Friday, November 28, 2008

Knowing When to Do Something and When To Do Nothing

Knowing When to Do Something and When To Do Nothing
China Times editorial (Taipei, Taiwan, ROC)
A Translation
November 28, 2008

The global financial crisis has been followed by a serious recession. The world's governments are resorting to various policies to prop up their stock markets and to save their economies. At home and abroad, a number of unprecedented policies to prop up the stock market have emerged, all of which sound reasonable. With so many unprecedented packages to rescue the market and the economy, we hope that in addition to pursuing timely interventions, the government knows when to do nothing.

Policies to save the economy can be divided into several types. One type is cost effective, i.e., low in cost, high in effectiveness. Another type cost ineffective, i.e.,high in cost, low in effectiveness, or time sensitive. The worst type is high in cost and utterly ineffective, or worse, high in cost and counterproductive. One should implement the first type as much as possible. One should implement the second time when necessary. One should never implement the third type, ever. Otherwise, one will visit disaster upon one's children and grandchildren.

Cost effective policies are hard to come by. But they do exist. When certain banks experienced a run on their deposits, or even problems with liquidity, Premier Liu promptly announced that all bank deposits would be fully protected. This immediately restored financial stability. This was an example of not spending a single penny while achieving the government's policy objectives.

Cost effective policies must be implemented at the systemic level. One must not simply throw money at the problem. The government is supposed to work through the system and make improvements, reducing operating and transaction costs, thereby boosting the economy. A few days ago the G-8 announced housing market rescue measures. Most of thse involved systemic reform, such as the simplification of administrative procedures to reduce transaction and operating costs. Such policies are cost effective and reliable. Other cost effective and reliable policies include relaxing restrictions, introducing foreign capital, foreign investment, and even foreign personnel.

The second type of policy includes the recent consumer voucher policy. It cost over 80 billion NT, a huge investment. It may boost the economy. But when one considers the public cost against the benefits, it is unlikely to increase economic growth as forecast by the Council for Economic Planning and Development.

Furthermore, the first wave of policies have already been launched. The second wave involves increasing domestic demand. The first wave cost over 60 billion NT. The second wave will cost an estimated 400 billion NT. The cost is immense. To boost the economy, the cost of public works is what it is. There is no alternative. It is highly effective. Moreover, Taiwan's infrastructure remains inadequate. To vigorously promote pubic works during an economic downturn is an opportunity to provide a sound infrastructure at low cost. Therefore increasing domestic demand deserves our support.

The first problem is time sensitivity. If the government can not improve its administrative efficiency, if it cannot completely prevent corruption in the procurement system, these expenditures will not rescue the economy and will not be effective. The second problem is the proper allocation of funds. From the perspective of boosting the economy, money spent is presumed to be well spent. But from the perspective of the taxpayers' hard-earned money, government funds must be spend with discretion. They must not wind up as loot divided among corrupt politicians and vendors.

Other policies such as the National Stabilization Fund, the four funds to support the stock market, and the securities transaction fee cuts, are clearly cost ineffective and should be avoided. The National Stabilization Fund has already been implemented. We are now riding the tiger. We must skillfully dismount. We must not stubbornly prop up the index. The securities transaction fee cuts are best quietly terminated or not implemented. The government must proceed from a systemic level, and not throw money at the problem in an attempt to prop up the index.

The final type of policy should never be implemented, ever. Such policies include increasing funding for the National Development Fund to the tune of trillions. One example is the attempt to rescue the DRAM industry. The government proposes investing hard-earned taxpayer dollars on sunset industries it is incapable of operating, yet hopes to resuscitate. This approach provides sweetheart deals to favored businesses and squanders the nation's wealth. It leaves one speechless. From an industry perspective, the DRAM industry is not so important that it would result in the death of our domestic IT industry. Moreover, DRAM industry-related companies have taken out loans worth hundreds of billions of dollars from the domestic banking system. Creditor banks can perform a supervisory function. They can take over these companies and and restructure them. There is no reason for the government to invest huge sums of money to save them.

Consider lessons from the previous administration. Decisions about which enterprises need to be saved and can be saved will be made by industry peers and the banking industry. They will make professional judgments and decisions. But once the public sector intervenes, then all sorts of problems arise. During Taiwan's homegrown financial crisis, decisions were made by whoever had the ear of those at the top, whoever had access to Boss Liu. Under Democratic Progressive Party misrule, such decisions led to the "Cape Seven Billion." Today it's DRAM. Tomorrow it might be flat panels or automobiles. The day after that, petrochemicals. How long must the government keep rescuing them?

