Get the latest updates as we post them — right on your browser

. Last Updated: 07/27/2016

Cronyism's True Home

After all the endless mouthing off in the pages of the English-language business press about East Asia's "crony capitalism," the lack of "transparency" in Asian stock exchanges, the "no pain, no gain" logic of the International Monetary Fund and how the Asian economic challenge to British-American capitalism has fizzled out, we now know that none of these things had anything to do with the Asian f now global f economic crisis.

Here's the new explanation as it is developing in seminar rooms from Seoul, South Korea, to Kuala Lumpur, Malaysia, to Beijing.

After the end of the Cold War, the United States decided it had to launch a rollback operation in East Asia if it was to maintain its global hegemony. The high-growth economies of East Asia had become the main challengers to American power in the region, and it was time they were brought to heel.

The campaign worked in two phases. First, a major ideological barrage was launched to soften up the Asians. The United States mobilized famous professors of economics from its universities who had never once faced a "market force" in their own lives to preach the beauties of globalization, in this case meaning American economic institutions. These include total laissez-faire, destruction of unions and social safety nets, staffing of regulatory agencies with retired financiers, indifference to the pay differentials between CEOs and the ordinary labor force, moving manufacturing to low-wage areas regardless of the social costs and totally unregulated flows of capital in and out of any and all economies. Ever since the Asia Pacific Economic Cooperation summit in 1993, the Americans hammered home to the Asians that they needed to "open up" their economies in these ways.

Then came phase two. Once the Asian economies had begun to "deregulate" and were standing in the world marketplace more or less naked, the hedge funds were let loose on them. These funds are actually huge concentrations of capital controlled by very wealthy Western white men who manipulate bewilderingly complex financial instruments called derivatives. The owners usually locate their offices in offshore tax havens such as the Cayman Islands and do everything in their power to avoid regulators and tax collectors in the so-called free market democracies. Their funds easily raped Thailand, Indonesia and South Korea and then turned the shivering survivors over to the IMF, not to help the victims but to ensure that no Western bank be stuck with nonperforming loans in the devastated countries. The IMF is also the U.S. government's chosen instrument for "reforming" these countries to make them look more like New York.

The Americans suspected that all this might cause some trouble. On March 4, 1998, Admiral Joseph Prueher, then the commander in chief of the American military forces located in East Asia and today the U.S. ambassador-designate to China, testified before Congress that the U.S. military was on alert for "early signs of instability" in East Asia, including "labor disputes." The Indonesian armed forces, whom Prueher's special forces had been training for years, got rid of Suharto when it seemed necessary. In the process, they killed about 1,200 shopkeepers and raped more than 150 Chinese women.

But then it all got a bit out of hand. One of the biggest hedge funds proved to be so greedy that the U.S. government had to organize a bailout for it, which brought the scheme out into the open.

David Mullins, a former deputy to Federal Reserve Chairman Alan Greenspan, had gone straight to work for the Long-Term Capital Management fund after he left the Federal Reserve in 1994. Had he not done so, it is unlikely that the Federal Reserve Bank of New York would have arranged a $3.5 billion rescue package for the hedge fund. The incestuous relationship between Washington and Wall Street f what Columbia University economist Jagdish Bhagwati calls the Wall Street-Treasury complex f made East Asia's crony capitalism look tame.

The weakened economies of East Asia also could not continue to buy the weapons the Pentagon wanted to sell them, and some began to have second thoughts about paying to keep U.S. Marines (a k a the Hedge Fund Protective Corps) in their countries. Globalization was discredited as the scam of crooked financiers. The Chinese never looked so clever as they did when keeping out of the World Trade Organization as did the Japanese when they more or less ignored the pleas for "reform" from Washington.

These issues came to a head in Kuala Lumpur in November 1998. The U.S. trade representative, Charlene Barshefsky, accused the Japanese of offering $30 billion in aid to the stricken countries of East Asia as a way of buying their votes against further market-opening measures. The Japanese foreign ministry responded that the U.S. government was possessed by "an evil spirit," a phrase painfully close to the evil empire epithet that former President Reagan used against the Soviet Union. U.S. Vice President Al Gore then gave a speech in the Malaysian capital, denouncing its head of state for trying to protect his country from international speculators and calling on the people of Malaysia to overthrow him. After that, the APEC no longer had a future worth speaking of.

The Americans do not seem to understand that their message of free trade and market economics is in serious disrepute. Wall Street itself now looks like the ancestral home of crony capitalism.

Chalmers Johnson is president of the Japan Policy Research Institute in San Diego. He contributed this comment to the Los Angeles Times.