughout, either through direct financing (namely military spending) or less direct influence on trade (the Plaza Accord) and politics (the propping up of anti-communist dictatorships). In its conception of technology transfer, the model also tends to ignore both the built-in hierarchies of the resulting region and the local networks that enable such transfer in the first place. None of this is coincidental. The flying geese model was in fact originally formulated by the Japanese economist Kaname Akamatsu in the 1930s in order to theorize world trade in a period marked by the growth of protectionism and Japanese imperial expansion.[60] Though not widely used at the time, the concept was clearly in accord with the propaganda of the Co-Prosperity Sphere, and Kaname himself held a series of high-ranking posts within the Imperial Army’s Bureau of Investigation (responsible for statistics and general intelligence). After the war, he was tried for war crimes, found innocent, and went on to formally publish his theory in 1962 in the official journal of the Institute of Developing Economies, established by the Japanese Ministry of Economy, Trade and Industry.[61] The concept gained a widespread popularity within Japanese economics, where it was meshed with new theories of the product cycle and foreign direct investment.[62] As global trade grew in the midst of the long crisis, the theory was soon taken up by mainstream economics in the West, providing an ideological justification for the developmental framework adopted by US-backed global financial organizations such as the World Bank and IMF.

The basic pattern identified in the model is self-evident. Japan began an early, smaller round of direct investment in Taiwan in the late 1950s, mostly in the electronics and machinery manufacturing industries that had boomed during the Korean War procurement program, only to lose their main market once the war was over.[63] The second round of “scrap-and-build industrial restructuring,” now far more substantial in volume, took place between the mid-1960s and the oil shock of 1973. This round was initiated by the signing of the Japan-Korea normalization treaty in 1965, which both opened formal economic relations between the two countries and provided South Korea with a series of Japanese-funded grants and loans (roughly $800 million[64] in total), geared toward infrastructure construction and the creation of the Podang Iron and Steel Company (now POSCO, one of the biggest producers in the world).[65] Lighter, labor-intensive industries were moved from Japan to South Korea, Taiwan, Hong Kong and elsewhere, with the domestic economy shifting to a new base in heavy and chemical industries (again, greatly aided by technology transfers from the US and Europe). A third phase of restructuring followed the oil crisis and the general decline in manufacturing profitability, with heavy industries offshored to the new cores in South Korea and Taiwan and domestic production shifting to a new set of electronic, transport and precision machinery industries producing for export to markets in the US.[66]

The result of this third phase was not only export-oriented production in Japan leading to a trade surplus with the US, then, but also an unprecedented explosion in the size and scale of Japanese-originated direct investment. Faced with massive limits to accumulation at home, Japan increased the rate of its capital exports in an effort to secure more of the shrinking pool of global accumulation. The annual growth rate of Japanese foreign direct investment was 28.1 percent between 1970 and 1982, and by 1984 Japan held a share of 17.8 percent of the total world annual direct investment, even greater than the share of the US. The cumulative total value of its overseas investment between 1951 and 1986 was some $106 billion, with the largest share actually pouring into markets in North America (primarily bonds, securities, real estate, and high tech production), followed by investments in Asia and Latin America.[67] After the signing of the Plaza Accord, this trend was only intensified. Between 1986 and 1989, Japanese FDI grew more than 50 percent annually, with an annual outflow of around $48 billion.[68] Official Development Assistance (such as the grants awarded to S. Korea) also grew in the same period, rising from $1 billion in 1973 to $7.45 billion in 1987, roughly 70 percent of this going to other countries in Asia, a large portion in the form of loans, often originally intended as war reparations.[69]

But these trade transfers did not happen in a vacuum. Within Japan, they were a response to overproduction, demographic limits and the declining profit rates that followed. Each cycle of restructuring was preceded by a decline in the net profit rate of manufacturing (in 1960-1965, 1970-1975 and the late 1980s onwards),[70] and each trough was preceded by overproduction in the core industries and the reaching of key demographic limits. The textile industries, for instance, had been founded on the rapid expansion of the female workforce. But by the mid-1960s, this labor surplus was reaching its limits and, combined with inflationary pressures, women’s wages began to rise.[71] By the end of the 1960s, the remaining pools of cheap, under-employed rural labor had begun to shrink precipitously, and between 1970 and 1973 nominal wages in manufacturing rose some 63 percent: “For the first time in the entire history of over a century of Japanese capitalist development, capital accumulation became excessive in relation to the limited supply of labour-power.”[72] With an extremely low immigration rate, Japan would from this point on begin to experience a rapidly diminishing demographic dividend,[73] ultimately resulting in today’s severe demographic crisis.

