The Tiger Crisis

A ‘Tiger Crisis’: not the crisis facing those beautiful big cats [a real crisis, mind you, with three of the eight original subspecies having become extinct in the last 60 years], but the type of crisis that hits so-called ‘Tiger economies’ and shocks their citizenry to the core.

Some background: The original Tiger economies were the Asian Newly Industrializing Countries (NICs): Hong Kong, Singapore, South Korea, and Taiwan. From the 1960s onwards, they each transformed their respective positions in the global economic map via state-led, export-oriented industrialization programmes. They were followed in the 1980s by a new group of Tigers, such as Indonesia, Malaysia, and Thailand. These countries also pursued export-led industrialization and they were successful, at least in terms of achieving rapid economic growth. In dramatic events that occurred when most NUI Maynooth undergraduate students were in Primary School, things went wrong for the Tigers in 1997 – this was the so-called ‘Asian financial crisis’ which happened for numerous reasons, of course, but which had an awful lot to do with investors in those countries speedily withdrawing their money and thereby causing a financial meltdown. At the time, many people believed the 1997 crisis would take down the global financial system. It was in many ways akin to what has happened in the Atlantic world and here in Ireland since late 2008.

The crisis facing Ireland has called an end to the so-called ‘Celtic Tiger’ – a label given to Ireland’s rapid growth, which occurred at rates quite like the Asian cases. Ireland’s transformation was also export-led: pharmaceuticals companies, electronics firms such as Intel and Dell and then investments in the financial sector all looked to sell goods in foreign markets, especially Britain and Europe. Like the Asian Tigers before it, one of Ireland’s big advantages was its relatively cheap labour force which helped draw in foreign investment. And like the Asian Tigers, of course, Ireland is now facing its own Tiger Crisis.

Keeping the other Tiger Crises in mind, it is with considerable interest that we now are beginning to hear of the plans to get Ireland out of the mess it faces: the ‘Bludget’ Part One (Part Two in December is fast approaching) and Nama have already been mentioned elsewhere in this blog; and now we are hearing of new plans, such as the Green Party’s programme for government and projected changes to the taxation system. While some economists have used Japan and Sweden’s property bubble and the rapid increase in the price of agricultural land in Ireland in the 1970s to understand Ireland’s predicament, perhaps an equally-useful comparator is the case of Thailand’s Tiger Crisis.

The 1997 Asian financial crisis started in Thailand. Just like in Ireland, the banks stopped lending, although unlike what could have happened in Ireland (because Ireland was part of the Euro and didn’t have the power to do so), the Thai currency was devalued. There are numerous other differences between the two cases. But the crucial similarity between these two Tiger Crises was the role of a real estate property bubble. Thailand’s was spectacular. So was Ireland’s. Prices were dreamily unrealistic. Construction jobs were created. More construction followed. There were pie-in-the-sky plans. Workers flowed into the country. Then the crisis hit. Jobs were lost; workers went home, construction stopped. Growth rates plummeted.

It all sounds drearily familiar. And so do some of the causes. Thailand’s government didn’t stop and probably even encouraged the property bubble. Rather than steering money borrowed from abroad into productive investments (such as domestic production of capital goods) – and arguably just like the strategic problem in Ireland – the Thai state’s institutional failure was to stand back and let speculative investment inflate the property bubble. And then it burst. The state’s mistaken faith in real estate was near-fatal: Thailand was just about bankrupted by the crisis and ended up needing IMF ‘bail-out’ loans, much like Ireland might still end up needing.

The Thai Tiger did recover. Profits were restored thanks to wage cuts, renewed investments intended to improve productivity in export-oriented manufacturing plants and inspired in part by a master plan for each industry to receive funds for upgrading, and the devaluation of the Thai currency (see Linda Weiss’ State Power and the Asian Crisis). Exports grew, despite increasing competition from China. Foreign investment flowed in. Economic growth returned. Thailand paid back the IMF. But now it risks becoming stuck in a league of low-wage, export-led countries racing-to-the-bottom (see geographer Jim Glassman’s take on this in Economic Geography, 2007, volume 84, issue 3).

What about Ireland’s Tiger Crisis and attempts to resolve it? Wage cuts seem likely. With no prospect of property price increases, those with money to spare might well direct it towards more productive investments, even if the state shows no signs of demanding that. But Ireland can’t devalue its currency. And its reliance on foreign investment already seems shaky, given plant closures and relocations to Europe’s new low-wage regions. What chance, then, of a Thai-style comeback from a property-led Tiger Crisis?

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One comment

  1. […] showing Thailand's FDI growth since the mid-1980s] [see discussion on Thailand from an earlier post on this […]

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