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U.S.-Taiwan-European Conference “Taiwan’s Democracy and Future: Economic and Political Challenges”

Post Series: 2007: Volume 6, Number 2
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Taiwan’s democratization process and its implications on economic, political and social fronts are of great importance to understanding the key to Taiwan’s future and a resolution of the Cross-Straits crisis. Participants from different parts of the United States, Taiwan and Europe gathered on the Georgia Tech campus in early April at a conference on Taiwan’s Democracy and Future: Economic and Political Challenges.

The conference was sponsored by the Taipei Economic and Cultural Office (TECO) in Atlanta, Georgia Institute of Technology, University of London, Georgia State University, Kennesaw State University, China Research Center and the Center for International Strategy, Technology and Policy (CISTP). The event brought together 19 distinguished academics and an engaged audience of government officials, educators, policymakers, students, and representatives of the corporate community to discuss the crucial issues concerning Taiwan’s democratic future and its implications for the rest of the world.

The idea for this conference arose out of the need to have sustained discussions focusing on Taiwan’s domestic and international relations, primarily the issue of Taiwan’s democratization and its implications on cross-strait issues, establishment of a Taiwanese national identity and economic issues concerning the island.

In his opening remarks, conference co-organizer Robert Ash introduced the general themes of the conference — Taiwan’s position at the crossroads on political issues — the democratization process and the effects of it on domestic and international relations, establishing national identity, and economic issues.

The role of Taiwan’s evolution in the global economy as a response to China’s rise and Japan’s economic re-emergence was the guiding theme for the first panel.

The manufacturing sector in Taiwan showed immense growth in the 1950s, leveled off in the 1980s and then made a rebound in the 1990s. This was due to technology-intensive exports such as computer-related electronics and also high-skilled labor increasing dramatically with the low-skilled labor-intensive activities being moved to China and other countries. Governmental policies such as the establishment of technology institutions, science-based industrial parks, tax breaks and de-regulation of entry requirements also contributed. Another major factor for success was the emergence in Taiwan of a stronger private sector pushing for profit-making endeavors versus moves made for populist politics. The movement of Taiwan up the value-added ladder has increased the Taiwanese investment in Mainland China to utilize cheaper labor and resources and has also strengthened ties across the Strait. Statistics show that due to cheaper costs and larger market opportunities, the number of Taiwanese companies investing back in Taiwan is falling. As a result, China’s export boom has been sustained by Taiwan’s technological support and supply of intermediate goods and materials.

In comparison to small European countries like Ireland, the Netherlands and Finland, Taiwan has the lowest value-added workforce but is second after the Netherlands in science and technology performance. Thus the problem with Taiwan, according to one speaker, is the poor value-added per capita of the population and not the lack of high quality inputs. Taiwan’s recent policies to move away from Mainland investment, said the speaker, will make the island less attractive to foreign investors and multinational enterprises and by voluntarily making these policy moves, Taiwan will encounter a serious brain drain that will hinder overall competitiveness. The relation between Taiwan and the PRC is naturally complementary, added the speaker, the severing of which will only be self-defeating to Taiwan.

In Taiwan, the rise of China is being dealt with through economic, diplomatic and military means. Economically, China’s strengths of economic modernization, de-centralized regional leadership and lure of market area enables Taiwanese firms to take opportunities unavailable to them back home due to market size and volume. With the large amount of Taiwanese investment in the Mainland, Taiwan’s economic performance shows linkages with Taiwan’s PRC policies. There is a growing dependence of Taiwanese firms on the Mainland market and moves to diversify investment to other regions in Southeast Asia have not been successful. Thus, said the presenter, Taiwan faces a threat of marginalization. Economic integration will only bring closer political amalgamation and this could potentially put the ROC in danger of losing its nationhood. An option of solving the issue includes Taiwanese independence, but because people on Taiwan are highly polarized on this issue, the goal should instead be restrained reconciliation and contained confrontation for continued Taiwanese economic success.

