Taiwan's Economic History PDF

Unit 1 Lesson 8b 1 Taiwan’s Economic History This lesson presents an overview of Taiwan’s economic history from the colonial period to the 21st century. Learning Outcome 1. cite and explain the varied factors that contributed to Taiwan’s economic deve...

Unit 1 Lesson 8b 1 Taiwan’s Economic History This lesson presents an overview of Taiwan’s economic history from the colonial period to the 21st century. Learning Outcome 1. cite and explain the varied factors that contributed to Taiwan’s economic development Key Concepts to Understand economic infrastructure Employment Insurance Act export-oriented policy import substitution intelligent planning land reform new Southbound policy privatization Excerpt from: Copper, J.F. (2020). Taiwan: Nation-State or province? 7th edition. New York: Routledge. In its past Taiwan experienced periods of economic boom and decline. Several centuries ago, Taiwan was for a time a center of trade and commerce in East Asia. Then this ended. Under Japanese governance from 1895 to 1945, Taiwan thrived economically, surpassing by most standards all of East Asia except for Japan. After World War II, Taiwan’s economy deteriorated. In the mid-1960s, however, based on privatizing the economy, further adopting free- market capitalism, a good labor force, astute planning and engaging full throttle in global trade, Taiwan’s economy took off and its fast-paced growth soon became the envy of the world. Many used the term “miracle” to describe Taiwan’s economic growth. Its economic boom engendered vast social and political change, producing a large middle class, consumerism, Westernization, democratization and more. Regarding Taiwan’s relationship with China, its fast economic growth dampened the desire on the part of its political leadership, not to mention its residents, for unification with China. Different standards of living were the main cause. But then this changed. In 2001, Taiwan experienced a severe recession caused partly by a slowdown in the West and the global economy and partly by the Chen administration’s poor economic management and political gridlock. Meanwhile China had already experienced two decades plus of rapid growth to become a global economic powerhouse. Taiwan thus sought to expand trade and other economic ties with China. Taiwan’s economy was hit by the 2008 global recession, but by the end of 2009 was doing well. Then its growth slowed again. But China’s economy continued to boom. With Taiwan’s exports to the United States, Europe and Japan in relative decline and exports to China increasing fast, many perceive that expanding links with China was the only way for Taiwan’s economy to grow and remain dynamic. But its economic ties with China became a double-edged sword. China helped Taiwan grow economically; yet political ties that came with that contradicted Taiwan’s bid for independence. Further, those ties, but also Taiwan integrating with the global economy, engendered economic inequities. These issues helped the opposition Democratic Progressive Party win the 2016 election. But the DPP’s progressive agenda appeared to relegate Taiwan to meagre GDP increases... The Economy to 1950 Centuries ago, although Taiwan’s economy was in a primitive state of development, the Aborigines engaged in commerce with other areas in the region and Taiwan was more prosperous than most parts of East Asia. By the 1500s, however, Taiwan’s external trade had  Unit 1 Lesson 8b 2 all but disappeared. Thus the economic activities of the island’s residents, the Aborigines, were generally limited to hunting, fishing, berry picking and some farming. The mountain Aborigines engaged mainly in the former three pursuits, while the lowland Aborigines cultivated some of the level land on the island. Taiwan subsequently became the base of operations for Chinese and Japanese pirates, who engaged in various forms of trade in the area both before and during the time of the arrival of Europeans. Meanwhile Chinese emigration to the island began. In the seventeenth century Holland made Taiwan a colony. The Dutch introduced oxen and farm implements to the island, created a cash economy and launched modern facets of commerce and trade. The Dutch East India Company, which managed the economy, promoted the exports of rice, sugar and deerskins, and the imports of silk, porcelain and other goods from China mainly for re-export. The Company encouraged the immigration of Chinese, who came in large numbers. They revolutionized farming by bringing new crops as well as the more advanced cultivation and irrigation techniques used in South China. Under Chinese rule from the late 1600s to 1895, Taiwan’s economy experienced some economic modernization. Owing to a continued increase in the Chinese population of the island, agricultural production expanded markedly; land under cultivation grew from a very small area to nearly all the island’s flat lands. Trade also increased, and significant quantities of rice and sugar were shipped to China. The mining of coal and other minerals also became a part of the economy - coal primarily because it was exported and also because Taiwan became a coaling station for steamship traffic in the region in the mid-1800s. Still, the island’s economy was largely agricultural. Improvements in the economic infrastructure and the growth of business enterprises saw only modest progress. In the very late 1800s, this changed as a result of Peking appointing better governors that adopted new policies to improve the economy of the island. …, the best was Liu Ming-ch’uan, whom Peking made governor of Fukien Province (which Taiwan was a part of) in 1884. Liu, a close friend of China’s modernizer, Li Hung-chang, was given a mandate to extend to Taiwan the popular “self-strengthening” movement launched in China to improve economic conditions there. At this time, the island lacked modern transportation and communications facilities, and its industries were few and mostly small and inefficient. Liu acted to remedy this. He expanded telegraph lines built by a former governor and oversaw the construction of harbors and railroads. He opened new mines. He conducted an extensive land survey and improved the island’s transportation system. Liu also adopted policies to expand the production of camphor, which quickly became a major export product. He then made cultivating tea a priority. Rice and sugar growing were increased. In a few years, he transformed Taiwan from one of China’s most backward areas into an advanced one. Although much of what Liu did, particularly at first, was aimed at strengthening Taiwan militarily in order to fend off foreign encroachments, his efforts had quite a positive effect on the economy. But most of Liu’s efforts were short-lived. The powerful families in Taiwan felt threatened by Liu’s modernization efforts and employed various means to undercut him. Liu then contracted malaria. Finally, his support in Peking waned. As a result, in 1891 Liu left Taiwan without accomplishing much of what he had hoped to do. In fact, most of Liu’s economic improvements would probably have had little lasting effect had Taiwan not soon become part of the Japanese empire. The Japanese completed many of his projects. While Taiwan briefly experienced impressive economic progress before Japan colonized the island, its economic structure remained quite similar in many ways to that of the provinces of coastal southern China. There were vast discrepancies in income and wealth, and most people were poor. Yet Taiwan differed economically from China in some significant ways. Taiwan did not have a history of frequent famine caused by floods and crop failures. Fishing provided a more important food source than it did in China, especially inland China. Crop yields were better than China’s because of Taiwan’s rich volcanic soil and its heavier and more even rainfall. The  Unit 1 Lesson 8b 3 island’s economy was also much more linked to trade. Finally, capitalism, which was brought to Taiwan earlier by the European colonial powers, was more in evidence. Serious economic modernization in Taiwan began shortly after the island became a Japanese colony in 1895. Important progress in four areas laid the foundation for Taiwan’s later growth: (1) the building of an economic infrastructure, including roads, railroads, port facilities and electrification; (2) the establishment of profitable local industries (such as food processing) and an export-oriented economy; (3) the organizing and training of the labor force; and (4) the opening of banking and other economic institutions. Japan’s colonial leaders concentrated first on agriculture. Tokyo provided needed capital investment, technology and management skills. Crops were improved by the introduction of new farming techniques, irrigation and fertilizers. Rice and sugar were given the highest priority; both were shipped to Japan in significant quantities. From 1910 until World War II, growth in Taiwan’s agricultural sector of the economy spearheaded its economic development, which overall exceeded population growth by about three-fold. Agriculture also made a major contribution to capital formation and aided the subsequent growth of other sectors of the economy. A decade or so after 1895, Japan started building factories in Taiwan in significant numbers, marking the beginning of Taiwan’s industrial revolution. The decline of European trade during World War I and new Japanese policies aimed at making Taiwan’s economy more industrial, along with the infusion of large amounts of Japanese capital into the island’s economy, contributed to the process. World War II, which started in Asia in the 1930s, further stimulated Taiwan’s industrialization and contributed to even faster economic growth. But there was another side to the story: Japan’s management of Taiwan’s economy during the decades before the end of World War II contributed immensely to its economic development and growth; however, the island and its population were exploited by Japan’s capitalist system. The Chinese population’s standard of living saw unprecedented increases, but it lagged behind rises in productivity and overall economic growth. Evidence of its colonial status was the fact Taiwan exported considerably more to Japan than it imported. Before and during World War II, Japan used Taiwan as a base of its military operations and Tokyo invested in building some heavy industries on the island. Taiwan’s economy benefitted. Because U.S. bombing during the war was generally restricted to military targets and oil storage depots, Taiwan sustained less damage to its economy than other Japanese- controlled areas of East Asia. Meanwhile, Japan and China both suffered widespread war damage. Hence, Taiwan was in much better shape economically when the war ended than either Japan or China. From 1945 to 1949, however, Taiwan’s economy endured several severe shocks. The first was caused by the sudden withdrawal of Japanese administrators and businesses and the return of 160,000 Taiwanese soldiers that served in the Japanese military that needed jobs. The Nationalist Chinese government’s lack of attention to the economy in the immediate post-war period made the situation worse. Ruinous economic policies resulting from Nationalist leaders’ preoccupation with fighting a war against the Communists on the Mainland also caused serious economic harm. Further, Governor-General Ch’en Yi’s efforts to create a state-managed socialist economy on the island and his leadership in terms of fixing the economy were disastrous. In short, for several years after World War II, Taiwan suffered economically almost as if it were a country at war. Economic activity declined precipitously during this period as measured by the output of nearly all goods and services. By 1946, just a year after Taiwan was turned over to Nationalist China, economic output had fallen to less than half of what it had been. Subsequently, the