David Plott's Talk at Lung yingtai Cultural Foundation

Dr. David Plott was kind enough to send me a copy of his talk at Lung Yingtai Foundation:

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Does Taiwan Really Matter? An Outsider's View

Dr. David A. Plott, The University of Hong Kong
A Talk at "The Taipei Salon"
The Lung Yingtai Cultural Foundation
Taipei, Taiwan
August 12, 2006

Let me start by saying I chose the title of this talk - "Does Taiwan Really Matter?" - because I hoped it would provoke you by capturing at once two fundamentally different ideas - namely, the idea that Taiwan has an identity worthy of consideration and the idea that this identity could be considered irrelevant.

I want to focus deliberately on providing "An Outsider's View," not just because I am myself an outsider, but because I believe how that question - "Does Taiwan Really Matter?" - is answered by people outside Taiwan should inform how it is answered by people within Taiwan.

It is a deliberately provocative question, and one that underscores one of the great paradoxes of Taiwan today. It is a place that matters immensely to the future of Asia, and yet it is a place that seems at times torn by self-doubt, misgivings about its future, and a perilous temptation to pursue a path that could destroy two of its greatest accomplishments - its vibrant democracy and its extraordinarily successful business community.

The entire world appears intoxicated by the rise of China. Businesses and governments everywhere are grappling with the challenges posed by the country's economic development, but nowhere is "the China challenge" felt more acutely than in Taiwan. The reasons for this are both obvious and complex. They have as much to do with history, culture, politics, and individual identity as they do with economics.

I am not a so-called "Taiwan expert." I think it's important to remind you of that, because by labeling oneself a "Taiwan expert," one by definition has already answered the question of whether Taiwan really matters. You don't call yourself an expert in something you consider meaningless.

I want to look, instead, at this question the way it might be viewed from outside Taiwan, and turn it around in different ways to explore what is at stake for the rest of the world, and perhaps for you as Taiwanese. After that, in the time allotted for discussion, I hope we'll have a vigorous exchange of ideas in the Taiwanese fashion, and all come away with our perspectives enriched.

I want to focus on five broad issues, because I think it is around them that the significance of Taiwan emerges, and the answer to our question lies: The rise of China; the nature of Taiwanese business; the evolution of democracy in Taiwan; the emergence of a Taiwanese identity; and the impact of globalization on issues of national identity and national prosperity.

As you know from Prof. Lung Yingtai's introduction, I have spent most of my career in journalism, the last five of them managing the Far Eastern Economic Review. In editing a regional magazine such at the Review, which has a global audience, one of the instinctive questions you ask of any story idea brought to you by a reporter is whether it matters to anyone outside of its natural audience. "All news is local," is a phrase well understood in journalism. You have certainly heard its parallel in political science, "All politics is local." I'll return to this idea later.

In the world of international news, asking whether the local really matters is a fundamental issue. It is not that local events cannot resonate with a global audience. It is a matter of understanding which ones do, which ones don't, and why. And it is a matter sometimes of actively drawing the connections from the local to the global in such a way that an international reader can see and feel the relevance of events and places that might otherwise seem irrelevant. In an ideal world, we would all be able to make these connections ourselves, but that rarely happens.

Distance, in other words, affects perceptions. So too does size.

I tried to make this point in a different context six years ago when I wrote a review of the second volume of Lee Kuan Yew's memoirs. Let me quote from the opening of that review, which I think is relevant to Taiwan:

A story made the rounds in Singapore a few years back that went like this: Senior Minister Lee Kuan Yew returned from a private visit to India with a small bolt of silk of extraordinary design. He consulted his tailor immediately, who assured him there was just enough fabric to fashion a suit that would fit him perfectly.
Ecstatic, he dashed off to an official meeting in Hong Kong with Chief Executive Tung Chee-hwa, bringing the silk with him. Following the meeting, he couldn't resist sharing his excitement with Tung, and asked if he could see his tailor for a second opinion. Tung's tailor was flabbergasted at the beauty of the silk, took Lee's measurements, and told him he could easily make him a suit and an extra pair of trousers.

Although Lee was perplexed, he said nothing because he was already late for a flight to Washington, where he was scheduled to see US President Bill Clinton. Following the meeting, he asked to see Clinton's tailor, who took his measurements, and confidently told him he could make two suits and an extra pair of trousers from the bolt of Indian silk.

