Taiwan Today

Taiwan's emergence as a major power in the global economy has been termed a "miracle," but Yu Tzong-shian shows that enlightened government policies guiding a private enterprise system are the real factors behind Taiwan's success story.

Taiwan, named Ilha Formosa ("beautiful island") by Portuguese navigators when they first came upon the island, is indeed strikingly beautiful because of its green mountains rising steeply out of the cobalt waters of the Pacific. It is also an undeniably small piece of land, lacking in natural resources and arable land. Add to this the threat of aggression from across the Strait and its diplomatic semi-isolation. When the Nationalist government moved here in 1949, the island was far from a land of promise or opportunity. The only hope for developing its economy lay in capital and human resources.

Due to many years of war, instead of an accumulation of capital there were debts. Also, right after the Chinese civil war, misery and suffering greeted the eyes of anyone who cared to look at Taiwan. All neglected matters were yet to be dealt with, and there were more than 400,000 soldiers to feed and maintain. There was hardly enough strength for economic development. Shortage of capital became obvious, leaving only human resources as a final source for development.

Keep in mind that human beings are, on the one hand, an essential element of production; on the other hand, they are also the consumers themselves. People consume resources every day, and if they are without work opportunities, a greater population is a greater burden to the society. In the late 1940s, it was difficult enough for Taiwan to feed its people, not to mention get any desirable effect from economic development. However, jumping ahead fifty years to the 1990s, Taiwan's economic report card has impressed people all over the world. Descriptive terms such as "Little Dragon," "Little Tiger," and "Miracle" have all been applied. The Asian financial storm, which was set off in July, 1997, has almost rolled the world up like a mat, but Taiwan's performance has again amazed the world. They want to know Taiwan's secret. In a nutshell, during the past ten -odd years, people, local and foreign, have attempted to understand the true source of Taiwan's economic development.

Some foreign scholars have taken early action, and their publications are more than a few. But their analyses tend only to "scratch an itching foot with one's boot on" (not get to the real point), because they have not gained an insight into Taiwan's cultural background, the essence of its systems, and its people's living habits. Therefore, local scholars have more of an advantage in their attempt to unveil the secret of Taiwan's economic miracle. But there are complicated factors affecting the economic development of a country. To make a painstaking examination would take someone who has both research abilities and practical experience. Nevertheless, there is a veritable truckload of local documents aiming to analyze Taiwan's economic development from every possible perspective. The Story of Taiwan: Economy by Academia Sinica member Yu Tzong-shian (于宗先) is not the latest publication on the subject, but it is one of the most acceptable for general readers owing to its simplicity and brevity. It is also significant that the book is available in several bilingual editions.

The target audience for this book is the general public. In a story-telling way, the author applies an easy-to-understand style in a readable diction to depict the evolution of Taiwan's economic development during the past forty years. First of all, he reflects on the time before economic takeoff, using statistics about the main products and commodity prices between 1942 and 1949 to show the down side of that period. Next, the author shows the structural changes in Taiwan's agriculture system, heavy and light industries, and the service industry as a way of discussing two key stages: 1952_1980 and 1981_1995. He accompanies his discussion with clear statements about government policies at different stages and important social events, to show that achieving an economic miracle is never a piece of cake.

After he explains the chronological development and the background of the story, Yu begins to offer his own interpretation. He discusses Taiwan's economic success from two perspectives: the external environment and domestic conditions. From an external perspective, he argues that, because the advanced countries provided huge markets and because most of the developing countries, bound by their own domestic instability, were unable to join the competition, Taiwan's export industry thus had a chance to get ahead. From the perspective of Taiwan's domestic conditions, Yu says that a secure and harmonious social atmosphere, the availability of universal education, a hardworking and thrifty people, and right governmental policies and tactics all worked to the advantage of Taiwan's economic development. According to the old Chinese saying, "If you help yourself, others will help you and heaven will help you." An ideal state of prosperity--high growth rate, fair distribution of income and wealth, low inflation, low unemployment rate, high foreign reserves, and no burden of foreign debt--has been realized here in Taiwan.

After he finishes narrating the success story of Taiwan's economy, Yu sums up the teachings of the Taiwan experience: (1) Do not completely copy a western developmental model; (2) Know your own advantages and stick to the principle of "comparative advantage"; (3) Excel in human resources as the key factor to promoting economic growth; (4) Maintain an orderly and peaceful social environment to attract investment; (5) Keep a harmonious management-labor relationship; (6) Avoid damage to the environment by the rapidly-growing economy; and (7) Do not neglect to match cultural life with social development.