economy declined still further. Many consumer products became scarce or unaffordable. Poverty and disease followed. The education system and public services deteriorated commensurately. Because China’s monetary system was used in Taiwan, inflation decimated  Unit 1 Lesson 8b 4 many commercial enterprises. In a period of just over one year (from November 1945 to the beginning of 1947), the price of food rose 700 percent, fuel and construction materials 1,400 percent, and fertilizer 25,000 percent. In short, Taiwan’s economy was severely traumatized by the Nationalist government’s policies - or, in many cases, lack of policies - and its bad economic oversight. Another economic shock came in 1949 in the form of approximately 1.5 million Chinese fleeing China to come to Taiwan. This influx of people caused severe dislocations in housing, employment and an already weak infrastructure. On top of this, preparations to defend the island against an invasion from the Mainland diverted precious resources that might have been used to revive the economy. At this time most people in Taiwan, as well as Western observers, were extremely pessimistic about Taiwan’s economic future. Given the situation just cited, plus the fact Chiang’s government was discredited after losing a war to Mao’s communist forces, the island had but meagre natural resources, the population-to-land ratio was unfavorable and there was a shortage of capital, some labelled Taiwan a “basket case” and predicted Taiwan would never develop economically. Economic Recovery and Boom: 1950–2000 In the 1950s, Taiwan’s economy began to recover. The Korean War and a consequent shift in U.S. policy to again favor Chiang Kai-shek and his government meant the U.S. Navy provided Taiwan with a secure environment for economic planning. U.S. economic and military aid made up for a serious foreign exchange shortfall and allowed Taipei to divert funds from defense spending to economic rebuilding. Last but not least, the huge pool of administrative and other human talent that came from China in 1949 with Chiang Kai-shek charted intelligent plans for the implementation of economic development that accommodated the desire of Taiwan’s population for economic rehabilitation. Because of concern over feeding Taiwan’s rapidly growing population and the realization that the loss of peasant support in China had been a major factor in the Nationalists loss to the Communists, economic planners in Taipei decided to focus first on the agricultural sector, a choice that comported with Taiwan’s planners’ ideas about economic development and also advice they received from U.S. aid personnel. This turned out to be a very wise decision. Land reform was the first big decision taken to foster growth in the farming sector. It was carried out in three stages: (1) rent reduction in 1949 (from around 50 percent to 37.5 percent of the main crop); (2) the forced sale of public lands in 1951 to tenant farmers at 2.5 times the value of one year’s crop (resulting in 96,000 hectares of public land going to 156,000 tenant farm families); and (3) the “land-to-the- tiller” program, which forced landlords to sell land they did not farm themselves, except for 2.1 hectares of paddy field and double that amount for dry land. The Joint Commission on Rural Reconstruction (JCRR), composed of two U.S. and three Chinese commissioners, planned and carried out these decisions. After land reform was completed, the JCRR created farmers’ associations, initiated a government program to exchange fertilizer for rice, and sponsored other activities that helped farmers. Nearly all of the commission’s efforts were successful - so much so that Taiwan’s land reform program was and still is emulated by economists in developing countries. Individual initiative and hard work on the part of the farmers, who could now realize profits from their efforts, and flexible government planning that encouraged the planting of new crops and adopting innovative farming techniques, were critical to increasing agricultural productivity. Taiwan’s agricultural sector also responded to market opportunities abroad. In the early 1950s, when Japan lifted restrictions on banana imports, Taiwan’s farmers doubled their yield in two years and took most of the Japanese market. Farmers began asparagus cultivation and canning in 1954, increasing production almost 100-fold in the next 15 years. Mushroom growing and canning became major enterprises in the 1960s. By 1971, asparagus and mushroom exports had earned $82 million in foreign exchange.  Unit 1 Lesson 8b 5 Taiwan’s average annual real growth rate of the agricultural sector during the 1950s was an impressive 14 percent. However, by the 1960s, farming had nearly reached its full potential. Growth in the agricultural sector of the economy subsequently dropped to 4.5 percent annually. Forestry saw the slowest growth, while livestock, fish farming and fruit production surpassed the average. Expansion of the agricultural sector overall was around 3 percent in the 1970s and 2 percent from the mid-1980s to the early 1990s. In short, early on agriculture’s contribution to Taiwan’s economic development was very significant. During the 1950s and early 1960s, agricultural exports supplied half the nation’s foreign exchange earnings. Taxes collected from rural Taiwan, farmers’ savings (40 percent of capital formation in the 1950s) and their purchases of goods from Taiwan’s fledgling factories greatly facilitated Taiwan’s industrialization. Even more important, rural Taiwan, because of rapid increases in agricultural productivity, was able to supply nearly half of the new labor used in non-agricultural production from the 1950s to the 1970s. Meanwhile, by the mid-1960s, Taiwan’s farmers provided the population with a level of food consumption superior to that of any country in Asia except Japan; in caloric content, Taiwan even eclipsed Japan. From the 1970s on, while farmers continued to enjoy an improved standard of living, they suffered from relatively declining incomes. Farmers’ buying power fell and agricultural work became less attractive. In addition, soaring labor and land costs, an aging workforce, foreign competition and environmentalism beset farmers. The result was that the agricultural sector’s contribution to the nation’s gross national product (GNP) fell from over 32 percent in 1952 to just 1.7 percent in 2000, while the farm population dropped from more than one-third of the total population to 15 percent during the period from 1975 to 2005. Joining the World Trade Organization in January 2002 had a further negative impact on agriculture since it forced Taiwan to cut tariffs on food products that had heretofore been protected. Taiwan’s farmers adjusted to a changing economic situation by reducing the production of some crops and increasing others. Production of sugar, sweet potatoes, rice and other grains was cut; production of soybeans, tea, fruits and vegetables was expanded. Hog and chicken raising increased. Because fishing was affected by fewer catches in proximate waters, fishermen shifted to other endeavors: deep-sea fishing (farther and farther away from Taiwan’s shore), marine aquaculture and on-land fish farming. Meanwhile farmers became more politically active: in 1988, they engaged in a mass street demonstration to draw the public’s attention to their plight. In response, the government rezoned farmland so that it could be sold for other uses. This decision pleased many farmers but did not help agriculture overall. The government helped farmers to mechanize and diversify their crops; but this had only a limited impact. Because of joining international agreements on free trade, the government could not subsidize agriculture (except to help it adjust to new and different situations). Thus the future of agriculture in Taiwan was not promising. In fact, in the future it is almost certain to continue to fall in terms of its contribution to the GDP. After the late 1950s, industry became the engine driving Taiwan’s economic growth. Annual growth in the industrial sector of the economy was around 12 percent; it exceeded 17 percent during the 1960s and rose at an even faster pace in the 1970s. Factories proliferated such that by 1977 the industrial index had increased by more than 28 times its level in 1950. In fact, Taiwan’s industrial sector grew at a rate seldom equalled anywhere at any time in history. Comparisons with other countries are instructive: during the 1960s and early 1970s, industry’s share of Taiwan’s GNP grew by 18 percent annually, double the rate of Britain and Japan during their industrial take-offs. Even compared to other booming East Asian countries, Taiwan’s industrialization was considerably faster. As a result, Taiwan was more industrialized by the mid-1970s than any other country in Asia except Japan. What accounted for this lighting pace of industrialization? The key factors were (1) the expansion of industrial employment; (2) increases in labor productivity; (3) U.S. economic assistance; (4) privatization; (5) a high rate of local savings and considerable foreign  Unit 1 Lesson 8b 6 investment; (6) a solid economic infrastructure, including transportation and port facilities; and (7) excellent planning by the government and the business community. The contribution of each needs some elaboration. The industrial labor force in Taiwan grew from virtually nothing in 1950 to 850,000 by the mid-1960s and to more than two million by the mid-1970s. The increases were especially large in manufacturing and construction. Taiwan’s rapid population growth and the movement of workers out of the agricultural sector owing to mechanization and other increases in farming efficiency were the main reasons for the large numbers of new entrants into the industrial labor force. From 1952 to 1968, workers employed in industry increased from 16.9 percent to 41.5 percent of the total workforce. Labor productivity in industry, not initially high, began to increase rapidly in the early 1950s and continued to rise sharply thereafter. Initially, Taiwan’s industrial sector benefited from high skill levels and good education among workers (particularly compared to labor costs), and a strong work ethic. Later, rising labor productivity came from the efficient organization of labor, labor saving devices, and the capitalization of production. In the early years, U.S. economic aid and advice were as important to Taiwan’s industrial progress as they were to its agricultural growth. From 1951 to 1964, the United States injected nearly $100 million annually into Taiwan’s economy, money critically needed to build Taiwan’s new factories. As a matter of record, from the early 1950s to 1960, U.S. aid accounted for 40 percent of Taiwan’s capital formation, most of which helped the industrial sector. Few underdeveloped nations at that time or since benefited as much from economic growth generated by foreign aid. Although U.S. help ended in 1964, it had by then stimulated Taiwan’s industrial progress such that the island’s economy was able to sustain its rapid growth. In short, Taiwan’s economy “took off.” Taiwan later was widely applauded for it being the only country in the world to experience increasing economic growth after the termination of U.S. aid. Privatization also spurred Taiwan’s industrial growth. In 1945, the government assumed management over most of the large manufacturing enterprises left by the Japanese. It kept in place government monopolies it had created on the Mainland to provide needed sources of tax revenues. Top government leaders at that time also believed that large industries must be government owned because of their size and importance to the economy and for reasons relating to national security. In 1954, only 43.4 percent of industrial production was privately owned. Subsequently, government economic planners changed their views and the government sold many public companies. By the early 