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What’s Wrong with Taiwan’s Economy? Impact of Globalization 47
Apparently, weak domestic demand and sluggish
foreign trade in 2008 caused the slowdown in aggregate
productivity, lower growth of production, and higher
unemployment.
IV. Discussions and Policy Recommendations
Taiwan’s economy needs a further structural
transformation to cope with the low economic growth
and high unemployment. In particular, modernization of
the service sector should be given top priority, for it
may increase labor productivity and create more job
opportunities to reduce unemployment. The government
has taken measures to stimulate the economy. An
expansionary monetary policy is being enforced. Consumers’
vouchers are issued. Preferential tax treatment
is given businesses firms that promise not to lay off
workers. Estate tax is reduced. But all these measures
aimed to meet the stringent economic climate in the
short run. Their effect tends to be temporary. A forward-looking
strategy with a global perspective is
needed to cope with the challenges arising from the
current financial crisis that is engulfing the world. That
strategy has to be framed to address structural transformation
of the economy and the problems arising
from economic globalization.
1. Structural Transformation
The Taiwan economy has to undergo structural
transformation to stimulate and maintain domestic
consumption and investment. Change should take
place in fields.
a. Construction of infrastructure:
Airports, harbors, and other public works, including
bridges and highways, other transportation facilities,
such as bridges, have to be rebuilt or renovated. Furthermore,
special economic operation zones should be
set up, with considerations taken for their geographical
location and industrial clustering, to upgrade domestic
industries planning to manufacture high value-added
products. Plants in the zones have to prove they are
able to realize an international division of labor in production,
while those whose production process is environment-friendly
and/or ecologically oriented should be
given preference to operate. Traditional labor-intensive
industries or those plants manufacturing low value-added
products should be excluded. Multinational
corporations are welcome to establish their headquarters
or locate their regional operation centers in the
zones. Moreover, investment in infrastructure should
not be confined to physical capital only, from long-term
perspective investment should contain software infrastructure
such as human capital, social capital, cultural
capital, and institutional capital to facilitate the development
of creative economy in Taiwan.
b. Transformation of the service sector:
The service sector yields 70 percent of Taiwan’s
GDP, but employs only 58 percent of its workforce.
Moreover, the labor productivity of the service sector
grows far less than that of the manufacturing sector. It
is crucial to modernize the service sector, which includes
financial and insurance services, producer services,
education and culture services, tourist and recreation
services, and health services. Furthermore, those
service industries should aim at expansion to the international
market. For example, local culture and geographical
features should be emphasized in recreation
and sightseeing to attract international tourists and
higher education internationalized to enlarge and enrich
knowledge and technology spillover. Most importantly,
the growth of the modernized service sector not only
contributes to higher value-added production but also
creates abundant new job opportunities to make up for
the loss due to outsourcing and offshoring production,
helping ease the pressure of high unemployment since
2000.
c. High-skilled and talented workers from abroad:
The upgrading of technology and industrial structure
requires an infusion of high quality human resources.
Education and on-the-job training are important
means to cultivate domestic skilled labor. That is a