A LOOK AT Taiwan’s state Policy 1950-PRESENT Presented by: Adeesha Hack March 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

How to Make a Miracle ( ) 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 exporters 3) Kept interest rates (artificially) low Success: Between , GNP’s annual average growth was approximately 7.6%

Distribution of Employment Among Sectors

How to Make a Miracle ( ) 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 ( ) 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 ) 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 )

How to Make a Miracle ( ) 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” Explanation 1) American military/civilian aid: control inflation, rebuild economy, supply needed commodities, raw materials, foreign exchange, boost confidence of people 2) Land reforms: agricultural sector 3) Protected infant industries when necessary; liberalized when ready 4) Foreign investors: provided incentives and good business climate 5) 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 growth State 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 ( ) 2) “Authoritarian” nature of KMT 3) 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 trade 2) Diversify trade - did not rely primarily on raw materials 3) 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 DaysBeginning to Modernize