1960s, the portion of industrial production in private hands was over 50 percent and was growing fast. It reached 80 percent by 1972 and nearly 90 percent by the mid- 1980s. Subsequently, even compared with the other successful capitalist, free-market countries in Asia, a larger portion of Taiwan’s enterprises was privately owned - due both to government privatization policies and the proliferation of small family-owned businesses. This became a hallmark of Taiwan’s growth economy. Pro-foreign investment policies. A high rate of domestic savings and large inputs of foreign investment also helped Taiwan’s economic development. During the 1950s and 1960s, growth in the agricultural sector and U.S. economic assistance were the primary sources of capital accumulation. Meanwhile, in the mid-1950s new investment laws made it possible for foreign firms to import plants and equipment and sell their products in the domestic market to make profits and generate additional capital. Tax incentives were added in 1959 to attract foreign capital. Special laws were passed that included a maximum tax rate of 18 percent and a tax- exempt “holiday” lasting as long as five years for some new investors. In the mid-1960s, export processing zones (EPZs) - a Taiwan invention according to some economic historians - were established, giving foreign companies special set-aside zones to build factories where they enjoyed free port status for imports and exports, relief from government red tape, and access to  Unit 1 Lesson 8b 7 good harbors. Taiwan’s EPZs were extremely successful in attracting foreign companies that invested in Taiwan’s economy and created jobs while also training workers and upgrading labor skills. These policies resulted in a marked increase in foreign capital input in Taiwan: from a total of $20 million from 1952 to 1959 to more than $950 million between 1966 and 1973. Amazingly, foreign investment in Taiwan’s economy increased by almost 50-fold during the 1960s and the early 1970s. Most of it came from the United States, Japan and Overseas Chinese (especially from Southeast Asia); most was private investment. By the mid-1980s, Taiwan was absorbing more than $500 million in foreign capital annually. Meanwhile, by the 1970s, the rate of individual and company savings rose rapidly - to about 25 percent annually - providing further money for investment. Personal savings were also increasing. In 1987, individual savings reached 40 percent - the highest rate in the world. The main reasons for this high rate of savings were favorable interest rates, individual frugality and optimism about future economic growth. In the 1990s, the rate of savings in Taiwan fell to the high 20 percent range for private savings and company investment. The main reason for the decline was that Taiwan now had a capital surplus. Also, because of high labor costs, environmental problems and a host of other factors, Taiwanese entrepreneurs began to invest elsewhere. Still, a high level of capital accumulation helped Taiwan to continue to transform the economy into one based on capital- and knowledge-intensive production. Foreign investment in Taiwan remained high, and, though it was not now as vital as it had been in fostering economic growth, it did aid the development of new industries and the inward transfer of technology while it bolstered commitments to Taiwan among countries that were economically and politically important to Taipei. Good economic infrastructure. In the early years, the government offered help to domestic businesses and foreign enterprises in the form of cheap electricity and easy access to ports, good roads and a well-trained labor force. Later, transportation, energy and banking were improved to further upgrade the economic facilities and systems in Taiwan. In 1973, the government launched ten big projects at a cost of $5 billion. Beginning in 1975 and for the next ten years, it spent $2.7 billion on transportation projects, including an island-long freeway, railroads, airports, harbors and ports. More projects were begun even before earlier ones were completed. In addition to these transportation projects, a steel mill, a shipyard, a petrochemical facility and a nuclear power plant were built. In 1978, 14 more large projects were started, which included housing construction and farm mechanization. In 1985, an additional 14 were added at a cost of $3 billion. In 1991, more than 700 other projects were approved as part of a six-year development plan. The cost of this last group of projects was projected to be more than $300 billion. The government boasted at the time that these infrastructures improvements would ensure continued economic growth and make Taiwan one of the top 20 countries in the world in per capita income by the year 2000. Meanwhile, the government helped finance the Asia-Pacific Regional Operations Center to make Taiwan a “hub” for business in the region; it included a $16 billion-plus high-speed railroad, energy development and more infrastructure projects. Intelligent planning. This is behind Taiwan’s economic success. This included research, forecasting and planning done by the Ministry of Economic Affairs; the Research, Development, and Evaluation Commission; the Economic Planning Council (later the Council for Economic Planning and Development); and other organs of government. Although Taiwan did not have a planned or command economy and business was not highly regulated even compared to other similar free- market nations - including Japan, South Korea and Singapore - the government “gave directions” about the economy. The business community, farmers and others benefited greatly from government forecasts about economic prospects (including both opportunities and difficulties). Government policy, in fact, played an important role in Taiwan’s economic miracle such that it warranted special  Unit 1 Lesson 8b 8 kudos. Taiwan’s rapid economic growth, and what many considered broadly its economic miracle, began to encounter challenges the end of the 1980s and after. In 1988, Taiwan’s double-digit GDP growth ended. In the 1990s, Taiwan’s economic growth came under serious challenge due to foreign economic competition, especially from China, and owing to Taiwan’s economy maturing. Then 2001 saw the bursting of the global high-tech bubble that in Taiwan coincided with serious political polarization and gridlock. Taiwan thus entered a new, slower phase in terms of its economic development. At this time Taiwan’s economic relations with China shifted and China became a big factor in Taiwan’s economy. In 1985, the government in Taiwan announced it would not interfere with its merchants exporting to China and in 1987 lifted restrictions on its residents traveling to China. Trade had to be indirect (through Hong Kong or some other place), but it boomed anyway. By 1993, China was Taiwan’s second-largest export market; it went on to become its largest market in 2002, which may have in reality happened sooner because re-exporting was not fully counted and commerce through tax exempt areas such as the British Virgin Islands and the Cayman Islands was generally not included. Taiwan benefited more than the numbers showed when considering that cross-Strait trade was unbalanced very much in favor of Taiwan (in fact, when calculating its overall trade most of the excess of Taiwan’s exports came from trade with China). In fact, some observers noted that in China’s economic dealings with Taiwan, Beijing deliberately favored Taiwan. Also at this time, especially after the Asian economic crisis of 1997–98, regional trade blocs became more important. Southeast Asia was a region close-by but dominated by China. As a consequence, by the 1990s Taiwan became quite economically linked with China. Economic Growth Strategies When Taiwan entered the new millennium, its economic system was clearly a free- market capitalist one. It ranked as one of the freest in the world by various key yardsticks: trade policies, taxation, monetary policy, wage and price controls, property rights and regulations, foreign investment, and banking. Arguably that is why Taiwan up to that point was one of the most successful economies in the world …, the reasons behind Taiwan favoring capitalist development were numerous. However, four deserve special mention: (1) Japan had bequeathed the Nationalist government a capitalist economy; (2) the February 28 Incident in 1947 engendered public hostility toward government monopolies; (3) socialist planning and a socialist economy were associated with former governor Ch’en Yi; and (4) the world had split into two camps - communist and capitalist - and Taiwan was in the latter, aligned with the United States. However, it is not enough to say that Taiwan’s economy was a free-market capitalist one. Taiwan’s capitalism was indeed laissez fare. However, the government guided, and in some respects designed, economic growth. Government planners also altered development strategies several times (radically at one point) and fine-tuned the nation’s development strategies periodically - though within the scope of the capitalist model. An examination of the work of these planners is essential to any assessment of Taiwan’s economy as is understanding their attitudes about a free-market economy and the limited, yet critical, role of government. In the late 1940s, the first task of Taiwan’s economic planners was to stabilize the economy and reduce inflation, which was around 500 percent annually. In early 1949, because of the defeat of the Nationalist regime on the Mainland, it was a horrendous 3,000 percent. The government, in response, legislated and enforced currency reform. Specifically, government officials imposed regulations on the financial system to control the money supply in order to prevent a resurgence of inflationary pressures. Finally, economic planners adopted conservative fiscal policies that required balanced budgets, reduced government spending and stable interest rates. These policies worked. Skyrocketing inflation was curtailed. The inflation index fell from 300 percent in 1950 to 30 percent in 1951–52 and subsequently dropped to a “reasonable” 10  Unit 1 Lesson 8b 9 percent annually. In addition to stabilizing the economy, anti-inflationary policies benefited industrialization in two important ways: they encouraged labor-intensive production and made Taiwan’s businesses compete. Reduced inflation meanwhile made economic planning easier and facilitated growth in general. In 1953, the government expanded its role in managing the economy when it launched a four-year plan, setting goals and guidelines for overall economic development. The objectives were stated in general terms, but planners were specific about the government’s role, thereby sending the business community clear signals concerning expectations about the economy going forward. The Ministry of Economic Affairs and the Ministry of Finance, under the general supervision of the premier, provided the leadership; other government organs and agencies followed. The government worked on zoning for business operations, improved the infrastructure, passed laws such as the Statute for Encouraging Investments (in 1960) and more. With respect to generating economic growth, in the early 1950s Taiwan’s development strategy was based on a policy called import substitution. Several conditions dictated this choice: Taiwan’s Japanese market for food products had been cut off, capital and technology were in short supply, the currency was overvalued, and the bureaucracy was an obstacle to implementing a policy of promoting exports. Thus, the best economic growth strategy available was to aid the growth of certain local industries by guaranteeing them special access to the domestic market. This approach, it was perceived, would help absorb excess labor, stabilize prices and conserve foreign exchange. Industries such as textiles, food processing, fertilizers and chemicals