Evconomic Growth in Taiwan; S. C. Liu

Shih Cheng Liu 1&l ~ ~ ~ ~ ~ ~ .,' Taipei today, the capital ofthe Republic ofChina. ECONOMIC GROWTH IN TAIWAN: Invisible Factors Contributing to EconoD)ic Development in the Republic ofChin~ DURING the past 30 years, the out standing achievements in economic development within the Republic of China (ROC) have been recognized all over the world by leading econo mists and businessmen. Here in its base area of Taiwan, the ROC launched the first of a se ries of four-year plans in 1952. Since then, the obvious statistics are im pressive: GNP has increased by 11.2 times, with an average annual growth rate of 6.7 percent. Per cap ita income increased by a factor of five. These are calculated in real terms. In actual 1980 exchange rates, ab solute income per head for that year amounted to US$2102. As for foreign trade, its 1980 ex ports and imports totaled, respec tively, US$19.8 billion and US$19.7 billion as compared with the 1952 figures of U$$110 million and US$180 millio~.

By this bare outline, we gain a clear picture Of the magnitude of economic growth in Taiwan. What really i counts, of course, is the actual·livelihood of the people and it is easily seen that they are pursuing the s~andard of living com mon to the industrialized nations. Virtually no family is without a TV set, whether urban or rural. Most provide thems~lves with refrigera tors. It is rare ~o see a person wear ingpatched cl~thing. Indeed, cloth ing is no longer merely a covering for the body, Ibut is more often a fashionable s~bol of prestige or so cial standing. Fans abound, and air conditioning p~oliferates. Traditional eating habits are still 131 132 THE FREEMAN March changing, but we can already see large increases in the consumption of milk, meat, and wheat as people desire more nutritious, higher pro tein diets. Compared with only the very wealthy of 30 years ago, today even moderately successful businessmen and industrialists mostly own and drive relatively new cars.

Overall, this enhancement in the standard of living could not have been dreamed of 30 years ago. This is especially so because of natural factors: Taiwan is an island of 36,000 square kilometers en dowed with but a little coal, timber, and limestone. From this viewpoint, the potential for economic growth would seem poor. In other words, we may say that the main resources in volve the population-currently something over 17 million. The con clusion, therefore, is that if Tai wan's recent achievements are a miracle, it is a human miracle. This is why I want to explore the invisible factors. Attitudesand Conditions A number of economists, espe cially from abroad, have tried to ex plain this miracle. But they most of ten take the easy path in analysis. They focus upon the most visible factors, such as the quantity and quality of capital, of natural re sources; the structure and diversifi cation of transportation and comShih Cheng Liu is currently Chair man of the Board, Bank of Taiwan.

Mr. Liu was formerly a Professor of Economics at National Taiwan Uni versity and is frequently an editori alist for several Chinese newspa pers published in Taipei. Mr. Liu first offered this message as a lecture delivered in Chinese in mid-1980. Friends insisted it be translated and shared with a wider audience. ''As an economist," explains Mr. Liu, "I believe that entrepreneurial factors which have proven success ful in Taiwan are likely to be of simi lar value to other developing socie ties. Second, as a Chinese, I believe that these factors are psychologi cally compatible with human nature, regardless of race or culture." It is time to explore in greater depth the "miracle" in Taiwan. munications; the quantity and sources of power; the number of schools; the labor supply, and so on. All of these visible things are more easily counted, constituting a strong appeal to the economic experts.

It is, however, my thesis that the facts will show invisible factors to be more important to economic progress than are the visible factors. The visible factors are those tan gibles which are not so difficult to get or to build, provided the people devote their time to following the successful examples of the devel oped countries.

1982 ECONOMIC GROWTH IN TAIWAN 133 But what I refer to as invisible factors are those attitudes and con ditions that must grow within a so ciety itself; they take time, depend upon the nation's culture and tradi tion, and cannot be produced in or imported from a foreign country. Hence, for an underdeveloped coun try, the provision of these invisible contributing factors to economic de velopment is much more difficult than that of the visible factors. Have we not seen undeveloped and underdeveloped countries, full of natural resources, struggling with little success to become industrial ized? This is a good bit of evidence to support my view of the impor tance of the invisible over the visi ble factors of achievement. Here, then, we come to factors, in visible cultural and psychological factors, which I believe have not been mentioned by economists in previ ous analyses. of our economy.

