With US President George W. Bush's recent visit to China and the local elections happening so closely after one another, political excitement in Taiwan has hit another peak. Partisan squabbles heat up, smear campaigns intensify, and proud supporters fill the streets with calls to "save" or "protect Taiwan."
While politics is in the air, one hears little about economics. While politicians and citizens know that Taiwan's economy is not in good shape, we have yet to see any serious debate on substantive economic policies.
Every day, the local news media is swamped with reports of domestic politics -- vote-buying allegations, corruption charges, sex scandals, insider-trading, libel suits and so on. While some issues are salient, many are trivial, even slapstick.
Economics loom large in the minds of many national leaders. Currency revaluation and trade liberalization were top of the agenda when Bush met Chinese President Hu Jintao (胡錦濤) recently. But in Taiwan, with all the partisan brawling going on, two critical questions have been overlooked: What is the state of Taiwan's economy? And how can Taiwanese businesses remain competitive in the global market?
Let's consider some figures. Taiwan has begun to emerge from the recession of 2002. In 2002, stock investment dipped to its lowest point in 20 years, posting a net reduction of NT$99 billion. Meanwhile the unemployment rate rose from 2.7 percent in 1998 to 5.2 percent in 2002.
In the second quarter of this year, the GDP growth rate stood at 3.3 percent, a slight drop from 5.7 percent last year, but certainly an improvement from a shrinkage of 2.2 percent in 2001. The projected growth rate of 4 percent for next year lags behind all other East Asian economies except Japan.
Furthermore, since 2000 the unemployment rate has remained in the 4-5 percent range. More worrying, the percentage of the unemployed with a vocational education at least has risen from 40.2 percent in 1998 to 61.2 percent as of last year, suggesting a decrease in job opportunities for skilled labor.
More worrying than these figures are the structural woes that persist. A resolution of the banking crisis that the Democratic Progressive Party (DPP) government inherited from the Chinese Nationalist Party (KMT) is long overdue. To achieve this, President Chen Shui-bian's (陳水扁) plans for the restructuring of state-owned financial institutions must be allowed to pass the usual hurdles of legislative bickering and union protests.
The stock market is in trouble too. The TAIEX is reportedly one of the world's worst performing stock markets this year. This stands in stark contrast to other Asian stock markets, that have perked up with an average growth rate of 15 percent. This year, Korea's KOSPI Index has risen by 29 percent.
The ailing stock market in Taiwan reflects lagging investor confidence because of policy blunders and political unrest. The DPP cited Morgan Stanley's prediction that the TAIEX would rise to 6,700-6,900 after the elections. They neglected to mention that at its peak in the late 80s, the TAIEX stood at 12,495 points.
That said, the big mystery in Taiwan is not why the economy is messed up, but why it is not as messed up as it could be. In Latin America, political gridlock has crippled business development for decades. But somehow, Taiwan manages to trudge along.
Despite the lackluster performance of the economy, the Global Competitiveness Report of 2005-06, compiled by the World Economic Forum, ranked Taiwan the fifth-most competitive global economy. In terms of technological innovation, Taiwan ranks third in the total number of patents issued, ahead of the other East Asian dragons -- Singapore, South Korea, and Hong Kong.
Credit should go to Taiwan's homegrown enterprises, which have shown an amazing resilience in the face of an uncertain and politically charged business environment. This is the agility that has helped to distinguish Taiwanese corporations from the hefty chaebols in Korea and keiretsus in Japan, and it also helped Taiwan survive the Asian Financial Crisis of 1997.
But can Taiwanese businesses continue to maintain their competitive edge in a persistently unfavorable business environment?
Taiwanese businesses have long had their hands tied when it comes to making investment decisions. While the world was moving factories to China in the 1980s, Taiwanese businesses were being urged to invest in Latin America, halfway around the globe.
In the early 1980s, foreign direct investment (FDI) from Taiwan constituted less than 2 percent of total FDI in China. Today, Taiwan is the fifth largest foreign investor in China.
However, this came too late.
Hong Kong businesses, who remain the largest foreign investor in China, moved in first and established a strong foothold in the market. Besides, even with a physical presence in China, Taiwanese businesses continue to compete on uneven terms.
The China-Hong Kong Closer Economic Partnership Arrangement (CEPA) grants substantial preferential treatment to Hong Kong-based investors. Benefits include tax exemption for 700 products and 38 services and exclusive access to traditionally closed service markets in China.
Other countries are similarly vying for an advantage with China through free trade agreements.
The three small links, on the other hand, have fallen by the wayside. Meanwhile, the natural advantages in trade with China that Taiwan enjoys are going to waste.
Taiwan's businesses are very hardy, but one wonders how long they can continue to swim wearing leaden boots.
When Chen finishes his term in office, whichever party takes over will have to deal with an economic legacy of institutional neglect. Governments everywhere are rushing to help create competitive advantages for their businesses, while Taiwan's government has been mired in political games. In fact, the local business environment has worsened. Catching up with others will be an uphill battle.
While Taiwan's political leaders do not wish to cede its economic independence to China, economic weakness will not lead Taiwan any closer to political autonomy.
As a second-term president, Chen should enjoy the relative freedom of doing what is best for the national interest, rather than having to pander to popular tastes. The question is whether he has the will to do the former, or if he harbors partisan or personal goals.
Legislative gridlock is not an excuse for presidential ineptitude. While the president may not have the power to pass policies as smoothly as he would like, he still has exclusive power to set the agenda. To use former US president Franklin Roosevelt's term, presidents control the "bully pulpit."
With three years left in power, Chen must resolve to address ongoing structural problems in Taiwan, namely, the economy. He needs to focus the spotlight on substantive issues -- unemployment, non-performing loans, weak investment and trade disadvantages. At the least, he should steer clear of rhetorical attacks or symbolic campaigns that distract attention from what is at stake.
Partisan attacks are part and parcel of democratic politics. What distinguishes an advanced democracy from an immature one is whether politicians attack one another for their policies or for their personalities.
Less politics, and more economics, is good for governance.
Yuen Yuen Ang is a PhD student in political science at Stanford University, specializing in East Asian economics.
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