What are the factors causing Taiwan's economic problems?
First, let's analyze the question on the basis of the key constituents of the national income. According to statistics from the Directorate General of Budget, Accounting and Statistics, this year government spending, as well as exports and imports will display negative growth. Private consumption and investment will experience an extremely low level of growth. If private consumption, investment and exports continue to fall, then growth is likely to slip below 2 percent.
The slump can be summed up simply -- insufficient aggregate demand. Among the causes of insufficient aggregate demand are the influence upon exports exerted by the international economic slowdown -- especially the simultaneous slowdowns in the US, Europe and Japan, which are beyond our control.
There are three primary reasons for the slowdown in private consumption and investment -- a lack of confidence; the effect on wealth and assets of the shrinkage of the stock, currency and real estate markets; and a lack of clarity in cross-strait economic and trade policy that causes investment to remain sluggish.
Taiwan's downturn can be compared to that of Japan's during the 1990s, but the measures the government is taking to kick-start the economy are inappropriate -- including the NT$810 billion public construction package. These measures reflect the policies of the Keynesian school, which prescribes expansion of domestic demand. Because local desire to consume and invest is very low, the multiplied effect of Keynesian economics is limited.
Thus, expanding domestic demand and the spurring of consumption and investment would appear very difficult to realize. This is the view of the new rational expectation school, which believes that when grassroots confidence is low, a policy of expanding domestic demand will only cause the government's financial situation to worsen.
Furthermore, three phenomena -- pessimism among enterprises and consumers, mobility traps and deflation -- have appeared in the economy. But the expansionist financial and currency policies of the traditional Keynesians will be unable to produce results.
Because the economies of Taiwan and China are so closely linked, enterprise investment and capital flow are both affected by China's economic growth. Structural policies, therefore, should mainly be adopted to resolve Taiwan's economic problems.
In solving these problems, the government should consider how to revitalize the stock and real estate markets while maintaining stability in the currency market. It should also ponder how to foster optimism among enterprises and consumers regarding the nation's economic prospects. Confidence needs to be instilled.
The government must create a stable political situation and major economic policies should not be readjusted after a transfer of political power. In addition, cross-strait economic and trade policy should be set as soon as possible so that the investment plans of business enterprises may be spared from uncertainties.
The government should have a clear mid and long-term policy direction. First, it needs to be clear about how to improve the economic structure of central and southern Taiwan, including upgrading industry and improving labor quality. Next should come financial reforms. Third, a consensus must be reached between the DPP and opposition parties at the recently convened Economic Development Advisory Conference. The conference must avoid election politics and respect professionalism in order to achieve its goal -- to save Taiwan's economy.
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