Words&Dirt

“Two months after the IMF came to its final agreement with South Korea, The Wall Street Journal ran an article headlined ‘Wall Street Scavenging in Asia-Pacific.’  It reported that Pelosky’s firm, as well as several other prominent houses, had ‘dispatched armies of bankers to the Asia-Pacific region to scout for brokerage firms, asset management firms and even banks that they can snap up at bargain princes.  The hunt for Asian acquisitions is urgent because many U.S. securities firms, led by Merrill Lynch & Co. and Morgan Stanley, have made overseas expansion their priority.’  In short order, several major sales went through: Merrill Lynch bought Japan’s Yamaichi Securities as well as Thailand’s largest securities firm, while AIG bought Bangkok Investment for a fraction of its worth.  JP Morgan bought a stake in Kia Motors, while Travelers Group and Salomon Smith Barney bought one of Korea’s largest textile companies as well as several other companies.  Interestingly, the chair of Salomon Smith Barney’s International Advisory Board, which was providing advice to the company on mergers and acquisitions in this period, was Donald Rumsfeld (appointed in May 1999).  Dick Cheney was also on the board.  Another winner was the Carlyle Group, the secretive Washington-based firm known for being the preferred soft landing for ex-presidents and ministers, from former secretary of state James Baker, to former U.K. prime minister John Major, to Bush Sr., who served as a consultant.  Carlyle used its top-level connections to snap up Daewoo’s telecom division, Ssangyong Information and Communication (one of Korea’s largest high-tech firms), and it became a major shareholder in one of Korea’s largest banks.

Jeffrey Garten, former U.S. undersecretary of commerce, had predicted that when the IMF was finished, ‘there is going to be a significantly different Asia, and it will be an Asia in which American firms have achieved much deeper penetration, much greater access.’  He wasn’t kidding.  Within two years, the face of much of Asia was utterly transformed, with hundreds of local brands replaced by multinational giants.  It was dubbed, ‘the world’s biggest going-out-of-business sale,’ by The New York Times, and a ‘business-buying bazaar’ by BusinessWeek.  In fact, it was a preview of the kind of disaster capitalism that would become the market norm after September 11: a terrible tragedy was exploited to allow foreign firms to storm Asia.  They were there not to build their own businesses and compete but to snap up the entire apparatus, workforce, customer base and brand value built over decades by Korean companies, often to break them apart, downsize them or shut them completely in order to eliminate competition for their imports.

The Korean titan Samsung, for instance, was broken up and sold for parts: Volvo got its heavy industry division, SC Johnson & Son its pharmaceutical arm, General Electric its lighting division.  A few years later, Daewoo’s once-mighty car division, which the company had valued at $6 billion, was sold off to GM for just $400 million––a steal worthy of Russia’s shock therapy.  But this time, unlike what happened in Russia, local firms were getting wiped out by the multinationals.

Other big players who got a piece of the Asian distress sale included Seagram’s, Hewlett-Packard, Nestlé, Interbrew and Novartis, Carrefour, Tesco and Ericsson.  Coca-Cola bought a Korean bottling company for half a billion dollars; Procter and Gamble bought a Korean packaging company; Nissan bought one of Indonesia’s largest car companies.  General Electric acquired a controlling stake in Korea’s refrigerator manufacturer LG; and Britain’s Powergen nabbed LG Energy, a large Korean electricity-and-gas company.  According to BusinessWeek, the Saudi prince Alwaleed bin Talal was ‘jetting across Asia in his cream-colored Boeing 727, collecting bargains’––including a stake in Daewoo.

Fittingly, Morgan Stanley, which had been the loudest in calling for a deepening of the crisis, inserted itself into many of these deals, collecting huge commissions.  It acted as Daewoo’s adviser on the sale of its automotive division and on brokering the privatization of several South Korean banks.

It wasn’t only private Asian firms that were being sold to foreigners.  Like earlier crises in Latin America and Eastern Europe, this one also forced governments to sell public services to raise badly needed capital.  The U.S. government eagerly anticipated this effect early on.  In arguing why Congress should authorize billions to the IMF for the Asia makeover, the U.S. trade representative Charlene Barshefsky offered assurances that the agreements would ‘create new business opportunities for US firms’: Asia would be forced to ‘accelerate privatization of certain key sectors––including energy, transportation, utilities and communications.’

Sure enough, the crisis set off a wave privatizations, and foreign multinationals cleaned up.  Bechtel got the contract to privatize the water and sewage systems in eastern Manila, as well as one to build an oil refinery in Sulawesi, Indonesia.  Motorola got full control over Korea’s Appeal Telecom.  The New York-based energy giant Sithe got a large stake in Thailand’s public gas company, the Cogeneration.  Indonesia’s water systems were split between Britain’s Thames Water and France’s Lyonnaise des Eaux.  Canada’s Westcoast Energy snapped up a huge Indonesian power plant project.  British Telecom purchased a large stake in both Malaysia’s and Korea’s postal services.  Bell Canada got a piece of Korea’s telecom Hansol.

