Asian Crisis Thailand

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Economic Crisis in Asia: The Case of ThailandAuthor(s): Jim GlassmanSource: Economic Geography, Vol. 77, No. 2 (Apr., 2001), pp. 122-147Published by: Clark UniversityStable URL: http://www.jstor.org/stable/3594061

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Economic Crisis in Asia: The Case of Thailand*

Jim Glassman

Departmentof Geography, Syracuse University,Syracuse,New York13244-1020

[email protected]

Abstract:The economiccrisis n Asiahasbeen analyzedby neoliberaland neo-Weberian cholars s a financialrisis,with theneoliberalsassertinghat ts causesare nternalo the countriesnquestion,heneo-Weberiansassertinghecauses obe external.Thispaperoffers an alternative,Marxianexplanation f the crisis,focusingon theoutbreak f the crisis nThailand.UsingHarvey'sdeasaboutcap-italist crisesand capitalswitching,alongwith conceptionsof crisisdynamicsn

peripheralocietiesbased n the worksof economicgeographersnddependentdevelopmentheorists, argue hat thecrisis n Thailandwas a fullyeconomiccri-

sis involving ll circuitsof the economy, inkingdomesticand internationalccu-mulation rocesses,andstemmingnpart romstruggles verappropriationf the

surplus.In order to demonstratehis, I analyze he crisisin Thailandat bothnationaland internationalcales and show that it was rootedin decliningprof-itability f manufacturingn a contextof increasedglobalexportcompetition nd

overcapacity. his contextcreated the strong ikelihoodof economicdownturn

throughouthe region,withThailandfalling irstbecauseof its specific iabilities,and othercountries eingpulled ntothe maelstrom f devaluationhrough inan-cialcontagion ffects.

Key words: Marxian risis heory,economiccrisis,Asia,Thailand.

As befits an event of the informationera,the Asian economic crisis has quicklygen-erated a plethora of interpretations. The

majorityof these interpretationshave con-formed to one of two broadly"mainstream"

approaches:a neoliberal approach, cham-

pioned by the International MonetaryFund (IMF) and others,which sees the cri-sis as caused by factors "internal" o thecountries in question; and a neo-Weberian

approachthat sees the crisis as driven

largelyby factors"external"o these coun-tries. The neoliberal approach tends to

* I would like to thankDavidAngel,PeterBell, Eric Sheppard, and two anonymousreviewers orhelpfulcommentson earlierver-sionsof thispaper. wouldalso iketo acknowl-

edge the researchsupport providedby the

Department f Geography nd the MacArthur

Programt the Universityf Minnesota,s wellas the Izaak Walton Killam Postdoctoral

FellowshipProgram tthe Universityf BritishColumbia.

focus on policy mistakes committed bystates (e.g., Fisher 1998; Summers 1998);the neo-Weberian approachtends to focuson the volatility and unpredictability ofinternational capital flows, as well as therole of the IMF itself (e.g., Jomo 1998;Wade and Veneroso 1998). Both

approachestend towarda sharpdistinctionbetween "internal"and "external" factors

(i.e., national and international factors),and both identify the crisis primarilywith

problems in the financial sector, which

they accord a high degree of autonomyfrom "the real economy."'

I present here an interpretation of theeconomic crisis that differs from thesemainstream interpretations in both its

analysis of events and its implications. In

particular, I articulate a broadly Marxian

1Some Marxists avealso dentified he crisis

as fundamentallyinancial.See, for example,Webber 2001).

122



ECONOMIC CRISIS IN THAILAND

analysis of crisis tendencies and the waysthey have been expressed in the context of

capitalistdevelopment in Thailand,wherethe crisis firsterupted in 1996-97. As such,I interpret the crisis in Thailand as rooted

in-though not narrowlydetermined by-class and class-relevant struggles over

appropriationof the surplus. Moreover, I

argue that the processes regarded as"financial"and those regarded as part of"the real economy"are deeply and inextri-

cably intertwined. Finally, I focus on rela-

tionships between processes that are typi-cally regarded as taking place at different

geographic scales-in particular, the

national and international scales-and inthis context I payparticularattentionto the

ways in which Thailand's"peripheral" ta-tus within the global economy has affectedthe specific features of its domestic crisis.2

The Dynamics of Economic

Crises in Capitalist SpaceEconomies

As a startingpoint for this discussion, I

begin with a brief outline of Marxian,geo-graphical-historicalperspectiveson uneven

development and economic crisis tenden-cies in capitalist space economies. I relyheavily on the work of Peter Bell (Bell1977; Bell and Cleaver 1982) as well as thework of David Harvey (1982, 1985) andNeil Smith (1984, 1986), and the first partof the discussion is primarily a concise

summary of certain points in their argu-ments. Since the theoretical approach to

crisis they develop is couched in generalterms and is most readily applicable to a

single-and fully capitalist-social forma-

tion, I move in the second part of the dis-

2 In the parlanceof ImmanuelWallersteinand other world systemstheorists,Thailand

mightmoreproperlybe construed s "semipe-ripheral." he distinction s not crucial o myanalysishere, since whatboth peripheraland

semiperipheralocialformations hareis sus-

ceptibility o the effects of politicaleconomicdynamicsn the coreof the worldsystem.

cussion to an analysisof specific features of

capital accumulation on the peripherywhich modify the process of uneven devel-

opment and the manifestationof crisis ten-

dencies.

Capitalist Crisis Tendencies in the

Core

The startingpoint for a Marxisttheory of

capitalistcrises is recognitionof the centralrole played by profits-and thus exploita-tion-in drivinginvestment and economic

growth (Bell 1977; Harvey 1985, 1;O'Connor 1987). On this account, it is

changes in the profit rates of enterprises,industries, sectors, regions, and countriesthat signal the evolution of changes inaccumulationpatternsand the maturingor

superseding of crisis tendencies. Marx

argues that declining profitabilityis a gen-eral tendency of maturingcapitalistindus-

try, rooted in an increase in the organiccomposition of capital, though the ten-

dency may be countered by a number of

factors, including geographic expansion of

accumulation and the incorporation ofnoncapitalistareas into the global capitalistspace economy (Marx 1973, 1977, 1981a,1981b; Harvey 1982; Sheppardand Barnes

1990). The task of geographical-historicalanalysisis thus not to simplistically dentify

empirically discernible falling profit rateswith the general tendency but rather to

explain how this tendency works itself outin a specific context against the various

countervailingfactorsat work (cf. Fine andHarris1979).

Bell (1977) outlines three distinctapproaches to analysis of declining prof-itability and capitalist crises: (1) neo-Ricardianapproaches which focus on thedistribution of the surplusin the context ofclass struggle; (2) underconsumptionistapproaches,which focus on realization cri-sis (the inability to find adequate marketsfor output); and (3) falling rate of

profit/organic composition of capitalapproaches, which reject underconsump-

tionist approaches and focus on Marx'sanalysisof the law of value. Bell argues per-

123



ECONOMICGEOGRAPHY

suasively that each of these approaches,when taken as monocausalexplanationsof

independent factors leading to crisis, are

partial

and

overly rigid.

The

importantthing to grasp, for Bell, is how the factorsidentified in each of these approachesinteract in the general class processes thatare part of capitalist accumulation. Thus,there is an overarchingbut complex set ofclass-relevant factorscreating general crisistendencies within capitalist production,but many different specific forms in whichcrisis can develop (Bell 1977, 171).

Similarly,there is an overarching unity of

production and circulationwithin the eco-

nomic process and a variety of ways inwhich the relationshipsbetween these canbreak down (Bell 1977, 175-76). Thus, the

purpose of Marxian crisis analysis is tochartspecific forms andpatternsof crisisinrelation to the broad crisis tendenciesinherent in capitalismas a consequence ofclass (and class-relevant) struggles (cf.Cleaver 1979).

Harvey and Smith provide geographi-cally oriented theoretical tools for such an

examination by delineating various pat-terns of capitalist response to decliningprofit rates. As they note, the fact thatuneven development and crises of dispro-portionalityare inherent in capitalismdoesnot mean that capitalist societies have noinherent abilityto deal with disproportion-alities. Rather, there is a dialectic within

capitalism between tendencies towardimbalance and tendencies toward equilib-rium (Harvey 1982, 417-19; Smith 1984,148-52). One of the major equilibratingmechanisms is what Harveycalls the shift-

ing of capital between different "circuits."The primarycircuit is the circuit of imme-diate production of commodities, the cir-cuit which Marx's work analyzes in themost detail (Harvey 1985, 3-6). The sec-

ondary circuit is the circuit of fixed assetsand consumption fund formation, the cir-cuit identified with the development of abuilt environment which facilitates

expanded production and collective con-

sumption (Harvey 1982, 236; 1985, 6-7).Harveyalso identifies a tertiarycircuit, the

circuit of social infrastructure, which isidentified with investment in science and

technology and with such requirements forthe

reproduction

of labor as investment in

health and education (Harvey 1982,398-405; 1985, 7-8).