benefited greatly from this policy. Finally, the import-substitution policy facilitated Taiwan’s continued efforts at controlling inflation and stabilizing the economy. In accordance with the government’s import-substitution strategy, in the next several years Taiwan’s currency was pegged above its real value, tariffs were high (doubling from 20 percent in 1948 to 40 percent in 1955), and import quotas and other controls were rigidly enforced - all measures that blocked or discouraged the purchase of foreign goods. Imports of flour and yarn, for example, fell from 70 and 80 percent respectively to less than 5 percent of local consumption, while synthetic yarn and bicycles fell from 100 percent to 1 percent. Selected businesses quickly grasped the opportunity to produce and market these items. In 1951, a system of multiple exchange rates was established that discriminated in favor of certain industries. Also, special laws and regulations provided certain producers with favored treatment in acquiring credit. Taiwan’s import-substitution policy was very successful. Between 1952 and 1959, various chosen industries grew at a rapid rate - sufficient to increase by 6 percent industry’s share of the GNP. In fact, over 70 percent of the industrial sector’s new production came from food (including tobacco), cotton and wool textiles, leather goods, and chemicals (including rubber goods, plastics and petroleum) - all favored industries. Government policies also helped some other industries. Factories making sheet glass, non-metal mineral products, machinery, equipment and rayon managed to gain a foothold and grew at this time. Although the government deserves high marks for adopting an import substitution policy at the proper time and for making it work, thus promoting economic growth, it probably warrants more applause for realizing that it had to be a temporary strategy. Otherwise, many industries would have become accustomed to protection and grown weak and non-competitive. Taiwan’s leaders thus resisted long-term reliance on the import-substitution policy - unlike planners in many developing countries then and now. In the late 1950s, the government made a major shift in economic strategy when, for several good reasons, it decided to scrap its import-substitution policy in favor of an export- promotion policy. First, the domestic market for the protected industries had become saturated and there was little room for expansion. Second, some of Taiwan’s industries had gained sufficient experience and presumably the capacity to be internationally competitive. Third, the workforce had improved. Finally, Taiwan now enjoyed a competitive advantage over Japan in some industries because of rising labor costs there. Thus, in 1959, in order to transform  Unit 1 Lesson 8b 10 Taiwan’s economy into one that was export led, the government abolished its dual exchange- rate system and devalued the currency. It reduced tariffs and established laws and regulations favoring export companies. Taxes, interest rates on loans, and regulations on the importation of raw materials were altered, as were laws regulating foreign investment. Later, as noted earlier, EPZs were established. The industries picked as “leading” export industries were chiefly those that produced consumer goods: textiles, processed food products (mostly canned), leather goods, wood products and paper products. These industries, almost exclusively labor-intensive ones using small-scale production facilities, accounted for nearly 60 percent of the increase in Taiwan’s exports during the early 1960s. Taiwan’s export policy was a big success. The industries slated to sell abroad did so. During the first half of the 1960s, the value of exports rose nearly 20 percent a year. Export companies absorbed considerable excess labor, generated needed foreign exchange, and attracted foreign investment. Companies that aimed at specific foreign markets, in particular, contributed to growth, propelling the GNP to record double-digit annual increases. As a result, by the 1970s Taiwan became referred to as a “newly industrializing country,” or NIC. But continued growth required more policy adjustments. The decade of the 1970s saw Taiwan’s economic development strategy shift dramatically again in the use of labor and capital. The nation’s labor surplus had turned into a labor shortage, and labor costs rose dramatically. This situation, and the availability of large quantities of investment capital, made it logical to promote capital-intensive industries such as electronics, electrical products, chemicals, machinery, instruments and metal products. Textiles continued to do well because the industry turned to high fashion and a better grade of textiles; cheap textiles soon became only a memory. In other words, the export- oriented policy of the 1960s continued, but the quality, sophistication and price of Taiwan’s exports changed with capital becoming a bigger factor. Industrial exports became more than three-fourths of the total. Taiwan’s economy continued to boom, though it suffered a severe shock during the 1973–74 oil crisis. Economic planners quickly adjusted to higher energy costs. They diversified energy sources, encouraged conservation and tried to promote less energy-intensive industries. Partly for security reasons, Taiwan needed to store more energy - and did so. To justify keeping large stores of petroleum, planners facilitated the start-up and, later, the growth of Taiwan’s petrochemical industry, which soon became large. During the first half of the 1980s, Taiwan’s economy encountered even higher domestic labor costs and faced more intense international trade competition. But, with high standards of education, which enhanced the quality of Taiwan’s human resources, and its entrance into such areas as computers and electronics, Taiwan had - or appeared to have - a comparative advantage globally in knowledge-intensive industries. Government planners, therefore, favored the computer and other knowledge-intensive businesses. Meanwhile, Taiwan accumulated valuable experience in selling in the global marketplace. The quality of Taiwan-made products rose quickly in the late 1980s and early 1990s as the government began to promote Taiwan’s best companies, aimed at building an international reputation for its high-quality products. Taiwan thus became increasingly conscious of the need for quality control standards for its export products, even prohibiting the sale abroad of what it deemed inferior products. Innovation was also crucial, and government policies shifted accordingly. The government, meanwhile, encouraged the growth of financial services companies and sought to make Taiwan a regional distribution hub. Government planners, working with business and labor, continued to attract foreign capital and expertise. It put more money into education as well as research and development (double-digit or near double-digit increases), kept taxes low (13 percent of GDP, compared to 30 percent in the United States and much higher figures in Europe), helped build a good infrastructure (especially roads and railroads), wisely regulated banking and financial institutions, and maintained social  Unit 1 Lesson 8b 11 and political stability. Together, these efforts earned Taiwan a favored position among analysts who ranked countries for investment potential and risk. Key Industries and the Taiwan “Economic Miracle” A brief survey of Taiwan’s successful industries - including those that played a major role during the import-substitution policy period, then during Taiwan’s export-led economic growth policy, and later during its efforts to move to upmarket and into capital- and knowledge-intensive production - sheds considerable light on the origins and nature of Taiwan’s economic miracle. Some industries were important only in the past during certain phases of Taiwan’s economic history; others became, and remain, cutting-edge and world leaders. For a number of years, textiles constituted Taiwan’s largest industry measured by both the value of production and employment. Taiwan got its start with two textile mills at the end of World War II. By 1962, 1,500 mills were operating on the island employing 60,000 workers virtually all in the private sector. The industry was helped both by import-substitution and export promotion policies. Later the industry was hurt by high labor costs; however, for a number of reasons it remained viable. Meanwhile the industry became highly integrated and factories that produced basic ingredients such as cloth moved offshore. Also production was automated. Taiwan specialized in high end products, while most of the rest of the industry linked up with other producers including those in China. Beginning in the 1960s, the electrical equipment and electronics industries appeared to have bright futures, and did. In fact, these industries blossomed, beginning with electric fans, integrated circuits and other labor-intensive products. As labor costs escalated, factories went upscale to produce household appliances, communications equipment and consumer electronics. In a few years, Taiwan became a major producer of radios, tape recorders, televisions, videocassette recorders, stereo equipment, calculators and video games, not to mention parts and accessories and electrical equipment. Information products (mostly computer products) followed and saw the fastest growth of any sector of Taiwan’s economy. Taiwan soon ranked number one in global market share for the production of liquid crystal monitors, motherboards and notebook computers. In 2006, sales amounted to $88.6 billion. And although a large share of Taiwan’s production was for foreign companies, Taiwan’s own brands, such as Acer, took a growing market share (especially in Third World countries). Related to its success in manufacturing computers was its semiconductor industry. Taiwan established two of the world’s largest contract semiconductor companies - Taiwan Semiconductor Manufacturing Company Ltd. and United Microelectronics Corporation. The value of chips and related products produced in Taiwan in 2006 was $37.2 billion. But many of Taiwan’s electronics, computer hardware and chip factories subsequently moved to China because of high labor costs in Taiwan. Also many moved due to the attraction of China’s huge market. These industries are now highly specialized and fit into global production chains in which Taiwan became linked with other countries, especially China. Taiwan became proportionally more involved in research and design, with many of its factories producing hardware in China instead of at home. In fact, it has been estimated that by the early years of the new century, 85 percent of Taiwan’s information and communications hardware was manufactured outside of the island, mostly in China. The petrochemical industry in Taiwan became promising beginning in the 1970s. Government planners saw that Taiwan had a comparative advantage in making petrochemical products. Twenty years later, Taiwan became one of the world’s largest producers of petrochemicals and the world leader in ethylene production. In 2006, the total value of production of its petrochemical factories was $39.1 billion. Taiwan’s petrochemical companies not only exported but also produced for domestic use by providing the ingredients for plastics, synthetic rubber, textiles and more.  