1 A valuable survey of some of the key issues is Chi, Schive,Taiwan's Economic Role in Asia(Washington D C: The Center for Strategic and International Studies,1995). I am grateful to Professor Schive for this and for other materials. I should also like to express my appreciation for help to Joanna Bostel, Dr Peng Xiao-min of the Mainland Affairs Council and Dr Tsiang Yien-si of the Council for Agriculture. My discussants at the conference, Jeremy Mark and Professor Chen Po-chin, also provided me with helpful corrections and invaluable clues to thinking about these problems. None of the above has any responsibility for the views expressed in this article.Google Scholar

2 “Cong chuchang shengge tan Taiwan jingji texshuxing” (“A discussion of the specific characteristics of the Taiwan economy from the rise in output productivity”), Tou shi Hang ‘an sandi jingmao jiaoliu (Perspectives on Cross-Straits/Three Regions Economic Exchange) (Taipei: Baolian wenhua, 1994), p. 26.Google Scholar This issue is controversial, see Jong-Il, Kim and Lawrence J. Lau, The Sources of Economic Growth of the East Asian Newly Industrialized Countries(mimeo, Department of Economics, Stanford University,1993). However, even Kim and Lau's data show that the combined share of capital and technical progress in Taiwan (1950s–90s) was the largest of the four ANIEs.Google Scholar

3 George, W. Barclay,Colonial Development and Population in Taiwan(Princeton: Princeton University Press,1954)Google Scholar, ch. 6. Minami, Ryosaburo(ed.),Taiwan nojinko to keizai(Taiwan's Population and Economy)(Tokyo:Ajia Keizai Kenkyujo,1971).Google Scholar

4 Alice, H. Amsden “Taiwan's economic history: A case of étatism and a challenge to dependency theory,” reprinted inRobert, H. Bates(ed.), Towards a Political Economy of Development. A Rational Choice Perspective(Berkeley:University of California Press, 1988), pp. 42–175Google Scholar; Christopher, Howe,The Origins of Japanese Trade Supremacy: Development and Technology in Asia, 1540 to the Pacific War(Chicago:University of Chicago Press,1995), ch. 12. For negative views see Taiwanese works cited in Howe above and, more recentlyGoogle Scholar, remarks in Cheng-tian, Kuo,Global Competitiveness and Industrial Growth in Taiwan and the Philippines(Pittsburgh:University of Pittsburgh Press,1995).Google Scholar

5 Chi, Schive,The Foreign Factor: The Multinational's Contribution to the Economic Modernization of the Republic of China(Stanford: The Hoover Institution,1990)Google Scholar, and Schive, , “Foreign firms and structural change in Taiwan,” in Eric, D.Ramstetter(ed.), Direct Foreign B Investment in Asia's Developing Economies and Structural Change in the Asia-Pacific Region (Boulder: Westview Press, 1991), pp. 142–171.Google Scholar

6 This problem is also very important in evaluating the character of Japanese economic development, especially in the Meiji era. State activity is easily identified in the modern sector, but the evidence needed to understand agriculture and small-scale production (accounting for most of the workforce) remains much harder to identify.

7 For recent data on this sector see Zhonghua minguo bashisannian zhong-xiao qiye baibishu (The 1994 White Paper on Small and Medium Enterprises) (Taipei: Ministry of Economic Affairs, 1994).There are, however, serious definitional problems in figures quoted on this topic, since the definition of this sector has changed several times.Google Scholar

8 Susan, Greenhalgh, “Family networks in Taiwan's economic development,” inEdwin, A. Winckler and Susan Greenhalgh (eds.), Contending Approaches to the Political Economy of Taiwan(Armonk, NY: M. E. Sharpe, 1990), pp.224–245Google Scholar; Hsieh, G. S., “Boss Island”: The Subcontracting Network and Micro-Entrepreneurship in Taiwan's Development(New York: Peter Lang,1992). On the problem of fluctuations, Hsieh quotes year-to-year percentage variations in the demand for male outer garments 1973–78 as: – 3 1, –8.8, +15.5, +36.7, – 5.6 and + 93.4 respectively. The more general economic significance of flexibleGoogle Scholarnetworked, networked industrialization is discussed inMichael, J. Piore and Charles F. Sabel,The Second Industrial Divide: Possibilities for Prosperity(New York: Basic Books,1984).Google Scholar

9 Chen-tian Kuo, Global Competitiveness, ch. 6. The weakness of Kuo's case is that he places too much emphasis on organizational factors. The significance of these needs to be related to underlying comparative advantage determined by resource endowment. However skilfully devised, organization can only have limited influence on the history of an industry where conventional forms of comparative resource advantage are being lost. But organizational factors will be crucial in the early stages of technology transfer and in reinforcing the capacity to exploit conventional competitive advantage. Orthodox analysis since Adam Smith has predicted that trade associations will be more concerned with distribution than production. An important modern version of this view is to be found in Mancur, Olsen,The Rise and Decline of Nations: Economic Growth, Inflation, and Social Rigidities(New Haven: Yale University Press,1982).Google Scholar

