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It is an essential source for specialists and provides a sound foundation for subsequent research on the government and politics oflate imperial China. Flexibility, Foresight, and Fortuna in Taiwan's Development: Navigating between Scylla and Charybdis. London and New York: In postwar Third World development, Taiwan is a triumphant example of a freeenterprise economy and one of the most spectacular success stories in modern economic history. During the past four decades, Taiwan has been transformed from a society with a backward agrarian economy to a modern industrial one.

Forty years ago, per capita income in Taiwan was only one-thirtieth of that in the U. Taiwan's success story has gained it the recognition ofthe world's top economists and and has generated many books and articles on the "Taiwan Miracle. Unlike other works describing the evolution ofTaiwan's economy, the main purpose of this book is to use Taiwan's development experience to test the validity and applicability of four prevalent development theories: A substantial part of the book compares the Taiwan development experience with the predictions of these four prevailing theories.

The book consists ofeight chapters and one statistical appendix. It begins its analysis by examining the proposition that Taiwan constitutes a fairly unusual instance of seemingly broad-based development success. Get to Know Us. English Choose a language for shopping. Explore the Home Gift Guide. Amazon Music Stream millions of songs. Amazon Advertising Find, attract, and engage customers. Amazon Drive Cloud storage from Amazon. Alexa Actionable Analytics for the Web.

AmazonGlobal Ship Orders Internationally. Amazon Inspire Digital Educational Resources. Taiwan displayed manyfold increases during the postwar era on two indicators of communications.

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Mail per capita rose from 7. Thus, the growth of this key sector kept pace with overall economic expansion. Taiwan, therefore, has manifested tremendous progress on many important dimensions of the popular standard of living and social mobilization. However, the time series for the various indicators e.

Evidently, progress first occurred in basic areas and was significantly delayed along more qualitative dimensions. For education, major gains in literacy and percentage of students going on to junior high school occurred in the s, but the big jump in college and even high-school enrollments did not occur until the s and early s. Additionally, the real spending per student in primary school remained almost constant during the s but then took off after the early s, doubling between and , doubling again by , and almost doubling yet again by This pattern is replicated by most other indicators.

Quantity of food consumption, as measured by calories, rose rapidly from through , and then increased only slowly as demand was evidently satisfied. In contrast, the quality of diet as indicated by protein consumption, rose steadily but more slowly than caloric consumption during the s, accelerated from the mid s to the early s, increased gradually through , and jumped again in the mid and late s.

This pattern implies that the first stage of improvement in the standard of living involved simply the increase in food consumption, but that later prosperity permitted a changed focus from dietary From Rags to Riches 45 quantity to quality. The change from quantity to quality in food, moreover, was associated with major health improvements as well since the rates of infant mortality and communicable disease did not display major improvement until the early s, but then dropped dramatically. This interpretation is bolstered by the fact that disposable income, as measured by the proportion of household income spent on nonfood items, did not manifest much improvement until the early s but has increased steadily since then.

The increase in welfare protection signaled by expanding the coverage of workers insurance was even later in coming. Finally, major improvements in housing quality did not really take off until the mid s. In the communications realm, mail flow began its rapid growth in the s. Telephones, in contrast, did not become widespread until the late s but then increased five fold from 5 to 25 per hundred people in little more than a decade after , suggesting a communications revolution.

The pattern of differential growth in standard of living and social mobilization noted above is suggestive in several regards. First, gains in popular welfare lagged behind the beginning of rapid economic growth by a decade and even longer for many of these indicators. Thus, the benefits of growth took some time to appear. Second, immediate progress did occur in basic education and diet which set the stage for social mobilization promoting development and later gains in health. Third, the pattern of first emphasizing quantitative and then qualitative improvements seems providential, but is only so if the time lag between the two is fairly short, as it was on Taiwan.

In summary, while Taiwan has made continuous and concurrent progress on multiple but not all policy dimensions over the past four decades, it is also important to recognize the presence of sequences and stages that denote especially rapid improvements in particular components or aspects of general policy values. Very significant progress occurred here as well. While the number of civic organizations grew fairly evenly over the postwar period from 2, to 12, with the exception of a period of stagnation during most of the s , there were two very distinct spurts in the growth of total members.

