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14 Taiwan, Singapore, and Indonesia
Taiwan
BOX 1
Area (Thousand sq. km.)
Taiwan
36
Currency
Taiwan dollar
Population 2000 (millions)
22
GNI per capita PPP
$13,950
GDP Growth 1990-2000
Value Added as %
of GDP 2000
Inflation Rate (1996 – 2001)
6.1%
0.8%
Agriculture
8%
Industry
37%
Services
55%
% of GDP
General
Government
Expenditure
18.2%
Exports
HISTORICAL BACKGROUND
Agricultural Development and Land Reform
47.8%
Industrial Growth
TABLE 14.1
The Structure of Manufacturing Enterprise in Taiwan, 1984 (number, employment, and production as a
percentage of the total)
1–19
20–99
100–499
500–999
1,000+
Number
82.1
13.8
3.5
0.4
0.2
Employment
17.4
24.1
28.8
10.3
19.6
Production
8.9
17.6
26.0
10.6
36.8
SOURCE: Provisional Data from Sixth Census (February 1984), Wade, Governing the Market, 67.
The Neoclassical Interpretation of Taiwanese Growth
THE FINANCIAL SYSTEM
INDUSTRIAL STRUCTURE
TABLE 14.2
Characteristics of Manufacturing Enterprises in Taiwan by Form of Ownership, 1986
Private
Corporations
Number of firms
57,477
Employment (thousands)
2,299
Fixed capital (millions NT$*)
1,013
Value added (millions NT$)
2,835
Employment per firm (thousands)
40
Capital per employee (thousands NT$)
440
Value-added per employee (thousands NT$) 1,233
Output-capital ratio
2.8
Family
Firms
61,224
337
101
170
5.5
300
504.4
1.6
State-Owned
Enterprise
State-Owned
Share of
Enterprises
Total (%)
221
0.19
93
3.41
294
20.88
325
9.76
420
—
3,161.2
—
3,161.3
—
1.1
—
*New Taiwanese dollars.
SOURCE: The Report on the 1986 Industrial and Commercial Census, Taiwan-Fukien Area, Republic of China (1988), 178; Wing Thye
Woo, Stephen Parker, and Jeffrey Sachs, eds., Economies in Transition Comparing Asia and Europe (Cambridge, Mass.: MIT Press,
1996), 211.
INDUSTRIAL POLICY
TABLE 14.3
Taiwan: Saving by Sector and Investment as a Percentage of GNP
Gross Domestic Savings
Private
Government
Year
1955
1960
1965
1970
1975
1980
1985
1990
Households Enterprises General Enterprises Total
2.7
4.5
5.1
2.3
14.6
4.8
4.9
4.0
4.1
17.8
8.2
6.2
2.6
3.7
20.7
11.0
6.4
3.6
4.6
25.6
11.0
4.6
7.1
4.0
26.7
11.5
8.0
7.9
4.9
32.3
16.3
6.5
5.2
5.5
33.5
14.1
5.7
5.8
3.6
29.2
Gross
Domestic
Investment
13.3
20.2
22.7
25.6
30.5
33.8
18.7
21.9
Net
Foreign
Flow
-1.2
2.4
2.0
0.0
3.8
1.6
-14.8
-7.3
SOURCE: Hugh Patrick and Yung Chul Park, eds., The Financial Development of Japan, Korea and Taiwan (New York: Oxford
University Press, 1996), 276.PrivateGovernment
THE BUDGET
THE FUTURE OF TAIWAN
1. The strengthening of Taiwan’s international competitive position, especially the continued development of
high-tech industry. Already Taiwan accounts for a massive 20% of the global production of computer
hardware. As such the island is highly subject to the swings in the world’s IT cycle and has been hard hit
in the 2000-2002 recession. Taiwanese investment in mainland is large and growing, and the control of
high-tech investment has been one of the government’s concerns. Simply if high productivity investment I
relocated to the PRC, in search of lower wages, there is a possibility that Taiwan will become increasingly
irrelevant. Its trump card at present lies in the mastery of high value industry and if that is exported the
quality of life on the island will suffer. Consequently, successive government’s have toyed with restraints
on technology export, however the latest plan stresses the promotion of a liberal trade environment in
general and the promotion of “cross-straits economic and trade interchange”
2. The improvement of the overall quality of life for the Taiwanese people; this new explicit goal is a contrast
from the traditional objective of fast growth of GDP. It includes the extended provision of extended health
services and a social safety net, but it is not clear how the difficult budget issues will be resolved.