Capital may move back and forthbetween the different circuits as partof the

capitalist response to declining profitabilityand maturation of crisis tendencies. Adecline in the profitabilityof investmentsin the primary circuit, for example, mayspurincreasedinvestment in physicalinfra-structure and/ortechnologicalchange. This

shifting of investment has various conse-

quences. In the short term, it may alleviatethe immediate problem of falling profitrates, and it also increases overall produc-tive capacity. Moreover, it creates geo-graphic complexes of productive powerand consumption possibilities, with the

expansion of urban centers and the con-centration of labor (both technically skilledand unskilled) being one of the most obvi-ous manifestationsof this.

What worksin the short term to alleviate

crisis tendencies, however, does not elimi-nate those underlying tendencies. Byenhancing productive capacity,the shiftingof capitalto the secondaryand tertiarysec-tors merely exacerbates the general prob-lem of capitalism'stendency toward crisesof overproduction.When such crises even-

tually mature, then, the development of

greater productive capacity may make the

ensuing devaluation of assets even moresevere. Moreover, the intensive develop-ment of the built environment makes capi-tal more "sticky,"hindering the equilibrat-ing movement of investment to otherwisemore profitable areas by creating agglom-eration economies that are not easily bro-ken down. Thus, there is a contradictionembedded in the nature of the built envi-ronment: on the one hand, the rising wagesand production costs, associatedwith core

regions, encourage capital to seek out

lower-wagelocationswithin core countries,or outside of the country entirely (Harvey

1982, 417-19, 431-38); on the other hand,the sinkingof large amounts of investment

124




into specific locations which create advan-

tages such as secure access to labor andurban services discouragessuch relocation.As Harvey puts it, the "deadweight of pastinvestments" impedes the geographic dis-

persal which could temporarily alleviate

falling profit rates and creates a "switchingcrisis" (Harvey 1982, 428; 1985, 13).Indeed, as Smith notes, the power of theaccumulated advantages of global core

regions as a whole is such that there is noevidence of equilibratingtendencies work-

ing at the international scale (Smith 1984,151-52). This leads directly to the issue ofcrisis tendencies within a global capitalist

system marked by long-term maintenanceof areas where accumulation is relativelymore robust and "auto-centric" cores) andareas where it is relatively less robust andcharacterized by greater dependence onexternal factors (peripheries).

Capitalist Crisis Tendencies in the

Periphery

The general crisis tendencies which

Harvey theorizes are fundamentallythoseof a single country or a single global econ-

omy with a unitary monetary system,though he does go on to briefly suggestsome of their implications for a globaleconomy of competing capitalist states

(Harvey 1982, 325, 329). What is neededfor currentpurposes is to extend this theo-rizationby discussinghow crisis tendenciesunfold in the context of the global periph-ery, given its geographicallyand historicallyunique position. By this I do not mean an

analysis of how the crises of the capitalistcore playthemselves out through imperial-ism and other forms of geographic expan-sion but rather how the general crisis ten-dencies of capitalism are reproduced andmodified as they take hold on the periph-ery.

The central feature of core-peripheryaccounts that is critical here is the recogni-tion that what marks a countryor social for-mation as peripheral or dependent (rather

than central or auto-centric) is the greaterdegree to which its rhythms of accumula-

tion are structured by forces that do notemanate from within the social formationitself (Palma 1978, 909). Whether these

dynamics

are seen as

generating

underde-

velopment (Frank 1966, 1967), disarticula-tion (Amin 1974, 1976), dependent devel-

opment (Cardoso and Faletto 1979; Evans

1979), or "bloody Taylorization" and

"peripheralFordism"(Lipietz 1986, 1987),the understanding shared by core-periph-ery theorists is that accumulation on the

peripherywill be affected much more fullyby developments in the global core thanaccumulation in the core will be affected

by developments in the periphery. Yet it

would be misleadingto construe all capital-ist peripheries as simply passively reflect-

ing rhythms of the global economy, sincethe development of capitalism in the

peripheryprovides ample basis for the rel-

ativelyautonomous generation of capitalistcrisis tendencies (Brenner 1977; Palma

1978; Cypher 1979). The challenge, then,is to identify specific featuresof the periph-eral social formation which affect the work-

ing out of crises and which mediate

national and international processes ofuneven development.In response to this challenge, I identify

several basic features of peripheral accu-mulation or dependent development thatare needed for elaboratinga theory of cri-sis on the periphery. First, international

capital flows are likely to play a very signif-icant role in the manufacturingsectors of

peripheral countries, whether in the formof foreign direct investment (FDI) and for-

eign loans to manufacturersor in the form

of the need to find large exportmarkets formanufacturedgoods (Porterand Sheppard1998, 412). Second, the need for largeexport markets is in fact virtuallyguaran-teed by the character of peripheral accu-

mulation, which is relativelydisarticulatedin social and sectoral terms and thus doesnot stimulateeither local industryor devel-

opment of the local market to the same

degree as similar industries in the core

(Amin 1974; De Janvry1981). Third, FDI

is generallycrucial to more technologicallyadvanced and globallycompetitive produc-

125



ECONOMICGEOGRAPHY

tion of higher value-added products in the

periphery, yet the more capital-intensivethe production process the less labor it is

likely

to absorb and the less it is

likely

to

have backward linkages with the local

economy. Consequently, the moreadvanced and globally competitive theindustrialization process taking place onthe periphery, the more likely it is to be

dependent on inputs from and markets inthe core (Jenkins1987).

Thus,within Harvey'sfirst circuitof cap-ital, what distinguishes the periphery fromthe core is the way the connections withthe international economy enable rates of

manufacturinggrowthwhich would not beattainable on the basis of auto-centric or

domestically based accumulation. Under

patterns of dependent development,peripheraleconomies can potentiallyaccu-mulate capital much more quickly than

they would be able to by relying simply ondomestic sources of investment;and accessto internationalmarkets also allowstempo-rary suspension of realizationcrisistenden-cies through the creation of an external

market which can absorb goods for whichthere is inadequate domestic demand. Formainstream economists (e.g., Balassa

1981), this presents itself as a benefit and avindicationof liberalpolicies towardinter-nationalcapital.However, the rapidgrowththat can be attainedunder these conditionsis not cost-free. When capitalistcrisis ten-dencies begin to manifest themselves, the

greater dependence on internationalcapi-tal flows can exacerbate the crisis-in par-ticular,by making growth rates and recov-

ery reliant on internationally mobile

capital,which can respond to crisisby relo-

cating production outside of this location

entirely. In addition, if the crisis has

regionalor global dimensions, responses tothe crisis by other states may make accessto global marketsmore difficult-as when

competitors devalue their currencies orwhen core countries establish new protec-tive barriersor trade blocs.

Within peripheralcountries, capitalmay

be able to respond to declining rates ofprofitin the primarycircuitby shifting cap-

ital to the secondary circuit. However,without an activist state that disciplinescapital (unusual within developing coun-

tries), the second circuit is

likely

to draw in

capital in a relatively haphazardway whichcan pose as many problems for capitalaccumulationin the future as it poses pos-sibilities. The ubiquity of Third Worldurban environmentalproblems, traffic con-

gestion, and skylines pockmarked byuncompleted high-rises and statusprojectsattests to this problem, which is in part areflection of the comparatively limited

power (orwill) of most peripheralstates. In

addition, the same volatility that can be

generated by internationalcapital flows inthe primary sector can be generated byflows in the secondary sector. Thus, realestate and stock market booms have

accompanied liberalization in some ThirdWorld countries, and while this increasescash flows and supports higher growthrates, it also helps create bigger speculativebubbles-and more severe crashes.

The shifting of capital into the tertiarycircuitin response to declining profitability

is even more problematic than the shift tothe secondary circuit. The extremely longgestation period of investment in items like

education, primary health care, infant

nutrition, or technology development is atodds with the shorter-termprofit rationaleof most capitalist investment. For interna-tional capitalwhich is relativelymobile andwhich can afford to relocate elsewhere, thedesire to stay in place long enough to reapthe benefits of such long-term investmentis unlikely to be strong. In any event such

investment must be organized by the state,but raisingtaxes on internationalizedformsof capital in order to have the necessaryrevenues for this poses problems even

greater than those which already attendtaxation n core countries. Thus, a commonfeature of many (though not necessarilyall)

peripheral countries is weakly developededucational systems, with huge disparitiesbetween the education affordedthe major-ity of the populationand thatwhich is avail-

able to a small number of privileged stu-dents (often trained abroad). In addition,

126




technology development is generally lim-

ited, and even transnational corporationswith the money to spend on research and

development

are less

likely

to do so in their

peripheral operations than in their core

country sites (Jenkins 1987, 87).

