“Vision 2020” – AmCham Asks Experts to Peer 12 Years Into the Future - I

By Michael Kurtz, Senior Managing Director at Bear Stearns Asia Ltd.

While most of the world is eagerly profiting from China’s rise, Taiwan remains ambivalent toward the economic dynamo next door. This has exacted real costs. Taiwan’s workers and entrepreneurs are among the world’s most skilled and talented, yet their ability to generate wealth from these attributes remains constrained by government limits on cross-Strait commercial activity.

Taiwan also faces more conventional “post-industrial” transformation challenges – including tax policy, financial-sector overhaul, and educational reform. These often get short-shrift from policymakers preoccupied with identity politics. At issue is whether policymakers can create the conditions and institutions for Taiwan’s economy to raise itself into higher value-added realms such as design, engineering, logistics, and marketing, and away from manufacturing.

A necessary condition for longer-term prosperity is to stop treating the thriving mega-economy across the Strait with arch-suspicion as a sophisticated “trap.” But resolving the cross-Strait impasse cannot be the entirety of a long-term Taiwanese economic game plan. Tax policy is one area long overdue a significant overhaul. Other Asian countries have been aggressively lowering taxes in recent years to attract foreign investment (with all the managerial know-how and new technology it often brings). Taiwan’s 25% profits tax and 40% top marginal personal income tax rate are simply uncompetitive, and indeed disincentivizing.

Taiwanese policymakers should also reaffirm vocal commitment to a strong local currency, as foreign investors tend to reward reassurances that their capital stock will not be undermined by devaluation. Currency strength also forces a country’s domestic manufacturing complex to seek value-based competitiveness rather than lean on the crutch of cheap-currency-based “competitiveness.”

Another key priority is financial system restructuring. An efficient, optimally sized financial system reduces capital costs while nurturing industry’s most efficient return-generators. But Taiwan’ banking system is among Asia’s most leaden. Taiwan needs to modernize its financial services sector – including welcoming more foreign ownership and risk-management expertise.

Lastly, Taiwan should leverage and extend existing strengths in human talent through education reform, prioritizing reasoning and creative thought over rote memorization and reducing the emphasis on standardized testing and central control of curricula. For the longer-term, no policy change would be more economically empowering.

With the above changes, Taiwan could resuscitate economic growth and preserve its place among the world’s most advanced economies through 2020 and beyond. But if political division and inertia continue to prevent policymakers from addressing these vital challenges, future Taiwanese may be left to ponder nostalgically: “What went wrong?”

Economic Development: Moving up the Global Value Chain

By Chen Tain-jy, professor of economics, National Taiwan University.

The government has set an official target for 2015 of per capita GNP of US$30,000. That may be too ambitious, but we could accomplish it by 2020 if effective restructuring of the economy makes the society as a whole more productive.

In manufacturing, Taiwan has concentrated chiefly on doing subcontracting business for international customers. This is non-knowledge-intensive work. In future, we must create more value by producing things that other countries can’t or don’t. We will have to find our niche.

1|2|3|4|Next Page>>

SharePrintEmail

Write a Comment

Terms

Enter your comments - 3000 characters max

Type in image code

Submit

 Receive China Post promos
 Respond to this email