Sat, Feb 22, 2003 page8

• War clouds mask threat to Taiwan

  • By Lu Shih-xiang 盧世祥
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  The national economy faces many uncertainties.

  The biggest variable lies in the Middle East situation. As the US prepares to go to war against Iraq, developments in the region are sure to affect the global economy.

  The second variable is domestic politics. The brouhaha over political integration within the pan-blue camp is closely related to next year's presidential election. The Legislative Yuan remains the main source of political chaos. It is too much to expect the current legislative session to bring an end to political battles, which will continue to hamper economic legislation and policy-making.

  As for its political and economic relations with China, this country should be cautious every step of the way and maintain its autonomy even as its economic reliance on China is growing.

  War economics has become a popular area of study over the past months, as US-Iraqi tensions have risen. A possible war in the oil-rich Middle East will not only affect the price of gold and of the US dollar but also global oil prices. Meanwhile, war involves military budgets and reconstruction work, both of which will have economic effects through government spending in the countries involved.

  In addition, there is a psychological dimension to war which is further reflected in the financial markets and war delays or otherwise affects investment and consumption activity.

  The economic effects of war should be assessed in accordance with the situation on the battlefield. Economies across the world have been waiting for recovery. But once war breaks out, its scale and duration will determine the nature of its impact on the global economy.

  The various international assessments on the likely economic effects of a US-Iraq war -- based variously on a quick battle, a war of attrition lasting for months or a year, or the likely degrees of resistance faced by US troops -- ?range from the worst-case scenario of a global recession to the best-case scenario of an economic upturn. These starkly contrasting projections reflect the fact that the economic effects of war are determined by numerous variables.

  In fact, economic fallout from this war has already had an effect, even before the first shot has been fired. The US-Iraq tensions over the past few months have resulted in fluctuations in international crude oil and gold prices and the financial markets, clearly implying that uncertainty over a war can influence economic behavior. Such uncertainty in the markets before the event resulted in a skyrocketing Dow Jones index and falls in gold and oil prices after the Gulf War started in January 1991. Despite all the unfavorable news that was coming out, the market began to look up. But, it is hard to predict whether history will repeat itself because war, per se, is a big uncertainty.

  In the face of a US war against Iraq and its economic effects, Taiwan can only respond passively, including by activating the national-security mechanism. The nation should intrinsically be perfectly capable of bringing pan-blue integration and political infighting under control, but society's inability to adapt itself to the transfer of political power has created uncertainties over political and economic development, and had adverse effects on our overall interests.

  According to US scholar Francis Fukuyama, Taiwan's society is characterized by poor confidence, family-oriented development and weak spontaneous social forces. His concept of social capital has been used to explain the economic and social structure that mainly comprises family or medium- and small-sized businesses. But in Taiwan's current situation, the ruling and opposition parties themselves are sufficient evidence of political conflict and the damage that does to the overall economy. The parties are themselves obstacles to economic recovery.

  Another uncertainty facing this nation is China's economic pull. With its economy rising, China has become the biggest market for Taiwanese exports and investment. This naturally provides a golden opportunity for growth for certain Taiwanese businesses. But -- in view of the enormous dangers hidden inside the Chinese political and economic worlds, as well as the Beijing government's blatant ambition to annex Taiwan both militarily and economically -- Taiwan's increasing economic dependence on China incurs grave risks and even crises.

  It is baffling that a handful of politicians, media and money-driven businesspeople fan the flames, criticizing the government for practicing an isolationist policy. They ignore the reality that China is bleeding Taiwan of capital, industry and jobs, but seek to equate Sinicization with globalization.

  While there is still room for improvement in Taiwan's investment environment, the nation's competitiveness in terms of growth ranks third in the world according to the World Economic Forum and its business environment comes third in Asia according to the Economist Intelligence Unit. Taiwan, they seem to say, should not look down on itself. The authorities should stand firm when faced with those singing the demise of Taiwan and advocating direct links and unification with China; otherwise, Taiwan will be thrown into an abyss from which there will be no return.

  The war clouds are gathering. There will be a formidable economic test this year, but Taiwan's economy has never been afraid to take up the challenge and this year should be no exception.

  Lu Shih-xiang is a freelance writer. This article first appeared in the Win Win Weekly.

  translated by jackie Lin

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