 

The Shadow Play

Through decades of continual promotion in developmental policy and popular economics, the idea of the “flying geese” has today become common sense. Its origin in one of the twentieth century’s most brutal colonial regimes is conveniently forgotten, and trade transfers according to comparative advantage are simply presumed to be the necessary spark for developmental programs in poor countries. But flying geese are best seen from a distance—the ideal vantage point a world apart from the phenomenon itself, in the comfortable Westminster offices of The Economist or the echoing halls of the United Nations building in New York, built on a plot of land donated by the Rockefellers. At such distance, the distinct v-shape of East Asian development could not appear clearer, and the only worthwhile activity for observers has long been a game of petty speculation, a goose-race of sorts, in which investors placed bets in currency and real estate markets on which nations might be the next to ascend in formation. But if one looks closer, the flying geese grow thin and transparent. In fact, they appear not to be living creatures at all, but instead the paper-and-leather cutouts used in the region’s traditional shadow puppetry (皮影戏). And like any good shadow play, the story they tell is a mythic one, projected onto a frail screen for a clapping audience.

Behind the screen, however, lie the paper geese, the puppeteer, and the fire of the torches. When a hole is poked through the paper, what appears to the audience is little more than a void in the otherwise sensible world of the play. It seems to make no sense to claim that the East Asian “miracles” are anything short of miraculous, or that their pattern is not providential. But peering through this void, one can begin to see the strings that connect the paper geese: all the countries that were most favored in the process of capital transfer were also those that had played important roles in the former Japanese empire and continued to do so within the contemporary US military complex. The v-shape of the formation was, in fact, a political hierarchy imposed on the Pacific Rim by military force, its shape and composition ultimately defined by the imperatives of the Cold War. And the strings connecting the puppets lead back to the hands of the puppeteer: After WWII, the US “controlled half the globe’s manufacturing capacity, electrical power, and monetary reserves, owned two-thirds of its gold stocks, and produced two-thirds of its oil,” and within only a few years of the war’s end, it also “controlled 48 percent of world trade.”[74] US interests in the region were aimed at preserving this economic and political hegemony, something openly acknowledged by George F. Kennan of the State Department, author of the strategy to contain the spread of socialism. Kennan argued that since the US had “about 50% of the world’s wealth, but only about 6.3% of its population,” the country’s international policy needed to be guided by the imperative to “maintain this position of disparity.”[75] It would be easy enough to stop here, pointing a finger at the conspiratorial machinations of geopolitics, as if the US itself had been unveiled as the grinning puppeteer behind it all. This is the sum of a purely “anti-imperialist” politics, which satisfies itself with any and all opposition to US power as a sufficient “anti-capitalism.” Such analysis, however, stops at the mere hands of the puppeteer, without gazing on the body.

The truth is far more monstrous. Puncture the screen of mulberry paper and the play continues, even as a void opens at its edge. Peer into this void and the life of the story is reduced to artifice, its mythic romance now little more than politely veiled epics of blood and conquest. But even the sum of US power, measured in drone strikes or financial summits, is itself a mere mechanism. The geopolitical prowess of the imperial hegemon is, in the end, little more than the hand of the puppeteer, only slightly more lifelike than the puppets it guides. Gaze further into the darkness and the nightmarish body of the puppeteer takes flesh: rather than a grinning conspirator we find a headless body, its corpse-cold skin lit by the orange glow of torchlight, dead extremities animated by nothing more than the necromantic logic of capital. The geopolitics of the Cold War were structured, in the end, by economic imperatives. This also means that the development programs pursued in countries like Japan were a leaner (but no less direct) form of imperial influence, defined by the need for the world’s largest economy to continue to accumulate wealth in the service of expanding the material community of capital, necessitated by the perceived challenge of the socialist bloc to that process. While it initially seems contradictory that these developmental programs would ultimately create a subset of formidable competitors for the imperial hegemon, this is merely to misunderstand the true nature of hegemony, confusing the hands for the head. Just like the British Empire before it, the US would nonetheless retain substantial economic and political power even as it laid the groundwork for challenges to its own dominion, far outliving reports of its supposed demise. But the puppeteer is headless. Every worldly hegemon is a sewn-together composite, moving in service to that greater, world-wrecking hegemony of capital.

