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
RSS