With globalization, Taiwan’s role has evolved from a labor-intensive producer to having a labor shortage, and from being a capital-recipient to providing the capital. Taiwan has followed a sequential order of liberalization to cope with globalization. There has been a gradual change of foreign direct investment flows from inward directed to an outward push, geared mainly towards the Mainland. As other industrialized latecomers, Taiwan’s financial sector is far behind that of its other sectors. Overall, Taiwan has created its dynamic comparative advantage to compete with other East Asian economies by upgrading its technological leverage and attenuating its vertical specialization through intra-industry trade.

Taiwan’s national competitiveness lies in higher levels of technology-intensive products. Taiwan has become a partner of Asian economic integration by significant investments in Southeast Asia, argued one presenter. Maintenance of Taiwan’s strategic position is best achieved by moving to the high-end via vertical specialization with increasing intra-industry trade structure. Taiwan has a strange phenomenon of having a high level of patents per capita and yet having a deficit in technology trade. This fuels the need, according to the presenter, for Taiwan to move from imitation to innovation. For sustainable development, Taiwan has to develop greater competitiveness by moving from OEM (Original Equipment Manufacturing) to developing production facilities that support the creation of indigenous core industries.

In the luncheon keynote session, the speaker’s theme was the internal sources and external implications of democratic gridlock on Taiwan. The main challenges faced by Taiwan, according to the official government view on Taiwan, are a rising military threat from China, a threat to the sustainability of democracy, and Taiwan’s challenge to be recognized in the world. The main reasons for the United States to care about the health of democracy in Taiwan, according to the speaker, are:

  1. Taiwan’s democratization is important for political change in China
  2. China is not passive and tends to show that non-liberal technocratic regimes provide better economic performance than some democratic economies
  3. The United States made decisions regarding Taiwan without input from 1943 all the way to 1978 and thus needs to support them
  4. Taiwan faces daunting choices in dealing with China’s dysfunctional political mechanism where the people’s interest are not served
  5. Taiwan needs strengthening on all fronts – economically, militarily and psychological—in order to emerge successfully from its current political and economic phase of development

Some of the major drawbacks of the Taiwanese democratic system include a corrosive and pervasive partisan mindset when moderate tendencies are needed to work together, a severe need of stimulus to invigorate Taiwan’s political institutions and lack of a working political coalition. But overall an erosion of Taiwan’s political elites is a severe threat to democracy and thus political reform is needed by improving governance and bringing about democratic consolidation along with inspired political leadership.

The topic of the second panel of the conference was on the structural issues facing the economy of Taiwan. The first presentation focused on trade, investment and technological upgrades in the Taiwan economy. As China’s growth has increased, the interactions between Taiwan and the Mainland have kept pace with Taiwan currently being the second largest FDI provider to the Mainland. Overtime the types of investment have changed. A paradigm of Taiwan and other newly industrialized economies has been the international subcontracting model of production upgrading where production moved from an OEM to an ODM (Original Design Manufacturing) mode, and eventually transforming into an OBM (Own Brand Manufacturing) mode. Taiwan never reached the OBM stage since in the evolution of globalization, but rather continued to make the OEM mode profitable. The speaker recommended that Taiwan focus on producing goods for emerging markets like China instead of pushing to make the transition into the OBM stage.

Taiwan’s model of development has been “semi-internationalist” which promotes local firms to be internationally competitive while seeking alliances with foreign multinationals to gain access to new and emerging technologies. This approach coupled with close government-business ties to attract and direct capital to emerging industries has made Taiwan successful and will continue to do so in the future, according to one speaker. Some of the problems that threaten to destabilize Taiwan’s continued economic success are slowing economic growth, which has affected employment and labor productivity, slower progress in implementing liberalizing policies, rising income inequalities and an increased reliance on illegal migrant workers from other parts of Asia. Some other human resource problems include decreasing number of people reaching the needed educational levels, the severe underutilization of women which is among the lowest in Asia and a rapid aging of the workforce population that could potentially increase economic inequalities on the island.

