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China and ‘economic
nationalism’
By Hwan C.Lin 林環牆
Former Democratic Progressive Party (DPP) legislator Lin Cho-shui (林濁水) recently
penned an article aimed at deconstructing what he called the pseudo-academia of
economic nationalism promoted by academics who support former president Chen
Shui-bian (陳水扁).
In the article, Lin made a link between “Taiwanese independence” and “economic
nationalism,” calling Chen the “main culprit” behind the nation’s stagnant
wages. When I read Lin’s article, I happened to be in Greece, a country that has
experienced seven consecutive years of economic decline, while attending the
Annual International Conference on Macroeconomic Analysis and International
Finance.
Lin’s points are strongly biased.
First, economic nationalism is an unclear concept and is a form of political
rhetoric that modern economists do not employ when commenting on economic
policies. Put simply, economic nationalism is a way of thought that is
essentially against globalization and is a form of protectionism.
Why is it at all necessary to rely on economic nationalism when talking about
Taiwanese independence?
The bilateral economic relations between Taiwan and China have never been a
simple issue, capable of being merely defined by and decided in binary terms,
“yes” or “no.”
If we look at things in terms of Taiwan’s overall interests, we will see that
the optimum level of bilateral economic integration between Taiwan and China
naturally lies somewhere between zero — total isolation — and one, or total
integration.
There are many possibilities when it comes to this, but insisting on going
beyond the WTO’s multilateral framework to deepen the bilateral integration
between Taiwan and China is not necessarily a good thing. To use precise
economics terminology, when striving after “optimum integration,” Taiwan should
try and ensure that the “marginal social cost” of bilateral integration does not
exceed the “marginal social benefit.”
Let us first look at the policies of previous administrations.
The “no haste, be patient” (戒急用忍) policy promoted by former president Lee
Teng-hui (李登輝) was an obvious measure to attempt to adjust the pace of bilateral
integration between Taiwan and China, to balance social costs and social
benefits in Taiwan.
Lin labeled the “no haste, be patient” policy “economic nationalism,” while also
saying that “economic nationalism” is an indispensable element of “radical
Taiwanese independence.”
However, is there any link between these things?
The only link exists in Lin’s overactive imagination.
Starting in the 1990s, “China fever” started to sweep the globe, and economic
integration between Taiwan and China increased. At this time, Taiwanese
businesses started to move their operations to China to make use of the
abundant, cheap labor. After more than two decades of integration, the impetus
behind Taiwan’s economic growth went into a long period of stagnation, while the
growth of real wages for Taiwanese workers decreased even more rapidly.
Then, when President Ma Ying-jeou (馬英九) was elected in 2008, real wages dropped
instead of increasing, as many people had expected.
From 1985 through 1989, the growth rate in real pay in Taiwan’s manufacturing
industry each year was as high as 8.39 percent on average, with all figures that
follow being based on the same geometric mean. During the first half of the
1990s, 1990 through 1994, the growth rate in real pay dropped to 5.55 percent.
During the second half of the 1990s, 1995 through 1999, this dropped by a half
to 2.25 percent. From 2000 through 2007, when Chen was in power, this dropped to
0.81 percent. Then, from 2008 to last year, during Ma’s first term in office,
real pay in the manufacturing industry dropped off at almost 1 percent per year
on average.
Statistics show that over the past two decades, the real growth rate for wages
within Taiwan’s manufacturing industry has been decreasing year by year, which
eventually leads to stagnation and negative growth.
There were several fundamental factors behind this.
First, after the mid-1980s, the New Taiwan dollar experienced excessive
appreciation. On top of this, China started opening up to the world and carrying
out reforms, that freed up cheap labor and attracted foreign investment.
Second, Taiwanese businesses started to move to China. However, new industries
with higher added-value were hard for the government to get off the ground, even
with subsidies, tax breaks and such like, and this resulted in a serious lack of
innovation among these new industries.
Third, the Chinese Nationalist Party (KMT) and some factions within the DPP
encouraged moving economically toward China.
Fourth, the government erroneously believed that linking Taiwan economically
with China would help develop Taiwan’s economy.
The combination of these factors resulted in Taiwan losing two precious decades.
The facts have already shown that the KMT’s idea of linking Taiwan to China
economically or the idea of China being Taiwan’s “New Silk Road” as proposed by
the DPP are both mistaken strategies.
Lin stated in his article that if we really look at things from the perspective
of economic nationalism, we will discover that the main culprit behind Taiwanese
businesses moving to China and stagnant wages was Chen and not Ma.
Lin has got it the wrong way around.
Hwan C. Lin is a research fellow at the Taiwan Public Policy Council and
associate professor of economics at the University of North Carolina.
Translated by Drew Cameron
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