What Is the International Institute for Management Telling Us?
China Times editorial (Taipei, Taiwan, ROC)
May 22, 2011
The Swiss International Institute for Management (IMD) has published its 2011 World Competitiveness Report. The ROC's ranking increased from 8th place last year to 6th place this year. This is the highest ranking the ROC has ever achieved. The report does not necessarily reflect a nation's ultimate economic competitiveness. Nevertheless the report enables us to see the ROC's problems. For example, the United States was ranked number one. But its economic recovery is still in the doldrums. Its unemployment rate is still over 9%. The PRC ranked 19th. But its economic growth remains strong.
The competitiveness report is divided into four major categories, using four indices. Each index is subdivided into even finer indices. The first index is economic performance. In this, the ROC rose from 16th place to 8th place. The second is governmental effectiveness. In this, the ROC fell from 6th place to 10th place. The third index is business performance. In this, the ROC remained in 3rd place. Finally, there is infrastructure. In this, the ROC rose slightly, from 17th place to 16th place. Based on these numbers, Overall, the ROC rose from 8th place to 6th place, mainly because its eye-catching economic performance. Had the government not imposed a drag on its performance, it would have improved even more.
The IMD uses different methods of scoring. These include so-called "hard targets" (statistics). Much of the score is derived from questionnaires filled out by high-level corporate managers. Most are from large companies engaged in international trade. These include foreign multinationals. Some of the questionnaires may be somewhat subjective. But they also provide concrete data that cannot be obtained any other way. Consider the part relating to government efficiency, The scores on the questionnaires were higher than the numerical scores. They were just the opposite of the "economic performance" scores.
Taiwan has long scored poorly on governmental efficiency, usually below the top 20. In 2004 and 2005, it ranked 18th. In 2006 it fell to 23rd place. In 2008, it ranked 16th. In 2009, it fell to 18th place. Strangely enough, in 2010 it lept to 6th place. This year it it fell from 6th place to 10th place, the second highest ranking of all time. The media and the opposition DPP have made a great deal of this. The DPP has lambasted the ruling KMT as the embodiment of both incompetence and of evil. But it has scant justification for doing so. After all, when the DPP was in power, the government also ranked below the top 20 in efficiency. What right does it have to make such irresponsible remarks now?
Nevertheless a decline is a decline. If one's ranking falls, one must undergo a review process. Officials who imposed controls on oil prices complain that they were penalized for siding with the common man. This is not necessarily the case. Consider the many secondary indicators of governmental efficiency. The government has long underperformed fiscally. This time, its performance was even worse. This may have been due in part to the financial tsunami and tax cuts to enhance competitiveness. But the biggest factor was the impact of public shares on business activity. Here, the ROC fell from 12th place to 35th place. Consider bureaucratic meddling in business activities. Here, the ROC fell from 8th place to 20th place. These indicate a real pattern.
Many government agencies have gradually withdrawn from quasi-public enterprises. But some legislators and journalists have made populist demands, encouraging the government to "get tough." Government agencies responded by once again asserting themselves through publicly owned shares. The governments has increased its ownership in these businesses through state-owned enterprises and government funds. It has meddled in the affairs of company boards. It has even engaged in struggles for control, as if it was merely another competitor in the free market. It has violated the clear promises it made concerning public offerings. This is how the government influences business activities through public shares.
The FSC and the National Communications Commission (NCC) are charged with overseeing certain industries. Typically these agencies care nothing about ensuring profitability. They care only about fighting corruption. While overseeing these industries, these agencies have meddled inappropriately. They have gone overboard in meting out punishment. They have dragged their feet when reviewing corporate mergers and acquisitions. First instance reviews take almost a year. That means lost opportunities. While overseeing investments on the Mainland, the Ministry of Economic Affairs has been too slow to liberalize. Its review process is even slower. It is virtually strangling businesses. To characterize it as as "hobbling businesses bureaucratically" is no exaggeration.
Regarding environmental protection projects, such as renewable energy, reducing carbon emissions, increasing energy density, and addressing climate change, the government's response has been inadequate. The government should practice greater fiscal discipline. It should reduce bureaucratic meddling in business activities. It should liberalize the laws. It should avoid the path of "anti-privatization" and "officials enter, citizens exit." On environmental protection, it should implement energy conservation and carbon reduction, as soon as possible, It should not substitute sloganeering for reducing carbon emissions and greenhouse gases.
The ROC ranked third in industry performance, and third in manufacturing unit labor costs. On the plus side of the ledger, it has high labor productivity. On the minus side of the ledger, lower wage costs mean workers on Taiwan are "cheap" and offer "high value for money." The ROC's s overall economic picture is first rate. But the public does not feel it. That is why it does not feel the recovery.
We need not treat this report on competitiveness as if it were the Holy Bible. But the two sides have benefited from the cross-Strait thaw and ECFA. These have enabled the ROC to make the greatest improvements in its ranking ever. We still have reason to rejoice. The public and government both deserve praise. The report includes negative assessments. But it also provides us with important information. Does the government have the eyes to see? Does it have the courage to respond?