"What is it about your tailors," Lee later asked the American president, "that makes them so much better than tailors in Singapore and Hong Kong? Mine said he could make me a suit out of this bolt of silk. Tung's tailor said he could make me a suit and an extra pair of trousers. Your tailor, Mr President, can make me two suits and an extra pair of trousers. Is it your technology? Your superior productivity?"

"Certainly not, Senior Minister," replied Clinton. "It's simply that the further away you are from Singapore, the smaller you become."

The story, of course, is a joke, and the irony is that Lee Kuan Yew became something of a regional statesman despite the size of Singapore, the distance he traveled from it, or the views some people held of his politics.

There is a metaphor hidden in this story for Taiwan. It has to do with size and fabric and perceptions. And it will lead us to my answer to the question, "Does Taiwan Really Matter?"

We might as well begin with size. The rise of China over the past two and a-half decades, driven by the ever accelerating process of economic reform, has intoxicated the international media, obsessed the business community in every corner of the globe, and captured the attention of governments everywhere. All of you are familiar with the contours of this great story. More people have been lifted out of poverty, in absolute and relative terms, in China in the past 25 years than at anytime or anywhere in human history - 220 million between 1978, when economic reforms began, and 2000. Its economy has averaged nearly double-digit growth for more than two decades. Its middle class, measured by purchasing power parity, now outnumbers the population of the U.S. Its GDP, measured in purchasing power parity, is double that of Japan. Judged by the foreign direct investment (between $50 billion and $60 billion) pouring into the country year after year, it seems everyone wants to be in China. It has become the world's factory floor, pumping out goods for export and domestic consumption at staggering growth rates. Its appetite for commodities and industrial inputs has created a vast sucking sound that can be heard and felt the world over. Its foreign reserves have become the largest in the world; its best companies have begun to acquire a foothold in other parts of the globe, including ownership of the PC business of IBM, once the flagship of American technological leadership; and its 1.3 billion consumers are being stalked from the boardrooms and management suites of all of the world's major companies.

It is a story whose size dwarfs all others in terms of economic development and transition. If the trajectory of growth achieved in China over the past 25 years is repeated over the next 25 years, the global distribution of economic, political and even military strength could shift dramatically. It is a scenario that worries even the U.S. and the European Union, the world's two strongest powers in terms of economic strength and political influence.

No wonder some Taiwanese might be inclined to experience bouts of insecurity.

But what I have described is only part of the story, both from a global perspective and from a Taiwanese perspective. Along with this success story comes another story. And it's a big story as well. When economic reforms began in 1978, 85% of the Chinese population had health care. Today, 80% do not. Pension systems, once a part of the vaunted "Iron Rice Bowl," are now drastically under-funded. The income gap between the rich and poor is reaching alarming proportions. The annual number of local protests, many of them violent, is approaching 90,000, according to the government's own statistics. Environmental problems are rife. Sixteen of the world's 20 most polluted cities are in China, and the effects reach not only its neighbors, but as far away as North America. The country's banking system is saddled with non-performing loans on a scale comparable to the worst of Japan's banking crisis of the 1990s, even though China's economy is only half the size of Japan's in nominal GDP. The government's penchant for covering up bad news, as it did during the global outbreak of SARS in 2003, persists, and threatens to undermine international efforts to deal with threats such as H5N1, or bird flu.

Does this mean the China story is a story of failure, and it's simply that the world hasn't awakened to this? No. It's a matter of how the story is being viewed. The world is fascinated with the China story because its connection to that story is largely to its positive side - to the story of growing economic strength and clout, and rapidly emerging opportunities for international businesses. The country's income gap, pollution, social unrest, under-funded pensions, and persistent human rights problems are issues that don't directly touch the lives of international consumers of the China story. It doesn't mean these issues won't at some point touch the lives of an international audience, either through political upheaval or financial shocks transmitted from China to the rest of the world. For the time being, though, these readers are far more likely to relate to stories that explain the prevalence of Chinese products on their store shelves, or the loss of jobs in their local market to Chinese competitors, than they are to stories about unhappy farmers or dispossessed urban property owners in a Chinese province or city thousands of miles away from them. Moreover, the temptation of global investment bankers or international corporate executives to emphasize the positive side of the China story as a way of ingratiating themselves with Chinese authorities remains a powerful force in shaping the China story through the international media.

