Reports from the Economic Front

a blog by Marty Hart-Landsberg

Category Archives: Korea

President Trump’s Hollow Job Promises

President Trump’s election success rested to a considerable degree on his pre-election attack on globalization and verbal pledge to bring manufacturing jobs back to the United States. However, as I argued in a previous post, there is no reason to believe that President Trump is serious about wanting to restrict corporate mobility or fashion new, more domestically-centered, worker-friendly trade relations.

In fact, several of his appointees to key economic policy positions are people whose past work was promoting the very globalization he criticized.

Still, there are some in the labor and progressive communities who continue to hold out hope that they can find common ground with the Trump administration on trade.  Unfortunately, it appears that these people are ignoring what we do know about the nature of existing manufacturing jobs in the globalized industries that President Trump claims he will target for restructuring.  Sadly, the experience of workers in many of those jobs reveals the hollowness of Trump’s promises to working people.

The Southern Strategy of the Automobile Industry

The automobile industry, one of the most globalized of US manufacturing industries, offers a powerful example of the dangers of thinking simply about employment numbers. As an Economic Policy Institute report describes:

Political and market pressure on Japanese and European (and later, Korean) manufacturers to reduce imports to the United States has led to a rising number of “transplants” supplying auto components and assembling autos.

Initially, the transplants operated in the Midwest, including assembly plants in Illinois (Mitsubishi), Michigan (Mazda), Ohio (Honda), and Pennsylvania (Volkswagen), along with California (Toyota’s joint venture with General Motors, now a Tesla facility). More recently, however, the growth has been in Southern states, including assembly plants in Alabama (Honda, Hyundai, and Mercedes-Benz), Georgia (Kia), Kentucky (Toyota), Mississippi (Nissan and Toyota), South Carolina (BMW and Mercedes-Benz), Tennessee (Nissan and Volkswagen), and Texas (Toyota).

As a result of these trends, the weight of motor vehicle manufacturing employment (including parts suppliers) in the United States has shifted from the Midwest to the South.  And what kind of jobs has this investment brought?  The title of a Bloomberg Businessweek article – Inside Alabama’s Auto Jobs Boom: Cheap Wages, Little Training, Crushed Limbs – sums it up all too well.

As the article explains:

Alabama has been trying on the nickname “New Detroit.” Its burgeoning auto parts industry employs 26,000 workers, who last year earned $1.3 billion in wages. Georgia and Mississippi have similar, though smaller, auto parts sectors. This factory growth, after the long, painful demise of the region’s textile industry, would seem to be just the kind of manufacturing renaissance President Donald Trump and his supporters are looking for.

Except that it also epitomizes the global economy’s race to the bottom. Parts suppliers in the American South compete for low-margin orders against suppliers in Mexico and Asia. They promise delivery schedules they can’t possibly meet and face ruinous penalties if they fall short. Employees work ungodly hours, six or seven days a week, for months on end. Pay is low, turnover is high, training is scant, and safety is an afterthought, usually after someone is badly hurt. Many of the same woes that typify work conditions at contract manufacturers across Asia now bedevil parts plants in the South.

“The supply chain isn’t going just to Bangladesh. It’s going to Alabama and Georgia,” says David Michaels, who ran OSHA for the last seven years of the Obama administration. Safety at the Southern car factories themselves is generally good, he says. The situation is much worse at parts suppliers, where workers earn about 70¢ for every dollar earned by auto parts workers in Michigan, according to the Bureau of Labor Statistics. (Many plants in the North are unionized; only a few are in the South.)

In 2014, OSHA’s Atlanta office, after detecting a high number of safety violations at the region’s parts suppliers, launched a crackdown. The agency cited one year, 2010, when workers in Alabama parts plants had a 50 percent higher rate of illness and injury than the U.S. auto parts industry as a whole. That gap has narrowed, but the incidence of traumatic injuries in Alabama’s auto parts plants remains 9 percent higher than in Michigan’s and 8 percent higher than in Ohio’s. In 2015 the chances of losing a finger or limb in an Alabama parts factory was double the amputation risk nationally for the industry, 65 percent higher than in Michigan and 33 percent above the rate in Ohio.

The article provides several stories of low paid workers forced to work in unsafe conditions who suffered devastating injuries.  “OSHA records obtained by Bloomberg document burning flesh, crushed limbs, dismembered body parts, and a flailing fall into a vat of acid. The files read like Upton Sinclair, or even Dickens.”

The Story of Reco Allen

Here is one story from the article: in 2013 Reco Allen, a 35 year old father of three, with a wife working at Walmart, took at $9 an hour job with Surge Staffing, a temp agency that provides workers to Matsu Alabama, a Honda parts supplier.  Allen sought and was given a janitorial position at Matsu.  But after six weeks on the job, he was pressured by a supervisor to finish his shift by working on a metal-stamping press.  Matsu was in danger of not meeting its parts quota and the company “could have been fined $20,000 by Honda for every minute its shortfall held up the company’s assembly line.”

Allen received no training on operating the machine.  Moreover, there were known problems with the vertical safety beam that was supposed to keep the machine from operating if a worker was in danger of being caught in the stamping process.  Tragically, Allen’s arm was indeed caught by the die that stamped the metal parts.  As Businessweek reports:

He stood there for an hour, his flesh burning inside the heated press. Someone brought a fan to cool him off. . . . When emergency crews finally freed him, his left hand was “flat like a pancake,” Allen says, and parts of three fingers were gone. His right hand was severed at the wrist, attached to his arm by a piece of skin. A paramedic cradled the gloved hand at Allen’s side all the way to the hospital. Surgeons removed it that morning and amputated the rest of his right forearm to avert gangrene several weeks later.

The company had been told by the plant’s safety committee several times that the machine needed horizontal as well as vertical safety beams. In fact, one year before Allen’s accident, another worker suffered a crushed hand on the same machine.  Moreover, the company’s treatment of Allen was far from unusual.  Matsu “provided no hands-on training, routinely ordered untrained temps to operate machines, sped up presses beyond manufacturers’ specifications, and allowed oil to leak onto the floor.”

And what happened to the company?  They received a $103,000 fine from an Occupational Safety and Health Review Commission.

The Businessweek article includes several other stories of workers maimed because of unsafe work conditions at firms with long histories of safety violations.  And they all ended in much the same way: with corporations paying minimal fines.  And, apparently with little change in corporate behavior.

Known Knowns

We know that most employers will push production as hard as they can to cut costs, with little regard for worker safety.  We also know that union jobs are better than non-union jobs in terms of wages and benefits, and safety.

We also know that President Trump is taking steps to weaken labor laws and unions, as well as gut federal and state agencies charged with protecting worker health and safety and the environment.

Thus, even if President Trump does succeed in enticing some globalized corporations to shift parts of their respective production networks back to the US, the experience of the auto industry demonstrates that the resulting job creation is unlikely to satisfy worker demands for safe, living wage jobs.

In sum, no matter the campaign rhetoric, and no matter the twists and turns in policy, it should be clear to all that President Trump is committed to an anti-worker agenda.

Asia’s Economic Future

There is strong reason to expect a further weakening of global economic activity over the next several years, putting greater pressure on majority living and working conditions.

In brief, Asia’s economic dynamism is ebbing.  Given the region’s centrality in the international economy, this trend is both an indicator of current global economic problems and a predictor of a worsening global situation.

Asia’s central role in the global economy

Asia’s central role in the world economy is easily documented.  For example, as the Asian Development Bank points out, “Global headwinds notwithstanding, developing Asia will continue to contribute 60% of world growth.”

Asia’s key position is anchored by China.  China is the single largest contributor to world GDP growth, likely accounting for almost 40 percent of global growth in 2016.  Stephen Roach, former Chairman of Morgan Stanley Asia and the firm’s chief economist, estimates that China’s contribution to global growth was 50 percent larger than the combined contributions of all the advanced capitalist economies.

The rise of Asia, and in particular China, owes much to the actions of transnational corporations and their strategy of creating Asian-centered cross-border production networks or global value chains (GVC).  In the words of the Asian Development Bank, these networks or chains involve “dividing the production of goods and services into linked stages of production scattered across international borders.  While such exchange of inputs is as old as trade itself, rapid growth in the extent and complexity of GVCs since the late 1980s is unprecedented.”

The strategy was initiated by Japanese transnational corporations who began shifting segments of their respective production processes to developing Asian countries in the late 1980s; US and European firms soon followed.  The process kicked into high gear in the mid to late 1990s once China opened up to foreign investment and decided to pursue an export-led growth strategy.

Asia, as a consequence, became transformed into a highly efficient, integrated, regional export machine, with China serving as the region’s final assembly platform.  Developing Asian economies became increasingly organized around the production of manufactures for export; their share of total world manufacturing exports rose from 18.4 percent to 32.5 percent over the period 1992-3 to 2011-12.   And, following the logic of cross border production, a growing share of these exports were parts and components, which were often traded multiple times within the region before arriving in China for final assembly.   Parts and components accounted for more than half of all developing Asian intra-regional manufacturing trade in 2006-7.

