Monday, January 31, 2011

Egypt: could it happen in Taiwan?

Drew and I rode along Pinglin Road from Jhuolan to Dahu in Miaoli today. Lovely rolling hill country, an excellent workout. Highly recommended if you are in the area.

Jon Adams dispatches another excellent piece, this one on the tycoon buffoon handing out money to Taiwan's poor, observing:
Taiwan's per-person wealth may still be far higher than China's, at around $18,500 compared to some $4,300. But growth rates have sagged in Taiwan while soaring to double or high single digits in China. And in the last few decades, the island has seen a growing income gap. (Measured by the Gini coefficient, inequality rose from 0.28 in 1980 to 0.34 in 2006.)

Like other advanced economies, manufacturing jobs have shrunk as factories move to China and elsewhere. Lower-paying, non-unionized service sector jobs have taken their place. The service sector is now nearly 70 percent of the economy, compared to 50 percent 20 years ago. And since the global downturn, Taiwan firms have been increasingly relying on "dispatch" or temp workers, like Japan and South Korea.

The result has been a new legion of "working poor" or "new poor," as they're called here. They may not show up on unemployment statistics. But they struggle to make ends meet with two or even three low-paying jobs, but no job security.

"Those people cannot get help because they're not ill, or victims of a disaster, and they're not poor by the government's standards," said Taiwan sociologist Chiu Hei-yuan. "So they are just helpless — and they hope to get some unexpected help from people like Mr. Chen."

Twelve percent of the workforce now earns less than $700 per month, and average monthly wages are at 1998 levels, according to labor groups.

Meanwhile, highly-skilled workers in the technology and other sectors pull in ever-fatter paychecks, sharpening inequality between the haves and have-nots. "Taiwan's social welfare system cannot solve the problem of the gap between the rich and the poor — especially the 'new poor,'" said Chiu.
There is no capital gains tax and Taiwan's wealthiest can easily avoid taxation. Much of this income inequality is the result of the steady drip of accumulation by the wealthy over time -- in the 1980s the difference between top and bottom wasn't that great, but thirty years of accumulation later....

Since everyone is asking whether China could go the way of Egypt (not China, but I bet India has severe problems this year), I thought I'd have a little fun and ask about Taiwan. Taiwan's worsening inequality is a problem, but food prices will likely be more stable here -- as I posted a couple of months ago, Taiwan imports most of its grains and oils, but staples like eggs, vegetables, fruit and seafood are mostly produced locally. Incomes are high enough that food is affordable, unlike Egypt. Taiwan boasts excellent health insurance, a strong manufacturing sector, and relatively low unemployment by global standards. Moreover, its "inefficient" banking sector with strong state interference has minimized the damaged Wall Street has done here. The population has also become an active participant in the democratic process and is getting used to solving problems that way. Further, Taiwan does not suffer from the kind of right-wing religious insanity that Egypt does.

Still, the changes in the working population, income inequality, and so on are likely to have political effects as voters search for a party that can solve them. Political volatility in Taiwan may well translate into swings from one party to the other from election to election.

UPDATE: Anon writes:
Michael, need a correction/update: there's no capital gains tax, true, but the rich generally aren't very good at investing in stocks and the minimum tax law passed in 2006 requires that gains in shares of private companies be counted towards a minimum tax rate of 20%. In other words, investments in hedge funds, private equity funds, venture capital funds, private placement gains, are all taxed at 20%. There may be cheating, but it's exactly that--you're breaking the law, not just merely "avoiding" taxes.


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9 comments:

D said...

I love Frank Hsieh's idea of the common ground between Taiwan and PRC -- that both have fought against the KMT!

Arty said...

Cough...Egypt Gini is low and more equal then the author think...

Okami said...

I think Taiwan and Egypt's situation's are quite different and have little if anything in common. While I may rage against the uselessness of the police and the damnable bureaucracy in Taiwan at least they work mostly, whereas in Egypt simple things like garbage collection can be a hotly contested religious issue. I think the % of untitled property in Egypt is 85% in the cities and 90+% in the countryside. I'm more interested in the rise of food prices and quantitative easing of the US fed has on that situation.

Wall Street didn't cause the financial meltdown; politicians and Fannie Mae and Freddie Mac did. The fact that despite widespread accounting fraud by both of them and their lead role in the housing meltdown is not a front and center role in the investigation speaks volumes. In the pursuit of widespread home ownership, politicians allowed both to start buying subprime mortgages.

Dixteel said...

I would say very unlikely. Not saying all things are good in Taiwan, but I think a revolution like the one in Egypt requires economic and political problems that are far more severe or drastic than in the current situation. The political and economic environment between Taiwan and Egypt is very different. Numbers cannot tell the whole story.

Anonymous said...

Michael, need a correction/update: there's no capital gains tax, true, but the rich generally aren't very good at investing in stocks and the minimum tax law passed in 2006 requires that gains in shares of private companies be counted towards a minimum tax rate of 20%. In other words, investments in hedge funds, private equity funds, venture capital funds, private placement gains, are all taxed at 20%. There may be cheating, but it's exactly that--you're breaking the law, not just merely "avoiding" taxes.

Anonymous said...

Income gini is based on pre-tax incomes, and it often does not take into account living costs (as you mentioned food prices).

Wealth gini is far more important as far as crime and unrest are concerned.

Taiwan could invest more in human capital and infrastructure to help with the problem.

Carlos said...

There always WAS such a revolution in Taiwan - the events that led up to 228. But in Egypt's case, the military has taken a neutral stance. Good for them.

Anonymous said...

I think it's far more likely that an Egypt scenario would appear in the PRC than in Taiwan - a lot more parallels between that kind of Mubarak regime and the CCP. That being said, as Carlos has pointed out, Egypt's military hasn't been involved much, whereas the PLA is the very arm of the CCP itself. Tienanmen = China's Egypt already. We won't see another Egypt in either case, although the Ma presidency has actually been quite heavy-handed and abusive indeed.

Dixteel said...

228 was another case of high-unemployment rate, high-inflation (in this case hyper inflation), and dictatorship.