National Taiwan University economics professor Kenneth Lin (林向愷), who once worked for the Democratic Progressive Party (DPP), recently criticized the “free economic pilot zones” project launched by President Ma Ying-jeou’s (馬英九) government, calling it “the wrong prescription” and saying it not only catered to business, but would hurt workers and would lead to salaries in Taiwan being the lowest in Asia in five years’ time.
Council for Economic Planning and Development Minister Kuan Chung-ming (管中閔) rebutted Lin’s criticism on April 12, and I agree with his arguments.
In an increasingly competitive, globalized world led by knowledge-based economies, capital, commodities, labor, technology and human capital flow across national borders at an unprecedented pace in search of the most beneficial markets.
Human capital is a crucial resource in the survival of corporations and a key component for consolidating and enhancing a nation’s competitive edge. Developed nations see human capital as a strategic resource for further development and invest heavily on training human resources and attracting international talent.
In Singapore, China, South Korea and Hong Kong, importing human capital is viewed as an important part of national economic strategy, and their flexible and pragmatic approach and its beneficial effects on the economy is something Taiwan should take note of.
The free economic pilot zones plan would ease regulations on foreign and Chinese blue-collar labor and agricultural products. From this, Lin surmised that it would also mean importing more foreign white-collar workers, which in turn would have a negative effect on employment opportunities outside the zones.
Taiwan has a low birth rate, an aging population, low economic growth, stagnant salaries, as well as a deficit of human capital, or the imbalance created by an unequal outflow and inflow of people. Those leaving the country include highly skilled white-collar workers, while those moving to Taiwan consist mostly of foreign spouses and family caretakers.
Faced with this dilemma, Taiwan needs to learn how to attract, keep, nurture and utilize top personnel. Bureaucracy has made it difficult to attract foreign white-collar workers, so breakthroughs are needed, such as liberalizing regulations to facilitate foreign workers’ entry and exit and providing tax exemptions. Aside from abolishing the two-year work experience requirement, the revenue restrictions on companies that want to hire foreign personnel should also be relaxed. In addition, for foreign white-collar workers, income earned outside of Taiwan should not have to be declared, while individual income tax should only be calculated for half of a person’s wages earned in a three-year period.
Attracting global resources through liberalization would prove that the government is determined to get back on track internationally. Although it means competing with the rest of the world, it is possible to use the pilot zones to attract international talent, bring in important technologies, enhance corporate technology standards and lead industrial transformation to improve competitiveness.
Over the past decade, more than 200 regional trade pacts have been inked throughout the world. This rapid regional economic integration should serve as a wakeup call for Taiwan.
With appropriate planning and execution, the free economic pilot zones could relieve a human capital deficit, resuscitate the economy, improve the domestic economic environment, consolidate Taiwan’s core competitive advantages and help promote regional economic cooperation — all of which would help the nation’s competitiveness.
Lee Wo-chiang is a professor in Tamkang University’s department of banking and finance.
Translated by Kyle Jeffcoat
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