[OPE-L:6904] [OPE-L:394] Bankruptcies and the Asian Crisis

Gerald Levy (glevy@pratt.edu)
Mon, 14 Dec 1998 08:10:58 -0500 (EST)

I was waiting for others to add something to this thread. But, ...

Fred wrote in [OPE-L:350]:

> As I understand it, excess capacity has developed in Asia because of a kind
> of excessive competition. Each of the big conglomerate groups wanted to
> be in everything; each wanted to have its own auto company, its own steel
> company, its own hotel chain, etc.

If what you say about the conglomerates wanting to "be in everything" is
true, isn't the cause a desire for *diversification* rather than
"excessive competition"?

If we discount the possibility of diversification for *prestige* (e.g. in
the US, when some well-known capitalists acquire professional sports
franchises) which might be viewed as irrational market behavior and/or
nationalist, then we have the likelihood of diversification for
classical market reasons: to spread out corporate risk by becoming part
of many markets.

Also, the above might be driven by the belief that the "original" market
that the conglomerates were in was close to saturation. Consequently, as
the conglomerates obtained more profit, they had to search for "new"
markets to invest additional money capital in.

I don't know why you think of this as "excessive competition" and indeed
I'm not sure that that term means in this context.

> There does not seem to have been
> much rational calculation about what the market would bear. Loans for
> these over-ambitious expansion plans were generally available from their
> conglomerate group banks at low rates of interest and facilitated by
> expansionary monetary policy.
> This is a kind of "anarchy of capitalism" cause of the crisis. There is
> no overall planning and each group of capitalists tries to be the biggest
> and the best, which creates an oversupply, especially in key industries.
> This is not the whole story, but I think it is part of the story.

What might be viewed as "over-ambitious" _ex post_ might not seem so _ex
ante_. There is, for example, no reason to believe that the conglomerates
didn't do credible market research prior to investment, is there?

If what you are saying as correct, then the crisis is basically a
"mistake". Isn't it the case though that there can be an "anarchy of
capitalism" not because of incorrect projections and the lack of micro +
macro planning, but rather because there is no way that either the
individual firms or the state can totally control what happens in the

Perhaps I'll deal with some of the other issues that you raise in your
post at another time.

> I would liked to remind everybody of the original questions
> that began this discussion and that I am most interested in right now:
> Are widespread bankruptcies of capitalist firms a necessary precondition
> for recovery from the Asian crisis? Or, can the crisis be overcome without
> bankruptcies (and deeper depression) through government ,
> expansionary policies, etc.

I'm surprised and somewhat disappointed that there has been so little
discussion on this thread (and on the list in general in recent weeks).
Don't others have something to say about these (and other) issues?

In solidarity. Jerry