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New means are needed to revitalize the economy

In the context of converging cross-strait policies of the Chinese Nationalist Party (KMT) and Democratic Progressive Party (DPP) presidential candidates, both men must seriously consider innovative economic measures that can rejuvenate Taiwan's economy.

In general, the economic blueprints put forth by both presidential candidates are still along the lines of Keynesian economics. In other words, they seek to increase domestic demand through governmental public investment. However, many economists have doubted this approach since the 1970s oil crisis. Furthermore, in the 1990s, Japan attempted to stimulate its economy through fiscal and monetary policies, which not only failed, but also racked up public debt because of the enormous government expenditures.

In recent years, the field of institutional economics became a main tool for stimulating economic growth in developing countries. The World Bank, the IMF and other organizations have already begun to consider how institutional reform and redesign can be used to achieve economic targets. Based on this logic, if domestic demand is to be boosted by public consumption, a policy must then be designed to lure the public into consuming rather than letting their money stagnate in their pockets or their bank accounts.

The first possibility is to change salary practices. In Taiwan, salaries -- in the private sector and in government -- are paid monthly, at the beginning or end of each month.

During my stay as a student in the US, I discovered that salaries there are paid out twice monthly and usually transferred into employee accounts on Fridays. Receiving the money on a Friday evening, wage earners have a strong incentive to consume.

In the US economic growth structure, 60 percent comes from domestic consumption.

Of course, economic growth caused by a high proportion of domestic consumption may arise from many different causes, not all of which can be attributed to the practice of paying wages twice monthly. However, the theory of monetary exchange tells us that when the monetary supply remains unchanged, the more that money circulates within any given period, the larger the total value of transactions in an economy.

A second option is to promote patriotic consumption, of which South Korea is a paradigmatic example. During my time in the US, I was involved in a study on Asian communities around the Washington area, and thus had the chance to come in contact with US citizens of South Korean descent as well as South Korean students. I discovered that South Koreans, almost without exception, use Samsung or LG mobile phones, computers and electronic products, and drive Hyundai or Kia vehicles.

This phenomenon also explains why it is so difficult to introduce foreign products in the South Korean market. Even within mighty economies such as the US, non-profit organizations have begun "Buy American" movements to increase the consumption of US products manufactured by US workers at US companies.

By comparison, "Love Taiwan" is often merely an empty catchphrase whose implementation comes nowhere near that of South Korea or the US.

Taiwanese flock to buy imports and find no shame in consuming foreign products, making it difficult for Taiwanese companies to build their own brands. Hence the need for future governments to promote the idea of patriotic consumption.

The new president must reconsider current policy as a whole and recreate the economic miracle through reform.

Louis Liu is assistant professor at Tamkang University's Department of Public Administration.

Translated by Angela Hong
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