Unit 1 Lesson 8b 12 Plastics, in fact, for some time was one of Taiwan’s strongest industries. Plastics went into many of the goods Taiwan exported. Rising labor costs and environmental problems, as well as public protest against new factories, however, confronted the petrochemical industry with serious problems and many factories moved; new ones were built elsewhere, especially in China. Production in Taiwan declined from the early-2000s, though some of Taiwan’s companies have been doing well in China. In the late 1970s, Taiwan got into the production of steel, opening a blast furnace in 1977. In fact, it was one of the world’s most efficient. The decision seemed questionable for a time because of tough competition in the world market, especially from much larger Japanese steel plants. Initially, the only customer of any importance was Taiwan’s China Shipbuilding Corporation, which was not a growth company. But Taiwan’s China Steel Corporation also built offshore drilling platforms (though this market did not expand at the time) and moved into ship breaking for scrap iron (which did grow). Both aided Taiwan’s steel industry, as did the rise of the Japanese yen. Subsequently, the auto industry and shipbuilding saw better growth, providing markets for Taiwan’s steel. Recently exports have accounted for most of Taiwan’s steel production. Vietnam, China and the United States are the main markets. Steel production peaked in 2014 and has levelled off since. At the time Tsai Ing-wen was elected president in 2016, Taiwan was the world’s 13th- largest exporter of steel exporting 3 percent of the world’s total. But this was but one-sixth of China that was the world’s largest exporter. That year China had Taiwan barred from a steel industry event in Europe and subsequently Taiwan’s exports dropped off, by 1 percent in 2017 and more in 2018. It appeared that Taiwan’s steel industry needed good relations with China. Meanwhile, Taiwan’s production of aluminum, copper and other metals grew, spurred by the growth of an aviation industry and extensive building construction. In subsequent years, Taiwan’s metal industries remained healthy, in large part because they went upscale and diversified. Still they suffered from higher labor costs, a more expensive Taiwan dollar, foreign competition and environmental concerns. Taiwan launched a shipbuilding industry in the 1970s. In 1973, it completed a dockyard that had a capacity of 1.6 million tons of construction and 2.5 million tons in repairs. But the timing was bad because of a surplus of tankers and other ships on the world market at the time. Then, in the 1980s, Taiwan’s shipbuilding industry was hit by a global decline in fishing fleets and foreign competition. As a result, China Shipbuilding Corporation was not profitable for some years. Consequently, it diverted a considerable amount of its productive capacity to nuclear power plant equipment, steel structures and the like. Meanwhile, Taiwan developed a world-class yacht industry. But in the 1980s and after, the yacht industry fell on hard times as the U.S. market contracted and the Taiwan currency appreciated. In 2016, new ship construction was announced as part of the Tsai administration’s defense industry that included force modernization projects for the Navy worth $14.7 billion. Specific items included an Aegis destroyer, frigates, submarines, high-speed minelayers, corvettes and an assault vehicle and other weapons. Critics questioned the decision since building the Aegis ship depended on technology from the United States while building submarines is something Taiwan had talked about since 2001 but had done little and the local design faced serious challenges. Also building even eight (the top number cited) seemed too expensive while some said they would have little utility against China’s more than 50. The effort, which extends into the future to 2040, will be likely subject to changes or even a cancellation by any future administration. In 1953, an automobile industry was launched in Taiwan; but overprotection prevented it from becoming competitive enough to export. Beginning in the mid-1980s, with a local buying boom, auto production increased markedly, although most of this came from foreign companies operating factories in Taiwan. In 2006, the value of auto production was $14.5 billion. Foreign companies controlled Taiwan’s auto production: Toyota, 28 percent; China Motor Corporation  Unit 1 Lesson 8b 13 (which also markets Mitsubishi cars in Taiwan), 10.9 percent; Nissan, 9.6 percent, Honda, 7.7 percent. That situation remains. Meanwhile, Taiwan became a world leader in car parts, motorcycles and bicycles. In the 1980s, the island, for a while, became the world’s largest manufacturer of bicycles. A number of other industries are worth mentioning for their role in the Taiwan economic miracle and/or for their promise of future growth. In the 1980s, Taiwan experienced a quite impressive expansion in the production of telecommunication equipment, precision tools, optical machines and supplies, and sporting and fitness goods. At this time the construction business boomed because of higher standards of living, which led many people to seek better housing, and owing to the nation’s ambitious public works projects. Less strong were food processing, tobacco, alcoholic beverages, fertilizers, pharmaceuticals, rubber products, cement, glass products, nonferrous metals, wood products and paper products. Tourism also became a major industry. Among these industries Taiwan has seen moderate success, except for tourism that has done quite well though it is dependent on good relations with China. During the Ma presidency the government announced supporting six “emerging industries.” They were biotechnology (including R&D, drug testing and a biotech incubation center), tourism (especially high-end tourism), green energy (photovoltaics, LED lighting, wind energy, hydrogen fuel cells), medical care (medical tourism, long-term care, improving rural care), high end agriculture (organic farming and agri-tourism), and cultural and creative industries (filmmaking, pop music, new designs in entertainment). Some special projects included computerizing government agencies, building electric vehicles, promoting green architecture (integrating electronics and computers into construction) and patent commercialization. The government pledged to rely mainly on private investment to start new industries thus respecting free-market economics. Taiwan’s planners also spoke of “five pillars” of its economic planning for the future: attracting foreign talent, boosting higher education, ensuring energy security, promoting industrial innovation and implementing trade liberalization. The Labor Force Labor deserves special attention for its role in the Taiwan economic miracle; after all, Taiwan has almost no natural resources of commercial value. Its only resource of any importance is its human talent. The expansion of the workforce was, in the early years after World War II, an especially important factor in the country’s economic growth. Because of Taiwan’s rapid population increases between the early 1950s and the early 1970s, the labor pool more than doubled. Employment thus rose from 2.89 million in 1953 to 5.5 million in 1974. By 1987, it had reached eight million. The percentage of the population in the workforce - 58.07 percent of those over age 15 and below 65 - was high by international standards. In this category, Taiwan was on par with Western nations. The skills and education levels of Taiwan’s workers were impressive, particularly relative to labor costs. In fact, this was a critical factor driving the nation’s competitiveness and its rapid economic growth. Even more important, the labor skills and the education levels of workers increased at rapid rates and evolved according to the changing needs of the economy. In addition, worker flexibility, including the willingness to change jobs or acquire new skills, was high. As a result of the success of Taiwan’s industrialization there was naturally a huge shift of employment from agriculture to industry and to services. In 1952, the mix was 52.1 percent agriculture, 20.8 percent industry and 27.7 percent services; in 1962, the percentages were 45.9, 22.5 and 31.6, respectively; and in 1972, 33.0, 32.1 and 34.8 percent. By 1988, the number of employees in agriculture had shrunk dramatically. Meanwhile, industry’s portion had increased to 41.5 percent and services to 40.9 percent. By the 1990s, most new jobs were being generated in the service sector. Meanwhile, unemployment, in double-digit figures in the 1950s, dropped markedly from the 1960s on. During the economic crisis of the early 1970s, Taiwan boasted the lowest unemployment rate in the world. During the 1980s and early 1990s,  Unit 1 Lesson 8b 14 the rate hovered below 2 percent and was among the lowest in the world. The Asian financial crisis, which started in mid-1997, caused it to increase a bit, though it remained below 3 percent. In fact, many companies complained of difficulties in hiring and retaining workers and sought to solve these problems by increasing automation, transplanting factories to other countries and hiring foreign workers. However, as a result of the 2001 recession, the next year Taiwan’s rate of unemployment exceeded 5 percent and remained above 4 percent for the next three years. It spiked again in 2008, rising to more than 5 percent in 2009 after which it plateaued; in 2012, it was 4 percent. Since then the unemployment rate has been below 4 percent, which is not high by most standards. But it was high among the youth (below age 25); in 2018, it was above 11 percent. This prompted many young people to seek jobs elsewhere, especially in China where they do not have a language problem and where they could look for jobs with large international companies that had no presence in Taiwan. In the 1950s, wages in Taiwan increased with economic growth, especially for unskilled workers, who early in that decade earned around $5 to $10 monthly. Salaries rose very quickly in the mid-1960s and on. In 1985, the average monthly income for workers in eight primary industries was $368 per month. In 1999, it was $1,263 per month; it was $1,421 for service workers. Clearly the days of cheap labor were gone and Taiwan’s business community had to adjust to higher labor costs. Labor saving methods and equipment, increased specialization, and better labor organization helped increase productivity, which offset some of the increases in labor costs. In addition, labor and management both realized that labor costs had to be kept from increasing too quickly if many of Taiwan’s products were to remain competitive in the international marketplace. In order to adjust to rising labor costs, the government pressured businesses to invest in research and development and to phase out labor-intensive production. But more than anything, Taiwan shifted production to China; it did this more than other countries because its economy depended so much on trade and it was easy to use Chinese labor. The quality of labor, however, remained high in Taiwan, and the labor force hardworking. In the early 2000s, the average worker put in nearly 200 hours per month (196.8 hours in the industrial sector and 183.7 in the service sector) - which was high even compared to other East Asian countries. Many economists said the Confucian ethic of “work hard and don’t complain” made labor a positive contributor to Taiwan’s economic miracle and explained why Taiwan’s labor force was considered one of the finest in the world. At the time Taiwan’s workforce was rated third in the world for quality. There are a host of other reasons for labor’s positive contribution to the economy both past and present, such as labor laws, labor organizations and government regulations. During the early period of Taiwan’s rapid industrialization, workers were generally not organized. The formation of labor unions was discouraged - actually pre-empted - by the government and the ruling Nationalist Party. Strikes were forbidden under martial law. Later, labor unions in Taiwan did not wield much clout compared to their counterparts in most Western countries, the main reason being that a large portion of the labor force was employed in small or family businesses. Also, many workers worked in factories that sold to large foreign companies. Workers in these factories had little bargaining power. Much changed in the 1980s and after. When martial law was lifted in 