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Making Taiwan more competitive

Standards of living and economic issues were key to the presidential election victory of the Chinese Nationalist Party's (KMT) Ma Ying-jeou (馬英九) and Vincent Siew (蕭萬長). The new government's biggest commitment to the general public, Ma has said, will be resuscitating the economy, solving unemployment and creating equal wealth distribution.

Although Taiwan in recent years has experienced average economic growth of 4.8 percent, this growth has occurred mainly in the export-oriented electronics industry. Other industries have made limited progress and people in general have not enjoyed the fruits of the nation's overall economic growth. What we saw instead were salary freezes, unchanging entry salaries for college graduates and limited growth in public consumption. Globalization and a winner-takes-all attitude have led to unequal wealth distribution. Without jobs and income, poor people are left with no way out and some have gone to extremes to end their suffering.

To solve its economic problems, the investment environment should be altered so that China-based Taiwanese businesspeople as well as foreign corporations will find the Taiwanese market more attractive. Only profit-making enterprises provide more employment opportunities.

The government should also conduct a comprehensive review of tax laws and financial regulations and simplify the tax system to build a competitive taxation environment.

The financial reforms launched in the past few years were part of an attempt to improve operational efficiency through organizational mergers, but the unfair merger process and the side effects of corporatization remain worrying. We should once again focus on benefits as we review our policies and chart a pragmatic blueprint to turning Taiwan into an international capital market.

Based on the successes of Singapore and Hong Kong, the government should provide the necessary incentives and increase the flexibility of capital markets while establishing an effective platform for foreign investment. More importantly, the government should follow international trends and amend laws and regulations to promote transparency and set up fair rules for competition with other countries. This is the only way to encourage global companies to invest in Taiwan.

Many other policy instruments can be used to improve the investment environment, including more reasonable labor conditions and environmental protection regulations, discounting land rental rates in industrial parks, providing guidance and assistance for strategic industries and offering preferential loans. Linkage between foreign laborers' wages with the minimum wage is the main reason behind the great cost increases companies have experienced in recent years and is also the key reason why traditional industries are voting with their feet and moving overseas.

We should therefore quickly amend legislation to address this problem. We should praise entrepreneurs who can provide employment opportunities for local people and reduce employment of foreign laborers, and offer such employers preferential treatment.

The new government should write uniform and visionary industrial policies (as opposed to a case-by-case approach). Most importantly, politicians and the public should rid themselves of the anti-business mindset and stop badmouthing industry and putting pressure on legitimate enterprises.

As far as future cross-strait policies are concerned, the new government should continue to prioritize Taiwan and only promote relations with China that are based on securing the rights and interests of Taiwanese. The government should also open direct links as soon as possible and eliminate the more unreasonable limits.

It should also strengthen cross-strait exchanges of commodities and manufacturing industries and work to keep high value-added industries in Taiwan to maintain the complementary relationship between the two sides of the Taiwan Strait.

Although China is tremendously attractive to Taiwan, the latter should take advantage of China's factories and markets. Taiwan's strategy for economic development should not only rely on the cross-strait market, but also use China as a springboard into global markets.

If Taiwan's industry is to internationalize, it should invest in those places where resources are best put to use, while the government should abstain from intervening in the market in the name of protectionism. Companies will assess risks themselves and do not need government control.

The outflow of enterprises does not necessarily undermine industry, but rather stimulates industries to move on to the next level of international division of labor, thus increasing profit margins on both ends of the curve.

Taiwan should make the best of all its advantages and act as a cultural and economic bridge between East and West. It should also develop a digitalized global logistics management center to monitor flows of information, business, commodities and capital. Only with an open mind and by joining the international community can Taiwan avoid being marginalized.

Lin Chien-fu is an associate dean at the Institute for Advanced Studies in Humanities and Social Sciences and chairman of the Taiwan Competitive Forum.

TRANSLATED BY TED YANG
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