Global Economy is Changing Tracks: Taiwan Cannot Afford to Remain Idle
United Daily News editorial (Taipei, Taiwan, Republic of China)
February 21, 2014
Summary: In recent years, Taiwan's economy has remained in the doldrums. Every
year government economic revitalization efforts promise the moon. But
over the past year the government has struggled to maintain a low growth
rate of one, two, or three percent. People have understandably lost
confidence in the future. The economy has long been Taiwan's lifeline.
How can we revive our economic competitiveness? How can we escape the
plight of low growth? This is without a doubt our most urgent issue.
Full text below:
In recent years, Taiwan's economy has remained in the doldrums. Every year government economic revitalization efforts promise the moon. But over the past year the government has struggled to maintain a low growth rate of one, two, or three percent. People have understandably lost confidence in the future. The economy has long been Taiwan's lifeline. How can we revive our economic competitiveness? How can we escape the plight of low growth? This is without a doubt our most urgent issue.
Beginning in 2008, the global economy underwent the global financial tsunami and the European debt crisis. Two "track changes" took place. The first track change involved the de-leveraging of the United States, Europe, Japan, and other advanced industrial countries. They became low-growth economies. Emerging markets, especially in emerging Asian countries, became the main engine of global economic growth. The second track change involved the advanced industrial countries, which underwent several years of economic reform and adjustment. Beginning last year, they regained growth momentum. Emerging markets will be impacted by the U.S. Federal Reserve, which will begin tapering its quantitative easing (QE) policy. Over the past several years, short-term hot money created a boom. This boom faces substantial adjustment. The Economist said that in 2014 the United States, Great Britain, Germany, Japan will dominate the headlines.
This is an era of dramatic economic change. The rise and fall of a nation's economic strength and competitiveness often depends on its ability to change and adjust. Consider the first track change in the global economy. Compare the key competitors. Taiwan was like a race car on fast idle but which went nowhere. It missed a golden opportunity to change and adjust, This led to weakened competitiveness.
Taiwan's economic idling took five different forms. One. It was unable to change its emphasis on hardware manufacturing and foundry exports. It was unable to drive economic growth and link to the global supply chain. It could neither go forward nor retreat as exports declined. Two. It failed to commit to economic restructuring, It was slow to develop new industries and services. Long-term private investment and consumption slumped, weakening domestic demand. Three. It failed to respond to the huge disparity in the scale and structure of the two cross-strait economies. This led to increasing capital flight and a brain drain, from Taiwan to the Mainland. The cross-strait economy went from "more complementary than competitive," to "more competitive than complementary." Four. The government blundered. It failed to fully grasp the internal and external scenario change. Its economic leadership was weak. Its policies flip-flopped. It boasted about reform, but failed to prescribe the right medicine. It intensified the chaos. Five. The government and the political opposition bickered endlessly. Major policies remained stalled. This worsened economic wheel-spinning.
Over the years, a golden opportunity for reform was lost. Taiwan's economy is no longer what it used to be. The global economy has begun its second track change. The potential risks and challenges will be even more difficult to address effectively
First, the U.S. Federal Reserve may taper QE this year. Global capital will quickly return to the U.S. from emerging markets. The emerging markets depended upon the influx of money to create economic bubbles. These bubbles will collapse. Latin America, Asia, and other emerging market countries or regions will be impacted to different degrees. Taiwan will not be immune.
Secondly, the Mainland is deeply committed to economic reform. It too will be affected by QE tapering. Slowed economic growth will become the norm. Taiwan's dependence on the mainland market in recent years has increased. Therefore, its relative impact will increase accordingly.
Taiwan's economy remains highly dependent on IT industry exports. But brand names and specialized OEM industries face the impact of United States and Korean industry consolidation on the supply chain. This year Mainland industry is catching up. Following the track change in the global economy, information and communications industry competition will be increasingly fierce. Taiwan's industry crisis is imminent. It is the biggest variable for the future.
In view of this, the government has no right to be blindly optimistic about the future. In particular, it must recognize the harsh reality. Taiwan's competitiveness has plummeted. Therefore it is imperative to cease economic idling, and implement four major economic changes.
First, immediate action is required to stabilize the economy. Taiwan's economic momentum is increasingly inadequate. It is vulnerable to fluctuations in the international economy. Therefore, the government must take short-term measures to revive exports and domestic demand. It must also take immediate countermeasures to assist industrial restructuring and upgrading.
Second, comprehensive economic reform is essential. Taiwan must attempt to change its economic growth mode from "efficiency-driven" to "innovation-driven." Both exports and domestic demand require a new industrial structure in line with the future needs of the community.
Third, a strategy is required that integrates us into the global economy. To survive, Taiwan's economy must become tightly linked to the global economy. The government must join the TPP and RCEP. But more than that, it requires a political and economic strategy to overcome resistance, at home and abroad. Only then will the bigger pie it draws on paper become an objective reality.
Fourth, the two sides must be willing to adapt to each other. Cross-strait trade must become Taiwan's economic advantage in long term economic development. Cross-strait adaptation is of critical importance. Cross-strait economic policy coordination and strategic dialogue mechanisms must be established, as soon as possible. Only this can ensure a long-lasting win-win scenario.
The above four policy directions are nothing new. But the government must redouble its efforts, in order to make up for years of wheel-spinning. Only then can it restore Taiwan's economic vitality.
2014.02.21 05:00 am