Miracles of the Day before?: The Great Asian Meltdown and the Changing World-Economy

Abstract

Rather than viewing the spectacular collapse of stock and currency markets in East and Southeast Asia as a financial crisis caused by imprudent banking practices and crony capitalism, this article argues that the meltdown was caused by overproduction. The first section demonstrates that high levels of corporate debt was necessary for regional firms to become competitive in the most exacting markets. Till the early 1980s, the coordination of investment strategies by elite economic bureaucracies under the aegis of Japanese capital ensured the creation of a regional division of labor. The very success of these strategies, however, rendered the regulatory frameworks progressively anachronistic. In a deregulated environment, the continued pursuit of capturing market shares through debt-led industrialization strategies led to chronic overproduction on a world scale and the crisis manifested itself along Asia's Pacific Rim only because it was most rampant there.