3. Promoting sustainable development; 30 years of rapid growth has created the potential for environmental
disaster in the island’s eco-structure. The idea of a pollution free high tech industrial center is attractive
but will require extensive land use and water resource regulation, incompatible with the overall objective
of a reduced rol of government.
4. The government would like to develop the island into a center for corporate operations throughout East
Asia. The government refers to this goal as making the island an Asia-Pacific Regional Operation
Center (APROC). This will be hard to achieve, simply because of political uncertainty. The island’s
appeal to major western multi-nationals would be greatest if, like Singapore, there were few doubts about
its continuing stability and independence. The Taiwanese workforce has the skills and education to
provide a center for regional corporate operations. It is overqualified and too highly paid to sustain
Taiwan as manufacturing center. However, Taiwan’s relationship to China, and the ability of Chinese
authorities to place sanctions on firms based on the island, is a disincentive for multinationals to locate
there.
Singapore
BOX 2
Area (Thousand sq. km.)
Singapore
1
Singapore dollar
Population 2000 (millions)
4
Population Growth Rate
2.8%
GNI per capita 2000
$24,740
GNI per capita PPP
$24,970
GDP Growth 1990-2000
7.8%
Inflation Rate (1995 – 2001)
0.9%
% of GDP
Value Added as %
of GDP 2000
Currency
0%
Agriculture
Industry
34%
Services
66%
Government
Expenditure
22%
Export
77%
INTRODUCTION
TABLE 14.4
Singapore: Output, Prices, and Labor Market Developments (average annual growth rate as a percentage)
Real GDP
Employment
Unemployment rate
Earnings
Consumer prices
Real earnings
Productivity
1973–1975
7.3
4.0
4.3
13.5
14.5
21.0
5.2
1976–1978 1979–1984 1985–1987
7.9
8.7
3.1
4.8
3.4
—
4.0
3.1
5.1
5.8
11.5
3.9
2.0
4.7
20.1
3.8
6.8
4.0
3.5
4.6
4.7
1988–1993
8.5
3.9
2.5
8.5
2.6
5.9
3.9
SOURCE: Singapore, A Case Study in Rapid Development, International Monetary Fund, ed. Kenneth Bercuson (Washington, D.C.:
February 1995), 30.
POST-INDEPENDENCE REFORM
THE PILLARS OF SINGAPORE’S DEVELOPMENT
TABLE 14.6
Contribution of Foreign Establishments to Manufacturing in Singapore (percentage of category total)
Category
Value added
Gross output
Employment
Year
1962
1970
1975
1980
1988
1962
1970
1975
1980
1988
1991
1962
1970
1975
1980
Ownership Structure
Wholly
Majority
Wholly
Foreign
Foreign
Locally
Owned
Owned
Owned
24.6
—
47.5
37.0
49.4
35.6
47.4
62.7
24.3
54.1
67.4
19.1
61.9
71.7
14.9
31.4
—
45.6
43.4
55.8
31.0
56.2
71.3
18.1
58.7
73.0
15.6
61.1
75.0
14.1
62.1
75.3
16.0
14.1
—
66.4
17.7
34.7
45.3
31.5
52.0
32.8
39.9
58.4
28.1
Direct exports
1988
1962
1970
1975
1980
1988
49.0
26.3
56.7
66.1
71.5
72.6
59.5
—
—
84.1
84.7
86.1
27.6
44.7
16.5
8.9
7.1
6.5
SOURCE: Singapore, A Case Study in Rapid Development, International Monetary Fund, ed. Kenneth Bercuson (Washington, D.C.:
February 1995), 16.
CHANGE OF DIRECTION
TABLE 14.7
Singapore: Population, Labor Force, and Employment (as a percentage)
Labor
Force
Growth Rates Percentage per annum **Participation Rate**
Population**Labor Force**Employment* Total
Female
1957
—
—
—
57.0
21.6
1970
2.8
2.5
2.5
56.5
29.5
1980
1.0
4.2
5.2
63.2
44.3
1990
1.7
3.1
3.3
63.1
48.8
1992
2.0
4.2
3.4
64.5
50.6
*Average annual intercensus percentage change for 1970–1990.
**Participation rate for years shown; prior to 1990 as proportion of population over 10; from 1990, over 15.
SOURCES: Singapore, A Case Study in Rapid Development, International Monetary Fund, ed. Kenneth Bercuson (Washington, D.C.:
February 1995), 57.
