Taiwan Miracle
The Taiwan Miracle or Taiwan Economic Miracle refers to Taiwan's rapid economic development to a developed, high-income country during the latter half of the twentieth century.
As it developed alongside South Korea, Singapore, and Hong Kong, Taiwan became known as one of the "Four Asian Tigers". Taiwan was the first developing country to adopt an export-oriented trade strategy after World War II.
Background
Premier Chen Cheng has been widely regarded as a leading architect of the Taiwan Miracle.He promoted and relied upon a cohort of technocrats, including Yin Chung-jung, Yen Chia-kan, Yang Chi-tseng, and Li Kwoh-ting
, while remaining the ultimate decision-maker in economic policy. Yin was often considered the first chief technocrat, succeeded after his death by Yen, and later by Li and Sun Yun-suan.
After a period of hyperinflation in the late 1940s when the Kuomintang-led government of the Republic of China military regime of Chen Yi overprinted the Taiwanese dollar against the previous Taiwanese yen in the Japanese era, the government introduced a new and stable currency to address hyperinflation. Along with the $4 billion in financial aid and soft credit provided by the US over the 1945–1965 period, and a more direct infusion of 41 Billion US dollars in free development aid up until year 1975. Taiwan thus had the necessary capital to restart its economy.
A land reform law, inspired by the same one that the Americans were enacting in occupied Japan, removed the landlord class, and created a higher number of peasants who, with the help of the state, increased the agricultural output dramatically. This marked the beginning of capital accumulation. It inverted capital creation, and liberated the agricultural workforce to work in the urban sectors. However, the government imposed on the peasants an unequal exchange with the industrial economy, with credit and fertilizer controls and a non monetary exchange to trade agrarian products for rice. With the control of the banks, and import licenses, the state oriented the Taiwanese economy to import substitution industrialization, creating initial capitalism in a fully protected market.
It also, with the help of USAID, created a massive industrial infrastructure, communications, and developed the educational system. Several government bodies were created and four-year plans were also enacted. Between 1952 and 1982, economic growth was on average 8.7%, and between 1983 and 1986 at 6.9%. The gross national product grew by 360% between 1965 and 1986. The percentage of global exports was over 2% in 1986, over other recently industrialized countries, and the global industrial production output grew a further 680% between 1965 and 1986. The social gap between the rich and the poor fell, even lower than some Western European countries, but it grew a little in the 80's. Health care, education, and quality of life also improved.
The economist S. C. Tsiang played an influential role in shifting towards an export-oriented trade strategy. In 1954, he called for Taiwan to deal with its chronic shortage of foreign exchange by increasing exports rather than reduce imports. In 1958, the policymaker K. Y. Yin pushed for the adoption of Tsiang's ideas.
In 1959, a 19-point program of Economic and Financial Reform, liberalized market controls, stimulated exports and designed a strategy to attract foreign companies and foreign capital. An exports processing area was created in Kaohsiung and in 1964, General Instruments pioneered in externalizing electronic assembly in Taiwan. Japanese companies moved in, reaping the benefits of low salaries, the lack of environmental laws and controls, a well-educated and capable workforce, and the support of the government. But the nucleus of the industrial structure was national, and it was composed by a large number of small and medium-sized enterprises, created within families with the family savings, and savings cooperatives nets called hui. They had the support of the government in the form of subsidies and credits loaned by the banks.
The State attracted foreign companies in order to obtain more capital and to get access to foreign markets, but the big foreign companies got contracts with this huge net of small sized, familiar and national companies, which were a very important percentage of the industrial output.
Foreign investment never represented an important component in the Taiwanese economy, with the notable exception of the electronic market. For instance, in 1981, direct foreign investment was a mere 2% of the GNP, foreign companies employed 4.8% of the total workforce, their production was 13.9% of the total production and their exports were 25.6% of nationwide exports. Access to the global markets was facilitated by the Japanese companies and by the American importers, who wanted a direct relationship with the Taiwanese brands. No big multinational corporations were created, or huge national conglomerates, but some industrial groups, with the support of the government, grew, and became in the 90's huge companies totally internationalized. Most of the development was thanks to the flexibility of family businesses which produced for foreign traders established in Taiwan and for international trade nets with the help of intermediaries.
