After the Chinese Nationalist Party’s (KMT) defeat in last month’s elections and the Cabinet reshuffle that was not a reshuffle, the KMT chairmanship election and even the preparations for the 2016 presidential and legislative elections continue to be mired in old-power thinking. At the same time, President Ma Ying-jeou’s (馬英九) disapproval rating has risen to 78 percent, removing any legitimacy his continued rule may have had, and both the state apparatus and the ruling party seem to have come to a crashing halt.
Ma has more than a year and a half left of his term in office, and as the government is unable to operate; here are two suggestions for reform, in the hope that the ruling and opposition parties will be able to shelve old disputes and cooperate for the sake of restarting Taiwan’s development.
First, there is the reform of the retirement pension system.
The KMT suffered a loss because dissatisfied voters wanted to teach the party a lesson, but what signal does that send? It is probably a protest against generational and class inequalities and unfair distribution. A main public complaint has long been the huge difference in retirement benefits for military personnel, civil servants and public-school teachers on the one hand, and the general public on the other. The high replacement rate and the 18 percent preferential interest rate on savings enjoyed by the former groups are far higher than what other people receive, and this creates class inequalities. In addition, it is a huge expenditure that is all but certain to break government finances and leave the debt to future generations. Current generations are living off coming generations and their future, and this creates inter-generational inequalities.
This is the reason a thorough reform of the retirement pension system is required, so that military personnel, civil servants, public-school teachers and other groups receive equal treatment, and so that a system of sound, reasonable and sustainable retirement guarantees is established. This is really the only way to eliminate inequality and conflict between generations and between classes.
The second reform is the stabilization of consumer prices and raising of incomes.
Over the past two decades, globalization has picked up speed and the global economy has taken off, but due to the international division of labor, the massive labor force in less-developed countries like China and India and countries in eastern Europe and Southeast Asia has not only caused a shift in the global economy, but led to a universal expansion of income inequality and a disappearing middle class.
In addition, the free international movement of capital is causing too much capital to be invested in the pursuit of short-term profit. Instead of being invested in the real economy, this capital is used for capital market and commodities speculation, which causes consumer and housing prices to rise and has a heavy impact on people’s bottom line. As an important part of the international economic system, Taiwan cannot escape the global economic development framework, and so falling salaries and an expanding wealth gap have become universal in Taiwan too.
However, Taiwan is also unfortunate in that it is geographically close to China. Because of a common language, when Taiwanese companies and individuals experience bottlenecks in their development, China offers an easy way out. Companies are unwilling to spend time and money on transformation or research and development, and instead move capital and factories to China. This creates a situation in which most Taiwanese foreign investment finds its way there and more than 50 percent of all export orders are manufactured outside of Taiwan. This strips Taiwanese industry of assets, drives down salaries and raises unemployment. Adding rising consumer and housing prices to this is a recipe for disaster as public suffering leaps off the charts.
All this tells us that the solution to relieving public hardship is to revive the manufacturing industry and suppress consumer prices. The government should propose measures to stimulate industry to invest and set up factories in Taiwan to increase the working population and raise salaries. Price stabilization should be spearheaded by state-owned enterprises and there should be an ample supply of daily goods to guarantee that the public can see to their basic needs. Frankly speaking, the main reason behind rising consumer prices over the past few years is the Ma administration’s decision to raise both fuel and electricity prices, using two big state-owned companies, CPC Corp, Taiwan and Taiwan Power Co (Taipower) to drive consumer price increases. This has set off competition between private enterprises to raise their prices, with the result that price increases are getting out of hand.
International prices of crude oil, commodities and agricultural products have fallen drastically recently, which is affecting fuel and electricity prices. It is a reflection of the international situation, and it offers a great opportunity to correct a policy mistake. However, although Premier Mao Chi-kuo (毛治國) and his Cabinet intend to let fuel and electricity prices fall, they are moving much too slowly. The formula used for calculating the oil price is used to explain why gasoline prices cannot fully reflect international prices. Although oil prices continue to fall, domestic oil prices will only reflect half of the more than 40 percent drop in international prices so far. This shows clear disregard for consumers and raises suspicions that the government is trying to benefit particular companies. Taipower is once again turning a profit, but it is only repaying households NT$166 per year, about the price of two boxed meals. The company has also tried to manipulate the formula for calculating electricity rates by including the replacement cost to make up for Taipower’s NT$200 billion (US$6.36 billion) loss with consumers’ money.
The fact is that fuel and electricity are controlled by state-run enterprises or a practical monopoly made up of a small number of private companies. Determining the prices and rates should therefore not be a matter of simply looking at profits and losses, but rather of how to bring the most benefit to the majority of citizens and companies.
Furthermore, state-owned enterprises are accumulating losses not for economic reasons, but because of procurement irregularities and operational inefficiencies. If irregularities cannot be rooted out and price increases remain the only way to eliminate losses, public well-being will suffer and it will also have a negative effect on the overall economy.
Ma’s prestige may be at an all-time low and he may not have much time left in office, but that does not mean that he can let the state apparatus continue to tread water. The way to atone for his sins is to push through reform.
Pension equality, stable consumer prices and increased incomes are closely connected to the interests of the general public, and these are the areas that are in most urgent need of reform and forging a consensus that will make such reform possible. The government should listen with humility to public opinion, and the opposition parties should look beyond the arrogance of victory and help push through reforms to help Taiwan get back on its feet.
Translated by Perry Svensson
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