Economic progress in Taiwan

Edwin K. Ang
October 1971

An FLF associate in Berkeley, USA, Mr. Ang is currently completing his doctoral studies at the University of California. This article was excerpted from his Ph. D. thesis: An Economic Evaluation of the Economy of Taiwan.

The remarkable success of Taiwan's economic development is currently drawing the thoughtful attention of public administration officials, economists, and businessmen from the developed and developing countries in both the Communist and non-Communist world.

Three major reasons may be cited.

First, from a condition of economic backwardness characterized by rampant inflation, critical shortage of basic necessities, rapid population increase, a heavy defense burden, war-crippled industries and infrastructure, and social and political instability. Taiwan has emerged in the early 1960's with a healthy and vigorous economy maintaining a yearly growth rate of over 9% in real terms. Secondly, Taiwan has the distinction of being one of the few developing countries to have terminated U.S. concessional aid on account of a successful transition to sustained development. Thirdly, the success is generally attributable to the government's policy of taking a pragmatic and ideologically non-dogmatic approach to development, and of fostering individual initiative in agriculture and industry. The response of private enterprise to the market mechanism and its incentives has contributed much to Taiwan's growth.

Because of its small size, the island is necessarily limited in the quantity and variety of natural resource endowments as well as in the domestic market. Resources consist mainly of agricultural land, timber land, fisheries, coal, dolomite and natural gas; and efforts are constantly under way to further develop these resources at economic cost. Taiwan will increasingly continue to import raw materials, and minerals. The disproportionately large number of technical, professional, and administrative personnel from the mainland have been able, with the cooperation of a well-disciplined and adaptable labor force, to use these resources effectively. In contrast to most developing countries, which seek to solve their trade problems through import substitution, Taiwan has made export promotion a cardinal principle of its trade and development policy. No effort could have been so richly rewarded, however, without the powerful effect of U.S. aid that was injected into the economy at a crucial junction in a highly fluctuating economic, military, and political milieu.

The Taiwan economy has in the post-aid period maintained a very high rate of growth, despite adverse effects from typhoons in 1967 and 1969. Real Gross National Product rose by 10.14% in 1967, 10.10% in 1968, and 8.66% in 1969. These high growth rates were again sustained by increased investment; rapid expansion of agriculture, industry, and foreign trade.

Long-term positive economic trends have continued while U.S. AID funds are being displaced by funds from the U.S. Export-Import Bank, World Bank and Japanese yen credit agreements.

In 1969, Taiwan's national product is estimated at NT (New Taiwan dollars) $ 164.1 billion in 1964 prices, representing an annual growth rate, measured in constant prices, of more than 8% over the past 15 years. The engines for this remarkable expansion have been investment and exports. During 1960-1969 exports and gross domestic investment have increased in real terms at an annual rate of 19.0% and 16.2% respectively. Gross National Product by 1979 is expected to exceed NT $ 415.9 billion, in 1964's prices, for an average annual growth rate of more than 9%. This exceeds the 7% growth rate projected in the Chinese fifth four-year plan, (1969-1972) and may be somewhat optimistic. Much depends on the size of the military burden and also upon the investment in urgently needed housing, both of which subtract from capital available for agricultural and industrial expansion.

The next ten years will see Taiwan progressing toward a higher level of industrialization. The government's fifth four-year plan emphasizes the advanced industries requiring heavy capital equipment and modern technology, such as petro-chemicals, shipbuilding, automobiles and tractors, machinery and metals. Continued attention will be directed toward the future development of labor-intensive manufactures, such as electronics, building materials, and canned goods. With this economic resource and activity base, Taiwan will be able to expand its international market as advanced countries such a; Switzerland, Belgium, Israel, and Japan have done in a comparable stage of development.