If size matters, the Taiwan story cannot measure up to the China story. Its 23 million people are dwarfed by China's 1.3 billion people. That's one way of looking at the question of whether Taiwan matters. And it accounts for why China dominates global business coverage compared to Taiwan. But as Businessweek so effectively explained in a cover story more than a year ago entitled, "Why Taiwan Matters," Taiwan has played a central role in the economic success of China, in particular its business relationship with America. The very fact that Businessweek felt compelled to explain that Taiwan matters underscores the extent of Taiwan's failure to capitalize fully on the marketing opportunity presented by its engagement with China. Great international magazines such as Businessweek don't devote cover stories to explaining the obvious. As I will argue later, some Taiwanese politicians and the intellectuals who are serving their interests have squandered a lot of the value of Taiwan's business successes in China by seeking to exploit political differences with China. I would argue also that the decision to focus on these political differences has been motivated by narrow political gains that could be had locally by certain politicians.

This isn't to say that China hasn't behaved badly in its relations with Taiwan, or provided opportunities to those who seek local political gain in Taiwan from China's bad behavior. The 1996 missile crisis, or the bullying rhetoric from Beijing during every presidential campaign since then, has provided ample evidence of political ineptitude on China's part in managing the Cross Strait relationship. More ominously, the buildup of missiles across the Taiwan Strait and Article 8 of the Anti-Secession Law passed in March 2005, which calls for the use of "non-peaceful means" to prevent Taiwanese independence, have all fueled a justifiable level of anxiety on this side of the Strait.

We all agree the China story matters. But does Taiwan matter to the China story? Consider the facts. Taiwan has invested more than US$100 billion in China. At any given time, as many as a million Taiwanese are conducting business in China, many of them living there for extended periods of time. The design, engineering, logistical, and supply-chain expertise of a lot of China's electronics and high-end technology exports owe their success to Taiwanese businesses.

Does the Taiwan economic story compare favorably to China's, and does this matter? Again, consider the facts. Taiwan's per capita GDP, at US$27,600, is four times that of China's. On a per capita basis, its foreign reserves, at US$260 billion, are more than 15 times that of China's. And remember, Taiwanese businesses are a major contributor to China's own exports, and therefore to the accumulation of China's own foreign reserves. So, there is a big Taiwanese footprint there, as well.

I could go on and on, but in short, properly and objectively told, without reference to size, the Taiwan story is a lot more impressive than the China story. It is made more so by the fact that Taiwanese businesses play such an important role in the positive, intoxicating side of the China story - China's economic growth. Taiwan's economic success story certainly hasn't been lost on the leadership in Beijing, as they seek to manage their own economic reforms. That may be one reason China has been so open to Taiwanese investment and the involvement of Taiwanese businesses there. Taiwan, in short, is helping to transform the Chinese economy. It is a big part of the China story.

Does this come at a cost to Taiwan? Yes, it does. The transfer of manufacturing jobs from Taiwan to China has raised fears of a so-called "hallowing out" of the Taiwanese economy. Also, ever greater transfers of technological know how to China have raised fears of a future erosion of one of Taiwan's most valuable competitive advantages - its superiority in the high value-added end of the high technology sector. These fears are understandable, but they must also be viewed in a broader context. This isn't just a Taiwanese problem.

Every other major advanced economy is facing a "China challenge," some more so than others. Even developing countries have to come to terms with the rise of China. Taiwan's proximity to the mainland perhaps exaggerates the way the economic problem is framed from here - as the problem of the proverbial 900 pound gorilla in the backyard. But there is very little that is unique to Taiwan about the problem. In fact, there is very little that is unique to China about the problem. What is at play here is the problem of globalization. Today, the focus is on China. Tomorrow it could be on India, or Brazil, or Eastern Europe - or at some point in the future, on Africa.

What strikes me forcefully as an outsider when I consider the "China challenge" as it is viewed in Taiwan is how quickly it transforms itself from an economic story into a political story. Fear of an overdependence on China quickly comes up. Some politicians here cite that fear as a reason to support restrictions on investments or business activities by Taiwanese companies in China. Again, Taiwan is not alone here. Many politicians in Washington express similar fears. But in Taiwan, these fears are fraught with a political dimension that is far more acute than elsewhere. It is the fear of a political dependence that might emerge from economic dependence.

Is that fear justified? I don't think so. While it is understandable some Taiwanese might harbor this fear, it's important to use the right word to describe the current economic relationship of Taiwan to China. That word is "interdependence," not "dependence." This is a fundamental distinction, and one that is necessary to explaining the political consequences of economic integration - or globalization - in the modern world. It is odd that some Taiwanese would focus on the word "dependence" to describe the relationship of Taiwan to China, because Taiwan's economy has long been "dependent" on other economies through trade and business and investment ties.