Consequently, even rapidly developingperipheral countries frequently lack not

only control over leading technologies but

adequate numbers of engineers and tech-nicians to sustain on their own a longer-term process of growthin highvalue-addedindustries.

Caution is needed here in generalizingabout the fluidity of international capital

invested in peripheral locations. Like capi-tal invested in the core, capital in the

periphery can acquire certain forms of"stickiness"-for example, larger projectsmay have significant sunk costs that needsubstantial ime to be recouped. Moreover,there may be important differencesbetween different industriesin this regard,with small-scale or less capital-intensiveindustries being more likely to relocatethan larger and more capital-intensive

firms. Claims about the mobilityof interna-tional capital on the periphery, therefore,need to be placed in a longer-term and

comparative perspective. The claim madehere is not that capital on the periphery is

absolutely mobile but that it is less likelyover the longer term to have the level ofcommitment to peripheral economieswhich it is likelyto have to core economies.Insofaras this is the case, moreover, it has

important consequences for the develop-ment of peripheral technological and pro-ductive capacity in response to decliningprofits-and thus for the longer-termprospects of growth and development onthe periphery.

To summarize my argument, then, thecondition of being peripheral is likely tomake the process of tapping into interna-tionalcapitalflows both a more volatile anda more limiting affair.Peripheralstates canoften facilitate FDI and export-led growthand can also facilitatethe shiftingof capital

into the secondary circuit through liberal-ization measures, but they cannot readily

control the behavior of capitaland can onlywith difficulty exercise the discipline nec-

essary to move capital more fully into the

tertiarycircuit-a task in which few

besides a handful of East Asian newlyindustrialized countries (NICs) have

proven successful in recent decades.

Moreover, as the state itself becomes"internationalized" and oriented toward

facilitatingaccumulation for the most pow-erful investors (regardlessof their national-

ity), it is less likely to even attempt to playthis disciplinaryrole, its emphasis being on

facilitatingrapidaccumulation and enhanc-

ing shorter-term competitiveness (Cox1987; Panitch 1994; Glassman1999a).

Class Struggle and Economic Crisis

Tendencies on the Periphery

None of the foregoing discussion has

adequatelyspelled out the classdimensionsof capitalist crisis tendencies, yet a crucialfactor determining expression or nonex-

pression of such tendencies-and indeedone that underpins them-is the intensityand specific contours of struggle overappropriation of surplus (Bell 1977;Cleaver 1979; Bell and Cleaver 1982). It isthe fact that variousoptions for distributingthis surplus result in specific kinds of dis-

proportionality hat relates variouspossibil-ities of class struggle to different patternsof crisis. For example, within a single, uni-fied capitalist economy, if capitalists suc-

cessfully defeat or subdue labor strugglesand keep wage increases well below

increases in productivity-thus ensuringsatisfactoryprofits in the short term-theymay face the longer-term problem of real-ization crisis.At the same time, if they havesubdued labor largely through mechaniza-tion (the replacement of living with dead

labor), the crisis may be recognizable as afall in profitabilityrelated to an increase inthe organic composition of capital. On theother hand, if labor successfully strugglesto increase wages at a rate that outstrips

productivity, this may directly reduceprofit rates in the short term, dampen

127



ECONOMICGEOGRAPHY

investor sentiment, and lead to capitalstrike.3

The virtuous circle of Fordism reflectsan attempt to balance productivity and

wage growth so as to avoid these possibili-ties of disproportionality,yet maintenanceof a Fordist mode of regulationhas provena (perhapsintractably)difficult task-in nosmall part because both capitalists andworkerscontinue strugglingto tip the bal-ance in their favor, even within Fordistsocieties of the global core. In cases of

export-led growth on the periphery, bycontrast, the problem of social disarticula-tion-and thus of inadequate growth in

wages and effective demand relativeto thevalue produced-is resolved throughreliance on foreign markets. This enables

capitalists investing on the periphery to

potentially realize particularlyhigh profits,while also subjecting workers to fairlysharp limits in the prospects for wagegrowth-except under conditions where

exportsare expandingdramatically as wasthe case for the Asian NICs until 1996). Yetthis specific form of dependency alsomeans that realization crises lie

justbelow

the surface of the accumulation processand can strike whenever global demandbecomes inadequate to absorb the

exportable surplus product at a price con-sistent with profit expectations. It alsomeans thatwages are generallyregardedasa cost more than as a source of demand,and capitalists will consequently tend to

strongly oppose wage increases.It should be emphasized that in a global

political economy, and especially in a

peripheral context, the class struggles cru-cial to accumulation dynamics are not

alwaysnarrowly (or even primarily)those

3 Note that in anyactualhistorical ases of

capitalaccumulation-where he complexitiesof struggles ver the surplusnclude he inter-sections and articulationsof varied labor

processes,genderand raceconflictsoverdistri-bution,place-based evelopment lliances, ndso on-one cannot alwaysexpect a simple,transparent ictureof these classstruggleandcrisisdynamicso emerge.

which can be conceptualized at thenational scale. Class struggles in coreeconomies and class struggles that tran-scend national boundaries

mayaffect the

behavior of internationalized capital in

ways relevant to the crisis dynamics of

peripheral economies. Thus, for example,the movement of record amounts ofNortheast Asian capital into the SoutheastAsian manufacturingsector during the late1980s-in parta response to domestic class

struggle and rising wages in NortheastAsia-transformed the terrain of both cap-ital accumulationand class struggle withinSoutheast Asia. Similarly, the success of

U.S. capitalists in restoring profit rates byundermining the Fordist labor accord has

given them access to an enormous rein-vestable surplusin the context of slow U.S.economic growth. Under the new forms of

imperialism emerging in the post-cold warworld of "globalization," his surplus hasbecome part of the enormous mass of

money capitalwhich circles the globe look-

ing for "emergingmarkets."In short, class

struggle itself is a process that can be con-

ceived on multiple scales, and this meansthat introducing international dimensionsinto the analysis of peripheral economiccrises by no means implies moving totallybeyond the realm of class relations for

explanationof crisis tendencies.

Economic Meltdown in

Thailand

In illustrating he relevance of these the-

oretical considerations, I analyze the eco-nomic crisis in Thailand as a simultane-

ously national and international

phenomenon.4 In doing this, I show howthe national and international dimensionsof the crisis were both integrally interre-

4 For the mostpart,I do not attempthere to

explicate n anydetail the long-termhistorical

developmentof Thailand'spolitical economyand the relationshipf thisdevelopmento the

outbreakof the crisis. For discussionof theseissues,see Glassman1999b)and Dixon(2001).

128



ECONOMICRISIS N THAILAND

lated and in fact mutually constitutive ofone another. I thus highlight the futilityof

narrowly ascribing responsibility for thecrisis to either "internal" or "external"

causes. Throughout the discussion, I paymuch attention to the role of the state inthe Thai crisis, while highlighting the

importance of class and class-relevant

strugglesover the distributionof surplus.

Declining Profit Rates and Crisis

Tendencies in Thailand

As indicated above, a central theme inMarxian heories of economic crisis is the

movement of the profit rate, analysis ofwhich involves a variety of complications,both theoretical and practical. In the for-mer categoryis the issue of whether or notto measure the profit rate in price terms

(Devine 1994) or in value terms (Shaikhand Tonak 1994). While the theoreticalissues underlying this debate are signifi-cant, it turnsout thatempiricalestimates of

prices and labor values generally find that

they are highly correlated (Sheppard and

Barnes 1990, 50), so for analysis of thetrend in the profit rate (as opposed to theabsolute value), the choice of measures

may not be significant.It is only the profitrate trend which is analyzedhere, since themeasurement of fixed capital stock-onwhich the Thai government publishes no

estimates-poses practicaldifficulties, andthis makes estimates of the absolute levelof profitabilityof somewhat limited value.Profit rates are reported here in priceterms,though the value rate of profitshows

the same trend.

Conceptually,there are differentwaysof

discussing profitability. Gerard Dumeniland Dominique Levy (1993) distinguishbetween the profit margin,the profitshare,and the profitrate.The profitmargin s theratio of profits to production costs. AsDumenil and Levy note, this measure isuseful in that it relates profits to the priceof inputs, such as raw materials, energy,and labor,but it does not measure the abil-

ity of a stock of capital to yield profit(Dumenil and Levy 1993, 21). Profit share

refers to the percentage of the total value-added in production that goes to capital(the remainderbeing the share paid out tolabor in

wages).

This is a straightforwardmeasure of distributionof the surplus, butit does not reflect the ability of capital tomake a profit (Dumenil and Levy 1993,20-21).

