Taiwan: The Little David That Defeated the Protectionist Goliath, China
Tomorrow is the Double Ten's celebration. October 10, 1911, played a significant role in Taiwan's history. It's often mistaken for Taiwanese Independence Day. Taiwan became a separate state under Chiang Kai Shek on October 25, 1945. It somehow puzzles me how Taiwan National Day is celebrated on October 10 instead of October 25.
Here's an explanation regarding Double Ten's significance and why it's considered Taiwan National Day:
October 10th is Taiwan National Day, but it is not Taiwan’s birthday.
Instead, it commemorates October 10, 1911, which was the start of an event called the Wuchang Uprising in China. This uprising led to the Xinhai Revolution which brought about the fall of the Qing (Ching) Dynasty, the end of the Chinese dynasties, and the founding of the Republic of China in 1912.
At this time, Taiwan had been under the rule of the Empire of Japan since 1895, and it was not until the end of World War Two in 1945 that Japan was forced to relinquish control of the island to the Republic of China.
Meanwhile, back on the Mainland, things were not going so well for the government of the Republic of China. They were fighting the Chinese Communist Party in the Chinese Civil War on and off between 1927 and 1949. Eventually, the government of the Republic of China lost control of the mainland and retreated to the island of Taiwan.
October 10th is still observed on the Mainland by the People’s Republic of China as the Anniversary of the Xinhai Revolution, but in Taiwan, it has become National Day — a day where pride in Taiwanese identity is celebrated across the island.
This reminds me of how Philippine National Day is celebrated on June 12 instead of July 4. July 4, 1948, was when the American commonwealth ended after 10 years. Japan was also under American occupation before the rise of Modern Japan. Imperial Japan was defeated during the Second World War after the atomic bomb in Hiroshima. June 12, 1898, was when the Philippines declared itself free from Spanish rule and Emilio Aguinaldo became the first president. Strangely, both countries didn't totally gain independence after the first major victory. Taiwan was under the Empire of Japan since 1895 and wasn't freed until 1945. Taiwan was able to celebrate Taiwanese identity pride like how Filipinos celebrated their own identity. Spain was expelled. In Taiwan, the Qing Dynasty fell down and the Republic of China was formed in 1912--that's before Taiwan became a separate country from China. Yes, I still support Taiwan for being the center of Chinese culture.
The protectionist Goliath, China's failure
Agriculture
Private plot farming was abolished and rural farmers were forced to work on collective farms where all production, resource allocation, and food distribution was centrally controlled by the Communist Party. Large-scale irrigation projects, with little input from trained engineers, were initiated, and experimental, unproven new agricultural techniques were quickly introduced around the country.
These innovations resulted in declining crop yields from failed experiments and improperly constructed water projects. A nationwide campaign to exterminate sparrows, which Mao believed (incorrectly) were a major pest on grain crops, resulted in massive locust swarms in the absence of natural predation by the sparrows. Grain production fell sharply, and hundreds of thousands died from forced labor and exposure to the elements on irrigation construction projects and communal farming.
Famine quickly set in across the countryside, resulting in millions more deaths. People resorted to eating tree bark and dirt, and in some areas to cannibalism. Farmers who failed to meet grain quotas, tried to get more food, or attempted to escape were tortured and killed along with their family members via beating, public mutilation, being buried alive, scalding with boiling water, and other methods.
Industrialization
Large-scale state projects to increase industrial production were introduced in urban areas, and backyard steel furnaces were built on farms and in urban neighborhoods. Steel production was targeted to double in the first year of the Great Leap Forward, and Mao forecast that Chinese industrial output would exceed Britain’s within 15 years. The backyard steel industry produced largely useless, low-quality pig iron. Existing metal equipment, tools, and household goods were confiscated and melted down to fuel additional production.
Due to the failures in planning and coordination, and resulting materials shortages, which are common to central economic planning, the massive increase in industrial investment and reallocation of resources resulted in no corresponding increase in manufacturing output.
Millions of “surplus” laborers were moved from farms to steel making. Most were the able-bodied male workers, breaking up families and leaving the forced agricultural labor force for the collective farms consisting of mostly women, children, and the elderly. The increase in urban populations placed additional strain on the food distribution system and demand on collective farms to increase grain production for urban consumption. Collective farm officials falsified harvest figures, resulting in much of what grain was produced being shipped to the cities as requisitions were based on the official figures.
Important: Throughout the Great Leap forward, while millions starved to death, China remained a net exporter of grain as Mao directed grain exports and refused offers of international food relief in order to convince the rest of the world that his plans were a success.
