Taiwan Miracle

The Taiwan Miracle (Chinese: 台灣奇蹟 or 臺灣奇蹟; pinyin: Táiwān Qíjì) or Taiwan Economic Miracle refers to the rapid industrialization and economic growth of Taiwan during the latter half of the twentieth century. As it has developed alongside Singapore, South Korea and Hong Kong, Taiwan became known as one of the "Four Asian Tigers".


After a period of hyperinflation in the late 1940s when the Kuomintang (KMT) military regime of Chen Yi overprinted the new Taiwan Yuan against the previous Japan Taiwan Yen, it became clear that a new and stable currency was needed. When the KMT government retreated to Taiwan after the loss of mainland China in the Chinese Civil War, it brought part of the precious metal and foreign currency reserve of mainland China to the island. Although war-ravaged China had held only a very small reserve, some $170 million in all,[1] those reserves helped to establish a gold-standard reserve currency in Taiwan, which in turn helped to stabilize prices and reduce hyperinflation. More importantly, many of the Chinese intellectual and business elites moved with KMT to the island. The Japanese had built up the agricultural and industrial infrastructure as well as chemical, material, and food reserves on the island that allowed the elite of the KMT supporters to jump start their own economic endeavors. Along with the $4 billion in financial aid and soft credit provided by the US (as well as the indirect economic stimulus of US food and military aid) over the 1945-1965 period, Taiwan had the necessary capital to restart its economy. Further, the KMT government instituted many laws and land reforms that it had never effectively enacted on mainland China.

A land reform law, inspired by the same one that the Americans were enacting in occupied Japan, removed the landlord class (In a similar manner as Japan), and created a higher number of peasants whom, with the help of the state, increased the agricultural output dramatically. This was the first excedent accumulation source.[2] 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 (machinery) for rice. With the control of the banks (at the time, being the property of the government), and import licenses, the state oriented the Taiwanese economy to import substitutive 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, (like South Korea), and the global industrial production output grew a further 680% between 1965 and 1986. The social gap between the rich and the poor fell (Gini: 0.558 in 1953, 0.303 in 1980), 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.[3] Much of that was made possible through US economic aid, subsidizing the higher cost of domestic production. The flexibility of the productive system and the industrial structure meant that Taiwanese companies had more chances to adapt themselves to the changing international situation and the global economy.

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 capitals. An exports processing area was created in Kaohsiung and in 1964, General Instruments pioneered in externalizing electronic assembly in Taiwan. Japanese companies moved in to benefit 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 (會 Pinyin: Huì). They had the support of the government in the form of subsidies and credits loaned by the banks.

Most of this Huì appeared for the first time in rural zones near metropolitan areas, where families shared work (in the parcels they owned and in the industrial workshops at the same time). For instance, in 1989 in Changhua, small enterprises produced almost 50% of the world's umbrellas. 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 (like in Singapore), or huge national conglomerates (like South Korean chaebols), 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. But the state was the central organism which coordinated the industrialization process, it created the infrastructures, it attracted foreign investment, it decided the strategic priorities and, when necessary, recurred to impose its conditions.

Era of globalization

In the 1970s, protectionism was on the rise, and the United Nations switched recognition from the Republic of China to the People's Republic of China as the sole legitimate representative of all China. It was expelled by General Assembly Resolution 2758 and replaced in all UN organs with the PRC. The KMT began a process of enhancement and modernization of the industry, mainly in high technology (such as microelectronics, personal computers and peripherals). One of the biggest and most successful Technology Parks was built in Hsinchu, near Taipei.

Many Taiwanese brands became important suppliers of worldwide known firms such as DEC or IBM, while other established branches in Silicon Valley and other places inside the United States and became known. The government also recommended the textile and clothing industries to enhance the quality and value of their products to avoid restrictive import quotas, usually measured in volume. The decade also saw the beginnings of a genuinely independent union movement after decades of repression. Some significant events occurred in 1977, which gave the new unions a boost.

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 KMT in Taiwan's post-war history (although the KMT retained a minority membership on its committee). 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.[2] Another, and, historically, the most important, was the now called "Zhongli incident".