The profit rate refers to the relationshipbetween profitsand the capitalstock-that

is, the amount of money invested in a par-ticular line (Dumenil and Levy 1993,20-22). Mathematically, t can be rendered

by the formula

r=

P/K=

(Y-

W)/K,where r stands for the profit rate, P standsfor profits, K stands for capital stock, Ystands for output (or value-added), and Wstandsfor total compensation (wages). The

profit rate can thus be decomposed intotwo parts, the profit share and the output-capitalratio,

r = (P/Y) x (Y/K),

where P/Y is the profit share and Y/K is the

output-capitalratio. Profitrates will tend todecline if there is either a decline in the

profit share (i.e., labor claims a largershareof the surplus) or a decline in the output-capitalratio (i.e., the output per amount offixed capitalstock decreases).

Figures 1 and 2 show the movement ofthe profit rate in Thailand, along with the

profit share and the output-capital ratio,over the period from 1970 to 1997. The

profit rate in manufacturing shows anuneven

longer-term trend,but rises

markedly at the end of the 1980s anddeclines in equally marked fashion in the1990s.5 Notably, the profit rate outside of

manufacturings lower than in manufactur-

ing and has declined consistently since1970. The decline in the manufacturingprofit rate duringthe 1990s can be decom-

5 A WorldBankstudyof returnon assetsforall businessesnThailandindsa similar attern

for 1988-96 (Claessens,Djankov,and Lang1998).

129



ECONOMICGEOGRAPHY

0.6

0.55

0.5

0.450.4

0.35

0.3

0.25

0.2

0.15

1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996

I Manufacturing---

Non-ManufacturingI

Figure 1. Profit rates,Thailand, 1970-1997. Sources:Gould (1952, 1953); NESDB (1960-2000);U.N. National Accounts Statistics (1970-80). For an explanationof the method of calculationused

for this figure, see Appendix.

0.85

0.8

0.75

0.70.65

0.6

0.55

0.5 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1

1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996

I* Output/Capital-*- ProfitShare I

Figure 2. Determinants of manufacturingprofit rate, 1970-1997. Sources:Gould (1952, 1953);NESDB (1960-2000); U.N. National Accounts Statistics (1970-80).

posed into declines in both the profit shareand the output-capitalratio,indicatingbothan increasingclaim on the surplus by labor

(albeitafterstartingat relatively ow levels)6and an apparent decline in the aggregate

6 For a cross-country comparison of profitshares, showingthat Thailand'srateshistorically

productivity of capital. During the late

1980s, by comparison, profitsgrew becauseof both an apparent ncrease in the produc-tivityof capitaland stableprofit share.

have been very high, see UNIDO (1992, 45). Bythe early1990s, f the U.N. NationalAccountsStatistics (U.N. 1980-96) are accurate,

Thailand'sprofitsharehaddeclined o approxi-mately he averageordeveloping ountries.

130




The numbers here suggest the possibilityof a relatively long-term trend of decliningprofitability,but the data series is shorterthan would be

requiredto establish this.

Thus, I do not infer a long-term crisis of

declining profitabilityrooted in increasingorganic composition of capital-indeed,there is no evidence for such a classicallyMarxistdecline in profit rates.7Short-term

changes in the manufacturingprofit ratebetween the mid-1980s and mid-1990s, onthe other hand, might be seen as corre-

7 Theorganic omposition fcapital-i.e., the

constantvalue of capitalstock dividedby theconstant alueofwages-actuallydeclines romthe mid-1980s to the mid-1990s.FollowingWebber and Rigby (1996), I have also

attemptedo measure he valuecomposition f

capital,adjusted or turnover imes.Turnovertimes can be estimated or some, but not all,recentyears,based on data in the Industrial

Survey (NSO 1982-95). My estimates forturnovertimes, includingextrapolationsor

yearsnot covered n the surveydata,show noconsistentrend n turnovers etween he early1980sandthe mid-1990s.There s alsono con-sistent rend nthe valuecompositionf capital,though here s anapparentlyharpallbetween1991and1993,andsubsequently sharp ecov-

ery.

sponding to a business cycle, a view that is

supported by the figures on capacity uti-lization in manufacturing,trade, and con-

struction, which are available from 1977.8

Figure 3 illustrates these changes in ratesof capacity utilization, which by the mid-1990s had returned to approximatelytheir1985 (pre-boom) levels.

Thomas Weisskopf (1979, 342) providesanother method of decomposing the profitrate which adjusts for changes in capacityutilization, an approach that can be usedwith the profit series from 1977 to 1997.

Weisskopf defines the profit rate as

r = P/K =(P/Y)

X(Y/Z)

X(Z/K),

where Z, potential output (or capacity), is

equivalent to output divided by capacityutilization. Thus, the profit rate is a func-tion of the profit share (P/Y), the rate of

capacityutilization(Y/Z),and the capacity-capital ratio (Z/K). These three compo-nents of the profit rate are basicallyequiv-alent to the factors emphasized by

sThere stypically strong

tatistical elation-

shipbetween heprofitrateandcapacity tiliza-tion (Glyn1997, 597), and the latterchangesmorein response o the businesscyclethan in

responseo longer-termrends.

95

90

85

8075

70

65

60 I I II I III

i \ /1 1 1

1985 1986 1987 1988 1989. 1990 1991 1992 1993 1994 1995 1996 1997

I 4- AllIndustries -*-Textiles &Apparel * MachineryI

Figure 3. Capacity tilization,manufacturing,985-1997.Source:Bankof Thailand, roduction,Investment,and Employmentin Manufacturing,Trade,and Construction Sectors (1985-2001).

131



ECONOMICGEOGRAPHY

(respectively) the neo-Ricardian, the

underconsumptionist, and the falling rateof profit/organic composition of capital

approachesoutlined

byBell. Thus, the

profit share is taken by Weisskopf to indi-cate the immediate significanceof exploita-tion and class struggle, the rate of capacityutilizationto indicate the immediate signif-icance of realization problems, and the

capacity-capitalratio to indicate the imme-diate significance of changes in productiv-ity growth and increasing investment in

labor-savingtechnology.9The effects on manufacturing profit

rates of changes in these three determi-

nants are illustratedin Figure 4. As can beseen, virtually all of the net increase in

profitabilitybetween 1985 and 1990 is dueto increased capacity utilization. Between1990 and 1997, both capacity utilizationand profit share fall, contributing to thedecline in profit rates, while the capacity-capital ratio, though varying from year to

year, remainsvirtuallythe same by the endof the period as at the beginning. In short,

profit rates only improvedin the late 1980s

because of increased capacity utilizationand declined after that because of both

declining capacityutilization and decliningprofit share.

The Crisis as a Realization Crisis

The changes in capacity utilizationshown here and their relationship to

declining profitability indicate downward

pressure on profit rates because of realiza-

tion failure-the inabilityto find adequatemarkets in which produced commoditiescan be sold at prices that cover productioncosts and expected profit margins(Weisskopf 1979, 346). This interpretationis supported by evidence regardingdevel-

9 LikeBell,Weisskopf cknowledgeshatallof these factorsare interrelated ndnot strictlyseparableas causes of decliningprofitability.The point of disaggregations thus only to

sharpendiscussion f the relationship etweeneachof the various actors.

opments impinging on the Thai economyfrom the late 1980s onward-particularlyincreased internationalexportcompetition,which has made it more difficult for Thai

and other Southeast Asian exporters to

expandtheir shareof foreign markets,evenas their output (and that of competitors)increased dramatically. Thailand and itsEast Asian export competitors have collec-

tively participated in creating thisincreased export competition, with each ofthem engaged in relatively disarticulatedand foreign market-dependent growth.This growth, moreover, has involved rela-

tively limited complimentaritybetween the

Asian exporters,thus intensifyingthe com-petition for markets outside of the region.As a consequence, there has been a bur-

geoning contradiction between regionalovercapacityand tightening global marketsthat places increasing pressure on all of theAsian export economies and manifestsitself in declining prices for key exports(Brenner 1998;World Bank 1998; Bernard

1999; Glassman and Carmody2001).The lower-end Asian exporters have

been particularly profoundly affected byone of the major economic events of thelate twentieth century, the rise of China asan export manufacturing power. The

importanceof the Chinese networkof cap-ital has been discussed in much recentwork on Asian economic growth (e.g.,McGee 1984; Hsing 1998; Dicken and

Yeung 1999). While in the past this net-work has been seen as facilitatingeconomic

growth in Thailand (Pasuk and Baker

1998), the opening of China to capitalismand the movement of large amounts ofinvestment by Hong Kongese andTaiwanese capitalists into southern Chinanow poses a threat to the continued devel-

opment of Thai manufacturing,particularlyin low-wage, labor-intensive industriessuch as textiles and garments (Doner and

Ramsay1994). Moreover, it is not only theChinese network of capital that has

increasingly centered its activities onsouthern China: Japanese investors have

also turned to China as a base for offshoreproduction (Steven 1996), leading to the

132



ECONOMICRISIS NTHAILAND

140

130

120

- 100x0)

90 ._ {

80 " ,/ -\

70 1 1 1 1 1 98 I 1991 1 993 995997

1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997

I- Capacity/CapitalRatio -- ProfitShare -- Capacity Utilization

Figure 4. Determinants of manufacturingprofit rates, 1977-1997. Sources:Gould (1952, 1953);NESDB (1960-2000); U.N. National Accounts Statistics (1970-80); Bank of Thailand,Production,

Investment,and Employmentin Manufacturing,Trade,and Construction Sectors (1985-2001).

enormous rise in inward FDI in Chinashown in Table 1.

