Taiwan has had an open market economy for decades, and has grown to become an important participant in the international economic community as well. With the migration of a significant portion of Taiwan's manufacturing capability to China in recent years, especially in the electronics sector, the profile of its economy has experienced a dramatic change. To a large degree, Taiwan had already internationalized its economy.
The rapid move to China, considered by many in the business community as necessary to compete, substantially decreased the degree of Taiwan's international economic orientation to one more dependent on China.
Democracy's strength is that domestic changes such as this are made peacefully. But it also means changes are seldom orderly. The sudden rush by Taiwanese businesses after the last election to migrate their manufacturing to China is an example. The policy of former president Lee Teng-hui's (
In an open market and a democratic political system, persuasion by leadership, not fiat, often is the only means of directing policy. With a new administration and new leaders, constraints on investing in China by the Taiwanese business community evaporated. In addition to an administration that lacked the experience and talent needed to manage this fundamental economic change, there were political figures and important media organizations that encouraged this migration for political reasons, and an almost evenly divided Legislative Yuan that stalled badly needed legislation.
The difference Taiwan has had with other democracies is its domestic divisions on the fundamental issue of national identity. In addition, it is a democracy always under threat from the very large and hostile neighbor that is the Taiwanese businesses' commercial objective. What is seen by many as a natural economic evolution, therefore, is for Taiwan much more than that.
The opening of China's economy during the last two decades made it almost inevitable that many private-sector businesses in Taiwan would want to move to China to take advantage of this change. Given the state of the cross-strait relationship, it would have been an important and sensitive change, and absent domestic politics, might well have been managed with less harm to the economy.
Taiwan's domestic politics made that development impossible. Since then there has been an effort to bring a sense of balance between cross-strait commerce and security, but it has taken time, perhaps too much time, and there is still much to do. What needs to be done, however, is unlikely to progress very far given that a presidential election is only months away, and the state of the nation's economy will be made a central issue in the campaign.
Taiwan's economy, despite the continuous distortions by much of the media, has done relatively well compared with other East Asian countries whose economies have been hurt by both the attraction of China's rapid growth, and the slowdown of the economies in Japan, the US and Europe. Its economic growth rate, which fell so badly in the first year of the DPP administration, has gradually climbed back to over 3 percent last year, and seems to be holding that level or slightly higher during this year (absent the effects of severe acute respiratory syndrome). Trade has also increased, as has foreign exchange reserves.