China, befitting its regional role, became the first or second largest export market for almost every developing Asian country, with the majority of those exports the parts and components needed for the assembly of advanced electronics.  Between 1995 and 2014, the electronics share of manufacturing exports to China from Korea grew from 8.5 percent to 32.2 percent.  Over the same period, the electronics share from Taiwan exploded from 9.1 percent to 63.7 percent, for Singapore the share grew from 17.5 percent to 36.8 percent, and for the Philippines it rose from 3.4 percent to 78.3 percent.  China’s exports to the region, and especially outside the region, were mostly final goods, with the most technologically advanced assembled/produced under the direction of foreign transnational corporations.  In line with this development, China became the premier location for foreign investment by transnational corporations from Japan, Korea, and Taiwan, as well as leading non-Asian corporations.

This history allows us to appreciate the forces that powered Asia’s growth.  Growing demand for manufactures by consumers and retailers in the US and the Eurozone became increasingly satisfied by exports from Asia.  The production of these exports triggered the production of and trade in parts and components by developing East Asian countries and their final assembly in China, as well as massive investment in new factories and supportive infrastructure, especially in China.  East Asian export production also required significant imports of primary commodities, which were largely purchased from countries in Latin America and Sub Saharan Africa, who experienced their own growth spurt as a result.

As we now well know, this growth was heavily dependent on the borrowing capacity of working people in the advanced capitalist world, especially in the US, whose incomes had been falling in large part because of the shift of production to Asia.  The collapse of the debt-driven US housing bubble in 2008 triggered a major financial crisis and global recession, which also greatly depressed international trade.   A weak international recovery has followed; international trade and growth remain far below pre-crisis levels, raising questions about Asia’s future economic prospects.  To appreciate why I am pessimistic about Asia’s economic future requires us to delve more deeply into the ways in which Asian economies have been restructured by transnational capital’s accumulation dynamics.

The Dynamics of Asia’s Economic Transformation

The three charts below, which come from an article authored by the Monetary Authority of Singapore in collaboration with Associate Professor Davin Chor of the National University of Singapore, provide a useful visualization of the Asian economic transformation described above, in particular, changes in the trading relationships of the countries, with each other and with the rest of the world.  The authors use what they call a measure of “upstreamness” to highlight “where a country fits in the operation of cross border production networks, more particularly whether it specialized in producing raw input, intermediate inputs or finished goods.”  The more a country specializes in producing raw inputs, the greater is the value of its upstreamness index; the more it specializes in producing final goods, the smaller is its upstreamness index.

More precisely: the upstreamness index for an industry takes on values equal to or larger than 1.  A value of 1 means that the industry’s output “is just one stage removed from final demand.” A greater value means that the industry’s output enters the relevant production process as an input that is a number of stages removed from final demand.  Here are some examples of upstreamness values for select US industries:

index-values

For the charts below, the upstreamness measure for each country is calculated by weighting the upsteamness of its export industries by the share of each industry in the country’s total exports for the year in question.

As the authors explain:

Charts 2 to 4 depict the changing networks of trade flows between the Asian economies, and in relation to the US, UK, Eurozone (EZ), Australia, as well as the rest of the world (ROW). In these charts, the arrows indicate the direction of the net trade balance between each pair of economies, while the width of each arrow is proportional to the magnitude of this balance.

The arrows are color-coded to reflect the upstreamness of the export flows that move in the same direction as the net trade balance between each pair of nodes. For simplicity, export upstreamness values lying between 1 and 2 are labelled as “downstream” (green), those between 2 and 2.5 as “midstream” (yellow), and those above 2.5 as “upstream” (red).

As we can see in Chart 2, in 1995, a time when cross boarder production networks were still limited, Japan dominated the Asian region.  It was a significant downstream (green) exporter to the US, the Eurozone, the UK, and China.  And it was a significant supplier of key midstream machinery to Korea, Taiwan, Hong Kong, Singapore, Thailand and Malaysia.  It generally purchased its upstream inputs from the ROW.   As we can also see, China was well on its way to becoming a major exporter of final goods to the US, the world’s dominant consumer of both downstream and midstream goods.

chart-2

chart-3

By 2005, as illustrated in Chart 3, Japan’s role in the region had dramatically diminished.  China was now the region’s hub, and as such, the dominant exporter of finished goods to the US, the Eurozone, Hong Kong, and the ROW.  The economies of Korea and Taiwan had also been transformed, increasingly oriented to supplying upstream parts and components to China-based exporters.

chart-4

Chart 4, which captures conditions in 2014, shows a deepening of the trade patterns of the previous period.  China’s export dominance is greater yet, as illustrated by the increase in the width of its green trade arrows pointing to the US, ROW, EZ, and Hong Kong.  The Korean and Taiwanese economies are even more dependent on sales of parts and components to China.  Because of their relatively small trade activity, it is difficult to appreciate the transformations experienced by other Asian countries.  Many ASEAN countries, as noted above, had become suppliers of key electronic components to China.  Vietnam, due in large part to the expansion of South Korean production networks, has become an important assembly and export location for some consumer electronics such as smart phones.

What is also not visible from these charts is the effect that transnational corporate-driven regionalization dynamics have had on the structures and stability of individual countries, and of course on the working and living conditions of Asian workers.  One consequence of the rise of China as the region’s key final assembly and production platform is that leading firms from other Asian countries significantly reduced their domestic investment activity as they located operations in China. This deliberate deindustrialization was a natural outcome of the establishment of cross border production networks which involve, as stated above, the dividing of production activities into segments and the location of one or more of these segments in other countries.

The chart below highlights the dramatic decline in Japanese investment as Japanese firms shifted segments of production overseas.   This ongoing decline in investment is one of the most important reasons for the country’s ongoing economic stagnation.

japan

The following chart shows a similar sustained decline in investment, although beginning at a later date than for Japan, for the grouping “Rest of emerging Asia,” which includes Hong Kong, Indonesia, Malaysia, the Philippines, Singapore, South Korea and Thailand.   China, on the other hand, has experienced a dramatic and sustained rise in its investment ratio. Chinese state activity, rather than foreign direct investment, accounts for the great majority of this investment, although in many cases it was undertaken to attract and support foreign production.

asian-investment

As leading Asian transnational corporations expanded their production networks, their actions tended to restructure their respective home economies in ways that left these economies more unbalanced and crisis prone.  For example, almost all Asian economies became increasingly export dependent at the same time that their exports narrowed to a limited range of parts and components.   And with transnational corporations increasingly able to shift production from one national location to another, China’s pull became ever stronger.  One consequence was that governments throughout Asia were forced to match China’s relatively low labor costs and corporate friendly business environment.  In many cases, they did so by transforming their own labor markets though the introduction of new laws and actions designed to weaken labor rights.  This, in turn, tended to suppress regional purchasing power, thereby reinforcing the region’s export dependence.  Not surprisingly then, the decline in exports that has followed the post 2008 Great Recession poses a serious challenge to Asia’s growth strategy.

According to the Asian Development Bank:

Developing Asia’s exports grew rapidly in real terms at an annual rate of 11.2 percent in 2000–2010 (Figure 1.2.1). Excepting a brief rebound in 2010, the region’s export volume growth has slowed since the crisis, recording annual growth of 4.7 percent in 2011–2015. A major concern is that developing Asia’s exports actually declined by 0.8 percent in 2015, which was a particularly bad year for world trade. Regional trends follow the lead of export growth in the PRC, which contributes about 40 percent of developing Asia’s export value.  PRC export growth slowed from an annual average of 18.3 percent in 2001–2010 to 6.4 percent in 2011–2015, falling into a 2.1 percent decline in 2015. The slowdown in developing Asia excluding the PRC was less pronounced as growth halved from 8.0 percent in 2001–2010 to 4.1 percent in 2011–2015, still growing marginally in 2015 at 0.8 percent. . . .

The slowdown has meant that developing Asia’s export growth in 2011–2015 was, at 4.1%, similar to the 4.3% averaged by other developing economies and not much higher than the 3.6% of the advanced economies—two groups that developing Asia has historically outperformed in export growth.

trade-trends

And as the region’s export growth rate declined, so did overall rates of GDP growth, as we see in the table below.

rates-of-growth

Still, these growth rates remain impressive, especially in light of the steep decline in regional exports.  Perhaps not surprisingly, developing Asia’s buoyancy owes much to China’s ability to maintain its relatively high rates of economic growth.  However, as I will discuss in a following post, contradictions and pressures are mounting in China that will intensify its economic slowdown and significantly depress growth in the rest of Asia, with negative consequences for the rest of the world.

