TAIWAN: by Jeffry Babb News Weekly
Taiwan's globally competitive manufacturing sector
, June 23, 2012
Taiwan is a small island only half the size of Tasmania with a population of 23 million — slightly more than Australia.
Keeping those people employed and the economy growing would seem to be a task in itself. But Taiwan has not only survived, it has thrived, as have its traditional industries, in large part due to intelligent government support which has allowed them to upgrade their products to meet ever-increasing international competition.
When the seat of government of the Republic of China (ROC) relocated to Taipei in 1949, Taiwan was an agrarian society. It had been a colony of Japan for 50 years. The Japanese, to their credit and unlike elsewhere in Asia, had done much to modernise Taiwan’s economy by building railways and dams, developing irrigation schemes, promoting education and constructing public buildings.
After World War II the United States saw Taiwan as a bulwark against communism, and helped transform her economy. The Kuomintang, led by Generalissimo Chiang Kai-shek, knew they were on their last chance. If Taiwan fell, there was nowhere left to go. While the KMT was authoritarian, Chiang was smart enough to realise he had to carry the 85 per cent of the population who were Taiwanese with him, and prosperity was the best argument for continued KMT rule.
Taiwan was not totally lacking in industry. It manufactured some items of stationery, and had a rudimentary textile industry. Initially, value-added agricultural products were exported, such as the ubiquitous asparagus spears that appeared at many polite afternoon teas.
The KMT gained support from tenant farmers and boosted agricultural productivity through the “Land to the Tiller” land redistribution program. The landlords were compensated by being issued shares in state-owned enterprises, which turned out to be very lucrative investments.
Taiwan is no longer an agrarian society. Within a generation, almost the entire population was transformed into city-dwellers. Agriculture’s share of gross domestic product (GDP) is now 1.3 per cent. Industry’s share of GDP is 32 per cent and the service sector accounts for 66.9 per cent (2011 figures).
Agriculture is not dead. Taiwan’s farmers still produce rice, vegetables, fruit, tea, flowers, pigs, poultry and fish. These are increasingly niche products, such as Taiwan’s world-famous high-end tea and orchids for export markets.
But it is in industry where Taiwan has shone. Taiwan is one of the world’s leading high-tech manufacturers, exporting electronics, flat panels, machinery, textiles, plastics, chemicals, optical products, photographic equipment and medical instruments.
Taiwan lives by exporting. Its foreign reserves of $418 billion rank in size only behind China, Russia and Japan. To keep its export-oriented economy flourishing, and meet the competition from hungry rivals, Taiwan has moved relentlessly “up the value chain”. This phrase means that it continues to upgrade quality and add more value to its basic products so that it can gain extra revenue.
Taiwan’s economy is by no means dominated by the government. In fact, recently the government has been reducing its direct role in the economy by privatising financial institutions and other for-profit enterprises. On the other hand, the government acts as an encourager and source of assistance to an extent unheard of in Australia.
Take the textile industry, for example, which, as previously mentioned, was the bedrock of Taiwan’s industrial renaissance. In theory, textiles should have been eliminated as an industry when Taiwan placed its development eggs in the high-tech basket. But the textile industry has refused to go away — it’s still a major export industry.
In the 1970s, Taiwan joined Kong Kong, Italy and Korea as the world’s four major textile exporters. Then — due to tariff barriers, spiralling wage costs, labour shortages, rising input costs due to the oil shocks, rising competition from Southeast Asia and increased environmental awareness — the textile industry began moving offshore to cheaper labour regions. But the textile industry didn’t die.
In 2002, the ROC government announced “development policies for the textile industries” to assist the textile industry to become internationally competitive. The government provided financial support and consulting services to help the industry upgrade it technologies. Under the development plan, high-tech textiles, fashion design, and sports and leisure plans would form the core of the textile industry. Research and development efforts involving the industry, government and academia are pushing textiles in Taiwan towards higher value, developing new products and improving functions.
The government has also promoted activities such as Taiwan Textile Fashion Week and the “national textile fashion and design contest”. In order to inject new blood into the industry, the government has also established the Taiwan Textile Research Institute.
Taiwan’s government takes the view that the arrival of globalisation and the knowledge economy means that the focus is shifting from labour and capital-intensive industries to technology and knowledge-intensive industries. But that does not mean industries where Taiwan is traditionally strong should be simply abandoned. Unlike old soldiers, industries such as textiles and car manufacturing simply refuse to fade away.