Saturday, April 05, 2008

Why the economy won’t get better

As a foreigner living in Taiwan, I have often wondered how people could believe the Chinese Nationalist Party (KMT) propaganda that the Taiwanese economy was in the doldrums and that somehow this should be blamed on the Democratic Progressive Party (DPP) “mismanaging” the economy.

While I am not even remotely an economist, I know enough that 6.07 percent GDP growth in 2004 and above-4 percent GDP growth average since 2001 (at a time when most mature economies struggled to surpass the 2 percent mark) was not indicative of a struggling economy. Furthermore, as I have written before, the supposedly “high” unemployment rate in Taiwan would make people in most Western economies dance in the street.

Yet another indicator — call this one a “layman’s view” was how busy the redundant high-end shopping malls in downtown Taipei were. If the economy were in such a terrible state, people would not be buying Armani suits and expensive jewelry at Swarovski. And yet, on any given day, the malls were filled with shoppers.

This led me to investigate the matter a little more. Were the KMT claims founded? If not — and aside from electoral rhetoric — what was it that they had missed? It soon emerged that context was everything. Taiwan’s economy has matured tremendously since the booming 1980s, when its GDP growth reached 16 percent, and all the elements that allowed for that “miraculous” growth had, since the 1990s, shifted to China, which is now enjoying the benefits. The global financial situation, one that is very much anchored in the US economy, is also a principal factor that has often been overlooked by the KMT and the critics of the DPP. The terrorist attacks of Sept. 11, 2001, and sings that the US is headed for recession, have had and will have an impact on the state of Taiwan’s economy, but somehow we rarely hear about that, as if Taiwan could somehow operate outside the global economy (nothing could be falser) or that further integration into the “greater China” economy would solve everything (also false, but espoused by the KMT, as if China were not dependent on the global system).

Readers can access the full article, titled “Some economic truths for the KMT,” by clicking here.

2 comments:

InvestorBlogger Dot Com said...

Unfortunately, you failed to recognize one important consideration.

Salaries in Taiwan have stalled in recent years but prices have not. It's true that the Chen government raised the base salary but at the same time there have been a lot of other increases:

Labor Insurance
NHI Insurance
Pension Reform and Insurance
Gasoline
Rice and almost all other foods..
Interest Rates are rising, too in Taiwan.

Many local people feel they are not even 'catching up' with price inflation. And the government's CPI data is somewhat inaccurate, at least compared to what most people buy.

That's a large part of the reason people give credit to the KMT's claims.

Also, have you seen graduate entry level salaries in recent years? It's like 10% less than just a few years ago... so ...

Indeed Asset Price Inflation is now driving mortgages higher, while prices aren't crazy yet... one has the feeling that the word 'bubble' is just about on many people's lips.

So, yes, technically the economy is doing okay, but on a daily personal level, well... not so much.

If people don't feel good, they won't spend.

Kenneth

MikeinTaipei said...

Kenneth:

Thank you very much for your comments.

Although I am by no means an economist and you are in a far better position to discuss the matter, aren't all the cost increases par for the course in an economy that has matured enough to be considered developed (as opposed to developing)? From my perspective, all the items you listed (labor insurance, NHI insurance, gasoline, interest rates and so on) were — and in many instances still are — artificially low for this advanced an economy, not to mention altogether unsustainable. I am always shocked when I compare the taxes, insurance and services I paid back in Canada with what I pay here in Taiwan.

While I fully agree with you that CPI and all that are up, I disagree that these should be blamed (at least not entirely) on the DPP, or that the KMT would do any better to address people's "suffering." Maybe this is just the cost of adjustment as Taiwan completes its transition from a developing into a developed economy.