Wednesday, December 30, 2009

Paper on Parade: Alice Amsden's Taiwan's Economic History: A Case of Etatisme and a Challenge to Dependency Theory

Over the past three decades I've read hundreds of papers on Taiwan's economy, whose net effect has essentially been to make both my head, and my glasses, thicker. Few of them, however, have approached Alice Amsden's seminal paper Taiwan's Economic History: A Case of Etatisme and a Challenge to Dependency Theory (Modern China, Vol. 5, No. 3, Symposium on Taiwan: Society and Economy (Jul., 1979),pp. 341-379) in influence and importance.

Taiwan's remarkable postwar economic performance remained rather uninteresting to western scholars for the first two decades of the postwar period, though there were a number of outstanding books by Taiwan scholars, among them future President Lee Teng-hui's 1971 version of his Ph.D thesis, Intersectoral Capital Flows in the Economic Development of Taiwan, 1895-1960, crucial for understanding why the KMT was hated so much in the postwar period, Ching-yuan Lin's 1973 work Industrialization in Taiwan, 1946-72: Trade and Import-Substitution Policies for Developing Countries (New York: Praeger), and Samuel P. S. Ho's The Economic Development of Taiwan 1860-1970, the bible of Taiwan's economic development, which no student of Taiwan should skip. Ho also wrote an extremely useful work on small enterprises in Taiwan and Korea. There were many works pertinent to Taiwan's economic development written during this period, but few directly addressing it as a thing that needed explaining.

Taiwan emerged onto the world stage in the 1970s as it began to displace Japan at the bottom end of the supply chain, and the first Congressional hearings were held on the loss of American jobs to the island at about that time. One of the earliest papers directly addressing the problem of Taiwan's economic growth by a western scholar in English is Keith Griffin's 1973 paper An Assessment of Development in Taiwan (World Development 1, 6:31-42). This paper marked the first of the Three Taiwans that I personally use to understand the way scholars have interpreted Taiwan's economic development according to the frameworks they use to understand economic growth: Neoclassical Taiwan. Neoclassical Taiwan flourished until Amsden's landmark 1979 paper, which marks the beginning of the second period of Taiwan: Statist Taiwan, which runs for a decade or so until 1990 and the publication of Robert Wade's Governing the Market. In this period Taiwan's growth was basically explained as the result of the positive actions of the state. After 1990 emerges Post Modern Taiwan, with its emphasis on local narratives, families and networks, small- and medium-sized enterprises, and flexible specialization. The gigantic meteor of globalization killed those dinosaurs sometime around the end of the 1990s, and we now live in the era of the nimble, warm-blooded predators of the IT industry, whose existence is not a thing we explain but rather a dynamic we observe.

Amsden framed Taiwan's growth as a challenge to then-prevailing theories about the relationship between imperialism and economic growth, as well as to then prevailing neo-classical explanations. She writes:
In seeking an explanation for these phenomena, which are rather miraculous in the context of continued underdevelopment in the rest of the Third World, we have come face to face with two schools of thought: neoclassical and dependency theory. The former, to generalize somewhat, sees the explanation for the Taiwan "miracle" in the application of free market principles. The latter ignores Taiwan altogether, probably because it see it as a "special case" undeserving attention.
After observing that Taiwan, while not suffering from the kind of heavy-handed state intervention that the Communist societies did, nevertheless had quite a bit, she writes:
It is particularly with respect to dependency theory that Taiwan emerges as an interesting case history. The major thesis of dependency theory is that the rise of foreign trade and the arrival of foreign capital from the "core" lie at the heart of underdevelopment in the "periphery." Taiwan, however, presents dependency theory with a paradox. It is both more integrated in world capitalism than other poor market economies and more developed. However miserable the level of real wages in Taiwan (as elsewhere), full employment has emerged and capital accumulation proceeds both on the basis of relative and absolute surplus value extraction, with an emphasis on the former. That is, capital accumulation proceeds on the basis of technological innovation and greater efficiency rather than on the basis of longer hours of work and more intensive effort alone. This is what we mean by "developed."