Future developmental drives were therefore defined by their proximity to US political power, now facilitated by Japanese financing. In the same way that Japanese industry had been catapulted into the forefront of global production by the Korean War procurement program, industrial development in Taiwan and Hong Kong would be shaped by the military containment of the Chinese mainland. After the CCP won the civil war, the Guomindang (GMD) government fled to Taiwan, where it established a military dictatorship with US backing. With the Korean War and two crises in the Taiwan Strait over the course of the 1950s, Taiwan was an active front in the early years of the Cold War. The US not only began continuous patrols of the Taiwan Strait, but also poured funds into Taiwan to stabilize Chiang Kai-shek’s dictatorship. This funding was already substantial in the immediate postwar years, but skyrocketed during the Korean War, with military assistance composing a growing portion (see Figure 1).[76]

 

 

One paper goose followed another. Hong Kong, much smaller and still a British colony, nonetheless also received $27 million between 1953 and 1961 from USAID.[77] Similar funds for South Korea between 1953 and 1961 amounted to more than $4 billion.[78] Then, in 1963, the rise of Park Chung-hee’s US-friendly dictatorship sparked a burst of industrial build-up not seen since Japanese colonization, itself mimicking Japanese procurement-driven industrialization, but now driven by military demand during the Second Indochina War. Fifty thousand South Korean soldiers were deployed into central Vietnam by 1967,[79] paid some twenty-two times the regular pay they would have received at home.[80] This not only helped to funnel wages back into the Korean economy but also established a basis for wartime procurement contracts on the part of Korean chaebol firms. Some of these contracts were for the simple procurement of goods, but many were also for infrastructural projects in Southeast Asia that supported the greater war effort. Hyundai was contracted to build a series of landing strips as well as the entire Pattani-Narathiwat highway in southern Thailand, for example, receiving both US funding and important training from the US Army Corps of Engineers. All of this allowed the firm to vastly expand the scope of its projects after the war was over, including a series of construction contracts in Guam and Saudi Arabia.[81]

In sum, the offshore procurement contracts for Korean construction firms averaged just over $20 million per year (in 1966 dollars) between 1966 and 1969, peaking again at some $17 million per year (also in 1966 dollars) in 1979-1985, when Korean chaebol secured US-backed contracts in the Middle East.[82] From 1964 to 1969, combined military assistance and offshore procurement composed between 30 and 60 percent of gross capital formation in South Korea, far more than any other country in the region.[83] There was nothing organic about its rise, and the success of its industrialization program cannot be accounted for merely in terms of market demand. This is apparent if we compare the case of South Korea with the conditions of the Philippines in the same period. Both were at roughly equal developmental levels in the 1950s, and both had previously been conquered by the Japanese and yoked into the “Co-Prosperity Sphere.” But they had not been equal players in the Japanese imperial scheme. Preference had been given to the earlier-conquered Korean colony, the lower position of the Philippines justified in the racial pseudo-science of the time. Then, after the war, the lower priority of the Philippines for US interests meant that the country never successfully instituted the wide-ranging land reform seen in Japan, South Korea and Taiwan. This created instability at the core of the newly-ascendant Marcos regime, certainly friendly to the US, but never considered to be as reliable an ally as Park, Chiang Kai-Shek or Kishi. Despite requests on the part of the regime for offshore procurement contracts similar to those received by Japan and South Korea, the Philippines refused to send combat troops for fear of the domestic response. Already wary of the new government’s commitment to US interests and fearful of its ongoing internal revolts stemming from the failure to implement land reform, the Johnson administration dismissed Marcos’ petitions for industrial contracts.[84] The bulk of contracts awarded to Asian countries therefore went to South Korea, with a smaller set awarded to Thailand, which deployed eleven thousand troops over the course of the war.[85]

The sheer bulk of investment, combined with the technical training and field experience awarded to South Korean firms, was therefore an integral part of the country’s rapid ascent. Its peak GDP growth rate (14.5 percent in 1969 and 14.82 percent in 1973) even surpassed Japan’s during the height of its postwar boom.[86] The spike in its rate of profit also exceeded that of Japan, and displayed a clear correlation with wartime development, peaking first in the later 1960s, declining alongside the trend in offshore procurement contracts and then peaking again in the 1970s as the firms’ wartime experience was put to use at home.[87] South Korea’s status as the next “flying goose” in the formation was little more than a shadow play. The “Tiger Economies,” like Japan before them, were little more than puppets elevated on the strings of political patronage and hefty procurement contracts. The formation of East Asia as a distinct economic region therefore had inherent political and economic hierarchies built into its structure from the beginning. But the ultimate shape of the region cannot be understood as merely serving US political interests. Instead, the restructuring of the entire Pacific Rim was simply one of the theatres in the general expansion of the material community of capital.

