Taiwan in the 21st Century

Aspects and Limitations of a Development Model

J. Megan Greene, Robert Ash

• Publisher: Routledge
• Year: 2007
• Print ISBN: 9780415412568
• eBook ISBN: 9781134125890
• Topic: Politica e relazioni internazionali
• Subtopic: Economia politica

Throughout the twentieth century Taiwan was viewed as a model - whether in terms of a model colony, a model China or a development model. This perception was based on the notion of Taiwan undergoing an economic miracle and political developments. Yet much of Taiwan's history is unique and may not be readily replicable elsewhere.

Written by an impressive line up of contributors from the US, UK, Taiwan, France and Hong Kong, this book analyzes Taiwan's economic and political achievements, and asks whether it is possible to identify through the experience of a single nation – Taiwan – the makings of a replicable model.

This book will appeal to students and scholars of Taiwan, political economy, and Asia-Pacific regional development issues.

1
Economic life in mainland China and Taiwan and the rise of a productive market economy

Ramon H. Myers

The great wealth-producing nations of western Europe, North America and much of East Asia share common features that set them apart from the world of 200 years ago, and also from today’s developing nations.

First, they developed new capabilities that reduced the transaction and transformation costs of their economic organizations by using the market place to add more value to the goods and services they produced.¹ Second, their per capita gross domestic product (GDP) growth rates accelerated for a long period before slowing down. In this respect, they experienced what Henry Rosovsky and Kazushi Ohkawa described as ‘economic growth acceleration’, which explains how Japan’s modern economic growth took place. Third, economic life underwent seismic changes as working people moved from farming and fishing to industry and services by acquiring new skills and more education. Finally, massive migration from farms to cities and megapolises created a huge urban market economy by connecting the national economy to the world economy.

These momentous improvements in economic life only partly describe our modern era, and could not have occurred in the absence of three salient economic processes that took place concurrently at various times during the past 200 years.² First, four interacting economic activities, sustained for at least a half-century, predominated: income distribution became more equal; the demand for goods and services increased steadily, with more income being spent on high-value goods than on food and drink; the share of savings in GDP rose from 3–5 per cent to 10 per cent or more; and more resources were invested in physical and human capital. Second, severe inflation did not reverse these four favourable patterns of economic growth. Finally, the domestic market became integrated with the world economy.

These three economic processes were made possible by the formation of two different kinds of market economy. In Western Europe after the sixteenth century, capitalist institutions, a new system of capitalist property rights, and capitalist economic organizations combined to form a capitalist market economy. After 1870, Japan became the first East Asian nation to experience an economic transformation that Kozo Yamamura has conceptualized as ‘bridled capitalism’, in which ‘ideologies, policies, and insti- tutions have substantively influenced the 1880–1970 century of Japanese economic growth.’³ Since World War II, South Korea, Taiwan, Singapore and (in the 1990s), the People’s Republic of China have replicated Japan’s ‘bridled capitalism’ by developing what Douglass C. North has conceptualized as a productive modern market economy.

All civilizations, from earliest times, had some form of market economy, but only the western world and East Asia developed their unique market economies to produce the economic breakthroughs of our modern age. Market economies of the distant past always coexisted with what John Hicks conceived as ‘customary’ and ‘command’ economies.⁴ Hicks defined these ideal types as economies producing and exchanging goods and services between and within households, and administrative authorities using their power to extract and allocate resources according to the demands of the political power holders. Then Hicks describes how England, and subsequently western Europe, succeeded in developing a capitalist market economy that replaced the traditional market, customary and command economies after the 18th century. This transformation was achieved by establishing new property rights between tenant and landlord within a capitalist farming system; organizing a new labour market to satisfy rising demand for skilled labour from firms willing to pay higher wages; and, finally, creating new technology that enabled factory production to replace handicraft activity.⁵

Earlier, Max Weber had tried to explain the rise after the sixteenth century of a new market economy of the kind that Hicks had described and analysed as replacing the customary, command and traditional market economies of the past. According to Weber, this new capitalist market economy exhibited a capitalist ideology, culture and behaviour radically different from that of antiquity and the Middle Ages. Weber argued that with the ‘development of capital accounting and rational commerce, and with the need for rules and trust that arises when there are continued transactions among individuals, the modern form of capitalism emerged in Western Europe.’⁶

