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Comparing economic
performances
By Chen Po-chih 陳博志
Economists often analyze three aspects of economic welfare: income, distribution
and fluctuations. The higher the income, the more even the distribution. The
lower the fluctuations, the higher the welfare. This article is a compilation of
data from these three aspects in an attempt to provide an objective comparison
of economic performance between the two government administrations of the past
13 years.
The health of the economy must be judged from an overall perspective. It cannot
be determined by looking at the earnings or losses of one particular company or
at the export growth or decline of a certain product. To remain as objective as
possible, this report relies on official national data. It includes all commonly
used indicators, rather than selectively picking only some of those indicators.
The average economic growth rate between 1999 and 2007 was 4.4 percent. Between
2007 and last year, it was 2.93 percent, and projected growth for this year is
about 2 percent.
“Economic growth rate” means growth in GDP, which is calculated based on fixed
prices. GDP measures production rather than income, and it includes capital
depreciation, which does not benefit the public. This is why the
Directorate-General of Budget, Accounting and Statistics (DGBAS) compiles its
National Income Index that better reflects public well-being. According to DGBAS
data, real national income growth averaged 2.56 percent between 1999 and 2007
and 1.17 percent between 2007 and last year.
According to the government’s data, nominal national income per capita grew by
only 5.27 percent between 2007 and last year, while consumer prices grew by
about 7 percent during the same period. Deducting the price increase factor, the
real purchasing power of national income per capita last year was only 98.3
percent of the same value for 2007, a 1.7 percent decrease.
The government creates part of national income with the help of its financial
deficit. On one hand, the public receives government spending, and on the other,
the public has to shoulder a larger government debt. In 2007, total government
debt increased by only NT$23.7 billion (US$800 million), while last year, it
increased by NT$247.6 billion. Between 2008 and last year, government debt
increased to NT$1.8155 trillion, equal to NT$78,000 per capita.
Real income per capita can be found by deducting the increase in government debt
from national income. Real income per capita last year, which offered the best
performance over the past five years of the Chinese Nationalist Party’s (KMT)
rule, was 3.5 percent less than in 2007. The figure for the worst performing
year, 2009, was 12 percent worse than in 2007.
This is evidence that the complaints about economic performance in recent years
is not just based on an impression, but on a very real drop in income.
Real wages have regressed to the same level they were 16 years ago. However,
this does not mean that salaries have dropped every year for the past 16 years.
Under the Democratic Progressive Party (DPP) government, salaries increased. In
1999, the average monthly wage for a worker in the manufacturing industry was
NT$37,738.
By 2007, it was NT$43,169. When the KMT returned to power, salaries dropped, but
by last year, they had increased to NT$43,994, only 2 percent more than in 2007.
During this time, commodity prices increased by more than 7 percent, which means
that real salaries have dropped by 4.9 percent since 2007. In addition, because
the DPP government decreased the legal number of work hours, the hourly wage
increased even more. Calculated based on 2011 commodity prices, adjusting for
work hours and commodity prices, the hourly wage in the manufacturing industry
stood at NT$213.73 in 1999, NT$242.20 in 2007 and NT$234.43 last year, thus
showing an increase by 13.32 percent under the DPP government, compared to a
drop by 3.21 percent under the KMT government.
In addition to the salary received, the DPP government reformed the labor
retirement pension system so that workers also accumulated deposits in an
individual retirement account, with the result that many workers received a
contribution equivalent to 6 percent of their monthly salary. Therefore,
salaries for workers in the manufacturing industry increased by 20 percent
during the DPP’s eight years in government, while they have dropped by 3 percent
under the current administration.
The average unemployment rate during the DPP’s eight years in government was
4.263 percent, and during its last year in government, it was 3.91 percent — not
a very good performance. During the incumbent KMT government’s five years in
power, the average unemployment rate has been 4.766 percent, even worse than the
figures under the DPP government, and it has never dipped below the 2007 figure.
According to the Monthly Bulletin of Labor Statistics (勞動統計月報), the number of
employees in the government bureaucracy dropped from 961,000 to 932,000 under
the DPP government.