10 Howe, The Origins of Japanese Trade Supremacy, chs. 7–8.Google Scholar

11 Charles F. Sabel, “Learning by monitoring. The institutions of economic development,” in Lloyd, RodwinandDonald, A. Schon(eds.),Rethinking the Development Experience. Essays Provoked by the Work of Albert O. Hirschman(Washington, D.C.:The Brookings Institution,1994)Google Scholar, pp.231–274; Michael, L. Gerlach,Alliance Capitalism. The Social Organization of Japanese Business(Berkeley:University of California Press,1992); Chen-tian Kuo, Global Competitiveness. On the Japanese system, many others have written on the same or closely allied themes including Mark Fruin, Ronald Dore and Mari Sako.Google Scholar

12 This is discussed in the comprehensive analysis by Huff, W. G.,The Economic Growth of Singapore. Trade and Development in the Twentieth Century(Cambridge:Cambridge University Press, 1994).CrossRefGoogle Scholar

13 By 1996, Taiwan had graduated off the United States “watch” list for intellectual property right violations.

14 The Hsinchu Science Park was established in 1980 primarily to facilitate the return of entrepreneurially-minded technologists to Taiwan. It has been extraordinarily successful, and almost half the firms in it are currently owned and managed by returnees (briefing by H. Steve Hsieh, Park Director-General).

15 Male unemployment reached its lowest level of 1.11% as early as 1980. It then rose above 2%, falling below that figure again in 1987.Monthly Bulletin of Manpower Statistics Taiwan Area(Taipei: DGBAS, January 1996), pp. 5–6.Google Scholar

16 There is nothing intrinsically amiss in a situation where savings exceeds investment, domestic consumption is less than production and the difference is reflected in the trade balance. The problem arises if there are no satisfactory ways of exporting the surplus, in which case the effects tend to be inflationary and may lead to a rise in the value of the domestic currency that “hollows out” productive activity and feeds speculative internal investment. If the surplus is recycled productively (in FDI, aid or other flows) then the capital-exporting economy is performing a valuable international function, such as that performed by Britain in the 19th century, America for some of the 20th and Japan now.

17 These issues are discussed in Schive, Taiwan's Economic Role in Asia, ch. 3 and in Tzong-shian, Yu,Economic Development in Transition - The Case of Taiwan, Discussion Paper Series No. 9303 (Taipei: Chung-Hua Institution for Economic Research, 1993).Google Scholar

18 Tou shi liang'an sandi jingmao jiaoliu, pp. 40–41Google Scholar;Rong-I, Wu, “New vigour in trade activity,“Free China Review, Vol.38, No. 10(October 1987), pp.27–29.Google Scholar

19 Schive, Taiwan's Economic Role in East Asia, p. 79.citationGoogle Scholar

20 Taiwan's Small and Medium Sized Finns Direct Investment in Southeast Asia (Taipei: Chung-Hua Institution for Economic Research, 1995); “Duiwai touzi” (foreign investment) in Jingji qianzhan (Economic Outlook), No. 40 (July 1995), pp. 26–49.Google Scholar

21 On the heavy dependence on Taiwan for both machinery and other inputs see materials cited in Chin Chung, ‘Taiwan's DFI in mainland China: impact on the domestic and host economies,” in Thomas, P. Lyons and Victor, Nee(eds.), The Economic Transformation of South China. Reform and Development in the Post-Mao Era(Ithaca, NY: Cornell University East Asia Program,1994), pp.215–242Google Scholar, and inChen Po-chih, “Taiwan's trade and investment in China” (mimeo, Taipei, 1995). In Malaysia, Taiwanese computer assemblers and cathode ray manufacturers are networked to Japanese and American semi-conductor manufacturers and to Malaysian suppliers of plastics, cables and simple metal components. See, Chung-Hua Institution for Economic Research, Taiwan's Small and Medium Sized Firms Direct Investment in Southeast Asia, p. 415.Google Scholar

22 These comments and further details below are drawn mainly from Technology Support Institutions and Policy Priorities for Industrial Development in Taiwan, ROC (Taipei: Chung-Hua Institution for Economic Research, 1995); Bashininiandu chanye jishu fazhan gaiyao (The Outline Development Plan for Technology, 1993) (Taipei: Ministry of Economic Affairs, Office for Technology, 1994); National Science Council Review (Taipei: National Science Council, various years).Google Scholar