Economic historians such as Weber, Hicks and others agreed that a new capitalist market economy had evolved in the West, but, with the exception of Weber, they never examined historically the political and economic behaviour associated with the customary, command and traditional economies of the past, nor did they explain how these had interacted to inhibit the development of a new kind of market economy powerful enough to transform all economic life. Similarly, we still lack a satisfactory account of how the East Asian productive market economy evolved as a result of new behavioural patterns, ideologies and cultural change. To be sure, Japan’s modern economic growth, propelled by its new market economy, has been measured, described, explained and evaluated,⁷ but China’s economy poses a great puzzle: Why had China never developed a modern market economy until the last two decades of the twentieth century, whereas Taiwan, a minuscule part of China, succeeded in doing so after World War II, and thereafter became a powerful engine of prosperity, changing all spheres of economic life? Why did it take so long for China’s civilization to develop a productive market economy, and why should that development have taken place first in Taiwan?

Economies of the past

Solving this puzzle requires an understanding of how different economies of the past interacted and were then replaced by a productive market economy. These economies functioned organically, like the human body’s vital organs. Every human body possesses a brain, a heart, lungs, liver and other organs, which connect organically to enable the body to grow, change, and eventually die. Every type of economy possesses similar vital elements, organically connected to function as an entity and to produce different economic behaviour. These vital, irreducible elements are the following.

First, an economy possesses institutions, or formal and informal rules, which humans have created as laws, codes and constitutions. The ideas, cultural values and norms, and popular beliefs are informal rules shared by people, and determine the incentives for how to organize economic activity over time.⁸ Second, human beings have established a distribution of economic property rights. They exchange these property rights through contracts, enforced by means that they have devised through their own experience. Third, an economy possesses agencies (private and/or public economic organizations) that engage in the production and exchange of goods and services. These agencies range from the family to the firm or enterprise, and also comprise public organizations or collectivities created by administrative authorities. Finally, an economy possesses political and social networks that link human beings together to obtain information and influence decision-making. These networks enable people to organize their institutions, property rights and agencies in order to conduct economic activities.⁹ To understand how different economies, whether in the past or the present, function, interact and evolve, we must describe historically and empirically how these minimal four elements connect organically with each other.

The ideal types of economic life as conceived by John Hicks – the customary, market and command economies – provide a starting point from which to understand how three spheres of economic life interacted throughout Chinese history and inhibited the rise of a market economy of a new form. These ideal types must, however, be reconfigured by new concepts that identify, describe and explain how economic change takes place over time.

The three economies of late Imperial China

During the Qing period (1644–1911), Imperial China included within its boundaries the mainland provinces and – until 1895 (when Imperial Japan acquired it after defeating Qing China in the first Sino-Japanese war, 1894– 95) – the island of Taiwan. The Qing imperial state, like others before it, was ruled by an imperial lineage and emperor. The throne was assisted by a bureaucracy whose personnel also belonged to powerful families and lineages. The Qing state made an implicit social contract with the empire’s elite and ordinary people. It would guarantee the empire’s security, provide social order, promote a market economy, and uphold the Confucian way of life in exchange for elite and popular compliance with imperial and customary law, Confucian ideology, and Qing legitimacy to govern.

Three spheres of economic life supported the Qing state and its subjects, and reinforced each other’s behaviour. First, a liturgical command economy collected enough tax revenue for the state to provision the densely populated cities by a state-managed grain storage and distribution system, when harvests failed and threatened the reticular market economy with shortages. Next, the Confucian kinship customary economy continually attracted investments from the wealthy merchants who traded overseas or profited from long-distance trade within the Qing empire.¹⁰ They invested funds, purchased land, built new lineages, and revitalized that economy. Finally, an expanding reticular market economy absorbed greater quantities of cloth, silk, tea and other commodities, and generated income to households. It complemented the Confucian kinship customary economy wherever population density began changing relative prices and producing resource scarcities. The reticular market economy also encouraged households to specialize and produce for the market to buy the goods and services the customary economy did not prefer to supply.

To uphold its part of the social contract, the Throne and central bureaucracy governed as an autocratic liturgical state.¹¹ Over many centuries the Chinese state had developed and perfected its liturgical relationships, which combined the power of the state official with the voluntarism of local elite and merchants, who pursued personal gain while collecting tax revenue for the state.¹² According to Weber, a liturgical relationship was either class liturgy – public obligations performed by elites and merchants according to their property (tax farmers); or status liturgy – public obligations linked to a monopolitical group, such as the Canton merchant guild, salt and copper monopolies.