If regional and global markets were

expanding at an adequate rate, the devel-

opment of manufactured exports fromChina would pose less of a threat to the

manufacturing sector in countries likeThailand. However, the limited develop-ment of consumption in Japan (Steven1996; Bevacqua 1998), exacerbatedby the

stagnationof the Japaneseeconomy in the1990s (Bernard 1999, 192), has meant that

Table 1

Inward FDI Flows, 1981-1996

(in Millions of $U.S.)Host Country 1981-86 1987-96

China 1,021 16,736

Hong Kong 646 2,008India 69 751

Indonesia 240 2,242South Korea 170 1,033

Malaysia 984 3,310

Philippines 74 882

Singapore 1,409 4,673Taiwan 212 1,201Thailand 277 1,729

Vietnam 5 606Source:UNCTAD (1997).

Thailand remains highly dependent on

export markets in the United States and

Europe, relative to its imports from Japan.For example, from 1990 to 1997, Japanaccounted for some 30 percent of Thai

imports

but received only 17 percent of

Thai exports, whereas the United Statesaccounted for only 12 percent of Thai

imports but received 21 percent of its

exports (U.N. International Trade

Statistics Yearbook 1991-99).As such, increased competition from

China in the U.S. market is a moment of

great consequence. It is crucially mportantthat China has taken a larger share of theU.S. import market over the 1990s,

increasingfromjust 3.1 percent of the total

market in 1990 to 7.8 percent in 1998,while over the same period, by contrast,Thailand's share of the total U.S. market

stagnated at 1.4 percent (U.N.International Trade Statistics Yearbook

1991-99; U.S. Bureau of the Census

1991-99). Moreover, the Chinese stateexacerbated the competitive pressures in1994 when it devalued its currency-amove that occurredin the same year as theNorth American Free Trade Agreement

(NAFTA) went into effect, solidifyingMexico'sposition as a production base for

0C6

133



ECONOMICEOGRAPHY

low-wage exports to the United States. In

sum, increasedglobalcompetition, particu-larlyfrom China,and the difficultieswhichthis created for expansionof

exports

in an

export-dependent economy helps explainthe overcapacityevident in the Thai manu-

facturing sector by the mid-1990s. But

overcapacity only explains part of thedecline in profitabilityof Thai manufactur-

ing.

The Crisis as a Profit-Squeeze Crisis

As shown in Figures 2 and 4, decliningprofit share after 1990 also placed down-

wardpressureon wages. Whatexplainsthisdeclining profit share? First of all, from atleast the early 1990s, business leaders

expressed concerns about a tight labor

market, especially for skilled labor, whichwas driving up labor costs (Economist

Intelligence Unit 1992, 14). Analystshaveeven proposed that there is somewhat of a

shortageof unskilledlabor for manymanu-

facturing industries, though this is a phe-nomenon in need of careful analysis, giventhe abundance of labor

remainingin rela-

tively low-wage agricultural occupations.Another importanttheme in the 1990s hasbeen a resurgence of labormilitance,regis-tered in increasing numbers of strikes and

workdays lost from 1990 to 1997 (Pasukand Baker1998;Glassman1999b, 310-11).Labor militance mightbe seen as reflectingthe increased bargaining power of laborunder conditions of relative laborshortage,or as an overdue response to years of wagerepression (Thai manufacturing wagesincreased very little between 1945 and1990), or as a combination of these factors.It can alsobe seen aspartof the emergenceof more democratic forces in Thai societythat have pushed for political liberalizationand demilitarization (Ji 1997). However

interpreted, it is clear that the increase inmilitanceplaced upwardpressureon wagesin the leading industrial sectors with the

largestunions.

Again,however, risingwages do not nec-

essarily mplythe unfoldingof an economiccrisis-indeed, for Keynesian theory, rising

wages might well help stimulate domestic

consumption and thus set in motion thevirtuous circle of demand-led investmentand economic

growth. Rising wages onlyrepresent a problem in the context of

socially disarticulated and export-led accu-

mulation-particularly if wage increasesare not outstripped by productivitygrowth,in which case rising wages will contributeto immediate declines in the profit rate.Yet capital accumulationin Thailand, as in

many other peripheral countries, has notbeen marked by the kinds of consistent

productivityincreases which can lead to a

virtuous circle of demand-stimulated eco-nomic growth-a matter discussed in thenext section.

Here it is also importantto reemphasizethat the Asian NICs compete with oneanother in the same majorexport marketsand have limited complimentarity, each

being dependent upon exporting a largesurplus that cannot be consumed in thedomestic market.10Though Thailand hasnot been successful in improving its

regional competitiveness through produc-tivity gains, it was more successful thanmost of its competitors at keeping wagegrowthwell below growthin laborproduc-tivity throughout the 1980s (Fig. 5). In the

1990s, however, rapidwage increases out-

stripped increases in labor productivity, a

phenomenon also seen in the other rapidlygrowing Southeast Asian NICs (Fig. 6).While such wage rises could be beneficial if

sustained over time (through their effectson the domestic market),in the short term

they have not been sufficient to allow Asian

exportersto consume all that they produce,and have instead simply undermined the

price competitiveness of many exports.

10It is not unusual, n recentyears,to hearbusinesseaderslamentinghelimiteddomesticmarketandthe need to build it in the face of

increasing lobalcompetitionn exportmarkets

(e.g.,TheNation(Bangkok), September1997;BangkokPost, 18 June 1998).

134




South Taiwan Thailand Indonesia HongKorea Kong

SingaporeMalaysiaPhilippines

I LaborProductivity * Wages

Figure 5. Percentagencreasen laborproductivityndwages,by country, 980-1990.Source:UNIDO database(2000).

ISouthoaISouthKorea Taiwan Thailand Indonesia Singapore Malaysia

I LaborProductivity * Wages |

Figure 6. Percentagencreasen laborproductivityndwages,1990-1995.Source:UNIDO data-base(2000).

The Crisis as a Crisis of Productivity

It remains to be asked why, in this con-

text of increased wage pressure, there wasnot a comparable, countervailingincreasein the productivity of capital. To answer

this question, it is important to highlighthistorical features of Thailand'sdependent

development. Industrializationn Thailandhas for many years been built heavily

around low-wage labor. Real wage growthwas extremely limited between the end ofthe Second World War and 1975, and wasfar slower than labor productivitygrowthfrom 1975 until 1990 (Sungsidh 1989, 67;

Sungsidhand Kanchada1996, 238; Nikom

1995, 9-10). Thus, firms investing inThailand could enjoy extremely high profit

rates with relativelylimited investment inproductivity enhancement (Morell and

120

100

80 -

60 -

40 -

20 -

0 -

350

300

250

200150

100

50

0

135



ECONOMICGEOGRAPHY

Chai-anan 1981, 194-95; Sungsidh 1989,79).11

This is not to say that technological

changeand

upgrading

have not occurred

throughout the postwar period. Certainly,more laborin Thailandhas been harnessedto new productiontechnologies, and this isreflected in labor productivity increases

that, while not on a par with those of theother Asian NICs, are nonetheless signifi-cant (Figs. 5 and 6). Moreover, even totalfactor productivity-which mainstreameconomists take to indicate technologicalupgrading through innovation or imita-tion-has improved in Thailand over its

recent decades of rapid growth (WorldBank1993; Crafts1999). Nonetheless, as isto be expected for a country engaged in

"catching-up"growth, the majorsource of

productivity change is not innovation butrather simply increased utilization (largelythroughforeign direct investment) of moreadvanced machinery,along with the trans-fer of labor out of agricultureinto manu-

facturing (Krugman 1994; Crafts 1999;Warr1999).

In this context, a large number of firmsin Thailand have remained focused on the

advantages to be gained from relativelycompetitive wages, rather than on invest-ment in increased productivityof capital.Indeed, as several studies have illustrated,even larger foreign firms in Thailandhavemade only limited effortsto trainpersonneland upgrade technology used in their Thai

manufacturing operations (Limqueco,MacFarlane, and Odhnoff 1989; Deyo

1995), a problem exacerbated in thepost-World War II period by the policiesof the Thai state (cf. Hewison 1989; Donerand Ramsay 1994; Pasuk and Baker 1995;

1 A WorldBanksurveyof firms n nine Eastand SoutheastAsiancountries,alongwith theUnitedStatesandGermany,oundThailand ohavethe highestrate of returnon assets n the

period 1988-96-and also to have the most

rapidlydecliningratesof return n the 1990s(Claessens,Djankov, ndLang1998).