After retreating to Taiwan, Chiang learned from his mistakes and failures in the mainland and blamed them for failing to pursue Sun Yat-sen's ideals of Tridemism and welfarism. Chiang's land reform more than doubled the land ownership of Taiwanese farmers. It removed the rent burdens on them, with former land owners using the government compensation to become the new capitalist class. He promoted a mixed economy of state and private ownership with economic planning. Chiang also promoted a 9-years compulsory education and the importance of science in Taiwanese education and values. These measures generated great success with consistent and strong growth and the stabilization of inflation.
Era of globalization
In the 1970s, protectionism was on the rise, and the United Nations switched recognition from the government of the Republic of China to the government of the People's Republic of China as the sole legitimate representative of mainland China. It was expelled by General Assembly Resolution 2758 and replaced in all UN organs with the PRC. The Kuomintang began a process of enhancement and modernization of the industry, mainly in high technology. One of the biggest and most successful Technology Parks was built in Hsinchu, near Taipei.One was the formation of an independent union at the Far East Textile Company after a two-year effort discredited the former management-controlled union. This was the first union that existed independently of the Kuomintang in Taiwan's post-war history. Rather than prevailing upon the state to use martial law to smash the union, the management adopted the more cautious approach of buying workers' votes at election times. However, such attempts repeatedly failed and, by 1986, all of the elected leaders were genuine unionists. Another, and, historically, the most important, was the now called "Zhongli incident".
By the 1980s, Taiwan had developed a mature and diversified economy, with a strong presence in international markets and substantial foreign exchange reserves. Its companies were able to go abroad, internationalize their production, investing massively in Asia and in other Organisation for Economic Co-operation and Development countries, mainly in the United States.
Higher salaries and better organized trade unions in Taiwan, together with the reduction of the Taiwanese export quotas meant that the bigger Taiwanese companies moved their production to China and Southeast Asia. The civil society in a now developed country, wanted democracy, and the rejection of the KMT dictatorship grew larger. A major step occurred when Lee Teng-hui, a native from Taiwan, became President, and the KMT started a new path searching for democratic legitimacy.
Two aspects must be remembered: the KMT was on the center of the structure and controlled the process, and that the structure was a net made of relations between the enterprises, between the enterprises and the State, between the enterprises and the global market thanks to trade companies and the international economic exchanges. Native Taiwanese were largely excluded from the mainlanders dominated government, so many went into the business world.
In 1952, Taiwan had a per capita gross national product of $170, placing the island's economy squarely between Zaire and Congo. But, by 2018 Taiwan's per capita GNP, adjusted for purchasing power parity, had soared to $53,074, around or above some developed West European economies and Japan.
According to economist Paul Krugman, the rapid growth was made possible by increases in capital and labor but not an increase in efficiency. In other words, the savings rate increased and work hours were lengthened, and many more people, such as women, entered the work force.
Future growth
Economic growth has become much more modest since the late 1990s. A key factor to understand this new environment is the rise of China, offering the same conditions that made possible, 40 years ago, the Taiwan Miracle.One major difference with Taiwan is the focus on English education. Mirroring Hong Kong and Singapore, the ultimate goal is to become a country fluent in three languages.
According to western financial markets, consolidation of the financial sector remains a concern as it continues at a slow pace, with the market split so small that no bank controls more than 10% of the market, and the Taiwanese government is obligated, by the WTO accession treaty, to open this sector between 2005 and 2008.
However, many financial analysts estimate such concerns are based upon mirror-imaging of the Western model and do not take into account the already proven Asian Tiger model.
Generally, transportation infrastructure is very good and continues to be improved, mainly in the west side of the island. Many infrastructure improvements are currently being pursued, such as the first rapid transit lines opening in Kaohsiung in 2008 and a doubling in size of Taipei's rapid transit system by 2013 now underway; the country's highways are very highly developed and in good maintenance and continue to be expanded, especially on the less developed and less populated east coast, and a controversial electronic toll system has recently been implemented.
The completion of the Taiwan High Speed Rail service connecting all major cities on the western coast, from Taipei to Kaohsiung is considered to be a major addition to Taiwan's transportation infrastructure. The ROC government has chosen to raise private financing in the building of these projects, going the build-operate-transfer route, but significant public financing has still been required and several scandals have been uncovered.