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Taiwan’s Source of Injustice

The Cost of a Free Lunch

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The Cost of a Free Lunch

Source:CW

When bureaucrats and conglomerates collude to exploit workers and grab land instead of earning their wealth, the price the government pays for neglecting its duties is growing public anger.

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The Cost of a Free Lunch

By Ming-Hwei Perng
From CommonWealth Magazine (vol. 514 )

Adam Smith, the father of market economics, believed that in a completely free market every person would earn an income that corresponds with his or her productive contribution to society, and that there was no “unearned” wealth. The society that Smith envisaged seems fair and just. But if it were to neglect the right to survival and the right to work of the disadvantaged, it would still be an unkind, merciless society that does not wholly live up to the principles of fairness and justice.

It is necessary to use wealth to reward individuals’ contributions to society and restrain personal greed and laziness. However, no individual can control how much talent they have, so there is no need to use wealth to reward or punish people based on their natural aptitudes. Society could function more efficiently if the more gifted were given greater decision-making rights and higher prestige than the average person. In short, in an ideal society differences in wealth should reflect individuals’ contribution to society, not differences in inborn talent. Even less should people be allowed to get rich without lifting a finger. From the perspective of wealth distribution, a society will become more unfair and unjust the farther it strays from this principle.

However, the privileged and powerful always pry open the legal loopholes. They collude with bureaucrats and jointly coerce the government into granting them special benefits that allow them to enrich themselves. Nobel Prize-winning economist Joseph Stiglitz flatly sums things up in his book The Price of Inequality: How Today’s Divided Society Endangers Our Future: Much of the wealth inequality in the American economy has been the result of “rent seeking” and not of greater contributions to society.

Under the banner of neoliberal economics, the Taiwanese government also often helps business conglomerates to justify and legalize tools for seeking profits without having to work for them. The most blood-boiling of these measures are a tax system that takes from the poor and gives to the rich, policies that trample on worker’s rights, and forced land expropriation.

Unaffordable Housing Prices

Taiwan’s luxury home tax is just one fortieth of Japan’s, and one tenth of the United States’. The low tax rate encourages real estate speculation. Meanwhile, the ratio of housing prices to income in Taipei City stands at 14.3, a higher ratio than found in Hong Kong (12.6), the greater London area (6.9) and all other major British cities. Not even the president of the Central Bank can afford to buy a home in Taipei.

On top of that, Taiwan taxes capital gains such as stock investments and inheritances with a rate that is much too low. When campaigning for reelection in 2008, President Ma Ying-jeou pointed out the current tax system’s two major flaws on his official campaign website with the following statements: “Salary income accounts for as much as 75 percent of total reported income. This runs counter to the principle of tax equality,” and, “The high-tech industry’s real effective tax rate stands at an average 5.8 percent, whereas the conventional industry tax rate reaches 14.8 percent, causing tax inequality among different industries.”

Due to tax cuts for the rich and multiple subsidies for the high-tech industry, government tax revenue is notoriously low, while public debt keeps creeping higher. World Bank statistics for 2012 show that tax revenue in Taiwan stood at just 8 percent of GDP compared to 17.5 percent in China, 25.6 percent in South Korea, 28.1 percent in Japan and 34.3 percent in Brazil and Britain. Even in the debt-saddled United States, the tax revenue to GDP ratio reaches 24 percent. Given utterly insufficient tax revenues, the government lacks the fiscal resources to provide essential services: Government expenditure in Taiwan stands at just 16 percent of GDP, even less than in the much smaller city states of Singapore (17 percent) and Hong Kong (17.3 percent). The Taiwanese government spends a markedly lower share of GDP than China (23 percent), South Korea (33.1 percent), Brazil (38.8 percent), Japan (42 percent), the United States (42.2 percent) and Britain (51.2 percent).

If the government properly taxed capital gains like South Korea and the United States, government spending could be raised to 32 percent of GDP, state coffers could be replenished and public debt reduced. Such tax-based wealth redistribution could be used to support the disadvantaged and unemployed, to launch necessary public infrastructure projects as economic stimulus and promote industrial restructuring and upgrading among small- and medium-sized enterprises. This would in turn lead to a natural rise in wages. Industrial upgrading and higher wages could be achieved even more easily if the government solicited foreign investors more aggressively by advertising Taiwan’s competitive strengths such as its well-educated workforce and strong academic R&D capabilities.

A Vicious Cycle of Disregard for Workers

The problem is that the government has for a long time condoned the trampling of worker’s rights and land ownership rights, while at the same time falling all over itself to design numerous subsidies and incentives for the high-tech industry. As a result, these industries can afford to take a lethargic stance on change because they still turn a profit. They are not willing to take the risks that come with technological upgrading or take responsibility for improving management competencies.

The just-concluded National Conference on Industrial Development in Taipei again opted to defy the signs of the times in a reactionary manner. The “Joint Opinion” section of the conference records included a number of “recommendations” that are not in the best interest of Taiwanese workers, such as: “adjusting foreign labor import quotas and relaxing basic wage regulations for foreign workers,” “relaxing regulations on work hours, fixed-term contracts, and redundancies and dismissals,” and “allowing foreign blue-collar workers to apply for permanent residency in Taiwan.” Should the legislature pass these measures, corporations will be able to cut the wages of foreign laborers and recruit more foreign workers. Consequently, domestic unemployment will rise and local workers will have to put up with lower wages and poorer working conditions. Such a policy is tantamount to resigning oneself to death. Rather than facing the challenges of upgrading, businesses will continue to be lazy, while more aggressive companies in emerging markets eat away at Taiwanese companies’ market share with every step of technological progress. This will again push up the unemployment rate in Taiwan and create further downward pressure on wages.

Moreover, the government has empowered conglomerates, local governments and universities to expropriate agricultural land in the name of “technology parks” or university satellite campus projects. In reality, satellite campus buildings are clearly underused, and the supply of land and manufacturing plants in science and technology parks across the island has long exceeded demand. So-called “major national infrastructure projects” are nothing else but real estate speculation schemes aiming to drive up land prices in the periphery of science parks and satellite campuses. Once agricultural land has been rezoned to permit construction, the investors reap exorbitant profits. Yet unquestionably, such moves deprive elderly farmers of their lifelong way of making a living, leaving them without livelihood in old age. When universities, which fundamentally ought to act as society’s conscience, collude with local governments to undermine people’s livelihoods, is such a society really just at all?

Perng Ming-Hwei is a professor emeritus of National Tsing Hua University.

Translation from the Chinese by Susanne Ganz


The above article is featured in the new CommonWealth Magazine website, "Independent Opinion@CommonWealth Magazine" (http://opinion.cw.com.tw). The goal of this Chinese-language website is to present independent voices from Taiwan and the greater Chinese-speaking world, across the broadest spectrum of age, expertise, group identity and vantage point.

For its inaugural edition, "Independent Opinion" has invited ten writers to share their thoughts on two different themes: “Taiwan’s sources of injustice,” and “Taiwan’s sources of pride.” What aspects of Taiwanese society are most unfair, and call out for its leaders to urgently address? And what things should Taiwanese people be most proud of, and delighted to share with the world?

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