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.
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