Commentary

Concerns over Taiwan’s economic competitiveness

(Photos: Chang Su-ching)

• Publication Date：06/10/2012
• Source： Economic Daily News

In the World Competitiveness Yearbook 2012 released recently by the Institute for Management Development of Lausanne, Switzerland, Taiwan was ranked the seventh most competitive economy in the world, the third in Asia.

It is certainly gratifying for Taiwan to do so well among the 50 nations that were evaluated in the report; and it was no means an easy feat for Taiwan to be ranked higher than South Korea and Japan, two of its main economic rivals. And even though Taiwan came in one place behind its ranking in last year’s report, that is no serious cause for alarm.

On the other hand, however, a close examination of the reasons for Taiwan’s fall in the ranking leads to apprehension. This feeling is only strengthened by the fact that in reality Taiwan’s economic performance has not been as stellar as that of its economic rivals.

Out of the four components that make up the IMD ranking, Taiwan improved the most in Government Efficiency, leaping ahead by five spots to end up at No. 4. In terms of Infrastructure, Taiwan also did better than last year, going from No. 16 to No. 12. Both of these components made significant contributions.

But it was also to be expected that Taiwan would improve in these areas: its former president was corrupt; its present one is known for his integrity. Taiwan has also discarded its policy of an “economic lockdown,” and has instead opened its doors to the world, especially mainland China.

But then a clean government and an open economy should be expected of any normally functioning country. In the previous decade or so, it was Taiwan’s misfortune that the nation went backwards and almost destroyed itself. Thus there is no reason to feel any special pride when the nation has received a better ranking merely by correcting its most egregious faults.

Taiwan made progress in two out of four components, and yet its overall ranking in 2012 was still one place worse than in 2011. This shows that the nation’s real competitiveness has in fact declined: The significance of this should not be underestimated.

Business Efficiency was one of the two components where Taiwan fell in the rankings, moving back by one spot to No.4; but this will not have a major effect and need not raise any serious alarms.

The main reason for the fall in rankings has to do with the one remaining category, Economic Performance, where Taiwan fell by a stunning five places. It fell 13 places in the subcategory Domestic Economy and 15 places in International Trade.

These new rankings tally exactly with Taiwan’s economic performance last year and are some of the most important and indicative criteria when discussing its economic competitiveness. Looked at from this point of view, Taiwan has declined by far more than just one place in the IMD rankings.

Although Taiwan’s economic performance last year was not ideal, its gross domestic product still increased by 4.03 percent. And yet it fell in the rankings. So far this year the Directorate-General of Budget, Accounting and Statistics has already had to repeatedly revise its annual GDP growth forecast downward. As of June the DGBAS expects the economy to grow by around 3 percent this year; the figures could turn out to be even more dismal and perhaps Taiwan’s GDP will have a hard time growing by even 2 percent this year.

The picture is just as grim when it comes to exports: There has been a monthly and steady decline in exports every month for the first four months of the year. The DGBAS says every month that “the bottom has been reached,” that February was the bottom, and then that March was the bottom. But it is hard to fathom where it all ends and it is even conceivable this decline will persist until the end of the year.

If Taiwan’s performance is really as bad as that, well before IMD releases its 2013 report, it can be predicted that Taiwan will experience another significant decline in the rankings, especially now that it has become harder for the government to become less corrupt and for the economy to become more open. The full effects of Taiwan’s worsening economic performance will then become blindingly obvious and the consequences will be even more severe.

In fact there is one unstated reason why Taiwan’s economy is doing so poorly, a reason that has long ago sealed the nation’s fate—mainland China has almost completed its plan to stop being “the factory to the world.” During the last decade or so, Taiwan’s policymakers have made the strategic mistake of tying economic growth to the nation’s trade surplus with the mainland; and in the last few years, especially, 70 to 80 percent of GDP growth has been based on this surplus.

But once the factory to the world closes shop, this 70 to 80 percent will dry up, and Taiwan will be severed from its economic life stream. Such being the case it is unlikely that export figures will pick up any time soon. On the contrary, they are likely to get worse. Last year there were some inklings of this problem; but this year the iceberg itself has surfaced, and who knows how things will turn out in 2013.

It is an important question exactly what relation if any the rankings have to do with actual economic competitiveness. If one looks at those nations and territories that were ranked higher than Taiwan—Hong Kong, the U.S., Switzerland, Singapore, Sweden and Canada—the relation appears to be quite close.

(CNA)

But then again consider foreign direct investment as a percentage of GDP. In 2011 this percentage declined by 0.4 compared with 2010, and in terms of the actual amount the figure fell to US$1.99 billion. This number is far lower than that of South Korea, which only came in at No. 22 in the ranking.

But now that South Korea has started carrying out its free trade agreements with both the EU and the U.S., its direct FDI is bound to increase significantly, as well its spot in the IMD rankings. If Taiwan continues to feel smug because it was 15 spots higher than South Korea, is that not a little bit like Ah-Q, the fictional character by Lu Xun, who always felt so good about himself, even though he was so clearly inferior, even though he was so often at the receiving end of the stick?

In the foreseeable future it is possible that Taiwan will never rank as high in the IMD ranking as it did this year; and this possibility raises a number of questions. It forces the nation to confront a dark and unpleasant reality, a question that the nation’s leaders in particular should be concerned with: How to save Taiwan’s economy?

And yet there is no sign that any attention is being paid to this question, for the administration is gloating over the fact that Government Efficiency has improved. How can one not feel worried? (HZW)

(This commentary originally appeared in the Economic Daily News June 3, 2012.)