The Importance Of Solidarity

As we begin to take stock of the political moment in the United States and strategize ways to build a movement strong enough to resist the policies of the Trump administration and confident enough to project a new social vision, it is important to learn from the efforts of people in other countries facing similar challenges.  South Korea for example.

Park Geun-hye, the current president of South Korea, took office in February 2013.  The daughter of Park Chung-Hee, the brutal military dictator who ruled the country from 1961 until his assassination in 1979, Park Geun-hye presented herself as a “soft” conservative during the presidential campaign.  But once elected she moved quickly and decisively, with the support of the country’s security forces, to expand the neoliberal and anti-democratic policies of her conservative predecessor and crush any opposition.

The consequences of her rule have been devastating for the great majority of Koreans.  Some highlights: her deregulation of health and safety standards led directly to the sinking of a ferry carrying over 400 students; more than 300 of whom drowned.  Her labor initiatives include laws to increase the precariousness of work and difficulty of unionization, and lower the wages of regular workers.  Her education policies require that public school teachers use only state written history books.  Her militarist policies include the construction of a new naval base for US warships on Jeju island, over the objections of the residents; an intensification of war games directed against North Korea; the closure of the Kaesong industrial zone; and the welcoming of a US THAAD anti-missile battery aimed at China and Russia on South Korean soil.  And she has advanced her policies by outlawing demonstrations, arresting hundreds of union leaders, and dissolving a political party.

Korean social movements, led by the Korean Confederation of Trade Unions, have responded to this rightward movement with ever larger demonstrations, despite the jailing of many labor leaders.  Now, the balance of forces appears to be decisively shifting against the government.  The reason: new revelations point to the fact that many of Park’s policies were made either in consultation with or in response to the dictates of an unelected confidant, the daughter of a now deceased cult leader.

As the website Zoom in Korea explains:

Since late October, when news broke of the government corruption scandal involving South Korean president Park Geun-hye, South Korean citizens have demanded the removal of Park and her administration from office. Last week on November 5, close to 200,000 people took to the streets of Seoul to demand her resignation. A diverse range of people from different social enclaves of South Korean society joined together to send a common message to their government – “Park Geun-hye, step down.”

Throughout the streets of Seoul, one could see recently politicized high school students marching side by side with elderly folks who had experienced past revolutionary moments in South Korean history.

Here is a short clip which shows what it looks like when 200,000 people crowd the streets of Seoul to demand change.

For more on the growing movement in South Korea, its demands and its challenges, read the rest of the Zoom in Korea article here.

 

We are not alone in facing powerful dictatorial rightwing political forces.  As we develop our own response here in the United States we need to keep solidarity in mind, which means both supporting and learning from struggles elsewhere.

 

November 12 update

Zoom in Korea reports:

1 Million in Historic Protest to Oust Park Geun-hye
As of 8:30 pm (Seoul time) on Saturday, November 12, 2016

South Korean media report 1 million gathered at Gwanghwamun Plaza to demand Park Geun-hye’s resignation. This is the largest protest South Korea has seen since the democratic uprising of June 1987. People from across the country, including conservative strongholds Busan and Daegu have traveled to Seoul to join the protest. Youth in school uniforms and mothers with children are among the protest.

Protesters on the way to the Blue House are blocked by a barricade of police buses near Gyeongbok Palace. The police have also blocked off entrances to subway stations between the police barricade and the presidential residence. Protesters are intent on reaching the Blue House but so far remain peaceful.

Seoul Mayor Park Won-soon refused to supply water from the city’s fire hydrants to the police, which had threatened to use water cannons to block protesters.  Referring to the death of farmer Baek Nam-gi, hit by a high-pressure water cannon at a mass demonstration in November 2015, Mayor Park said in a radio interview, “No more.” He added, “Water from fire hydrants is intended for putting out fires, not peaceful protests.”  A reporter outside the Blue House says protesters can be heard from the Blue House, which has been in a state of emergency since Saturday morning but has not issued an official response to the calls for the president’s resignation.

The Korean Confederation of Trade Unions has vowed a general strike if Park Geun-hye refuses to resign.

Join Koreans In Opposing THAAD Deployment

The US government, with the approval of the South Korean government, wants to locate a Terminal High Altitude Area Defense (THAAD) anti-missile system in South Korea.  Growing numbers of South Koreans oppose this.  They fear that the anti-missile system, which is largely aimed at China and Russia, will only increase military tensions and fuel a new arms race in the region as well as worsen relations with North Korea.  Those living close to the proposed location for the THAAD battery worry about the long term health effects of the associated high-intensity radar system.  Their fears and worries are well founded.

no-war

While the anti- THAAD struggle is big news in Korea, little is known about it in the United States.  This is unfortunate because the U.S. effort to expand its military presence in the Asia-Pacific region also has real consequences for people in this country.  For example, the resulting militarization will lead to ever higher levels of U.S. military spending, draining resources away from needed social programs.  And, of course, it increases the risk of a new war.  In short, it is in the interest of people living in the United States to join with people in South Korea to oppose the THAAD deployment in South Korea.

Therefore, several U.S. based organizations have joined in coalition under the banner of “Stop THAAD in Korea and Militarism in Asia and the Pacific.”  Its demands are simple:

  • We urge the U.S. government to rescind its decision on THAAD deployment in South Korea.
  • We urge the U.S. government to pursue all possible avenues for reducing tensions on the Korean peninsula by re-engaging in diplomacy with North Korea.
  • We urge the U.S. government to resolve conflicts in the Asia-Pacific region peacefully, through diplomacy and dialogue.

The coalition’s website, http://stopthaad.org/, includes a longer statement of purpose and links to articles that analyze both the political aims and consequences of the proposed THAAD deployment and the growth of the resistance movement in South Korea.  As you will see, close to 100 organizations have already endorsed the coalition’s demands.

As a first action, the coalition is organizing candlelight vigils in select U.S. cities in solidarity with candlelight vigils taking place in South Korean cities; information about them can also be found on the website.

 

Capitalist Globalization: Running Out Of Steam?

The 2016 edition of the Trade and Development Report (TDR 2016), an annual publication of the United Nations Conference on Trade and Development, is an important study of the changing nature of capitalist globalization and its failure to promote third world development.

The post-1980 period was marked by an explosion of transnational corporate activity, with investment increasingly taking place in the third world, especially Asia.  The resulting investment created a system of cross border production networks in which workers in third world countries produced and assembled parts and components of increasingly advanced manufactures under transnational capital direction for sale in developed country markets.

Mainstream economists supported this process, arguing that it would promote rapid industrialization and upgrading of third world economies and the eventual convergence of third world and advanced capitalist living standards.  However, the TDR 2016 makes the case that the globalization process appears to have run its course and that mainstream predictions were not realized.

Capitalist globalization under pressure

The TDR 2016 shows that the post-2008 slowdown in developed capitalist country growth has led to a significant downturn in third world exports and economic activity.  The following charts show that while international trade has long grown faster than global output, the ratio grew dramatically bigger over the first decade of the 2000s.  This was in large part the result of the expansion of cross border production networks.  This explosion of trade also brought ever expanding trade imbalances.

trade-trends

But, as the above charts also show, globalization dynamics appear to have lost momentum.  According to the TDR 2016:

International trade slowed down further in 2015. This poor performance was primarily due to the lackluster development of merchandise trade, which increased by only around 1.5 per cent in real terms. After the roller-coaster episode of 2009–2011, in the aftermath of the global financial and economic crisis, the growth of international merchandise trade was more or less in line with global output growth for about three years. In 2015, merchandise trade grew at a rate below that of global output, a situation that may worsen in 2016, as the first quarter of the year showed a further deceleration vis-à-vis 2015.

This loss of momentum has hit the third world, which has become ever more export-dependent, especially hard. As the following table shows, the growth rate of third world exports has dramatically slowed, and is now below that of the developed capitalist countries.  East Asian export growth actually turned negative in 2015.

table-1

This slowdown in trade has been accompanied by growing capital outflows from the third world, again especially Asia, as shown in the following chart.

capital-flows

The combination of developed country stagnation and dramatically slowing international trade has begun to stress the logistical infrastructure that has underpinned capitalist globalization dynamics.  This is well illustrated by Sergio Bologna’s description of the consequences of Hanjin’s bankruptcy:

The world’s seventh largest shipping company, the Korean company Hanjin, went bankrupt. Overburdened by $4.5-billion in debt, it has not been able to convince the banks to continue their support.

As a matter of fact, it did not convince the government of South Korea, because the main financier of Hanjin is the Korean Development Bank, a public institution, which is also struggling with the critical situation of the other major shipping company, Hyundai Merchant Marine (HMM), and the two Korean shipyards, STX Offshore & Shipbuilding and Daewoo. It may sound like a mundane administrative issue, but imagine what it means to have a fleet of about 90 ships, loaded with freight containers valued at $14-billion, roaming the seas because if they touch a port their loads are likely to be seized at the request of creditors.