The first growth spurt probably represented mobilization of the population by the regime, in contrast to the second which was almost certainly stimulated by the political liberalization of the s, especially the major democratization reforms that commenced in see Chapter 5. The availability of published materials and political news forms another related dimension of social mobilization. Because martiallaw regulation prohibited the founding of new newspapers, the number of newspapers stayed at about 30 from to before jumping four fold in after martial law was lifted.

A more valid picture of expanding social communications, though, is presented by the number of periodicals and journals — which encompass both political including opposition and undoubtedly a large majority of wholly nonpolitical publications. Their number expanded over 15 fold between and with big growth spurts in the early s, the early s, and most of the s.

These three periods represented both times of political liberalization and of significant changes in what might be called social modernization. Thus, the publishing industry seemed to be responding to both political and social change. Several strands of theory discussed in Chapter 2, however, argue that rapid economic growth and social mobilization tend to be politically and socially destabilizing.

Taiwan, in contrast, has been fairly stable politically in terms of the most common indicators of political unrest. Thus, the data for —77 on these variables demonstrate that, while some instability existed in the first half of the s, the island has been remarkably stable since the From Rags to Riches 47 early s. While most of these indicators undoubtedly understate political instability because they are based on foreign press reports, they do show that popular protest, as measured by demonstrations, riots, and political strikes, has been quite limited although demonstrations have become almost daily occurrences following the liberalization of the late s.

In contrast, deaths from political violence were quite high before the mid s, but most of these came from Communist shellings of the offshore islands. The government itself was quite stable. However, the number of political executions was very high through the late s; and the government imposed a significant number of restrictions on and sanctions against its citizens during the postwar period, although this frequency declined significantly over time especially in the late s after the lifting of martial law.

This decline has been accompanied by the emergence of competitive party politics. This process toward political liberalization and partisan competition, however, has also produced a concomitant increase in the incidence of violent protests and mass demonstrations. These more recent changes are perhaps better described by more indirect measures of social instability such as labor disputes, emigration, and the crime rate.

For example, despite the high rate of economic growth between and , the number of workers involved in labor disputes almost tripled; the emigration rate more than doubled; and the crime rate nearly doubled. In comparison, the economic stress brought on by the first oil-price crisis in the early s also brought an upsurge in labor disputes and emigration but not crime.

Thus, there is some evidence that at long last the social disruption model may have some applicability for Taiwan.

Flexibility, Foresight and Fortuna in Taiwan's Development - CRC Press Book

Qualitatively, as will be discussed in greater detail in Chapter 5, it has undergone substantial liberalization and democratization along three primary dimensions: These changes are reflected in quantitative scores that assess the level of political rights and civil liberties prevailing on the island. These ratings by the Freedom House indicate some overtime improvements. Similar conclusions are produced by an examination of more direct indicators of electoral competition — for example, the ratio of winners to candidates and the electoral prowess of the KMT in contests for the Provincial Assembly, a directly elected body where politics has traditionally been much more open than at the national level Lerman Thus, while Taiwan evidently is still far from achieving the democratic standards taken for granted in the United States and Britain, it has made some progress in comparison with its own past.

Dependency theories, as well as several nondependency approaches to unequal From Rags to Riches 49 relations in international political economy Hirschman , presume that this situation produces the economic and political exploitation of and distortions within the periphery. Taiwan constitutes an interesting case study in this regard. This island has been considerably dependent at one time or another on all three dimensions, but it has also managed to mitigate most of these dependencies as well. First, up through the early s, U. Yet the island was able to wean itself from this heavy aid dependence in relatively short order.

Thus, Taiwan belongs to a very select club of developing countries that have graduated from this kind of foreign dependence. Indeed, it has even undergone a role reversal in this regard; Taiwan is now an aid donor to other developing countries for example, in Central America. In contrast to U. It did, however, play an important role in the export surge of — They never became strong enough to denationalize the economy.