23 The history of the Notebook Alliance is described in Technology Support Institutions and Policy Priorities for Industrial Development in Taiwan, ROC, pp. 173–188. The Power PC case is analysed in John Mathews and Teresa Shuk-ching Poon, ‘Technological up-grading through alliance formation: the case of Taiwan's new PC consortium,” Industry of Free China, December 1995, pp. 43–57.Google Scholar

24 “High-tech firms lead charge. Taiwanese pour cash into US,” Hong Kong Standard, 14 February 1996. According to this article, there are 2,700 Taiwanese firms invested in the United States, over half of them in California, where they can get access to technology and skilled manpower not available in Taiwan. On the rationale for foreign investment in Taiwan see “Philips shows confidence in local branch,” The China Post, 27 April 1996.

25 Technology Support Institutions and Policy Priorities for Industrial Development in Taiwan, ROC, p. 39.

26 Ibid.. p. 47.

27 Japan, for example, is only just in balance on its technology trade (defined here as the balance of payments for technology, not the balance of technology intensive goods). It has large net imports from the United States, and net exports to Asian and other middle ranking economies. Kagaku gijutsu hakusho: sengo gojunen kagaku gijitsu 1995 (The 1995 Science and Technology White Paper: 50 Years of Post War Science and Technology) (Tokyo: Okurasho, 1995), appendix tables.Google Scholar

28 In 1995, the deficit was $17.1 billion, up 17.4% on 1994. “Record year for foreign trade”,The Free China Journal, 12January 1996. In 1993,84% of Japanese exports to Japan were classified as “heavy industry” with IT and vehicles being the most prominent items. 1994 Tsttsho hakusho-kakuron {White Paper on Foreign Trade, Country Annex 1994), pp. 290–96.

29 Data on the changing trade pattern and its skill and factor contents are provided in an important article by Wang Ming-hui, ‘Taiwan maoyi wanglao de qushi yanjiu” (“Research in the trends of Taiwan's trade network”), Taiwan yinhangjikan (Bank of Taiwan Quarterly), Vol. 46, No. 2, pp. 154–182.Google Scholar

30 See discussion inShao, Pei-jun, “Liang'an jingmao guanxi zhi xiankuang ji zhanwang” (“The situation and prospects for cross-Strait trade and economic relations”), Taiwan jingji jinrongyuekan (Taiwan Economic and Financial Monthly), Vol.31, No. 3 (March 1995), pp. 54–63Google Scholar; Lin, Li-jun, “Dui dalu jingmao wenti zhi yanjiu” (“Research on mainland trade problems”), Zhongguo dalu yanjiu (China Mainland Research), Vol. 39, No. 2 (February 1996), pp.24–35Google Scholar; Liang'an jingji tongji yuebao (Cross-Strait Economic Statistics Monthly) (Taipei: Mainland Affairs Council, No. 41, January 1996).Google Scholar

31 Liang'an jingji tongji yuebao, No. 41 (January 1996), p. 29. The likely accuracy of these data is supported by the point that Jiangsu and the Shanghai region would be a natural location for the more skill intensive forms of investment. For evidence of the growing interest and informational infrastructure for Taiwanese investment in this region see Taiwan daobao, April 1996.Google Scholar

32 Data as Table 7.

33 Briefing from an OED/ODM computer manufacturer at the Hsinchu Park. At the time of the briefing, this firm was operating its PRC plant at only 45% of capacity, effectively holding the rest in reserve. The overall level of capital utilization in Taiwan manufacturing is normally about 80%. Taiwan jingqi zhibiao (Business Indicators) (Taipei: Executive Yuan, January 1996), pp. 3–12.Google Scholar

34 “Economy officially slips into recession territory,” The Free China Journal, 29 December 1995. This is based on trends in leading indicators published in Taiwan jingqi zhibiao.

35 Zhonghua minguo bashisannian zhong -xiao qiye baibishu, p. 418

36 Data on long-run employment trends are in Monthly Bulletin of Manpower Statistics Taiwan Area. According to this source the unemployment rate was as low as 1.4% in 1995 but had risen to 2.37% by March 1996. “Jobless rate highest in nine years. Shutdowns, layoffs on the rise,” The China Post, 24 April 1996.

37 This problem has its parallel in Hong Kong where the combination of successful growth of the financial and services sector and industrial relocation is leaving a transitional problem of declining economic growth, rising unemployment and worsening distribution of income.