In fact, the Daily Edition of the Lloyd’s List dated September 13th . . . reported that 13 vessels had been detained. Other ships are being held in different ports, waiting for judiciary sentences. Others are at anchor and maybe had to refuel. Not to mention the 1,200-1,300 crew members who are not able to find suppliers willing to sell them a can of tuna or a bottle of water. In a Canadian port, the crew had to be assisted by the mission Stella Maris.

The intertwining of the ramifications of this problem is impressive. Hanjin must face legal proceedings at courts in 43 countries. For starters: Most of the ships are not owned by Hanjin, and those it owns, to a large extent, are not worth much. Sixty per cent of the fleet is leased, and Hanjin has not been paying the leases for a long time. This threatens to bankrupt old-name companies like Hamburg’s Peter Dohle, the Greek Danaos, and the Canadian Seaspan; there are about 15 companies who leased their ships to Hanjin, but in terms of loading capacity, the first four add up to more than 50 per cent.

Then there are the ports and other infrastructure service providers. The ports are owed fees for services (towing, mooring); the terminals, for load/unload operations to Hanjin ships on credit; the Suez Canal has not been paid the passage tolls and today won’t let the Hanjin ships through; in addition, the onboard suppliers, recruiting agencies of the crews, the ship management firms. The list does not end here, it has just begun. Because the bulk of creditors are thousands of companies, freight forwarders and logistics operators who have entrusted their merchandise to Hanjin, around 400,000 containers (the total capacity of the Hanjin fleet is estimated at 600,000 TEUs), goods that are stuck on board.

Why did this happen? Why did it have to happen? . . .

Because for years, the shipping companies have been transporting goods at a loss. They have put too many ships into service and they continued to order increasingly larger ships at shipyards. The ships competed fiercely for the orders and built the ships at bargain prices, although they are technological jewels. With the increase in freight capacity, freight rates plummeted, volumes grew but the income per unit of freight transported decreased. Then, China slowed exports, creating the perfect storm. . . .

And now? How many of the 10 to 15 most important companies still active on the market are zombie carriers?

The false promise of capitalist globalization

Critically, the globalization process has been aided by labor repression.  The transnational corporate drive for market share encouraged state policies designed to hold down labor costs.  And the resulting decline in wage demand reinforced the pursuit of exports as the “natural” engine of growth.  As TDR 2016 explains:

those countries that did exhibit increases in their global share of manufacturing exports did not show similar increases in wage shares of national income relative to the global average. . . . This suggests that increased access to global markets has typically been associated with a relative deterioration of national wage income compared with the world level.

The following chart illustrates the global ramifications of the globalization process for worker earnings.wage-share

As for convergence, the TDR 2016 compared the performance of third world economies relative to that of the United States using several different criteria.  The chart below looks at the ratio of per capita GDP of select countries and country groups relative to that of the United States.  We see that Latin America and the Caribbean and Sub-Saharan Africa have actually lost ground since the 1980s.  This is especially striking since the US growth rate also slowed over the same period.  Only in Asia do we see some catch-up, and outside the so-called first-tier NIEs and China the gains have been small.

comparisons-with-us

In fact, as the TDR 2016 explains: “The chances of moving from lower to middle and from middle- to higher income groups during the recent period of globalization show no signs of improving and have, if anything, weakened.”

This conclusion is buttressed by the following table which shows “estimate chances of catching up over the periods 1950–1980 and 1981–2010.”  The United States is the target economy in both periods with countries “divided into three relative income groups: low (between 0 and 15 per cent of the hegemon’s income), middle (between 15 and 50 per cent) and high (above 50). The table reports transition probabilities for the two sub-periods and the three income levels.”

catch-up

The TDR 2016 drew two main conclusions from these calculations:

First, convergence from the low- and the middle-income groups has become less likely over the last 30 years (1981–2010) relative to the previous period (1950–1980). As reported in the table, the probability of moving from middle- to the high-income status decreased from 18 per cent recorded between 1950 and 1980 to 8 per cent for the following 30 years. Analogously, the probability of catching up from the low- to the middle-income group was reduced approximately by the same factor, from 15 per cent to 7 per cent.

Second, and perhaps more strikingly, the probability of falling behind has significantly increased during the last 30 years. Between 1950 and 1980 the chances of falling into a relatively lower income group amounted to 12 per cent for middle-income economies and only 6 per cent for high-income countries.  These numbers climbed to 21 per cent and 19 per cent respectively in the subsequent period.

Uncertain times lie ahead

In short, globalization dynamics have restructured national economies in ways that have enriched an ever smaller group of transnational corporations.  At the same time, they have set back national development efforts with few exceptions and generated serious contradictions that are largely responsible for the stagnation and downward pressures on working and living conditions experienced by the majority of workers in both advanced capitalist countries and the third world.

While globalization dynamics have lost momentum the economic restructuring it achieved remains in place.  And to this point, dominant political forces appear to believe that they can manage whatever economic challenges may appear and thus remain committed to existing international institutions and patterns of economic activity.  Whether they are correct in their belief remains to be seen.  As does the response of working people, especially in core countries, to their ever more precarious conditions of employment and living.

Opposing US Militarism In South Korea

The militaristic nature of the Obama administration pivot to Asia is fully on display in South Korea.  While rarely discussed in the United States media, the South Korean government recently agreed to let the US military station a Terminal High Altitude Area Defense (THAAD) battery in the South Korean city of Seongju.  The decision has been strongly criticized by the governments of China and Russia, and fiercely resisted by the people of Seongju.

The US and South Korean governments claim that the battery is needed to help defend South Korea from a possible North Korean missile attack.  However, it is far more likely that this decision is part of a broader US effort to strengthen its regional missile defense system and first-strike capacity against China and Russia.

As the Korea analyst Gregory Elich explains, this system is not designed to counter any likely North Korean threat:

The missiles in a THAAD battery are designed to counter incoming ballistic missiles at an altitude ranging from 40 to 150 kilometers. Given North Korea’s proximity, few, if any, missiles fired by the North would attain such a height, given that the point of a high altitude ballistic missile is to maximize distance. Even so, were the North to fire a high altitude ballistic missile from its farthest point, aimed at the concentration of U.S. forces in Pyeongtaek, it would require nearly three and a half minutes for THAAD to detect and counter-launch. In that period, the incoming missile would have already fallen below an altitude of 40 kilometers, rendering THAAD useless. In a conflict with the South, though, North Korea would rely on its long-range artillery, cruise missiles, and short-range ballistic missiles, flying at an altitude well below THAAD’s range.

It is also far from certain that the system even works reliably despite Department of Defense approved test results.  As Elich points out, “the tests failed to replicate real-world scenarios, so claims made about THAAD’s effectiveness are unproven.”

So, what is the gain for the US in securing South Korean government willingness to host the system?  The THAAD battery also comes with a powerful radar system that has two different modes of operation.  The first, the terminal mode, is designed to detect incoming missiles and direct counter-missiles.  The second, the forward-based mode, is designed to cover a much wider area and is connected to the US-based missile defense system.  “[I]n forward-mode a radar at Seongju would be capable of covering much of eastern China, as well as missiles fired from further afield as they fly within its detection range.”  In other words, used in forward-mode, the THAAD radar system would greatly enhance the US military’s ability to track and destroy Chinese and Russian missiles, an ability that would significantly contribute to US first-strike capabilities by compromising Chinese or Russian capacities to launch a counter-strike.

Thus, the effort to establish a THAAD battery in South Korea is best understood as a part of the broader US effort to ring China and Russia with missiles and radar systems.  The Global Network Against Weapons and Nuclear Power in Space has declared October 1-8 “Keep Space for Peace Week.”  In concert with that effort they published the following poster which highlights the aggressive nature of US policy.

ksfpw16

The Obama administration is well aware that South Koreans do not want to be dragged into a US confrontation with China or Russia and so it appears likely that the US and South Korean governments conspired to win popular support for the battery by encouraging South Koreans to believe that its sole purpose was to reduce the likelihood of a North Korea missile attack.  However, things haven’t worked out as the two governments hoped.

Growing numbers of South Koreans are actively organizing in opposition to the battery.  The resistance in Seongju grew so strong that the government was forced to announce that it would consider an alternative location.  But the residents of Seongju, joined by a wider social movement, are demanding that the government renounce its willingness to host the battery.

Seongjuprotests

The resistance has been spirited and creative as highlighted in this report from the blog Zoom in Korea:

The online “We the People” petition against THAAD deployment surpassed its goal of 100,000 signatures on August 10. The Seongju residents gathered for their 29th nightly candlelight vigil that evening were beaming with joy. The emcee shouted, “What day is today?” and the residents shouted back in unison, “The day we reached 100,000!” According to the White House petition website, any petition that garners 100,000 signatures in 30 days triggers an official response from the White House within 60 days of the date that the goal is reached.

