According to a recently published report on corporate incomes in Asia, Taiwanese workers received a net salary increase (income minus inflation) of only 0.8 percent last year -- the lowest increase among the 14 countries reviewed. India saw the highest increase in net income for office workers with a rise of 4.5 percent, followed by South Korea with 3.8 percent, China with 3.8 percent and Japan with 2.2 percent.
Actually, the sad condition of Taiwan's salary levels and the low net increase in salary are no longer news. In 2001, the cost of labor in the manufacturing sector fell by 2.6 percent, to US$5.70 an hour -- far behind the rate of US$8.09 an hour in South Korea and below Singapore's US$7.77 an hour (US Department of Labor figures).
The Electronic Engineering Times published figures from a study of the salaries of electrical engineers in Asia, which revealed that the average income for an electrical engineer in Taiwan in 2002 was US$18,540 per annum, an 18 percent drop from US$22,692 in 2001. In China, on the other hand, the average salary rose 16 percent from US$7,033 in 2001 to US$8,136 in 2002, and in South Korea from US$20,516 in 2001 to US$21,492 in 2002.
According to figures released by Taiwan's Directorate-General of Budget, Accounting and Statistics for the year to November last year, the average salary in the manufacturing sector over this period fell 2.9 percent from NT$38,010 in February to NT$36,905 in November. All these figures indicate that since Taiwan's "go west" policy was initiated in 1990, salaries in Taiwan have dropped and although they have been more stable in recent years, have not been immune to further dips.
Why is Taiwan the only country affected in this way? The reason is readily apparent and can be credited to the effect of factor price equalization. Because our economic level and national income are far ahead of China's, if our economies combine, then income, salary levels and economic growth in Taiwan will be pulled back. This was especially apparent after 2000 when the government's active promotion of a "go west" policy caused a mad rush to invest in China.
This had a significant impact on wages in Taiwan. At that time, the mantra of Taiwan's entrepreneurs was that "Taiwan labor was too expensive and hurt [our] bottom line." The consequent factory closures, redundancies and unemployment was a workers' nightmare and effectively dashed any hopes of pay increases.
Integration with the Chinese economy, with its low wages and land costs, also slowed the rate of Taiwan's economic growth and industrial upgrading. When we adopted the "three noes" policy toward China -- no contact, no negotiations, no compromise -- in the 1970s and 1980s, Taiwan was leading the four Asian Tigers in economic growth (average growth of 10.2 percent in the 1970s, compared with 9.6 percent for Singapore, 8.8 percent for South Korea; an average of 8.1 percent for the 1980s compared to 7.6 percent for South Korea and 7.2 percent for Singapore). But after Taiwan opened up investments in China, economic growth began to lose momentum, South Korea's GDP caught up with that of Taiwan and we became the weakest of the Asian Tigers. (Last year, South Korea's GDP per capita reached US$14,098, surpassing Taiwan's US$13,529. Singapore's figure for the same period was US$24,740.)
Why did Taiwan fall back so badly? The single most significant reason is its excessive investment in China, which brings excessive integration with the Chinese economy. Taiwan's investments in China have already exceeded US$200 billion. In contrast, South Korea has only invested US$20 billion in its neighbor. Even Japan has invested less than we have.
Keen observers have issued innumerable warnings to China-based Taiwanese businesspeople, asking the government to implement efficient management mechanisms for investing in China. They have opposed greater economic integration and disapproved of unconditional direct links that are devoid of the necessary regulatory apparatus.
After debating the issue of whether the "go west" policy has been beneficial to Taiwan, the answer is now becoming clear -- the "go west" policy has been responsible for an outflow of capital, talent and technology, has hindered economic growth, and the more we have "gone west," the worse the situation has become.
A recent editorial in the Chinese-language Economic Daily News -- a former strong proponent of the "go west" policy -- considered the "peaceful decline" of the US, Japanese and EU economies over the last 10 years, comparing it to China's "peaceful rising." It came to the conclusion that the US, Japan and Europe had experienced an outflow of capital, talent and technology which had weakened their development, undermining domestic investment, reducing demand and slowing momentum for economic growth. This had led to the weakening of the economy as a whole, kept unemployment high and even caused deflation. Isn't this exactly what people with a Taiwanese perspective have been warning the government about all along?
Huang Tien-lin is a national policy advisor to the president.
Translated by Ian Bartholomew
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