The Goliath, China, was pretty much a protectionist state. The late statesman, Lee Kuan Yew, had also talked about Taiwan in his book, From Third World to First. This is an excerpt that I felt would be interesting for this blog entry taken from pages 561-562 of the same book:
From 1973 to 1990, I visited Taiwan once or twice a year, nearly always stopping over in Hong Kong. It was instructive and inspiring to see the economic and social progress of the Chinese in Taiwan, with 8 to 10 percent annual growth. From a low-wage, labor-intensive economy based on agriculture and manufacture of textiles, garments, and sports shoes, they moved steadily upmarket. At first, they pirated expensive medical, legal, and other textbooks which they sold at ridiculously low prices. By the 1990s, they were making computer chips, motherboards, PCs, laptops, and other high-tech products. I had observed a similar upgrading of the economy and living standards in Hong Kong. The rapid progress of these two maritime Chinese communities gave me great encouragement. I picked up sueful pointeres. If they could make it, so could Singapore.
The big difference lay with the economic policies. China became so protectionist that its large number was a disadvantage. Mao tried to do everything themselves through the fabled national industry. All that the national industry of the "Great Leap Forward" made was inferior output. I wouldn't dare import rice from Maoist China. I wouldn't dare buy their steel either. It was all poor output. That's why the great Lee said, "Let's stop doing everything ourselves." Mao's promise of a utopia was pie in the sky because how his idealism wasn't economically sound. Mao could've succeeded in making quality iron if he decided to learn from other countries.
Little Taiwan's open economic policies made it the David to China's Goliath
A bit of information concerning the Chinese Nationalist Rule and how it overtook China. Practically, Taiwan was the David that beat the protectionist Goliath called China. The Economic History Association also shares this detail which could help in the discussion of Taiwan's economic rise to power:
Taiwan’s economy recovered from the war slower than the Japanese economy. The Chinese Nationalist government took control of Taiwan in 1945 and lost control of their original territory on the mainland in 1949. The Japanese population, which had grown to over five percent of Taiwan’s population (and a much greater proportion of Taiwan’s urban population), was shipped to Japan and the new government confiscated Japanese property creating large public corporations. The late 1940s was a period of civil war in China, and Taiwan also experienced violence and hyperinflation. In 1949, soldiers and refugees from the mainland flooded onto the island increasing Taiwan’s population by about twenty percent. Mainlanders tended to settle in cities and were predominant in the public sector.
In the 1950s, Taiwan was dependent on American aid, which allowed its government to maintain a large military without overburdening the economy. Taiwan’s agricultural economy was left in shambles by the events of the 1940s. It had lost its protected Japanese markets and the low-interest-rate formal-sector loans to which even tenant farmers had access in the 1930s were no longer available. With American help, the government implemented a land reform program. This program (1) sold public land to tenant farmers, (2) limited rent to 37.5% of the expected harvest and (3) severely restricted the size of individual landholdings forcing landlords to sell most of their land to the government in exchange for stocks and bonds valued at 2.5 times the land’s annual expected harvest. This land was then redistributed. The land reform increased equality among the farm population and strengthened government control of the countryside. Its justice and effect on agricultural investment and productivity are still hotly debated.
High-speed growth accompanied by quick industrialization began in the late-1950s. Taiwan became known for its cheap manufactured exports produced by small enterprises bound together by flexible sub-contracting networks. Taiwan’s postwar industrialization is usually attributed to (1) the decline in land per capita, (2) the change in export markets and (3) government policy. Between 1940 and 1962, Taiwan’s population increased at an annual rate of slightly over three percent. This cut the amount of land per capita in half. Taiwan’s agricultural exports had been sold tariff-free at higher-than-world-market prices in pre-war Japan while Taiwan’s only important pre-war manufactured export, imitation panama hats, faced a 25% tariff in the U.S., their primary market. After the war, agricultural products generally faced the greatest trade barriers. As for government policy, Taiwan went through a period of import substitution policy in the 1950s, followed by promotion of manufactured exports in the 1960s and 1970s. Subsidies were available for certain manufactures under both regimes. During the import substitution regime, domestic manufactures were protected both by tariffs and multiple overvalued exchange rates. Under the later export promotion regime, export processing zones were set up in which privileges were extended to businesses which produced products which would not be sold domestically.
Historical research into the “Taiwanese miracle” has focused on government policy and its effects, but statistical data for the first few post-war decades is poor and the overall effect of the various government policies is unclear. During the 1960s and 1970s, real GDP grew about 10% (7% per capita) each year. Most of this growth can be explained by increases in factors of production. Savings rates began rising after the currency was stabilized and reached almost 30% by 1970. Meanwhile, primary education, in which 70% of Taiwanese children had participated under the Japanese, became universal, and students in higher education increased many-fold. Although recent research has emphasized the importance of factor growth in the Asian “miracle economies,” studies show that productivity also grew substantially in Taiwan.
