Lessons from Taiwan

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Lessons from Taiwan

I’ve always had an interest in the Taiwanese economy and finally had the chance to experience it last month when I spent two weeks in Taipei giving special lectures at National Chengchi University. As expected, there was a lot to learn.

Taiwan’s economic development has been a lot like South Korea’s. South Korea was under colonial rule by Japan for 35 years and Taiwan was colonized by Japan for 50 years. Taiwan employed import substitution industrialization to increase self-sufficiency and reduce foreign dependency from the late 1950s.

After achieving some confidence in manufacturing, it shifted to export-led industrialization and generated average annual economic growth of 9.5 percent between 1962 and 1985. During the same period, South Korea’s economy grew 9.2 percent a year on average.

The two countries industrialized and developed their respective economies and societies by promoting chemicals and heavy industry in the 1970s, opening and liberalization in the 1980s, and democratization from the late 1980s.

Taiwan’s economy slowed and receded after its relationship with the mainland soured under nationalist President Chen Shui-bian from 2000-08. The economy improved once the Ma Ying-jeou government restored the cross-strait relationship. For the past five years, the economy has been growing faster than South Korea’s.

In the details, however, there are many differences. Taiwan’s economy is led by small and midsize enterprises, and the government has been vigilant about distribution of wealth based on the three founding principles and doctrine of Sun Yat-sen. Corporate entries and exits are easy. For common people, the big difference is in consumer prices. Using the same pieces of imported cuts, a serving of meat soup in Taiwan is larger and half the price of Korean restaurants. Other prices also are much cheaper in Taiwan.

In terms of the official exchange rate, Taiwan’s per capita national income is slightly lower at $22,000 than South Korea’s at $25,000. But in terms of purchasing power, the income level of Taiwanese is $39,000, compared to $33,000 for Koreans, higher than even those of the Japanese, British and Germans.

Taiwanese live modestly and few students carry luxury bags on university campuses. People are generally more friendly and at ease. The country has half the population of South Korea, but is richer in foreign exchange reserves and external assets. The government contained currency expansion and stabilized prices during economic development and maintained a current account surplus with relatively high interest and savings rates.

The governance style also differs. Taiwan’s Constitution has been revised seven times, but its framework devised by the Kuomintang in 1947 remains intact. The Taiwanese have been faster at accepting Western systems, culture and commodities than Koreans. But they did not outright import or copy them. Imported styles were adjusted to Chinese traditional customs and practices. The Taiwanese political system evolved and advanced based on this tradition. The president can appoint the head of the government, similar to Korea’s prime minister, without legislative approval and has the power to disband the legislature. The unicameral legislature can impeach the president upon the approval of more than two-thirds of members.

Korea emulated the Chinese system and customs until the Joseon Dynasty. After the end of Japanese rule, it followed American ways that had been introduced under U.S. military governance. There was little room for preservation and development of Korean identity, traditions, customs and systems. After the South Korean government was formed, it was under dictatorship and military regimes until a direct presidential election was reinstated in 1987. The democratic system cannot be deemed to have been perfected so far. Democratic experiments differed by country in Asia. China still maintains single-party rule under the Communist Party and Japan has a legislative-cabinet system under which the Liberal Democratic Party has been in power most of the time since the 1950s. Ruling power has changed several times through elections since the 1990s in Korea, but there is a difference in the power structure. Taiwan stresses efficiency and responsibility more than Korea. We should refer to Taiwan’s document when we study revising the Constitution.

Taiwan also has a practical approach toward China and unification. Taiwan adopted National Unification Guidelines in 1991 with four principles and a three-stage approach and has maintained a cross-strait relationship with mainland China under the four principles of the guidelines: Taiwan and China regard national unification as a “common responsibility”; interest in the welfare of all Chinese people; guaranteeing fundamental human rights and practicing democracy and the rule of law; and the manner of unification must be achieved in gradual phases under the principles of reason, peace, parity and reciprocity.

Under the three-stage approach, the two sides would accept each other’s existence as political entities and establish order and regulations to protect the rights and interests of people on both sides of the strait and increase private-sector exchanges. Direct postal, transport and commercial links must be allowed and mutual visits by high-ranking officials promoted. In the final stage, a consultative organization for unification would be established to jointly pursue unification. People on both sides of the strait now freely interact and travel, and cultural exchanges are active. China is now Taiwan’s biggest trade partner and investor.

Taiwan and South Korea are each other’s sixth-largest trading partner. Since diplomatic ties were cut in 1992, human interaction has been limited. The two countries are geographically, politically and economically similar in many ways. Korea has a lot to learn from Taiwan. We must boost human and academic exchanges with Taiwan.

JoongAng Ilbo, Jan. 10, Page 31

*The author is an economics professor of Sogang University.

by Cho Yoon-jae

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