T 50 Chapter 3 From Farmers to Manufacturers 51 Taiwan's innovative economic planners also invented economic process- Shoes,apparel,toys,small appliances,consumer electronics-these were ing zones-industrial parks in which firms were exempt from many taxes the export goods that put Taiwan on the map.Whatever brand name they and regulations.The first EPZ opened in Kaohsiung in 1966.It attracted bore,they were almost always manufactured in small,family-owned facto- strong interest from international investors,especially manufacturers from ries linked together in production networks clustered around dusty village the United States and Japan.Within two years,it had met its targets for in- crossroads.The owners of these factories rarely had engineering degrees or vestment,export value,and employment,prompting the state to construct MBAs;they learned their businesses by working as laborers,machinists,and EPZs in several other cities.Other government policies,including hefty apprentices.Once they'd acquired the skills they wanted,they struck out on spending on education,reinforced Taiwan's export expansion and helped their own,earning them the nickname "black-hand bosses"-entrepreneurs push overall economic growth to an average annual rate of 10 percent in who'd gotten their hands dirty on the way up and weren't squeamish about the 1960s and 1970s. pitching in on the factory floor. Large corporations,many of them state owned,provided a steady supply Generations of Americans grew up with Christmas trees strung with two- of industrial raw materials-energy,plastic,steel,cement-to Taiwan's ex- inch colored-glass light bulbs on heavy wire-a classic "Made in Taiwan" port manufacturers.The export sector,in contrast,was dominated by small product.Glass Christmas lights are as good an example as any of how Tai- and medium-sized enterprises (SMEs).That pattern is another fascinating wan's SMEs kept the world supplied with consumer products.Making the chapter in Taiwan's economic success story.Taiwan's economic divide lights and stringing them on the wire is not a high-tech process;it requires reflected the division in the society between Taiwanese and Mainlanders. coloring,cutting,and shaping glass tubes;inserting filaments and fitting Both the education system and the structures for civil service promotion metal bases to the bulbs;attaching sockets and plugs to coated wire;and were biased in favor of Mainlanders,who were overrepresented in the mili- assembling and packaging the finished strands. tary,government,and state-owned firms.As a side effect,the export-heavy The Taiwanese approach to manufacturing such a product was to break private sector belonged to the Taiwanese. down the production process and have individual firms make each piece: Taiwan's generous investment incentives and low labor costs attracted the metal base,the glass bulb,the wire.To maximize efficiency,factories "sunset"industries from the United States and Japan,where rising labor would set up close together.Taiwan had few zoning or land-use regula- costs and environmental restrictions were driving out many manufacturing tions,so manufacturers were free to locate in rural areas and small towns firms.They also attracted ethnic Chinese investors from around the world. where land and labor were cheap,but reliable transport was never far away; While some foreign companies established subsidiaries in Taiwan,a more in our Christmas light cluster,the glass cutting and wire shops might be on typical pattern was to contract with local firms to produce goods according either side of a banana grove or rice paddy.Any land that wasn't needed for to the foreign company's designs and specifications.This process-known the factory was cultivated,with agriculture supplying a small but reliable as contract manufacturing-allowed Taiwanese firms to build their manu- supplementary income facturing capacity and absorb new technologies and know-how without Firms were family owned,and family members provided much of the la- taking on the burdens of brand building and marketing. bor.When orders were strong,factories ran 24/7,pulling in youngsters and "It's better to be a chicken's head than an ox's ass"-so say Taiwan's en- relatives from the countryside to work.When business was slack,the children trepreneurs.The colorful idiom captures the essence of Taiwan's business concentrated on school,and the relatives returned to farming or trade.Instead culture,and it goes a long way toward explaining why SMEs play such a of paying wages to family members employed in a business,families treated huge role in the island's economy-almost 80 percent of employment and factory profits as collective household income.The "Boss Wife"(laobanniang) 50 percent of exports.The government policies that favored state-owned was a key player in these businesses-serving multiple management func- firms in large-scale and heavy industry limited the growth of private firms tions,and pitching in when necessary on the factory floor.Involving women