MountingSelf-Respect In the first place, we must con sider the national self-consciousness that asserted itself after World War II within some previously colonized countries. Those societies felt that they had fallen too far behind the developed nations, in both indus trial, civilized standards and in the practical standard of living. Hence, they strongly desired opportunities for self-improvement. This was not only a reaction to the colonial policies of the past;!it was also an urgent pursuit of selfrexpression-and of self-respect-on their own. In conseque:p.ce, a driving force developed, as it were, a single will for a whole people. A great pressure was brought upon these govern ments to mak~ development a pre occupation. Just such a case is the Republic of Korea-and the ROC's Taiwan province, too. In response to this request, and with the suppoITtofthe vast majority of the people,.t~e ROC government began the first C!>fitsconsecutive eco nomic plans. Tney have been brought into effect, one by one throughout 30 years, while tlile people-the most important reso*rce-have been em ployed econom~cally and to efficient effect in coordination with the poli cies and meas~es established by the government.

But what at first sounds like stan dard political ,economy is not the whole story. Cultural ethics are also importantly involved. In Taiwan, people have grBfduallychanged their ideas about per~onal behavior. Ethicsand Economics There is both co-existence and contradiction in traditional Chinese attitudes toward ethics and eco nomic behavior,. Perhaps this is nat ural in all primarily agricultural so cieties. It is very similar to the co existence of internal and external 134 THE FREEMAN March ethics as pointed out by the noted German sociologist and economist, Max Weber. It is also something like the Jewish and Christian conflicts over usury, on the one hand, and rents, on the other. Especially after 1952, gradually growing attitudinal changes became apparent among the people of Tai wan. In one aspect, ethics continued to be seen as rules of social behav ior-but in the marketplace, it be came more acceptable to view eco nomic behavior as an aim to legally pursue maximum satisfaction or profit as a proper reward for the risks of entrepreneurship.

For our economic understanding, the most impressive changes are to be found in the new distinctions being made between obligations and personal rights; between charity and repayment of kindness. Virtually all are now aware that pursuing the good life depends pri marily upon one's own individual ef fort. A relative or friend may desire to extend support; but if he does so, it is a kindness, not any longer an ob ligation. From this develops the fur ther idea that it is better to be able to give than to be in a position of having to receive. These changes induced better and wider understanding of the risk/re ward relationship in entrepre neurial efforts. In another important aspect, too, we can see a drastic change from traditional attitudes toward, or judgments upon, social values. The Chinese have for long attached spe cial importance to intellectualism. More than 2,000 years ago, Mencius said, "Some labor with their minds, and some labor with their muscles.

The former rule; the latter are ruled." Naturally, then, manual labor however necessary-was to be de spised, and scholasticism-even when uttering pedantic nonsense was more likely to be revered. But the Industrial Revolution has taught all of its successful followers that such compartmentalization is wastefully inefficient. And so we see that economic development-mod ern industrialization-makes nec essary changes in various criteria of social values. Especially amongst the younger but also amongst the sharper of the older generation in Taiwan, we see strong consideration being given to the value of independently earning one's own way in profitable enter prise. Erasing Prejudice From these considerations there follows a marked decrease in preju dice as all honest and legal jobs are seen to be useful to'the personal goal. The manual laborer, educated and trained.to think, becomes semi skilled and then skilled. The college engineer, getting his hands familiar 1982 ECONOMIC GROWTH IN TAIWAN 135 'This electronics factory in Taiwan marks a shift from labor-intensive products such as shoes and garments.