1987, workers became more active. Within a year, new unions began to organize and compete with the government-controlled Chinese Federation of Labor. Soon, nearly 1,200 industrial unions and 2,400 craft guilds had formed. Subsequently, new laws were written to cover bargaining, strikes and other issues. Partly because of the existence of numerous competing labor organizations, but for a variety of other reasons, labor did not become a supporter of a particular political party. In late 1987, the Labor Party formed to represent workers; in March 1989, the Workers Party was  Unit 1 Lesson 8b 15 founded. Both failed. The DPP made numerous appeals to labor groups and took up workers’ causes, yet most workers viewed the DPP as too preoccupied with Taiwan’s independence and other ideological issues. The KMT was seen as pro-business, though it had and continued to enjoy some labor support; but this did not grow. It seemed likely labor would remain uncommitted to any political party. Though labor was not as active or as militant as it is in most other countries, the rate of union membership was high. Unionized workers came to constitute more than a third of union- qualified labor. This percentage was around triple the United States and much higher than Japan and other East Asian countries. If labor organizations were defined broadly to include all kinds of workers’ groups, such as craft guilds and other such organizations, over half of Taiwan’s labor force was organized. However, the reason for the high rate of union participants was that legislation required it in factories employing more than a small number of workers. Thus most workers considered union membership pro forma and the main benefit of membership was labor insurance rather than bargaining strength through organization. Workers in Taiwan have been guaranteed the right to negotiate, organize and strike. In 2010, the legislature amended a labor law to allow teachers to unionize and, subsequent to that, caregivers. At this time people began to complain that unionization was too encompassing and that in some cases compulsory membership was an infringement on workers’ rights. Meanwhile, the fast expansion of cross-Strait trade and Taiwan joining the WTO in 2002 pounded Taiwan’s traditional manufacturing. At that time, it appeared the state of unions and unionization would not see positive change in the future. In 2017, a survey of Taiwan’s unions showed the major concerns were, in order, low wages, inadequate retirement provisions and the meagre benefits of company unions. This represented a shift from 2000 when the main concerns were foreign workers, union independence and low pay. The causes for the change were said to be neoliberal globalization and the resultant increase in corporate power plus the closing of factories and with that the demise of many company unions. This gave rise to more support for industrial unions, which appeared to be a trend in Taiwan. If labor organizations do not tell the whole story, the status and conditions of workers and government laws and regulations to help workers say more. In 1945, the government of the Republic of China brought with it to Taiwan laws and regulations that affected labor. Subsequently many more laws were passed into law. In 1958, the legislature enacted the Labor Insurance Act. The most important piece of legislation involving working conditions, however, went into effect in 1984: the Labor Standards Act. It provided comprehensive guarantees and rights to workers and defined many unclear provisions in labor- management relations. Later, the government expanded the coverage of the Labor Standards Law to include contracts, wages, work hours, leave and more. The legislature also amended the Labor Standards Act to add details on the workweek, paid annual leave and overtime and tried to resolve some controversial issues involving labor- management relations in the context of stagnant wages, economic inequity and more. However, neither workers nor businesses were satisfied with the results. In 2017 and 2018, the Labor Standards Act was amended to add details regarding the structure of the workweek, paid annual leave and to fix some problems. Again, neither business nor labor was satisfied with the results. The legislature, in the meantime, enacted the Employment Insurance Act that provides pay for workers who are unemployed - 60 percent of their salary for up to 12 months. In 1994, the law-making body of government passed the Labor Safety and Health Law, which regulates hazardous jobs, and the Sexual Harassment Prevention Act aimed to prevent bad behavior toward the opposite sex on the job. The subsequently enacted Labor Pension Act and the National Pension Act provided for retirement benefits for workers. In 1992, the Employment Services Act legalized the employment of foreign workers in Taiwan. This law was needed due to a shrinking labor force caused by a slowdown in the birth  Unit 1 Lesson 8b 16 rate for more than two decades. Also, more people were pursuing advanced education and thus staying out of the labor force for extended periods. As a result, the number of foreign workers recruited by employers in Taiwan soared; by 2001 it reached 325,000, or 3.3 percent of the workforce. Some 54 percent were employed in manufacturing and 11 percent in construction. There were also many foreign workers in the nursing and caretaking fields, and many more worked as maids. Most of Taiwan’s foreign workers came from Thailand (43 percent), Indonesia (27 percent), the Philippines (26 percent) and Vietnam (3 percent). A significant number of foreign workers came from several other countries, notably China, and were employed in Taiwan illegally. Most labor organizations opposed foreign workers for fear they would depress wages. Members of the DPP expressed concern that workers from China would alter the ethnic balance in Taiwan. During the 2000 election campaign, presidential candidate Chen Shui-bian promised to cut the number of foreign workers. The following year, his administration reduced the figure by 15,000 immediately and promised to cut by 5 percent more yearly after that. Nevertheless, later foreign workers increased in numbers, reaching 367,119 by April 2008, up 5.75 percent from a year earlier. The largest percentage was from Indonesia. Most were employed in industry, followed by caregiving and construction. After the 2016 election the new government of President Tsai Ing-wen announced the New Southbound Policy; this caused the number of foreign workers in Taiwan from Southeast Asia to increase markedly. In 2018, the number was said to be 670,000. While the workers were desperately needed, they created problems. It was reported that between 3 and 4 percent fled each year and that there were 50,000 “escapees” that were unaccounted for. That year, several thousand protested in downtown Taipei demanding that domestic caregivers be protected by the Labor Standards Act, that workers should be allowed to change jobs freely and the government get rid of the private employment brokerage system. Amendments were proposed to the Employment Services Act to change the manner of fines imposed on employers who violate the law, banning holding identification cards and punishing sexual assault. Still serious problems, even murders of migrant workers, remained.  Unit 1 Lesson 8c 1 Taiwan’s Economy: Foreign Trade and Investments This lesson discusses China as a major factor affecting Taiwan’s domestic economic performance and foreign trade and investments. Learning Outcomes 1. make conclusions on how China affected Taiwan’s foreign trade and investments 2. compare Taiwan’s economic performance under the KMT and DPP presidents Key Concepts to Understand dependency theory new economic development model Excerpt from: Copper, J.F. (2020). Taiwan: Nation-State or province? 7th edition. New York: Routledge. Trade, Investments, and Energy Foreign trade, foreign investments and imported energy are three special factors that help explain not only the nature of Taiwan’s economy but also problems it faced and the successes and/or failures it has reaped in handling them. Hence the three deserve special attention. Although Taiwan traditionally, though sporadically, engaged in foreign commerce, the growth of trade over the past six-plus decades has been momentous by any standard. In 1953, Taiwan’s imports and exports totaled only $320 million. Trade began to increase very rapidly in the late 1950s and especially, in the early 1960s, with the launching of Taiwan’s export-oriented growth policy. In fact, trade grew at the astounding rate of more than 22 percent a year from 1959 to 1965 at which time it reached an annual value of more than $1 billion. It grew to $3 billion by 1970. Not only did Taiwan’s industrialization and its up-scaling production further accelerate exports, but both caused the value of exports to continue to skyrocket. By 1984, two-way trade totaled $52.4 billion; Taiwan thus became the tenth-largest exporting nation in the world and the 15th-largest trading nation. And the boom continued: in 2010, the value of Taiwan’s trade exceeded $526 billion. Taiwan’s trade growth was by design. Having almost no resources and facing a serious population-to-land ratio handicap, the government early on calculated that Taiwan had to trade to survive. When the nation’s import substitution policy of the 1950s was abandoned in favor of an export-led growth strategy, foreign commerce became even more crucial to Taiwan’s economic health, something almost everyone in Taiwan knew. Anyway, conditions were favorable to exporting. The surplus of well- trained laborers meant that the economy could easily grow by marketing Taiwan- produced goods abroad. Another relevant factor was that Taiwan was burdened by foreign debt and it needed more foreign capital to pay down the debt but also to improve infrastructure and build new factories. Taiwan’s economic planners clearly anticipated economic benefits through specializing and selling in the global marketplace and maintaining a favorable trade balance to increase foreign exchange holdings and keep employment up. They also perceived that certain of Taiwan’s industries were globally competitive and that more such enterprises could be built. There were still other considerations. Being small with a limited domestic market trade was especially essential. By the 1980s, Taiwan’s imports and exports amounted to more than 85 percent of its GNP (compared to Japan’s 30 percent). Taiwan exported well over half of what it produced. Moreover, because most of its exports - over 75 percent - went to developed Western countries, Taiwan became very sensitive to the trade and other policies of the capitalist industrial nations, particularly  Unit 1 Lesson 8c 2 of the United States and Japan, which, in the late 1980s, accounted for more than 40 and 30 percent, respectively, of Taiwan’s foreign trade. The scope and the direction of Taiwan’s trade by the 1970s, and even more clearly by the 1980s, might have set off alarm bells had economic planners in Taipei believed in “dependency theory.” Elsewhere economic planners, especially in Third World nations, were apprehensive about tying their trade to Western nations, thinking they would lose control over their economies and that Western countries would impede their economic development. But Taiwan’s planners did not think this way. Instead, they calculated that participating in international trade was much more of an advantage than a disadvantage; so, they did almost precisely what some critics said was potentially ruinous. A number of economists subsequently argued that Taiwan, by directing such a large portion of its exports to Western countries and benefiting from doing so, disproved dependency theory. In fact, Taiwan experienced quite a different set of problems. Its exports found so many customers in America that Taiwan soon developed a large and controversial trade surplus with