Transcript PPT on the 1960s and 1970s

Continued from Last Week
Review of Last Class on Taiwan during the 1960s and 1970s
US Aid ended in 1965. US advisors were adamant about shifting the economy to a more private basis,
but Chinese planners only partially yielded. The US presented ROC government with 8-point plan in
1959 to move the private economy forward.
Taiwan responded with its own 19 point program in 1960 that extended this US plan, including in it
such things as -- encouraging saving and investment, establishing a capital market (i.e. stock and bond
markets), privatizing SOEs, rationalizing utility rates (especially electricity), establishing a central bank,
liberalizing exchange rates and trade regulations, and holding down military expenditures.
Taiwan was already trying to lift its investment on the island through the passage of the Statute for
their Encouragement of Investment (passed 1960 and revised in 1965). This was a monumental law
designed to speed manufacturing and industrialization. It was aimed at manufacturing, handicraft,
transportation, and public utility enterprises. An English copy of the law can be found here. The Statute
is very famous and is now considered highly successful.
Taiwan witnessed 12 major industries arising during the 1960s and 1970s – some were labor intensive,
some were capital intensive, and some were of balanced intensity.
The Taiwan government decided to support good SOEs in order to quickly build the industrial strength of
the economy. These were some of the firms left by the Japanese in 1945. The Ministry of Economic Affairs
took charge of running and supervising these SOEs. Some of these SOEs continue today in one form or
another. The MOEA today remains in complete control of Taiwan Power, China Petrochemical Corporation,
Taiwan Water, and the Aerospace Industrial Development Corporation.
The MOEA is also directly invested in five large scale and important corporations, including the China Steel
Corporation, the Taiwan Salt Industrial Corporation, the Tang Eng Iron Works Co., Ltd., CSBC Corporation,
Taiwan, and the China Engine Corporation.
The MOEA is also reinvested funds in numerous corporations. For example, Taiwan Power, Taiwan Sugar,
and CPC are completely owned by MOEA, but these corporations in turn own shares in the Taiwan Stock
Exchange. This is just one example. A complete listing can be obtained at the following link
http://www.sec.gov.tw/English/index.asp
Many of the banks remained government owned until 1998 when the Taiwan Provincial Government was
eliminated and shares in the banks were sold. However, the full privatization of these banks remains
problematic and murky.
In 1965 an export processing zone was set up in Kaohsiung. This was successful and led to foreign
investment in Taiwan. Additional EPZs were set up
During the 1970s and until 1984 Morris Chang, who later founded the highly successful TSMC in Taiwan
during 1987, was Group Vice President at Texas Instruments and was responsible for worldwide
semiconductor business. An important step in elevating Taiwan’s stature in the electronics business was
when Texas Instruments established a Taiwan subsidiary in 1969.
Taiwan has engaged in numerous four-year plans. And, during the 1970s it had two major development
plans (10 major projects in 1973 and 12 major projects in 1978). These two combined to produce social
capital and significant infrastructure for Taiwan to develop. In particular, the north-south highway was
completed (1978), the first nuclear power plant was completed (1979), and the Western rail line was
completed (1979). There are three nuclear power plants currently operating in Taiwan. The fourth has
been put on hold.
What is an export processing zone?
Export Processing Zone
In December 1966, Taiwan integrated the functions of a free trade area, duty-free zone, and industrial park to create its first export processing zone (EPZ)—the
Kaohsiung (Cianjhen) Export Processing Zone. The zone succeeded in attracting foreign capital and technology to vigorously drive Taiwan's economy and
industry forward, setting a historical precedent for Taiwan and providing an innovative economic development model for the world.
The Kaohsiung EPZ was subsequently joined by the Nantze and Taichung EPZs. As demand outstripped the supply of space at the three EPZs, the government
began in 1997 to successively develop the Linkuang, Chungkang and Pingtung EPZs, and the Chengkung Logistics Park. It has also recently added the Softwarebased Technology Park to stimulate development of the software industry in southern Taiwan. Over the years, the EPZs have undergone several
transformations. EPZ operations have shifted from labor-intensive traditional industries to technology- and capital-intensive high-tech industries. At the same
time, the principal role of the Export Processing Zone Administration (EPZA) has evolved from administration to service. Taiwan's EPZs are also continuously
improving their business environments through the renovation of older factory buildings, environmental greening and beautification, and enhancement of
transportation networks and daily life amenities. They also offer an innovative first single-window and dedicated officer service mechanism, as well as highly
efficient customs clearance procedures. For over 45 years, the EPZA has taken a "customer first" approach to service, creating an optimal business
environment for EPZ enterprises to maximize their competitive edge, add value and achieve high profitability.
