Even though it is questionable whether the "cost-down" mentality or even "sweatshop" management practices, which were fostered during four decades of KMT-imposed martial law rule, have truly left Taiwan, it is indeed critical to Taiwan's economic future to block a "return immigration" of the draconian factory management and low wages and "cost - down" strategies.The government's mentality is that it must compete by slashing costs -- labor costs, specifically. It's a move toward the future, if the future is the 1980s, another of the many status quo policies of the KMT Administration. Yes, it is 2010 and we're exporting petroleum products to China, made out of government subsidized oil, with subsidized water and electricity, in factories with the most limited environmental oversight, owned by firms whose taxes just got slashed. Welcome to the free market: what we're really exporting to China is our tax dollars.
The key issues is what will such Taiwan companies and investors do now that they must confront the visible limit point of the viability of this exploitative model in, at least, the coastal zones of the PRC and what will be the policy of our government.
Unfortunately, successive Taiwan governments, whether under the KMT or the centrist Democratic Progressive Party, have been unwilling or unable to wean most Taiwan companies from their addiction to low wage and cost-down business strategies and adopt strategies aimed at boosting value added and total factor productivity, quality, environmental protection, creative designs and brand name marketing that could promote high wage and quality employment.
The latest wave of upward wage pressure in the PRC has again led to calls by many Taiwan conglomerates and "market fundamentalist" economists for the KMT government to attract Taiwan businesses (often known as "Taishang") to "return home" with "favorable conditions."
Revived 'social dumping'
Such incentives include lower corporate income taxes, lower inheritance and gift taxes, favorable rents in industrial zones, streamlined entry into "free trade port zones" and expanded quotas for the use of foreign labor and, by no means least, the publically voiced possibility of "delinking" the wages of foreign labor from Taiwan's basic wage of NT$18,400 a month as mandated by the Labor Standards Law.
Despite statements by MOEA officials urging Taiwan companies to invest in high technology or environmentally friendly "green" products and services, the structure of such perks too clearly presuppose assistance to Taiwan companies in maintaining "cost down" business strategies if they return home. Indeed, the "Cross-Strait Economic Cooperation Framework Agreement" pushed by President Ma Ying-jeou's KMT government also falls into this dilemma by focussing government attention on tariff cuts instead of industrial upgrading.
In our view, Taiwan companies which aim to bring back "cost-down" and "low wage" production methods should be politely encouraged to invest in Southeast Asia or Central and South America or South Asia and help diversify our export markets.
The fact of the matter is that the only and short-term "benefit" of allowing Taiwan companies to bring back this "successful model" will be statistical as positive "multipler" effects for our domestic economy will be minimized if wages are kept specially low in such special zones.
Even more worrisome is the likelihood of further delays to Taiwan's urgent project of industrial upgrading due to the "opportunity cost" imposed by the granting of official incentives to "cost-down" business operations and the resulting squeezing out effect on assistance to high-value added operations.
However, the gravest damage would come if the KMT government caves into pressure from pampered conglomerates and agrees, despite current denials, to directly or indirectly delink the wages for foreign workers in free port zones or elsewhere in Taiwan from the basic wage.
Several articles in recent years have pointed out the growing soft power of Korea (2007, 2008, 2010) -- with its TV shows and songbirds (like the Wonder Girls and Girls Generation about whom a local newspaper remarked "they could conquer North Korea with their legs"). Taiwan has nothing like this; its music culture at best is parochially focused on the Chinese speaking world and its talented film culture is tragically undersupported. Yet rising Korean soft power will help drive acceptance of Korean exports all over Asia. Branding and R&D and low labor costs just aren't enough for the 21st century -- the government needs to be taking a much bigger hand here....
More Daily Links:
- Special Investigative Unit, which was mega-slapped by the Court, to appeal Chen Shui-bian ruling
- Volkswagon to set up assembly plant in Taiwan to take advantage of ECFA early harvest items BUT reports are confused on whether autos will be on the early harvest list.
- Taiwan What's Up latest issue
- WTF?: US passports' key tech is outsourced to Thai manufacturer.
- China. Water. Tibet. India.
- Explaining the world economic collapse in 3 minutes. Too painful not to laugh. (h/t to JE).
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