and ensured a steady supply of industrial inputs.The state's relaxed ap- (and children)in production was nothing new.Whether they were farmers, proach to new business creation reinforced the cultural preference for be- artisans,or merchants,Taiwanese families had long expected all their mem- ing one's own boss.Together these policies allowed Taiwan's small-scale bers to contribute economically.This patriarchal form of corporate organi- manufacturing to become the most vibrant,competitive,and successful in zation predominated into the 1980s,when generational and technological the world. turnover gradually introduced professional management to Taiwan. The "Made in Taiwan"label was as ubiquitous in the 1960s and 1970s as Clustering small firms for joint manufacturing promoted cooperation "Made in China"is today,and it was found on many of the same products. among relatives,schoolmates,and friends.It also promoted flexibility and
52 Chapter 3 From Farmers to Manufacturers 53 minimized marketing costs.SMEs learned to retool quickly to meet the de- The era of rapid export growth provided the ideal environment for hui: mand for new products.Often,a whole cluster could get by with sending dense social networks of people living close together and working in in- one representative to trade shows to collect orders from foreign buyers.By terlocking businesses.Lending money to one another to invest in their keeping their business within close-knit networks,Taiwanese entrepreneurs SMEs served everyone's interests;like nearly everything else the SMEs did, were able to minimize risk while sharing know-how and capital. it concentrated resources for mutual benefit.Small-scale factories were not Capital was especially precious in Taiwan's SME economy,because small particularly safe or pleasant places to work.Their environmental practices firms'access to formal credit was minimal.Banking and finance were weak did no favors to the natural world or human health.And many,many points in the ROC economy,and government credit policy favored large SMEs were losers in the ruthless competition for orders.Nonetheless,small companies.It was nearly impossible for SMEs to borrow money in conven- and medium-sized enterprises were the foundation of Taiwan's export- tional ways,so they turned to informal sources of capital,including mutual led development.Like coral polyps building up a reef,thousands of tiny aid societies,or hui. businesses powered by millions of small,unsecured loans built one of the Hui are a fascinating solution to the shortage of credit in developing world's largest trading economies. economies;they resemble microloans,but require no outside sponsor.If a Small and medium sized firms are the bedrock of Taiwan's economy, Taiwanese wants to assemble a hui,he or she(hui are very common among but a handful of consumer-oriented manufacturers did manage to get large. women)invites friends,relatives,coworkers,and business associates to Tatung Corporation is to Taiwanese what GE and Ford are to Americans:a join.The duration of the hui typically is one month per member,they company everyone grew up with.Women of a certain age get misty remem- tend to last between one and three years.The first month,each member bering their first Tatung rice cooker (introduced in 1960);folks in their contributes a set amount of money,and the founder takes the whole kitty. forties can sing the Tatung advertising jingle they watched on their first TV Thereafter,everyone (including the founder)continues to pay in the same (black-and-white,1964;color,1969)with its classic import substitution monthly contribution,but the other members bid for the kitty.The win- tagline:"Tatung!Tatung!Local products are the best!"Tatung products ning bid is,in effect,interest paid to the remaining members.Each member brought electric power into millions of homes (generators,transformers, gets to "buy"the kitty one time;the longer you wait,the more interest you cable)and helped relieve the misery of long tropical summers(electric fans, can earn. 1949;air conditioners,1964).In many ways,Tatung is an exception to the Today,Taiwan is saturated with formal credit,as the ubiquitous credit pattern of Taiwanese manufacturing:a large,consumer-oriented company card ads in the Taipei subway attest.But many Taiwanese still participate producing for the domestic market.But in other ways,it's a typical family- in hui-and some participate in many hui at the same time.Hui do not owned company-just one that happened to get very,very big. require a credit record,documentation of income,or really any paperwork Tatung Corporation is the successor to Xie Zhi Business Enterprise, at all.A skillful player can balance interest paid and interest earned and founded by Lin Shang-Zhi in 1918.In the early years,the company's main schedule payouts when they're most needed.Of course,hui have one seri- line of business was construction;it built the Executive Yuan complex,one ous drawback:cheating.They are not legally binding,so there's