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The Liberty Times
Editorial: Not too late to save the economy
Yet another item has been added to the long list of economic promises that have
fallen through during President Ma Ying-jeou’s (馬英九) tenure. On May 24, the
Directorate-General of Budget, Accounting and Statistics (DGBAS) cut its GDP
growth forecast for Taiwan this year to 2.4 percent, down from its February
estimate of 3.59 percent.
This is an official declaration of the government’s failure to keep annual
growth above 3 percent. After pledging last year that the economy would grow by
at least 4 percent, the government revised its forecast downward no fewer than
nine times, to a promise of just 1 percent in the end.
Instead of taking time to reflect, the Ma administration did the same thing
again by announcing a GDP growth target of 3.59 percent at the start of this
year. Then Minister of the Council for Economic Planning and Development Kuan
Chung-ming (管中閔) pushed the target even higher with his talk of achieving a
“golden crossover” by raising growth above 4 percent while getting unemployment
below 4 percent.
Who would have thought that, with Kuan’s words still ringing in the public’s
ears, the forecast for first-quarter growth would tumble well below those
figures, with no hope of achieving 3 percent growth for the whole year?
“It’s the economy, stupid” is a very apt commentary on Ma’s performance. After
The Economist branded Ma a “bumbler” in November, it was not long before the
word was on everyone’s lips. Economics is the weakest link in Ma’s governance,
and the economy presents the biggest stumbling block for Taiwan’s development.
The catchphrase: “It’s the economy, stupid” is an accurate description of this
government’s incompetence and a strong hint about what, or who, is primarily
responsible.
Nonetheless, Ma thinks he is doing a good job and prefers to blame others for
the nation’s problems. Confronted with how unpopular he is, instead of looking
in the mirror, he chastises the public for resisting reforms, and blames the
nation’s dismal economy on the mess supposedly bequeathed to him by the previous
administration.
Setting aside the rights and wrongs of Ma’s predecessor, Chen Shui-bian (陳水扁),
in the second quarter of 2008, which is when Chen passed the baton to Ma,
Taiwan’s annual growth rate stood at 5.66 percent, whereas the average growth
rate since Ma came to power has stood at a mere 2.68 percent. Clearly, Taiwan’s
economy has gone downhill under Ma’s tenure.
Nonetheless, Ma said in a recent interview that he has not given up on his
“6-3-3” pledge to achieve 6 percent annual GDP growth, US$30,000 average per
capita income and less than 3 percent unemployment by the end of his second term
in 2016, and that he is still trying hard to achieve those targets.
However, considering that the average annual growth rate for Ma’s years in
office so far stands below 3 percent, it seems unlikely that he can score above
9 percent growth for each of the next three years, which is what it would take
to get an average of 6 percent. It seems that Ma and his government just cannot
shake the habit of telling tall tales without so much as a blush.
The Ma administration’s biggest mistake has been leaning too heavily toward
China and thinking of China as a panacea that can cure all ills. It is true that
for a while China played the role of workshop of the world and many
multinational corporations chose to locate their production bases there.
However, with the rise of emerging and frontier markets over the last few years,
many companies from advanced countries have moved their production bases
elsewhere.
For example Samsung, which holds the biggest share of the global smartphone
market, has moved its production center to Vietnam, and it has been
outperforming Apple, most of whose products are made in China. China’s
deteriorating investment climate is now driving a trend to get out of China.
Global manufacturing is gradually shifting over to the Mekong Basin in Southeast
Asia, and Samsung has done well by following this trend.
While others are exiting China, Taiwan’s manufacturing industry has been
embracing it. More seriously, most Taiwanese manufacturers lack their own brands
and lack innovation. This makes them incapable of developing high-added-value
business segments, so all they can do is maintain the status quo in the areas of
assembly and subcontracting for other companies’ brands. This leads to two major
problems.
First, profits from subcontracting keep falling, but the costs of manufacturing
in China are rising fast. It is hardly viable any more to base manufacturing in
China.
The second problem is that more than half of Taiwan’s manufacturing for export
markets is done outside Taiwan, and that means that however good their export
trade might be, it will not help to reduce unemployment or to raise wage levels
in Taiwan.
People in a country where unemployment does not fall and salaries do not rise
are likely to be worried about their futures and afraid to spend their money on
non-essential goods and services. That keeps domestic demand down, so how is our
GDP supposed to grow?
Japanese Prime Minister Shinzo Abe is seeking to boost Japan’s economy with what
he has called his “three arrows.” The first arrow is monetary policy, the second
is fiscal policy and the third is structural reform. The first and second arrows
are traditional remedies that have been used in the past as first-aid measures
to deal with economic depression.
Like a cardiac stimulant, they can save the patient’s life, but they cannot cure
a serious disease. Even though the eased monetary policies adopted by European
countries and the US have maintained liquidity in financial markets, they have
not brought about an overall economic recovery. Structural reform is what is
needed to get to the root of the problem and return the economy to a stable,
healthy state.
Although Abe’s first two arrows have been effective so far, the third arrow is
the key factor that will decide whether his policies can rejuvenate the Japanese
economy.
As in Japan, the task of revitalizing Taiwan’s economy will require a thorough
round of structural reform in both policy and business. However, it takes vision
and effective implementation to get structural reform under way, otherwise, no
matter how good a blueprint the government may have, it will be no more than
empty talk. Looking back over the past five years of the Ma administration, it
cannot be said that it has offered no blueprints for construction, but most of
its plans have been just words and no action.
For example, when will construction of the Taoyuan Aerotropolis ever be
finished? It is not likely to happen before Ma’s government leaves office.
Taiwan’s public construction projects are not just slower than in other
countries, they are also of poor quality and plagued by corruption and
wrongdoing.
Ma has another three years to go before he steps down. Whether that is too short
to reach his goals depends on what he makes of it. He still has time to renew
his efforts, if he does not want to go down in history as a failure. If he can
use his final three years in office to push through structural reforms, he may
yet go down in history as having made a positive contribution to the nation’s
economy.
Translated by Julian Clegg
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