Morris Chang: Taiwanese Economy in Transition not Marginalized

The following article appeared in June in the Liberty Times, but is highly relevant to the ongoing debate on the state of Taiwan's economy and whether the government should heed the demands of foreign Chambers of commerce to remove the 40% investment cap and open up direct transportation links with China. Incredibly, the Taipei Times managed to overlook this important piece, so here it is in translation. Italics added to emphasize key points that contradict conventional wisdom about what is good for Taiwan.


Update: Chang apparently gave a very different speech to Amcham today, in which he compared Taiwan to 18th century China and advocated opening direct links and removing the investment cap.

TSMC Chairman Morris Chang said that he rejected the concept of Taiwan's marginalization at a seminar held by the Lung Ying-tai Cultural Foundation. Chang argued that Taiwan has never been at the center, so how can it now be marginalized? He holds that Taiwan is in a period of economic transition and that the primary issue that Taiwanese businesses need to confront is the creation of a new business model, not the opening of direct links across the Taiwan Straits as the American Chamber of Commerce continually advocates.

"I really don't like the term 'marginalization.' As soon as I hear it, I just stop listening to what you say afterwards," Chang said brusquely interrupting Yin Yun-peng, the editor in chief of Commonwealth Magazine and Lung Ying-tai. Lung responded by saying that much of Taiwanese society was feeling anxiety over Taiwan's marginalization because Taiwan was being left out of the emerging ASEAN Free Trade Zone and the US-Korea FTA.

But Chang said that one should use terms precisely and that what Taiwan is really experiencing is 'political isolation.' The problem is that Taiwan's political isolation isn't something that happened overnight. Even if Taiwan was once recognized by more than 100 countries, it was still marginalized. The only time Taiwan was ever at the center of things was after World War II when Roosevelt chose Taiwan as an ally. If that hadn't happened, Taiwan wouldn't have any real power at all.

Bilateral trade agreements, Chang said, have only political significance. They have little economic impact. "Those agreements are more about face than reality." According to Chang, Taiwan's real problem is that its former competitive strengths have weakened or become irrelevant. In the 1990s, Taiwan had four major competitive strengths:

• a strong work ethic coupled with low salaries and high productivity
  
• Outstanding science and technology human capital
  
• an entrepeneurial ethic of innovation
  
• direct government interference to support for business
  

These have all weakened.

Lung argued and cited the view of the American Chamber of Commerce over the past few yars has been that the most serious problem Taiwan's economy has is opening up to China. Chang curtly replied that that is because American companies don't do R&D or innovate in Taiwan so their first priority is opening up to China. "But that is not the first priority of Taiwanese companies." The only point on which Chang agreed with Lung and Yin was that if political marginalization led the government to limit investment in China, it would be detrimental to the competitiveness of Taiwanese businesses.

In addition to competitiveness, Chang thought there were two other dimensions to the China issue that should be considered. First, national defense technology should remain secret. Second, although businesses moving offshore may cause the hollowing out of the Taiwanese economy, "in the long run, things should be liberalized. The government should not attempt to manage the offshoring of Taiwanese business because it is afraid of short-term pain." Chang suggested that in fact the government only places restrictions on a few industries and that many industries have already left, but that the public is spending too much energy discussing this issue of "no ability to produce." It would be better to open up than to waste time on this.