Taiwan slipped from 11th to 14th this year in the global competitiveness ranking released by the International Institute for Management Development. The nation once ranked sixth, but that is now a distant dream.
National competitiveness has dropped the most, and the key sub-categories of domestic economy, international investment and prices dropped sharply. In particular, domestic economy dropped from 21st to 30th place, removing Taiwan from the “A” list and placing it on the “B” or even the “C” list.
Apart from the decline in GDP, Taiwan should squarely face its weakening economic resilience and diversity that have become more and more fragile. The National Development Council blames this on the urgent need for systemic and structural reform of the economy and says that this can be resolved simply by carrying out the economic structural adjustments proposed by President Tsai Ing-wen (蔡英文), but this is questionable.
Tsai has pushed for several strategic mechanisms, such as the five major innovative industries — biotechnology, national defense, Internet of Things, “green” energy and smart machinery — an innovation and transformation fund, a national-level investment and trading company and the establishment of an investment promotion team. None of these are likely to have an effect in the next three to five years. How are such long-term mechanisms going to meet today’s pressing needs?
The institute’s World Competitiveness Yearbook also reveals two major obstacles to Taiwan’s economy: protectionism in the labor market and stagnant basic infrastructure.
The former is mainly a result of rigid labor regulations that focus on protectionism, which has hurt the labor market and restricted freedom and flexibility in the supply and demand for talent. As a consequence, a number of sectors and enterprises have moved abroad, cutting job opportunities in Taiwan. Meanwhile, a number of professionals have also moved out, since there is no room for wage raise here.
The latter is like a “cancer,” causing a high degree of insecurity and uncertainty concerning the nation’s economic development. The anticipated water and electricity shortages are particularly harmful to the stability and foresight of investors’ operations.
Five key factors are having a great impact on the nation’s lagging and insufficient basic infrastructure.
First, Taiwan’s industrial policy is trapped in the conservative thinking of a “factory economy.” It fails to include the free and open competitive thinking of the knowledge society, where the service industry is a main economic sector.
Second, the financial support system for investment and financing cannot compete internationally due to outdated and conservative regulations.
Third, the nation’s human capital remains limited to Taiwanese and it is incapable of either cultivating local talent or attracting foreign talent.
Fourth, national business regulations for systematic, value network, the Internet of Things, the Internet of Everything and virtual economy operations have made almost all economic innovation impossible, including legal person status for organizations, freedom of international mergers, strategic partnership mechanisms for business group operations, standardization of operations in end markets and flexible arrangements for service-oriented talent.
Finally, the systemic discontinuity resulting from the transition of government has the most harmful and the most fundamental impact on Taiwan’s national competitiveness.
As these symptoms of the “cancer” are entangled with one another, they further threaten the nation’s future.
Bert Lim is president of the World Economics Society.
Translated By Eddy Chang
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