[LINK] "Taiwan Needs a Reboot"

[rfmcdonald]

William Pesek's Bloomberg View article calling for radical changes in Taiwan, most critically including a rethink of relations with a China that threatens to swallow up the island state, reflects the kinds of sentiments that whoever governs Taiwan is going to have to deal with.

KMT politicians went into the elections arguing that their stewardship of the economy -- based in large part on greater trade and integration with the mainland -- justified their reelection. Yet for all Ma's efforts, Taiwan’s economy has grown an average 3.3 percent in the five years since the 2008 global crisis, compared with close to 5 percent growth in the previous five. At the same time, wages, adjusted for inflation, fell below 1998 levels in 2013. Home prices have surged 82 percent since Ma took office in 2008; so has Taiwan's income gap.

Clearly, China's boom has not benefited ordinary Taiwanese as much as Ma claims. They fear that even closer ties with the mainland will hollow out Taiwanese industry and increase the island's dependence on Beijing. A trade deal with China isn't comparable to the ones Ma negotiated with New Zealand and Singapore. Taiwan wouldn't just be competing with mainland companies, but state-supported behemoths carrying out the Communist Party's agenda, which includes reunification by force if necessary.

Ma needs to diversify Taiwan's growth engines. Before the elections, he warned that the island risked being left behind as China signed its own free-trade agreements with countries such as South Korea. In fact, Ma would be wise to use the next two years emulating Korean President Park Geun Hye's efforts to build a more creative economy. Given the wage disparities between Taiwan and China, there's reason to fear closer ties will actually reduce wages on the island. As per capita income approaches $40,000, Taiwan must innovate its way to higher living standards. That means harnessing its financial resources, human capital and rule of law to move up the technology value chain. Taiwan simply cannot compete with China on price. Its only hope lies in creating the new products, ideas and disruptive business processes that generate new jobs and wealth.

The economy's strength is a services sector that employs nearly 60 percent of Taiwanese and generates almost 70 percent of gross domestic product. Its backbone is a vibrant ecosystem of small-and-medium-size companies both in the island's biggest cities and rural areas. Nurturing their growth, inventiveness and productivity with greater investment, tax incentives and training would pay off more than helping companies like Foxconn open more plants on the mainland. Ma should create new safety nets to protect Taiwan's citizens as China's scale and low costs encroach on their livelihoods.