All told, there were 186 major mergers and acquisitions of firms in Indonesia, Thailand, South Korea, Malaysia and the Philippines by foreign multinationals in a span of only twenty months.  Watching this sale unfold, Robert Wade, nd LSE economist, and Frank Veneroso, an economic consultant, predicted that the IMF program ‘may even precipitate the biggest peacetime transfer of assets from domestic to foreign owners in the past fifty years anywhere in the world.’

The IMF, while admitting some errors in its early responses to the crisis, claims that it quickly corrected them and that the ‘stabilization’ programs were successful.  It’s true that Asia’s markets eventually calmed down, but at a tremendous and ongoing cost.  Milton Friedman, at the height of the crisis, had cautioned against panic, insisting that ‘it will be over….As they get this financial mess settled, you can see a return to growth in Asia, but whether it will be one year, two years, three years, nobody can tell you.’

The truth is that Asia’s crisis is still not over, a decade later.  When 24 million people lose their jobs in a span of two years, a new desperation takes root that no culture can easily absorb.  It expresses itself in different forms across the region, from a significant rise in religious extremism in Indonesia and Thailand to the explosive growth in the child sex trade.

Employment rates have still not reached pre-1997 levels in Indonesia, Malaysia and South Korea.  And it’s not just that workers who lost their jobs during the crisis never got them back.  The layoffs have continued, with new foreign owners demanding ever-higher profits for their investments.  The suicides have also continued: in South Korea, suicide is now the fourth most common cause of death, more than double the pre-crisis rate, with thirty-eight people taking their own lives every day.

That is the untold story of the policies that the IMF call ‘stabilization programs,’ as if countries were ships being tossed around on the market’s high seas.  They do, eventually, stabilize, but that new equilibrium is achieved by throwing millions of people overboard: public sector workers, small-business owners, subsistence farmers, trade unionists.  The ugly secret of ‘stabilization’ is that the vast majority never climb back aboard.  They end up in slums, now home to 1 billion people; they end up in brothels or in cargo ship containers.  They are the disinherited, those described by the German poet Rainer Maria Rilke as ‘one to whom neither the past nor the future belongs.'”

––The Shock Doctrine: The Rise of Disaster Capitalism, by Naomi Klein, pg. 346-50

“Among the many books written about America’s blunders in Afghanistan and Iraq, one of the more compelling is by a full-throated supporter of those wars.  A political conservative and former president of St. John’s College, John Agresto was recruited in 2003 to serve as senior adviser to the Iraqi Ministry of Higher Education.  But his good intentions were ‘mugged by reality,’ to quote the title of a memoir he wrote about that year.  A large part of that reality was the conduct of his fellow Americans.  For example, he found it ‘unbearable’ to ride through Baghdad with a security escort who kept pointing his weapon at ‘ordinary Iraqis going to work, going to market, minding their business.’  As Agresto recalls, those Iraqis ‘didn’t need the slightest command of English to know they were being pushed around and cursed on their own streets.’

Agresto describes the occupying forces as ‘arrogant, scared, ignorant, and armed.’  He could have added crude, perverse, and insulting.  ‘Checkpoints were a special torture for Iraqi women,’ he writes.  ‘Humiliation was constant.  Once, when one of my senior advisor colleagues complained that her female translator was distraught at being ridiculed by the soldiers,…the snickering response came from the soldier that he was commenting to his buddy on the size of her breast pocket, nothing more.’

Unfortunate though these incidents were, Agresto calls them ‘nothing compared with Abu Ghraib.’  In that shameful episode, Iraqi prisoners were forced by their American guards to strip naked and be photographed in a variety of grotesque, obscene poses.  Agresto’s comment on Abu Ghraib sounds a note rarely heard from most mainstream critics of the war:

It wasn’t the revelations of torture, as such, that so troubled Iraqis.  Rather, it was the character and sexual nature of these abuses…, the willingness of American females to be photographed sexually abusing naked men, and the joy that they all seemed to display in not only degrading Iraqis but at degrading their own natures as well….Abu Ghraib was a gift to our enemies and an utter disaster for America and its friends.

When mentioning Abu Ghraib, its is important to note that several of the miscreants were not soldiers but private contractors, part of a massive system of outsourcing by the US government that has been faulted for its lack of accountability and oversight.  Indeed, the security guards escorting Agresto around Baghdad were probably contractors, too.  Of the thirty-seven interrogators accused of abusing prisoners at Abu Ghraib, fully twenty-seven were private contractors.  But as noted by political scientist Allison Stanger, ‘none of the civilians implicated in the abuses were prosecuted or punished.’

Of course, those on the receiving end of such behavior do not care whether their tormentors are soldiers or contractors; what matters is that they are Americans.  When the Abu Ghraib story broke in 2004, Secretary of Defense Donald Rumsfeld called the behavior of the interrogators ‘un-American.’  He was right: the vast majority of US soldiers (and contractors) are decent people.  But he was also wrong: nothing could be more American than the reckless optimism that sent thousands of callow young soldiers into Iraq on the assumption that, simply by toppling a dictator, they could turn a country ravaged by tyranny and hatred into a free, stable, and peaceful ally of the United States.”

––Through a Screen Darkly: Popular Culture, Public Diplomacy, and America’s Image Abroad, by Martha Bayles, loc. 4115-43