An increasing number of business owners are demanding that the government allow the New Taiwan dollar to depreciate to shore up the competitiveness of the nation’s export industry, but every time they raise the issue, they are accused of wanting to use scooter drivers’ gasoline money to subsidize the export industry.
This attitude echoes the statements of former Japanese vice-minister of finance for international affairs Eisuke “Mr Yen” Sakakibara that “a strong yen is good for the country” and that “depreciation increases the burden on people traveling abroad.”
Has a strong yen really been good for Japan? Japan’s 23-year-long experiment says it all.
Mr Yen’s argument is similar to Karl Marx’s views. Marx’s theory of exploitation rejected the contributions of business owners, positing them as exploiting the working class only.
Yet, after ridding themselves of all the business owners, communist economies still did not improve the public’s income and welfare.
On the contrary, the result was that everyone was equally poor.
Following the same line of reasoning, a strong yen meant that Japanese businesses died or were on the brink of dying.
While scooter owners enjoyed cheaper gasoline and people traveling abroad enjoyed lower travel expenses, salaries in Japan stagnated: The average salary in the manufacturing industry fell from ￥326,000 (US$3,458) per month in 2000 to ￥323,000 in 2011.
In short, everyone was equally poor.
Compare this to South Korea, whose currency depreciated by 16 percent from an annual average of 951 won to the US dollar in 1997 to an annual average of 1,108 won to the US dollar in 2011.
At the same time, average salaries in the manufacturing industry increased by 129 percent, from an average 1.32 million won in 1997 to an average 3.03 million won in 2011.
The currency depreciated and gasoline prices increased; however, salaries more than doubled.
Is it scooter drivers that will save the export industry or is it exporters that will save the scooter drivers?
In discussions about the exchange rate’s influence on the economy, it is important never to let the short-term view decide, because the process from depreciation to increased business profits, and from using these new profits to increasing investments, which in turn leads to increased employment and higher salaries, will take between one and three years.
It was as early as 2011, three years after the financial crisis in 2008, that the South Korean company Samsung managed to deal a blow to Taiwan’s DRAM industry.
In other words, if the South Korean central bank had not devalued the currency to save the country’s export industry, Samsung would not be what it is today, nor would its workers be paid twice that of Taiwanese workers.
Currency devaluation is of course no panacea, and a country’s export competitiveness cannot be improved on devaluation alone.
The crucial point is whether the government is capable of following up on a devaluation by seeing to it that the increased profits are reinvested — in Taiwan rather than in China — and used to improve equipment and strengthen research and development expenditure and, in the end, also achieve the goal of raising workers’ salaries.
If all the government knows is to deregulate, relax controls and then deregulate some more, the question is: Do we really need a government?
Huang Tien-lin is a former presidential adviser.
Translated by Perry Svensson