Still, could China take certain drastic moves to damage Taiwan's economy, if it wanted to make a political point? It certainly could, but not without doing damage to its own economy, both directly and by souring its reputation with investors, businesses and governments elsewhere in the world. It would also undermine China's standing in multilateral institutions such as the World Trade Organization. Such a drastic move would, in my view, have greater consequences than the 1996 missile crisis, because it would unsettle many of the world's assumptions about the risks of doing business in China. I draw this comparison between military threats and economic threats for a reason, because they both evoke the specter of war, but through different means.

But there is a more important point to be made here. What have been the consequences of greater economic integration and interdependence in the world over the past 50 years? The answer is peace and greater stability between and among economically interdependent countries. To be sure, that peace and stability have not gone uncontested. But the evidence for the linkage is clear. As the greatest experiment in economic integration the world has ever seen, the European Union, demonstrates, economic integration has a powerful effect on the perceptions of common interests among nations. There is a widely held view that democracies don't go to war against each other. One could argue just as forcefully that economically integrated countries seldom go to war against each other.

But since we're talking about war, it is useful to remember the words of the ancient Greek historian, Thucydides, who said, "People make war because of honor, fear and interest."

Through greater economic integration between Taiwan and China, and between China and the world, there is a greater likelihood that deeper perceptions of shared interests will emerge between Taiwan and China, and between China and the rest of the world. Indeed, I would argue they are already emerging. In this respect, Taiwan matters significantly to the rest of the world in how it perceives its economic relationship with China - whether it sees common interests or a reason to fear.

But let's be honest. Fear doesn't reside on only one side of the Strait. What does China fear? To begin with, it fears democracy. Let's set aside the question of Taiwanese identity for a moment, and acknowledge one immutable fact about Taiwanese democracy - it gives the lie to the unspoken neocolonial argument that the Chinese are "not ready for democracy." The deep roots that democracy has planted in Taiwan are an embarrassment to those on the mainland, or even in Hong Kong, who argue that democracy imperils economic progress or leads to instability. The success of democracy in Taiwan is absolutely critical to the future of democracy in China.

To be sure, Taiwan is not alone in representing one side of the great debate about democracy and economic progress in Asia. South Korea, like Taiwan, is building its democracy on economic foundations that were laid in an authoritarian era, while India is building economic successes on democratic foundations that were laid when the country was an economic backwater. Indonesia is struggling to lay its democratic foundations while building its economy. Even Singapore, with its solid economy but constrained democracy, recognizes the importance of governing with the consent of the people. Across the region, democracy is taking hold alongside vibrant economic growth. Asians who have been telling other Asians for years that Asian values don't include liberal democracy are slowly being exposed for what they are - Asian architects of self-interest, not selfless architects of Asian interests.

But I would argue Taiwan matters more than any other Asian democracy, because of its relationship to China. That is something that should engender pride among the Taiwanese people, but also something that carries with it special responsibilities and special dangers.

One facet of the Taiwanese response to the "China challenge" is both understandable and fraught with danger. It is the rise of the idea of Taiwanese identity. It is a potent development that is not as well understood outside of Taiwan as perhaps it should be. Aside from the international circle of so-called Taiwan experts, there is little awareness in the general public elsewhere in the world of what is meant by "Taiwanese identity."

What is clearly understood, though, is that the hijacking by some politicians here of the idea of "Taiwanese identity" for political purposes has created a clear and present danger for global stability. It is ultimately not up to the rest of the world to decide the nature or forms of self-identity that emerge among Taiwanese, but it would be foolish to ignore the stake the rest of the world has in that process. That is one of the important reasons that Taiwan matters more than you might think.

In the debate over Taiwanese identity and whether statehood is the necessary or logical expression of that identity, one fact cannot be obscured: China fears Taiwanese independence. And it will go to war to prevent it. What did Thucydides say? "People make war because of honor, fear, and interest." China has a strong interest in not going to war, because of shared economic interests with Taiwan, and the rest of the world. It has little to fear of Taiwan militarily, although it fears the democratic virus that could spread across the Strait and take hold on the mainland. Above all, though, it has much honor at stake in whether Taiwan moves toward independence. How much honor do Taiwanese have at stake in independence? That is a question that matters gravely to the rest of the world.

