‘Economic difficulties’
In a recent article on economic issues, the Taipei Times reported National Central University economics professor Chiou Jiunn-rong (邱俊榮) as saying that “the next president would face four major economic difficulties” (“New president faces big economic issues: expert,” Jan. 27, page 3). In what follows, I have quoted the four issues identified by Chiou and his comments on each, and then given my response.
One: Adjustments to the industrial structure.
“Tsai’s government must develop and foster emerging industries to diversify the economy,” Chiou said.
Providing a supportive environment for new industries is an appropriate role for the government, but developing emerging industries would be highly questionable. Governments are not good in developing industries, emerging or not. In a free economy that has to be the role of the private sector.
Two: Regional economic integration.
“The Trans-Pacific Partnership [TPP] trade agreement might be beneficial for some industries, but other industries could be negatively affected, so making appropriate arrangements to enter the TPP would be a big challenge,” he said.
What are some examples of “appropriate arrangements?”
If what Chiou has in mind is to keep alive industries that might find themselves no longer competitive under the TPP, would that not defeat the main purpose of free-trade, or freer trade, which is to breed the best and most competitive companies and industries?
I think the likely winners and losers under the TPP should be identified. If the winners clearly provide higher value-added than the losers, join. Otherwise, do not join. If the difference is small or unclear, Taiwan should probably defer entry into the TPP.
The immediate social (as opposed to economic) effects are likely to be negative. These effects include such things as unfavorable distribution of unemployed, dislocation of older workers and further widening of the wealth gap.
Three: Development of domestic demand.
“The development of domestic demand will be the third challenge, because the government has always emphasized developing the export-oriented manufacturing industry to more effectively stimulate GDP growth, but has neglected the development of domestic demand, especially refined agriculture and long-term care,” Chou said.
Boosting consumer spending would give a soft economy a short-term boost. It is probably a good idea, but not as an alternative to exports. Juxtaposing domestic demand versus exports creates a false choice. One can and must bolster both markets.
I think long-term care, like other aspects of healthcare, is a social and fiscal-spending issue rather than a domestic demand issue. If more healthcare spending were a good thing, the economy would take off if only there were a few more epidemics.
Four: Real wages are low.
“The fourth challenge is how to see real wages increase, because over the past eight years of the Ma administration, real wages have dropped to the same level as 15 years ago, while the low average wage has already aroused discontent among the people,” Chiou said, adding that popular discontent has affected the public’s willingness to consume, which has also harmed economic growth.
The main cause for low wages is not greedy employers or a government’s failure in not pressuring employers to pay more. Rather, it is because of the low value added by the economy’s products and services. Even in technically advanced industries, Taiwanese companies are mostly in derivative and near-commodity businesses. Such companies simply cannot pay more.
This is an urgent problem, one that the community, not just the government, must find ways to solve.
I believe that part of the solution lies in finding ways to realize greater economic benefits from the large investment that Taiwan is making in academic research.
Eugene Wong
Berkeley, California
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