Thu, Feb 17, 2000 page8

• Development needs action, not talk

  • Hwan Lin
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  KMT presidential candidate Lien Chan (3s戰) announced his science and technology platform on Feb.10, outlining a policy package aimed at raising Taiwan's national research and development (R&D) outlay to 2.5 percent of the gross domestic product (GDP) by 2002 and to 3 percent by 2010. He also expressed the hope that TAiwan could catch up with the US, Japan and others.

  There is a basic consensus among economists that Taiwan's sustained development and economic viability is critically dependent upon whether it can steadily transform itself into a knowledge-based, R&D-intensive economy.

  Hence, Lien's science and technology policy direction has hardly drawn any criticisms, even from opposing parties.

  However, there is substantial contention over the KMT government's overall creditability problems.

  In its Six-Year Plan for National Construction (1991-96), for instance, the government said it planned to raise the national R&D outlay to 2.2 percent of GDP in 1996, but it ended up with 1.85 percent.

  The government then expected, naively, to push R&D to 2.5 percent of GDP by 2000, as specified in National Science Council Review (1997, page 1).

  That goal must be unreachable by the end of this year, otherwise Lien would not be empha-sizing his goal of increasing national R&D outlay to 2.5 percent of GDP by 2002.

  It is ironic that after years of airing the slogan of "Sci-Tech Island" (科?THORN>島), Taiwan today remains an economy of low R&D intensity.

  In Taiwan only 1.85 percent of the GDP was invested in R&D in 1996, compared to the average of 2.2 percent among the OECD (Organization of Economic Co-operation and Development) countries in 1995.

  Of these industrial countries, Sweden led with a 3 percent R&D intensity, followed by Japan's 2.8 percent, South Korea's 2.8 percent, the US' 2.5 percent, Germany's 2.3 percent and France's 2.3 percent.

  The R&D intensity of most OECD countries surpassed the 2 percent threshold about 20 years ago.

  Taiwan has only recently begun to approach this threshold.

  Low R&D intensity weakens Taiwan's capabilities for innovation and invention, thereby harming the nation's long-term growth momentum.

  This deep-seated problem is also reflected in Taiwan's lack of research talent. In 1996, Taiwan had only 25.1 researchers per 10,000 workers, far below the OECD average of 55 researchers.

  In his science policy package, Lien set a goal of 35 researchers per 10,000 workers by the year 2010.

  This goal is not ambitious at all and is overwhelmingly dwarfed by the research talent of the main industrial countries.

  According to currently available OECD data, for every 10,000 workers, Japan had 83 researchers (in 1995), the US 74 (in 1993), Sweden 68 (in 1993), France 60 (in 1995), Germany 58 researchers (in 1993) and Britain 52 (in 1995).

  South Korea already had 48 researchers per 10,000 workers in 1995, a level that Taiwan apparently won't even reach 10 years from now. Taiwan must take this harsh reality seriously.

  True, Taiwan has gradually seen its industrial might grow in its burgeoning semiconductor and other technology-intensive sectors in recent years. But, much more must be done correctly to make Taiwan a true "Sci-Tech Island." In terms of R&D intensity and research talents, Taiwan is not yet prepared.

  In the new millennium, Taiwan has entered a critical stage where sustainable growth must rely on technological advances.

  The government must be committed to cultivating the so-called Shumpeterian dynamism of constructive destruction, for which R&D leads to technological innovations and gives rise to new firms and new business opportunities by destroying declining traditional firms.

  With resource constraints, innovative firms must sooner or later crowd out those low value-added, old firms through free-market competition.

  It is therefore both economically impossible and socially undesirable for Taiwan to support both traditional and high-tech industries with government policies. However, it is also politically troublesome in a democratic society to selectively subsidize high-tech industry and punish traditional industry with discriminatory tax policies.

  Indeed, innovative R&D warrants direct subsidies from the government due to its remarkable external economies and high social rate of returns. But the R&D subsidy policy alone is not enough to nurture Taiwan's high-tech development.

  The government should take more steps to strengthen social pro-innovation fundamentals so that all firms can be guaranteed to work in a society with a solid pool of research talent, an efficient innovation system and well-functioning financial markets.

  Otherwise, Taiwan may risk becoming a permanent imitative economy, as the industrial world sets off toward a revolution of both information and biotechnology.

  Hwan Lin is an associate professor in the economics department of the University of North Carolina at Charlotte.
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