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Ann Arbor, MI 48106 ECONOMIC DEVELOPMENT STRATEGIES AND POLICIES IN POST-WAR TAIWAN DISSERTATION Presented in Partial Fulfillment of the Requirements for the Degree of Doctor of Philosophy in the Graduate School of the Ohio State University By Hsiaofen Hemstock, B.A., M.A. ***** The Ohio State University 1990 Dissertation Committee; Approved by Dr. William Liddle Dr. David Pion-Berlin Dr. Tetsunori Koizumi Adviser Department of Political Science Copyright by Hsiaofen Hemstock 199Ù To My Parents, Mother-in-law, Husband, and Son VITA October 15, 1959 ................ Born - Kaohsiung, Taiwan, Republic of China 1983 ............................ B.A., National Chengchi University, Taipei, Taiwan 1989 ............................ M.A., The Ohio State University, Columbus, Ohio 1989-Present ................... Ph.D. Candidate, The Ohio State University, Columbus, Ohio FIELDS OF STUDY Major Field: Political Science Studies in (a) Comparative Politics Subfields: Politics of the Developing World ; Politics of the Communist World (b) International Relations Subfields: International Political Economy 11 TABLE OF CONTENTS VITA ...................................................... ii LIST OF TABLES ............................................. v LIST OF FIGURES ........................................... vi CHAPTER I: INTRODUCTION ................................... 1 The Topic and a Review of the Theoretical Framework of the Study ................... 1 The Approach and Organization of the Study .................................... 10 The Outline of Each Development Period Studied .................................. 19 CHAPTER II: THE JAPANESE COLONIAL PERIOD ................ 27 CHAPTER III: THE PRIMARY IMPORT-SUBSTITUTION PERIOD ..... 49 Outline of Chapter III .................... 49 A General Description of the Internal and External Environments in the Primary Import-Substitution Period .............. 51 The 1949-53 Land Reform Program .......... 65 The Anti-inflation Policy ................. 92 The Import-Substitution Policy............ 100 Conclusion ................................ 113 CHAPTER IV: THE PRIMARY EXPORT-PROMOTION PERIOD ....... 117 Outline of Chapter IV .................... 117 A General Description of the Internal and iii External Environments in the Primary Export-Promotion Period ................ 120 1958-1960 Economic Reform ................ 129 a. the Encouragement of Private Enterprises .......................... 139 b. the Liberalization of the Foreign Investment Climate .................. 149 The Establishment of Export Processing zones ................................... 163 The decentralized Industrialization Policy .................................. 184 Conclusion ................................ 198 CHAPTER V: THE SECONDARY IMPORT- AND EXPORT-SUBSTITUTION PERIOD ........................................ 202 Outline of Chapte V ...................... 202 A General Description of the Internal and External Environments in the Secondary Import- and Export-Substitution Period .................................. 205 The Ten Basic Construction Projects ..... 239 Trade and International Investment Policies ................................ 247 a. Trade policies .................... 247 b. International Investment Policies ........................... 275 The Second Land Reform ................... 291 Conclusion ................................ 304 CHAPTER VI: CONCLUSION .................................. 309 BIBLIOGRAPHY ............................................. 351 IV LIST OF TABLES TABLE PAGE 1. Comparison of Approved Non-Chinese Foreign Investment Between the Import-aubstitution and the Export-substitution Periods ............. 155 2. Approved Investment in Kaohsiung EPZ at the End of January 1970..... .......................... 168 3. Foreign Technology Participation Between Foreign and Domestic Exporting Firms, 1972 ...... 174 4. Workers Employed in Taiwan's EPZs (1967-1984) ...................................... 177 5. Contribution to Exports of Foreign and Domestic Firms, by Industry and Source, 1974 and 1980 .................................... 181 6. The Distribution of Women Workers and the Ratios of Women Workers to the Total Employed Across Various Industries ....................... 196 7. Distribution of Industrial Production by Ownership (Based on Value Added at 1981 Prices) ........................................... 232 8. Trade Dependency Ratio of Taiwan, 1952-1985 (%) .................................... 248 9. Time Table, Planned by the Council for Economic Planning and Development, to Reduce Tariffs ..... 255 LIST OF FIGURES FIGURES PAGE 1. Outline of the Primary Import-substitution Period ............................................ 48 2. Outline of the Primary Export-promotion Period ........................................... 117 3. Outline of the Secondary Import- and Export- substitution Period ............................. 202 VI CHAPTER I INTRODUCTION The Topic and a Review of the Theoretical Framework of the S-tu.dy.-‘ Since the end of World War II, the topic of finding factors within the newly independent countries that would facilitate or inhibit their development has attracted the attention of social scientists from different perspectives, ranging from orthodox economists to radical dependency theorists. In the 1950s and 1960s many American social scientists tried to study this from a "modernization" approach. However, their image of modernity was generally derived from the example of the developed countries. Thus, their arguments and suggestions were not of much use to the leaders of the less developed countries (LDCs). In response to this, some scholars in Latin America tried to use the dependency approach to explain the reasons for persistent underdevelopment in their countries. In general, they tended to emphasize the power of the international capitalists from the core countries in shaping the behavior of the states and class stru -tures in developing countries, thereby dismissing the internal origins of their interactions. 2 The industrialization of some Latin American and East Asian newly industrializing countries (NICs) has generated a new wave of revisionist dependency writing, called the "dependent development" approach. In response to the excessive focus on the external variables of the classic dependency theory, one of the main arguments of the dependent development approach is that central to a change in the political balance in the development process of a given Third World country is the growth of a stronger local state apparatus. Thus, Peter B. Evans (1979; 11) asserts "if classic dependence was associated with a weak state, dependent development is associated with the strengthening of strong states in the 'semiperiphery'. The consolidation of state power may even be considered a prerequisite of dependent development." Suddenly, the statist approach becomes fashionable among scholars of the political economy of the Third World. Under the framework of the statist approach, scholars in the field of Third World development have begun to search for interesting cases of state-managed mixed economies. At this juncture, the four East Asian NICs — Taiwan, South Korea, Singapore, and Hong Kong -- are experiencing unprecedented growth. Their combined current account surplus reached about $30 billion in 1987, as compared with $39 billion for the European community (Housego, 1988: I). Thus, David Housego predicts that by the year 2000, East 3 Asian economies will have a joint national product greater than Europe's and as big as North America's. Moreover, the four East Asian NICs have high growth rates of real income and real consumption per capita and low inflation and unemployment rates. Under the influence of the statist