A LOOK AT

Taiwan’s state Policy1950-PRESENT

Presented by: Adeesha HackMarch 16, 2000

Economic Overview

• Capitalist economy-government control of large banks and industrial firms; decreasing in government control

• Export growth has been even faster and has provided the impetus for industrialization

• Inflation and unemployment are low• Traditional labor-intensive industries are steadily being moved

off-shore and replaced with more capital- and technology-intensive industries

• Suffered little compared with many of its neighbors from "the Asian flu" in 1998.

Economic Miracle

Taiwan's Growth 1953-82

-40

-20

0

20

40

60

80

100

1953

1955

1957

1959

1961

1963

1965

1967

1969

1971

1973

1975

1977

1979

1981

%

GNP (total)

Exports

Ixports

Populat.

How to Make a Miracle (1949-1960)

• Kuomintang (KMT)/Chinese Nationalist Party: received massive economic aid from U.S.

• Progressive agricultural reforms and effective use of surplus• Import Substitution:

1) High tariffs levied to protect domestic manufacturers from external competition

2) Overvalued local currently to help local exporters3) Kept interest rates (artificially) low

• Success: Between 1952-1960, GNP’s annual average growth was approximately 7.6%

Distribution of Employment Among Sectors

1952 1962 1972 1986Agriculture 54.8% 49.7% 33.0% 17.0%

Manufacturing 12.9% 15.1% 24.6% 33.8%Mining/Construct/Util 4.8% 5.9% 7.2% 7.7%

Commerce 10.2% 9.8% 14.0% 17.9%Transportation 3.8% 4.5% 5.2% 5.2%

Others 13.5% 15.0% 16.0% 18.4%

How to Make a Miracle (1960-1970)

• New strategy 1) Encourage FDI 2) Promote export growth• Incentives: tax holidays, tax ceilings, EPZ, lowered tariffs • Success: int’l trade flourished, Japan excelled• Agriculture: %GNP decreased from 24% to 17%• Manufacturing Sector: %workforce increased from 14% to 20%• Textiles: export rose by 20x in 10 years• Small Business: flourished• Decrease in government control over economy• Helped to make Taiwanese economy more efficient but overall

still shaped by government intervention

How to Make a Miracle (1970-1990)

• Change in economic development policy• Investment in infrastructure --> capital intensive• Further measures to implement import substitution• 1970: 10 national projects to rebuild infrastructure

– 6: communications & transportation– 3:heavy industry (shipbuilding, steel & petrochemicals) – 1: nuclear power (counteract dependence on oil <oil crisis>)

• 1980s: developed hi-tech sector (34% total exports)• R&D: gov’t accepted 60% expenditures• New problems: -1) less competitive, maintained growth 2%-13%

– 2) dependence on US markets (50% of exports in 1984-85)

How to Make a Miracle (1990-2000)

• 1998: financial turmoil in East Asia slowed growth rate to 5%• Rising labor & land costs led manufacturers in labor intensive

industries to move offshore,• Industrial growth: concentrated in capital and technology intensive

industries (petrochemicals, computers, electronic components, consumer goods industries)

• End of 90s: services, 55.6%GDP; merchandise exports 44%GDP• Rising public debt controlled: austerity measures in place• Budget pressure: social spending (health plan), infrastructure• FDI prohibited in key industries: agriculture, telecommunications,

broadcasting, cigarette/alcohol product. (liberalized in 2004)

Explaining the Miracle

• The “Economist” Explanation1) American military/civilian aid: control inflation, rebuild economy,

supply needed commodities, raw materials, foreign exchange, boost confidence of people

2) Land reforms: agricultural sector3) Protected infant industries when necessary; liberalized when ready4) Foreign investors: provided incentives and good business climate5) Prime resource: cheap/abundant labour -- companies invested in

labour intensive, rather than capital intensive industry - absorbed labour and distributed income more equitably

6) Export-led growth was engine to economic growthState was indispensable to Taiwan’s Growth

Explaining the Miracle2

• The “Dependency” Explanation– Attribute activities in Taiwan to external actors– Nation-state has not been important and would be nothing without

American intervention or transnational corporations– Capital, technology and demand are all externally derived– Tool of foreign corporations, repressing its people– Local entrepreneurs have “sold out” to their “foreign masters”

But Why...

• Why did Taiwan remain so stable during rapid economic growth?1) Declaration of martial law (1949-1987)2) “Authoritarian” nature of KMT3) Equitable income distribution - diffused social tensions

• If we agree with dependency theorists and argue that Taiwan was used by foreign actors, then why did it not become underdeveloped like most of the South?1) Equal terms of trade2) Diversify trade - did not rely primarily on raw materials3) Protect infant industries through government intervention

In Summary

“Taiwan’s existing development must be quick…no waste of resources…cannot be achieved under a laissez-faire economy; must depend on active participation of government through deliberate plans and supervision. Government should decide upon the types and limits of industrial development…government will decide which industries will be developed and which will be delayed. Within this scheme, the various industries and any unit among them will have the fullest freedom of operation. This, therefore, is still a free economic system”

(Yin Chung-Jung, Economic Official, 1954)

Taiwan - “Asian’s Miracle”

In the Old Days Beginning to Modernize