To be sure, waging an online petition campaign in Seongju was no easy task. Most residents don’t have computers nor read English. The petition requires an email verification step, but most didn’t have email accounts. College students set up booths at the nightly candlelight vigils and patiently helped older residents through the process, starting with opening an email account.

The residents made clear that they are not appealing for sympathy from the White House. The petition campaign was a process of organizing the entire country beyond Seongju to demand that the United States rescind its THAAD decision and exert pressure on the White House.

“Until when do we hold the rain ceremony?” asked Lee Jae-dong, the chair of the Seongju branch of the Korean Peasants League and the emcee of the nightly candlelight vigils.  “Until it rains!” replied the crowd. “Until when do we fight THAAD deployment?” he asked. “Until it’s rescinded!” replied Seongju residents in unison.

In August, a Veterans for Peace delegation traveled to South Korea to meet with Koreans resisting the deployment and to learn more about how best to build solidarity.  Two members of the delegation were denied entry into the country by South Korean authorities.

We need to do our part in this struggle and not just out of sympathy for Koreans.  The THAAD deployment, if successful, can only heighten tensions in the Asia-Pacific region and strengthen those forces in the US that seek to further militarize our own foreign and domestic policies.

Third World Countries Lose Ground

Globalization advocates celebrated the 2003-08 period, pointing to the rapid rate of growth of many third world countries as proof of capitalism’s superiority as an engine of development.  Overlooked in the celebration was that fact that growth and development are not the same thing, and in most countries the benefits of growth were only enjoyed by a small minority.  Also overlooked was the fact that this growth was achieved at the cost of ever increasing damage to the health of our planet.  Finally, these cheerleaders also minimized the unbalanced, unstable, and unsustainable nature of the growth process; some seven years after the end of the Great Recession most countries continue to struggle with stagnation, with working people disproportionately suffering the social consequences.

The following figures, taken from the World Bank’s latest annual Global Economic Prospects report, highlight the severity of the post-crisis growth slowdown.

Figures 1 and 2 illustrate the extent of the growth slowdown.   Emerging Market and Developing Economy (EMDE) commodity exporters have suffered the worst declines.  In terms of region, EMDEs in Europe and Central Asia and Latin America and the Caribbean recorded the lowest rates of growth.  Sub Saharan African countries experienced one of the sharpest declines in growth relative to the 2003-08 period.

Figure 1: Gowth By Group

Growth by group

 

Figure 2: Regional Growth EMDEs (weighted average)

regional growth weighted

This ratcheting down of EMDE growth rates means a significant setback in progress towards achieving advanced economy levels as shown in Figure 3 A and B.

Figure 3: Catch-Up of EMDE Income To Advanced Economies

catch up

The Financial Times discusses the significance of this development:

That downgrade [in world growth] came alongside a new analysis showing that for the first time since the turn of the century a majority of emerging and developing economies were no longer closing the income gap with the US and other rich countries.

Last year just 47 per cent of 114 developing economies tracked by the bank were catching up with US per capita gross domestic product, below 50 per cent for the first time since 2000 and down from 83 per cent of that same sample in 2007 as the global financial crisis took hold.

That, the bank’s economists warned, would have a meaningful impact on the future people in those countries could expect.

“Whereas, pre-crisis, the average [emerging market] could expect to reach advanced country income levels within a generation, the low growth of recent years has extended this catch-up period by several decades,” they wrote.

Leading International Monetary Fund officials have warned in recent months that the so-called process of “economic convergence” had slowed to two-thirds of its pre-crisis rate. But the warning from the bank paints an even starker picture.

In the five years before the 2008 financial crisis, emerging markets could expect to take an average of 42.3 years to catch up with US per capita GDP, according to the bank’s analysis.

But over the past three years, as major emerging economies such as Brazil, Russia and South Africa have slowed or fallen into recession, the slower average growth means the number of years it would take to catch up with the US has grown to 67.7 years.

For frontier markets, those more fragile economies further down the development scale, such as Nigeria, the catch-up period more than doubled from 43.1 years to 109.7 years.

And, it is important to add, even these projections are likely optimistic.  The IMF and World Bank have repeatedly overestimated future rates of growth and tend to downplay the possibilities of yet another global crisis.

Corporations On The Move

While the fate of the Transpacific Partnership agreement remains uncertain, one thing is clear: Vietnam’s embrace of the agreement has singled transnational corporations that the country is open for business.  And with labor militancy growing in the Asian region, especially in China, South Korea, Indonesia, and Thailand, transnational corporations appear eager to shift operations to that country.

An article in the South Korean newspaper, the Hankyoreh, highlighted the findings of a recent report by the Korea Trade-Investment Promotion Agency (KOTRA) titled: “Changes in the International Trade Environment and Global Production Bases.”

The report looked at 31 cases involving 27 major transnational corporations that had either invested in China, Vietnam, Indonesia, Thailand, Malaysia, or Mexico in the preceding two years or had announced plans to do so.  According to the Hankyoreh, the report found that:

15 of the companies – accounting for nearly half of the cases – had either relocated their production bases to Vietnam or were planning to. With just one company planning to exit Vietnam, the data mean a net influx of 14 companies.

Meanwhile, signs pointed to a production base exodus from the “world’s factory” in China, with a negative net influx of eight companies (three entries, eleven departures).

The most commonly cited reason for relocating was to take advantage of trade agreements, which was mentioned in 23 cases. Changes in the business environment were cited in 12 cases.  Among business environment changes, the most frequently mentioned was “to cut personnel costs,” which was cited in nine cases.

Such moves put new pressures on Asian governments to intensify their respective efforts to slash wages, weaken labor protections, and cut taxes.  Whether they can succeed is another matter.

For example, working conditions are already terrible in many Chinese export factories—see here for a recent report on living and working conditions at a factory outside Shanghai where workers assembled Apple products.

Moreover, strikes and workplace actions are on the rise as Chinese workers grow increasingly militant in the face of worsening economic conditions.  In fact, the China Labor Bulletin reported a doubling of strikes in 2015 compared to the previous year.

As the Wall Street Journal explained in an article titled “China’s Workers Are Fighting Back as Economic Dream Fades“:

Factory employment in China has fallen for 25 months, according to a business-sentiment index released by Caixin, a Chinese magazine. China’s labor ministry says it expects employment to remain stable near term but says the impact of China’s slowdown and restructuring can’t be ignored. . . .

Chinese researchers and business executives say chances are rising that the Communist government may face the kind of social unrest that it has long feared. Chinese authorities recently detained and interrogated over a dozen labor activists, mainly in Guangdong.

“They definitely see protests as threatening social security, and are concerned,” says Anita Chan, a visiting fellow with the Political and Social Change Department of Australian National University.

The KOTRA report demonstrates that transnational corporations remain committed to their strategy of using mobility (or the threat of it) to force down production costs despite the fact that this strategy will only intensify global stagnation tendencies.  Hopefully, the pressures generated by capitalist globalization will strengthen worker organizing and encourage the building of cross-border solidarity and demands for greater control over corporate investment and production decisions.

Patterns Of Globalization

Capitalism is a dynamic system and so is its globalization process.  In its contemporary form, capitalist globalization has been shaped by the efforts of transnational corporations to establish and extend cross border production networks or global value chains (GVCs) which, in the words of the Asian Development Bank, involve “dividing the production of goods and services into linked stages of production scattered across international borders.  While such exchange of inputs is as old as trade itself, rapid growth in the extent and complexity of GVCs since the late 1980s is unprecedented.”

Asia, in particular Northeast and Southeast Asia, is the region that has been most transformed by the establishment of these cross border production networks.  Japanese transnational corporations began the process with their investment in several Southeast Asian countries.  This move eventually forced Korean and Taiwanese corporations into adopting a similar strategy.   The process kicked into high gear in the mid to late 1990s, once China opened up to foreign investment and embraced an export-led growth strategy.  European corporations have established their own regional GVCs with investment in several of the European Union’s new member countries.  And US corporations took advantage of NAFTA to build their own regional networks.  Still, thanks to China’s extensive built infrastructure and sizeable low wage work force, European and North American transnational corporations have also invested heavily in that country, thereby securing Asia’s status as the premier location for the production and export of manufactures.

The Development of Cross Border Production Networks

The economist Prema-chandra Athukorala charts the development and significance of this new corporate strategy using trade data to isolate the trade in parts and components and final assembly within global production networks.  (See Prema-chandra Athukorala, Southeast Asian Countries in Global Production Networks in Bruno Jetin and Mia Mikic, editors, ASEAN Economic Community, A Model for Asia-wide Regional Integration?)  One consequence: the share of developed countries in total world manufacturing exports fell from 77.9 percent to 61.8 percent over the period 1992-3 to 2011-12.  The share of total world manufacturing exports produced by developing East Asian countries (DEA—East Asia without Japan) rose from 18.4 percent to 32.5 percent over the same period.  In 2011-12, DEA countries accounted for 85.1 percent of all third world exports of manufacturers.

