Sun, Mar 16, 2014 - Page 8 News List

Growth ‘cure’ worse than headache

By Hwan C. Lin 林環牆

For a long time, Taiwan’s economy has been laboring under what is termed in international trade theory as “immiserizing growth.” Many economists believe this concept is little more than a theoretical abstraction based upon an economic model, with little possibility of existing in the real world. However, those familiar with economic dynamic equilibrium analysis would not feel overly optimistic about the current unbalanced trajectory of Taiwan’s economy.

First, the potential economic growth rate for the long term continues to fall, retarding its ability for wealth creation. Meanwhile, over the long term, workers’ wages have become decoupled from the overall economic growth rate, and salaried workers generally no longer benefit from the fruits of growth. Despite the economic growth, actual salary levels, deflated by price levels, continue to fall, and salaried workers are becoming increasingly poor. The biggest winners in this immiserizing growth are the owners of capital.

Second, the “Made in Taiwan” brand is demonstrating an ongoing reduction in market share in global trade over the long term, falling ever further behind South Korea. This phenomenon has been especially acute in the years since the Chinese Nationalist Party (KMT) returned to power in 2008 with President Ma Ying-jeou (馬英九).

Third, Taiwan’s external terms of trade are worsening, which is hitting “Made In Taiwan’s” brand value in the global market. The value creation from the fact that products are made in Taiwan, by Taiwanese workers and their capital and skills, is becoming increasingly irrelevant in the global economy. Taiwan Semiconductor Manufacturing Co (TSMC) remains a very potent force in terms of value-creation, but there are increasingly few companies emulating it.

These four phenomena — weakening economic growth, the creeping impoverization of the populace, the decreasing share in the export trade market and the worsening of external terms of trade — are symptomatic of immiserizing growth, and they can be supported with official figures. If things continue in this way, the nation will inevitably regress into a low-income, developing economy.

Chinese state councilor and former chief economist and senior vice president of the World Bank Justin Lin (林毅夫) recently gave a speech in Beijing in which he said: “In the early 1990s, the Taiwanese economy was ranked above that of South Korea, but it has slipped in recent years and has since been surpassed by that country, predominantly as a result of political interference such as the ‘no haste, be patient’ and the ‘go south’ policies. After President Ma Ying-jeou came to power, the signing of the Economic Cooperation Framework Agreement initially provided a platform for rapid growth, but as the service trade pact has still not been implemented, the opportunities and momentum available in the huge China market have yet to be brought to bear.”

Lin’s assessment is wide of the mark. At root, the main reason for the malaise and decline into which the economy has fallen is the thoroughly discredited policy that Taiwan is following — tying itself to China’s trajectory of economic development.

By taking this path, the nation has invested excessive amounts of capital and technology in China and tried to exploit that nation’s huge advantage, its supply of labor. As a result, industry has rapidly relocated to China, which has severely compromised the nation’s ability to cultivate industries.

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