Major memory manufacturers ProMOS Technologies and Rexchip Electronics have been delisted from Taiwan’s stock market. TI-Acer and Vanguard International Semiconductor departed long ago, and the once-thriving Powerchip Technology has also been delisted after its share price shrank to NT$0.3. Share prices for the handful of memory makers that are still listed on the stock market range between NT$1 and NT$4.
The fate of these trouble-stricken companies, which account for around half of Taiwan’s wafer output, makes a laughing stock of President Ma Ying-jeou’s (馬英九) bold statement that he would not be worthy of being president if he could not save Taiwan’s DRAM industry. It also signals the bankruptcy of the “Two Trillion” and “Twin Star” plan that the previous Democratic Progressive Party (DPP) administration claimed as one of its major achievements, and trillions of New Taiwan dollars have gone down the drain in the process.
At a big economic symposium held earlier this year, a former government official appointed by the then-DPP administration said that the economy had got into this miserable state because the government has no comprehensive industrial policy.
Council for Economic Planning and Development Minister Yiin Chii-ming (尹啟銘) retorted that Taiwan does not have a state capitalist system like South Korea. Following Yiin’s comment, another participant from the pan-green camp stressed that Taiwan’s small and medium enterprises (SMEs) are quite strong. The views expressed in this exchange highlight the root cause of the tradgedy.
Asian economies in the post-war period have followed a variety of paths. Hong Kong chose non-interventionist liberal economic policies. The Japanese and South Korean governments took the state capitalist approach, giving support to some of their leading companies, allowing them to grow into massive corporations with domestic monopolies and ultimately to become major players on the global market.
As for Taiwan, it has followed a pattern of half-baked state capitalism and half-baked liberalism.
Although the government has supported Taiwan Semiconductor Manufacturing Co (TSMC) and the petrochemicals industry, there are no monopolistic corporations. Small and medium enterprises and original equipment and original design manufacture assembly factories are also part of the science and technology sector, yet they have had to depend on their own strengths to thrive.
The pan-green academics’ remarks at the symposium revealed their admiration for the South Korean model. Although Yiin responded in scathing terms, he did not say that the South Korean model was a bad one.
If the Chinese Nationalist Party (KMT) and its pan-blue allies thought the South Korean model was wrong, they should not keep promoting former economic minister Li Kwoh-ting (李國鼎) and former premier Sun Yun-suan (孫運璿) as models for achieving economic development, nor should they have said that a president who could not save Taiwan’s DRAM industry would be unworthy of the post.
South Korea’s support for its chaebol conglomerates is not just intended to let them monopolize the home market — the real purpose is to prepare them for ruthless competition in a capitalist market where the strong win and the weak fail. The South Korean government might give companies its all-out support, but if it finds that they are not up to the task, it will withdraw that support with no apologies offered.
It is a different matter in Taiwan. Although the KMT and DPP governments have both shown great admiration for state capitalism and poured vast sums of state funds into industrial development, neither of them has had the guts to handle matters resolutely according to the logic of capitalism.
There are many reasons why Taiwan’s memory industry has got into such a pitiful state. Memory manufacturing is an extremely capital intensive industry, so the threshold for entry into the sector is very high, and so is the threshold for leaving it.
A 20 percent share of the world market is needed for any memory maker to attain independent technical innovation ability, but the seven memory manufacturers fostered by Taiwan’s government only have a little over 20 percent of the world market between them and they have shown no inclination to merge. Consequently they have no choice but to pay huge royalty fees to support other companies’ research and development costs, while waiting to be eliminated.
These and other problematic factors have been known for a long time. In 2000, the two godfathers of Taiwan’s high-tech sector, TSMC chairman Morris Chang (張忠謀) and Stan Shih (施振榮), who was then chairman of Acer, understood these disadvantages and quit making DRAM.
When South Korea was hit by a financial crisis in 1997, threatening the chaebol conglomerates with bankruptcy, the state intervened decisively to support them, but it strictly adhered to the discipline of capitalism by forcing makers of memory, display panels and related products to consolidate into two big firms for each product category. This created the conditions for South Korea to quickly overtake Taiwan in these industries.
It was a different story with Taiwan’s 2002 “Two Trillion” plan, which envisaged the nation’s semiconductor and display sectors each expanding to NT$1 trillion (US$34 billion). While the original 40 DRAM makers around the world were starting to merge, Taiwan went against this trend by strongly supporting seven or eight “SME-scale” DRAM plants. In other words, the government of the time insisted on taking the state capitalist approach, despite not knowing how to do it properly.
With such a huge input of capital, Taiwan’s memory and display manufacturing capacity surged ahead to begin with. The output of Taiwan’s semiconductor sector surpassed NT$1 trillion in 2004, and by 2008 Taiwan had at least 15 factories making 12-inch — 300mm — wafers. Taiwan had the highest density of 12-inch wafer plants in the world and accounted for one-third of global wafer-making capacity. However, the excitement was short lived and a pitiful outcome was to follow.
South Korea’s 1997 economic crisis ironically gave it an opportunity for “statist” intervention that led to consolidation in accordance with the logic of capitalism. In contrast, two economic crises in 2008 and last year did not generate opportunities for Taiwan.
Although these crises caused Taiwan’s government to finally see where the problem lay, the solutions it adopted once more ran counter to capitalist logic as it showered relief on all companies in the sector equally, as if doling out social welfare.
As can be seen, the KMT and DPP alike offer a mishmash of statism and capitalism. They both adhere to an equivocal and blurry conception, wavering indecisively as they come under various pressures.
The logic of their policies is thoroughly confused. Worse still, now that the sorry state of Taiwan’s so-called “four miserable industries” — DRAM, display panels, solar energy and LEDs — has become a common karma for both political camps, the main concern for both sides is how to shrug off responsibility for it, blame the other side and get the upper hand in a war of words. They are not willing to accept responsibility and work out reforms, still less to sincerely and diligently sort out their own economic logic.
This is the key reason why Taiwan has not been able to climb out of this quagmire.
Lin Cho-shui is a former Democratic Progressive Party legislator.
Translated by Julian Clegg