The developed country share of network produced exports of manufactures also fell, from 78 percent in 1992-93 to 49.7 percent in 2011-12. The DEA share of network produced exports of manufactures greatly increased over the same period, from 18.8 percent to 43.8 percent, which means that DEA countries account for more than 87 percent of all third world network activity.

DEA countries, with few exceptions, are now largely producers of parts and components, which are traded multiple times within the region, before the final assembly of the product, more often than not in China, and its eventual export outside the region.  The DEA share of total world final assembly activity rose from 22.5 percent 50.9 percent over the period 1992-93 to 2011-12.  China alone accounted for 25.6 percent of all final assembly work done within networks in 2011-12, up from 1.9 percent in 1992-93.

As the table below shows, parts and components accounted for more than half of all DEA intra-regional manufacturing trade in 2006-2007.  In contrast, the share was only 28.8 percent for intra-Nafta trade and 22 percent for intra-EU15 trade.  One can see China’s special role as final assembly hub for the region:  China’s imports from DEA countries, especially members of ASEAN, are overwhelmingly parts and components.  For example, 74 percent of China’s imports from ASEAN countries are parts and components.  China’s exports to the region, and especially outside the region, include a relatively low share of parts and components.

trade

Source: Prema-Chandra Athukorala and Archanun Kolpaiboon, Intra-Regional Trade in East Asia, in Masahiro Kawai, Mario B. Lamberte, and Yung Chul Park, editors, The Global Financial Crisis and Asia, Implications and Challenges.

 

The Asian Development Bank promotes an alternative methodology to measure the growth of cross-border production activity.  As explained in the Asian Development Outlook 2014 Update, the OECD–WTO Trade in Value-Added (TiVA) database, which combines national input-output tables with trade flows for 57 economies and 18 industries, is used to:

segregate gross exports into three parts: (i) foreign value added that is used to produce economy X’s exports (GVC-B), (ii) domestic value added that is used by a destination economy to produce its exports (GVC-F), and (iii) domestic value added that is consumed in the destination economy. The first two parts identify the two distinct ways that an economy’s trade can integrate into GVCs. GVC-B is economy X’s backward linkage into GVCs, using imported inputs to produce its exports. GVC-F is its forward linkage into GVCs, producing and exporting intermediate goods that are subsequently used in the production of other economies’ exports. Adding the two together provides a measure of total GVC participation.

This can be expressed relative to total trade, which includes an economy’s regular value-added trade that is not part of GVCs and its value added for domestic consumption. A participation value of 50%, for example, means that half of a nation’s trade is comprised of either forward or backward GVC linkages.

Researchers found that the share of GVC trade (GVC-B + GVC-F) in total manufacturing exports from the countries included in the TiVA data base rose from 36.9 percent to 48 percent over the period 1995 to 2008.  Thus, by the late 2000s, approximately half of all manufacturing exports were produced within cross border production networks.

Network operations in Asia tend to be far more complex than those in Europe or North America.  In the words of one economist quoted approvingly by the Asian Development Bank:

what makes Asia’s production networks stand out is their intricate open-loop web of transactions within and between firms that span a number of economies and continents. Figure 2.2.1 shows in the left-hand panel production sharing between the US and Mexico, which tends to display a comparably simple structure of closed-loop, back-and-forth transactions. To illustrate, a US firm’s headquarters may send components to its Mexican factory and have final products shipped back to it to sell in the US market. European GVCs have a similar structure. By contrast, the right-hand panel shows a somewhat simplified rendering of the more complex Asian model, with reference to the production and distribution networks of a Japanese manufacturer in the electronics industry, which extends all over East Asia and the US.

organization

As we see in the table below, transnational corporate organized activity in Asia, especially in East Asia, has been the driving force behind the expansion of GVC trade.  The GVC trade share of world manufacturing exports produced in Asia almost doubled, from 8.55 percent in 1995 to 16.20 percent in 2008; the East Asian share more than doubled.  The European share, although higher, remained largely unchanged.

new asia

Transnational capital’s strategic embrace of Asia has had serious consequences for the region’s economies.  Their growth has become more dependent on the production of exports.  And their exports have increasingly narrowed to parts and components.  And their trade patterns have been forced in line with network needs, which means that a growing share of regional economic activity is directed at satisfying extra-regional demand.  For example, as the table below shows, Taiwan’s participation rate, or the share of its exports produced within network structures, rose from less than 50 percent in 1995 to over 70 percent in 2008.   Korea has also had a significant increase in its participation.

new participation

 

The Asian Development Bank also expanded their study of GVCs to include services and commodities as well as manufacturing.  The figures below:

depict the geographic orientation of GVCs and how they are increasing connected. Three main hubs—the US, Germany, and the PRC—occupy the center of a tightly knit web of value-added transfers, mainly among regional economies engaged in split production processes. The US is at the center of the GVCs both as the largest exporter of goods and services measured in gross terms and as the main exporter of value added to the exports of other economies. Germany and the PRC follow in rank in terms of gross and value-added exports. Compared with the US, these economies are positioned further downstream in the GVCs and are involved in a substantial share of value-added inflows and outflows.

In the European regional network, horizontal integration prevails, with value added to goods flowing in both directions between pairs of countries. Asian production networks are more hierarchical. At the top, Japan and the US inject value by providing key components and services directly to the PRC, which is the downstream hub. Malaysia, Thailand, and some other Southeast Asian economies, as well as India, also supply components to the PRC that often embody valued added by the US and other industrial economies. Other key players right at the center of the regional networks are the Republic of Korea, Singapore, and Taipei, China—each economy exporting high shares of foreign value added that reflect their strong GVC involvement.

The time progression panels in [the figures below] show that GVCs have expanded rapidly and grown more complex since 1995. By 2005, the PRC had overtaken Japan as the center of the Asian regional production network. GVC expansion reached a peak in 2008. This was because the global economic crisis slowed consumption in 2009, causing the temporary collapse of international trade that year and curtailing the trade flows associated with GVCs.

expanding 1

expanding 2

expanding 3

expanding 4

Winners and Losers

The work cited above demonstrates the growing web of transnational corporate shaped production and trade.  Most economists see the expansion of GVCs is a boon to development, in that it allows a finer and more efficient comparative advantage to shape global economic activity.  It certainly has been a boon to transnational capital.

For example, the Asian Development Bank cites a study that attempts to break down the winners and losers from the expansion of global value chains.   It concludes that:

From 1995 to 2008, capital’s share of value added in GVCs rose from 40.9% to 47.4% while the share of low- and medium-skilled labor fell from 45.3% to 37.2%. Second, emerging economies increasingly focus on capital-intensive activities. The Republic of Korea saw its low- and medium-skilled labor share fall by 17.1% (as its capital income share rose by 9.3%), the PRC by 11.4% (capital income share up by 9.3%), India by 7.6% (4.5%), and Indonesia by 6.8% (5.3%).

These results are not surprising given that this new corporate strategy was designed to increase corporate mobility and by extension corporate power over labor.  As a consequence national governments find themselves engaged in competition to secure ever narrower segments of corporate production networks, which by their nature can never be made secure.  And they compete by offering up their workers.  Thus, we see ongoing state efforts throughout Asia and elsewhere to weaken labor rights and organization.

Moreover, as I and others have argued, contemporary capitalist globalization dynamics contained a serious contradiction, one that led to mounting global imbalances and instabilities and eventually our current problems of economic stagnation. In the pursuit of profit, transnational corporations promoted an East Asian–centered production system designed to export to core countries, especially the United States, that simultaneously undermind the overall purchasing power of core country consumers, including those in the United States. This contradiction was masked for approximately a decade because of the rise of speculative bubbles in the United States. Those bubbles finally burst and the economies of the US, Japan, and Europe now suffer from stagnation.  This, in turn, has left an export-driven Asia, Latin America, Africa, and Middle East in an increasingly precarious position.

Unfortunately, given the deep structural roots of capitalist globalization in the workings of national economies, there is no way working people will be able to meaningfully improve their living and working conditions without challenging and transforming existing patterns of international production and consumption.  The growing movement against newly proposed trade agreements is a small step in the right direction.

North Korea In The News

The North Korean government claims to have detonated a hydrogen bomb on January 6, 2016,  its fourth test of a nuclear weapon since 2006.  Most analysts believe that what was actually tested was a less powerful atomic bomb or perhaps a “boosted-fission weapon.”

Regardless, the media is full of stories questioning Kim Jung-un’s motives or sanity and discussing the possibility of the UN placing yet more sanctions on North Korea.