We argue that dependency theory is unable to come to grips with the Taiwan paradox because it employs a methodology which elevates imperialism to the primary analytical category. Only when endogenous productive and social relations are taken as primary can both successful and unsuccessful instances of development be understood. Throughout the Third World, trade and investment from the core created pressures to develop the productive forces. But class and productive relations within Taiwan made such pressures general. Specifically, etatisme and a land reform mediated the effects of imperialism....
Fundamentally she challenges dependency theorists to explain why, if Taiwan is so locked into the global capitalist system, and so dependent on outside capital and trade relations, why is it not underdeveloped like Latin America and Africa? Why have core-periphery relations, which are supposed to create impoverished underdeveloped peripheral states whose productive resources are harvested for core markets, instead created a state which has a citizenry increasing in wealth and technological capabilities?

The answer, for Amsden, is basically that land reforms and state intervention have "mediated" the effects of global capitalism -- instead of creating isolated pockets of plenty in nations marked by high income inequality and low productivity, these forces managed to spread the effects of core-periphery capitalism to ensure a level of productive development throughout the island. Her paper thus focuses on agricultural change.

Amsden sketches the Japanese colonial government's development of Taiwan, noting that its interventionist policies were taken over by the KMT when they arrived in 1945. Her discussion then shifts to agriculture, for understanding Taiwan's postwar development requires understanding the shift from an agricultural society to an industrialized one.
The years 1953-1968 witnessed annual growth rates in agricultural output that were impressive by any standard. Equally impressive was the spillover effect on industry. For however tight the squeeze on agriculture under Japanese rule, it was even tighter under the Jiang Jie-shi administration. Whereas net real capital outflow from agriculture had increased at a rate of 3.8% annually between 1911-1940, it rose on average by 10% annually between 1951-1960 (Lee, 1971: 28). Fast growth and a transfer of agricultural resources to the towns, however, were neither the outcome of free market forces nor the automatic result of purely technical phenomena-the Green Revolution. Rather, they reflected the structure of ownership in the countryside and state management of almost every conceivable economic activity.
Living as we do in modern Taiwan with its myriad capitalist enterprises, few really notice how much of the economy remains state-owned and run. In the 1950s and 1960s the State was the economy -- the modern export economy is a post-1965 affair. The State bought your rice and sold you fertilizer; it sold you gas and oil, and prevented you from buying consumer goods. It made you pay in-kind taxes of rice, and set the price for rice and fertilizer both. You bought state sugar and rode on state trains, and purchased water and electricity from the state. The state also provided you with loans. If you were in the military or the bureaucracy, the rice squeezed from Taiwanese farmers fed you. By setting the price of fertilizer high and the price of rice low, the KMT squeezed the farmers to run this system. That is the essence of Lee Teng-hui's Ph.D thesis, which is a covert, ringing denunciation of the KMT as a bunch of colonialists worse than the Japanese.

Many of Amsden's specific assertions are wrong. For example, modern readers will smile at her assertion that the KMT had a special affinity for law and order, and this paper evinces only a minimal grasp of The Real Taiwan -- the world of small factories, underground financial systems, and interpersonal networks, the real foundation of Taiwan's spectacular growth. But by calling attention to the role of government in Taiwan, Amsden launched a decade of debate on the role of the State in Taiwan's economic development, and on determining the proper framework for understanding Taiwan's spectacular growth. An irony of the debate is that even as scholars were reaching for Statist explanations of East Asian growth in the 1980s, Margaret Thatcher and Ronald Reagan in the West were claiming that government was useless and incompetent.

Amsden's paper also appeared as another momentous transition was occurring in Taiwan. The KMT state, tossed from the UN and having lost US backing in the 1970s, was searching for another basis for its political legitimacy. It would find it in the legend that the KMT created Taiwan's economic miracle. This emerging stream of scholarship played right into its hands, and a round of forgettable pro-KMT works sprung from the pens of KMT apologists at this time, including several that would help form the basis for the debates over government intervention in the 1980s. Fortunately time has mostly buried them, and moldering in their well-deserved graves I shall leave them, unconsidered.

