The Chinese Nationalist Party (KMT) attributes the economic miracle in Taiwan to its making the right decisions when it was in power. Americans claim credit by saying that they not only opened the best market and provided financial support to Taiwan, but also reminded the KMT of its lesson about the loss of China when it was about to forget it. Some say the Japanese laid the foundation for Taiwan's modernization. Those who used to be activists outside the KMT under martial law stress that Taiwanese people are the real force behind the bright economic performance.
All the statements above make some sense. However, if we want to grasp the main reason for development, we have to look at the issue from the perspective of mainstream economics. When determining whether a system is good or bad, economists are most concerned about whether it has a good market mechanism. From this perspective, Taiwan owes its economic miracle to its tradition of an extensive and deep-rooted market economy, in comparison with markets in other developing countries.
Let's take land reform, for example. After World War II, many countries other than Taiwan also carried out land reform, but most of their efforts ended in failure. Their failure resulted from the fact that their farmers were tenant farmers or labor workers who were so used to following orders, or were so inexperienced in a market economy, that they did not know what to do with the land they received after reform. On the contrary, even tenant farmers in Taiwan were familiar with dealing with the market and how to adjust in accordance with market trends. Land reform would not have been successful in Taiwan without this tradition.
The interest rate policy in Taiwan provides another inspiring example. After World War II, under the influence of economist John Maynard Keynes's theory of encouraging investment by maintaining a low interest rate, Taiwan adopted a low-interest policy like other developing countries.
It indeed was a wrong policy. Back then, when developing countries lacked capital, the interest rate would naturally remain high without interference from the government. The government's decision to lower the interest rate thus distorted the market mechanism.
At that time, in order to keep the loan interest rate low, the government had to keep the deposit interest rate low. However, top-down policies always encounter bottom-up countermeasures. Via illegal financial channels such as money clubs, many savers granted loans to others at high interest rates. An enormous amount of floating capital thus flew around outside of the regular financial system. The chaos enabled some economists and legislators to attack the administration for its inappropriate policy. The government thus changed it.
This example tells us two things. First, Taiwan's post-war market economy was strong enough to resist the wrong policies made by the government, which in the end was forced to reverse it. (Under Japanese rule, Taiwan used the same market force to prevent the sugar companies that were legally granted monopoly status from exploiting sugar cane farmers by requiring the purchasing price of sugar cane to be pegged to that of rice.)
Second, it was an invincible market force that forced the government to adopt a high-interest rate policy.
It is more appropriate to interpret Taiwan's economic miracle this way, because it is analyzed from the perspective of mainstream economics. This interpretation also makes us more comfortable because it tells us that Taiwan's success was not coincidental but inevitable. It did not rely on a few people's wits but on the resilient tradition of a market economy.
From the perspective of mainstream economics, it is actually easy to forecast Taiwan's future. That's because the nation is equipped with a talent that does not fail a good market mechanism. Our optimism can be proved by a few positive signs during the past three years' global recession. For example, the shoe-making industry and leading IT companies, such as Taiwan Semiconductor Manufacturing Corp, United Microchip Corp, Asus, Quanta, and Foxconn, have kept their competitive edge in the world.
Taiwan's advantage in IT has even extended to consumer electronics, including digital cameras, pocket PCs, game consoles and mobile phones. Taiwan has even secured a footing in TFT-LCD manufacturing, which had been monopolized by Japan and South Korea. The OEM model, successful in the shoe-making and IT industries, was transferred to traditional industries such as textiles, foods and golf equipment. Therefore, while conglomerates picked up momentum, new stars also emerged in new areas.
Chang Ming-chung is a professor of economics at National Central University.
Translated by Jennie Shih
Saudi Arabian largesse is flooding Egypt’s cultural scene, but the reception is mixed. Some welcome new “cooperation” between two regional powerhouses, while others fear a hostile takeover by Riyadh. In Cairo, historically the cultural capital of the Arab world, Egyptian Minister of Culture Nevine al-Kilany recently hosted Saudi Arabian General Entertainment Authority chairman Turki al-Sheikh. The deep-pocketed al-Sheikh has emerged as a Medici-like patron for Egypt’s cultural elite, courted by Cairo’s top talent to produce a slew of forthcoming films. A new three-way agreement between al-Sheikh, Kilany and United Media Services — a multi-media conglomerate linked to state intelligence that owns much of
The US and other countries should take concrete steps to confront the threats from Beijing to avoid war, US Representative Mario Diaz-Balart said in an interview with Voice of America on March 13. The US should use “every diplomatic economic tool at our disposal to treat China as what it is... to avoid war,” Diaz-Balart said. Giving an example of what the US could do, he said that it has to be more aggressive in its military sales to Taiwan. Actions by cross-party US lawmakers in the past few years such as meeting with Taiwanese officials in Washington and Taipei, and
The Republic of China (ROC) on Taiwan has no official diplomatic allies in the EU. With the exception of the Vatican, it has no official allies in Europe at all. This does not prevent the ROC — Taiwan — from having close relations with EU member states and other European countries. The exact nature of the relationship does bear revisiting, if only to clarify what is a very complicated and sensitive idea, the details of which leave considerable room for misunderstanding, misrepresentation and disagreement. Only this week, President Tsai Ing-wen (蔡英文) received members of the European Parliament’s Delegation for Relations
Denmark’s “one China” policy more and more resembles Beijing’s “one China” principle. At least, this is how things appear. In recent interactions with the Danish state, such as applying for residency permits, a Taiwanese’s nationality would be listed as “China.” That designation occurs for a Taiwanese student coming to Denmark or a Danish citizen arriving in Denmark with, for example, their Taiwanese partner. Details of this were published on Sunday in an article in the Danish daily Berlingske written by Alexander Sjoberg and Tobias Reinwald. The pretext for this new practice is that Denmark does not recognize Taiwan as a state under