Globalization Effects on East Asia

7/30/2019 Globalization Effects on East Asia

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Definitions of globalisation

The intensification of worldwide socialrelations which links distant localities insuch a way that local happenings are

shaped by events occurring many milesaway and vice-versa.

The integration of the world economy

De-territorialisation – or…the growth of supraterritorial relations between people.

Time-space compression



East Asia Miracle

30 years previous to 1997

Unprecedented economic growth

Massive poverty reduction Increased stability

Referred to as the East Asia Miracle



Reasons for success

Gradual market liberalisation

State-directed industrial policy

Closing of the knowledge and technologygap



Events of 1997

On 2nd of July the Thai baht collapsed

Effects felt all around the world

Economic crisis comes as a surprise The effects are felt all over the world



The presentation

Divided into two sections.

Thailand South Korea



ThailandPre-1997

The crisisPost-1997



Thailand: Pre-1997

Until 1980‟s, Thai‟s domestic and exporteconomies were depended on theprimary sector

Prices of the primary exports fell in theearly 1980‟s

Hidden production volume (reduced

export earnings) – Devaluation of Baht

– Improved export competitiveness



Thailand: Pre-1997

1986 – 1991 Accelerated integration intoglobal economy – Manufactured exports growth rate of 26.6%

– GDP growth rate ranging from 7 to 9 % perannum

– Growth rate of total exports & earnings

– Increase in investments (foreign investorsand TNCs)

– High profit rates in finance, insurance andreal estate sectors



Thailand: Pre-1997

1992 – 1996: slight reductions in FDI andGDP growth rate

Decrease in the export growth rate

Increase in international debt





Thailand: The crisis

6 factors which contributed to the crisis (Krogkaew 1999) financial sector mismanagement excessive current account deficit high domestic interest rates uncontrolled capital flows a rigid exchange rate lack of economic leadership on the part of politicians decline in export performance

Economic impacts Devastating effect on Thai economy. Thai 1998 GDP shrank by

7.9% 1997, 12.3% in 1998 and 7% 1999. Foreign investment andintervention necessary. Thai crash as trigger to “the greatest economic crisis since the great

depression” (Stiglitz 2002)




Who was to blame? “It became clear that IMF policies not only

exacerbated the downturns but were partlyresponsible for the onset: excessively rapid

financial and capital market liberalization wasprobably the single most important cause of thecrisis.” (Stiglitz 200)

“The IMF‟s influence with the Thais in May 1997

was weak, in any event. Worse, the Thaiswere holding back vital information….namely,the full details concerning how much hardcurrency the central banks held.” (Blustein 2001)




Implications

Shaken faith in the stability of global markets.

Questioning the policies of IMF and

Washington Consensus Organisations.

IMF self-criticism: Mexico PESO crisis 1994 – similar pattern.

Danger of interconnectivity. Reactionary movements.



Thailand: Post-1997

PHASE 1 – Road to recovery according tothe IMF

Thailand hands over the reins of theireconomic policy to the IMF

The IMF recovery package and its flaws



Thailand: Post-1997

PHASE 2 – New Government, increasing criticismof the IMF and growing populace unrest.

New Democratic government

American criticism of the IMF

Increasing business nationalism and populism inThailand

Thai government reverses IMF macro policy butcontinues with IMF restructuring of the Thaifinance sector



Thailand: Post-1997

PHASE 3 – International criticism of theIMF and Japan to the rescue

World Bank criticises IMF policies

$30 billion Miyazawa Scheme for crisisrecovery



Korean Experience



South Korea: Background

The economic boom was referred to as the „miracle on the HanRiver‟ also referred to as Korea‟s economic miracle

Concept of globalization (segyehwa) driven by government…A strategic choice…

„Fellow citizens: Globalization is the shortcut that will lead us to building a first-class country in the 21st century. This is why I revealed my plan for

globalization and government has concentrated all of its energy in forgingahead with it. It is aimed at realising globalization in all sector – politics,foreign affairs, economy, society, education, culture and sports. To this end,it is necessary to enhance our viewpoints, way of thinking, system, andpractices to the world class level…we have not choice other than this‟.

President Kim Young Sam 6 January 1995

people did not want it but government wanted to

pursue…(President Kim Young Sam)





South Korea: Effects

New government focused on four objectives based onIMF advice: – Macro-economic policies – public sector reform to reduce deficit

and contain inflation (tax increases, expenditure cuts)…capitalflights…bankruptcies deep recession

– Financial sector restructuring – strengthening regulation bymonetary authorities; rationalisation of commercial financialinstitutions .e.g. companies could not use each other asguarantors

– Labour market reform – to massive layoffs…high unemployment

levels; civil unrests – Capital account and trade liberalisation – opened up traditionally

protected industry…




Social implications: during economic boom andafter crisis

– Population explosion – increase life expectancy

– International migration – increased mobility – Urbanisation – growth of megacities

– Occupational structure and class stratification – increased inequalities…

– Gender dynamics – more women in skilled labourforce

– Income disparities-gap was expanded




Democratisation – trade unions active(labour related)

Global human-rights norms is introduced - e.g. women rights (S,Kim 2000)

Strongly military bonds with U.S. – national security has changed and no border in security(S.Kim 2000)



Conclusion

Both Thailand and Korea have gonethrough 3 phases of globalization

Two initial phases state-driven/protection

Financial crisis a pivotal moment in East Asian globalization process…repercussionsin region

Question of how dynamics have changedbetween state and markets

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Globalization Effects on East Asia

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