 

Logistics

 The next wave of economic booms in the region, beginning with the East Asian Tigers and soon spreading to Thailand, Malaysia and Indonesia, were deeply dependent on both the continuing war in mainland Southeast Asia and the desperate attempts on the part of Western and Japanese firms to regain profitability in the midst of the long stagnation. As Japan’s profit rate declined, continued accumulation could be ensured only by the export of capital to the handful of newly industrializing countries favored by US political interests. The end market for many of the goods being produced by Japanese firms overseas (and their numerous subcontractors) was in the US and Europe, where stagnant rates of growth and profit, paired with slow or stagnant wage growth, had been met with an increased dependence on credit, both private and public. While the cheapening of goods through increased productivity is a secular tendency in capitalist development, this credit boom, combined with stagnant wages, accelerated the process beyond what would result from advances in productivity alone. Increasingly mobile global firms were able to seek out new labor pools that could be super-exploited in brief industrial booms that caused rapid inflation and extreme waves of labor unrest. By definition, this period of super-exploitation had to be temporary, often drawing on a hidden store of labor produced by the remnants of non-market subsistence economies. Unrest increased as these hidden stores were depleted—often signaled by the subsumption of the countryside, paired with increases in the necessary wage in the cities. This period of instability frequently ended in a coup or the toppling of local dictatorships, concurrent with a decline in profitability, continued increase in wages, and a brief boom in GDP growth due to a frenzied period of speculation before a spectacular bust, leaving in its wake stagnant growth and vastly increased levels of inequality. Long before this, the labor-intensive industries that had begun the process would have been moved elsewhere, initiating the cycle in new industrial hubs—often bigger, leaner and more brutal.[88]

But this entire process was made possible only by a series of new technological advances, most of which could trace their origin to the US military complex. The first of these was the rise of computerization and digital technology more generally. Though often discussed in the context of rising markets for consumer electronics, paired with the ascent of software giants in the US and Japan, the bulk of profitability gains actually came with the application of computerization to the industrial process itself. The brief recovery in profitability in US manufacturing, for instance, followed a massive closure of obsolete, redundant and expensive means of production during the years of the overvalued dollar and the record-high interest rates imposed by Federal Reserve Chairman Paul Volcker, particularly during the recession years of the early 1980s. By the time of the Plaza Accord, productivity had increased remarkably (at 3.5 percent per year between 1979 and 1985), driven not only by the closing of unproductive facilities but also the widespread shedding of labor in the new, increasingly computerized factories. After the Plaza Accord vastly increased the competitiveness of US production in the global market, investment slowly began to flow into manufacturing again and both productivity and profitability in the industry underwent a general revival (albeit brief and moderate by historical levels).[89] The non-manufacturing sectors were slower in implementing new, productivity-enhancing technologies, but by the mid-1990s even these industries’ productivity had begun to average around 2.4 percent growth per year, just under the growth rates experienced in the postwar boom.[90]

But the brief revival of US industry was itself dependent on the ability of the manufacturing sector to become globally competitive. This, in turn, relied on a series of technological advances in shipping and logistics made possible by computerization and developed by the US military between WWII, the Korean War, and the wars in Indochina. Key among these was the trend toward containerization, with the invention and widespread adoption of the standardized shipping container “repeatedly dubbed the single most important technological innovation underpinning the globalization of trade.”[91] The container—accompanied by new computer-assisted systems for the management of “just in time” (JIT) production and the coordination of large-scale ports and warehouses—decreased the costs of long-distance shipping and created a new geography of trade centered on a network of the world’s biggest deep-draft seaports. In this context, the Pacific Rim network took on an entirely new importance in both Asia and the US, with intermodal ocean-to-rail-to-truck networks supplanting (though not entirely replacing) the short-run coastal and inland river and rail trade that had driven domestic growth on both sides of the Pacific in previous eras. Smaller ports up and down the coastlines were slowly starved of revenue, turning a number of minor coastal cities in the US and Canada into maritime rustbelts.