In the mid-1980s, Hill Gates, Susan Greenhalgh, and others began exploring Taiwan's networked family firms, whose growth had very little to do with the State and everything to do with their direct connection to the US-led global economy, building, again, on the work of Taiwanese academics such as Taili Hu's immortal My Mother-in-law's Village. The subsequent explosion of research on Taiwan's family-run businesses is neatly encapsulated in the title of Jane Kaufman Winn's 1994 piece Not by Rule of Law: Mediating State-Society Relations in Taiwan through the Underground Economy (In Rubenstein, Murray, Ed. 1994. The Other Taiwan: 1945 to the Present. Armonk: M.E. Sharpe, pp. 183-214). Amsden, meanwhile, would continue to argue for the Statist case for two more decades, even as the lifting of martial law would shine a light on the complexities of Taiwan's manufacturing networks that would invalidate her thesis.
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jerome said...

In relation to Gilbert B. Kaplan’s article in the Huffington Post mentioned at the bottom of your post, I heard on PRI’s “The World” Mary Kay Magistad reporting from Beijing how that Canary has landed on Zhongnanhai.url’s plate, owing to the American consumer’s new addiction to thrift.

Likewise, read in yesterday The Japan Time, Mariko Sato’s Will warmer ties burn Taiwan.url.

Ms. Sato deserves praise for her penmanship in her brave effort not to split Taiwan from China this once. Although I would have preferred reading that the Nationalists had fled China, not the mainland. And would it be too much hair-splitting in reminding the Japanese she is that in 1949, Taiwan was still legally a territory of Japan?

A while ago, I posted here and on other Taiwan-related fora my effort to squeeze the historical facts in the least number of words. And I got corrected. Richard Hartzell’s revised version goes:

“The Allied Powers, led by the United States, occupied Japanese Taiwan on Oct. 25, 1945. The administrative authority for the military occupation was delegated by the principal occupying power (the United States) to the Chinese Nationalists under Chiang Kai-shek. On April 28, 1952 the SFPT amputated Japan of its territory while postponing decision over Taiwan's final status. In spite of the interim status-quo under US military occupation, China claims Taiwan its own.”

Point well received, Richard.

1234567890 said...

There are several organizations looking for people to take rescued dogs as checked luggage to the U.S. All you have to do is sign for the animals at the check-in counter and wheel them out past customs at your destination. They take care of everything else. The adopting families meet you at the airport. The last time we flew from CKS to SFO, we brought six dogs (plus our own). Two came from the organization below, and the others came from a group in 新竹 whose name I've forgotten.

It is totally worth it just to see the looks on the faces of the adopting Americans. The custom agents' reaction is funny too.

jerome said...

I failed to read in this article mention of the intense trade links existing then between Taiwan and Japan. Japanese era-educated businessmen jumped at every opportunity of a business trip to Japan.

Beitou had a bad press among the oh-so-well behaved Chinese in Taipei for catering to carousing Japanese come on the pretext of a corporate get-together. The hotel industry, too, was in the hands of Japanese-era educated managers. They catered preferably to Japanese visitors. And the Taiwanese HR managers (in the hotel industry at least) had the knack for hiring Taiwanese only. There hiring ads where written to make sense in hoklo only. Not that the son of an officer or a teacher from China would have bothered with looking for such jobs, anyway.

I can recall how in 1977, the head of a Taiwanese company told me in the privacy of his office how the corporate brass were the only Taiwanese who could allow themselves to be overtly critical of the KMT, as long as they restrained their opinions to the fields of industrial development and economics. He then rose up from his directorial desk to make a funny parody of old Peanut having lost his marbles. And he went on deriding the militarily educated Chiang’s lack of grip on the realities of Taiwan economy.

Then again, no one could tell me about 228 and the on-going white terror, except when in the safety of a car running on a country road.

Arty said...

Don't know what to say except...

People hates KMT so much post-war, DPP has yet to gain control of the legislature today and still a minority party. Blah blah blah blah blah...
Oh, Ma is still going to win next Presidential election if that's the best DPP has to offer and that's their only approaches toward Taiwan politics.

Reagan thought government is worthless, yet during his administration, government actually had grown the most (wait, I could be wrong Bush Jr. could actually beat Reagan). It is almost comical that all the last few Republican presidents are the debt and government expansionists.

KMT may not respect law and order to your standards, Michael. However, it does allow and even promotes all the things you mentioned: small factories, underground financial systems, and interpersonal networks. However, I think you are missing one aspect of the KMT government that it shares with all the governments of developed world. The KMT government has decent respect for the protections of personal wealth and capitals. Wait, I know you don't believe this even though most Taiwanese are very well off, and somehow KMT rips them off. Not so much for the governments of Latin America, Philippine, India etc. KMT rips off farmers? Without a successful land reform by KMT, they won't even be farmers. They are called sharecroppers.