Actually, the government has yet to intervene. We have already seen how DRAM related industries have adapted to survive on their own. PSC may sell shares to Rexchip Elpida. Formosa Plastics may make loans to Micron. Micron may acquire a stake in Inotera. The government may express concern for the plight of industry. It may help industries make breakthroughs. It may help revive them. But it must never take money from the state treasury and directly invest it in the companies. In order to rescue the housing market, the government is requiring banks to increase housing loans to 80%. It is even offering loan guarantees and business relief. The government ought to proceed with caution. In principle it ought to respect the professional judgement and decisions of the banking industry. It must not force bad debt upon banks. Otherwise the banking system will collapse.

In the face of severe economic recession, The government should do something. But we look forward even more to a prudent government doing nothing, in order to avoid even more serious consequences.

中國時報  2008.11.28




此類花費小而效益高的政策,必須多從制度面、少從「灑錢面」著眼。畢竟政府原本就可透過法令與制度的改善提升,達到降低「經營與交易成本」、提振經濟的目 的。以日前宣布的八大救房市措施而言,大部分屬於制度面的改變,簡化行政流程、降低交易與經營成本,應屬花費小而效益可期待之政策。其它如放寬限制,引進 外來的資金、投資、甚至人員,都屬這類政策。


另外,已推出一波,目前又推第二波的擴大內需政策,第一次花了六百多億元,第二波則以四千億為目標,花費非常大。以提振景氣效果而言,公共建設花出多少錢 就是多少,不會有「所得替代效應」,效益相當大;更何況,台灣基礎建設仍有許多不足之處,在景氣低迷時大力推動建設是「以便宜價格建構良好基礎建設」的契 機。因此,擴大內需絕對值得支持做。

但問題,第一在時效,如果政府無法提升行政效率、無法去除完全防弊為出發點的採購制,這些支出,只能說是緩不濟急,效益不大;第二則是錢是否花在刀口上。 雖然,站在提振景氣的立場,錢花出去就算數、就是有效,但站在善用民脂民膏的立場,政府還是有必要慎用經費,不要流於分贓式的建設分配。

其它如國安基金與四大基金護盤股市、減徵證交稅等政策,大致可看出是花費大而效益小者,能免則免。國安基金已進場,算是騎虎難下了,但要技巧的淡出,別再 硬拉指數、硬撐某個指數關卡;減徵證交稅則能悄然收場不實施最好。未來對股市,政府還是該從制度面著手拉抬,而非以灑錢方式護盤。

最後一類政策,則萬萬不可做,這種政策,以增加國發基金至兆元,要投入救DRAM等產業為代表。坦白說,政府拿民脂民膏投資瀕臨倒閉的企業,而政府又絕對 沒有能力經營,讓此企業起死回生,這種作法,除了圖利特定企業、浪費國庫外,實在難以找到其它形容詞了。再以產業面看,DRAM的產業關聯,絕對沒有重要 到倒閉會讓國內科技產業進入死境。更何況,以該產業相關企業在國內銀行體系數千億元的借貸而言,債權銀行團就可扮演監督、接管、重整的重任。政府絕沒有理 由、也不該投入鉅資去挽救。

更何況,從前朝的例子來看,哪些企業要救、能救,從產業同業與銀行團眼中,會有較專業的評估與抉擇,但一旦變成公部門行之,就變成弊端叢生。本土金融風暴 時,抉擇標準是誰上達天聽,誰攀上劉大掌櫃;民進黨時,看來就是「海角七億」在決定。今日是DRAM,明天是面板、汽車,後天是石化,政府要救到何時才 休?

事實上,政府還沒介入,我們就已看到DRAM相關業者就自行調整求生存,如力晶賣出瑞晶股權給爾必達,台塑借款予美光,新美光取得華亞科股權。對於企業與 產業的困境,政府可以關注、協助突破、設法起死回生,但絕對不能拿國庫的錢去直接投資入股。另外為救房市,要求銀行貸款成數提高到八成、或甚至某些成數由 政府信保基金保證、企業紓困機制等,政府都該審慎為之。原則上都該尊重銀行的專業判斷與決定,絕對不能「硬塞」爛債權給銀行,否則銀行體系將會崩潰。


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