38 The share of agriculture in Taiwan's total exports declined from 62.4% in 1961 to 4.8% in 1993. The Council for Agriculture, Nongye zhengce baibishu (White Paper on Agriculture) (Taipei: The Council for Agriculture, 1995), p. 20; Tru-gin, Liu,Income Inequality in the Rural Areas of Taiwan during the Transitional Period of 1978–1987, unpublished D.Phil, thesis, University of Oxford,1992.Google Scholar

39 This experience has close parallels in U.S.-Japanese relations.

40 Sung Ming-hsien, “Agricultural development and challenges” and Osman Tseng, ‘Tobacco and wine monopoly faces pressure from GATT,“ Business Taiwan, 20–26 June 1994.Google Scholar

41 The Ministry of Finance and Central Bank introduced a new package of regulatory measures in December 1995, but this was described by one local critic as ”basically a short term measure … and offers neither a long term perspective or a fundamental solution.” South China Morning Post, 29 December 1995.

42 “Airport bidding scandal widens. Top gangster, businessman arrested,” The China Post, 24 April 1996.Google Scholar

43 It is remarkable that because of its relatively advanced level of development and its central geographical location, the Japanese planned just such a central service role for Taiwan in their strategy for the Asia-Pacific 60 years ago. See Japanese sources cited in Howe, The Origins of Japanese Trade Supremacy, p. 360.

44 Taiwanese sources suggest that Hong Kong will soon have controlled media and, since the Singaporean media are already a government instrument, Taiwan could develop one of the freest media environments in Asia to support its service sector development. But while there are anxieties that parts of the Hong Kong media may become more self-censuring after 1997, on present performance, it would still take change of major proportions to enable the domestic English language Taiwanese press to catch up with Hong Kong in coverage, liveliness and independence.

45 Under the traditional three-generation household system, the old, especially women, were cared for by daughters-in-law. As the daughters-in-law typically now have careers and heavy pressures of their own, this no longer works. Current Taiwanese policies for the old have not yet reflected this change. See, Chou Yah-jong and Hu Yow-hwey, “Social change and inter-generational relationships in Taiwan,” in William Liu (ed.), The Family and Human Values in the 21st Century(forthcoming).Google Scholar

46 The DPP plays upon all the sensitive economic notes in its campaign literature. Particularly impressive is its study of the small and medium firm problem. Zhong-xiao, qiye. Taiwan jingji de mingmai (Medium and Small Enterprises. The Lifeblood of the Taiwan Economy)(Taipei, October1995). The fact that a woman stood as a vice-presidential candidate in the election gave notice of an important social and economic trend for the future.Google Scholar

47 Amartya, Sen, Economic Development and Social Change: India and China in Comparative Perspectives(London:London School of Economics, STICERD Discussion Paper Series No. 67,1995). Although mainly concerned with this debate as it affects countries at much lower levels of development than Taiwan, much of the argument in this paper is still relevant.Google Scholar

48 Businessmen's expectations may be measured by asking appropriate samples whether they think conditions in various respects are improving, deteriorating or stable. The answers are then summed to give a balance of optimism or pessimism. The theory of this methodology was developed by the Dutch econometrician Henri Theil, and although simple in method, konjunkturtest results can be used to make accurate predictions of actual trends and the method is, of course, far faster than waiting for the collection and processing of actual statistics. Indeed, in Britain, it was found that a konjunkturtest could predict investment trends in three weeks at a time when official data were nearly two years out of date.

49 Based on data in Taiwan jingqi zhibiao, January 1996; ‘Taiwan lowers GDP forecasts. Cross-Strait row squeezes growth,” South China Morning Post, 16 February 1996.Google Scholar

50 “Words and weapons batter index,” South China Morning Post, 16 February 1996; “Taiwan kabushiki shijo ni gaikoku money modoru” (“Foreign money returns to the Taiwan stock market”), Nihon keizai shimbun, 24 April 1996. During the crisis, both the stock and property markets were stabilized with special government funds.Google Scholar

51 “Tensions with Taipei ‘have affected trade’,” Sunday Hong Kong Standard, 10 March 1996.Google Scholar

52 “China-Taiwan crisis exposes ‘Asia'scoreinstability’,” Sunday HongKong Standard, 10 March 1996.M

53 This difference was apparent in discussion at a conference at the Chung-hua Institute in April 1996. MOEA, Dalu jingji fazhan yantaohui (Conference on Mainland Economic Development) (Taipei, 1996).MGoogle Scholar

54 According to official PRC data, the success rate of technology contracts is only 25%, because parties cannot agree on prices. Li Baoshan and Su Weiwen, “Jishu shichangzhong jishu jiaoyi tedian ji qi jiage queding” (“The characteristics of exchange and price determination in technology markets”), Zhongguo gongye jingji (China Industrial Economy), No. 7 (1995), pp. 41–15.

55 The nine are: monitors, handheld and desktop scanners, PCs, network cards, motherboards, power suppliers, graphic cards, and keyboards.