the United States. This surplus grew throughout the 1970s and 1980s - peaking at $16 billion in 1987. In response, the United States ended special concessionary tariffs for Taiwan under the Generalized System of Preferences (GSP). In a few cases, the United States took legal actions against Taiwan for dumping. In response, Taipei adopted measures to cut its trade surplus with the United States: sending buying missions, limiting or even banning the purchase of certain goods from other countries, and giving U.S. exporters various kinds of preferences. In contrast, Taiwan had a big deficit in its trade with Japan its second largest trading partner. Taiwan took various steps to increase its exports to and cut imports from Japan, though these measures had only marginal success. Trade with other Asian countries, excluding Japan, accounted for about 15 percent of Taiwan’s foreign trade in the 1970s and 1980s, with neither surpluses nor deficits constituting serious problems. Western Europe accounted for 10 percent of Taiwan’s foreign commerce, and the Middle East another 10 percent, largely from oil purchases. Taiwan carried a trade surplus with most Western European countries and a deficit with Middle Eastern countries. In the 1980s, Taiwan began trading with Eastern European Communist countries and the Soviet Union, though this trade did not become economically significant. Taiwan also began trading with China, indirectly (largely through Hong Kong). Taiwan’s China trade soon skyrocketed, with exports leading imports by a huge margin. By the early 1990s, the Mainland became a big market for Taiwan. Soon, China was competing with the United States as a market, and by 2000 Taiwan’s exports to the two were almost the same. After that, Taiwan’s exports to China grew even faster. In fact, the growth of cross-Strait trade was truly phenomenal. Growing from 1 percent of Taiwan’s exports in 1984 it expanded to 20 percent by the new century and to over 30 percent by 2010. Several factors accounted for the rapid growth of trade across the Taiwan Strait. First, Taiwan’s products had a particularly good reputation in China for their quality and style. Second, beginning in the early 1980s, Beijing encouraged the purchase of Taiwan-made products and exempted them from tariffs by labelling them “domestic,” though this policy was later revised because of the excessive demand for Taiwan-made goods and a shortage of foreign exchange in China. Third, Chinese economic planners noted that Taiwan’s trade surplus with China provided Taiwan’s companies with profits, which they invested in China; thus, to China the trade deficit with Taiwan did not really matter. Fourth, Taipei took the position that although trade with China was illegal, it was not practical to try to control where its products were sold. Hence, exports remained primarily indirect but continued to grow. Taipei, meanwhile, allowed imports from China, but only through third countries. Trade with China went on to boom. By 2002, China had become Taiwan’s largest export market, and by 2006, its sales to China far exceeded that to any other  Unit 1 Lesson 8c 3 country. By 2010, exports to China were almost four-fold exports to the United States or Europe. Japan and Association of Southeast Asian Nations (ASEAN) followed in rank as Taiwan’s biggest export markets. Taiwan’s imports, in order, came from Japan, China, the ASEAN countries, the European Union, and the United States... In fact, this situation became of grave concern to some in Taiwan, especially those that advocated an independent Taiwan and who feared trade with China would lead to “ties that bind.” This was natural not only because of the volume of trade, but the uneven nature of the relationship. The data reveal the scope of what lay behind this issue. Between 1990, when cross Strait trade blossomed, and 2014, China’s GDP grew by more than 20-fold; Taiwan’s grew by three-fold. In 1990, China’s economy was but double Taiwan’s; by 2014, it was 18 times larger. China’s global trade meanwhile grew to seven times Taiwan’s. Thus Taiwan’s comparative advantage in trade vis-à-vis China diminished. On the other hand China allowed the balance of trade to favor Taiwan for political reasons. Anyway, this in large part explains the unease associated with Taiwan–China trade... Another relevant factor when dissecting Taiwan’s economy is that the kinds of products Taiwan exported changed dramatically. In 1952, industrial goods accounted for only 8 percent of Taiwan’s foreign sales; agricultural products were Taiwan’s main export category. Within a decade or so, manufactured goods accounted for over 90 percent of Taiwan’s total foreign sales. Then the portion of capital-intensive, high- tech and knowledge-intensive products in the manufactured goods category increased as Taiwan’s exporters went upmarket. Soon Taiwan’s main exports were electronics, precision instruments, plastic and rubber products, chemicals, machinery, and iron and steel products. Meanwhile a large share of Taiwan’s exports became part of networking chains that included many nations, but especially China. In 2010, its companies operating in China filled more than half of Taiwan’s export orders. In fact, in recent years the direction of Taiwan’s trade, especially its exports, has again changed. It has changed markedly. In the 1970s, the United States was Taiwan’s largest trading partner, followed by Japan, Kuwait and Saudi Arabia (the latter two because of Taiwan’s large imports of oil). In 2018, 74.7 percent of Taiwan’s exports went to other Asian countries, while only 13.1 percent were sent to North America, 9.2 percent to European importers, 1.1 percent to Latin America (excluding Mexico) and only 0.6 percent to Africa. Of the new Asia emphasis in Taiwan’s trade, China accounted for the biggest increases. In 2017, notwithstanding the tension between Taiwan and China following the 2016 election, trade increased by a significant 17.6 percent while Taiwan’s exports grew by 20.4 percent. During part of Taiwan’s period of fast economic growth, capital inputs, mostly from large quantities of foreign investment, facilitated this expansion. In the 1950s, Taiwan’s main source of foreign capital was U.S. economic assistance. Later, Taiwan attracted foreign firms and private investors that provided large sums of needed capital. Most foreign funds went into manufacturing; indeed, close to 10 percent of investment in companies in the manufacturing sector came from foreign sources during the 1960s and 1970s - a very high figure when compared to the percentages in other developing countries. And this made a mark: in 1979, 795 foreign firms accounted for more than 8 percent of Taiwan’s GNP. At this time, the exports of foreign firms accounted for 20 percent of its exports. Foreign investors contributed to Taiwan’s economic growth in still another important way, namely, by facilitating technology imports. Non-local firms brought new production techniques to Taiwan while stimulating research and providing training for workers. Because Taiwan’s educational system was geared toward training young people to learn new technologies, the rate of technology absorption and use was high and this facilitated Taiwan’s rapid growth. Among less-developed nations, for some years Taiwan enjoyed the world’s highest proportion of growth through the addition of new technologies.  Unit 1 Lesson 8c 4 Government policies were in large part responsible for the large inputs of foreign investment. Legislation made foreign companies beneficiaries of lower, or no, taxation. Government agencies recruited and trained workers for external investors. In the meantime, foreign firms benefited from Taiwan’s EPZs, which, …, afforded foreign companies freedom from taxes and many regulations. Finally, private businesses in Taiwan often sought foreign partners and usually worked well with them. In 1995, when foreigners were allowed to invest in Taiwan’s stock market, considerable funds flowed in from abroad. During the Asian economic crisis that began in 1997, Taiwan’s stable economy caused it to attract capital from other countries in the region. In 2006, foreign investment in Taiwan was almost $14 billion, and it reached $15 billion in 2007. Most of it came from offshore banking sources, the Netherlands, the United States, Singapore, Japan and the United Kingdom. The favorite areas of the economy attracting foreign capital were electronics, financial services and venture capital. However, at the turn of the century Taiwan became the recipient of much less foreign investment. In 2002, foreign direct investment in Taiwan dropped by 64 percent. The American Chamber of Commerce in Taiwan attributed this to poor cross-Strait relations, Taiwan’s growing debt and falling competitiveness. In 2015, inward investment dropped 16.09 percent to $4.8 billion. In 2017, it fell to $3.2 billion, blamed on speculative activities, rising housing prices, excessive bureaucracy and legislative obstacles. Meanwhile Taiwan became a foreign investor in China. This began in 1987 when martial law was lifted. It reached $100 million by the end of the year involving 80 projects. By 1992 this grew to more than $5 billion involving more than 6,000 projects. In 2010, Taiwan’s outward investment totalled $15.05 billion, of which more than 80 percent went to China. Electronics and information technology products were the big areas. Taiwan’s balance of trade and its accumulation of foreign currencies was also a factor in its economic development. Beginning in the 1970s, Taiwan began to have a favorable balance of trade. This and its high rate of savings made it possible for Taiwan to accumulate large amounts of foreign exchange. As of mid-2012, Taiwan was the world’s fourth-largest holder of foreign exchange (after China, Japan and Russia). Its large reserves of capital meant that the government did not have to pay interest or the principle on debt and could keep taxes low, which were advantages in terms of competing in global trade, increasing its research and development, and the government encouraging and supporting entrepreneurship. In 2018, Taiwan’s foreign exchange reached $457 billion giving it a ranking of sixth in the world (behind China, Japan, Switzerland, Saudi Arabia and Russia). Most of this was attained through a trade surplus, mainly with China. As might be deduced from Taiwan’s economic success and the rapid rise of living standards that has accompanied it, Taiwan has been a fast-growing energy consumer. From 1954 through 1985, energy consumption increased at an average rate of 9.2 percent per year - growing faster toward the end of the period. Subsequent increases in energy were also large. As a consequence of its growing consumption of energy, combined with limited indigenous supplies, Taiwan became a major importer of energy. In the mid-1950s, Taiwan produced more than 80 percent of the energy it used. Cheap hydroelectric power helped the growth of industry. However, by the late 1960s, only half of Taiwan’s energy was derived locally. In 1972, that amount fell to 34 percent. Now Taiwan imports more than 98 percent of its energy. Consequently, Taiwan is extremely dependent on foreign energy sources. There were consequent problems. After the oil crisis in 1973, and again in 1978, energy costs soared and uncertainty about supplies caused anxiety for economic planners as well as the business community in Taiwan. Moreover, Taiwan could not do much about the quantity of energy it imported. Its coal mines could not  Unit 1 Lesson 8c 5 increase production; in fact, most were closed. Taiwan found some natural gas and petroleum, but further exploration yielded disappointing commercial results. Hence Taiwan’s situation of energy import dependency persisted. On the other hand, the government was quite successful in diversification. From the early 1970s, Taiwan imported large quantities of oil, its main source of energy, from Saudi Arabia