Taiwan's economic growth has been sliding in recent years, hitting a record low of minus 2.1 percent in 2001. Last year, the growth rate bounced back to 3.2 percent, but the drive for growth was still not strong enough. unemployment continues to rise, setting record highs of 4.57 percent in 2001 and 5 percent last year.
Amid the economic doldrums, the Cabinet approved two project proposals on Dec. 18 last year, one for increasing public-service jobs and the other for expanding public construction. The Cabinet also approved two special budget bills that will put an extra NT$70 billion into the creation of 115,000 job opportunities, in the hope of boosting economic growth to 3.52 percent and reducing unemployment to below 4.5 percent this year.
However, due to wrangling between the ruling party and the opposition, the Legislative Yuan has failed to pass the bills and the economic stimulation proposals.
The rising unemployment is due to both structural unemployment and rising cyclical unemployment. Along with industrial upgrading and changes in the industrial structure over the past 10 years, Taiwan has moved from traditional labor-intensive industries to capital-intensive, technology-intensive and now to knowledge-intensive industries. This is an inevitable path as the economy develops and Taiwan moves toward becoming a fully developed country.
However, in this process of economic development, the new technology-intensive industries and the service sector cannot absorb all the labor freed up by traditional labor-intensive industries. Structural unemployment continues to rise as labor-intensive industries move to China en masse. In fact, this phenomenon corresponds to the experience of developed countries in Europe and America.
The rise in cyclical unemployment, meanwhile, was caused by the economic decline both at home and abroad that began in the second half of 2001. Being an open economy, Taiwan relies heavily on other countries. The nation's combined import and export value frequently exceeds 100 percent of its GDP and export value often exceeds 50 percent. For this reason, its economic ups and downs are deeply influenced by whether the international economy (in particular the US economy) is bullish or bearish.
The US economy has been in the doldrums since the second half of 2001. Its high-tech industries are facing stagnation or even negative growth. Electronic and IT products have been Taiwan's prime exports over the past two or three decades. When the US high-tech industries see slow growth or even decline, Taiwan's electronic and IT industries inevitably bear the brunt. Naturally, the impact on Taiwan's economy is beyond question.
The most obvious testament was private investment growth in Taiwan, which was at a historic low of minus 29.17 percent in 2001. Private investment growth for last year is estimated to be 0.3 percent. Besides, public investment growth dropped from an average 7.28 percent in the 1980s and 3.78 percent in the 1990s, to minus 1.92 percent in 2001 and minus 5.6 percent last year.
The above statistics reflect the fact that the current economic downturn domestically was caused by insufficient effective demand. According to the British economist John Maynard Keynes' principle of effective demand, an expansionary fiscal policy (eg, expansion of public investment and government expenditure) can effectively boost the economy and reduce unemployment under such circumstances.