As for motives, here is what the New York Times thinks its readers should know:

What might North Korea be trying to accomplish with its threats?

In the past, United States administrations and South Korean governments managed to tamp down periodic heightened tensions with North Korea by offering concessions, including much-needed aid, in return for the North’s promising to end its nuclear weapons programs. Many analysts believe that North Korea is again seeking aid and other concessions, while some suggest that it merely wants to be recognized as a nuclear state, like Pakistan.

Still others suggest that the North genuinely fears an attack by the United States or South Korea and views the warnings as deterrence. Highlighting a perceived threat from abroad is also a favorite tool the North Korean government uses to ensure internal cohesion in an impoverished country that has experienced enormous privation, including devastating famine and continuing pervasive hunger.

Missing from all the discussion about North Korea is the actual history of US-North Korea relations.  That is unfortunate, to say the least, since that history would make clear that the US has repeatedly offered and then just as quickly withdrawn its concessions even when the North has complied with US demands.  It would also make clear that the North has always sought and been responsive to meaningful US overtures.  There is no big mystery about what North Korea wants.  It wants a peace treaty ending the Korean War and normalized relations with the US.

As for that history, I think much of what needs to be known can be found in the following previously published May 2, 2013 blog post.

The Need To Work For Peace On The Korean Peninsula

This long post examines the causes of and offers a response to the dangerous escalation of tensions on the Korean peninsula.

While the details of U.S.-North Korean relations are complex, the story is relatively simple.  In brief, the U.S. government continues to reject possibilities for normalizing relations with North Korea and promoting peace on the Korean peninsula in favor of a dangerous policy of regime change.  Unfortunately, but not surprisingly, the U.S. media supports this policy choice with a deliberately one sided presentation of events designed to make North Korea appear to be an unwilling and untrustworthy negotiating partner.

As a corrective, in what follows I offer a more complete history of U.S -North Korean relations, focusing on the major events that frame current tensions over North Korea’s nuclear program.  This history makes clear that these tensions are largely the result of repeated and deliberate U.S. provocations and that our best hope for peace on the Korean Peninsula is an educated U.S. population ready and able to challenge and change U.S. foreign policy.

Historical Context

Perhaps the best starting point for understanding the logic of U.S.-North Korean relations is the end of Korean War fighting in 1953.  At U.S. insistence, the fighting ended with an armistice rather than a peace treaty.  A Geneva conference held the following year failed to secure the peace or the reunification of Korea, and U.S. demands were the main reason for the failure.

The United States rejected North Korean calls for Korea-wide elections, supervised by a commission of neutral nation representatives, to establish a new unified Korean government, a proposal that even many U.S. allies found reasonable.  Instead, the U.S. insisted, along with South Korea, that elections for a new government be held only in the North and under the supervision of the U.S. dominated United Nations.  Needless to say, the conference ended without any final declaration, Korea divided, and the United States and North Korea in a continuing state of war.

Up until the late 1980s/early 1990s, an interrelated, contentious but relatively stable set of relationships—between the United States and the Soviet Union and between North Korea and South Korea—kept North Korean-U.S. hostilities in check.  The end of the Soviet Union and transformation of Russia and other Central European countries into capitalist countries changed everything.

The loss of its major economic partners threw North Korea’s economy into chaos; conditions only worsened the following years as a result of alternating periods of flood and drought.  The North Korean government, now in a relatively weak position, responded by seeking new trade and investment partners, which above all required normalization of relations with the United States.  The U.S. government had a different response to the changed circumstances; seeking to take advantage of the North’s economic problems and political isolation, it rejected negotiations and pursued regime change.

It is the interplay of U.S. and North Korean efforts to achieve their respective aims that is largely responsible for the following oft repeated pattern of interaction: the North tries to force the United States into direct talks by demonstrating its ability to boost its military capacities and threaten U.S. interests while simultaneously offering to negotiate away those capacities in exchange for normalized relations.  The United States, in turn, seizes on such demonstrations to justify ever harsher economic sanctions, which then leads North Korea to up the ante.

There are occasional interruptions to the pattern.  At times, the United States, concerned with North Korean military advances, will enter into negotiations.  Agreements are even signed.  But, the U.S. rarely follows through on its commitments.  Then the pattern resumes.  The critical point here is that it is the North that wants to conclude a peace treaty ending the Korean War and normalize relations with the United States.  It is the U.S. that is the unwilling partner, preferring to risk war in the hopes of toppling the North Korean regime.

The Framework Agreement, 1994-2002

The U.S. government began to raise public concerns about a possible North Korean nuclear threat almost immediately after the dissolution of the Soviet Union.  These concerns were driven by many factors, in particular the U.S. need for a new enemy to justify continued high levels of military spending.  Colin Powell, then head of the Joint Chiefs of Staff, explained in testimony to Congress that with the Soviet Union gone, the United States was running out of enemies.  All that was left, he said, was Fidel Castro and Kim Il Sung.

The North had shut down its one operating reactor in 1989 for repairs.  In 1992, the CIA claimed that the North used the shutdown to reprocess plutonium and was now in possession of one or two nuclear weapons, a claim disputed at the time by the State Department.  The North also denied the claim but offered to settle U.S. nuclear concerns if the United States would enter into normalization talks.

The Clinton Administration rejected the invitation and began planning for war.  War was averted only because of Jimmy Carter’s intervention.  He traveled to North Korea and brokered an agreement with Kim Il Sung that Clinton reluctantly accepted.  The resulting 1994 Framework Agreement required the North to freeze its graphite-moderated reactor and halt construction of two bigger reactors.  It also required the North to store the spent fuel from its operating reactor under International Atomic Energy Association (IAEA) supervision.

In exchange, the U.S agreed to coordinate the building of two new light water reactors (which are considered less militarily dangerous) that were to be finished by 2003.  Once the reactors were completed, but before they were fully operational, the North would have to allow full IAEA inspections of all its nuclear facilities.  During the period of construction, the U.S. agreed to provide the North with shipments of heavy oil for heating and electricity production.

Perhaps most importantly, the agreement also called for the United States to “move toward full normalization of political and economic relations” with the North and “provide formal assurances to the DPRK against the threat or use of nuclear weapons by the United States.”

Tragically, although rarely mentioned in the U.S. media, the U.S. government did little to meet its commitments.  It was repeatedly late in delivering the promised oil and didn’t begin lifting sanctions until June 2000.  Even more telling, the concrete for the first light water reactor wasn’t poured until August 2002.  Years later, U.S. government documents revealed that the United States made no attempt to complete the reactors because officials were convinced that the North Korean regime would collapse.

The Bush administration had no use for the Framework Agreement and was more than happy to see it terminated, which it unilaterally did in late 2002, after charging the North with violating its terms by pursuing nuclear weapons through a secret uranium enrichment program.  Prior to that, in January 2002, President Bush branded North Korea a member of the “axis of evil.”  In March, the terms of a new military doctrine were leaked, revealing that the United States reserved the right to take preemptive military strikes and covert actions against nations possessing nuclear, biological, and chemical weapons as well as use nuclear weapons as an option in any conflict; North Korea was listed as one of the targeted nations.  In July, President Bush rejected a North Korean request for a meeting of foreign ministers, calling Kim Jong Il a “pygmy” and a “spoiled child at the dinner table”

It is certainly possible that North Korea did begin a uranium enrichment program in the late 1990s, although the Bush Administration never provided proof of the program’s existence.  However, what is clear is that the North did halt its plutonium program, allowing its facilities to deteriorate, with little to show for it.  The failure of the United States to live up to its side of the agreement is highlighted by the fact that North Korea’s current demands are no different from what it was promised in 1994.

The North Korean government responded to the Bush administration’s unilateral termination of the Framework Agreement by ordering IAEA inspectors out of the country, restarting its plutonium program, and pledging to build a nuclear arsenal for its defense.

Six Party Talks, 2003-7

Fearful of a new war on the Korean peninsula, the Chinese government organized talks aimed at deescalating tensions between the United States and North Korea.  The talks began in August 2003 and included six countries—the United States, North Korea, South Korea, Japan, China, and Russia.  Two years of talks failed to produce any progress in resolving U.S.-North Korea differences.  One reason: the U.S. representative was under orders not to speak directly to his North Korean counterpart except to demand that North Korea end its nuclear activities, scrap its missiles, reduce its conventional forces, and end human rights abuses.  The North, for its part, refused to discuss its nuclear program separate from its broader relations with the United States.

Finally, in mid-2005, the Chinese made it known that they were prepared to declare the talks a failure and would blame the United States for the outcome.  Not long after, the United States ended its opposition to an agreement.  In September 2005, the six countries issued a Joint Statement, which was largely a repackaged Framework Agreement.  While all the countries pledged to work towards the denuclearization of the Korean peninsula, most of the concrete steps were to be taken by the United States and North Korea “in a phased manner in line with the principle of ‘commitment for commitment, action for action’.”

