Fri, Dec 28, 2012 - Page 8 News List

The Liberty Times Editorial: The dangerous illusion of growth

Academia Sinica economic research fellow Ray Chou (周雨田) worries that the current status of the nation’s economy is not a result of short-term cyclical changes, but rather of long-term structural adjustments. In other words, the economy is not suffering from an acute disease, but from a chronic ailment contracted over a long period of time.

First, there is the massive relocation of businesses to China and the increasing reliance on that country, which means that the prosperity of some Taiwanese companies no longer has anything to do with Taiwanese society and the welfare of the Taiwanese public. The result is that not only is Taiwan overdependent on China, but it has become increasingly vulnerable to changes in the international economic situation, and is losing both its ability and direction that will lead the way to autonomy.

Second, although Taiwan is experienced in both traditional and high-tech manufacturing, it has yet to make the transition from assembly and contract manufacturing. There is a lack of innovative research, and development and branding, and although manufacturing volumes are large, profits are minuscule. For example, Taiwanese manufacturers once manufactured 90 percent of the world’s notebook computers, but the millions of job opportunities thus created were mostly located in China. In addition, the barriers to entry are low and so the industry has descended into a cutthroat pricing war. Gross profit margins have dropped sharply and today hover at about 2 to 3 percent. After overhead is deducted, not much is left.

Taiwan’s technology industry should learn from Taiwan Semiconductor Manufacturing Co: It should own the core technology and it should base its production at home — here in Taiwan — to be able to produce high value-added products; otherwise it risks being rendered obsolete by globalization, and rapid advancements in science and technology. That is why an industrial transformation and minimizing trade dependence on any single country are two of the most pressing issues at hand.

However, the government lacks foresight, wisdom and ability, and it is incapable of solving problems and realizing visions. Instead, it excels at boasting about vague international rankings and inventing incessant obscurantist slogans that only serve to confuse the public.

Frankly speaking, given virtually stagnant economic growth this year, it will be fairly easy to attain 3 percent economic growth in the coming year. Indeed, since the onslaught of the international economic crisis, Taiwan even saw annual GDP growth of 10.76 percent once, because the economy contracted the year before. The public has yet to feel the effects of this much-vaunted economic growth. Failure to upgrade the nation’s industrial structure and diversify trade will made a GDP growth of 3 percent next year, or a so-called U-shaped rebound, an illusion devoid of any significance.

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