Indeed, Taiwan has been comparatively successful in unpacking the investment package that foreign companies have to offer. It encourages some components of this package such as capital, technology , while regulating or shunning those other components that threaten to undermine its economic or political autonomy Huang The KMT government had brought to the island its gold reserve from the Mainland. Because much of the U. With the end of foreign aid and the rise of foreign investment, the amount of net inflows dropped drastically. Yet, Taiwan ran a positive cumulative balance of capital flows during — In the s, this balance turned negative.

On the other hand, there was actually a net capital inflow during the recession of —5. Capital outflows began to escalate during the s, reaching the level of total domestic investment by mid decade. In addition, capital outflows fell to half of total investment, although this may not be an entirely favorable development to the extent that it reflects vastly increased speculation in the stock market and real estate.

Whereas some recent dependency writers e. Most developing countries are expected to exhibit three characteristics of trade dependence: On the other hand, Taiwan has been marked by substantial dependence upon foreign markets, although the degree of this dependence has varied considerably both over time and among specific subdimensions.

Its successful export drive from the early s to the late s certainly indicated that these ties to international markets were not necessarily deleterious. However, growing trade conflicts with Washington and increasing competition from other NICs newly industrializing countries also demonstrate that trade dependence may entail future vulnerability.

Foreign aid was obtained at little cost and utilized efficiently; foreign capital was channeled into priority sectors and prevented from assuming a dominant role in the economy; and economic performance kept the country internationally competitive so that it benefitted from its market dependence. Dependency management, therefore, vitiated this particular threat to economic growth. A heavy defense burden constitutes another potential drag on the economy.

While developing countries can use participation in the military to mobilize and modernize their populations, military spending should normally dampen capital formation and export competitiveness through the diversion of funds and human capital which would, in turn, slow overall economic growth. By , defense spending had dropped to 5. Still, compared to other countries, Taiwan has had to bear a very heavy defense burden throughout most of the postwar period. In this respect, the absence of a major external attack or foreign war is significant. Considering the military plight of the KMT regime in the early s and the experiences of other states for example, Israel, Pakistan, South Korea, Syria facing comparable security threats, the preservation of peace was no small feat.

Statists see it as positive; developmentalists as negative; and dependentistas as probably negative for example, a socialist state would promote development but a capitalist one probably would not. In Taiwan this has been quite substantial. The size of government involvement has been fairly moderate and stable. Public employees have averaged an almost constant 6.

This, in turn, has permitted both a substantial amount of private investment and growing popular consumption. Thus, Taiwan has clearly practiced fiscal conservatism for example, it has almost always run a budgetary surplus. First, the government is becoming more professionalized Liu , Lu Third, a charting of the real growth rate in government spending implies that it has been used to promote countercyclical adjustment.

Thus, spending has been moderated at times of inflationary threats the mid s, the early and late s, and the mid to late s and expanded during times of economic stress the mid s and early s. Weaker governments tend to depend more upon indirect taxes such as customs duties and license fees which are easier to collect than direct taxes based on personal income Snider Generally speaking, indirect taxes impose a flat rate on consumption, whereas direct taxes on personal income adopt a progressive rate.

Thus, the regime appears to have significantly increased its economic and redistributive capacities at a time when the island is facing the challenge of fundamental economic and political transformation. The role of the state in Taiwan, therefore, has something to both succor and offend the contrasting developmental and statist perspectives. The former can praise the relatively small size of the budget and the depoliticization of production that occurred, while the latter can cite the evidently stimulative effects of state investment and countercyclical fiscal policy, the professionalization of the bureaucracy, the still significant degree of public entrepreneurship, and the recent expansion of the welfare budget as the hallmarks of a developmental state.

Certainly, there is room for further improvement, especially in the political realm. Its progress in these regards would be the envy of most of the Third World. At the same time, however, one can notice some periodicity in the time series data indicating sequences and stages when majors spurts in particular components or aspects of general policy values took place. Thus, in the s, the regime focused on staving off its imminent demise. The pursuit of internal stability and external security received its top priority and was its major achievement.

