Government Overreach Blamed as Taiwan Competitiveness Slides

Government Overreach Blamed as Taiwan Competitiveness Slides
Photo Credit: AP/達志影像

What you need to know

An economist blames Taiwan’s slide in an international competitiveness ranking on tight labor market controls and lack of institutional infrastructure.

Taiwan ranked 14th, down from 11th last year in the International Institute for Management Development's (IMD) 2016 Competitiveness Yearbook released this week. The nation's performance declined across three of the four main categories — economic performance, enterprise efficiency and infrastructure — while staying in the same spot on government efficiency.

Bert J. Lim (林建山), president of The World Economics Society, told The New Lens International the main reason for the decline in competitiveness was due to the government's excessive interference in the labor market and the lack of institutional infrastructure.

Restrictions on working hours and salaries have a strong influence on Taiwan's labor market and have been a factor in companies deciding to leave Taiwan, says Lim. As businesses left, job opportunities have decreased while salaries have stagnated. Moreover, the nation is facing a serious brain drain problem.

As for the lack of institutional infrastructure, Lim says laws need to be amended to make it easier for new industries to develop in Taiwan. He says this would help companies like ride-sharing service Uber – which has been banned – as well as businesses in the emerging fintech sector.

Kuo Nai-feng (郭迺鋒), associate professor in finance at Shih Hsin University, says the ranking should not be taken too seriously. Kuo says that while foreign investors might reference the ranking, it is not appropriate to judge an economy based on a single report. Still, he suggests the lower rankings do imply the failure of enterprises in Taiwan to successfully transition to new market realities in recent years – namely shifting away from the older models of original equipment manufacturer (OEM) and original design manufacturer (ODM), to original brand manufacturing (OBM).

Government response

According to the IMD report, Hong Kong is the top-ranked economy, followed by Switzerland and the U.S. Hong Kong regained first place, which the U.S. held from 2013 to 2015. Singapore dropped one place from last year, ranking fourth this year.

Kao Shien-quey (高仙桂), deputy minister at the National Development Council (NDC), says the main reason for Taiwan's lower ranking was the slow GDP growth last year. Kao says Taiwan has felt the impact of slowing global economic conditions as well as the performance of domestic industries that need restructuring. Kao said that efforts by the Tsai Ing-wen (蔡英文) administration to restructure and reposition Taiwan’s economy could have positive effects.

Lim, of the The World Economics Society, says that changing Taiwan's economic structure is likely to take at least three to five years.

In her inauguration speech last month, President Tsai said the country “urgently” needs a new model for economic development. Among a long list of structural challenges facing Taiwan’s economy, Tsai said the most important was that young people “still suffer from low wages.”

“Their lives are stuck, and they feel helpless and confused about the future,” Tsai said.

While she could not “give every young person a raise instantly,” she promised the new administration will “initiate actions immediately.” Tsai also said taht by protecting labor rights, the government “will also actively raise productivity and allow wages to grow in lockstep with the economy.”