little protec- of the largest Japanese-era buildings still in use today.In 1939,the com- tion if a member decides to stop paying in once the member has taken his pany went into iron and steel manufacturing as Tatung Iron Works.It began or her money out. mass production of electrical motors and appliances a decade later.In 1962 What makes hui possible is the dense network of relationships in which it was listed on the Taiwan Stock Exchange.In 1969 the company adopted they are embedded.If a coworker asks you to join a hui to help raise a down a mascot,Tatung Boy. payment for an apartment,you know that coworker will see you at work Tatung Boy is a strapping,round-faced lad dressed in rugby gear,rugby every day until that hui has played out.If the coworker disappears,that ball tucked under one arm.He's cheerful and cute,but he was designed to coworker knows you will find him or her (or at the very least the coworker deliver some stern lessons.To begin with,there's a slot in his head to put will never work in this town again):23 million people are fewer than you'd money in,because,as the company founder famously stated,"Entrepre think when they're squeezed together on an island the size of Denmark. neurship starts with the saving of one dollar."His extra-large head and eyes And few tears are shed for those who lose money by joining hui with reflect the importance of staying smart and keeping an eye on consumer strangers,because everyone understands that absolute trust is an absolute trends;his oversized feet reflect Tatung's pioneering spirit.The rugby outfit requirement for joining hui. symbolizes teamwork
54 Chapter 3 From Farmers to Manufacturers 55 Tatung is one of Taiwan's oldest,largest,and most successful businesses, turing independent,with an emphasis on using technology-rather than but it remains true to its founder's penny-pinching ethic and traditional cheap labor-to create value.To do so,it invested,too,in human capital, approach to business.The current chairman,Mr.W.S.Lin,is the grandson extending free compulsory education to the junior high school level in the of the founder.He welcomes visitors in an old-fashioned reception room mid-1960s. in the company's Taipei headquarters,a green-tiled first-generation office building that looks a little dowdy compared to Taipei 101.A huge,low To accomplish these goals,Taipei unveiled another stage in its industrial upgrading plans.The Ten Major Development Projects used government table covered with trophies,prizes,awards,and gifts from dignitaries fills resources to build capacity in heavy industry.The private sector needed much of the room;Mr.Lin provides a quick tour of the highlights.Tatung steady supplies of strategic inputs.Rather than depending on foreign sup- Boy is everywhere. pliers,the ROC undertook a new phase of import substitution,setting up It is clear from Mr.Lin's comments that Tatung's leaders credit the com- its own facilities in petrochemicals,steel,shipbuilding,automobiles,and pany founder's hands-on leadership and resolute focus on production electronics.The Ten Major Development Projects also aimed at breaking for its success.The company doesn't spend money on fancy buildings for through infrastructure bottlenecks that were limiting growth.Some indus- its executives,but it built a university to train its engineers.During the tries succeeded;others,notably shipbuilding and autos,failed,but the shift import substitution era,the Tatung brand became hugely popular,but as toward high-technology,low-energy industries that began in the 1970s kept the economy shifted toward export-oriented development,Tatung played Taiwan's economy moving forward,toward the information age it safe.It sold Tatung-branded products in Southeast Asia,but its market When the KMT first arrived in Taiwan,its ambition for science and tech- was limited outside Taiwan.Like many smaller companies,it turned to nology was limited.Until the mid-1960s the ROC government was content contract manufacturing.Tatung moved into information technology(IT)in to allow Taiwanese manufacturers to license the technologies they needed; the early 1970s,making television picture tubes.Since then it has tracked developing new products and patents was not a high priority.Taipei's in- technological changes closely,manufacturing computer mother boards, terest in science and technology jumped abruptly when the PRC exploded monitors,televisions,telephones,and other IT items for global companies. a nuclear weapon in 1964.The successful nuclear test was incontrovertible Tatung never established its own high-tech brand,but with profit margins evidence that Taiwan would never conquer the mainland with conven- in high-tech contract manufacturing slim and shrinking,it recently under- tional military force and raised frightening questions about the ROC's very took a new push to internationalize its brand-a move that required break- survival.It prompted a reexamination of science and technology policy. ing with the company's long tradition. In 