During this period, the successful land reform also laid the foundation for an egalitarian system of income distribution, while facilitating at the same time economic development and state power see our discussion in Chapter 5. Finally, in the s, the island underwent a period of major and rapid political liberalization, while undergoing a process of industrial adjustment as a result of its declining comparative advantage in cheap labor and the rising wave of foreign protectionism.

This rough chronology would then suggest a policy sequence of focusing first on the pursuit of military security, political stability, and a basic level of education and living standards to dampen discontent, second on the quest for economic growth, third on using the resources generated by growth to improve physical quality of life and to sustain the gains in socioeconomic equality, and finally on the initiation of democratic reform.

The ability of the KMT state to pace the speed of socioeconomic change and to engineer this temporal order of progression may in large part account for the Taiwan success story. This attempt to influence the rate and sequence of development by first emphasizing political stability, then economic growth, and only recently democratization seems most sensible from the tradeoff perspective. It also involves evaluations of how well one has done with the national assets and liabilities dealt by nature and history, and of how fast others are running.

The first part of the analysis examines its international ranking on several dimensions of development. The second part of the chapter uses ordinary least-square regression to establish cross-national patterns of policy performance. Data are presented for several indicators at three points in time — approximately the middle of the s, the middle of the s, and the middle of the s. Therefore, for these two indicators lower percentile figures mean greater liberal democracy. Consequently, it has recorded rapid and sustained economic development. It moved from approximately the 33rd to the 80th percentile between the mid s and the mid s on two central indicators of economic development — GNP per capita and nonagricultural production as a percentage of GDP gross domestic product.

The island also turned in solid, if less spectacular, performance in its management of investment and inflation during the s and s. In the s, its inflation rate improved to the 15th percentile low inflation is good , but its investment rate fell to well below the cross-national average. On this index, Taiwan ranked 25th among the 77 countries in the sample. Cline then added the Comparative Performances 59 more subjective measures of strategic policy and national will to the index in order to create an overall measure of national power.

On this overall measure, Taiwan ranked 12th in the world. The initial reservoir of human capital in Taiwan was much greater than in most developing countries, a factor that could well have made a considerable contribution to its exceptional growth record. As early as it ranked in approximately the top third of the world on literacy rate and on number of college students per million population, although its rankings on these factors improved only gradually over the next two decades.

Taiwan has also featured a high degree of social mobilization. On average, the island jumped from about the 40th to the 70th percentile between the mid s and the mid s on these indicators, a much higher ranking than its level of GNP per capita at that time. Council for Economic Planning and Development for real GNP growth and wholesale price increases, —70, —81 and —5 p.

Ministry of Finance was the source of data for export concentration index and pp. When data for Taiwan is from the sources listed above, the figures may differ slightly from the official Taiwan reports contained in the Appendix tables. The index of overall power modifies the resource base for power by estimates of strategy and national will. For literacy, this occurs because Taiwan measures it for population over the age of six, while Sivard measures it for population over the age of 15; and in Taiwan most illiterates are the elderly.

The World Bank , pp. For figures of military expenditures as a percentage of GNP, military size in 1,s of personnel , and military personnel per 1, population, the data source is United States Arms Control and Disarmament Agency , pp. The PQLI is based on the data for literacy, infant mortality, and life expectancy given by Sivard , pp.

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  8. It is computed according to the formula originally provided in Morris The rankings of national power are from Cline , pp. However, in the s, progress in social mobilization, welfare provision, and income equality showed signs of stagnation and even regression; it failed to keep pace with the more rapid advance in average income.

    A heavy defense burden and external dependency are two factors that one or more of the theoretical paradigms discussed in Chapter 2 posit as constituting substantial drags on economic growth. In terms of external economic dependency, the record is more mixed. Taiwan has been moderately dependent upon foreign capital. To the extent that Taiwan has had to labor under these comparative disadvantages of a heavy defense burden and a high dependency upon foreign trade and selective markets, its rapid and sustained economic growth seems all the more remarkable.

