Taiwan's unemployment rate has reached another all-time high. According to a recent survey by the Liberty Times, 33 percent of unemployed persons believe the rising unemployment rate is due to the migration of businesses to other countries. Forty-three percent believe the government should temporarily stop the business migration, while 44 percent believe it will improve Taiwan's investment environment. At the same time, several major corporations are demanding that the government loosen its restrictions on investments in China. Even a corporate chairman known as the "God of Business" (
Industrial structure will inevitably change in the process of economic development. When labor-intensive industries lose their international competitiveness, the manufacturers of such products can only move to less developed countries such as China and eliminate quite a number of domestic job opportunities. Certainly new job opportunities will also emerge in technology-intensive industries. As long as the cost of moving the workers to new jobs is not too high, the change in industrial structure should not have too strong an impact on labor employment. But once the gap between our economic growth rate and that of less developed countries becomes so large that our industrial structure is forced to change rapidly, unemployment problems will arise among domestic workers.
At this point, if the new government does not actively reform the domestic business environment or does not accelerate the promotion of domestic industrial upgrading, but instead tries to solve the problems of industrial transformation by easing the "no haste, be patient" policy, or by lifting the restrictions on investment in China, then the government will be forced to spend even more resources to solve the problem of unemployment.
It is faster for business owners to move their capital and equipment offshore than to move their domestic low-skilled workforces. The massive industrial migration allows corporations to reap higher investment returns, but the domestic workers in those industries cannot follow suit and move offshore. They can only stay in the non-trade service sectors and compete with foreign workers for jobs. This has drastically slowed the growth rate of low-skilled labor incomes, causing domestic income distribution to deteriorate. This will have a deleterious effect on Taiwan's future economic development.
When income distribution becomes increasingly lopsided, discontent can easily arise among low-income individuals or families. More often than not this kind of discontent has led to social and political instability. Increased uncertainty in investments and the business environment will adversely affect domestic investor interest. Eventually, lowered investment will affect our economic growth rate.
Even if worsening income distribution is an inevitable byproduct of globalization, can't we mitigate this outcome by choosing the right investment strategies? According to a recent study, while measuring a country's comparative advantage, one should not compare them with those of all other countries in the global economy. Rather, one should compare a country with those at a similar developmental stage.
Like the other "Asian tigers," Taiwan is now standing somewhere between developed and less-developed status. Asia's less-developed countries have an advantage over Taiwan in that they have a greater number of laborers. Europe, Japan and the US have an advantage over Taiwan in terms of technology and capital. In fact, different development strategies can allow us to build different comparative advantage.
To illustrate this point, let's suppose that there are three kinds of products -- low, medium and high technology-intensive products, and that no single country can produce all three kinds of products at the same time. In accordance with the principle of comparative advantage, developed countries only manufacture high and medium technology-intensive products, while less developed countries make medium and low technology-intensive products.
If Taiwan opts to develop close economic and trade relations with less developed countries (such as China), then it will have relatively greater capital resources compared to those countries which only manufacture less demanding products.
The division of labor will then result in Taiwan primarily making medium technology-intensive products and a small volume of less demanding products. Taiwan will then export medium technology-intensive products and use the income to import the high and low technology-intensive products it needs.
What kind of development strategy should the government pursue? Obviously, compared to developed countries, Taiwan's comparative advantage does not lie in capital or technology. Taiwan can import advanced technologies from developed countries. Then, incorporating these technologies with our abundant and relatively cheap high-skilled manpower, we can put more resources into the production of technology-intensive products.
This will not only raise the average growth rate of our per capita income, but also reduce the government's financial burden of having to help support the livelihoods of low-skilled workers who have been unable to smoothly transfer to high-tech industries through the social security system. That is, economic and trade cooperation with developed countries will slow the deterioration in domestic income distribution. It will also lower the price the government has to pay.
Whether this strategy can succeed depends on whether the government has the determination to build Taiwan into a high-quality living environment.
Only after Taiwan's environment has been reformed can we avoid a massive impact on Taiwan's economic security. If the government bows to the demands of a few business people without seeing reality, the government will bring disaster to Taiwan.
Kenneth S. Lin is a professor of economics at National Taiwan University.
Translated by Francis Huang
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