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Ignorance of Taiwan is widespread

As important as the economic problems in Taiwan are, they get little coverage in the media in the US except as a part of a broader commentary on Asia's economic problems. One reason is that Taiwan's problems are based on such a confusing mix of international economics, it's domestic economy and its politics, that reporting tends to confuse more than enlighten any reader. Still, foreign accounts of the problem are probably more balanced, though the injustice of Taiwan's international predicament compared to that of others in East Asia is a subject that never seems to get attention.

Even in academic discussions, the attention most economists give to Taiwan focuses on its growing economic interchange with China. US experts seem to develop scenarios either of enormous opportunities in China on the one hand, or of various serious risks and problems that lie ahead on the other. What effect either of these two extremes would have on Taiwan is generally left unsaid. Conventional wisdom is that it is a good trend, as it makes military conflict less likely. Its political, social and even economic impact on Taiwan is left for others to study.

It is understandable why Taiwan's economic situation and its prospects for the future are difficult to explain abroad. In a country of very active popular sovereignty, politics becomes all-pervasive, and the media has a robust market for its product -- opinion. Politics is perceived to be involved in even the most mundane issue, and the domestic media feeds this expectation by continuous and usually very biased speculation. It is picked up by the international news ser-vices and that, clothed in objective reporting, informs public opinion abroad.

Not all of Taiwan's economic problems, of course, are entirely under its control. As a political message, however, that is not a useful fact, so it is not highlighted in domestic reporting. The US economic slowdown is another critical factor in Taiwan's prob-lem, but it has had a negative impact on most countries in East Asia, not just on Taiwan. Then, in conjunction with this media atmosphere, there have been the incentives China is offering for foreign direct investment. Reduced costs for land, labor and taxes attract investment there from worldwide sources. Businesses, of course, are attracted by these conditions, but other countries in the region, in need of foreign and domestic investment themselves, are also badly hurt. Taiwan, with its special concern with the China relationship, has a particular problem coping with this situation.

Then on this issue there is the domestic political factor as well. The cross-strait relationship is an element of almost any issue confronting Taiwan. That includes domestic economic problems, which, almost by definition, be-come packaged with the domestic political dimension of the "one China" issue. The sensitivity and deep divisions between political parties on this matter distort the economic problems, and should call for a special set of rules or at least the development of a tradition on how to manage legitimate internal debate when handling a sensitive external problem. Given China's policies on cross-strait relations, solutions to Taiwan's economic problems are more likely to be found in domestic initiatives in any event.

Taiwan's government has laid out a list of economic problems that it is proposing be addressed by a special economic council. This list includes competitive-ness, the investment environ-ment, financial problems, unemployment and improving economic and trade relations with China. The latter inevitably attracts the most attention, is the most politically controversial and is the one least likely to gain resolution.

The policy of China is to avoid dealing with the elected government of Taiwan, even under established "unofficial" channels. The US, in public statements, has encouraged Beijing to deal with Taiwan, but without results. Bei-jing insists on a fundamental concession before doing so. One has to question, therefore, whether China would bargain over these economic issues in any event as it probably perceives its objectives with regard to Taiwan are already developing in a positive direction.

Improving the investment environment, on the other hand, is a matter in which the government has a greater potential for success. The target is primarily domestic investment by local firms, but foreign investment can play an important role. I recently witnessed a very encouraging process of government contracting that was handled in a very transparent, by-the-book manner. For Taiwan to gain a favorable reputation on that point alone would do much to attract foreign investment. So should another initiative: the expanding project to teach English as a second language throughout the public school system. The competition for investment posed by the economy of China is formidable, but Taiwan does have, and can more easily develop, other advantages.

The special economic council may help narrow the wide number of solutions likely to be offered. Consensus on all matters is probably unlikely, but progress on any issue in that direction will be a step forward. Even implementation of those on which reasonable consensus is attained will be a very significant challenge. Given the political ferment that has had so much to do with the loss of confidence, especially by businesses in Taiwan, re-establishing that confidence in the economy will need strong leadership, and quickly. Someone with a history of strong economic leadership, but with good knowledge of domestic politics, who is seen to put the national interest above party politics, could do much to revive economic confidence and begin implementing policy decisions.

While ultimately full success will also be influenced by outside events -- reviving growth in the US, Japan and Europe, and the behavior of China in the cross-strait relationship -- it will largely result from the domestic effort in Taiwan. As one can see, even now under present conditions, Taiwan's record among East Asian countries is better than most. This is understood in the US and cited when the present economic environment in East Asia is discussed. Unfortunately, what is not cited but should be is that Taiwan, unlike its neighbors with fallback support from international organizations, is addressing its economic problems on its own.

Nat Bellocchi is the former chairman of the American Institute in Taiwan and is now a special adviser to the Liberty Times Group.The views expressed in this article are his own.
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