Sat, Jun 16, 2012 - Page 8 News List

Taiwan vs South Korea, round two

By Lu Hsin-chang 盧信昌

From the 1950s to the 1980s, Taiwan and South Korea were on the front line of the Cold War, and their urgent need for military equipment forced them to develop their manufacturing industries. South Korea’s government borrowed heavily from abroad while Taiwan implemented a policy of land to the tiller, which provided incentives for people to work.

With its policy of government borrowing to encourage investment, South Korea faced consumption and import restrictions and other welfare crowding-out effects. In Taiwan, farmers and workers moved around freely, which made it more attractive for Chinese and other foreign investors to get involved with businesses, which allowed Taiwan to make quick economic progress.

However, Taiwan’s population is less than half of South Korea’s. Because Taiwan’s domestic market is smaller, Taiwanese manufacturers depend on exports to make a profit, and also rely on importing a lot of components to support production. These factors sharpened competition in Taiwan, causing a lack of business opportunities and vertical division of labor, making Taiwan’s value chain rather short. This has meant that when there is a downturn in the international economic climate, Taiwan’s domestic demand cannot support its economy, making it difficult to avoid economic contraction. However, Taiwan being dependent on foreign trade, has made Taiwanese businesses flexible and able to respond and adapt to difficult situations.

Unfortunately, Taiwan’s fragmented international relations often lead to conflicts of national interests and disputes. This means that whenever action needs to be taken to ensure industrial survival, policymakers find themselves spread too thin because they have too many issues to deal with, and this makes them overly careful and indecisive. The long-term effect of not having a collectively consistent position within the international community and not possessing sufficient bargaining chips is that Taiwan often ends up losing out.

In contrast, South Korean companies spare no effort in sending employees to Africa, India and other places, working hard to develop the Chinese market and winning contracts for engineering and construction projects, shipbuilding, iron, steel and consumer electronics. South Koreans are united in their determination to excel and make economic achievements.

Pressured by the Asian financial crisis in 1997-1998, South Korea opened up its borders and allowed foreign investors to buy into local companies’ stock and take part in running them. From the 1990s onward, South Korea succeeded in turning companies like Hyundai Motor, Goldstar — which later merged with Lucky to form the LG Group — and Samsung Electronics, which started off as original equipment manufactures and suppliers for foreign brands, into internationally well-known brands in their own right. After more than a decade of effort, South Korea has left its old, unsophisticated image far behind.

One thing Taiwan can be happy about is that, according to data published by the US State Department, Taiwan’s price-adjusted per capita GDP is still more than 20 percent higher than South Korea’s. Taiwan’s consumer purchasing power is therefore quite robust. Another factor to take into account is the ever- changing situation in North Korea. By comparison, the peace dividend between Taiwan and China is an object of envy for South Korea.

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