Economic History Case Studies: Asian Tigers (Pt. III of III)

Taiwan, formerly known as “Formosa,” has historically been an island contested by various colonial powers vying for control of neighboring Mainland China. Its geographical location also made it ideal for facilitating trade between China, Korea and Japan, which was exactly what compelled the Dutch to try establishing a colonial holding there in the 17th century. That effort did not go unnoticed by the Japanese and British Empires, who had their own colonial interests on the island as well. Like the Dutch, they too sought to control Taiwan as a foothold into Mainland China. Similarly, the Qing Dynasty in Mainland China wanted Taiwan in order to prevent other colonial powers from seizing access to the natural resources of Mainland China.

The Qing Dynasty, for much of the 17th, 18th, and 19th centuries, controlled Taiwan as a Prefecture or a province. Qing control over Taiwan ended towards the end of the 19th century, as the island was later ceded to the Imperial Japanese, who were determined to compete with the European colonial empires. This conflict, “First Sino-Japanese War,” saw the Imperial Japanese create their own colonial empire by conquering Korea and Taiwan. It was in many respects a precursor to the “Second Sino-Japanese War,” which is generally understood in Western history as the Asian half of the Second World War. During the Second Sino-Japanese War, the Kuomintang and the Maoists briefly ceased their hostilities to fight the Imperial Japanese, which would later allow the Kuomintang to later flee to Taiwan. This is important as Japan had lost already control of Taiwan in 1945, ensuring Taiwan’s proper place as part of Mainland China. When the Maoists were prevailing in the Chinese Civil War, the Kuomintang found Taiwan to be the only place where they can establish their own Chinese government.

The idea of Taiwan being a part of Mainland China is crucial to understanding its geopolitical importance to the Kuomintang and the Maoists. After the Chinese Civil War ended, the Maoists and the Kuomintang spent much of the “Cold War” proclaiming themselves as the true China. Both saw the island as part of China, and neither were willing to consider Taiwan as existing independently from Mainland China itself. There can only be one China. Since neither the Kuomintang nor the Maoists had the capabilities to reunite all of China through conventional warfare, they were eventually forced into a state of constant refusal to recognize each other’s political legitimacy. Neither the Jeffersonians nor their Empire of Liberty have a definitive resolution as to which of the two should govern all of China because the political legitimacy of the Kuomintang, unlike the Maoists, remain ambiguous and open-ended.

The contemporary economic history of Taiwan cannot be separated from its own political history. The Kuomintang had the benefit of having a more well-educated and well-trained populace among those who retreated from Mainland China. Even though there is far more land in Taiwan compared to Hong Kong or Singapore, the Kuomintang still lacked the means to build their own economy.  To compensate for their inability to the resources of Mainland China, they relied on foreign aid from the Empire of Liberty during this period until they were able to pursue their own policies. The Kuomintang did not begin applying Developmentalism until the 1950s, when they began focusing their efforts on land reform. By redistributing the arable land in Taiwan, they were able to begin agricultural production, eliminate dependence on foodstuffs from Mainland China, and be in a position to establish a manufacturing base.     

Key to their applications of Developmentalism was “Party-State Capitalism.” A State, ran and operated by the Kuomintang, served the predominant role in planning and directing Kapital toward an economy geared toward export-driven manufacturing. Complementing this emphasis on exporting finished products were policies aimed at enhancing the already-existing talent and expertise of the population and restrictions on imports from the Empire of Liberty. The pace at which Taiwan industrialized was a gradual process that occurred throughout the latter half of the 20th century, beginning with light industries like textiles and toys before advancing to heavy industries such as infrastructure and steel. The shift from light industrial manufacturing to heavy industrial ones coincided with the Death of Bretton Woods, which the Kuomintang were able to briefly forestall by developing electronics and telecommunications appliances. Their efforts did not last by the 1980s, as serious discussions were being made to dismantle Party-State Capitalism.

Such discussions came as part of the Developmentalist pursuit of Economic Liberalization, which later enabled the subsequent Political Liberalization and Social Liberalization of Taiwan. The practicality of Party-State Capitalism is hampered by its reliance on a combination of military force and corruption because the ‘State’ has to govern in the interests of the Kuomintang’s long-term survival. The ‘State’ also does not wield the Incentives of Supply and Demand. To reiterate, if the Kuomintang failed to secure its own political legitimacy, there is no doubt that the Maoists could have exploited that weakness and brought Taiwan under their control. Thus, Party-State Capitalism had to rely on increasingly undemocratic politics and overemphasis on exportation to these United States in order to sustain itself. These factors undoubtedly contributed to why, in the decade after the Death of Bretton Woods, the Kuomintang’s Party-State Capitalism came under political-economic pressures from actual Liberal Capitalists who wanted to turn Taiwan into a Parliamentary Democracy and Market Economy aligned with the Empire of Liberty.

Thus, the Economic Liberalization of the Taiwanese economy and the Political Liberalization of the Taiwanese government are closely linked. Both were controlled by the Kuomintang during the 1980s. Every attempt to challenge the Kuomintang within the economic realm was done in order to challenge their legitimacy in the political realm. It explains why labor unions, Maoist or otherwise, were always seen with suspicion by the Kuomintang, who sought to eliminate them whenever they appeared under Party-State Capitalism.  Here, the Intents matter more than the Incentives because whenever an attempt was made to challenge them politically, the Kuomintang always chose to rely on martial law and crackdowns on political dissent. By that point, however, there was already enough support by the end of the 1980s to force the Kuomintang into accepting the Political Liberalization and Social Liberalization that comes with Economic Liberalization.     

After the Kuomintang conceded to Political Liberalization and Social Liberalization as a result of applying Developmentalism, Taiwan’s economy underwent a massive transformation away from Mixed Economy. The shift toward Market Economy saw Taiwan begin focusing more on information technology and commercial services as Free Trade Agreements with Mainland China (thanks to the Dengist economic reforms) and further integration into the Empire of Liberty took their toll. Compared to Hong Kong and Singapore, Taiwan did not foster any significant dependency on financial services, its export-driven policies focusing more on outflows of Kapital and limiting the effects of the Asian Financial Crisis.

Today, many of the economic and social problems of Taiwan are related to the problems of trying to adopt Liberal Capitalist economic governance model. Its Market Economy remains dependent on exporting electronics and information technologies to the Empire of Liberty, a major flaw that became apparent with regard to semiconductor during the Coronavirus Pandemic. Like the West in general, Taiwan is also suffering from constant competition against other countries in the Empire of Liberty where the Quantity of Kapital is higher for industrial manufacturing, in addition to the problems of demographic decline. It also has familiar issues like increasingly unaffordable housing and a social division between those living in the more urbanized north than the less developed southern half. The division is related to those same Chinese who retreated from Mainland China to Taiwan and those who are native to China, the latter of which are convinced that they are being treated as being inferior to the former. It can be argued that such sentiments tend to manifest within the topic of taxation policy in Taiwan.      

Categories: Economic History

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