Today, nine of the top ten busiest container shipping ports are all in Pacific Rim countries, with six in mainland China. But the earliest major container ports were located in Japan’s postwar Pacific coast industrial complexes and, later, in the port cities of the East Asian Tigers. Nippon Container Terminals opened a facility in the Port of Tokyo in 1967, making the port among the first to handle container shipping. By the1970s, the Port of Kobe (in the Osaka metropolitan complex) would become the busiest container port in the world, supplanted in the ‘80s and ‘90s by competition from the ports of Hong Kong, Singapore and Busan, and then after the millennium by a series of ports along the Chinese coastline. In North America, the largest ports thrived even as their smaller, non-containerized counterparts were slowly starved into nonexistence. By the early 1970s the ports of Long Beach and Los Angeles had begun to grow to particularly gigantic proportions, the port of Oakland had replaced the port of San Francisco, and shipping along the Columbia River in the Pacific Northwest was overshadowed by trade through ports in Longview, Tacoma and Seattle. The importance of this cannot be exaggerated: without this coastal rim of shipping infrastructure, China could never have even begun its transformation into a global manufacturing hub.

Though a necessity, the geography of this logistics complex was not accidental, and the centrality of the US military in this process is undeniable. Containerization (and the “logistics revolution” more broadly) began as an experiment in military procurement, the initial concepts created in WWII, the infrastructure established in the Korean War, and the early Pacific Rim supply chains developed in Vietnam.[92] The involvement of Japan and then Korea in US offshore procurement programs meant that these economies’ early industrial booms not only benefited from an injection of capital, but were also built from the ground up in a fashion fitting the demands of global trade. Japanese firms used this to their advantage, fusing rapid, made-to-order production with efficient distribution via their coastal industrial complexes in the first experiments with just-in-time production. These supply chains linked with US consumer markets through long-distance container shipping, with the port of Long Beach, for example, becoming the Western distribution center for Toyota as early as the 1970s.

While Korean chaebols like Hyundai grew rapidly by securing US military construction contracts, firms such as Hanjin supplied the US with land, sea and air transportation services. This gave Hanjin some of the earliest experience with intermodal container shipping and, later, the building of container ships, allowing the chaebol to boom into one of the world’s largest container carriers until its bankruptcy in 2017. Meanwhile, Singapore and Hong Kong would use their large deep-water ports and well-established, cross-cultural business networks to speed through their own phases of industrialization. Both city-states offshored their own production facilities relatively quickly (to Malaysia and mainland China, respectively), developing into global capitals of administration, logistics and finance. Hong Kong in particular would soon play a key role in the transit of capital into mainland China and the export of goods from Shenzhen and other Special Economic Zones.

The logistics revolution itself, attending the rise of global trade, was very much a product of the long downturn in global profitability. The development of the Pacific Rim both facilitated the relocation of production to areas with untapped, super-exploitable pools of cheap labor and intensified capital’s rate of turnover. Both features have helped to offset the tendency of the rate of profit to fall. Cheaper labor allows for more value to be accumulated directly through the production process, while faster turnover (from invested capital to commodity to realized profit, or M-C-M’ in Marx’s schema) allows firms to net more value in any given period of time by accelerating the rate at which produced value is realized on the market. Combined with technological advances in production itself, these features slowed and even partially reversed the global decline in the rate of profit, at least for a time. Locally, they also facilitated the rapid rise in the growth rates and national profit rates for a few countries, mostly in the Pacific Rim. But without the massive destruction that preceded the postwar boom, the general recovery in the rate of profit would be short-lived, and the local growth spurts in the Pacific Rim countries would end in a cascade of crises across the region, beginning with the Japanese collapse in 1990.

 

 

Continue to Part 2>>

 

 

Notes

 

[1] Again, see “Sorghum & Steel,” in particular the sections on the Shanghai Strike Wave documented in Part 2: <https://chuangcn.org/journal/one/sorghum-and-steel/2-development/>

[2] There was a brief but substantial revival of overland trade in the Yuan, and to a lesser extent in later dynasties. But the maritime commercial networks solidified during the Southern Song continued to play an important role throughout the Ming and Qing, despite numerous attempts to curtail the power of the merchants, pirates and semi-independent polities that composed these trade routes.

[3] This is a simplified summary of a complex and interesting history. For the best source in English on the rise of this maritime space and the role of the Zheng family within it, see: Hang Xing, Conflict and Commerce in Maritime East Asia: The Zheng Family and the Shaping of the Modern World, c.1620-1720, Cambridge University Press 2016.

[4] The Zheng family had long played a monopolizing intermediary role in much of this trade, and arguably formed an alternate political-commercial core that could have acted as the foundation for a local capitalist transition, had they retained their base in Taiwan and found some sort of peace with the Qing. For more detail, see Hang 2016.

