View metadata, citation and similar papers at core.ac.uk brought to you by CORE provided by IDS OpenDocs Dirigisme Taiwan-Style' Robert Wade There isa popular image of Taiwan as a close consistent with the way the government has in practice approximation to a free market economy. Indeed it is behaved. often held up as living proof that the basic prescription of neoclassical economics is sound not only for The government has adopted over a long period of advanced industrial countries but also for countries en time a much more aggressive set of industrial policies roule to that status.Private initiativeisalways than free trading principles would justify. It has been preferred to public, the state is kept firmly in its place. anticipating, rather than simply reacting to, changes in The chief characteristic, and the chief glory of this Taiwan's international competitive position. And it arrangement is the absence of any directional thrust has been selecting between industries and specific imposed by the authority of government. Rather, products in giving substantial incentives. market forces produce the important economic * * * decisions, while the government merely registers them. Industrialisation proceeds by virtue of the sum of the Taketheanticipationpointfirst.Theusual autonomous decisions made by each producer. interpretation says that the push into heavy and chemical industries dates from the early 1970s, after More precisely, the argument for Taiwan is that the and in response to rising real wages, competition from government did meddle in the economy during the other NICs, and rising protectionist barriers in export 1950s imposing all the familiar battery of controls markets. In the words of Samuel Ho, a leading expert and regulations which accompany a strategy of on Taiwan's development: 'import substitution'. Since the late l950s it has been Withprotectionistsentimentsrisinginthe progressively withdrawing, progressively widening the developed countries, continued rapid expansion of room for untrammeled market forces. And progressive the light manufactured exports on which Korea's liberalisation has gone hand in hand with rapid and Taiwan's industrial growth had been based economic progress. It is above all the throwing open of appeared problematic. Rising wages in Korea and the economy to international markets in the early Taiwan also suggested that their comparative 1960s which set in motion the relentless drive for advantage was shifting away from the semi-skilled, efficiencyinresource allocation whichinturn labour-intensive industries that grew so rapidly in produced rapid growth. Other countries are advised to the l960s. To policy-makers in both countries, learn the same lesson. these changes in external and internal conditions Such is the economic legend. It is by no means wholly suggested a need to restructure the industrial false.Anditiscertainlythecasethatthe sector. overwhelming majority of Taiwan's academic and Accordingly: government economists since the 1960s have believed in the virtues of the freely functioning market as an In both Korea and Taiwan, the economic plans article of faith as well as of rhetoric. Yet it is not fully that emerged in the mid-1970s (Taiwan's Seventh This article is a condensed version of part of the argument of a Plan for 1976-81 . .) reflected these concerns. forthcoming book, Guiding the Market: Taivanese industrial polict'. Planners advocated a move away from the labour- As well as saying much more about the policies that have been intensive industries.. .This new direction of followed, the book discusses the institutions involved n guiding the industrialisation [towards heavy and chemical, as market, and theencompassing political institutionsandattitudes Ji wellas was also considers how the interpretation of the role of government technology-intensiveindustries] given here fits with the three prevailing interpretations of how mapped out in the mid-1970s, shortly after the first Taiwan did it' lsee also Wade 1982]. oil crisis ... [Ho 1981; 1,179-81]. IDS So/leim, 19/14. vol5 ni, 2, tnsiiiuic of Development Studies. Susvox 65 This is the 'reactive' view of how it happened. In fact, export of labour-intensive manufactures boomed all however, the move into heavy and chemical industries around them. was planned long before the early 1970s. The 1965-68 Plan is emphatic that: For further development, stress must be laid on basic heavy industries (such as chemical wood pulp, petrochemical intermediates, and large-scale What methods have been used to pursue the strategy integrated steel production) instead of end product of secondary import substitution and new export manufacturing or processing. Industrial develop- promotion? In particular, how much selection have ment in the long run must be centred on export government officials made between industries and products that have high income elasticity and low specific products; and how much discretion have they transportation costs. And around these products exercised on a case-by-case basis? It needs to be there should be development of both forward and recalled that of all the prescriptions of neoclassical backward industries, so that both specialisation economics, that which says that government officials and complementarity may be achieved in the shouldnotattempttoexerciseselectiveand interest of Taiwan's economy. discretionary judgement on such matters is one of the sternest. If this is done: We shall then be able to meet the changing Take first the trade regime. For all the characterisation situation in the world market brought about by the of Taiwan as a free trade economy, the government rapid industrial progress of the emerging nations has not allowed the use of foreign exchange, the and the growing sophistication of the industries of composition of imports, to be decided by domestic the developed countries [Government of Republic demand in relation to prices set outside Taiwan. It has of China 1965:122, 124]. influenced the volume and composition of imports by a combination of very selective controls on trade, both These arguments were formulated in 1962-64, several (non-discretionary) tariffs and (discretionary) quanti- years before the end of labour surplus (conventionally tative controls. It must be stressed that the reason for put at1968-70),stilllonger before protectionist the elaborate apparatus of trade management is not to barriers began to rise, and more than 11 years before save scarce foreign exchange. Taiwan is in the unusual the Plan to which Ho attributes the first expression of position of having run balance of payments surpluses restructuring concerns. in most years since 1970, and the foreign exchange gap has not been a serious preoccupation of the planners The first ha/f of the 1960s saw the rapid establishment since the late 1960s (in sharp contrast to South Korea). of a petrochemical industry on the island; by 1980 The main objective has been to build up technological Taiwan was the fourth biggest producer of synthetic and supply capability within Taiwan, secondly to use fibres in the world. The government took the leading trade as a substitute for diplomatic relations now that roleinpromotingthesteelandshipbuilding the country has been diplomatically isolated by industries, from the early l960s onwards. The first Mainland China, and thirdly to raise government nuclear reactor was started in 1968, and came on revenue (nearly a quarter of total taxes came from stream in 1976 in time to help the country recover from tariffs in the late 1970s). the firstoil shock and weather the second. The government establisheda number of industrial Government officials are required to exercise a high research and serviceorganisationstopromote degree of selectivity in setting tariff rates. The tariff technological and managerial upgrading in specific regime is extremely differentiated by product, with sectors; such as the Metal Industries Development tariffs ranging from zero to well over 100 per cent. It is Centre, established in 1963 to demonstrate improved quite inconsistent with the two-tier structure recently production and quality control methods and to recommended by some neoclassical theorists for provide management training courses; and the China developing countries; a 10-15 per cent unitirm rate of Data Processing Centre, established to push the effective protection for all manufacturing activities introduction of computers in Taiwanese industries, in other than the infant industries, which should get a 1965.Other government sponsored and guided uniform rate no more than double the normal rate research and service organisations were established [eg Balassa 1975]. Published tariffs are not an accurate for chemicals, mining, energy, glass, textiles and food guide to the rates a potential importer must pay; for processing. All this activity was part of the foundation the basis of import valuation for tariff purposes is the for what the engineers of the Industrial Development cif price plus 10 per cent (down from 15 per cent prior Bureau unabashedly call 'the second era of import to 1983, and 20 per cent before 1979) pIus one or two substitution industrial development' [1982:1], which other charges. The average ad valorem tariff on they already anticipated during the 1960s even as the dutiable imports in 1977 was about 20 per cent. 66 Quantitative import controls provide a more subtle traders get the windfalls); and restrictions on where and flexible instrument than tariffs. For the most the imports can come