After the KMT’s return to power, this number increased by 100,000 employees,
reaching 1.04 million in 2009, before dropping to the current 1.02 million
employees.
Apart from showing that restructuring and streamlining of the government has
failed, this increase could also be a sign of government hiring as a way to
bring down unemployment. If these 100,000 employees were added back to the
number of unemployed, the unemployment rate might break through the 5 percent
barrier.
The increasing rate of youth unemployment is even worse. Unemployment in the
25-29 age group was 5.687 percent during the DPP’s eight years in government,
and stood at 5.87 percent in 2007. Although this is not very good, the number
for the same age group has increased further to 7.498 percent during the past
five years of KMT leadership.
Between 2000 and 2007, the average income of the 20 percent with the highest
annual incomes was 7.36 times higher — before government transfer payments —
than the average income of the 20 percent with the lowest incomes. This was a
clear deterioration in income distribution compared to the situation before the
DPP’s accession to power.
In the five years from 2008 to last year, the higher incomes had increased to
7.83 times the lower incomes, with every year underperforming 2007. At the same
time as income distribution continued to deteriorate, average real salaries also
continued to drop, thus compounding the problems for low-income households.
Apart from the national income data, family income and expenditure data shows
that average disposable income per capita, which was NT$242,640 in 2001, had
increased to NT$273,336 by 2007. After the KMT’s return to power, this had
increased to NT$285,939 by last year, an increase by 4.61 percent. During the
same period, consumer prices increased by 6.77 percent, which means that average
disposable income dropped by 2.3 percent. The result was that average savings
per capita dropped from NT$61,473 in 2007 to NT$60,647 last year, a decrease of
1.3 percent.
If we deduct price increases, real average savings per person dropped by 7.9
percent between 2007 and last year. The poor can no longer save any money at
all. Prior to the DPP’s accession to power, the 20 percent of households with
the lowest incomes could still save an average of about NT$20,000, but during
the DPP’s time in government, this number dropped to NT$58.4, which is a
miserable number. Still, during the incumbent government’s five years in power,
this has dropped into the negatives so that today, each person owes NT$22,445 on
average, making it very difficult for poorer families to make ends meet.
In terms of price fluctuations, consumer prices increased by 7.27 percent during
the DPP’s eight years in government. During the five years after the KMT’s
return to power, consumer prices have increased by 7.11 percent. Under the DPP,
the average annual increase in consumer prices was 0.88 percent, while the same
number under the KMT is 1.38 percent, only slightly worse than the DPP
government. Despite that, the KMT has been strongly criticized for this
increase. The main reason for this is probably not that consumer prices have
increased slightly faster than under the DPP, but rather that increases in fuel
and electricity prices were inappropriate.
Another reason could be that the government ignored increasing prices, in
particular rising housing prices, which had a damaging effect on low income
households. When the DPP advocated a housing price stabilization policy during
the 2008 presidential election campaign, the KMT’s candidate, President Ma Ying-jeou
(馬英九), accused the DPP of moving in the wrong direction. He said that the
correct approach would be to increase salaries rather than suppressing housing
prices, and that he would make income growth match the increase in housing
prices.
Despite this, the ratio of housing prices to salaries in Taipei have increased
from 9.1:1 in 2007 to 13.3:1 last year. Not only have salaries failed to catch
up to housing prices, they have fallen further behind.
In terms of income fluctuations, the difference between the highest and the
lowest economic growth rates under the DPP administration was 7.84 percent,
while it has been 12.57 percent during the KMT administration. In other words,
fluctuations have clearly been greater under the KMT. The standard deviation for
the eight years of DPP rule was 2.42 percent, and the same number for the KMT
government is 4.3 percent. In short, fluctuations have been much greater since
the KMT gained power.
All these figures show that overall economic well-being in the five years since
the KMT’s return to government power has been worse than under the eight years
of DPP rule. Different people will offer different explanations for why this is
so, but this is not an issue that this analysis intends to address.
Chen Po-chih is the honorary chairman of the Taiwan Thinktank.
Translated by Perry Svensson
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