[5] Rhoads Murphey, East Asia: A New History, Pearson Longman, 2007. p.151

[6] Robert Nield, The China Coast: Trade and the First Treaty Ports, Joint Publishing (HK) Co, 2010. pp.10-11

[7] Ibid, p.15

[8] Elizabeth Perry, Anyuan: Mining China’s Revolutionary Tradition, University of California Press, 2012. p.20

[9] There is a substantial literature debating the exact nature of the Meiji Restoration and its relationship to global capitalism. This debate has involved Marxist scholars worldwide, but was particularly vital for postwar Japanese Marxism, where views on the nature of feudalism and early industrialization in Japan formed the basic dividing lines between different schools of thought. For a summary of this debate within Japanese Marxism, see: Makoto Itoh, The World Economic Crisis and Japanese Capitalism, Macmillan, 1990. pp.150-155

[10] This was a position taken by some postwar Japanese Marxists, first popularized by prominent Western scholars of the region such as E.H. Norman, in his Japan’s Emergence as a Modern State (1940).

[11] For a comparison of this decline to recent trends in global trade, see: Kevin O’Rourke, “Government policies and the collapse in trade during the Great Depression,” Center for Economic and Policy Research, 27 November 2009. <http://voxeu.org/article/government-policies-and-collapse-trade-during-great-depression>

[12] For more on the economic character of the Japanese Empire, see: Ramon H. Myers and Mark R. Peattie, eds., The Japanese Colonial Empire, 1895-1945, Princeton University Press, 1984; and Chih-ming Ka, Japanese Colonialism in Taiwan: Land Tenure, Development and Dependency, Westview, 1995.

[13] Mark Selden, “Nation, Region and the Global in East Asia: Conflict and Cooperation,” Asia Pacific Journal, Volume 8, Issue 41, Number 1, 11 October 2010. <http://apjjf.org/-Mark-Selden/3422/article.html>

[14] Various pre-capitalist and proto-capitalist conceptions of the region existed prior to this, based largely on trade routes within the South China Sea and the tributary relationships centered on various mainland dynasties. But many major sites of earlier regional integration (Manila, Malacca, Hanoi) found themselves outside the inner orbit of capitalist East Asia within both the Japanese imperial project and the Cold War order that followed it. For more on the evolution of the region as such, see: Mark Selden, “East Asian Regionalism and its Enemies in Three Epochs: Political Economy and Geopolitics, 16th to 21st Centuries,” The Asia-Pacific Journal, Volume 7, Issue 9, Number 4, 25 February, 2009. <http://apjjf.org/-Mark-Selden/3061/article.html>

[15] Masato Shizume, “The Japanese Economy during the Interwar Period: Instability in the Financial System and the Impact of the World Depression,” Bank of Japan Review, Institute for Monetary and Economic Studies, May 2009. <https://www.boj.or.jp/en/research/wps_rev/rev_2009/data/rev09e02.pdf>

[16] The profit rate is the most basic method used by Marxist economists to measure profitability within industries or national economies, with declines in the profit rate associated with periods of economic crisis and growing profit rates associated with periods of productive expansion. It is often measured in conjunction with the “rate of accumulation,” usually captured by the year-on-year growth rate of fixed capital. There is an extensive debate about the best methods to measure the profit rate and the validity of the claim that there is a long-term tendency for it to decline. Though ideally measured in value-terms, most measurements use correlated figures drawn from mainstream economic statistics. The basic equation is simply some measurement of net profit (as a stand-in for net surplus value) divided by net capital stock (as a stand-in for fixed constant capital, circulating constant capital and wages).

[17] The decline is evident in measurements using a definition of profit including corporate profit, non-corporate profit, net interest and rent (effectively net domestic product minus wage costs) over capital stock as measured by the net stock of private non-residential fixed capital, all smoothed by a 10-year moving average. See Figure 2 of Minqi Li, Feng Xiao and Andong Zhu, “Long Waves, Institutional Changes, and Historical Trends: A Study of the Long-Term Movement of the Profit Rate in the Capitalist World-Economy,” Journal of World-Systems Research, Volume XIII, Number 1, 2007, pp.33-54.

