Confidence and stability in currency markets have so far proved difficult to restore. The credit crunch seems to be so deep that, despite favourable exchange rates, firms are unable to export, as their access to trade credit has been curtailed. Thus, an important part of the improvement in the current account balances of the Republic of Korea and Thailand so far seems to have been due to import cuts rather than export expansion.
Over a longer horizon, however, increased exports should account for a major share of the required external adjustment. A positive adjustment to the crisis should include a number of components.
East Asian Labor Markets and the Economic Crisis: Impacts Responses and Lessons
First, loans should be rolled over and rescheduled to allow the countries concerned to service them from future export earnings and not through increased external borrowing at penalizing rates. This should be combined with the provision of external liquidity to support the exchange rate and enable a more accommodating monetary policy to be pursued while restructuring of the financial sector is under way.
Finally, it is necessary to raise global growth to provide markets in which Asian countries can earn the foreign exchange needed to pay off their foreign currency debt. Thus, an important component of the solution is to remove the deflationary bias in the macroeconomic policies in those areas of the developed world running large trade surpluses. Until the surplus countries initiate domestic demand-led growth and reduce their external surpluses, the global economy will continue to be vulnerable to the risk of financial instability and recession, and the crisis in South East Asia will continue to contribute to the decline in global growth and to trade frictions.
On the eve of the crisis, there was already a major imbalance in the world economy: virtually all major industrial countries except the US were expecting faster growth on the basis of increased exports. The surplus countries Europe and Japan were employing restrictive fiscal policies and attempting to increase their export surpluses to preserve growth.
With the notable exceptions of China and Taiwan Province of China, the fast-growing economies of East Asia were major contributors to global demand, running large deficits financed by private capital inflows. Perhaps the single positive contribution of the East Asian crisis is that it has halted the tendency towards monetary restriction and higher interest rates in the US and Europe, and hence prevented the global deflationary gap from deepening further.
East Asian Labor Markets and the Economic Crisis: Impacts, Responses and Lessons
It has eased the concern of central bankers over the risk of inflation, leading Alan Greenspan, Chairman of the US Federal Reserve Board, to talk of deflation. Japan has also been spurred to take steps to reflate its economy, while alleviating the drag on activity resulting from the weakness of its banking sector. However, the crisis in East Asia will still mean slower growth of global demand and output. Such frictions are also possible when the EMU community receives asymmetric external shocks which require different monetary policy response for the different participants.
In that respect, the coincidence of the Asian crisis with the launching of the EMU could be a major cause for concern. There are three channels of influence. First, contagion and capital flight: we have not seen much of it so far, but it cannot be ruled out. Second, the crisis is expected to influence policies in other developing countries with large external deficits. They may be inclined to cut their imports and external deficits to reduce their vulnerability to an interruption of capital flows.
This happened after the Mexican crisis when, for instance, Brazil tried to reduce its external deficits despite continuing capital inflows. This would certainly be deflationary for the countries concerned and for the global economy. Finally, other developing regions will be adversely affected by changes in exchange rates. Given their sensitivity to inflationary pressures, Latin American and Central and Eastern European countries may not be able to adjust their exchange rates to restore their competitiveness in world markets.
This was a major concern for the architects of the Bretton Woods system, and that concern increased after the collapse of the system in the early s. However, it receded when inflation became a major problem. Because of the implications for price stability, countries were unwilling to use their exchange rates to export unemployment.
The threat of competitive devaluations is much more serious now than at any time since then, because the danger now is deflation, not inflation, as we already pointed out in TDR There were some signs of it during the currency crisis in Europe a few years ago when some countries pulled out of the EMS and devalued to import some demand.
If the crisis deepens global deflation, there may be more action of this kind. This is why it is important to have expansionary policies in the countries with external surpluses. Is this a situation which might tempt industrialized countries to protect their markets? UNCTAD has always maintained that international monetary and financial instability is the principal enemy of free trade. Certainly, increased trade imbalances and reduced growth will provide humus to protectionist sentiments and such pressures may intensify, as much in countries with slow growth and high unemployment as in those with large trade deficits.
Moreover, these pressures could succeed in attaining their goals if surplus countries do not pursue expansionary macroeconomic policies as developing countries start cutting their trade deficits. There are some positive sides to it. Users without a subscription are not able to see the full content on this page. Please subscribe or login. Oxford Bibliographies Online is available by subscription and perpetual access to institutions. For more information or to contact an Oxford Sales Representative click here.
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Sign up for My OBO. Already a member? Publications Pages Publications Pages. Subscriber sign in. Forgot password? Don't have an account? Sign in via your Institution. Sign in with your library card. Related Articles about About Related Articles close popup. Introduction Labor politics is understood as various modes and processes of collective action taken by workers and their organizations to shape their workplaces, industry, national economy, and political outcomes.