and Kuwait. Those countries remained the main suppliers for Taiwan; in fact, 80 percent of its supply came from the Middle East. After the oil crisis, Taiwan began buying petroleum from Indonesia, Malaysia, Brunei, several Latin American countries, the United States (Alaska) and some other countries. It also began buying coal. During the 1950s and until the mid-1960s, the use of coal had declined rapidly accounting for only 13 percent of the total energy used in 1979. Then, owing to better burning techniques, Taiwan began importing a considerable amount of coal, and suppliers were not generally the same countries from which Taiwan purchased oil: the United States, Australia, Canada, South Africa and China. Taiwan also began importing liquid natural gas, mostly from Indonesia.... Meanwhile, in the late 1970s, Taiwan became a user of nuclear power. The first plant was opened in 1978. Later, with the building of more nuclear plants, Taiwan became a major consumer of nuclear power. Taiwan had six nuclear units (in three plants) that by 2012 produced 17 percent of the nation’s electricity. A fourth nuclear plant was under construction. However, as a result of the nuclear power plant accident in Japan in 2011, opposition to nuclear power grew fast in Taiwan. President Ma pledged to apply new safety equipment and standards to the new plant and phase out the older plants. Thus, the future of nuclear power in Taiwan at this juncture appeared questionable. In the 1980s, Taiwan began to experiment with solar, wind, and thermal power. The government also pushed conservation. In 2010, Taiwan ranked number three in the world in per capita solar energy use. … Taiwan’s energy use has also changed markedly over the years. … subsequently declined with Taiwan’s economy shifting to less energy-intensive and more knowledge-intensive enterprises and to a service economy. … Although both Taiwan and China were (and are) energy deficient and imported large quantities of energy, there was room for cooperation between the two. Taiwan started importing a significant amount of coal from China and it became its third- largest supplier. Taiwan had more experience in civilian nuclear power use and could help China. There was also hope for cooperative efforts to develop potential oil and gas reserves in the Taiwan Strait and near the Senkaku Islands. In fact, China invited Taiwan to invest in and work on China’s exploration and the development of its offshore areas. Finally, China had become one of the world’s most advanced nations in the use of wind and solar energy. Taiwan could benefit from links with China in these areas. In 2008, the government announced a plan to increase renewable energy to 8 percent of Taiwan’s total usage (from less than 1 percent). In 2009, Taipei took steps to expand cooperation with China to accomplish this. The Economy Under Chen Shui-bian, Ma Ying-jeou and Tsai Ing-wen Chen Shui-bian. Taiwan’s economic growth slowed in the 1990s. This was due largely to its economy maturing. Growth was still impressive compared to the rest of the world and Taiwan continued to do well through the “Asian melt down” of 1997–98 that hit hard several Southeast Asian countries and South Korea. However, big changes and the transition to slow to moderate growth came with three administrations that governed Taiwan beginning in 2000. That year Chen Shui-bian was elected president. The next year, in 2001, Taiwan’s economy fell into recession. The proximate cause was the Chen administration’s fight with the opposition parties over the construction of Taiwan’s fourth nuclear plant, which President Chen and the DPP opposed but the legislature had already approved. The opposition won the fight  Unit 1 Lesson 8c 6 and President Chen’s image was hurt with the business community, which worried about future energy supplies. Chen’s critics charged him with poor leadership and mismanagement of economic affairs. Alas Chen and his party had meagre talent in running a national economy. They were mostly trained in law and local politics. Chen said the economic downturn was caused by the world recession that had adversely affected high-tech industries, and the opposition stubbornly blocking his economic agenda; he was partly right. In any case, by the end of the year, the stock market had lost 50 percent of its value, defaults on loans reached new highs and private investment fell dramatically as capital fled to China (triple the amount a year earlier) where the business climate was better. The Council for Economic Planning and Development reported that Taiwan’s “economic fitness index” had fallen ten points to the lowest point since it had begun keeping records. By midyear, the stock market had fallen by another 40 percent and unemployment topped 400,000, or 4 percent of the workforce (both 40-year highs). The media reported that the business community lacked confidence in the Chen administration and many people with skills chose to leave Taiwan. Most went to China. “China fever” (investing and/or doing business in China) in Taiwan, it was reported, was 50 to 80 times what it was in Japan and the United States. By year-end, unemployment rose to 5 percent and the GNP contracted by 2 percent. In response, the government took funds from the National Stabilization Fund and labor insurance and pension reserves to prop up the stock market, adding NT$350 billion to the national debt. The Chen administration pressured banks to help companies facing bankruptcy; this diverted funds that otherwise would have been available to help start-up companies and finance growth by healthy enterprises. The stock market and Taiwan’s currency fell further. The president then established the Economic Development Advisory Council to give him recommendations on fixing the economy, but many top business leaders refused to participate, citing the poisonous political atmosphere at the time while fearing that Chen was seeking to pass blame for the situation. In 2002, the economy showed signs of recovering from the recession. But it did not perform up to the expectations of most residents.... The Chen administration tried various means to stimulate growth and employment. It cut taxes, which meant programs to help the poor had to be pared. The government sold state assets and increased fees and fines, sometimes to very high levels. This hurt the administration’s public image. Chen proposed making Taiwan a “gateway to China” for foreign business, but this idea failed to gain traction. Anyway, many in his party opposed the idea as it would mean expanding commercial relations with China, making Taiwan more dependent; former president Lee Teng-hui and Vice President Annette Lu both issued public warnings about economic reliance on China. In any event, China did not cooperate and promoted Shanghai as the place to operate from in doing business in China… Ma Ying-jeou. When Ma Ying-jeou ran for president in 2008, he lured voters with talk of the KMT’s previous economic record and Ma’s plans to restore good economic growth. He assailed Chen’s stewardship of the economy. Alas President Chen and the DPP’s record on running the economy dismayed many voters. After Ma won the election, the stock market rose, as did Taiwan’s currency, housing values and other indicators. Observers expected Taiwan to see bright times again. But that was not to be. The global recession that year hit Taiwan hard. The economy contracted by more than 8 percent in the last quarter of the year, and for the year growth finished under 2 percent. This was followed by an even more serious economic downturn in 2009: economic output fell by 32 percent in 12 months causing Taiwan to suffer from the global economic crisis more than any of the 55 nations … In response to the crisis, the government launched a $5.6 billion stimulus plan equal to 3 percent of Taiwan’s GDP. The plan included financial incentives to businesses and tax cuts. It provided funds for infrastructure, aid to small and  Unit 1 Lesson 8c 7 medium-sized businesses and money for building low-cost housing. Vouchers were even given to residents to boost consumption. Government planners also helped exporters seeking new markets. The plan was implemented quickly and efficiently, and in the last half of 2009 the economy was in a fast recovery mode.... However, Taiwan’s economy slowed again in 2011 and 2012 because of the continued bad global economy, though Taiwan performed better than most countries including the United States, Europe and Japan, indicating Taiwan’s economic fundamentals were good and government planning was working. There was a special reason for optimism in Taiwan’s economic growth: in June 2010, Taiwan signed the Economic Cooperation Framework Agreement (ECFA) with China, which lowered tariffs on a number of products (most on Taiwan’s exports), allowed for more Chinese investment in Taiwan, raised the number of Chinese tourists permitted to visit Taiwan and broadened other commercial relations. The agreement also gave Taiwan greater opportunities for trade with Southeast Asia, China having reached an agreement with ASEAN countries in January that created the first stage of a China–ASEAN common market.... But ECFA generated concern in Taiwan of becoming economically (and ultimately politically) dangerously dependent on China. Then Ma’s opposition advanced this narrative quite effectively via its promoting populism and local nationalism. Networking and joining chains of production made this seem even more serious even though most countries in Southeast Asia and many elsewhere also worried about this. In any case, Taiwan had been through this dilemma with its deep commercial links with the United States in the past, and managed trade or protectionism did not seem to offer much in terms of a healthy economy. Further economic integration with China seemed inevitable. But the DPP put a different spin on this. They argued it would mean political ties leading to the loss of Taiwan’s sovereignty given the fact China claimed Taiwan was its possession. DPP activists organized public protest against the agreement and won their points: that it would not only risk Taiwan’s sovereignty but was the cause of economic inequities including the growing gaps between rich and poor, businesses with Chinese connections benefitting and those without (especially small businesses) not benefitting and the youth falling behind. … Another problem was that economic data other than growth in the GDP were very nettlesome: a widening gap in incomes and net worth between rich and poor, stagnant wages, inflation, unaffordable housing (to many people), lack of good job opportunities, youth unemployment, a brain drain and more. Businesses complained of high taxes, too much regulation and obstacles to trade (especially with China). Young people who wanted better economic opportunities fled to China. In fact, these issues made many residents of Taiwan feel more pessimistic about the economy than the GDP figures suggested. Summing up the reasons for Taiwan’s poor economic performance during the Ma years, the following are important points: Ma became president during a prolonged global recession (which hit Taiwan hard, it being very dependent on exporting), globalization was hard on Taiwan (squeezing it between countries with lower labor costs and more developed countries with more advanced technology), WTO rules continued to damage certain sectors of Taiwan’s economy, competition with China accelerated (hurting Taiwan’s best industries), inward investment declined (though Taiwan did not lack capital this slowed the import of innovative ideas), political polarization stymied Ma’s plans to promote economic growth (especially the DPP’s opposition to Ma’s closer economic ties with China), lack of KMT party unity (especially the conflict between Ma and Wang Jin-pyng, Speaker of the legislature), the DPP’s effective use of populism (which made economic inequities a much bigger issue than usua