    Countries undergoing rapid change are especially susceptible to unstable or authoritarian politics. The data on Comparative Performances 63 political stability are somewhat questionable because they are based on media reports whose coverage varies greatly among nations for example, the United States and the United Kingdom have the most reported protest demonstrations. However, this stability was greater in government composition than in regime—society relations.

    Finally, although there were hundreds of political executions during the s, the large number of deaths from political violence was mainly a result of the unfinished civil war with the Chinese Communists Clough However, the process of political liberalization discussed in Chapter 5 may portend a catching up on this dimension as well.

    Alternatively, one may ask whether these achievements might be expected on the basis of various conditions that either facilitate or constrain policy performance.

    Flexibility, Foresight and Fortuna in Taiwan's Development

    To answer these questions, we performed a series of regression analyses in order to establish cross-national norms of policy performance, norms that can in turn be used as a benchmark for determining exceptional accomplishments. A regression equation describes an empirical relationship, such as the tendency for the richer countries to be more democratic or for economies that invest more to grow faster.

    It is stated in the following general form: Here, we are concerned with three possibilities. First, a change in X may produce a linear change in Y.

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    Second, the effects of X may diminish after it reaches a certain value. For example, whereas increases in GNP per capita have a significant positive impact upon the quality of life among the people of the poorest countries, this impact declines precipitously among the most affluent countries.

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    Third, the direction of a relationship may change at different values of the independent variable. For example, countries with very low and very high levels of GNP per capita have relatively equal distributions of income, whereas countries at middle levels of GNP per capita have relatively unequal distributions of income. These three types of relationships are modeled as follows: In addition, the coefficient R 2 indicates the percentage of variance in the dependent variable that is statistically explained by the independent variable s.

    The higher this percentage, the greater is the empirical fit of the regression equation with the observed data. To guard against unwarranted confidence, tests of statistical significance are undertaken to determine the probability that a relationship as strong as the one observed would occur by random chance. When a relationship is strong enough to establish a crossnational pattern, the policy performance of an individual country can then be assessed by comparing its actual value on Y with the value that would be predicted for it given its values on the Xs.

    If the actual and predicted values are close, the country conforms to normal national performance. The analysis of deviations, or regression residuals, can serve various purposes Kugler Finding that Taiwan has been an overachiever or underachiever may prove helpful in subsequent attempts to establish more complete theories or valid generalizations about developmental relationships. By calling attention to anomalies or exceptions to the rule, one can help to stimulate the search for scientifically more satisfying explanations Kuhn or for lessons to inform more effective policy.

    This data set was supplemented by other sources identified in Table 4. The form of each regression relationship linear, diminishing, or changed direction was reached inductively on the basis of its empirical fit with the observed data. Thus, a series of socioeconomic conditions from the early s were used to predict the average annual growth rate of GNP per capita between and In particular, these explanatory factors included four economic conditions the GNP per capita level, the investment rate, the inflation rate, and human capital formation as indicated by the literacy rate and the ratio of college students to general population , two types of dependency on foreign capital and foreign markets , and the defense burden.

    For other variables, see sources listed in Table Comparative Performances 67 Table 4. The upper half of the table describes each cross-national norm by presenting the actual regression equation, the R 2 , the statistical significance of the regression coefficients, and the number of countries in the sample. Taiwan can be considered an overachiever when its percentile is high. The four developmental perspectives suggest different expectations about the nature of empirical relationships examined in Table 4. All would agree that affluence, investment, and human capital should have a positive impact and that inflation and defense burden should have a negative one.

    However, their interpretations of these effects diverge. Dependency theory argues that the rich countries have a permanent advantage, so that the assumed association between growth and economic characteristics reflects the lasting structural inequalities in the global economy. Therefore, dependence upon foreign trade and capital should slow growth and exacerbate inequality. Thus, the latter countries have a chance to catch up, and international status mobility is possible.

    Developmentalists furthermore argue that the domestic factors especially a free market are the primary determinants of economic growth, even though the pursuit of comparative advantage in foreign trade is also relevant. Statists agree with this internal focus but stress the capacity of state policy to promote development. Finally, the tradeoff perspective would stress the opportunity costs of a heavy defense burden and high inflation. Given these various expectations, the relationships reported in Table 4.

