At a forum on Wednesday last week celebrating the 50th anniversary of the Chinese-language Economic Daily News, Morris Chang (張忠謀), founder of Taiwan Semiconductor Manufacturing Co (TSMC), presented his advice for the nation’s economic development in the next 50 years based around the core ideas of “growth and innovation.”
TSMC and Taiwan’s wafer foundry industry are two successful examples of the innovation economy.
In 1996, while studying for my master’s degree in sociology at Tunghai University, I visited Chang along with my professor Kao Cheng-shu’s (高承恕) research team.
Chang told us that he had two reasons for founding TSMC.
Studying the US electronics industry, he had noted the emergence of a large number of semiconductor design companies and that those companies did not have manufacturing plants. On the other hand, in Taiwan there were many outstanding, diligent young engineers being paid relatively low salaries.
Against the backdrop of the emerging separation of design from manufacturing in the semiconductor industry and Taiwan’s advantage in terms of human resources costs, Chang created the world’s first semiconductor original equipment manufacturer (OEM).
Having begun as an OEM industry, Taiwan’s semiconductor industry has developed into a complete industrial chain from upstream design operations to downstream packaging and testing facilities, making it the core industry of the nation’s economic development.
This is all thanks to Chang’s innovative thinking in those days.
However, at the forum Chang did not offer blind praise for innovation.
Instead, he reminded everyone that it is important that a nation maintains its economic growth.
However, growth does not necessarily rely on innovation alone, and capital and investment in human resources can also bring about growth.
Chang’s comments are an explanation in plain and simple language of the production function — which ties physical output of a production process to physical inputs or factors of production — that appears in economic textbooks.
The textbooks teach that increases in labor and capital can bring about economic growth just as technological progress can.
However, innovation economics has become popular in academic circles and practical policy implementation, while the contribution of capital and talent to economic growth has been neglected.
For example, it is common to hear someone say that Taiwan has joined the ranks of developed nations and to be able to achieve economic growth in the future, it will become necessary to rely on technological innovation.
Is this really how things are?
Let us look at an example.
Singapore joined the ranks of developed nations in the mid-1990s, but since then one of the main pillars supporting its economic growth has been the petrochemical industry, which relies on capital and talent investments.
In the 1990s, Singapore reclaimed seven islands in its southwestern waters to create Jurong Island and developed a world-class petrochemical industry.
The petrochemical industrial park has made significant contributions to Singapore’s economic growth since then, but it has little to do with the city-state’s capacity for innovation.
The reason for this is simple. The main companies in the industrial park are foreign, including such giants as Shell, Exxon Mobil, DuPont, Sumitomo Chemical and Mitsui Chemical.
The technological capability of this industrial area mainly relies on these foreign companies and what Singapore does is provide a free-trade market so that foreign firms are willing to invest capital to build factories, while the government sets up training institutions to cultivate the technical staff the petrochemical plants need.
Of course, the success of the Jurong Island industrial park is dependent on the specific conditions in Singapore — for example, the smell from the petrochemical factories often drifts toward Malaysia — and Taiwan does not necessarily have to copy it.
However, the case of Singapore and Chang’s advice is a reminder that it does not necessarily take innovation to provide growth; new momentum and economic growth also can be created with capital and talent, bringing prosperity to all Taiwanese.
Guo Yung-hsing is a professor of international trade at National Taichung University of Science and Technology.
Translated by Lin Lee-kai
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