Wednesday, June 6, 2007

An Inconvenient Truth

An Inconvenient Truth
China Times editorial
translated by Bevin Chu
June 6, 2007

The Taiwan region's economic performance since the Democratic Progressive Party came to power in 2000 can be explained in two ways. Official statistics suggest that GDP growth is not that bad, that though it may be inferior to the three other Asian Dragons, mainland China, and India, compared to Europe and America, it is nevertheless satisfactory. But private sector evaluations and government statistics are two different matters. Many university graduates' starting salaries have fallen, fear of unemployment has risen, and the quality of life is lower than before. The reasons for the obvious discrepancy between official figures and private sector perceptions are worth looking into.

In order to understand the difference between official figures and private sector perceptions, we need to ask the following four questions: (1) Where does Taiwan's economic growth come from? 2) Where do the fruits of this growth go? Who profits from them? (3) What consequences does such a pattern of economic development have? (4) What pitfalls threaten Taiwan's economic future? Yesterday this newspaper proposed a systematic explanation for the above four riddles. Today, we provide a comprehensive analysis of Taiwan's economic plight.

Directorate General for Budget, Accounting & Statistics figures reveal that during the 1990s, the average GDP growth rate was 6.5%, the bulk of which was in private sector consumer purchasing. After 2000 however, even though the average GDP growth rate was 3.8%, most of that was due to exports. Growth in private sector consumer spending was not worth mentioning. Since economic growth was concentrated in the export industry, those industries able to profit from economic growth are going to be export related. This is the answer to Question (1). As to who in fact profits, that relates to Question (2).

Taiwan's low tech manufacturing industries and traditional industries have already moved to locales such as mainland China and Vietnam. The only locally manufactured exports that are still competitive are a handful of high tech industry components. Take notebook PCs for example. The vast majority of assembly lines have left Taiwan. The only orders Taiwan industries receive are for ICs, DRAM and other modules still made on Taiwan. The notebook PC industry can turn a profit from export orders from a small number of businesses. The economic fruits of exports naturally flow to high tech industry employees and company bosses. Since computer assembly or internal low tech parts manufacturing are no longer domestic industries, affected workers face unemployment and reduced salaries. The income disparity between low tech employees and high-tech professionals or their bosses will naturally increase day by day. Because high tech talent tends to be financially well off, the average person perceives a growing gap between the rich and the poor. In short, the growth of high tech parts export inevitably results in income discrepancies between knowledge workers and manual labor, accelerating the polarization of society.

The inexorable polarization of Taiwan society is not limited to subjective public impressions. It manifests itself in the gross statistics as well. As everyone knows, domestic auto sales have not recovered for two years in a row. Sales are down 30% from the year before. But sales of luxury cars such as Mercedes, BMW, and Lexus grew 23% between January and April. Average purchasing power has fallen, while the purchasing power of wealthy individuals at the top of the economic ladder has risen. What is this if not polarization?

But purchases of luxury cars and mansions by a wealthy elite are not enough to support Taiwan's overall economy. When average private sector consumer buying power plummets, when annual growth is no higher than 1.5%, that is not enough to keep 7/10th of the population employed. As a result, private sector unemployment rises, university graduates' starting pay falls, people feel the difference in the quality of their lives, and those on society's margins commit suicide by lighting charcoal fires in their homes, and sleep the Big Sleep.

Apart from this internal polarization, what other pitfalls does Taiwan's lopsided economic development conceal? Scholars have pointed out that to concentrate a nation's economic growth in high tech manufacturing industry exports is like flying on a single engine. Once external conditions or the industry structure changes, one is faced with a flameout in one's sole engine. Take the soon to be established ASEAN plus Three free trade region for example. After 2010 the cost advantage of certain Taiwan high tech products may evaporate. By then, the contribution of export orders to Taiwan's GDP will be marginal, and our growth rate will fall yet again. If local industries can no longer survive under the government's Closed Door Policy, and decide to list on the Hong Kong stock market instead, even business profits will flee. By then, any changes in policy will be too little, too late.

This newspaper's analysis of Taiwan's economic plight explains the reasons for the discrepancy between the official figures and private sector perceptions, and clearly indicates the source of Taiwan's economic problems. We dare not expect much from the Democratic Progressive Party government in the year remaining, but at the very least the Presidential Office and the Executive Yuan ought to face an inconvenient truth. If the government attempts to sweep negative public sentiment under the rug at this late date by trotting out Directorate General for Budget, Accounting & Statistics figures, then it is truly beyond redemption.

Original Chinese below:

中國時報  2007.06.06









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