Yu subsequently argues that the challenge Taiwan will be facing in the future will be in the form of social problems that accompany increased wealth. He discusses this argument in terms of the nouveau-riche mentality, the "free-lunch" mentality, and the neglect of work ethics. He also argues that Taiwan's new economic challenges include the continuous decline of agriculture, the worsening of the investment environment, the effects of de-industrialization, an aging population, the task of improving technology, and bridging political differences between the two sides of the Strait. Yu concludes that becoming a rich country is not easy, but maintaining prosperity is even harder; and that if the people of Taiwan lose the virtues of hard work and thriftiness, or the government loses its enthusiasm and determination to improve people's livelihood, a rich country will turn into a poor one overnight, and the Chinese dictum that "a rich family cannot last for more than three generations" will seem applicable. Both the public and the private sector should take precautions.

Though Yu used only about thirty thousand Chinese characters to describe an economic miracle that has lasted for forty years, this book covers most of the important aspects. As a Chinese saying goes, "There is life in a mussel, though it be little." What will be the main lesson readers learn from the important factors Yu credits for Taiwan's economic miracle? "The most efficient application of limited resources" seems to be it.

This phrase is as simple as can be. It is the typical opening phrase of a textbook on economics. But its realization is extremely difficult. The only way to attain it is to allow the full development of market functions under a private property system. A private property system caters to the public's enlightened self-interest, and it is highly possible to achieve public -interest or benefit the whole society. Some self-interested actions can result in rapid economic growth, which benefits the general public. However, a private property system requires that the "action taker" appreciate basic moral ethics, such as keeping promises and playing by the rules. In addition to this, the precise definition of ownership and the protection of ownership are two other conditions for achieving public-interest through self-interest.

It must also be acknowledged that the bottom-line responsibilities of ownership when a dispute arises and safeguarding ownership are the government's territory. Of course, aside from protecting the ownership from being undermined, the ROC government has to protect each and every citizen's life and safety. Therefore, the government's primary responsibility is to safeguard people's life and property; which means that the government must not shrink from its responsibilities in national defense, police administration, and judicial affairs. In other words, whether the society has law and order, whether the living environment is safe and whether people live together harmoniously are the indexes that indicate the government is doing its job. These indexes are the basic conditions for successful economic development.

Applying these indexes to Taiwan, it is proper to say that Taiwan has been relatively secure during the past thirty or forty years. We cannot deny that the mainland Chinese threat to use force against Taiwan exists, that Taiwan's national defense is not without its share of loopholes, that the police system here has received severe criticism; but we have always managed to maintain a certain degree of overall security. Undeniably, under the former autocratic rule, martial law and the "White Terror" dictated strict control of political ideology and behavior. But the economy had a private property system and provided space for free development of the private sector. We might put it this way: politics was the forbidden "secret garden," but economics was an "open park" to everyone.

What's worth mentioning is that cases of economic control and the protection of privileges (such as the monopolizing of public enterprises and the existence of government-favored businesses) remain numerous. Restrictive orders and regulations are innumerable, but the enforcement of them is relatively weak; that is why Taiwan's underground economy continues to flourish. The fact that small- and medium-sized enterprises outshine their counterparts in other countries is one evidence. To spell it out, these enterprises dare to go against restrictive orders and regulations in order to work their way through a highly competitive underground economy; and the overall environment has also forced them to make the best use of very limited resources and to fully apply the principle of "comparative advantage."

The other side of the coin for the boom of Taiwan's underground economy is the weakening of public authority. From the perspective of the effectiveness of political control, the ROC government could have as much control over the economy, but it chooses not to exercise its authority in this area. Taiwan started its economic liberalization as early as the 1960s. In 1984, the government stated three goals for its economic policy: liberalization, internationalization and systematization. In 1995, the APROC project upheld freedom, openness and economic relaxation as its highest principles. One wave after another of liberalization seems to prove that the ROC government has deliberately helped to bring to materialization the boom of Taiwan's underground economy. Other evidences are that during the past decade, Taiwan's government has tried to turn the underground economy "downside up"--to regulate and legalize it--and has made every effort to join the WTO, the most prestigious international trade organization that upholds free trade.

In all, compared with the governments of other countries, Taiwan's leaders have played an important role in letting the private sector develop freely under the market function, in encouraging hard work among the people of Taiwan, and in making best use of human resources (the only precious resources of this island). This is the reason for Taiwan's rapid economic development, and the key reason Taiwan has stood firm in the recent Asian financial storm.

Copyright 1998 by Wu Hui-lin.