Unfortunately, the day after the Joint Statement was issued, the United States sabotaged it.  The U.S. Treasury announced that it had “proof” that North Korea was counterfeiting $100 bills, so called super notes, an action it said amounted to war.  It singled out the Macao-based Banco Delta Asia, which was one of North Korea’s main financial connections to the west, for supporting the country’s illegal activities, froze its dollar accounts, and warned other banks not to conduct business with it or service any North Korean dollar transactions.  The aim was to isolate North Korea by denying it access to international credit markets.  The charge of counterfeiting was rejected by the North, most Western currency experts, and even China and Russia who were given a presentation of evidence by the U.S. Treasury.  However, fearful of possible U.S. retaliation, most banks complied with U.S. policy, greatly harming the North Korean economy.

The timing of the counterfeit charge was telling.  The U.S. Treasury had been concerned with counterfeit super notes since 1989 and had originally blamed Iran.  The sum total identified was only $50 million, and none of the notes had ever circulated in the United States.  This was clearly yet another effort to stop normalization and intensify economic pressure on North Korea.

The North announced that its participation in Six Party talks was contingent on the withdrawal of the counterfeit charge and the return of its Banco Delta Asia dollar deposits.  After months of inaction by the United States, the North took action.  On July 4, 2006, it test-fired six missiles over the Sea of Japan, including an intercontinental missile.  The U.S. and Japan condemned the missile firings and further tightened their sanctions against North Korea.  In response, on October 8, 2006, North Korea conducted its first nuclear test.  Finally, the U.S. agreed to reconsider its financial embargo and the North agreed that if its money was returned and it received energy supplies and economic assistance it was willing to once again shutdown its nuclear facilities, readmit international inspectors, and discuss nuclear disarmament in line with steps toward normalization of relations with the United States.

The Six Party talks began again in December 2006 but the process of securing implementation of the Joint Statement was anything but smooth.  The U.S. chief negotiator at the talks announced in February 2007 that all frozen North Korean deposits would be unfrozen and made available to the North within 30 days; the North was given 60 days to shut down its reactor.  However, the Treasury refused to withdraw its charges, and no bank was willing to handle the money for fear of being targeted as complicit with terrorism.  It took the State Department until June 25 to work out a back-door alternative arrangement, thereby finally allowing the Six Party agreement to go into effect.

The Six Party Agreement, 2007-9

As noted above, the Six Party agreement involved a phased process.  Phase 1, although behind schedule because of the U.S. delay in releasing North Korean funds, was completed with no problems.  In July 2007, North Korea shut down and sealed its Yongbyon nuclear complex which housed its reactor, reprocessing facility, and fuel rod fabrication plant.  It also shut down and sealed its two partially constructed nuclear reactors.  It also invited back IAEA inspectors who verified the North Korean actions.  In return, the U.S. provided a shipment of fuel oil.

Phase 2, which began in October, required the North to disable all its nuclear facilities by December 31, 2007 and “provide a complete and correct declaration of all its existing nuclear programs.”  In a separate agreement it also agreed to disclose the status of its uranium enrichment activities.  In exchange, the North was to receive, in stages, “economic, energy, and humanitarian assistance.” Once it fulfilled all Phase 2 requirements it would also be removed from the U.S. Trading with the Enemy Act and the State Sponsors of Terrorism list.

North Korean complaints over the slow delivery of fuel oil delayed the completion of this second phase.  However, in May 2008, North Korea completed the last stage of its required Phase 2 actions when it released extensive documentation of its plutonium program and in June a declaration of its nuclear inventory.  In response, the U.S. removed North Korea from its list of state sponsors of terrorism.

However, the U.S. government failed to release the remaining promised aid or end the remaining sanctions on North Korea.  It now demanded that North Korea accept a highly intrusive verification protocol, one that would open up all North Korean military installations to U.S. inspection, and made satisfaction of Phase 2 commitments dependent on its acceptance.  The U.S. was well aware that this demand was not part of the original agreement.  As Secretary of State Rice stated, “What we’ve done, in a sense, is move up issues that were to be taken up in phase three, like verification, like access to the reactors, into phase two.”

The North offered a compromise—a Six Party verification mechanism which would include visits to declared nuclear sites and interviews with technical personal.  It also offered to negotiate a further verification protocol in the final dismantlement phase.  The U.S. government rejected the compromise and ended all aid deliveries.

In February 2009, the North Korea began preparation to launch a satellite.  South Korea was preparing to launch a satellite of its own in July.  The North had signed the appropriate international protocols governing satellites and was now providing, as required, notification of its launch plan.  The Obama administration warned the North that doing so would violate sanctions placed on the country after its nuclear test.  In response, the North declared that it had every right to develop its satellite technology and if the U.S. responded with new sanctions it would withdraw from the Six Party talks, eject IAEA monitors, restart its reactors, and strengthen its nuclear deterrent.

The North launched its satellite in April.  In June, the U.S. won UN support for enhanced sanctions, and the North followed through on its threat.  In May the North conducted a second nuclear test, producing yet another round of sanctions.

Recent Events

In April and December 2012 the North again launched earth observation satellites.  Although before each of these launches the U.S. asserted that these were veiled attempts to test ballistic missiles designed to threaten the United States, after each launch almost all observers agreed that the characteristics of the launches—their flight pattern and the second stage low-thrust, long burntime–were what is required to put a satellite in space and not consistent with a missile test.

After the December launch, the only successful one, the U.S. again convinced the Security Council to apply a new round of sanctions.  And in response, the North carried out its third nuclear test in February 2013.  The North Korean Ministry of Foreign Affairs pointed out that there have been “more than 2,000 nuclear tests and 9,000 satellite launches” in the world, “but the UN Security Council has never passed a resolution prohibiting nuclear tests or satellite launches.”  The Security Council responded to the North’s nuclear test by approving stricter sanctions.

In addition to sanctions, the U.S. has also intensified its military provocations against the North in hopes of destabilizing the new North Korean regime led by Kim Jung Un.  For example, in 2012, U.S.-South Korean military analysts conducted the world’s largest computerized war simulation exercise, practicing the deployment of more than 100,000 South Korean troops into North Korea to “stabilize the country in case of regime collapse.”  As part of their yearly war games, U.S. and South Korean forces also carried out their largest amphibious landing operations in 20 years; 13 naval vessels, 52 amphibious armored vehicles, 40 fighter jets and helicopters, and 9,000 U.S. troops were involved.

As part of its March 2013 war games, the U.S. flew nuclear-capable B-2 Stealth bombers over South Korea; these are also the only planes capable of dropping the 30,000-pound Massive Ordnance Penetrator bomb, which was developed to destroy North Korean underground facilities.  Nuclear-capable B-52 bombers also flew over South Korea, dropping dummy munitions.  The United States also sent the nuclear-powered submarine USS Cheyenne, equipped with Tomahawk missiles, into Korea waters.

The North Korean government responded to these threats in three ways.  First, the content of their declarations changed.  In particular, they began to focus their own threats on the U.S. as well as South Korea.  For example, the government stated, “If the US imperialists brandish nuclear weapons, we — in complete contrast to former times — will by means of diversified, precision nuclear strike in our own style turn not just Seoul, but even Washington, into a sea of fire.”  It also asserted, for the first time, that its nuclear weapons were no longer negotiable.  At least, not “as long as the United States’ nuclear threats and hostile policy exist.”

Second, the government put North Korean forces on full alert, including all artillery, rockets, and missiles.  Kim Jong Un announced that the country would “answer the US imperialists’ nuclear blackmail with a merciless nuclear attack.”  Finally, it announced, in April, that it would restart its uranium enrichment program and its Yongbyon reactor.

What Lies Ahead

The Obama administration has adopted what it has called the doctrine of “strategic patience” in dealing with North Korea.  But as made clear from above, in reality the U.S. has continued to pursue an aggressive policy towards North Korea, motivated by the hope that the regime will collapse and Korean reunification will be achieved by the South’s absorption of the North, much like the German experience.

The consequence of this policy is ever worsening economic conditions in the North; continuing military buildup in the United States, Japan, China, and both North and South Korea; a strengthening of right-wing forces in South Korea and Japan; and the growing threat of a new war on the Korean peninsula.  There are powerful interests in Japan, South Korea, and the United States that are eager to further militarize their respective domestic and foreign policies, even at the risk of war.  Tragically, their pursuit of this goal comes at great cost to majorities in all the countries concerned, even if war is averted.

The North has made clear its willingness to enter direct talks with the United States.  It is only popular pressure in the United States that will cause the U.S. government to change its policy and accept the North Korean offer.  It is time for the U.S. government to sign a peace treaty finally ending the Korean War and take sincere steps towards normalization of relations with North Korea.