Taiwan started out with some degree of protectionism such as import substitution. However, a change in export markets and government policy started to change the tide. The government of Taiwan finally saw how the promotion of manufactured exports where export processing zones were created. This was what started finally put Mao's protectionist giant to shame.
The Foundation for Economic Education writes the following about Taiwan's secret to success also lies in accepting foreign direct investments (FDIs) as part of its economy:
Finally, it is a basic premise that there must be a good climate for investment, many trading opportunities, and a high probability of profit-making. These, in turn, depend upon a “rule by law and not by men.” Given this, one expects a stable political environment that safeguards private property and legal economic activities, paving the way for harmonious 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 cooperation and concession. Many foreign investors and traders have stated that such a favorable and stable climate can hardly be found elsewhere in the developing world. Thus, this favorable image is projected and perceived internationally, with a result that enhances domestic capital formation and both foreign invest ments and trade relations.
For these reasons, many more factors of production become available and move steadily into Taiwan, paying back their fair and reasonable returns through the market functions. No place is perfect; but a society that approaches economic activity with a sense of fair play brings forth an additional factor which hastens its economic development.
One could argue that Mao was a dictator. Well, why did China become more favorable when Deng took over the reins? Why did investment still boom in spite of the controversial Tiananmen Square Massacre? Deng Xiaoping authored the real Great Leap Forward (read here). Deng, in spite of the controversy of the Tiananmen Square Massacre, is praised also to be an economic genius for his Socialism with Chinese Characteristics. China became a big powerhouse for some time. But before that, China was totally in a wreck.
Unlike China, Taiwan was learning beyond the protectionism it earlier had. Taiwan developed a sense of fair play that started to invite investors to do business. As the money grew, they started to focus on fixing peace and order to invite more investors. It's not enough that the investor does business--a country must set policies to make it more favorable for multinational companies (MNCs) to do business and renew doing business with the country. The sense of fair play is there that Taiwan decided to get rid of unfair restrictions. It's very much unlike the Filipino First Policy by Carlos P. Garcia. The Filipino First Policy sadly caused the Philippines to fail.
The Heritage Foundation also gives important details about Taiwan in regard to Taiwan. Taiwan is given a score of 80.1% while China had a lower score of 48% presumably due to Chinese President Xi Jinping's policies. I think Xi is trying to become the new Mao one way or another. Meanwhile, this is also said about Taiwan:
Taiwan’s economic freedom score is 80.1, making its economy the 6th freest in the 2022 Index. Taiwan is ranked 3rd among 39 countries in the Asia–Pacific region, and its overall score is above the regional and world averages.
Taiwan is one of the few countries in the world to have experienced continuous economic growth during the past five years. Economic freedom has increased significantly during that period as well. With strong scores across the board boosted by increases in judicial effectiveness and labor freedom, Taiwan has recorded a 3.6-point overall gain of economic freedom since 2017 and has made it over the threshold into the top, “Free” Index category for the first time. Additional improvements in business freedom and financial freedom would propel economic freedom even higher.
IMPACT OF COVID-19: As of December 1, 2021, 848 deaths had been attributed to the pandemic in Taiwan, and the government’s response to the crisis ranked 94th among the countries included in this Index in terms of its stringency. The economy continued to grow in 2020, expanding by 3.1 percent.
The Philippines, too, can learn from Taiwan and defeat China economically
What needs to be done is to get rid of the negative list already. One can imagine if more businesses will prefer doing business in the Philippines over China. Taiwan should continue to be an ally of the Philippines. If the negative list is removed then we can expect more influx of FDIs. Maybe, some will decide to flee China to move to the Philippines. If Taiwan can do it, I believe so can the Philippines do it to defeat China in terms of being a better investment hub. Democracy is one factor. The only thing needed is to get rid of the negative list for good. Besides, it's not like as if there aren't rules to regulate the businesses, right?
References
Books
Websites
"Double Ten explained" by Pia Munk-Janson (October 5, 2022) https://www.communitycenter.org.tw/double-ten-explained/
https://fee.org/articles/economic-growth-in-taiwan-invisible-factors-contributing-to-economic-development-in-the-republic-of-china/
"Taiwan’s Free and Vibrant Economy Is a “Democratic Success Story" by Anthony B. Kim (February 17, 2022)
https://eh.net/encyclopedia/the-economic-history-of-taiwan/
