Wed, Feb 25, 2009 - Page 8 News List

Government policy helps businesses, not people

By Lu Chun-wei 盧俊偉

Capital for Japanese or German enterprises comes mostly from the banking system. During economic downturns in the past, the governments of both countries have supported the banking system, the banks supported business, and business supported their employees.

The result has been that both industry and employment were stabilized.

Since between 60 percent and 70 percent of the capital of Taiwanese companies also comes from the banking system, it only seems appropriate for us to copy German and Japanese policies and the government has pushed hard for this in recent months.

However, in duplicating this policy, the government may have ignored differences between the countries.

The Japanese or German company structure is based on large enterprises and both have a deep culture of social solidarity. This is also why during economic downturns — with support from the government and banks seeking social stability and harmony — large Japanese and German enterprises have been able to keep larger numbers of employees.

Taiwan lacks the necessary preconditions for implementing a similar policy because most companies are small or medium-sized enterprises and we lack a culture of social solidarity. In addition, the government’s attempts at implementing the policy have been seriously flawed.

Ever since the launch of the policy, private banks have criticized the government for interfering in the lending market, and the small and medium enterprises that are unable to obtain loans or who experience liquidity problems have criticized the government for ruling the country with empty talk.

Labor groups criticized the government for only caring about business and disregarding employees on unpaid leave or who have lost their jobs. Then, the government launched another policy granting preferential loan terms to enterprises that do not lay off employees. So the government is now offering preferential loan terms to businesses to not lay off employees before the issue of why those companies are having problems raising capital from banks in the first place has been resolved.

This once again highlights the short-term nature of government policy and the lack of any attempt to understand the basic principles of policy making.

Let’s use the policy of providing preferential loan terms as an example. What has happened is the government is actually turning social welfare funds aimed at helping the unemployed into subsidies for businesses to not lay off their employees.

The difference is that welfare funds make the unemployed the direct beneficiaries; while the latter diminishes them to indirect beneficiaries in the hope that businesses will not fire them.

Although companies have social responsibilities, for-profit business organizations are not charity groups. Since the government only requests that they not lay off employees but does not ask for promises to not cut salaries, cost-oriented small and medium enterprises may force even more employees to take unpaid leave. It could also cause unscrupulous employers whose businesses are still doing OK to use unpaid leave or force employees to resign and then cut salaries before hiring new staff.

These situations are playing out all around us at the moment. I cannot help but wonder who the government’s policies are meant to support.

Lu Chun-wei is a research fellow at Taiwan Thinktank.

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