Service industry: economic hope

By Bert Lim 林建山  / 

Sun, Dec 16, 2012 - Page 8

After two decades of political isolation and economic reliance on manufacturing, Taiwan has reached a stage of economic development that requires a major system reform and structural transformation.

If these things are not done Taiwan will be unable to continue to play an active role in the global community; a community that is now truly in the age of a knowledge-based economy. Such large national and social reforms are normally instigated by the impact of great external events, such as the 1957 launching of the Sputnik satellite by the Soviet Union and the huge effect it had on the US.

One thing we can be sure of is that this significant event will not come from anywhere within Taiwan’s manufacturing industry. The time when we could rely on the low cost economy of primary manufacturing to create economic miracles is long gone. Such an event can only come from within the tertiary industry –– services.

Taiwan’s economy has already gone through structural adjustment and upgrading, and the service industry makes up 72 percent of GDP. If we want to move the nation to the next level we will have to rely on the impetus and innovation of that industry. It is the only sector with sufficient force to bring the economy and society forward.

In addition to the impact of a reform shock, it is equally important to establish Taiwan’s economic status. This is a crucial factor in determining whether Taiwan will maintain its ability to plan for the future.

Over the past two decades, Taiwan has been embroiled in constant disputes over its political status, wasting energy on meaningless mudslinging. The nation has been weakened and become unable to improve its image, sacrificing the economy and the well-being of all Taiwanese.

In the new age of globalization, the importance of Taiwan’s economic status overrides that of its political status. The government of almost every advanced nation is now relying on economic strength and performance to gain voter support and to govern effectively.

However, in terms of Taiwan’s national economic status, society and government must scrap the outdated idea that further development of a country relies on agriculture, instead opening up to the idea that an island nation needs to rely on new ideas like technology, knowledge and innovation for the development of its economy.

If they are unable to do that, the most direct impact will be the continued deterioration of national resource allocation and destructive incompetence that we will never be able to escape from.

Taiwan has changed from being a backward economy, based on agriculture and fishing, into a new urban economy full of vitality. When that happened, the principles and rules for the allocation and use of water and land resources –– crucial to the country’s sustainability and development –– should have been based on ideals and forward-looking strategies that were very different from the past.

However, Taiwan’s ratio of food self-sufficiency has plummeted from 76 percent to 16.5 percent. In the same way, agriculture as part of GDP has dropped sharply from almost 70 percent to a mere 1.24 percent.

Still, because the government is unable to abandon the idea that a country’s further economic development relies on agriculture and because it still places voter support over all else, the reorganized Council of Agriculture funds spent on administration and the number of civil servants employed remains unchanged, both as a proportion of all government agencies and in absolute numbers.

In addition, 85 percent of Taiwan’s total water resources are allocated to agricultural use. This is extremely high and sets Taiwan apart from advanced countries. In addition, the management, allocation and operation of almost 90 percent of Taiwan’s water resources have been handed over to third-level government agencies under the council, completely overlooking the realities of social and economic change.

Taiwan is now at the stage where it must break away from being an economy based on high-tech manufacturing and make further moves toward becoming an economy primarily based on using wealth to spur innovation with a service sector characterized by a high value-added knowledge base. This will help Taiwan join the international community and become an active player in the global market. Therefore, the timely transformation and adjustment of Taiwan’s economic functions and social structure are now both inevitable and necessary.

Today’s leaders are instead becoming afraid of increasing populism and are obsessed with the vain pursuit of votes. To date, not one person has had the courage to stand up and proclaim that Taiwan no longer relies on agriculture for further development and that it is instead a nation whose development is closely linked to technology and innovation.

As long as the government cannot get over its preoccupation with the idea that Taiwan’s economic development is dependent on agriculture while ignoring the importance of knowledge, Taiwan’s economy, national strength and vitality will never improve.

Bert Lim is president of the World Economics Society.

Translated by Drew Cameron