SAVING AND INVESTMENT
TABLE 14.8
Singapore’s Gross National Saving Rate (as a percentage of GNP)
1970–1974 1975–1979 1980–1984
Gross national saving rate
24.4
31.2
42.2
Private saving
17.9
23.4
32.2
Central Provident Fund (CPF)
4.8
8.9
14.2
Other
13.2
14.5
17.9
Public Saving
6.5
7.8
10.0
1985–1989 1990–1992
39.7
43.6
30.3
33.0
14.4
13.8
15.9
19.1
9.4
10.7
SOURCES: Singapore, A Case Study in Rapid Development, International Monetary Fund, ed. Kenneth Bercuson (Washington, D.C.:
February 1995), 43.
SOCIAL ENGINEERING
Lee Kuan Yew himself has said:
I am often accused of interfering in the private lives of citizens. Yet if I had not done that we would not be here today. And I say
without the slightest remorse that we wouldn’t be here, we would not have made economic progress, if we had not intervened on very
personal matters—who your neighbor is, how you live, the noise you make, how you spit, or what language you use. We decide what is
right. Never mind what people think. That’s another problem.1
PRIVATIZATION
Singapore’s Future
Lee Kuan Yew retired as prime minister in 1990 but he retains control over the People’s Action Party
and through it the direction of Singapore. The progress of the island-state in becoming an almost entirely
“white collar enclave” by the mid 1990s is illustrated by Table 14.9. Total employment increased
between 1991 and 1996 by 223,825. The most rapid growth was in financial and business services
(where employment grew at 8.9 percent per annum), closely followed by transport and communication.
The move to “professional status” is illustrated even more clearly in the lower panel of the same table.
The growth rate of employment in management and professional occupations was 10 percent per annum,
while that of production workers was only 2.5 percent per annum. Today manufacturing share has
slipped further; 71% of the island’s GD originates in the service sector. The average citizen of Singapore
is among the world’s wealthy elite. In Mr. Lee’s own words that transition from third world to first
world in one generation is complete. The People’s Action Party retains its control over politics, with its
share of the vote rising to 75% in the elections of 2000, although the opposition maintained that this was
largely the result of abuse of power by the PAP.
However, increasing openness will present challenges.
TABLE 14.9
Employment Gains by Industry and Occupation, Singapore, 1991–1996
Employment Gain
Industry and Occupation
Number
Share (%)
Growth (% p.a.)
Lee Kuan Yew’s speech on National Day, 1986, cited in Christopher Tremewan The Political Economy of Social Control in Singapore
(London: MacMillan, 1986), 2.
1
Industry
Total*
Financial and business services
Social, community, and personal services
Transport and communications
Construction*
Commerce
Manufacturing
Occupation
Total*
Legislators, administrators, and managers
Technicians and associate professionals
Professionals
Clerical workers
Production and related workers
Service workers
223,825
82,699
45,648
42,404
15,992
60,568
(23,294)
100.0
36.9
20.4
18.9
7.1
27.1
210.4
2.8
8.9
2.7
5.0
3.1
3.6
21.1
223,825
77,907
121,862
51,316
37,811
(75,063)
14,590
100.0
34.8
54.4
22.9
16.9
233.5
6.5
2.8
9.7
10.7
10.9
3.6
22.5
1.4
*Figures include foreign workers, except those staying at construction sites.
SOURCE: Monetary Authority of Singapore, Occasional Paper no. 5 (May 1998).
Singapore, in its position as a financial, management, and communications center, was rocked by the
financial crises that affected Asia in 1997 and 1998. However, although the stock market took a beating,2
no fundamental flaw emerged in Singapore’s economic structure. Bank failures were few; the number of
banks operating in Singapore remained constant at about 150 throughout the crisis, although a rapid
wave of consolidation and merger occurred in the immediate aftermath. The rapid and repeated currency
devaluation, a common feature elsewhere in the region, was avoided, and the Monetary Authority
survived with its reputation intact.
Monetary and exchange stability during the crisis was enhanced by the very conservative nature of the
monetary system. From 1899 to 1982 Singapore had a currency board system, which required both a
fixed exchange rate and the complete backing of all domestic currency issue by hard currency reserves.
This completely limited credit creation, assured convertibility, and instilled economic discipline.
Singapore abandoned that system in 1982, but remains very conservative in approach, and the Singapore
dollar has remained extremely stable—an attractive feature to overseas investors.