1969 the ROC government created the high-level Committee for Sci- Tatung's recent history highlights another important dimension of Tai- ence Development.Its members included some of the government's most wan's economic "miracle,"the shift from traditional manufacturing to powerful men:Minister of Economic Affairs K.T.Li,Minister of Educa- high-tech production.Between 1990 and 2000,electrical products'share tion C.H.Yen,and Minister of National Defense (and future president) of Taiwan's exports doubled,to more than 20 percent.Today,Taiwan is a Chiang Ching-kuo.The members recognized that industrial upgrading was global leader in IT manufacturing.Its companies have a huge market share critical to Taiwan's security and economic health.They were charged with in critical IT products,and it is constantly moving forward with cutting- developing a comprehensive,long-term science and technology policy that edge technologies,including nanotechnology and biotechnology.These de- velopments are explored more fully in chapter 6,but the roots of Taiwan's would integrate progress in academic research,industrial development, and military innovation.They were determined to connect manufacturing technological leadership reach all the way back to the era of export-oriented with advances in academic science and develop a full spectrum of technical industrialization. talent-from basic scientists to engineers to technicians.The Committee The shift from import substitution to an export-based economy was not for Science Development invited science and technology experts from the seamless.By the late 1960s,it was becoming clear that Taiwan needed to United States to offer advice.The consultants-who shared their findings keep moving to stay ahead of its competitors.Competition from other low- with President Chiang Kai-shek at the end of their visit-reinforced and cost manufacturers already was cutting into its market share.Trade restric- tions and exchange-rate volatility brought further risk.The oil crisis of 1973 legitimized the committee's efforts.Promoting science and technology be- came a national priority. threw Taiwan's energy-dependent economy into turmoil.The ROC govern- The new emphasis on technology got a boost from the oil crisis.Taiwan's ment decided to shift Taiwan's economy away from low-cost manufactur- economic analysts believed oil prices would continue to climb,and they ing with foreign technology.Instead,it sought to make Taiwan's manufac- were determined to find ways to insulate the island's economy against
56 Chapter 3 From Farmers to Manufacturers 57 future price shocks.The U.S.decision to recognize the People's Republic wan dizzying growth rates through the 1980s.Taiwan's ambitious,hands. of China and drop diplomatic ties with Taipei in 1972 reinforced Taipei's on entrepreneurs seized opportunities created by the development-oriented determination to become more independent.Throughout the 1970s and state to expand the private sector.And by the 1980s,some of the largest pri- 1980s,Taiwan's government actively promoted scientific and technological vate firms were overtaking their state-owned competitors.In 2000,Wang's development,including basic research and industrial application. Formosa Petrochemical Company opened a refinery to compete with the In 1973,the ROC merged three government research institutes to form China Petroleum Corporation;in 2001,the Taiwan legislature passed a bill the Industrial Technology Research Institute(ITRI).ITRI's charge was to de- to privatize the state-owned oil giant. velop new industrial technology and upgrade industrial techniques in the Just as Wang Yung-ching's private venture caught up with its state-owned private sector,and it has been spectacularly successful.In 1976 ITRI used competitor,the service sector eventually overtook manufacturing.Industry's technology licensed from RCA to begin semiconductor research;three years contribution to Taiwan's economy peaked around 1980,when it constituted later,it spun off United Microelectronics (UMC).UMC was Taiwan's first almost half of GDP.Since then,services have grown to occupy about three- semiconductor manufacturer,and it is one of the world's leading makers of fourths of Taiwan's economy.Agriculture-the leading sector just sixty years integrated circuits (IC)today.In 1987 ITRI birthed another IC giant,Tai- ago-now accounts for less than 2 percent of the island's GDP.These changes wan Semiconductor(TSMC).In 1985 it collaborated with Giant Bicycle Inc. were painful for many individual Taiwanese,but the country as a whole to develop carbon-fiber materials that allowed Giant to enter the top ranks benefited from them.Guided by technocrats and powered by the boundless of high-end bicycle manufacturing.Tens of thousands of ITRI "alumni"are energy of its high-achieving entrepreneurs and workers,Taiwan managed to working in Taiwan's industrial firms today. stay ahead of global economic trends through the second half of the twentieth In addition to ITRI,Taipei poured