EPZ enterprises are known for their command of core technology and commitment to R&D. Many have also integrated trade, warehousing, distribution,
marketing and financial operations to upgrade as international operation headquarters. Today, Taiwan's EPZs are home to numerous internationally known
enterprises, such as ASE Inc., NXP Semiconductors, Kaohsiung Hitachi Electronics, United Radiant Technology Corp, Canon, Asia Optical, Wintek, Nippon
Electric Glass, and LG Chem.
Moving forward, Taiwan's EPZs will continue to evolve as lightly regulated, customer-directed, and high-quality "economic added-value" zones. Through
constant service innovation and steady competitive gains, we are transforming from a chrysalis into a butterfly to help your company take wing in the global
economy.
What is an Industrial Park?
Industrial Parks
Industrial parks are usually located on the edges of the main residential area of a city, and normally
provided with good transportation access, including road and rail. Industrial parks are usually located
close to transport facilities, especially where more than one transport modes coincide, including
highways, railroads, airports and ports. This idea of setting land aside through this type of zoning is
based on several concepts: (1) To be able to concentrate dedicated infrastructure in a delimited area to
reduce the per-business expense of that infrastructure. Such infrastructure includes roadways, railroad
sidings, ports, high-power electric supplies (often including three-phase electric power), high-end
communications cables, large-volume water supplies, and high-volume gas lines. (2) To be able to attract
new business by providing an integrated infrastructure in one location. (3) To ensure eligibility of
benefits. (4) To set aside industrial uses from urban areas to try to reduce the environmental and social
impact of the industrial uses. (5) To provide for localized environmental controls that are specific to the
needs of an industrial area.
However, different industrial parks fulfill these criteria to differing degrees. Many small communities
have established industrial parks with only access to a nearby highway, and with only the basic utilities
and roadways. Public transportation options may be limited or non-existent. There may be few or no
special environmental safeguards.
We also looked at some interesting data from the period 1960-1980 – Here are some graphs.
The Other Face of Economic Development
Here is a short blurb from 2012 CommonWeath magazine about the concentration of equity
wealth in Taiwan. Much of this can be dated back to the 1950s and 1960s and Taiwan’s miracle
growth story. Even with land reform the concentration of wealth in Taiwan is astounding.
However, we need to hold back on the natural temptation to make blanket normative
judgments here....I will discuss this in class.
“The latest CommonWealth Magazine statistics show that Taiwan's top ten business families
control 13 of the island's financial groups and business conglomerates. The 77 companies –
listed or traded over the counter (OTC) – under these business groups account for only 5
percent of the total number of listed and OTC companies, yet their combined market value
exceeds NT$6 trillion, accounting for 25.7 percent of the stock market's total market value.
Overall, the conglomerates held by these ten business clans are mainly active in finance, basic
infrastructure and the conventional industries. In other words, the money that ordinary
citizens spend on their basic needs, such as food, clothing, housing, transportation and even
leisure and entertainment, lines the pockets of these family conglomerates.”
CSBC Taiwan
Some Students were asking about China
Shipbuilding Corporation – Here is some info
along with China Steel and CPC Corp.
http://www.csbcnet.com.tw/CSBC/EN/InvestorRelations/ir1.aspx
Class Discussion of Dani
Rodrick’s Paper -- his paper in
pdf form is available on our
class webpage
Granger Causality Results for Investment/GDP and Openness
The quarterly data is from DGBAS as of March 2015 and begins 1961 Q1
Here is the link -- http://statdb.dgbas.gov.tw/pxweb/dialog/statfile1L.asp?lang=1&strList=L
Here is a simple statistical analysis of two determinants of growth – openness and trade surplus