with the inner workings of ma chinery and circuits, tempers theory with practicality and becomes a more efficient designer. And as both groups come into more frequent contact, old prejudices further diminish. All of these foregoing attitudinal changes in Taiwan have nicely con spired to bring forth extraordinary and unprecedented driving forces in both manual skills and in creativity. They are factors which are not eas ily quantified statistically and are, in that sense, invisible. But I would find it hard to overestimate the ex tent to which these valuable changes have exercised a favorable impact upon the economic development of the ROC on Taiwan. Underlying all of this, there must be, of course, a proper infrastructure that includes a work ethic, educa tion, law, and order. In some underdeveloped societies, particularly in warm or tropi cal areas, there is an attitude to ward work its~lf that can only be described as iIjLdolent. But the peo ple of Taiwan, ~n island classified as sub-tropical,are influenced by an age-old Chine~e ethic that is much more northerly. It strongly stresses "respectful attention" or a phrase that might be i translated into "sin cere, true, and faithful mentality,"

though it doe~ not emphasize the Western "exactness" or "precision." In America~ the coined "work aholic" is popularly applied to man agers and exe4utives who work ha bitually more ithan 50 or so hours per week. But ~n Taiwan, especially since the onset of industrialization, the newly arisjng entrepreneurs, in conjunction w~th their employees, expend great~ffort by assuming re spectful attention to their business; they watch ev~rything carefully and dare not be negligent in their duties. Today, visiting foreigners are usu ally amazed at the number of man agers and execiUtiveswho work long after suppertime and throughout the weekend. Better Educated and Trained Still, all of the above would be in vain were the, following generation to he no more advanced than the one before. Thus,~O years of expanding and improving education have pre pared myriads of sons and daugh ters not only to enter, but to improve 136 THE FREEMAN March our industries and services. On a competitive basis of high standards, application to undergraduate and graduate studies is publicly avail able. From these qualified young people, numerous men and women of high ability are equipped with the knowledge and skills required to run the businesses of design, production, and trading and shipping services.

It must, then, be concluded that suc cess in Taiwan's educational efforts is partly responsible for its achieve ments in economic development. Of course, schools and graduates can be quantified and analyzed and are, in that sense, visible. But there is an invisible aspect that I want to stress. Before being awakened to a specific sense of economic develop ment, most Chinese people were more or less satisfied with being "con stant-income earners"; meaning that they tended to run some business in a routine way, peacefully, safely avoiding risk where possible. But this could never have resulted in the tens of thousands of firms that now exist on Taiwan. Taking Entrepreneurial Risk For some, it began after schooling; for many, it began during school days: but as Taiwan's embryonic de velopment began to unfold, thou sands of youths acquired an attitude just the opposite of their father's at titude. Thousands and thousands of young people-and this does include women-began to seriously consider quitting jobs with incomes controlled by others in order to set up one-man or youthful-partnership companies. At best, of course, this is risky. But the young people have learned to do their best in forming optimum combinatiQns of the factors of production. And, in taking these risks, they have also learned that the entrepreneur is the most important factor in national economic expan sion. Recognizing the risk of failure, the potential satisfaction and profits ofsuccess are the basic, driving power that pushes the young person who sees the light of entrepreneurship.

So this is another thing that amazes the foreign visitor to the ROC on Taiwan: The very high percent age of one-man firms, of companies headed by a two-or three-man part nership, and so many of them. not yet 30 years of age. They total a huge contribution to domestic production and services and, of course, to over seas marketing. The growing dollar value of their efforts is statistical and visible. What is not so visible to for eign economists is the tremendous energy that our youth bring to dis covering new ways to get the job done. I do not hesitate to say that posi tive attitudes, particularly amongst the young, toward entrepreneurial effort all over Taiwan are enor mously beneficial to its economic achievements.

