The lesson of Taiwan

Much has been said about how Taiwan' economy went into the doldrums since 2000, coincidentally after Chen Shui Bian took control of the government. While it is clear that the DPP government was initially inexperienced and has been bogged down by ideology, there are so many factors (both internal and external) that could influence the economic development, it is impossible to pinpoint conclusively that it is a result of government incompetence or its ostensible denial of the China factor.

To be sure, Lee Tenghui's KMT government in the 1990s also discouraged investment in the mainland. Therefore, one cannot simply blame CSB's interference for the deterioration since he took over. However, in 1990s Lee's regime needed to deal with the opposition inside KMT and the "anti-China" factions had not consolidated their power base yet. So the damage LTH's government could inflict was much smaller than CSB's.

The often cited defense for CSB were external factors such as the tech crash between 2000-2002. However, one only needs to compare Taiwan with Korea (which has a similar industry and economic profile and exposure to tech sector) to refute such apologies.

As a believer in free market economy, I think any interference from the goverment (whether retricting or forcing business to go to any market, China or SE Asia) is a bad thing. Decisions are better left to the business owners themselves. To further elaborate on this point, Associate Professor Hong Lung-tsai of Taiwan Economic Research Institute offered some great analysis in today's Apple Daily Taiwan (also cached below)
  • Frequent change in leadership (i.e. Minister of Economy) paralyse long term policy, if there is any
  • Political appeals lead to emphasis on redistribution of wealth [one should not blame DPP for this, as this is typical of any democracy]
  • Vicious circle of outsourcing research of economic policies to under-funded external think tanks, resulting in decline in quality [the author noted this is also not entirely DPP's fault, as it merely followed KMT practice. But the author weighed in to say that the problem was obvious that DPP should have done something to change that]
Hong finally talked about the China investment issue. He wrote, "Large amount of overseas investment has its pros and cons, but if the profit cannot be repatriated to home, this is defintely a minus. Today 70% of Taiwan's investment outside the island concentrates in the mainland China market, the government has imposed various restrictions to these investment [and re-investment] and the result is that enterprises become reluctant and unwilling to repatriate profit back to Taiwan [scared by the restriction imposed upon them when re-investment is needed], this exacerbates the negative impact of Taiwan's external investment."

Hong is right. For every restriction a bureacracy impose, there is a trick to bypass invented by savy businessmen. Result: bureacratic objective fails, but cost of operation for businesses hikes. Taiwan's restriction in mainland investment (40% of net asset) has led to the effect diametrially opposite to its objective, i.e. profits will stay in the mainland. In addition, capital employment by Taiwanese companies become less efficient, as effort was spent on working against the restriction. This lesson has been learned many times by the CCP government in the mainland (上有政策,下有对策) and it seems now that CCP has finally got it. Unfortunately, as long as political ideology continues to overshadow pragmatism in Taiwan, CSB's government has no incentive to fix the economy. Nor will KMT (as it now seems very likely to win in 2008) care much when it takes rein in future.

715觀點 民進黨政治經驗害了經濟



台灣對外投資的金額累計已高達GDP(Gross Domestic Product,GDP)的4成(南韓只有6%),不僅高於世界平均的24%,也大過工業國家的30%,而和歐盟國家相當。唯須注意的是,工業國家的對外投資多半屬於購併行為,而台灣絕大部分都是新創設的對外投資。這也隱含著台灣的對外投資模式,對本國經濟所產生的衝擊必然相當深遠。


作者為台灣經濟研究院副研究員 洪財隆


Tower of Babel said...


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Sun Bin said...

please send to
sunbinblog (at) gmail (dot) com.

Tower of Babel said...

Thank you.

Sun Bin said...

I got your email.

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