The topic of the third panel of the conference was the political deadlock and the policy paralysis in Taiwan’s new democracy. The first presentation focused on the political erosion in Taiwan’s transition to democracy. The speakers highlighted how signs of democratic erosion were emerging in Taiwan with the DPP being unable to change its deep-rooted opposition party mindset. The symptoms of political erosion emerging in Taiwan are deterioration of the election mechanism, the incapacity of the rule of law and denial of access to other sources of information. This is due to a history of strong-man politics on the island and a glaring institutional deficiency with a growing anti-system political culture. The goal of Taiwan politics, according to the speakers, should be the deepening of democracy and the institutions that will support it.

Another speaker highlighted the polarization of political parties in Taiwan in the current DPP era. The current need is for the factions across all parties to be moderate favoring electorally popular positions. But President Chen Shui-bian’s first term had mixed results in this regard, and the second term is showing a great divergence of opinion on major issues. Some of the issues facing the different political parties include Taiwanese independence, national identity, constitutional reform, military procurement and political corruption. The problem of widespread divergence of political positions is compounded by the inner-party and intra-party blocs’ balance of power and the response of parties to polarizing moves. The future prospects of these trends shows the continuation of current inner-party power struggles especially over nomination issues for the 2007 Legislative elections and the 2008 Presidential elections.

The national identity issue is one of the strongest polarizing issues in Taiwan and one speaker talked about the different manifestations of local identity from pushes for nativization to de-sinicization. The effects of de-sinicization include actively removing all symbols and institutions of Chinese culture and have had a growing hold on identity politics especially under President Chen’s administration. On the spectrum of identity politics with nativization on one end and integration with the Mainland on the other end, Chen’s preference for de-sinicization shows clear ethnic politics and the emergence of an anti-Chinese nationalism, which highlight the importance of the Mainland factor in domestic Taiwan politics. Trends also show an increase of a Japanese effect on the Taiwanese identity in recent years with Japan being seen as a valuable economic resource. According to the speaker, the broader theme of identity politics in Northeast Asia shows the influence of China versus Japan in the region.

The topic discussed at dinner was the divided China problem and Taiwan’s future prospects with stronger emerging cross-Strait relations economically, politically and culturally.

The fourth panel on Saturday morning discussed the constitutional debate in Taiwan and its current relevance. The first speakers highlighted the pervading myth of a rigid constitution. A rigid constitution by definition makes the passing of regulation tough and requires a high threshold of legislation to pass any regulation. The speakers asked the question why the DPP supported a required high-threshold to amend the Constitution while wanting to push forth constitutional reform. A rigid constitution is stable and venerated but is not flexible or adaptable. The reasons for the DPP to choose constitutional reform despite setting up a high threshold for passing the reforms are purely political, it was argued. The impact of the rigid Constitution myth has been to limit the spectrum of choices available to create an amendment to the Constitution and to legitimize any choice that falls within the spectrum of the myth.

The next speaker talked about the politics behind the constitutional reform process. There were four rounds of constitutional reform in Taiwan. The first round of reforms (1991, 1992, 1994 and 1997) restored democracy and modernized the democratic process in Taiwan. The second reform round (1999-2000) enlarged and then eliminated the legislative body, while the third round (2003 and 2005) further adjusted the legislative state. The fourth round of reforms is currently underway in Taiwan. The DPP, as mentioned before, is seriously pushing for constitutional reforms since they want to disrupt the current status quo that is shifting power in favor of the opposition party – the KMT. They, of course, wish to overturn the equilibrium in their favor. The speaker pointed out earlier work that showed the main components of Taiwan’s constitutional reform to be ideology and political power. The current round of reforms is going to be hard, according to the speaker, since the reforms aim to bring more power to the president and this cannot be achieved since the credibility that the DPP brings to moderate constitutional reform is greatly reduced.