Unger 1998).12The Thai state's relativelypoor performance in spurring scientificand technological research and develop-ment (R&D) is reflected in the fact that as

of the mid-1990s Thailand had only 0.2R&D scientists and technicians per 1,000members of the general population-alevel not only much lower than that of com-

petitor states such as South Korea(2.9) and

Singapore (2.6), or even China (0.6) andVietnam (0.3), but also lower than the

averagefor all countries categorized by theUnited Nations Development Program as

exhibiting medium human development(0.7) (UNDP 1999, 176-77). To be sure,

there have been modest increases recentlyin the proportion of government spendingon education and science and technologydevelopment. But in spite of this, produc-tivityof capitalremained stagnantbetween1985 and 1997 (Figs. 2 and 4)-a continu-ation of the relativelylow productivity pat-tern that has marked Thai accumulation

throughoutmost of its recent history.The ability of the Thai state to pursue

this comparativelylow social capital devel-

opment path has deep roots in the coun-try's abundant land and natural resource

base, which has allowed several decades ofrobust export growth on the basis of pri-mary commodities-particularly rice

(Pasuk and Baker 1995; Jomo 1997).Thailand'sdevelopment path also has deeproots in the effects of the cold war on theevolution of the Thai state and its formsand functions. Thailand's developmentunder U.S. umbrage gave it various formsof wherewithal to discipline labor while

promoting rapid growth that was under-

pinned originally by substantial aid flowsand later by FDI and favorable terms ofaccess to the U.S. market. This meant that

high profit rates and opportunitiesfor eco-nomic growth could be maintained for

many years without disciplining capital or

developing the capacityto force capitalinto

12 A 1998study ound hatThaifirmsare less

productivehanregionalcompetitorsn placessuch as MalaysiaBangkok ost,18June1998).

136




the tertiary circuit-for example, throughhigher effective rates of corporatetaxationto support greater expenditure on educa-

tion, training,and

technology development(Glassman1999b). Thailandin fact has oneof the lowest rates of effective corporatetaxation in the world (Warr and

Bhanupong 1996, 75-76), but until the1990s it countered the problems this posesfor the state's capacity to invest in skills

upgradingand technology development bymaintaining a labor force so disciplinedthat it had one of the lowest wage shares of

any labor force in the developing world

(UNIDO 1992, 45; Jansen 1997, 34-35).

When this changed in the 1990s, under theimpact of tighter labor markets and moremilitant labor struggle, neither the Thaistate nor most of the private sector had

developed substantial capacity to respondto rising wages with labor-displacingtech-

nological innovation. Instead, even thoughsome largerfirmsinvested in "catching-up"technological change, a great number offirms simply ratcheted up investment and

production on the basis of existing, labor-

intensive technology, attempting to out-compete one another through "perspira-tion rather than inspiration"(Crafts 1999;Warr 1999).13

It is also important to emphasize the

pace at which the realization and overca-

pacitycrisishas evolved-unfolding largelysince the early 1990s-which has meantthat countries attempting to maintainthemselves as exportbases have to respondquickly and harshly to rising productioncosts and rapidly

deteriorating

terms of

trade (World Bank 1998). The simplemeans of doing this is to constantlydevalue

13 It is worthcautioning ere thatproductivityincreasesn corecountries-to whichcountrieslike Thailandhave been unfavorablycom-

pared-may be overratedn someof the litera-ture, since total factorproductivity oes not

separate uttheeffectsof innovation nd mita-tion from he effectsof less-efficient irmsexit-

ingormoretechnologicallyfficient irmsgain-

ingmarkethare Webber ndRigby1996,394,401-2).

the currency;the more difficultmeans is tomove rapidly from lower value-added

products suffering from increased compe-tition into

higher

value-added lines that are

(somewhat) less competitive. The speedrequired of the transformationprocess inthe era of "globalization"-a reflection ofwhat Harvey calls "space-time compres-sion" (Harvey 1989)-is important to

emphasize because, again,it is not the casethat firms in Thailand have totallyneglected efforts to increase productivityor move into higher value-added lines, noris it the case that the Thai state has totallyneglected efforts to spurindustrialdeepen-

ing (Deyo 1995; Pasuk and Baker 1998,43-45; Warr 1999). However, in a contextof historically satisfactory profits ensured

by repression of labor and minimal disci-

plining of capital, investors and state plan-ners have simply been unable to respondwith the timeliness or seriousness requiredby contemporary global capital flows

(Doner and Ramsay 1994, 189-94; Bello,

Cunningham,and Poh 1998, 55-70).

The Crisis as a Financial Crisis

Realization failure, rising wages, and

stagnant productivity in the early 1990s

provide a crucial context for understandingthe Thai economic meltdown of 1996-97,but they do not by themselves explain thecrisis or its onset. Indeed, the very fact that

pre-boom profit rates may have been simi-lar to post-boom rates without the econ-

omy going into the sort of decline seen in1996-97 suggests that something addi-

tional must have occurred in the 1990s totrigger collapse. Here the issue of capitalswitching is important.As Figure 7 shows,one of the most noteworthy features ofFDI inflows during the early 1990s is thedecline of new investment in manufactur-

ing industries and the explosion of invest-ment in real estate, which began in 1994and continued through 1996. It is alsoworth noting that this investment in realestate-which quicklyled to a glutted mar-

ket-is not matched by comparableinvest-ment in construction,indicatingthat much

137



ECONOMICGEOGRAPHY

of the real estate investment may haveinvolved speculative land deals (cf. Bello,

Cunningham,and Poh 1998, 161). Indeed,the national accounts indicate that, com-

pared to the period 1987-91, growth ratesof value-added in the manufacturingandconstruction sectors declined much more

during 1991-95 than did rates in banking,insurance, and real estate (Fig. 8).Moreover,duringthe early 1990s portfolioinvestment overtookFDI, reachinga level

equal to the total GrossDomestic Product

CDC.)

0co0)

r-

.,_CcO

c-

OC

0

O

c-

?

(GDP) by 1993 (Fig. 9). All of these indi-catorspoint to the development of a much

higher level of speculative, nonproductiveinvestment by 1993-94. This movement of

capital into speculative activities is not

entirely surprising,given the lower rates of

profitin productivesectors outside of man-

ufacturing.14

14 Bangkokwasalready rguably verbuiltbythemid-1990s,o thatshiftingmoney nto more

45,000

40,000

35,000

30,000

25,000

20,000

15,000 -

10,000 -

5,000 -

0

IEElectrical ChemicalsETextilesMMachineryB Real Estate I

Figure 7. InwardFDI, by industry,1988-1998. Source:Bank of Thailand,Monthly Bulletin ofStatistics (1988-2001).

ManufacturingConstruction Commerce Services Banking,Insurance,Real Estate

E 1987-1991 1991-1995

Figure 8. Increase in value-added,by industry,1987-1995. Source:NESDB (1987-95).

Q)

u)CD

o0

rO

c"

U)

0)

cUD

140

120

100

8060

40

20

0

138




8,000

7,000

6,000

5,000

4,000

3,000

2,000

1,000

0

1989 1990 1991 1992 1993 1994 1995

| Direct Investment MPortfolioInvestment

Figure 9. Foreigndirect nvestment ndportfolionvestment, 989-1995.Source:UNCTAD(1997).

The phenomenon of increasing specula-tive investment is described in mainstream

analyses of the economic crisis as the

development of the "bubble economy."Analysts acknowledgethat the shift of cap-ital into more speculativeventures not only

set up the subsequent crash in real estatevalues-particularly since such investmentwas swelling at a rate much faster than the

growth of the overall economy, which was

slowing during the early 1990s-but also

represented a diversion of capital from

employment in productive sectors like

manufacturing (Pasuk and Baker 1998,316-17). What needs to be furtherempha-sized, however, is that the timing and

weight of the movement of capital intomore

speculativeinvestments seems

quiteplausiblyto imply a response by investorsto declining profit rates in manufacturingby the early 1990s. Firms in the manufac-

turing sector were finding the prospectsless attractive than in the late 1980s, pre-

constructionprojects in the nation'scapitalwould have made little sense. A World Bank

report during1998 foundresidential acancyratesof 28 percentand officevacancy atesof23percent, he latterpredictedo rise to 39-42

percentby the end of the century (BangkokPost,23 May1998).

cipitating slower growth in investment,while extraordinaryrates of overall eco-nomic growth up until 1990-and

respectable rates after that-had attractedthe attention of institutional nvestors look-

ing for emerging markets within which to

parknew short-terminvestments (Bernard1999, 191). Had manufacturingprofitabil-ity not been declining by the early1990s, itis conceivable that various investors

(including institutional investors such asbanks and finance companies) would have

put more money directly into manufactur-

ing activities and that rates of manufactur-

ing growthwould have continued at levelsthat could more effectively sustain theboom in the stock market and the property

sector.15 Thus, the crisis which broke out inthe financial sector during 1996-97 whenreal estate values collapsed was not a nar-

15PasukPhongpaichitndChrisBaker 1998,101)note thatbetween1992and 1993 he aver-

age price-earningsatioof companiesisted onthe Stock Exchangeof Thailand SET) rosefrom16 to26,while hatofbluechipcompaniesrose to over30. This exuberanceprovedunsus-tainablewith slowingmanufacturingnd con-

structiongrowth,and SET prices fell consis-tently rom1994on (Hewison1999,29-30).

