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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