Neoliberalism Cannot Save Taiwan
Taiwanese economists overwhelmingly favor laissez-faire policies. Yet after all these years with neoliberal academics steering policy in the Cabinet, why does Taiwan's economy remain in the doldrums?
Neoliberalism Cannot Save TaiwanBy Perng Ming-hwei
From CommonWealth Magazine (vol. 526 )
During my student days much of what I, like many others, knew of economic theory and economic policy was gleaned from commentaries in the editorial pages of newspapers. Having grown up under the martial law system with its "taken for granted" outlook, no other way had ever occurred to us. In 1981, amidst an ongoing debate over liberalization of monetary policy and deregulation of interest rates, Messrs Chiang Shuo-chieh and Wang Tso-yung stirred quite a few economics students from their slumber, arousing among them a thirst for liberal economic theory, and engendering a vague acceptance of Anglo-American economic liberalism as an article of faith among laymen like me.
The culture shock I experienced upon arriving in the U.K. in 1987 is perhaps difficult for young people today to imagine. For the first time I realized there were many different forms of socialism and even many different forms of communism (and not just the variety as propagandized in Taiwanese media). For the first time I realized that there were a number of English intellectuals that were sharply critical of (then-U.K. prime minister) Margaret Thatcher, who had been warmly embraced among liberal Taiwanese intellectuals prior to my departure.
In Taiwan, I had habitually come to regard the words "Western," "advanced nations" and "Euro-American" as synonymous. I later came to realize that there were numerous characteristics differentiating the English, Americans, Italians, Spaniards, French and Germans, that they were totally different from one another and that no single cultural entity that could be called "Euro-American" actually existed.
Yet what jarred me the most was a 1989 televised debate, "Miracle or Mirage," a discussion of the merits or otherwise of the previous decade of Mrs. Thatcher's rule. For the first time it dawned on me that in a society as advanced and open as Britain, there could be complete polarization within academia as regards critique of economic policy and reading of economic phenomena, with each of the two major political parties dispatching their own Nobel Prize-winning economist to represent their side of the argument.
I was unable to concisely break down the debate and the nuances of the arguments in their entirety, but what became crystal clear was this: real-world economic activity is complex and multifaceted, and no single school of economic thought can effectively address its entirety.
Taiwanese Economists: Extreme Homogeneity
Even more surprising, when I returned to Taiwan after martial law was lifted, the country did indeed seem freer, yet commentary on economic policy was actually homogenized in the extreme, and seemed to be far removed from Taiwanese society as I understood it.
In the 1990s, as large numbers of Taiwanese companies moved into China, economic commentators were nearly universally in favor, arguing that uncompetitive industries must either move offshore or die, believing that the movement would help "beef up Taiwan's industrial structure."
And what bewildered me was: With Taiwan's small per-capita agricultural land area and farming households long reliant on non-farming income to supplement household income, what was to take the place of these supplemental industries in rural communities once traditional light industry had left for China? Would rural communities be allowed to "naturally" wither on the vine?
Amidst a subsequent wave of fraudulent bankruptcy scandals, the unemployment rate climbed from 2 percent to five percent, leaving many blue collar workers without livelihoods. In 1996, then-president Lee Teng-hui announced his "No Haste, Be Patient" policy of restricted engagement with China, and came under immediate attack from the cabal of laissez-faire economists.
Seeing workers with nowhere to turn, with some even resorting to suicide, I remained perplexed: Would relying exclusively on laissez-faire economic policies really be enough to allow the market to naturally realize its competitive potential and provoke an automatic upgrade in domestic industry?
And in a Taiwan with scant to non-existent unemployment relief benefits, is this laissez-faire economy to be married to a sufficiently robust system of re-employment services and unemployment benefits, or are we merely to allow the market to "self-correct?"
Can the Free Market Really Self-Adjust?
When I entered the business world, what I found was this: Those major corporations that could get a sit-down with the premier passed their days comfortably enough that few were terribly worried about technological upgrades. And what of those small- and medium-sized enterprises unable to finagle a meeting with the premier? Need capital? There is none. (It's all tied up in stock and land price manipulation.) Need good help? There is none. (They've all gone to the big corporations or abroad.) Need international market information? There is none. (Few human resources are devoted to this task, and duties are poorly delegated. SMEs can't independently access overseas market information, and no official market intelligence agency exists, as in Japan, to provide the required services.) Looking for a technological upgrade? No telling where to go to find technology. (Authorization fees for use of foreign patents are unaffordable, universities are too busy writing English-language papers unrelated to Taiwanese industry, and foreign technological papers are hard to independently locate, comprehend or put to use).
It is a consequence of government impotence that those with the financial resources for technological upgrade choose not to do so. That those who do wish to upgrade do not have the resources cannot begin to be explained away by abstract "government impotence." Taiwan's industrial structure is not quite as mature as that in the US or U.K., and with fierce external competition allowing them precious little wiggle room, I find it hard to imagine that many of these smaller enterprises have a hope of standing on their own merits without appropriate government assistance.
Providing interest subsidies and tax rebates can potentially sap dynamism and further distort resources. But providing market intelligence and information on access to technology, and reforming the nation's technical and vocational schools as well as the National Science Council's research grant system (to facilitate cooperative efforts between academia and the private sector), thus giving businesses a leg up in areas they may be otherwise powerless while retaining the fundamental free market competitive principle of comparative advantage – is that not a better approach than the "sink or swim" model of the laissez-faire crowd?
Compared with my observations during my time in the U.K., economic commentary in Taiwan suffers from a serious inclination: those advocating free trade and allowing uncompetitive industries to fail are legion, yet few have offered any in-depth exploration of how to root out and eliminate obstacles to industrial upgrading or beef-up market deficiencies, and even fewer still give a second thought to Milton Friedman's negative income tax system and needed unemployment relief (and not just money, but more importantly, effective vocational retraining).
Diversity of Economic Opinion Needed
Over the past 20-odd years, we have looked on helplessly as uncompetitive Taiwanese industries have one after another collapsed; what we have not seen is upgrading within Taiwanese industry.
Numerous economic commentators have denounced government impotence over the years, yet no matter how many Cabinet changes are made, none have been able to resurrect Taiwan's economy. If the whole problem could be blamed on government impotence, how come we have seen no discernible effect after all these years of neoliberal economic thinking informing Cabinet economic policymaking?
If economic policy fails to consider the realities of Taiwanese society or otherwise lacks comprehensiveness or coherence, that is as bad or even worse than "mistaken" economic policy.
If no single economic school of thought is sufficient to grasp the entirety of economic and social phenomena, diversity in economic commentary and economic thought will be far more helpful than "correct," homogenized economic thinking in reminding us how to offer redress to overlooked groups, strata, and occupations in our society.
We may not know how to address our now nearly 20 years of sustained economic malaise, but at the very least we can open our minds and our eyes to the vast array of international economic thought as well as the voices of smaller domestic enterprises.
Domestic economic thought and commentary must become more diverse and more in touch with local society if we are to have a chance at knowing exactly where we're going wrong and precisely what we plan to do about it.
(The author is a retired Tsing Hua University professor.)
Translated from the Chinese by Brian Kennedy