I recognize that feelings over this issue run deep and with great turbulence on both sides of the Strait. Narrow minds on both sides have the capacity to appeal to honor and fear, and we have seen plenty of examples of that in recent years. Fortunately, shared economic interests between Taiwan and China have so far helped to ease tensions and encourage ongoing reassessments of Cross Strait relations.

What troubles me most about the issue of Taiwanese identity is how easily it can be exploited for domestic political gain. It is not that, as an outsider, I cannot appreciate the emergence of a Taiwanese identity. After all, it has been more than a hundred years since Taiwan was ruled from Beijing, and much has happened both here and on the mainland in those years to shape very different social, cultural and political experiences. It would be surprising if Taiwanese didn't sense a different identity.

But what is the appropriate expression of identity? Has the emergence of the European Union effaced the identity of the French, the Germans, or the Italians? I would argue it has deepened their respective cultural identities, while at the same time layering them with a new, evolving European identity. The idea behind the European Union grasps what is common among member countries without denying what is particular within them. That is the genius of the EU.

To be sure, what all European Union countries have in common is they are democracies. That is one area where the parallel with the Cross Strait situation breaks down. I agree with those who argue reunification with China should not take place at the expense of Taiwan's democracy. But I also believe the surest way to destroy Taiwan's democracy would be to move toward independence.

Where, then, is the way out of the dilemma Taiwan faces? Part of the answer lies on this side of the Strait, and part on the other side. The part you control is where you intend to allow the issue of Taiwanese identity to take you. I say, "intend," because it is a choice, not an inevitability. Make no mistake about that. There is nothing in the rich web of cultural, social and historical experiences that make up Taiwanese identity that require independence, so long as China does not seek reunification by force and at the expense of Taiwanese democracy.

Another part of the answer that you control has to do with where you allow your democracy to take you. I say, "allow," because this too is a choice. One of the greatest challenges all democracies face is the risk of polarization, the tendency of political divisions within society to tear democracy apart. In these circumstances, the people and their politicians seek battlegrounds rather than common ground. With polarization often comes a trivialization of public discourse. We see both of these tendencies, for example, in America today. Like America, Taiwan needs fewer politicians and more statesmen.

It is a pity that as Hong Kong stumbles uncertainly toward full democracy, with far too many of its political and business elite timidly accepting the ridiculous idea that Hong Kong people "aren't ready for democracy," that Taiwan isn't seen more often as a model for Hong Kong. Could some of this have to do with how politics here is conducted?

The behavior of China too has a big part to play in how the Taiwan dilemma is resolved. The country is going through enormous changes and its population is being exposed to greater and greater flows of information that are reshaping thinking at all levels of society. The future will ultimately provide the answer to whether China will be able to manage the pressures, and fractures, that are building within the country as its economy continues to develop, without changing its political system. I suspect calls for democracy in China will only grow in the years ahead, and the outcome of Hong Kong's fledgling struggle for democracy will have an important bearing on how Beijing responds to those calls.

What is certain, though, is that Taiwan will continue to matter most to the future of democracy in China. Its vibrant democracy and nimble, unfettered business community are essential to demonstrating to China the fundamental relationship between these two ideas that Taiwan so clearly embodies. Perhaps one day leaders in Beijing will call these ideas their own. At least then, Taiwanese will be in no doubt about where the incense originated, and who guarded them so carefully all these years. The further away these incense go from Taiwan, and the closer the come to Beijing, the bigger they become. That is why Taiwan matters.

Thank you.

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Have at it! A couple of things struck me....

One could argue just as forcefully that economically integrated countries seldom go to war against each other.

This seems to be a fiercely held belief, though it has no support from the historical record. Economically integrated nations often go to war with each other; as economic integration creates dependencies and rivalries. Economic integration is no palliative. And this....

The part you control is where you intend to allow the issue of Taiwanese identity to take you. I say, "intend," because it is a choice, not an inevitability. Make no mistake about that. There is nothing in the rich web of cultural, social and historical experiences that make up Taiwanese identity that require independence, so long as China does not seek reunification by force and at the expense of Taiwanese democracy.

There's nothing at all that requires that China annex Taiwan, and the only thing supporting that is China's threat of force. The Taiwanese identity wouldn't "require" anything vis-a-vis China, if China didn't insist...

[Taiwan] [US] [China] [Hong Kong] [Democracy] [Taiwan Independence]