Isolationism killing the economy

By Bert Lim 林建山  / 

Thu, Dec 06, 2012 - Page 8

Public debate lately focused on an article in the Nov. 16 issue of The Economist about President Ma Ying-jeou’s (馬英九) blundering ways. However, the focus should have been on that issue’s cover story, “The time-bomb at the heart of Europe.”

The articles in the issue’s special report on France were critical of the country’s continued loss of competitiveness, saying it was the result of French President Francois Hollande’s and the ruling party’s unwillingness to change their isolationism and hostility toward capitalism, combined with their implementation of tax increases and the rolling back of the consensus on the increased pension age. The report said these moves make France incapable of winning the trust of the business world and are causing younger generations of entrepreneurs to go abroad to set up their businesses. The report added that unless Hollande changes his policies quickly, France will lose the confidence of investors and of Germany, which would put the health and stability of the eurozone under threat.

The Economist’s warnings and criticisms could be applied to Taiwan’s political and economic situation. The sluggish economy, loss of attractiveness to foreign investors, the deteriorating international competitiveness and the increasing public dissatisfaction with the current situation are a direct result of Ma continuing the policies of former president Chen Shui-bian (陳水扁), coupled with a rigid ideological view of “fairness and justice.” These factors have combined to create a populist hatred toward the rich and businesses, as well as the government’s support of “domestic protectionism.”

This protectionism is the greatest obstacle to the globalization of Taiwan’s political economy and society. It is also the key factor behind the difficulties and opposition Taiwan encounters from Europe and the US in response to its desire to join the international community. These problems have also extended to attempts to sign free-trade agreements as part of the strong trend toward regional integration and when trying to gain access to economic strategic alliance frameworks such as the Regional Comprehensive Economic Partnership (RCEP) or the Trans-Pacific Partnership (TPP).

The US has openly admitted that it has put off inviting Taipei to take part in the TPP and negotiations for the Trade and Investment Framework Agreement because of Taiwan’s excessive protectionism, especially because Taiwan, unlike most other nations, has “domestic protectionism” in addition to the more common international protectionism.

There are at least four areas to Taiwanese-style protectionism. The first is labor protectionism, a crucial factor when it comes to competitiveness. Taiwan has rigid restrictions in place regarding the number, pay and required skills of foreign laborers and skilled foreign workers.

The second can be seen in the industrial sector, where the government has, for ideological reasons, placed overarching stress on businesses “keeping their roots in Taiwan.” The result has been that the government protects old and unproductive companies, thus losing the opportunity to update, upgrade, transform and improve industries. The inability to modernize and internationalize the service sector is the most serious of these problems.

The third area where this protectionism is seen at work is the consumer goods sector, where the government protects disadvantaged, outdated businesses. This in turn has caused the standard of living and quality of life to fall short of international standards.

The fourth is in the use of capital and funds. Austerity is awarded, as is saving money, instead of spending it where it is useful. As a result, economic development takes a negative approach because it is focused on whether expenditure is necessary instead of taking a positive approach and saving what is needed while investing when doing so is warranted, for example, by improving added value rates and productivity. Taking this negative approach has begun to hurt the national economy.

When Ma first became president, he talked a lot about deregulation and reconstruction and tried to lead the nation away from the perils of isolationism. He said Taiwan would reform open up to competition. However, after five years in power, Ma has introduced more restrictions and controls to the nation’s political and economic landscapes, and seems to be leading Taiwan toward a socialist, or even a communist, economy, with the government giving up on the efficiency and competitiveness emphasized by free-market economies.

To echo The Economist’s warnings to Hollande, if Ma is unable to show the resolve and ability to carry out reforms before it is too late, then in the remaining three years of his term, the political and economic situation is bound to get even worse. Investor confidence, the confidence of the business world and even the confidence of society will be lost and Taiwan’s competitiveness will become increasingly weak.

Bert Lim is president of the World Economics Society.

Translated by Drew Cameron