All Commentary
Monday, March 1, 1982

Economic Growth in Taiwan: Invisible Factors Contributing to Economic Development in the Republic of China

Shih Cheng Liu is currently Chairman of the Board, Bank of Taiwan. Mr. Liu was formerly a Professor of Economics at National Taiwan University and is frequently an editorialist for several Chinese newspapers published in Taipei.
      Mr. Liu first offered this message as a lecture delivered in Chinese in mid-1980. Friends insisted it be translated and shared with a wider audience.
      “As an economist,” explains Mr. Liu, “1 believe that entrepreneurial factors which have proven successful in Taiwan are likely to be of similar value to other developing societies. Second, as a Chinese, I believe that these factors are psychologically compatible with human nature, regardless of race or culture.”
      It is time to explore in greater depth the “miracle” in Taiwan.

During the past 30 years, the outstanding achievements in economic development within the Republic of China (ROC) have been recognized all over the world by leading economists and businessmen.

Here in its base area of Taiwan, the ROC launched the first of a series of four-year plans in 1952. Since then, the obvious statistics are impressive: GNP has increased by 11.2 times, with an average annual growth rate of 6.7 percent. Per capita income increased by a factor of five. These are calculated in real terms.

In actual 1980 exchange rates, absolute income per head for that year amounted to US$2102.

As for foreign trade, its 1980 exports and imports totaled, respectively, US$19.8 billion and US$19.7 billion as compared with the 1952 figures of US$110 million and US$180 million.

By this bare outline, we gain a clear picture of the magnitude of economic growth in Taiwan.

What really counts, of course, is the actual livelihood of the people—and it is easily seen that they are pursuing the standard of living common to the industrialized nations.

Virtually no family is without a TV set, whether urban or rural. Most provide themselves with refrigerators. It is rare to see a person wearing patched clothing. Indeed, clothing is no longer merely a covering for the body, but is more often a fashionable symbol of prestige or social standing. Fans abound, and air-conditioning proliferates.

Traditional eating habits are still changing, but we can already see large increases in the consumption of milk, meat, and wheat as people desire more nutritious, higher protein diets.

Compared with only the very wealthy of 30 years ago, today even moderately successful businessmen and industrialists mostly own and drive relatively new cars.

Overall, this enhancement in the standard of living could not have been dreamed of 30 years ago.

This is especially so because of natural factors: Taiwan is an island of 36,000 square kilometers endowed with but a little coal, timber, and limestone. From this viewpoint, the potential for economic growth would seem poor. In other words, we may say that the main resources involve the population—currently something over 17 million. The conclusion, therefore, is that if Taiwan’s recent achievements are a miracle, it is a human miracle.

This is why I want to explore the invisible factors.

Attitudes and Conditions

A number of economists, especially from abroad, have tried to explain this miracle. But they most often take the easy path in analysis. They focus upon the most visible factors, such as the quantity and quality of capital, of natural resources; the structure and diversification of transportation and communications; the quantity and sources of power; the number of schools; the labor supply, and so on. All of these visible things are more easily counted, constituting a strong appeal to the economic experts.

It is, however, my thesis that the facts will show invisible factors to be more important to economic progress than are the visible factors.

The visible factors are those tangibles which are not so difficult to get or to build, provided the people devote their time to following the successful examples of the developed countries.

But what I refer to as invisible factors are those attitudes and conditions that must grow within a society itself; they take time, depend upon the nation’s culture and tradition, and cannot be produced in or imported from a foreign country. Hence, for an under-developed country, the provision of these invisible contributing factors to economic development is much more difficult than that of the visible factors.

Have we not seen undeveloped and under-developed countries, full of natural resources, struggling with little success to become industrialized? This is a good bit of evidence to support my view of the importance of the invisible over the visible factors of achievement.

Here, then, we come to factors, invisible cultural and psychological factors, which I believe have not been mentioned by economists in previous analyses of our economy.

Mounting Self-Respect

In the first place, we must consider the national self-consciousness that asserted itself after World War II within some previously colonized countries. Those societies felt that they had fallen too far behind the developed nations, in both industrial, civilized standards and in the practical standard of living. Hence, they strongly desired opportunities for self-improvement. This was not only a reaction to the colonial policies of the past; it was also an urgent pursuit of self-expression—and of self-respect—on their own.

In consequence, a driving force developed, as it were, a single will for a whole people. A great pressure was brought upon these governments to make development a preoccupation.

Just such a case is the Republic of Korea—and the ROC’s Taiwan province, too.

In response to this request, and with the support of the vast majority of the people,.the ROC government began the first of its consecutive economic plans. They have been brought into effect, one by one throughout 30 years, while the people—the most important resource—have been employed economically and to efficient effect in coordination with the policies and measures established by the government.