Michael Turton said...

LOL. I hope the weather is better in your alternate universe, Arty. It's damn cold in this one.

Michael Turton said...

Jerome, Richard's formulation is incorrect and wordy. The US has no authority over Taiwan at this point, as the courts have ruled, and as early documents show the US knew and intended.

Anonymous said...

Too much credit had gone to the KMT and centralized economic policies and not enough has gone to local Taiwanese who adapted to the post war world by deploying their family networks to better compete against the strength of the state sponsored industries. Historical trajectories and KMP policy had given the Taiwanese land, but too little of it, so they utilized free labor of the extended family and other community networks to circumvent the tight, centralized control the KMT wished for... and it worked.

Arty said...

LOL. I hope the weather is better in your alternate universe, Arty. It's damn cold in this one.

Ever heard of central air and heat? Oh wait I forgot you are in Taiwan and some people do live in a different universe.

jerome said...

Michael, you wrote:
"Jerome, Richard's formulation is incorrect and wordy. The US has no authority over Taiwan at this point, as the courts have ruled, and as early documents show the US knew and intended."

Yes, as early as September or October 1945, an OSS advance team on Taiwan did advise the administration not to put US boots on Taiwan. But, for the US administration to use as occupation troops the rabble they knew from war-time experience the KMT and its troops were, it was and it remains unconscionable, whatever conclusions that OSS team had reached.

Taiwanese witnessed even their wives and concubines wielding handguns and making use of them over a love triangle. What kind of civilization is that, except maybe, that of the frontier? Even if a majority of Taiwanese elites had expressed at the time a desire to be reunited with China, they did not know what awaited them. The US could have, should have, and most likely did.

That’s what G. Kerr’s “Formosa betrayed” is all about, as Jeff Geer makes plain. And Lin/Hartzell have been pursuing their work on behalf of Taiwan on those premises. Hartzell might not be educated in law, but he has made a huge contribution to the subject by researching it thoroughly. And Lin is the lawyer of the team.

As for the latest court proceedings, did not a judge note that the Taiwanese were in effect stateless?

I might be wrong, but did not the judges merely ( albeit soundly) refrain from treading on executive grounds?

Does that make the administration morally right?

Don’t you see that the KMT troops were used as mercenaries for an occupation duty the US could not be bother with? And to what results for the people of Taiwan?

As for the US assumed present lack of authority on Taiwan, pray that the Taiwanese never find the wisdom to quit haggling with Chinese Taipei to turn their ire in mass protests against AIT, demanding of their rightful yet undutiful occupier the ousting of the KMT from Taiwan soil. Demand I would assimilate to the Iraqis’ complaints against the Blackwater mercenaries’ excesses.

However, after reading about the Taiwanese youth resignation in entrusting their fate to Beijing’s tender mercies, there’s little hope for us to see that dawn, I’d readily admit.

Please, spare me the often read attack used against Hartzell, that with his theory, he is putting Taiwan on a flight path towards reunification. No, he isn’t. Kissinger and Nixon and the last two US administrations might well have. But Hartzell is just pointing at the hazard while urging the Taiwanese to seize their fast closing window of opportunity.

I was on Taiwan focus that day of March 2006, when you inquired about Hartzell’s theory. The most vicious among the respondents I assume to be trolls, the remainder just armchair TI fighters and people who scrounge a living in Washington on Taiwan’s back.

Because I respect you and because we all love and need your treasure trove of a blog on Taiwan matters, I tried not forcefully until today to convince you. Whatever prevents you from seeing the light, I’ll still enjoy reading you. For all of us out there, keep up with the good work.

Happy almost new year.

Jerome in Vals - France

Tommy said...

The Huffington Post piece makes some good points about the current state of the flight of industry from Taiwan. However, I think that Kaplan overlooks something quite critical to the validity of his argument.

China's working age population, which has supported two decades of low-cost, high-volume production, has peaked. In 20 years, this peak population will be nearing retirement. This will put a huge and very expensive strain on state and personal finances. It will also kill the China price altogether.

