Honestly tell the public that government power is limited
In the year 2000, the private sector accounted for 62 percent of Taiwan's total spending in terms of GDP. Government spending accounted for 13 percent, while fixed capitalization and increased inventories took up 23 percent. However, imports and exports took up 52 and 54 percent respectively.
This indicates that Taiwan is a trading economy dependent on product processing. It imports raw materials from abroad, processes them and exports them again. So, Taiwan's private enterprises have to compete with companies from around the world to secure orders. In a free-trade system, the government cannot set prices for raw materials.
Frequent political intervention can only distort the effective allocation of resources. In terms of overall production costs, the government can only readjust costs incurred by taxes, administrative red tape and infrastructure in order to improve the competitiveness of businesses.
In the past, the government always claimed to be "omnipotent" or "big and capable." In the public mind, these claims have generated a dependency on the government. So, when the domestic economy slows down, the government must boost it. When the stock market is in the doldrums, the government must come to its rescue. To improve industrial competitiveness, the government must tell businesses what to do. Can the government really answer these questions?
It's not that the government is incapable of responding, but government solutions can only have limited results. Problems have often been dramatically worsened by the erroneous belief that government is the solution. One example is the finance ministry's intervention in the stock market.
In terms of long-term investment, lower stock prices mean higher returns and are therefore beneficial to investors. But high returns and high risk are two faces of the same coin. Investors take high risks when they blindly run after price differences.
Therefore, the people in power should honestly tell the public that investment entails risk. All the government can and should do is to make sure that the information of listed companies is open and transparent. The government cannot interfere in market operations. To interfere in the stock market is to use other people's money to bail out investors' losses.
Once a problem pops up in a financial institution, the Ministry of Finance scrambles to find other banks which can undertake a bail-out, merger or takeover, so as to prevent a bank-run leading to bankruptcy.
Therefore in normal times, the government should tell the public very clearly that there is also a risk in depositing your money in a financial institution, and that the public should carefully select their own financial institutions in order to protect their interests.
Also, the government should allow foreign financial institutions into the country and let them compete with local ones. The government should not favor "nationalistic capitalism." The more foreign institutions enter the country, the more internationalized the Taiwan market becomes. This is a good thing for Taiwan.
Also, the government does not need to offer any instructions as to how businesses should improve their competitiveness. After all, an entrepreneur's job is to keep thinking all the time about how to cut costs, secure orders, develop new products and sustain the company's development. As long as we have products and industries with good development potential, entrepreneurs will not hesitate to invest. By instructing businesses on new directions when industries are facing problems, the government will only increase its own burden. The more the government tries to do, the more civil servants and larger budgets it will need. These expenses will eventually translate into taxes, thereby aggravating the business environment and even bringing down the most competitive industries.
How can any new industry emerge? As long as business operators believe there is profit to be made in an investment or business environment, they will introduce technologies from around the world and engage in manufacturing. New industries will then naturally arise.
Lift infrastructure spending
Exports account for 54 percent of Taiwan's GDP. This means a large portion of Taiwan's products are meant for export. When the global demand for products decreases, Taiwan's businesses will naturally get fewer orders. Does the government have the wherewithal to boost the economy? I believe the government should expand public investment in domestic infrastructure projects, such as water and power supply, transportation, etc, so that enterprises can enjoy a faster, cheaper and more convenient business environment. This will be quite conducive to overall industrial competitiveness. This process will also reduce unemployment and increase consumption to some extent, thereby mitigating the negative impact of the economic slowdown.
Downsize the government
I have suggested earlier that the legislature and other elected bodies be downsized by half. The efficiency of the executive branch needs to be improved. The main cause of poor administrative efficiency is the fact that the government has its hands in too many baskets. The more things the government controls, the more manpower it needs. In turn, fearing idleness, their superiors try to make more work for them to do. As the oversight becomes more intricate, the division of work also becomes more refined and administrative procedures become lengthier. This is why the creation of a seaside park needs to go through more than 1,000 rubber stamps. One of the reasons for this is that everyone has to share responsibility.
Therefore, to improve efficiency, the first thing to do is to abolish provisions in the Criminal Code which create an atmosphere where civil servants wish to spread the responsibility of decision-making throughout as many departments and elements of the bureaucracy as possible.
The regulations make what is vaguely described as "profiting others" (圖利他人) a crime. Unfortunately, this unclear regulation can be interpreted to mean that many benign decisions are taken on a daily basis as a crime.
Next, government agencies should be restructured and downsized by half. For example, the Executive Yuan should be cut down to its initial eight ministries. The Fair Trade Commission (公平交易委員會) should be incorporated into the Ministry of Economic Affairs. The Directorate General of Budget, Accounting and Statistics (主計處) should be incorporated into the Ministry of Finance. Finally, the Council for Economic Planning and Development (經建會) should be merged with the Research, Development and Evaluation Commission (研考會).
This will shorten procedures within government agencies. Also, only after being downsized by half will the government seriously consider modifying its role. Let the private sector do what the government is not fit to do. The saved expenditures should then be used to raise the salaries of civil servants. Of course, those laid off should also be given reasonable compensation. When the government is downsized by half and the administrative procedures are cut short, efficiency will improve. Smaller government budgets will make room for tax cuts, thereby reducing the burden on the populace. Only then can we raise our business competitiveness.
These are not my personal opinions. In 1979, Margaret Thatcher pushed for a smaller and more efficient British government. The Labour Party has also made great efforts to carry on with the work. Over the years, the British government has been downsized by 156,000 people or 21 percent. In 1983, the Australian Labour Party initiated a series of reforms in the civil service and government budgeting and downsized the government by 27 percent. In 1993, Then US vice president Al Gore led a reform movement and downsized the government by 330,000 people or 15 percent within five years. In New Zealand, the Labour Party has downsized the government by 50 percent since 1994. Most of the above countries or political parties championed some form of socialism in their constitutions or party charters, but they also had the determination to carry out government reform that entailed a reduction of government control.
Promote local autonomy
Today, apart from tax incentives, the adoption of a "single window" system (
To resolve the financial and economic problems facing Taiwan today, we must look to the source of the problems. Only then can we apply the antidotes to get rid of old diseases that have beset Taiwan for so long. Otherwise, we will be keeping ourselves busy for no purpose and miss a golden opportunity for reform.
Shi Wen-lung is a senior advisor to the president.
Translated by Francis Huang
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