[18] Stagnation is more evident in measures that use a slightly broader definition of the capital stock (as well as those smoothing with 5-year averages), such as: Esteban Ezequiel Maito, “The historical transience of capital: the downward trend in the rate of profit since XIX century,” MPRA, 2014. <https://mpra.ub.uni-muenchen.de/55894/1/MPRA_paper_55894.pdf>

[19] Figure 2.2 in Arthur J. Alexander, “Japan’s Economy in the 20th Century,” Japan Economic Institute Report, No. 3, 21 January, 2000, <http://www.jei.org/AJAclass/JEcon20thC.pdf>

[20] Shizume 2009, Chart 1

[21] Alexander 2000, Figure 2.2

[22] Visible in both Maito 2014, and Li et. al. 2007

[23] Shizume 2009

[24] Richard Sims, Japanese Political History Since the Meiji Restoration 1868–2000, Palgrave Macmillan, 2001.

[25] The influence from Germany was both theoretical and practical, with Germans composing a large portion of the Meiji-era foreign advisors (oyatoi gaikokujin) hired by the Japanese government in order to facilitate transfer of high-level technical knowledge. Meanwhile, German theories of the state helped to structure early-modern Japanese political theory. See: Germaine A. Hoston, “Tenkō: Marxism & the National Question in Prewar Japan ,” Polity, Volume 16, Number 1, Autumn 1983, pp.96-118.

[26] Janis Mimura, ‘Japan’s New Order and Greater East Asia Co-Prosperity Sphere: Planning for Empire,’ The Asia-Pacific Journal, Volume 9, Issue 49 Number 3, December 5, 2011. <http://apjjf.org/2011/9/49/Janis-Mimura/3657/article.html>

[27] Despite the Co-Prosperity Sphere’s language of cooperation between Japanese, Chinese and Manchu, Kishi himself was a strong proponent of the Yamato Race theory, regarding the Chinese as essentially inferior and fit for little more than sex work and manual labor. As the manager of colonial Manchukuo, he signed a decree legalizing the use of slave labor in 1937, and millions of Chinese slaves were ultimately funneled into the colony’s gargantuan industrial districts over the course of the war. Kishi continued the practice upon his return to Tokyo, sending half a million Korean slaves to work in Japan itself, many of whom died.

[28] Michael Schaller, “America’s Favorite War Criminal: Kishi Nobusuke and the Transformation of U.S.-Japan Relations,” Japan Policy Research Institute, Working Paper Number 11, July 1995. <http://www.jpri.org/publications/workingpapers/wp11.html>

[29] It should be noted that the influence of Kishi is still apparent in Japan to this day, where the Liberal Democratic Party has maintained control of the state almost continuously since 1955. Not only is the party currently in power, but since 2012 it has even been helmed by Kishi’s grandson, Shinzō Abe.

[30] Richard Walker and Michael Storper, The Capitalist Imperative: Territory, Technology and Industrial Growth, Wiley-Blackwell, 1991.

[31] Deborah Cowen, The Deadly Life of Logistics: Mapping Violence in Global Trade, University of Minnesota Press, 2014.

[32] Makoto Itoh, The World Economic Crisis and Japanese Capitalism, Macmillan, 1990. p.145

[33] Ibid. p.140

[34] Ibid. pp.141-142

[35] Ibid. p.142

[36] Li et. al. 2007, Figure 2 and Maito 2014, Figure 3.

[37] Robert Brenner, The Boom and the Bubble: The US in the World Economy, Verso, 2002. Figure 1.1.

[38] Numbers from Alexander 2000, Fig. 2.2. These figures are slightly more conservative estimates, with the World Bank calculating the peak in gross fixed capital formation closer to 40%, using GDP rather than domestic investment and GNP. For reference, this compares to a nearly stagnant, slightly declining US ratio of roughly 20% from 1960 to the present.

[39] And the universal nature of this boom itself is even called into question by many scholars. See, for instance: Michael J. Webber and David L. Rigby, The Golden Age Illusion: Rethinking Postwar Capitalism, The Guilford Press, 1996.

[40] Itoh 1990

[41] Michael Roberts, The Long Depression: Marxism and the Global Crisis of Capitalism, Haymarket Books, 2016.

[42] Brenner 2002

[43] Robert Brenner, “What is Good for Goldman Sachs is Good for America: The Origins of the Current Crisis,” 2009. <http://escholarship.org/uc/item/0sg0782h#page-1>

[44] Maito 2014, Figures 2-5.

[45] Brenner 2002, Figure 1.1

[46] Maito 2014, Figure 3

[47] Li et. al. 2007, Figure 2, Brenner 2002, Figure 1.1

[48] Brenner 2002, p.54

[49] Ibid, p.56

[50] Ibid, Figure 1.1

[51] Li et. al. 2007, Figure 2, Maito 2014, Figure 3 and Dave Zachariah, “Determinants of the average profit rate and the trajectory of capitalist economies,” Bulletin of Political Economy, Volume 3, Number 1, 2009, Figures 4 and 18.