    The —70 inflation rate turned out to be totally unrelated to economic growth. Still, these relationships follow the predictions that countries with more investment and greater human capital tended to grow faster, and that economic growth was highest among the middle-income nations. The results in Table 4. Dependencies upon foreign markets and capital have only a slightly larger impact than the internal factors on economic performance.

    The R 2 is a moderate 0. Recent reformulations of the dependency perspective tend to focus upon international capital flows rather than international trade flows. Unlike the other relationships examined here which apply to all nations, the logic Comparative Performances 69 of dependency analysis is that MNC activities are qualitatively different in the developed and developing nations.

    In addition to GNP growth rate, foreign capital penetration is also used to predict income inequality since, according to dependency theory, the former should induce or exacerbate the latter. Dependence on foreign capital has a significant, though moderate, impact upon both economic growth rate and income inequality with R 2s of 0.

    As predicted, the more dependent countries had higher income inequality, with longterm foreign capital stock rather than recent inflows being the primary determinant. Thus, while these results generally support dependency theory, critics of that approach can find some solace as well.

    For example, a typical country with its degree of market dependence would have grown by 3. More spectacularly, the prediction for its growth rate on the basis of foreign capital penetration is 2. Finally, defense burden is generally regarded as inimical for growth. The prevailing view argues that a heavy defense burden tends to discourage capital formation, dampen civilian research and development, impair export competitiveness and, in short, stifle economic growth.

    This set of regression results has demonstrated that Taiwan is an overachiever in the sense that its economic growth rate was much higher than for other countries with comparable economic resources or handicaps. The regression results in Table 4. Two quite distinct empirical patterns emerge. All six quality-oflife and education variables were strongly influenced by GNP per capita during the early s as indicated by R 2s ranging between 0. On the other hand, for the richest countries even a large increase in per capita income can only make a small marginal contribution to their already very high standards of Comparative Performances 71 Table 4.

    For other variables, see sources listed in Table 4. In contrast, income inequality and political repression are only moderately affected by GNP per capita with R 2s of 0. Likewise, it did well on the two indicators of human capital: We do not intend to suggest that Taiwan has excelled on all dimensions of policy performance, especially since the descriptive data in Table 4.

    Unfortunately, the comparability of the political stability data among countries is questionable enough see above to preclude statistical data analysis. Thus, we added the two together for to provide an index of political repression or dictatorship freer nations receive lower scores. The major political reforms that began in see Chapter 5 , then, appear overdue. Clearly, its political development has fallen behind its social and economic achievements. The country has now attained levels of industrialization that put it on the verge of entering the developed world; it has experienced extremely rapid Comparative Performances 73 upward mobility in world rankings on most dimensions of economic and social development; given its objective circumstances in the early s, its overall growth during —75 was far greater than would have normally been expected; and its policy performance relative to its development level has been truly exceptional in almost all areas except democratization.

    Thus, a comparative evaluation of Taiwan reinforces the conclusion that this island represents a relatively unusual case of successful pursuit of most — if not all — important values. Chapter 5 The Other Long March Taiwan has had one of the most successful economic records in the world during the post-World War II era as it has been transformed from a poor agricultural society to a thriving industrial one seemingly poised to enter the developed world.

    Political development and liberalization, while lagging well behind the impressive economic growth for most of this period, have been significant; and the democratization reforms of the late s have wrought considerable change in the previously authoritarian political system.

    Chapter 4, moreover, demonstrated that Taiwan has been an overachiever on most such desiderata in terms of its performances compared to relationships that hold cross-nationally. Taiwan in the early s seemed to be an economic and political basketcase whose very survival was dependent upon the security umbrella and large-scale economic aid provided by the United States. Yet, almost imperceptibly at first, the country began its movement toward industrialization, popular welfare, military security, and finally political liberalization. The statistical data presented in the last two chapters describe what happened but do not really provide an explanation for the The Other Long March 75 Long March on the eastern side of the Taiwan Strait.