Overview and Comparative Studies Starting from Deyo , scholars have studied Asian labor more seriously and systematically by including labor in their analytical equation of East Asian political economy, society, and politics.
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How to Subscribe Oxford Bibliographies Online is available by subscription and perpetual access to institutions. The Chinese Communist Party CCP chairman, Hu Jintao, for instance, presented himself as a champion of the poor with an overriding concern for poverty and regional inequality. The most important of these policy responses as they relate to labor include the political containment of dis- order, slowing reform, active labor-market policies, social protection, reor- ganization of the labor process, and developmental upgrading.
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Their separate treatment in the following discussion is only intended to suggest analytically distinguishable dimensions of the policy responses taken to resolve the social, political, and institutional ten- sions of reform. The Coercive Option: Containing Tensions and Disorder When political opposition, heightened labor militancy, and social disorder reach threatening levels, governments may employ their coercive powers to contain the tensions of reform.
Given the legacy of authoritarian rule in Korea, China, and Thailand— indeed, across much of Asia—it is not surprising that governments con- tinue to rely on force to contain resistance to reform programs. Democratic reforms have been stalled in China since the Tiananmen Square protests, which were driven in part by the dislocations of reform.
A substantial literature emphasizes the ways in which these and other Asian governments coerce, repress, co-opt, and contain populist pressures and opposition. To be sure, such a response to social tensions has played an important role in maintaining political order, sometimes supplanting, sometimes bolstering other responses. In any case, our emphasis here is instead on a variety of alternative ways in which governments and com- panies have sought to resolve, rather than suppress, the institutional tensions of reform.
The Default Option: Slowing Reform As a second response to tensions, governments may opt to slow reforms. In the Asian context, the most-often compromised reforms relate to trade liberalization, privatization of state-owned enterprise, reduction of utili- ties and public goods subsidies, and elimination of agricultural price sup- ports.
China, Thailand, and South Korea have all moderated the pace of reform. They slowed SOE privatization to varying degrees, in part in response to social tensions and political opposition. They also selectively delayed external trade liberalization as its social and economic impact became clear and nationalism found a new voice. That tilt is evidenced by the selective reintroduction of tariffs as well as by new efforts to favor domestic over foreign investors in SOE privatization programs.
Chinese WTO negotiators successfully tempered U. Active Labor-Market Policy: Making Markets Work If labor-market deregulation is supposed to foster more efficient and dynamic allocation and reallocation of labor, its failure becomes evident where rapid economic growth coexists with a slow or difficult reemploy- ment of workers displaced from declining sectors.
Nowhere is this more apparent than in China, where state enterprise reform has led to layoffs of tens of millions of workers, most of whom remain unemployed or under- employed long after their termination. With the encouragement and assis- tance of the World Bank,55 the Chinese government has responded to the job crisis by instituting transitional assistance, retraining, and reemploy- ment programs.
erininitor.tk | THE FINANCIAL CRISIS IN EAST ASIA
Especially important is the network of government reem- ployment centers set up to provide monthly pay and benefits along with retraining and outplacement service for laid-off SOE workers for up to three years, followed by continued assistance in job search and place- ment. Efforts to ease resi- dency requirements are now recognized as critical for the functioning of Chinese labor markets.
Similar concerns pressured the Korean govern- ment to introduce a more flexible and secure employment scheme for migrant workers. In China, private sector firms have in part responded to problems of low morale, insubordination, and unreliability among workers by refining and systematizing market discipline through increased reliance on piecework or performance-based pay, group produc- tivity incentives, and threat of dismissal. The first of these alternatives, the bolstering of trust-based, mutual-commitment employment practices, was alluded to earlier when discussing how benefits, employment security, and encour- agement of employee participation can foster heightened morale and involvement on the part of workers.
While labor-market deregulation alongside a diminished protective role of trade unions typically frees firms to determine their own employment practices, new competitive pressures tend to confine this relatively costly62 approach to the ranks of skilled, core workers in large firms. For this reason, selective government reregu- lation of employment, another instance of reform reversal, may become necessary.
The governments of all three countries have in some measure reregu- lated labor markets to compensate for the failure of mutual-commitment employment systems. In Thailand, there has been a movement over recent years to institute new employment rules governing large companies. Most important in this regard is the Labor Protection Act covering work- ing hours, employment of women and children, holidays and overtime, health and safety, and labor inspections.
And beginning with new labor legislation in , conditions of private sector employment have been more tightly regulated. In response to sharp opposition from the mil- itant KCTU labor federation, the government was forced to negotiate employment safeguards and compensating measures to cushion the impact of weakened job security legislation. Pyramiding shifts the burden of discipline to these external social structures by drawing on the patterns of mutual dependency and normative obligation that constitute them.
A further exam- ple of pyramiding is to be found in outsourcing strategies that devolve workplace control to workshops and family businesses where personalistic and kin-based discipline proves more effective than factory-based market controls.