When Taiwan's world competitiveness ranking last year improved by one place, going from 12th place in 2004 in the Switzerland-based International Institute of Management Development's (IMD) World Competitiveness Report to 11th place, the government immediately announced that it was the best ranking Taiwan had scored for half a decade and proof that the country was a good place to do business.
But when the nation's ranking fell seven notches -- to 18th -- in this year's IMD report released last week, the government was caught off guard.
Some officials immediately defended the nation's performance by saying that South Korea scored much worse than Taiwan with its ranking plunging from 29th last year to 38th place this year. Others said Taiwan continued to enjoy a comparatively balanced development on one criterion: contributions of economic performance and government efficiency to the overall competitiveness -- Taiwan ranked 27th, ahead of South Korea's at 41 and China at 47.
This kind of spin, however, does not inspire confidence that the government has the determination to improve the nation's economic competitiveness. Although the government admitted a day later that it was worried by the report and the dramatic fall in rankings, it virtually ignored the even more alarming rise of China in the IMD's ranking -- from 31st place last year to 19th this year -- just one place behind Taiwan.
According to the report, Taiwan saw a decline in its ranking in all areas this year, with the exception of technological infrastructure and scientific infrastructure. In terms of "economic performance," it plunged from 18th last year to 27th this year on slowed domestic investment and rising inflation. For "government efficiency," it went from 19th last year to 24th, out of concern for political instability, social cohesion and policy consistency.
Taiwan's government efficiency has a notorious reputation as political infighting continues to impede effective economic policies. Against this backdrop, Standard & Poor's said earlier this month in its Asian sovereign report that "not too many economic policy initiatives can be expected" from President Chen Shui-bian's (
Most of all, however, what the nation should be worried is that in the "business efficiency" category -- the strongest peformer for years compared both to other economies and to other main criteria -- Taiwan slid from 6th place last year to 14th this year.
Business efficiency represents the extent to which enterprises are performing in an innovative, profitable and responsible manner. The eight-notch drop, therefore, highlights how much effort is required to improve a subdued domestic business environment characterized by low investment and low consumption. The IMD report calls for more work to help enhance the transparency in local banking management and corporate governance.
After five straight years of continued progress in terms of the IMD rankings, Taiwan is desperately trying to portray itself as a firm supporter of a healthy business environment in view of an emerging China. The government has repeatedly said that it should receive more credit for the "healthy" state of the economy. The fact is that we tend to view ourselves the way we did in the past, as if past glories were to continue. The IMD report has sounded the alarm at Taiwan's worsening competitiveness. It is a warning that the nation risks losing out to China in the years ahead if we do nothing to implement change.
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