C)

0c-o

139



ECONOMICGEOGRAPHY

rowlyfinancialphenomenon but ratherwas

directlylinked to the behavior of capitalistsin response to declining profitability of

manufacturing

nvestment.

The capital switching described hereindicates the international dimensions ofthe issue. It was the switchingof East Asian

capital from manufacturingFDI into realestate and stock markets-along with theinflow of financial capital from Westernbanks and emerging market funds (itself aform of switching from reinvestment in

slower-growing Western countries)-which triggered the development ofThailand's bubble. To point out these

international dimensions of the bubbleeconomy, however, is not to say that inter-nationalcapital simply ran roughshod overthe Thai state. Rather, the Thai state was

very much an actor in the process, and inorderto encourage rapidinflows of foreigncapital and bridge a projected savings-investment gap, it had undertaken a num-ber of financial liberalization measures

during the early 1990s (Bello 1998; Bello,

Cunningham,and Poh 1998, 18-20; Pasuk

and Baker 1998, 98, 116-17, 318-19;Unger 1998, 95-97; Bernard 1999, 191).First, the state deregulated domesticfinance and removed constraintson portfo-lio management, including loosening ruleson capital adequacy requirements and

allowing commercial banks and financialinstitutions to expandtheir fields of opera-tion. Second, the state dismantled most

foreign exchange controls and opened the

Bangkok International Banking Facility,which allowed offshore borrowing in for-

eign currencies and reconversion into Thaibaht, thus increasing the flow of capitalinto Thailand from countries with lowerinterest rates. This was further facilitated

by the thirdpolicy, thatof keeping the baht

pegged to a weighted basket of currencieswhich favored the dollar, thus makingdol-lar-denominated loans artificiallycheap asthe dollar rose againstthe yen. Fourth, thestate kept interest rates high to attract for-

eign capital.

In sum, while the financial dimensionsof the crisis clearlyimplicate volatile inter-

national capital flows, the development ofcrisis tendencies in the Thai economy indi-cates a more complex process than signaled

by

the conventional

story

of international

capitalrunamok. Aside from the importantimmediate roles of Thai capital and Thailabor in the development of crisis tenden-

cies, international forces were themselvesconstituted in part by the actions of Thai

capitalists and the Thai state-includingtheir export performance and their finan-cial maneuvering in the post-cold war

process of liberalization. The financial cri-sis was integrally connected to crisis ten-dencies within "the real sector" and was

simultaneouslyproduced by "internal"and"external"orces.

The Crisis as a Unity-in-Diversity

The different aspects of the economiccrisis discussed above are not separableand independent causal forces, but, rather,

dialectically interconnected phenomenathat give the crisis in Thailand its specificform. Moreover, the crisis is simultane-

ously a national and internationalphenom-enon; indeed, the Thai economy as anational entity contributed to the creationof many of the regional and international

dynamicsthat have acted back on the accu-mulationprocess in Thailand.

To summarize and synthesize, then, the

picture of the economic crisis as a unity-in-diversitylooks something like this: The cri-sis in Thailand had roots in a decline in

manufacturingprofitability.This decline in

profitabilityresulted from the interaction

of realization failure (the consequence ofovercapacity in a context of increasingexport competition), profit squeeze from

rising wages (the result of tighter labormarkets and increased worker militance),and relativelystagnant productivityof cap-ital (the result of limited capacityfor tech-

nological upgrading,which is the legacy of

dependency and specific historicalfactors).The growth boom that started in 1987 hadin effect quicklyled to overinvestment and

inadequate productivity growth. In thiscontext, rising wages ensured declining

140




profit rates while further exacerbatingthe

problem of competition from lower-wagecompetitors.

These manifestationsofunderlying

crisistendencies enabled a full-blown meltdownin the financialsector, triggeredby the col-

lapse of a speculative economic bubblebuilt up throughlarge flows of both foreignand domestic capital into the real estatesector and the stock market. The statefacilitated both the originalboom in manu-

facturingFDI, which led to record growthrates during 1988-90, and the dramaticinflow of hot money during 1993-94 as the

manufacturing sector cooled somewhat

and investorsbegan to look elsewhere. The

phase of open crisisbeganwith the collapseof real estate values and manufacturingexport growth during 1996, which led todisinvestment from the stock market and

speculative pressure on the baht-manyinvestorshavingdecided that the currencywas in need of devaluation in order for

exportsto regain competitiveness.From this point, the crisis began to take

on a regionallife of its own, which I do not

have space to analyze here. One conclud-ing point about the regionaldimensions ofthe Asian crisis is in order, however. Noneof the countries affected by the regionalcrisis had Thailand'sprecise mix of liabili-

ties, andthis, coupled with the fact that cri-sis in other countries was clearly trig-gered-though not necessarily caused, in

anynarrowsense-by the herd behavior of

panicked investors, has meant that finan-cial contagion effects emerged as the pre-

dominant focus of attention (e.g., Jomo1998). While there can be little doubt thatfinancial contagion did in fact ignite themeltdown of currencies and stock markets

throughoutAsia, the analysishere suggeststhe need to examine the bases of the

regional crisis in problems of overcapacityand declining profitability.Given this con-

text, it is entirely possible that a regionalcrisis could have been triggered by down-turn elsewhere in the region, though per-

haps not on the same timetable or in pre-cisely the same fashion.

Possible Futures for Thailand

The analysisof crisis tendencies outlinedhere helps to make sense of the course of

the crisis in Thailand since 1997. Hewingto mainstream analyses and prescriptions,the Thai state focussed heavilyon financialand monetary issues, closing two-thirds ofall finance companies, attempting to clean

up and liberalize the banks, and allowingcontinued devaluation of the baht, which

temporarilyboosted the staticcompetitive-ness of certain export industries. The Thaistate also used funds from the Bank ofThailand and the IMF to underwrite pri-

vate debt and bail out leading investors,while carryingout a structuraladjustment

program designed to reduce wages and

public expendituresand open the economyto foreign investment (Glassman 2000;Glassman and Carmody 2001). As thesemeasures were implemented, the economycontractedby more than 8 percent in 1998and posted zero growth in 1999, onlybeginning to recover by 2000. Official

unemployment more than doubled-pri-

marily

because of massive

layoffs

in the

construction sector and reduced employ-ment in manufacturing-and as of the endof 2000 it remained more than twice the1996 level, while real wages were 10 per-cent below 1997 levels (Bank of Thailand,

Monthly Bulletin of Statistics, 2001;

BangkokPost, 19 September 2000).These measures were carried out with

particularzeal by the neoliberal regime ofChuan Leekpai, which regained power inlate 1997 and became more-or-less openly

the local agent of the structuraladjustmentagenda (Pasuk and Baker 2000). As the"realeconomy" contracted, however, pop-ular discontent with this agenda grew. Thedecline of manydomesticallyoriented Thai

firms, and the increasingpower of transna-tional investors within the Thai economy(Hewison 2000), ensured that the discon-tent was felt not only among the poorestsegments of the Thai population but

among relatively powerful elements of the

Thai professional and business communi-ties. One consequence of this has been a

141



ECONOMICGEOGRAPHY

populist backlash against neoliberalism.Elections at the beginning of 2001 broughtdown the Chuanregime, replacingit with a

regime

headed

by

multimillionaireThaksin

Shinawatra, who has promised state

largesse for ailing sectors of the economyand variousdisadvantagedgroupsthrough-out Thai society. The efficacy and cohe-siveness of this populist project are doubt-

ful, particularly given the extreme

opposition of transnationalcapital and its

representatives within Thailand, but the

veryfactof broad-basedpopulardiscontentwith the Chuan administration suggeststhat the crisis has been experienced as far

more than a narrow financial crisis. Thedepth and breadth of the opposition toneoliberalism also suggests that the crisishas been experienced as a class-relevant

phenomenon with an important core-

peripherydimension.None of this clarifies, however, the pos-

sible course of development in the future.What has happened so far is not an across-the-board collapse of industrybut a selec-tive decline or stagnationof certain indus-

tries and sectors. "Sunrise"ndustries,suchas automobile parts and electronics, seem

positioned to survive this ongoing processof restructuring. For example, Japaneseautomotivefirmsmaintain substantialcom-mitment to Thailand as an automobilepro-duction hub (Edgington and Hayter2001).Thus, despite a collapse of automobilepro-duction in 1997-98, there has also been anew burst of FDI in industries such as

machinery (which includes automobiles)and electrical components, and this mayshore up the position of these industries inthe future (Fig. 7; Bangkok Post, 6November 1997, 8 January1998; BangkokPost 1998 Mid-Year Economic Review;