1982 ECONOMIC GROWTH IN TAIWAN 137 Some would avoid the issue of race; but, even avoiding it publicly, many will privately filter any analysis through their own biases. Allow me to openly declare that I believe the Chinese are among the more intel ligent races of mankind. Historical evidence places 16th Century China at least on the same level with other nations, both in cul ture and in economy; it is one of the oldest of nations, and one of the few not colonized by the western world. So far as I can see, the factor that caused China to fall behind the western world was the absence of an industrial revolution. Ah, yes; but, why this lack? Barriersto Trade Western societies and nation-states first arose around an inland sea that bordered upon the edges of three continents, permitting faster and somewhat less risky intercommuni cations between diverse peoples. For most of western history, there have ever been two, and sometimes sev eral, cultural systems in conten tion-which means a more fre quent, if not always constant, contest of ideas.

In contrast, the vast bulk of China was and is landlocked by formidable natural barriers on three sides, with an infinitely larger, and frequently angrier, ocean on the fourth. Too, a thousand years before Athens contested with the cultures of Asia Minor~nd Egypt, China was unified, and uf:lder the twin condi tions of unity and relative isolation, the Chinese form of feudalism and monarchism grew stronger and more ritualistic. These are the conditions that combined forces to restrain the kind of thought, action, and experi mentation that might otherwise have permitted an almost wholly agricul tural society toidiscover or learn the secrets of industrialization. I submit, then, that race has noth ing to do with the earlier failure of industrial development in China. For added proof, observe that from the very earliest emigrants, those Chi nese, individuals or families, who moved outward,.to South-East Asia, taking little or no capital with them, came quickly to positions of eco nomic prominence and sometimes to great wealth among the societies in which they worlked, and this is now observable all ever the world. Chi nese people are! as capable of entre preneurial activity as are the Scots of Adam Smith. And to this fact we may attribute much of the success in the development of Taiwan's economy.

A FavorableCliMatefor Industrial Development Finally, it is ~ basic premise that there must be a. good climate for in vestment, many trading opportuni ties, and a high probability of profit making. These, in turn, depend upon 138 THE FREEMAN a "rule by law and not by men." Given this, one expects a stable po litical environment that safeguards private property and legal economic activities, paving the way for har monious relations between labor and management. These will make it possible to produce and trade in compliance with planned, or at least reasonably anticipated, costs and sales. These also make possible the advancement of the laborer and the upward mobility of the young as they may risk striking out on their own. In the past 30 years, the Republic of China has impressed the world with its long-term stability. There have been no social upheavals or crippling strikes, largely because both labor and management see greater benefits for all through co operation and concession. Many for eign investors and traders have stated that such a favorable and sta ble climate can hardly be found else where in the developing world. Thus, this favorable image is projected and perceived internationally, with a re sult that enhances domestic capital formation and both foreign invest ments and trade relations.

For these reasons, many more fac tors of production become available and move steadily into Taiwan, pay ing back their fair and reasonable returns through the market func tions. No place is perfect; but a soci ety that approaches economic activ ity with a sense of fair play brings forth an additional factor which hastens its economic development. I began with the thesis that invis ible factors have contributed greatly to the economic achievements of Taiwan. The factors I have emphasized are not tangible. They are not well de scribed by charts, diagrams, or sta tistics. Yet they do indeed exist. And I am certain that they are more important than the visible fac tors so much beloved by so many. The biggest difficulty is: To begin! Economic development in the Re public of China was embryonic for many years. Then, as entrepre neurial attitudes took shape under a rule of law, it began rolling like a snowball down a favorable path, constantly accumulating both sub stance and velocity.

And, this has been witnessed and well understood by the young. Today, the young Chinese emerge -both men and women-stronger and better educated than their fa thers. They have no hesitation in taking full responsibility for moving for ward, moving upward, moving at full speed. Many of the results are statisti cally visible. But the entrepre neurial attitudes-the motivations and the inner achievements and sat isfactions-these are the invisible factors of success in the ROC. i ThomasW. Knepher WHAT is it that makes man unique among the creatures of the earth? This question i has been debated throughout history and has been an swered in many ways, but the one attribute that has consistently been mentioned is man's ability to make choices. Man is the only creature that can will~ngly choose to act against his self-interests. Other creatures are d:rlivenby instinct; man alone chooses his path. This ability to choose includes the ability to choose what appears to be the wrong path.