Singapore’s long-term problem is whether or not it can exist as a “head without a body.” As the financial
capital of a region dedicated to low-wage manufacturing, its income differs dramatically from that of its
neighbors. One risk to Singapore is that political turmoil in the adjacent economies will detach
Singapore from them and leave it without a hinterland to provide financial services to. The chaos in
Indonesia it most populous neighbor has underlined this risk. Another potential problem is that
Singapore might suffer from an anti-Chinese backlash in its neighbors. The Economist newspaper
reports that people of Chinese origin make up only 6% of the total population of the neighboring states
of Malaysia, Singapore, Philippines and Indonesia, yet they control 70% of the wealth. Singapore, as the
de facto capital of the Chinese diaspora, might be vulnerable if ethnic and racial tensions rise once more.
2
The leading Straits Times Index, which stood at over 2,000 in February 1997, fell to a low of 856 in August 1998. Over the same period,
market capitalization fell from S$375 billion to S$261 billion.
SINGAPORE AS A MODEL
Because of its size, location, and special circumstances, it is hard to view Singapore as a useful model
for its Southeast Asian neighbors or other developing nations, despite its success. It has surpassed almost
all of the developed industrial nations in terms of income per head. In 2002 it had an estimated
purchasing power parity income of $25,500—ahead of every nation except the United States,
Switzerland, Hong Kong, and Kuwait—but its experience is not generalizable, although there are lessons
to be learned:
1. The importance of political stability. Despite its small size and relatively expensive labor force, Singapore
developed first as a manufacturing locale and then a financial services center, because it offered political
stability in a region where it was in scarce supply. It does not matter to foreign investors that this stability
relies to some degree on questionable claims of Confucian authority; what matters is that uncertainty is
reduced.
2. Transparency in regulation attracts foreign capital. Singapore’s tax codes and regulatory framework are
clearly written and by and large evenly applied, up to the point where domestic capitalists complain that
foreigners are preferentially treated.
3. A docile labor force is an asset in development. The government has ensured an environment of almost total
labor peace. Strikes have been virtually nonexistent for the past 20 years.
4. Rising living standards and sustained development require investment in human capital. Education has
been a vital key to Singapore’s ability to move “up market” from manufacturing to services.
5. A competent civil service is an asset, but it must be rewarded. Singapore’s civil service is well paid and
efficient. The World Bank found that only in Singapore were civil servants paid more (about a 15 percent
premium) than their counterparts in private industry.
Indonesia
BOX 3
Area (Thousand sq. km.)
Indonesia
19
rupiah
Population 2000 (millions)
210
Population Growth Rate
1.7%
GNI per capita 2000
$570
GNI per capita PPP
$2,840
GDP Growth 1990-2000
0.4%
Inflation Rate (1995 – 2001)
18.6
Value Added as %
of GDP 2000
Currency
Agriculture
17%
Industry
43%
Services
30%
% of GDP
Central
Government
Expenditure
Exports
17
40%
INTRODUCTION
THE NEW ORDER
Agricultural Development
Rent-Seeking Capitalism
TABLE 14.10
Indonesia: Trends in Key Economic Aggregates
Annual Rates of Growth
1960–1967 1967–1973 1973–1981 1982–1988 1988–1991
GDP
1.7
7.9
7.5
3.3
7.1
Non-oil GDP
1.7
7.3
8.0
4.3
7.7
Agriculture
1.6
4.1
3.4
2.9
3.0
Manufacturing
1.0
9.5
14.1
5.2
11.0
Services
2.0
9.0
10.0
5.0
7.8
Fixed investment
1.1
23.5
11.7
20.5
13.5
Public
—
—
11.0
22.0
8.2
Private
—
—
12.3
0.7
16.9
Non-oil Exports
2.1
25.6
0.0
7.6
16.5
Per capita GDP
20.5
5.5
5.2
1.3
5.3
Per capita income
20.4
5.6
9.1
20.2
5.1
Per capita consumption
20.6
3.0
5.5
1.4
5.0
SOURCE: Amar Bhattacharya and Mari Pangestu, “Indonesia, Development Transformation since 1965 and the Role of Public Policy”
(Washington, D.C.: The World Bank, 1993).
However, this economic progress was accompanied by considerable social stress and growing protest. At
the heart of this discontent was the fact that Indonesia represented a form of economic organization that
can best be called “bureaucratic capitalism.”3 Prominent figures were granted or seized control in
particular sectors of industry and used their power to extract monopoly rents. Furthermore, the army is a
prominent actor in the economy. This unusual phenomenon has its roots in the Sukarno era of the 1960s,
when, in the face of budgetary chaos, the army was unable to meet its payroll. It used its assets to build
“for-profit” businesses, mainly in transportation. When, with the army’s backing, Suharto came to
power, his uniformed supporters were able to appropriate control of large enterprises and in many cases
the revenues that streamed from them. The Sukarno era had also seen the forging of strong links with the
mainly Chinese businessmen who supplied the army, which carried over into the New Order economy.