money into scientific research and century.As the economists Hsueh,Hsu,and Perkins put it,"one of the most education at all levels.It developed flagship research institutes,such as Aca- important lessons one can learn from Taiwan's development experience is demia Sinica (home of Nobel prize-winning chemist Lee Yuan-tseh),Na- that rapid growth requires equally rapid changes in approach." tional Taiwan University,Tsinghua University,and technical high schools that prepared huge numbers of workers for skilled industrial work.It built science-based industrial parks to encourage cooperation between scientists SOURCES and manufacturers.The most famous of these is the Hsinchu Science-based Industrial Park,founded in 1980,which houses more than four hundred Taiwan's economy has attracted intense scholarly interest and attention. high-tech companies in industries ranging from telecommunications to op- Some of the most important studies-all of which I rely on heavily in this toelectronics.In all of these endeavors,the ROC government invited private chapter-include Thomas Gold's classic book State and Society in the Taiwan business to participate in making science policy. Miracle;Li-min Hsueh,Chen-kuo Hsu,and Dwight H.Perkins'Industri- The decision to promote strategic industries helped Taiwan's information alization and the State:The Changing Role of the Taiwan Government in the technology industry flourish in the 1980s.At the same time,however,the Economy,1945-1998;Ezra Vogel's The Four Little Dragons;Robert Wade's island's rapid economic growth produced massive trade surpluses and a Governing the Market;and The Key to the Asian Miracle:Making Shared Growth spike in savings.To pacify its trade partners-including the United States- Credible by Jose Edgardo Campos and Hilton L Root. Taiwan followed Japan's lead in the mid 1980s.It dropped protectionist The Dutch description of Taiwan in the 1600s comes from Macabe Ke- trade barriers and allowed its currency to rise in value.These liberalizing liher's history,Out of China:Yu Yonghe's Tales of Formosa;and data about reforms were necessary,but they raised the price of Taiwan's exports.The rice production during the land reform come from Chien-chung Chiu, traditional industries that had moved to Taiwan two decades before-tex- "The Improvement and Production of Rice in Taiwan,"Taizhongqu Nongye tiles,toys,shoes-were sunset industries once again.But this time,the sun Gailiangchang Yanjiu Huibao,no.5,1981.Details about the role of SMEs was setting on Taiwan.For those industries,the next phase of Taiwan's in Taiwan's economy are drawn from Rong-I Wu and Chung-Che Huang's economic miracle would play out in a very different venue:the Chinese report for the Mansfield Foundation,"Entrepreneurship in Taiwan:Turn- mainland ing Point to Restart"(available online at www.mansfieldfdn.org/programs/ One of Formosa Plastics founder Wang Yung-ching's famous aphorisms program_pdfs/ent_taiwan.pdf).Megan Greene's book,The Origins of the was "develop manufacturing don't play money games."His single-minded Developmental State in Taiwan,is an excellent source of information on Tai- focus on manufacturing reflects the attitude and priorities that brought Tai- wan's science and technology policy
T 4 From“Free China" to Democratic Taiwan To their political supporters they have little in common beyond wide smiles set in round faces.One is a Hokkien-speaking Taiwanese who has devoted her life to bringing Taiwan out of China's shadow.A political outsider,she fought her way into leadership with courage,hard work,and charisma.The other is a Mainlander,born into the Republic of China's political elite.The party he has served all his life calls itself the Chinese Nationalist Party,and its aspiration has always been to merge Taiwan and the Chinese mainland. But from a distance,these two politicians-Kaohsiung Mayor Chen Chu and Taichung Mayor Jason Hu-bear a surprising resemblance.Both are politicians whose deepest joy comes from being among the people.Both are workaholics who have suffered strokes while in office-but refused to resign-and fully recovered.Both have pressed through great personal hardship-Chen Chu early in her career,when she went to prison for her political views,Hu late in his,when he stayed in politics after profound personal losses. Chen and Hu have something else in common,too:They are the ambi- tious mayors of large,complex communities whose interests and needs cannot be captured in a partisan sound bite.The mayors struggle every day with the practical challenges of governing;their careers span a time when adjusting to the changing environment has required tremendous flexibil- ity.For Hu,that has meant accommodating the popular preference for a Taiwan separate from China;for Chen,it has meant learning to live with- and even promote-a degree of integration between Taiwan and China far beyond her expectations only a decade ago.Their histories,including those adjustments,track the development of Taiwan's democratic politics, 59