But what at first sounds like standard political economy is not the whole story. Cultural ethics are also importantly involved. In Taiwan, people have gradually changed their ideas about personal behavior.

Ethics and Economics

There is both co-existence and contradiction in traditional Chinese attitudes toward ethics and economic behavior. Perhaps this is natural in all primarily agricultural societies. It is very similar to the coexistence of internal and external ethics as pointed out by the noted German sociologist and economist, Max Weber. It is also something like the Jewish and Christian conflicts over usury, on the one hand, and rents, on the other.

Especially after 1952, gradually growing attitudinal changes became apparent among the people of Taiwan. In one aspect, ethics continued to be seen as rules of social behavior—but in the marketplace, it became more acceptable to view economic behavior as an aim to legally pursue maximum satisfaction or profit as a proper reward for the risks of entrepreneurship.

For our economic understanding, the most impressive changes are to be found in the new distinctions being made between obligations and persona] rights; between charity and repayment of kindness.

Virtually all are now aware that pursuing the good life depends primarily upon one’s own individual effort.

A relative or friend may desire to extend support; but if he does so, it is a kindness, not any longer an obligation. From this develops the further idea that it is better to be able to give than to be in a position of having to receive.

These changes induced better and wider understanding of the risk/reward relationship in entrepreneurial efforts.

In another important aspect, too, we can see a drastic change from traditional attitudes toward, or judgments upon, social values. The Chinese have for long attached special importance to intellectualism. More than 2,000 years ago, Mencius said, “Some labor with their minds, and some labor with their muscles. The former rule; the latter are ruled.”

Naturally, then, manual labor—however necessary—was to be despised, and scholasticism—even when uttering pedantic nonsense—was more likely to be revered.

But the Industrial Revolution has taught all of its successful followers that such compartmentalization is wastefully inefficient. And so we see that economic development—mod- ern industrialization—makes necessary changes in various criteria of social values.

Especially amongst the younger but also amongst the sharper of the older generation in Taiwan, we see strong consideration being given to the value of independently earning one’s own way in profitable enterprise.

Erasing Prejudice

From these considerations there follows a marked decrease in prejudice as all honest and legal jobs are seen to be useful to the personal goal. The manual laborer, educated and trained .to think, becomes semiskilled and then skilled. The college engineer, getting his hands familiar with the inner workings of machinery and circuits, tempers theory with practicality and becomes a more efficient designer. And as both groups come into more frequent contact, old prejudices further diminish.

All of these foregoing attitudinal changes in Taiwan have nicely conspired to bring forth extraordinary and unprecedented driving forces in both manual skills and in creativity. They are factors which are not easily quantified statistically and are, in that sense, invisible. But I would find it hard to overestimate the extent to which these valuable changes have exercised a favorable impact upon the economic development of the ROC on Taiwan.

Underlying all of this, there must be, of course, a proper infrastructure that includes a work ethic, education, law, and order.

In some under-developed societies, particularly in warm or tropical areas, there is an attitude toward work itself that can only be described as indolent. But the people of Taiwan, an island classified as sub-tropical, are influenced by an age-old Chinese ethic that is much more northerly. It strongly stresses “respectful attention” or a phrase that might be translated into “sincere, true, and faithful mentality,” though it does not emphasize the Western “exactness” or “precision.”

In America, the coined “workaholic” is popularly applied to managers and executives who work habitually more than 50 or so hours per week. But in Taiwan, especially since the onset of industrialization, the newly arising entrepreneurs, in conjunction with their employees, expend great effort by assuming respectful attention to their business; they watch everything carefully and dare not be negligent in their duties. Today, visiting foreigners are usually amazed at the number of managers and executives who work long after suppertime and throughout the weekend.

Better Educated and Trained

Still, all of the above would be in vain were the following generation to be no more advanced than the one before. Thus, 30 years of expanding and improving education have prepared myriads of sons and daughters not only to enter, but to improve our industries and services. On a competitive basis of high standards, application to undergraduate and graduate studies is publicly available. From these qualified young people, numerous men and women of high ability are equipped with the knowledge and skills required to run the businesses of design, production, and trading and shipping services. It must, then, be concluded that success in Taiwan’s educational efforts is partly responsible for its achievements in economic development.

Of course, schools and graduates can be quantified and analyzed and are, in that sense, visible. But there is an invisible aspect that I want to stress. Before being awakened to a specific sense of economic development, most Chinese people were more or less satisfied with being “constant- income earners”; meaning that they tended to run some business in a routine way, peacefully, safely—avoiding risk where possible. But this could never have resulted in the tens of thousands of firms that now exist on Taiwan.