[52] ibid, p.95

[53] ibid, Table 1.10.

[54] Itoh 1990, p.169

[55] See the US Bureau of Labor Statistics’ Historical Data on “Labor Force Statistics from the Current Population Survey.”

[56] A short list includes Ezra Vogel’s Japan as Number One (1979), Herman Kahn’s The Emerging Japanese Superstate (1970), and P.B. Stone’s Japan Surges Ahead: The Story of an Economic Miracle (1969). For a summary of these positions, see Itoh 1990, pp.137-139.

[57] Itoh 1990, pp.168-179 and Brenner 2002, pp.96-111.

[58] Schaller 1995

[59] The idea was first popularized in the west in Bruce Cumings, “The Origins and Development of the Northeast Asian Political Economy: Industrial Sector, Product Cycles and Political Consequences,” International Organization, Number 38, Winter 1984.

[60] Mitchell Bernard and John Ravenhill, “Beyond Product Cycles and Flying Geese: Regionalization, Hierarchy and the Industrialization of East Asia,” World Politics, Number 47, January 1995. pp.171-209

[61] Kaname Akamatsu, “A historical pattern of economic growth in developing countries,” Journal of Developing Economies, Volume 1, Number 1, March–August 1962. pp.3-25.

[62] For the further development of the concept in Japan, see the work of Kaname’s student Kojima Kiyoshi and the economist Yamazawa Ippei. It would later become a key feature of the “New Structural Economics” proposed by Taiwan-born Justin Yifu Lin, who defected to the PRC in 1979 and served as Head Economist at the World Bank between 2008 and 2012.

[63] Bernard and Ravenhill 1995, p.179

[64] The “$” sign refers to US dollars throughout.

[65] Miki Y Ishikida, Toward Peace: War Responsibility, Postwar Compensation, and Peace Movements and Education in Japan, iUniverse Inc.. 2005. p. 21

[66] Martin Hart-Landsberg and Paul Burkett, “Contradictions of Capitalist Industrialization in East Asia: A Critique of ‘Flying Geese’ Theories of Development,” Economic Geography, Volume 74, Number 2, April 1998. p.92

[67] Itoh 1990, pp. 225-228

[68] Bernard and Ravenhill, p.181

[69] Itoh 1990, pp. 225-228

[70] Brenner 2002, Fig.1.1

[71] Hart-Landsberg and Burkett 1998, p.92

[72] Itoh 1990, p.164

[73] The demographic dividend is essentially a measurement of the working-age population to the dependent population (the dependency ratio) as it relates to developmental shifts within an economy at large. As economic development proceeds the mortality rate declines but birth rates initially remain high, creating a population boom. As the boom generation enters the workforce they provide firms with a large pool of available labor, cheapened by competition with a large reserve army, and this in turn produces a boom in personal saving and consumer spending, providing capital for further investment and increased domestic demand.

[74] Kiernan 2017, p.397

[75] Qtd. in ibid, p.397

[76] U.S. Agency for International Development (USAID). “U.S. overseas loans and grants: obligations and loan authorizations, July 1, 1945-September 30, 2005,” p.122 and p.126 <http://pdf.usaid.gov/pdf_docs/PNADH500.pdf>

[77] Ibid, p.120. Far more important than direct aid in Hong Kong was the role of capitalists who had fled the mainland and established new production centers in the textile industry in the territory.

[78] Ibid, p.128. See Figure 1 for a relative comparison.

[79] Heonik Kwon, “Vietnam’s South Korean Ghosts,” The New York Times, 10 July 2017. <https://www.nytimes.com/2017/07/10/opinion/vietnam-war-south-korea.html>

[80] Jim Glassman and Young-Jin Choi, “The chaebol and the US military-industrial complex: Cold War geopolitical economy and South Korean industrialization,” Environment and Planning A, Volume 46, 2014. p.1166

[81] ibid, pp.1170-1172

[82] ibid, Figure 2

[83] ibid, Figure 5

[84] Ibid, p.1176

[85] Kiernan 2017, p. 436

[86] As measured by the OECD

[87] Maito 2014, Figure 4

[88] Kevin Gray, Labour and development in East Asia, Routledge 2014.

[89] Brenner 2002, pp.59-75

[90] ibid, p.80

[91] Deborah Cowen, The Deadly Life of Logistics: Mapping Violence in Global Trade, University of Minnesota Press 2014. p.31

[92] Cowen 2014, p.41