A symposium was held in Taipei on Aug. 9 to evaluate the country's economic policy and development during the reign of the late president Chiang Ching-kuo (蔣經國). It made people nostalgic about Taiwan's 16 years of strong economic performance between Chiang's takeover of the Executive Yuan in 1972 and his death in 1988.
It was a remarkably successful period in terms of common economic indicators -- economic growth rate, unemployment rate, income distribution, commodity prices and others. However, the remarkable success of this period should perhaps not all be credited to the authorities. There is continuity to history. Perhaps the remarkable success during this period was at the cost of subsequent ill effects. Besides, major problems were probably hidden behind those eye-catching numbers.
As everyone knows, the foundation of the so-called economic "miracle" of Taiwan was lain when the late Yin Chung-jung (尹仲容) led foreign-trade reform, or the so-called "first round of economic liberalization," from 1958 to 1962. However, the late Chiang Shuo-chieh (蔣碩傑), a former member of Academia Sinica, was not happy with what he viewed as a lackluster liberalization proces, as well as the inability of some systems and measures -- government-owned enterprises, finance and taxation -- to operate in acoordance with the reform.
After Yin passed away in 1963, the protection and control policies that were gradually lifted in the late 1950s turned around and went in the opposite direction and the situation worsened. The fixed "balanced" exchange rates and the system of foreign-exchange settlement remained the same. The prelude to the free-trade policy in the early 1960s became an accomplice of new mercantilism. The result is that the trade surplus increased year after year and foreign-exchange reserves accumulated along the way. In the early 1980s, the foreign-exchange reserves accumulated so quickly that the US opposed it.
Under the strong pressures of liberalization and internationalization, the government first pretended to be kind, then hesitated about what move to make next and finally looked upon the situation from the sidelines. The defense lines of fixed exchange rates and the system of foreign-exchange settlement finally broke down in the mid-1980s.
As the value of the NT dollar appreciated considerably, the export industry which was previously protected got into extreme difficulty. At that time, foreign exchange reserves accumulated over the years by the Central Bank of China led slowly to a currency overflow, thereby creating speculation in stocks and real estate.
Knowing where the profits lay, many business people would rather manipulate stock trading; they were not willing to help the export industry meet its challenge. The government attempted and accomplished nothing in the face of this unusual economic crisis, although it had huge sums of foreign exchange reserves.
All of these happenings finally led to the unbalanced development of industries, an explosive growth of big businesses and a corrupt social climate. It is difficult to explain the seriousness of these ill effects.
The above comments are part of an essay written by the late Hsing Mu-huan (邢慕寰), another member of Academia Sinica, in June 1995. The particular period Hsing described includes the entire term of Chiang Ching-kuo's rule. When he said that it is difficult to explain the seriousness of ill effects during this period, Hsing meant to indicate a deflationary phenomenon that has lasted until today after the burst of the speculative bubble.
Moreover, although the macro-economic indicators in the 1970s were satisfactory, economic growth rates manifested explosive rises and falls. The progress of labor productivity also tended to be sluggish. In particular, technological progress also slowed down quickly.
Another thing that should come up for discussion is the widely praised "Ten Key Infrastructure Projects" that started in 1974. The investment amount of this heroic undertaking reached more than NT$200 billion in five years. Because the first oil crisis that shocked the whole world was taking place at the same time, the giant investment of the Ten Key Infrastructure Projects happened to offset the deficit of private-sector spending and minimize the effect of the oil crisis on the domestic economy. It was an unexpected gain. A serious crowding-out effect and inflation could have happened if the implementation of the Ten Key Infrastructure Projects took place during a period of economic boom. Moreover, we should not give only accolades for the Ten Key Infrastructure Projects because there were also many project cases that proved to be unsuccessful.
In any case, it is very difficult to assess the development, merits and demerits of a certain historical period. Different people have different views, which are OK for reference only.
Wu Hui-lin is a research fellow at the Chung Hua Institution for Economic Research.
Translated by Grace Shaw
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