Structural reforms necessary to further liberalization
LETTER TO THE EDITOR
In the era of globalization, more and more countries are forging bilateral and regional trade agreements, including the Trans-Pacific Partnership (TPP), in order to benefit from reduced customs duties, more liberalized flow of capital and personnel as well as increased employment opportunities. These recent developments have largely excluded Taiwan for political reasons and have taken place while Taiwan is experiencing post-industrial economic pains characterized by slow growth, rising inequality, stagnant wages, persistent underemployment and political gridlock as growth drivers shift away from input and efficiency towards business innovation.
This has raised concerns that Taiwan’s economy could become increasingly marginalized and less globally competitive, which could undermine future growth and standards of living. Especially in innovation-driven economies, there is no guarantee that the economic fruits will be equitably shared instead of concentrated in the hands of a few. Politicians in developed countries seem powerless to preserve collective prosperity in the face of these dangers. Taiwan faces all of these problems with unique circumstances of political and economic insecurity.
Further liberalization is necessary to prevent marginalization. But liberalization stimulates a structural readjustment of an economy, accelerating the decline of sectors and encouraging the growth of others. The question for Taiwan’s businesses is therefore how they should continually re-engineer themselves so they may deliver profits to their shareholders and jobs for Taiwan’s residents and for the government, what it should do and not do to ensure an environment in which prosperity can be sustained and furthered. The author suggests that Taiwan should undertake further structural reforms concurrently to improve the economy’s flexibility in responding to the challenges of liberalization.
First, Taiwan needs to address its problems of socioeconomic inequities to make forging a domestic consensus politically possible. One approach is to consider further reforming public goods and services like the education system, health insurance, social welfare, public infrastructure and income and capital gains tax structures to compensate for the differences in wealth and mobility and ensure more equal opportunity. In particular, enabling educational opportunities and human capital through more holistic admissions mechanisms, enhanced education in public schools and rural areas, and increased subsidies for disadvantaged families can help promote greater long-term equality, social motivation and national achievement.
Second, Taiwan should define its strategic position, rebuild economic credibility and ascertain a negotiating strategy for its industries. According to Harvard Business School economist Michael Porter, Taiwan already has a highly innovative economy with core fundamental strengths. Based on this foundation, some future directions for Taiwan might include transforming and marketing Taiwan as an attractive site for research and development, a welcoming, transparent, and highly efficient climate for investment, the easiest place in Asia to do business, a secure technology gateway to mainland China, a world-class center for logistics and business services, a bastion for knowledge and education or a regional hub for information. On the other hand, the government can formulate concrete approaches to utilize and build upon comparative advantages of entrepreneurship, incentives for foreign investment and quality of the services sector. Furthermore, businesses can continue to implement international standards and practices.
Finally, Taiwan should demonstrate that it has the political commitment and ability to liberalize its economy and meet the high standards of integration. Taiwanese society needs to form consensus and principles to guide Taiwan’s long-term strategy and objectives on cross- strait economic relations. For example, the DPP with strengthened popularity should abandon its boycott position and assume a more constructive role in leading and monitoring crossstrait affairs. The party should proactively legislate the supervisory provisions for cross-strait agreements and ratify the trade in services pact. It should also agree to the signing of the trade in goods pact with mainland China and advocate for its earliest passage. This will help make Taiwan more competitive against similar competitors like South Korea for export markets.
Cross-strait relations has been and will remain a key driver of Taiwan’s economy. Since he first took office in 2008, President Ma Yingjeou has made improving Taiwan’s relationship with mainland China a primary objective. Over the past six years, the two sides have concluded some 21 agreements, including the signature Economic Cooperation Framework Agreement (ECFA) in 2010. Such efforts mark important steps in normalizing, liberalizing and institutionalizing the crossstrait relationship so as to create the necessary preconditions for Taiwan’s future participation in Asia’s economic integration.
Liberalization and integration will provide Taiwan’s economy with a strong vehicle to further structural reforms and rebuild confidence. Taiwan’s path to liberalization via the TPP, for instance, is not easy, and it cannot traverse that path on its own. This is because Beijing and international realities will continue to pose significant challenges. But this has always been true for Taiwan.
It is thus the author’s argument that there are viable means for Taiwan to increase its odds in removing or circumventing these obstacles. A logical and sequential approach is particularly significant. If Taiwan can prevail over such challenges as forging domestic consensus, enhance the credibility of its economic commitments and develop its own negotiating strategy, it will then be easier for the United States and other countries to support Taiwan’s participation on economic grounds and resist Beijing’s opposition. Alfred Tsai currently attends Columbia University, where he is studying economics and political science.