The Liberty Times Editorial: Building a future for Taiwanese

Fri, Mar 01, 2013 - Page 8

This year, the Year of the Snake according to the lunar calendar, is also sometimes referred to as the Year of the Little Dragon. Starting about three decades ago, hard work created an economic miracle here, making Taiwan one of the four “Asian Tiger” economies, along with Hong Kong, Singapore and South Korea, and turning it into a model for economic development for developing countries.

Times have changed and after having once been the leading tiger economy, Taiwan has fallen behind in every respect, while the other three have continued developing. “Asian Tiger economies” is now a term of the past and Taiwan alone is still trying to hold on to past glories, failing to change and move on. This is why our economy has been so sluggish.

These signs of economic decline have been especially noticeable during President Ma Ying-jeou’s (馬英九) time in office, with three of Taiwan’s worst four years in terms of economic growth occurring in his first three years in power. This year will pose many more challenges.

There is no point in criticizing Taiwan just for the sake of it, but at the start of Year of the Little Dragon, looking back at Taiwan’s past successes and discussing possible trends that may influence future global economic development could perhaps serve as a useful reference to those running the country.

The biggest variables affecting global economic development in recent years are the linking of global networks and constantly changing technologies. These variables are closely followed by the ability to innovate and work hard.

In the past, Taiwan capitalized on the opportunities offered by the global economic environment and cashed in on its own advantages while availing itself of all beneficial internal and external factors to make stunning economic progress.

During the Cold War era, Taiwan stood firmly with the US against communism. At that time, members of the liberal camp practiced capitalism, emphasized business and trade development and established comprehensive legal systems to protect commercial activities and private property.

This caused economic growth to increase greatly and income levels to soar. Communist countries implemented planned economies primarily based on nationalization and state-owned enterprises. Private property was not protected and an emphasis was placed on redistribution instead of economic growth. Production became ineffective and resources were wasted while people remained poor.

To increase the economic power of the liberal camp and highlight the superiority of the democratic system, the US implemented the Marshall Plan in western Europe, while in Asia it focused on helping Japan grow.

The result was that West Germany and Japan recovered from the war and rapidly became the second and third-largest economies in the world. After its economy took off, Japan took the lead in steering other Asian economies toward economic development, and the four Asian tigers constituted the second wave of Asian economies to experience strong growth.

However, this environment had changed greatly by the 1990s. In 1978, China initiated its economic reforms and the Soviet Union and communist countries in eastern Europe had started to collapse by 1989. Once this happened, the polarized power structure that had characterized the world in the Cold War also collapsed.

Former communist countries ended their mistaken economic policies and began to embrace capitalism, freeing up the labor of billions of cheap workers. As global integration increased, advanced economies started to subcontract their manufacturing, expanding their production base to less developed countries. Due to factor-price equalization and serious oversupply resulting from mass production, the prices of some products and component parts collapsed.

This not only caused GDP growth among advanced economies to stagnate, it also caused them to give up manufacturing and rely on financial innovation, which brought unimaginable profits. These practices ultimately saw the formation of a huge financial bubble, the bursting of which wreaked havoc worldwide.

As China was experiencing its economic boom, the other so-called BRIC countries — Brazil, Russia and India — were gaining attention. These countries either have a lot of cheap labor or are blessed with rich natural resources and are major producers of energy.

While the BRIC countries have lost some of their economic luster following the global financial crisis, great hopes have been placed on ASEAN nations like Indonesia, the Philippines, Thailand, Malaysia and Vietnam, as well as Mexico, Nigeria and South Africa. The former Asian Tigers cannot compete with these nations in terms of population, size, production or mineral resources.

These changes in global economic structure imply that an age of great powers is approaching. Taiwan’s past success was based on exporting products processed on behalf of foreign companies.

This is in line with the growth model of economies that are taking off now and, as in the past, Taiwan’s GDP has grown by more than 50 percent over the past decade.

However, because Taiwan’s manufacturing sector has relocated abroad and because more than half of the foreign orders Taiwanese companies receive are not manufactured in Taiwan, the salaries of Taiwanese workers have remained at the level they were at 14 years ago and unemployment remains high.

It is evident that what contributed to success in the past does not cut it anymore. If there is no change and new paths are not sought, the factors that led to past success will become seeds for future failure.

Small economies have been marginalized amid the current trends of geopolitical and regional economic integration not because of fate, but because they have lost the ability to come up with effective strategies and responses.

In future, Taiwan’s economic development cannot be based on labor or resource-intensive industries. The nation must focus on research, development and innovation or use brainpower and specialized skills to maximize the added value of products. This is the only way to avoid the cutthroat competition practiced by the likes of the Hon Hai Group.

To help Taiwan develop a strong economy, the government should give encouragement, incentives and guidance to businesses that base their production in Taiwan and businesses with special niche expertise, rather than to businesses that survive by being cheaper than others. This is the only way Taiwan can build for the future.

Translated by Drew Cameron