Free competition in business vital

By Tu Jenn-hwa 杜震華  / 

Thu, Nov 15, 2012 - Page 8

Out of all the world’s economies, Taiwan is ranked 139th in terms of area and 51st in terms of population. GNP is the 28th highest in the world, it is 20th in economic scale and sixth in terms of foreign reserves. Internationally, its economy is generally viewed as that of a medium-sized country. However, because Taiwan’s major export markets have traditionally been the US, Japan and Europe — and lately China — Taiwanese think of themselves as coming from a small country.

As a result of the recent global economic sluggishness, the nation has tried to find a country to emulate, but nobody knows whether the model should be Germany’s excellence in craftsmanship, the UK’s skill in the cultural and creative industries, the US’ commercial strengths, the Netherlands’ success in logistics, Switzerland’s expertise in biotechnology or the success Ireland has had with information technology.

It is widely believed that Hong Kong and Singapore have the two best economies in the Chinese-speaking world. Hong Kong’s government goes to great lengths not to get involved in the economy, while Singapore’s government plays a very active role and does so effectively. Both of these governments have produced economies that perform very strongly.

The worst thing for any economy is a government that wants to get involved, but that does so ineffectively.

However, a fair basis is necessary when making such assessments. After World War II, in the 1950s, Hong Kong and Singapore were already commercial centers, both with a GDP double that of Taiwan’s. The three economies are now more closely comparable, meaning that over the long term, Hong Kong and Singapore have not performed as well as Taiwan, so there is no need for Taiwanese to feel ashamed.

In a market environment characterized by fair competition, the amount an industry produces will be similar to the ratio of the population it employs. For example, the US’ agricultural industry employs about 0.7 percent of the US’ total manpower, creating 1.2 percent of the nation’s gross output value. The US’ industrial sector utilizes 20 percent of the nation’s manpower to produce 19 percent of total output, while its service sector employs 79 percent of the workforce to produce 80 percent of the US’ output value.

In Australia, 3.6 percent of the workforce is in the agricultural sector, which produces 4 percent of the country’s total output value. The Netherlands’ agricultural sector uses 2 percent of the total workforce to produce 2.7 percent of its output value, and in Israel, 2 percent produces 2.5 percent of total output value.

These countries all have highly productive agricultural sectors.

However, in Taiwan, the agricultural sector uses 5 percent of the workforce to create less than 2 percent of the nation’s gross output value, which shows that productivity in the agricultural sector is too low.

If its agricultural sector is unable to overcome these difficulties, Taiwan will never be able to join the ranks of more advanced countries.

China’s agricultural sector offers yet another contrast to the examples mentioned. China uses 37 percent of its total workers to produce a mere 10 percent of its gross output value. This is clearly because farmers are not allowed to move into the cities, which creates a vicious cycle in which productive forces cannot reach a balanced state.

The imbalanced distribution within Taiwan’s manufacturing industry is also a big problem. In South Korea, the electronics industry accounts for only 20 percent of GDP, while in Taiwan it accounts for as much as 40 percent. This is why Taiwan has suffered so badly in the current economic downturn.

This relates to the special treatment the government has shown the high-tech electronic industry in the past. These policies need to be changed.

All parts of a manufacturing industry are capable of performing well so long as goods are produced properly. In door lock manufacturing, a traditional industry, Taiwan’s Tong Lung Metal Industry Co is ranked among the world’s top five companies, with an annual turnover of more than US$100 million. Handbag manufacturer Louis Vuitton, another example of a traditional industry, makes large amounts of money for the French economy every year.

Even the manufacturers of small hearing aids are capable of making a lot of money. For example, in 2009, the sales volume of manufacturers of hearing aids in Singapore and Switzerland reached approximately US$400 million in each country, much more than in China, the US or Germany.

Yet another example of a traditional industry making plenty of money is Danish toy manufacturer Lego, which has 10,000 employees and sells its products in 130 countries.

Taiwan’s service industry has unfortunately never received adequate attention from the government. One example of this is how an aquatic therapist is capable of earning NT$100,000 (US$ 3,444) per month, yet the government does not even have basic regulatory provisions in place for this vocation.

Ministries are merely concerned with whether an operation is illegal and should be prohibited. There is no industry guidance or attempts to create jobs. Compared with the support the government has given the manufacturing sector, it would seem that Taiwan’s service industry must rely on itself.

If the government continues to treat the service industry this way, it is debatable if an industry which accounts for 70 percent of Taiwan’s output value will be able to support the next wave of economic growth.

The key to success for small economies is simple: create an environment characterized by free competition for all businesses.

Tu Jenn-hwa is an assistant professor at the Graduate Institute of National Development at National Taiwan University.

Translated by Drew Cameron