Taipei Times: What can the government do in order to retain businesses in Taiwan?
Lim: First thing they should do is to reduce the costs for businesses. The government controls everything from work hours, wages and retirement perks, and plus they have implemented a mandatory 6 percent pension provident fund.
PHOTO: CHEN CHENG-CHANG, TAIPEI TIMES
Currently, companies are even finding it difficult to comply with a 2 percent rate -- it has a penetration rate of only 18 percent. If they are not able to do even 2 percent, then why is the government asking for 6 percent? Labor unions have been asking for 12 percent -- which is impossible. This will increase the cost of labor and that is why companies are leaving. Their wage costs are already comparatively high, and then you bring in the rising non-wage costs in Taiwan, such as social benefits. In terms of listed companies, it is quite easy for them to raise money in the stock and bond markets. If you want to retain Taiwanese companies here, you have to help them lessen costs, by reducing government intervention in the labor market.
Times: Do you think the companies should really move to China?
Lim: I don't think so. Because in terms of business strategy, the benefits of a value added strategy are much greater than a cost-reduction strategy. Taiwanese migration to China only fulfills the cost-reduction strategy, but it does not help promote the value-added element. If you want to increase your value, then you should invest in Japan or other more advanced countries, because it will help you access higher technology and the high-end market. China is a low-end market, it has a comparatively competitive advantage in production elements such as labor and material costs, rather than marketing and [access to] technology. If you go to advanced countries, you get advanced technology and a high-end market.
Times: But does asking them to stay here mean inviting their demise?
Lim: Maybe. Therefore, we are asking for the government to make the markets marketable. If you reduce the government intervention in the labor and capital markets, then they may survive. But the heavy government intervention in the labor and capital markets have made these companies highly inflexible.
Meanwhile, what the government thinking lacks is that, instead of promoting the high-tech industry [to the exclusion of other sectors], they should also think about helping the low-tech, traditional sector. Companies in these industries may join with other less developed countries in Latin America and Southeast Asia, particularly with the overseas Chinese residents in those countries. Then these products can be reassembled or repackaged in Taiwan and be exported. These strategic alliances and joint ventures should be encouraged. These are very meaningful for struggling traditional industries. The food processing industry may be a good example.
Times: How do you think the government should reduce speculation in the stock market and make it more institutionalized?
Lim: What we can do is to increase the number of companies in the stock market. If there are more than 1,000 companies listed in the stock market, then there will naturally be less speculation in the stock market. Currently, the Taiwanese stock market is still too small. We can let companies list on the stock market and if they do not do well, then we can also de-list them from the stock market. This will also increase their sensitivity to risk at the same time. Currently, everything is protected by the government and there is no sense of risk, because there is an over-reliance on the government, which steps into the market whenever things go wrong.
Times: You think intervention in the stock market is bad?
Lim: It is very difficult to determine what kind of situation actually warrants intervention. So intervention is very difficult to justify. Who can judge, for instance, what level of the stock market is too low or too high? It is very difficult.
Times: Has intervention harmed the economy?
Lim: There are usually three markets in an economy, capital, labor and commodity markets. Both Taiwan's capital and labor markets are very fixed and rigid. Our commodity, markets however, are quite free.
Look at our high tech exports. For example, a product priced at US$300, in two weeks could drop to US$30. So the commodity markets are completely free.
In addition, our financial services are highly regulated and our labor markets are highly regulated. Therefore, our non-wage cost is extremely high. Because of the government protection in these two markets, the cost of capital and the cost of labor is very high and difficult to acquire. So it is very easy to understand, why companies are leaving Taiwan. Since your commodity price is flexible but your labor price is fixed, companies get squeezed in between. The new government is particularly meddlesome in terms of the labor market.
Times: What do think about the new wave of globalization?
Lim: In 1987, a wave of internationalization started following the Uruguay Round of GATT, which is the predecessor of the World Trade Organization (WTO). Later on, beginning in the '90s, most people believed that globalization was better than internationalization. The key difference between the two is in that internationalization is an extension of your trade and investment to the other countries.
Internationalization is usually a policy adopted by developed countries, who expand their market to other countries. Globalization is a [wider more organic] concept which treats the globe as a single market place, while internationalization requires [merely that] the domestic economy to become more international.
Times: What are the implications of globalization on the financial markets?
Lim: In the process of globalization, money moves fastest, followed by technology and equipment. This [money traveling faster than commodities] has led to several financial crisis: England in 1992 followed by the Mexican financial crisis of 1994 and then the Asian Financial Crisis of 1997. So the fast-flowing money [as compared to what it buys] is a problem, because the physical, tangible economy is much slower in its pace. There is a lag -- and many developing economies cannot withstand the shock of [such] huge inflows of capital.
Times: In this case, do you suggest capital controls for Taiwan?
Lim: James Tobin, who won the Noble Prize for Economics in 1985, suggested a Tobin Tax. He posed that the flow of capital, in terms of frequency and size, should be regulated using a so-called Tobin Tax. If it is a long-term investment, it is welcome; but if it is a short-term capital or frequently moving capital, they should be regulated or ceased. For instance, in Malaysia, the Tobin Tax has now become a sort of consensus particularly because of investors like George Soros, who uses `Hot Money' to move very fast in and out of the foreign exchange markets and stock markets. Hot money is usually defined as capital which flows in and out within one year.
Times: So how do Taiwanese controls work?
Lim: In terms of Taiwan, there are restrictions in terms of inflow, but not many restrictions are levied in terms of outflow. So it is a peculiar system. Taiwan has a huge balance of payments surplus, so Taiwanese citizens need to report to the Central Bank when taking money out of the country, but they do not need to seek permission to repatriate the capital.
In one year, an individual can take out US$5million without permission, but [that individual] is monitored. It all has to do with the utilization of capital. Morally speaking, we believe that all money should be used productively. With regard to the size of Taiwan's economy, actually we do not need these restrictions. But these are mainly a result of political concern, particularly, with regard to China.
Times: Why is the Central Bank so cautious about capital flows?
Lim: Actually, what Taiwan could do is make the NT dollar even more internationalized. Because the situation would be much less serious if, like the US dollar, most of the major economies had NT dollar holdings. That would increase the participants in the NT dollar market, which will make the proportion of China's holdings relatively small, as China would become only one of the players. So actually, it is not that serious.
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