This does not change Taiwan's situation in the near term, but it does make me raise a skeptical eyebrow to the "China century" theory in respect to the rest of the world, in particular the US.

China will get much larger, but they are not about to dominate everyone in the next 100 years. Demographic trends don't support the fearmongering of Kaplan's piece.

Another point that Kaplan overlooks is that much of China's success at throwing its weight around comes from temporary mergers of interest between it and the BRI of BRIC, combined with increasingly tenuous support of third-world countries. China gathers coalitions in international events such as these along a South vs. North model. The China position in respect to the third world countries is: We are one of you, and we will help you stand up for your rights.

Yet it is becoming increasingly apparent that China is not the same as third-world countries. China's development has allowed it to do its own share of victimizing. Case in point: Many countries (Papua New Guniea, Vietnam, and many in Africa) have noted with rue that when Chinese invest in their countries, they bring along Chinese laborers. This severely reduces the good that such investment projects can do in the local economies. Likewise, at the recent climate conference, some Pacific island countries were instrumental in raising objections to the Chinese position. They wanted developing countries to accept binding emissions targets.

To make my point shortly, I would say simply that it is right to be concerned about some elements of China's rise, especially in Taiwan. However, the rest of us need to keep in mind that China is not a snowball rolling down an endless hill. It would behoove academics and policymakers alike to not give away their jewels to the Chinese just out of the assumption that they are future rulers who must be pleased.

Last comment: I wonder what young Taiwanese Kaplan talked to. I am sure that many are indeed resigned to eventual unification, but Kaplan makes it sound as if their resignation is widespread enough to make unification a done deal already. I am not too sure about this.

Marc said...

I wonder if Kaplan's formulation of young Taiwanese resignation is his own construction.
Can anyone actually determine whether resignation exists to any great extent in this sector of the population? I think it's safe to say that the under-30s reflect the prevailing opinions of the whole population, who are mostly aligned in favor of the status quo or independence. To my knowledge, no studies have been done or polls taken on the resignation of Taiwanese youth.

However, a possible source of resignation might be found in the feeling that activism as a tool for change (protest marches), or just plain old citizen action (letter writing, phone calling, voting) is not worth the effort, since the government appears to routinely ignore its citizenry. This does not, however, signify that some political Goliath will conquer the will of the people.

Nevertheless, I get the impression that, in a political system where many of the same people get re-elected largely through patronage and bribes, some democratic conventions are considered ineffective.

Many of us reading this come from political cultures where we expect to get our voices heard—whether it is by the local supervisor or alderman, the state or county rep, the senator or MP – and even by our presidents or PMs — and so make good use of our voices singly and collectively to influence legislation and government policy. However, when I suggest taking a similar action to a problem among friends here, I’m met with the “it won’t do any good” attitude, to which I reply, “if everyone thinks that way…”

Perhaps Kaplan is aware of this, and concludes that a good-sized swath of the population, in the end, will not actively resist unification. I think that conclusion is not only premature, but misreading and underestimating the current underlying sentiment.

Carlos said...

I've seen that attitude a lot actually. Mostly here in the States among young Taiwanese-Americans whose parents are not obviously green, but also among under-40s in Taiwan in professional fields. Maybe they missed the worst of the Martial Law Era, dunno.

Aris Teon said...

In my opinion, Taiwan's complexities do not invalidate Amsden's thesis. Taiwan's economy was a mixed economy, in which both private entrepreneurs and state policies payed a decisive role. In general, I think that mainstream economics has downplayed the role of the state in shaping conscious economic and industrial policy to an extent that doesn't allow to understand the dynamics of development. Countries like Britain or the US, but also Germany, Sweden, Norway, Japan, S. Korea and virtually all industrialised countries had or have an industrial policy at some point in their history. In the case of the US, it had high import tariffs and regulations on foreign investment. After the war of independence, a vital goal for the new country was become economically independent from Britain by developing its own industry and technology. That is why the US was one of the most protectionist countries on earth until after WWII. The combination of state policy and private sector is often overlooked because of this neoclassical assumption that the government is bad per se, but also because, when a country develops, its people reclaim the merit. In my view, government policies and private sector can't be viewed as separate entities, but a complementary. Accordingly, the KMT government was at least wise enough to understand the importance of economic growth and industrial development, something that it had not understood on the mainland where it lived as a complete parasite of the private sector.