Mon, Dec 20, 1999 page21

• Why Internet companies are afforded short-shrift

  Fearing the financial mayhem and dislocation that would result from making it easier for Internet companies to list on the TAIEX, government foot dragging may drive these non-traditional industries to greener financial pastures

  • Anthony Lawrance |w東尼
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  To understand why the government is so hesitant to give Internet companies the kind of access to capital offered elsewhere in the world, while at the same time kissing the ground that hardware companies walk on, you have to consider not only the development of Taiwan's economy, but also its politics.

  On Wednesday, the government announced that it was considering a relaxation of listing rules for Internet-related companies, which could bring forward their preparatory period for initial public offerings (IPOs) to six months, rather than two years. Industry players seem to think this is still not good enough and, from their perspective, there seems little room to disagree. They can get better deals elsewhere, such as Hong Kong, so why stick around? Yet it is highly unlikely that the government will go further, because to do so would be tantamount to opening the floodgates on the sector. It fears that Taiwan's stock market will not be able to cope with the madness Internet mania has wrought on Wall Street if it makes it too easy for Internet companies to list here. It is probably right, as I have said in a previous column (In Taiwan's Internet sector, better look before you leap, www.taipeitimes.com, Nov. 22 edition, Business Focus section).

  The worry remains, however, that Taiwan will be worse off in the long run, because the creative talent that is blossoming in the Internet industry will move to greener pastures and Taiwan will be left behind by its global competition.

  

  On the other hand, the government appears to have no qualms about renewing the Statute for Upgrading Industries　(促進2ㄦ~?伔鑄屭?/CHINESE>), which all but passed the legislature on Friday, for another 10 years, despite the fact that many of the companies who qualify for special treatment under it are now seriously lacking an argument for their continued status. Far from being fledgling start-ups with a bright future, companies such as Taiwan Semiconductor Corp (TSMC,台灣積體1q路?膝q) and United Microelectronics Corp (聯1q) are now global giants. And yet the taxman still pays them, rather than the other way round, to help build multibillion-dollar fabs which employ very few people in Taiwan.

  Now, I may be an ignoramus about the economic knock-on effects of ensuring these companies' continued prosperity, but I think it would be safe to say that they've had about as much of a leg up on the competition as they could possibly need. It's time for the next generation of Taiwanese start-ups to get all the incentives that these high-tech giants were given, and for them to get on with their lives.

  As in the case of the Internet companies, however, the worry also remains that Taiwan will be worse off in the long run if these companies lose their incentives, because the intensity of global competition dictates that these high-tech companies must stay on the cutting edge of production processes and they can only achieve this with massive amounts of investment -- meaning high stock prices and huge retained earnings for reinvestment.

  So, in each case, the government faces the same dilemma. The question is, therefore, why does it so obviously favor the hardware industry?

  There's an easy answer, of course, which is that hardware companies have already built Taiwan a fortune by replicating a tried-and-trusted business model that has held the island in good stead for most of the past four decades: original equipment manufacturing (OEM). No creativity has really been needed, just flexibility, adaptability and a strong work ethic. It is much easier to see where their future lies than it is to trust the conjecture of the new Internet young guns.

  But that's only part of the story.

  The rest is to be found in the democratic changes that have taken place over the past decade under President Lee Teng-hui's (李登輝) rule. Basically, Taiwan's government has become less authoritarian and, ultimately, less immune to the pressures of the private sector when it comes to economic policy-making. Whereas 10 years ago economic planners could do almost what they liked, now they have to contend with a formidable opposition in the form of the legislature and private business lobby groups.

  Now, this is not necessarily to say that Taiwan was better off economically under the Chiang dynasty. But it is true that dictatorship had its benefits as far as the economy was concerned. Admittedly, there is much that the Taiwanese people achieved in spite of, rather than because of, harsh KMT rule. But it can't be denied that Chiang Kai-shek and Chiang Ching-kuo at least had the common sense to listen to American advice in devising their earliest economic policies, and then had the wisdom to leave economic policy-making in the hands of professionals.

  Looking back over the government's history of personnel appointments, you can see that the people who were put in charge of the economy were almost all Phd graduates from US universities. Yet what really gave Taiwan the edge over the rest of East Asia was the fact that these people were shielded from political interference by the Chiangs. There were several forerunners to the Council for Economic Planning and Development (經建會), yet all these special agencies enjoyed one special privilege: they could cut across ministerial lines and present their policies directly to the premier for implementation. Of course, their ministerial colleagues were also much easier to deal with in those days because they did not need to give nearly as much attention to the interests of lobby groups. That was something for the party's security apparatus to take care of.

  Today, however, the situation is anything but rosy for government officials responsible for economic policy-making. If their bills make it through the legislature in a shape that even remotely resembles what they submitted them as, they count themselves lucky. But then, to make matters worse, the legislature inevitably makes sure that the fine print of the bill is anything but fine, leaving it up to the various ministries to contend with the lobby groups in implementing the legislation.

  Which brings us back to the Statutes for Upgrading Industry. The legislature did a neat side-step by avoiding a definition of exactly which industries would qualify for special treatment under the bill, leaving it up to the Industrial Development Bureau (?u業局) under the Ministry of Economic Affairs (經濟3? to decide. The bureau is a known battleground for business lobby groups who regularly call on very influential people to fight their cases behind closed doors. Any high-minded officials who would like to simply do the right thing have an awfully tough time going about it.

  Into this environment step the Internet companies. So, is anyone still surprised that they're having a tougher time getting their case heard than those titans of business in the Hsinchu Science-based Industrial Park?

  Anthony Lawrance is the managing editor of the Taipei Times.
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