In the 1980s, Taiwan had become an economic power, with a mature and diversified economy, solid presence in international markets and huge foreign exchange reserves.[4] Its companies were able to go abroad, internationalize their production, investing massively in Asia (mainly in China) 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 was bigger day by day.[5] 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.[6] 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 (GNP) of $170, placing the island's economy squarely between Zaire and Congo. But, by 2010 Taiwan's per capita GNP, adjusted for purchasing power parity (PPP), had soared to $35,227, similar to that of 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.[7]

Dwight Perkins and others cite certain methodological flaws in Krugman and Alwyn Young's research, and suggest that much of Taiwan's growth can be attributed to increases in productivity. These productivity boosts were achieved through land reform, structural change (urbanization and industrialization), and an economic policy of export promotion rather than import substitution.

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 (a quiet political and social environment, cheap and educated workers, absence of independent trade unions). To keep growing, the Taiwanese economy must abandon its workforce intensive industries, which cannot compete with China, Vietnam or other sub-developed countries, and keep innovating and investing in information technology. Since the 1990s, Taiwanese companies have been permitted to invest in China, and a growing number of Taiwanese businessmen are demanding easier communications between the two sides of the Taiwan Strait.

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 (Taiwanese; Mandarin, the national language of both the People's Republic of China (PRC) and the ROC; and English, becoming a bridge between East and West).

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.[8]

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. Yet, recently, credit card debt has become a major problem, as the ROC does not have an individual bankruptcy law. Taiwan also remains undeveloped in some sectors, such as the lack of a bond market, a role that has been filled by small entrepreneur-oriented investment or direct investment by foreign persons.

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. Nevertheless, it is hoped that the completion of these projects will be a big economic stimulus, just as the subway in Taipei has revived the real estate market there.

Taiwan continues to rely heavily on its technology sector, a specialist in manufacturing outsourcing. Recent developments include moving up the food chain in brand building and design. LCD manufacturing and LED lights are two newer sectors in which Taiwanese companies are moving. Taiwan also wants to move into the biotechnology sector, the creation of fluorescent pet fish and a research-useful fluorescent pig[9] being two examples. Taiwan is also a leading grower of orchids.

Debate on opening "Three Links" with the People's Republic of China was also ongoing, with the security risk of economic dependence on mainland China being the biggest barrier. By decreasing transportation costs, it is hoped more money will be repatriated to Taiwan and that businesses will be able to keep operations centers in Taiwan while moving manufacturing and other facilities to mainland China.

A law forbidding any firm investing in the People's Republic of China more than 40% of its total assets on the mainland was dropped in June 2008, when the new KMT government relaxed the rules to invest in Mainland China. Dialogue through semi-official organisations (the SEF and the ARATS) reopened on June 12, 2008 on the basis of the 1992 Consensus, with the first meeting held in Beijing. Taiwan hopes to become a major operations center in East Asia. In addition, many businesses and areas in Taiwan hope to make money from mainland Chinese tourists if and when the three links are negotiated.

See also


  1. estimates in Finance Weekly Vol 19, No 17, Nov. 1948
  2. 1 2 Minns, John and Robert Tierney, The Labour Movement in Taiwan. Labour History 85 (Nov 2003): 92 pars. 27 Dec. 2006
  3. The Story of Taiwan, Economy
  4. Foreign Exchange Reserves, Taiwan and other major countries
  5. The Story of Taiwan, Politics
  6. Manuel Castells: Information Age, Third Volume, The End of The Millennium, page 303, Alianza Editorial, 1998
  7. "Paul Krugman". The Myth of Asia's Miracle. Nov 1994. Retrieved 2010-12-30.
  8. Trade and Investment Opportunities Presented by Taiwan's Accession to the World Trade Organization
  9. Hsiao, F. S. H.; Lian, W. S.; Lin, S. P.; Lin, C. J.; Lin, Y. S.; Cheng, E. C. H.; Liu, C. W.; Cheng, C. C.; Cheng, P. H.; Ding, S. T.; Lee, K. H.; Kuo, T. F.; Cheng, C. F.; Cheng, W. T. K.; Wu, S. C. (2011). "Toward an ideal animal model to trace donor cell fates after stem cell therapy: Production of stably labeled multipotent mesenchymal stem cells from bone marrow of transgenic pigs harboring enhanced green fluorescence protein gene". Journal of Animal Science. 89 (11): 3460–3472. doi:10.2527/jas.2011-3889. PMID 21705633.
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