Taking Entrepreneurial Risk

For some, it began after schooling; for many, it began during school days: but as Taiwan’s embryonic development began to unfold, thousands of youths acquired an attitude just the opposite of their father’s attitude. Thousands and thousands of young people—and this does include women—began to seriously consider quitting jobs with incomes controlled by others in order to set up one-man or youthful-partnership companies. At best, of course, this is risky. But the young people have learned to do their best in forming optimum combinations of the factors of production. And, in taking these risks, they have also learned that the entrepreneur is the most important factor in national economic expansion. Recognizing the risk of failure, the potential satisfaction and profits of success are the basic, driving power that pushes the young person who sees the light of entrepreneurship.

So this is another thing that amazes the foreign visitor to the ROC on Taiwan: The very high percentage of one-man firms, of companies headed by a two- or three-man partnership, and so many of them not yet 30 years of age. They total a huge contribution to domestic production and services and, of course, to overseas marketing. The growing dollar value of their efforts is statistical and visible. What is not so visible to foreign economists is the tremendous energy that our youth bring to discovering new ways to get the job done.

I do not hesitate to say that positive attitudes, particularly amongst the young, toward entrepreneurial effort all over Taiwan are enormously beneficial to its economic achievements.

Some would avoid the issue of race; but, even avoiding it publicly, many will privately filter any analysis through their own biases. Allow me to openly declare that I believe the Chinese are among the more intelligent races of mankind.

Historical evidence places 16th Century China at least on the same level with other nations, both in culture and in economy; it is one of the oldest of nations, and one of the few not colonized by the western world.

So far as I can see, the factor that caused China to fall behind the western world was the absence of an industrial revolution. Ah, yes; but, why this lack?

Barriers to Trade

Western societies and nation-states first arose around an inland sea that bordered upon the edges of three continents, permitting faster and somewhat less risky intercommunications between diverse peoples. For most of western history, there have ever been two, and sometimes several, cultural systems in contention—which means a more frequent, if not always constant, contest of ideas.

In contrast, the vast bulk of China was and is landlocked by formidable natural barriers on three sides, with an infinitely larger, and frequently angrier, ocean on the fourth.

Too, a thousand years before Athens contested with the cultures of Asia Minor and Egypt, China was unified, and under the twin conditions of unity and relative isolation, the Chinese form of feudalism and monarchism grew stronger and more ritualistic. These are the conditions that combined forces to restrain the kind of thought, action, and experimentation that might otherwise have permitted an almost wholly agricultural society to discover or learn the secrets of industrialization.

I submit, then, that race has nothing to do with the earlier failure of industrial development in China. For added proof, observe that from the very earliest emigrants, those Chinese, individuals or families, who moved outward to South-East Asia, taking little or no capital with them, came quickly to positions of economic prominence and sometimes to great wealth among the societies in which they worked, and this is now observable all over the world. Chinese people are as capable of entrepreneurial activity as are the Scots of Adam Smith. And to this fact we may attribute much of the success in the development of Taiwan’s economy.

A Favorable Climate for Industrial Development

Finally, it is a basic premise that there must be a good climate for investment, many trading opportunities, and a high probability of profit-making. These, in turn, depend upon a “rule by law and not by men.” Given this, one expects a stable political environment that safeguards private property and legal economic activities, paving the way for harmonious relations between labor and management. These will make it possible to produce and trade in compliance with planned, or at least reasonably anticipated, costs and sales. These also make possible the advancement of the laborer and the upward mobility of the young as they may risk striking out on their own.

In the past 30 years, the Republic of China has impressed the world with its long-term stability. There have been no social upheavals or crippling strikes, largely because both labor and management see greater benefits for all through cooperation and concession. Many foreign investors and traders have stated that such a favorable and stable climate can hardly be found elsewhere in the developing world. Thus, this favorable image is projected and perceived internationally, with a result that enhances domestic capital formation and both foreign invest ments and trade relations.

For these reasons, many more factors of production become available and move steadily into Taiwan, paying back their fair and reasonable returns through the market functions. No place is perfect; but a society that approaches economic activity with a sense of fair play brings forth an additional factor which hastens its economic development.

I began With the thesis that invisible factors have contributed greatly to the economic achievements of Taiwan.

The factors I have emphasized are not tangible. They are not well described by charts, diagrams, or statistics.

Yet they do indeed exist.

And I am certain that they are more important than the visible factors so much beloved by so many.

The biggest difficulty is: To begin!

Economic development in the Republic of China was embryonic for many years. Then, as entrepreneurial attitudes took shape under a rule of law, it began rolling like a snowball down a favorable path, constantly accumulating both substance and velocity.

And, this has been witnessed and well understood by the young.

Today, the young Chinese emerge—both men and women—stronger and better educated than their fathers.

They have no hesitation in taking full responsibility for moving forward, moving upward, moving at full speed.

Many of the results are statistically visible. But the entrepreneurial attitudes—the motivations and the inner achievements and satisfactions—these are the invisible factors of success in the ROC.