Former communist countries ended their mistaken economic policies and began to embrace capitalism, freeing up the labor of billions of cheap workers. As global integration increased, advanced economies started to subcontract their manufacturing, expanding their production base to less developed countries. Due to factor-price equalization and serious oversupply resulting from mass production, the prices of some products and component parts collapsed.
This not only caused GDP growth among advanced economies to stagnate, it also caused them to give up manufacturing and rely on financial innovation, which brought unimaginable profits. These practices ultimately saw the formation of a huge financial bubble, the bursting of which wreaked havoc worldwide.
As China was experiencing its economic boom, the other so-called BRIC countries — Brazil, Russia and India — were gaining attention. These countries either have a lot of cheap labor or are blessed with rich natural resources and are major producers of energy.
While the BRIC countries have lost some of their economic luster following the global financial crisis, great hopes have been placed on ASEAN nations like Indonesia, the Philippines, Thailand, Malaysia and Vietnam, as well as Mexico, Nigeria and South Africa. The former Asian Tigers cannot compete with these nations in terms of population, size, production or mineral resources.
These changes in global economic structure imply that an age of great powers is approaching. Taiwan’s past success was based on exporting products processed on behalf of foreign companies.
This is in line with the growth model of economies that are taking off now and, as in the past, Taiwan’s GDP has grown by more than 50 percent over the past decade.
However, because Taiwan’s manufacturing sector has relocated abroad and because more than half of the foreign orders Taiwanese companies receive are not manufactured in Taiwan, the salaries of Taiwanese workers have remained at the level they were at 14 years ago and unemployment remains high.
It is evident that what contributed to success in the past does not cut it anymore. If there is no change and new paths are not sought, the factors that led to past success will become seeds for future failure.
Small economies have been marginalized amid the current trends of geopolitical and regional economic integration not because of fate, but because they have lost the ability to come up with effective strategies and responses.
In future, Taiwan’s economic development cannot be based on labor or resource-intensive industries. The nation must focus on research, development and innovation or use brainpower and specialized skills to maximize the added value of products. This is the only way to avoid the cutthroat competition practiced by the likes of the Hon Hai Group.
To help Taiwan develop a strong economy, the government should give encouragement, incentives and guidance to businesses that base their production in Taiwan and businesses with special niche expertise, rather than to businesses that survive by being cheaper than others. This is the only way Taiwan can build for the future.
Translated by Drew Cameron