The fifth and last panel of the conference focused on the democratization of Taiwan’s army. According to the presenter, the main challenges to Taiwan’s security are the international environment, China’s rise along with the emergence of stronger cross-Strait relations, domestic politics and internal military affairs. On the domestic front, there is ongoing debate if army modernization is a defense or political issue since the defense decision was made via a defense group consensus 20 years ago rather than through any type of democratic political process. The transformation of Taiwan’s army has to be on organizational, doctrinal and technical levels for it to succeed, where success is defined by sustained deterrence of any moves by China since victory can only be achieved by the lack of war.

Conference Speakers and Moderators:

Robert Ash, Professor of Economics, School of Oriental and African Studies, University of London, London, England
Anne Elizabeth Booth, Professor of Economics, School of Oriental and African Studies, University of London, London, England
Richard C. Bush, Senior Fellow and Director, Center for Northeast Asian Policy Studies, The Brookings Institution, Washington D.C.
Chun-chih Chang, Doctoral Student, Graduate Institute of East Asian Studies, National Chengchi University, Taiwan
Herlin Chien, Doctoral Student, Institute of Political Science, National Sun Yat-sen University, Taiwan
Chien-min Chao, Professor and Director, Sun Yat-sen Graduate Institute of Social Sciences and Humanities, National Chengchi University, Taiwan
Peter C.Y. Chow, Professor of Economics, City College and Graduate Center City University of New York, New York
John E. Endicott, Professor and Director, Center for International Strategy, Technology and Policy (CISTP), Sam Nunn School of International Affairs, Georgia Institute of Technology, Atlanta, Georgia
Jonathan Eyal, Director, International Security Studies, Royal United Services Institute (RUSI) for Defence Studies, London, England
Daydd Fell, Lecturer, Department of Political Studies and Centre for Financial and Management Studies, School of Oriental and African Studies, University of London, London, England
John W. Garver, Professor of Political Science, Sam Nunn of International Affairs, Georgia Institute of Technology, Atlanta, Georgia
John Fuh-sheng Hsieh, Professor of Political Science, University of South Carolina, South Carolina
Alexander Chieh-cheng Huang, Professor of Strategic Studies and Director, Graduate Institute of American Studies, Tamkang University, Taiwan
Christopher R. Hughes, Reader in International Relations, London School of Economics and Political Science, London, England
Joachim Kurtz, Assistant Professor of Chinese and Director, East Asian Studies Program, Emory University, Atlanta, Georgia
Wei-chin Lee, Professor of Political Science, Wake Forest University
Yeau-Tarn Lee, Associate Professor, Sun Yat-sen Graduate Institute of Social Sciences and Humanities, National Chengchi University, Taiwan
Chien-pin Li, Chair, Department of Political Science and International Affairs, Kennesaw State University, Georgia; Associate, China Research Center
Da-chi Liao, Professor of Political Science, Graduate Institute of Political Science, National Sun Yat-sen University, Taiwan
William J. Long, Professor and Chair, Sam Nunn of International Affairs, Georgia Institute of Technology, Atlanta, Georgia
Ramon H. Myers, Senior Fellow Emeritus, Hoover Institution, Stanford University, California
Barry Naughton, Professor of Chinese Economy, Graduate School of International Relations and Pacific Studies, University of California at San Diego, California
Penelope B. Prime, Professor of Economics, School of Economics and Business, Mercer University, Atlanta, Georgia
Doug Reynolds, Professor of Chinese History, Georgia State University, Atlanta, Georgia
Shelley Rigger, Professor of East Asian Politics, Davidson College, Davidson, North Carolina
Gee San, Professor of Economics, National Central University (NCU), Taiwan
Gary Schuster, Provost and Vice President for Academic Affairs, Georgia Institute of Technology, Atlanta, Georgia
Hung-mao Tien, President and Board Chairman, Institute for National Policy Research, University of Wisconsin, Wisconsin
Fei-ling Wang, Professor of International Affairs, Sam Nunn of International Affairs, Georgia Institute of Technology, Atlanta, Georgia
R.C. Wu, Director General, Taipei Economic and Cultural Office, Atlanta, Georgia

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