The Qing liturgical command economy collected virtually all the Qing state’s tax revenue.¹³ Officials in the Qing liturgical command economy contracted with merchants to participate in the state’s salt monopoly, an arrangement whereby officials empowered merchants with the monopoly rights to produce and sell salt in specified areas for profit after prior payment of the salt tax.¹⁴ They also contracted with merchants to operate copper mines in Yunnan Province in order to supply a fixed amount of copper for state mints to coin copper cash in exchange for selling their remaining copper to the market for profit.¹⁵ Local officials also contracted with merchants to collect a brokerage fee and remit an agreed amount to them, while allowing merchants to run ‘a local market themselves without either yahang or brokerage taxes; and they [the merchants] invoked the support of the state if necessary to protect their claims.’¹⁶ Local elite also collected the state’s land tax in the east-central and southern provinces, as well as Taiwan, for the privileges of claiming and clearing uncultivated land, establishing irrigation systems, and so on.

The Qing liturgical command economy’s tax revenue enabled the Qing state to maintain a central bureaucracy and pursue its policies. The central bureaucracy established an empire-wide granary system to store grain and provide famine relief; its officials adjudicated the Qing criminal code as well as customary law; and they managed the empire’s security. Chinese informal institutions, such as cultural norms and Confucian ideology, were the underpinnings of the Qing liturgical command economy.

Three cultural norms made liturgical relationships preferred and workable. The Chinese people had long practised the habit of rendering favours to each other to enhance interpersonal relations: the practice known as bao (fourth tone), meaning ‘to requite’ or ‘recompense’ each other. This norm built mutual trust between kinship groups, friends and even strangers.¹⁷ Another norm affirmed the habit of relying on others ‘to guarantee or to keep safe’ (bao, third tone) and meshed with that norm of establishing personal trust and reciprocity of favours (renqing guanxi). Finally, the norm ‘to manage and contract with each other’ (bao, first tone) strengthened Chinese sentiments and orientations for networking. These norms produced the incentives and behaviour favouring official and elite cooperation in collecting taxes, generating economic activity and income to reduce the tax burden, and providing the people with food grain in times of harvest shortfall.

From the outset of Qing rule, the Throne and central bureaucracy instructed households to organize their economic life according to Confucian ideology. The Throne and officials alike affirmed the primacy of male ancestor worship, and promoted belief in proper moral bonds among father, wife, and sons and daughters. They founded Confucian academies to train officials and elite to uphold the state’s Confucian ideology. They also monitored all intellectual activities in order to promote appropriate ritual whereby society pursued the Confucian goals of creating an ideal society without selfishness, and based on a Confucian moral order, always being perfected by virtuous rulers and subjects.

Other elements of this Qing liturgical command economy were the vast property rights of the Qing throne (especially its Imperial Household) and central bureaucracy that supported privilege and power far beyond the state’s salary system. We have already mentioned the public organizations of the salt and copper monopolies, the Canton merchant guilds that collected foreign customs revenue, etc. Finally, there were the skilful networking practices of Chinese officials and elites, who gave this liturgical command economy a capability and life expectancy unmatched by other civilizations.

The Qing liturgical command economy, along with the machinery of the Qing autocratic state, also emphasized and justified reverence for agriculture as a noble pursuit and way of life. To assist the people in organizing farming, handicraft and trade while living in harmony in a village and city world, the Throne and central bureaucracy made the Confucian kinship ...

Table of contents

• Cover Page
• Title Page
• Copyright Page
• Notes On Contributors
• A Note On Romanization
• Introduction
• 1. Economic Life In Mainland China and Taiwan and the Rise of a Productive Market Economy
• 2. Taiwan’s Success and Vulnerability: Lessons for the 21st Century
• 3. Taiwan’s Development Experience: Stability With Growth, 1950–2002
• 4. Can the ‘Taiwan Model’ of Growth With Equity Be Replicated In the Southeast Asian Context?
• 5. Comparative Productivity Performance In Manufacturing Between Taiwan and Mainland China, 1961–97
• 6. Taiwan’s Knowledge-Based Economy: A Historical Perspective On Higher Education, Manpower Planning and Economic Development
• 7. Re-Engineering the Developmental State In an Age of Globalization: Taiwan’s Quest for High-Tech Industries
• 8. Democratization In a Chinese Community: Lessons from Taiwan
• 9. Democratic Transition and the Rule of Law In Taiwan: A Development Model for the Developing World?
• 10. Constitutional Developments In Taiwan and Democratization of the Republic of China: A Model or a Precedent for the People’s Republic of China?
• 11. A Tocquevillian Process: Taiwan’s Democratization and Its Paradoxical Foundations
• 12. Is the Party Over? Taiwan’s Kuomintang from Power to Opposition