In the current election campaign all party platforms contain some sort of a pledge to keep Taiwan prosperous. But none deal in specifics. Perhaps there simply isn't much to debate over the economy; nobody really thinks there are many votes in, say, fiscal rectitude. And after all, if the pan-blues got thrashed in the legislative elections in 2001, when the economy was visibly wobbly, how can they expect to be able to use it to their advantage with GDP growth nudging 5 percent?
There are however a couple of issues that badly need to be addressed. It would be nice to know that one side or the other had some clue as to what to do about the country's economic problems. Unfortunately, they apparently don't.
The first issue is the government's budget deficit. This is a problem that everyone has seen growing since the mid-1990s and nobody has had the courage to address. Currently the central government deficit is estimated to be about 3.5 percent of GDP, to which you can add another percentage point for the various deficits of local governments and state-owned enterprises. This is not perhaps dire, but it is more than is advisable. More importantly, nobody appears to be addressing the problem.
True, the DPP has vague plans to balance the budget by 2010, but hardly seems to take them seriously. Meanwhile, as every election comes around, we see all sides commit themselves to more social spending, categorically deny any intention to raise taxes and fudge about how such programs will be funded -- knowing that the electorate, by and large, doesn't ask such questions or listen to economists who do.
Taiwan's current tax burden is about 13 percent of GDP, well below the average in OECD countries and even below South Korea (18 percent) and Singapore (16 percent). A debate in Taiwan between low-tax, low-service advocates and those who look to European-style welfarism is long overdue. What sort of society do we want to live in and what are we prepared to pay for?
The second major issue being ignored is the far from virtuous circle involving China and the US. Currently many Asian countries, including Taiwan, are buying US debt to keep their exports cheap by stopping their currencies from appreciating against the dollar. This in its turn allows the US to keep on a spending binge, purchasing those exports on borrowed money.
The linchpin of this system is China. The US is on a spending spree, buying China's goods with money it has borrowed from China. But how long can this continue? Some in the US call for a revaluation of the yuan, which would mean that China basically stopped financing the US trade deficit. This would hurt American consumers as goods would get more expensive, but it might cause chaos in China as its boom ends and millions are thrown out of work -- which might necessitate the selling of more US debt, and so on. But to not revalue the yuan would mean China would have to continue buying US debt instead of spending its money in something more important domestically. This is hardly desirable and might not even be an option. And this whole merry-go-round has to be seen in the context of China's bankrupt banking system, which is little more than a system whereby the state robs the people of their savings.
How long can this go on? There is a very real possibility of it ending in a world of pain not just for Taiwan's two biggest trading partners but for the global economy as a whole. That a global depression might only be averted as long as China continues to prefer to lend its money to the US rather than try to ameliorate its exploding social problems or bail out its banks should scare us all.