Bangkok Post Yearend Economic Review

1998). In the case of automobile produc-tion, however, the longer-term prospectsalso need to be weighed against the factthat just as the crisis was developing theThai state was forced by General Motors

(as a condition for building a new plant)

and by the World Trade Organizationtoscrap its requirement for cars built in

Thailand to have 54 percent local content

(Bangkok Post, 23 February 1998). The

president of the Thai Autoparts

ManufacturingAssociation estimates that

as a result some 80 percent of the country'sparts producers will lose business and layoff staff (BangkokPost, 15 October 1999).Thus, should automobile productionresume strong growth in the future it is

likely to do so with fewer backwardlink-

ages and thus with less benefit to the Thai

economy as a whole.16 This sort of problemis probably even more daunting in elec-

tronics, where there has been even less

development of strong supplier industries

than in automobiles (author interviews,

managers of electronics firms in theNorthern Region Industrial Estate,

Februaryand March2000).Moreover, over the next decade or so,

the greatest threat of industrial decline is

likely to be in more labor-intensive fieldssuch as textiles and garments-a matter of

great significance since these industries

employ half of the manufacturing laborforce and two-thirds of all women in man-

ufacturing.'7 Labor costs in these morelabor-intensive industries range between15 and 20 percent of all production costs,

compared to percentages for more capital-intensive industries ranging from 1.5 forsteel to 5.8 for industrial chemicals and13.9 for non-ferrous metal industries

(ThailandDepartment of Labor Protectionand Welfare 1996). In the context of

upward pressure on wages in Thailandandthe rise of highly competitive labor-inten-

sive industries in China, these wage-sensi-tive industries are likely to face serious

pressures to restructure and downsize.

16 ThisproblemwasfurtherunderscoredbyVolkswagen's ecision to sourceparts for its

recently opened Thai production facilityentirely romoutside he country see BangkokPost,3 March 000).

17 By comparison, automobile assembly,whichprimarilymploysmen,accounts oronly

a little over 1 percent of the manufacturinglabor orce(NSO 1994).

142




The Thai economy's relatively periph-eral status and export dependency affectsnot only its longer-term prospects but nowits prospects for full recoveryfrom the cri-

sis that began in 1997 as well. While GDPhad approximatelyregained its 1997 levelsas of the beginning of 2001, the recentdownturn of the U.S. economy has raisednew concerns about growth prospects andled to a downgradingof estimates for eco-nomic performance in Thailand during2001. Thus, while it is still too early (as ofMarch 2001) to say what the Thai manu-

facturing sector will look like once the

restructuring process begun in 1996-97 is

complete, the extreme volatility and vul-nerability of manufacturing industries is

apparent. Low-end and labor-intensiveindustries are highly susceptible to low-

wage export competition in a context of

inadequate domestic demand, while high-end and capital-intensive industries are

highly susceptible to changing behaviorand demands on the part of foreigninvestors and buyers. It is this sort of

dependence, ratherthan merely the short-term results of crisis and

restructuring,which helps define the meaning of crisis inthe periphery and which will cruciallyshape future patternsof industrialdevelop-ment.

Conclusion

I have outlined a view of the Thai eco-nomic crisis that shows the continued rele-vance of a geographical-historical andMarxianperspective to the understandingof events in the contemporaryglobal econ-omy. I have argued that sensitivity to the

interpenetration of national and interna-tional processes and a focus on strugglesover appropriation of surplus both helpmake sense of the specificities of the crisis,

particularly f we move beyond a classicalMarxistapproach to take account of howuneven development at a global scale gen-erates differences between the features ofcrisis in economic cores and economic

peripheries. Notably, from this dialecticalperspective, the issue of "internal"versus

"external" and "financial sector" versus"real sector" origins of the crisis does notarise. Capitalism is inherently geographi-cally expansive and alwayshas interrelated

developments in the spheres of production,circulation,and consumption;thus it is thestate-mediated accumulation processesfought out by capital and labor within andacross internationalboundaries which gen-erate crises, not simply national versusinternational or financial versus "real"activities.

Aside from its theoretical-interpretivedifferences from mainstreamaccounts, the

implicationsof the account developed here

are also substantiallydifferent from thosearticulated by either neoliberals or neo-Weberians. Neoliberals see the broadercrisisin Asia as calling for a reduced and/ormore efficient performanceby the state sothat the Asian NICs can regain their com-

petitiveness and resume growth alongmore or less the same path they pursuedduring the boom years. Neo-Weberiansalso hope for a returnto this trajectory,but

through a more modest reconfigurationofthe state and more substantial constraintson internationalcapital.

The implications of the account I haveoutlined are somewhat different. While

they do not sanction pessimism about the

prospects of some form of economic recov-

ery and renewed industrial growth, theysuggest that recovery-like growth itself-is likely to be uneven and to have socialcosts. The fact that the first substantial

wage increases for Thai workers in theentire post-World War II period led

quicklyto economic downturnsuggests theproblems of an anti-Fordist accumulation

process that has been predicatedheavilyonthe repression of labor. As workers

throughout Asia have struggled to claimmore of the surplus they have produced,Asian regimes are under great pressure to

quicklyupgrade productivityand figureout

waysto maintainglobalcompetitiveness. Inthe context of dependency, this is an evenmore dauntingtask than it would be other-

wise. Thus, the Asian NICs find themselveson a treadmill that moves faster and faster

143



ECONOMICGEOGRAPHY

as global capitalism grows. Success in

restructuringunder these conditions is byno means assured, and even as the AsiaPacific region has

begun

to recover,manypeople within it have experienced the neg-

ative effects of restructuring,as belts are

tightened and new sources of competitive-ness sought (Glassman and Carmody2001). In short,the accountpresented here

emphasizes that capitalistcrises never fullyresolve themselves but simply create thefoundations for new (and perhaps intensi-

fied) social strugglesin the future.

AppendixThe estimation of profits in Thai manu-

facturingand nonmanufacturing ndustriesis straightforward: ompensation of manu-

facturing and nonmanufacturingemploy-ees, as reported in the NESDB's National

Accounts,are subtracted fromthe NationalAccounts' estimate of manufacturingvalue-

added, or MVA,(formanufacturing)andofGDP minus MVA (for nonmanufacturing)for each year in question. The difference is

profit. (The profit series was rendered inconstant 1988 prices.) While some authors

argue that profit rates should be calculatednet of taxes, I had inadequate data to dothis and thus calculated the pre-tax profitrate. Because of the very low rate of effec-tive corporatetaxationin Thailand over allthe years in question, this makesno differ-ence to the analysis.

The more difficult aspect of the profitrate calculation is the estimate of net fixed

capital stock (K), the denominator in the

profit rate ratio. To develop an estimate ofthis, I used the following procedure. TheNational Accounts' estimates of GrossFixed Capital Formation (GFCF) wererecorded for every year between 1946 and

1996, in constant 1988 prices. (Pre-1951estimates were taken from Gould (1952,1953).) To determine how much of this

capitalwas still in use in any given year, I

employed a procedure from Webber and

Rigby (1996, 420). The life of fixed capital

was determined by comparing differentestimates of the level of depreciation (as

1/n of the sum of the last n years GFCF)with the allowances for consumption offixed capital recorded in the NationalAccounts.

Using

the

consumptionallowances recorded for 1980-96, I foundthat a depreciationschedule of n = 25 yearsapproximatedthe consumption allowanceswithin 1.0 percent. Thus, I estimated thatthe average life of fixed capital stock is 25

years, and the total net stock of fixed capi-tal was then calculated using a straight-linedepreciation method, where the value ofthe capital which was formed in a givenyear declines by n/25 n years after it wasformed.The net stock of fixedcapitalcould

thus be determined for every year from1970.

The NESDB's National Accounts do notrecord the percentage of GFCF attribut-able to manufacturing. However, theU.N.'s National Accounts Statistics esti-mated this percentage for the years1970-78. I used the average for these

years-18.2 percent of GFCF-as the esti-mated amount of GFCF attributable to

manufacturingfor other years. If the per-

centage actuallyincreased after the

1970s,this would mean that in reality the profitrate in manufacturing ncreased less in thelate 1980s and fell more in the 1990s than

reported here.

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