3
Richard Robison, “Toward a Class Analysis of the Indonesian Military.” Indonesia, no. 25 (April 1978): 17–39.
TABLE 14.11
Control of Publicly Traded Companies in East Asia
Number of
Widely One Family Holds State
Holds
Corporations
Held
More Than
More
than
Country
Studied
30 Percent
30 Percent
Hong Kong
330
50.3%
34.4%
0.9%
Indonesia
178
24.7
58.7
6.7
Japan
1240
94.8
2.8
0.4
Korea
345
76.2
20.1
1.2
Malaysia
238
41.2
45.6
8.2
Philippines
120
58.3
22.1
2.1
Singapore
221
45.2
32.6
11.3
Taiwan
141
73.0
18.4
2.8
Thailand
167
24.6
54.8
7.5
SOURCE: Claessens, Stjin, Simeon Djankov, and Larry H. P. Lang, “Who Controls East Asian Corporations,” World Bank Working
Paper, no. 2054 (February 1999).
PLANNING IN INDONESIA
Formal planning of the Indonesian economy had its origins during the Sukarno period. The first five-year
FINANCIAL MARKETS
The World Bank’s view at the time was most approving:
The reforms were immensely successful. . . . While credit had been readily available only to producers and traditional services, it now
became available to a wide range of borrowers, including consumers and investors in the real estate and stock markets.4
JAVANESE IMPERIALISM
THE AFTERMATH OF THE CRISIS
Michael Backman in the his book Asian Eclipse5 suggests that the countries with the highest degrees of
corruption and lack of transparency were the ones that had to suffer most in the Asian financial crisis.
Despite its favored status with the World Bank, there is little doubt that Indonesia was one of the corrupt
economies in the world. The system of crony capitalism layered onto this great distortions and a total
absence of a level playing field. It was no surprise that the Indonesian economy that the Indonesian
economy commenced a fall from which it has yet to stabilize.
4
The East Asian Miracle: A World Bank Policy Research Report (New York: Oxford University Press, 1993), 239.
5
Michael Backman, Asian Eclipse: Exposing the Dark Side of Business in Asia,New York: Harper, 2001.
The rapid and largely unregulated expansion of the banking system inevitably led to chaos and failure
when the Asia crisis struck. The commercial banks collapsed and required a bail out, which was
administered by the Indonesia Bank Restructuring Agency (IBRA). The state pumped money in to
recapitalize them, largely from IMF resources, and, refinanced, they tried to collect some of the $27.4
billion on their loans books. In the event they collected less than two percent of the total, and received
instead most of the equity in the now bankrupt industrial groups, including Astra, Salim and Lippo.
Consequently the government found itself the owner of most of Indonesia’s industry. What was required
was a massive privatization but with few domestic buyers and foreigners avoiding Indonesia prices could
only be rock bottom. Some assets have been disposed of but the revenue has been negligible.
The Wahid government was short-lived. Implicated deeply in corruption and so incompetent in
economic affairs that the IMF suspended payments and relations in December of 2000, he was forced
from power in June of 2001. The Presidency passed to Megawati Soekarnoputri,(the daughter of the
first post independence President Soekarno) who put together a centrist coalition and staffed her
administration with professionals rather than politicians. So far her administration has done little.
Privatization has continued, especially in the financial sector, and relations with the IMF have been
restored. The economy has stopped falling for the moment, but foreign investors are staying away and
rising violence has destroyed the once buoyant tourist sector.
INDONESIA’S PROSPECTS
With extensive natural resource wealth and a large and cheap labor force whose literacy and skill level
was greatly increased by sustained investment in primary education, Indonesia should be capable of
resuming a path of economic growth. In the short run, however, there is little to attract the foreign capital
necessary for growth. Decades of corruption, growing inter-communal strife and increasing violence are
all deterrents to the necessary foreign investment. The Megawati regime must act to curb corruption and
to prevent the reemergence of the crony capitalism that was characteristic of the Suharto and Wahid
regimes. It must also stabilize the political union. This will probably involve some devolution of pwer
to the regions and ethnicities but this might involve starting down a slippery slope. If the government is
to succeed in curbing the centrifugal tendencies it must take steps to establish the Army’s reputation for
even-handedness and service to the nation. These are tall orders in an era where Indonesia, the world’s
most populous Islamic nation, is likely to be seen as refuge for fundamentalist groups.