Thursday, December 18, 2008

Andrew Leonard on Taiwan vs Detroit

Taiwanophile Andrew Leonard, the Salon.com columnist, has a great piece comparing the bailouts of Detroit and Taiwan's semiconductor industries. The key observation:

Five separate memory chipmakers in Taiwan does seem like a lot, and some kind of government-brokered consolidation might not be a bad idea. But there's a context to the debate in Taiwan that is not getting enough coverage in the chip-watching trade press, and that offers a sharp contrast to how the auto-bailout is viewed in the United States.

And that is the historic role of Taiwan's government in encouraging the semiconductor industry to develop in the first place. Taiwan's status as one of the world's great hubs of high-tech manufacturing is no accident of market forces. It is the result of canny policy -- government incentives, tax breaks, and close linkages between the government and the private sector. By virtually any standard, it's been a phenomenal success. Decades ago, both government officials and private entrepreneurs realized that Taiwan's best bet to thrive in a highly competitive global economy would be go all in on high technology. The gamble worked.

Therefore, bailing out domestic chipmakers in Taiwan doesn't have to be seen in the same divisive political terms that bailouts in the United States get plugged into. There is a tradition in Taiwan of making strategic decisions for the benefit of the whole economy, and it is on that basis that one presumes the government is currently evaluating its options. In the U.S., however, the very idea of industrial policy has been so stigmatized by decades of market fundamentalist ideological domination that the only time strong intervention in the economy becomes palatable is when the economic circumstances are so dire that to do nothing is obviously more disastrous than doing something, even if there is no carefully thought out strategic blueprint to work from.

So now the U.S. is in the position of being forced to bail out an industry -- automakers -- that has consistently failed to position itself strategically vis a vis the future, while Taiwan is mulling over the benefits of helping out companies that are smack dab in the middle of the 21st century. By ruling the very concept of industrial policy out of hand, the U.S. has maneuvered itself into a quagmire where all it can do is flail about while reacting to the possibility of imminent disaster.
I'm still laughing -- what else can you do? -- at Congress, which handed Wall Street $700 billion to pass out as bonuses to its managers and to recompense wealthy and powerful clients for their losses, while balking at $15 billion for Detroit. Complaining about UAW workers making $50 an hour, but not mentioning the bloated salaries in the financial world.

It's not just that we don't have an industrial policy; we have the negative complement of an industrial policy -- gutting our industrial base while subsidizing our financial firms. And yet, during the heyday of Taiwan economic growth, the banks were not only government-owned, and the financial system was corrupt and incompetently overseen. It was the private sector supplied informal credit systems that enabled Taiwan's SMEs, the bulwark of the economy, to conduct business operations. There's a lesson in there somewhere, if only we can read it properly.

6 comments:

Micahel C said...

The GM restructure plan has pretty concrete and specific milestones and goals for the near future: reduction of models and brands, more hybrid vehicles, higher mileage, scrapping large engines, and my favorite, getting rid of Hummer. The big three has been fighting against state mandated green standard for years. For a measly 15 billion dollars (measly by comparing to the financial section’s bail out), this is a great opportunity for US government to seize the chance and force an industry transition. Too bad the Senate clearly did not agree with me.

I think too much attention is focused on those executives' bad PR. Although some of these managers are undeserving of their pays and perks, I think American society does not deserve to have millions of people becoming unemployed at this moment.

Robert said...

On a different vein:

The Davos Debates Video Contest:
http://tw.youtube.com/watch?v=-Jx53szfw-U&feature=bz303

Carlos said...

I disagree about the GM restructuring plan. First, GM assumes unreasonably high annual sales in its numbers. If car sales remain low (and they will, because people are no longer buying cars they can't afford on credit) GM will continue to lose money and the $15 billion will only keep it alive a few months.

Hybrids are great, but they're not moneymakers. They're expensive - and with people losing credit and losing jobs, what GM needs is good cars that are cheap yet still make a profit.

I think it's too late for GM (and even more too late for Chrysler), and that's why a lot of people oppose the bailout - it won't work. It's unreasonable to expect their sales to rise significantly in the next few months.

If the Taiwanese government wants to bail out companies that they expect to thrive if they can just weather the storm, that's a different story. They don't have a huge national debt yet anyway.

Anonymous said...

Oakland is notorious for failure of local gov't officals. It also has the highest crime rate in the Bay Area and the sneakiest mayor. So it doesn't surprise me that people who work for the post office there are going to be that much different. I doubt if you would see the same thing in San Francisco or Palo Alto or a myriad number of other locations in the greater Bay Area. Oakland also has a booming Cantonese Chinatown with cheaper prices than SF's Chinatown.

Thomas said...

"this is a great opportunity for US government to seize the chance and force an industry transition"

There are some big holes in your evaluation of the situation. Americans that buy small cars do so because small, fuel-efficient cars are less expensive. They don't do so for environmental reasons.

As the pricetag is the issue, we must consider the reasons why small foreign cars dominate the domestic small car market. Sure, there is the perception of quality, but, more important, small foreign cars sold in the US are consistently priced cheaper than small domestic cars. As a result, the Big 3 have been losing money on their small domestic cars for years.

Why are small foreign cars cheaper? Because the good-old UAW won't agree to have its workers make what workers in foreign car plants on US soil do. So the Big 3 can't price their small cars as competitively as Toyota, Honda, et al.

The bailout would lay a framework for the Big 3 to make more small, eco-friendly cars but would not force any restrictions on the salaries of workers. So what the bailout plan would actually do is force the Big 3 to make small cars that are already culturally outside of the preferences of US consumers at prices that are still above what foreign manufacturers charge. Those who see this as a great opportunity to re-orient the US car industry fail to consider the very-important cooperation of consumers in the matter.

Whether the bailout is "measly" or not, the issue is that there are major doubts that it can do what the Big 3 and many Democratic Congressmen say that it will do. A bailout that does not save the industry would just be made up of wasted money.

The heart of the problem is the UAW along with an industry that has grown used to having its cake and eating it too. It is a rickety industry that does not conform itself to international and domestic market realities. I say Chrysler should at least be allowed to fail. Maybe THIS would convince the other two that they NEED to clean up their act while putting the fear of the Lord in the UAW and the workers it represents.

This all is indeed a far-cry from the situation of Taiwan's high-tech enterprises. Consolidation may be needed, but we are not talking about an entire industry that has been mismanaged and is being thrown a lifeline to prolong mistakes of the past or create new mistakes in the present.

Readin said...

I'm still laughing -- what else can you do? -- at Congress, which handed Wall Street $700 billion to pass out as bonuses to its managers and to recompense wealthy and powerful clients for their losses, while balking at $15 billion for Detroit. Complaining about UAW workers making $50 an hour, but not mentioning the bloated salaries in the financial world.

It's not just that we don't have an industrial policy; we have the negative complement of an industrial policy -- gutting our industrial base while subsidizing our financial firms. And yet, during the heyday of Taiwan economic growth, the banks were not only government-owned, and the financial system was corrupt and incompetently overseen. It was the private sector supplied informal credit systems that enabled Taiwan's SMEs, the bulwark of the economy, to conduct business operations. There's a lesson in there somewhere, if only we can read it properly.

You're really starting to sound like a conservative now!

I hope Obama is listening.