Michael C.Y. Lin and Perry WongJune 2016

Diversifying the Economy Through Innovation and Collaboration

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Recapturing the Taiwan Miracle Diversifying the Economy Through Innovation and Collaboration

MichaelC.Y.LinandPerryWong

IntroductionBigchangesareunderwayinTaiwan.Itsfirstfemaleelectedpresident,TsaiIng-Wen,wasinauguratedinMay,heraldingabreakwiththepastinpoliticsandpublicadministration.InadditiontothethornyentanglementsbetweenTaiwanandChina,theisland’seconomicgrowthandcompetitivenesswillbeimportantissuesforthenewgovernmenttotackleinthecomingyears.

Taiwanwasonceanentrepreneurial,technology-driveneconomy.TogetherwithHongKong,Singapore,andSouthKorea,itwaspartoftheAsianFourTigers.Indeed,priortotheearly1990s,theTigers’realGDPgrowthoftensurpassed10percent,1andTaiwanoftenrankedamongthefastest-growingeconomiesinAsia.Thatdynamicpaceeasedinthe1990s,butTaiwanstillaveraged6.6percentgrowthduringthedecadeandgainedacommandingpositioninbuildinghigh-techindustriesandpromotingentrepreneurship.Asthe20thcenturycametoaclose,theislandhadachievedtheTaiwanMiracle—itsauthoritarianpoliticalsystemevolvedintoademocracywhileitseconomyboomed.

However,since2000,growthhasbeenerraticandoftencomparedpoorlywithotherAsianTigers.From2000through2009,therealGDPsanktoanaverage3.8percent.AlthoughTaiwanappearedtoregaintheleadamongitscounterpartsin2014with3.9percentgrowth,aweakeneddomesticindustrialbaseandastrugglingeconomyputitatthebottomoftheTigerrankingsforseveralyears:2000,2001,2008,2013,and2015.Taiwan’seconomyhaslongbeenheavilyreliantonexports,especiallycomputerhardwareproducts.However,datareleasedbytheMinistryofFinanceinJuneshowthatoverallexportshavedeclined16monthsinarow.

Thisproblemhasmuchtodowithweaknessinhigh-techexports,whichisextremelysensitivetoexternaldemandfluctuations.TheplungingprofitsofonetimestarTaiwanSemiconductorManufacturingCo.(TSMC)inthefirstquarterof2016wasaclearwarningsignforTaiwan’sfutureprosperity.Overall,theperformancegapbetweenTaiwanandtheotherAsianTigershaswidenedinrecentyears,asthechartbelowillustrates.Allfourhavebeenexportdrivenandreliantonglobalmarkets,andtechnologyproductshaveaccountedforparticularlylargesharesofSouthKoreaandTaiwan’scommerce.Asthedisparitybetweenthetwoincreased,itbecameclearthattechnologicalinnovationandbrandingsuccesscausedthedivergence. 1.GDPgrowthratesinthissectionarecalculatedfromBloombergdata.

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IndexedRealGDPGrowthofAsianTigers(1975-2015;BaseYear=1980)Source:DrawingbasedondatafromFederalReserveBankofSt.LouisandBloomberg.

WhereistheTaiwaneseeconomyheading?WillTaiwan’sindustries,particularlyitsrenownedconsumerelectronicssector,reinventthemselvestosharetheupsideoftheincreasinglytechnology-drivenservicespace?Morepointedly,canTaiwan’spublicandprivatesectorsworktogethertoreignitetheentrepreneurialspiritthatputtheTaiwanbrandontheglobalstageinthe1970s,1980s,and1990s?

Inthispaper,webrieflyreviewthetrajectoryofTaiwan’seconomicdevelopmentandofferourthoughtsabouthowitcanfacilitatetheresurgenceoftheTaiwanMiracle.

A Review of Recent History1.TheGovernment’sEconomicStrategies Inthe1960s,aplentifulandcheaplaborforcehelpedenableTaiwantodeveloplabor-intensiveindustries.Duringthisperiod,Taiwanwastheworld’sprimaryexporterofsuchconsumergoodsasshoes,toys,andumbrellas.Toaugmenttheexport-orienteddevelopmentstrategy,thegovernmentenactedtheStatutefortheEncouragementofInvestmentin1960toencouragebusinessestoengageininternationaltradebyprovidingtaxincentives.Inaddition,since1966TaiwanhasestablishedseveralExportProcessingZones(EPZs),whichprovidedinvestorswithinfrastructure,streamlinedthe

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administrativeprocessforbusinessoperations,andofferedtaxincentives.EPZsalsoprovidedtheruralpopulacewithjobopportunitiesandattractedforeigninvestmentandtechnologicalknowhow(YuandWang,2012:22).Essentially,lightindustrycoupledwithinternationaltradewasthegrowthengineforTaiwan’seconomyinthe1960s.

Inthe1970s,Taiwanalsostartednurturingheavyindustries,particularlypetrochemicalsandsteel.TheexportsfromboththematuringlightindustryandtheemergingheavyindustrykeptexpandingduringthisperiodandcarriedTaiwan’seconomyforward.Despitethis,theriseofmanyotherdevelopingcountrieswithabundantandcheaperlaborforceserodedTaiwan’scomparativeadvantageinlabor-intensivemanufacturing.Recognizingthewaningmomentumofthelabor-intensive,export-orientedmodel,thegovernmentrefocuseditsindustrialpolicyonscienceandtechnologydevelopment.

Tofacilitatethispolicy,officialsinitiatedtwoimportantprograms.In1973,thenonprofitIndustrialTechnologyResearchInstitutewasfoundedtoconductappliedresearchandnurturecompaniesbyprovidingtechnicalservicesandtransferringitsresearchtothem.In1980,HsinchuScienceParkwasestablishedtoencouragethenascentdevelopmentofhigh-techindustries.ThesetwoinitiativesattractedoverseastalenttoTaiwanandspawnedanumberofgianttechfirmssuchasUnitedMicroelectronicsCorp.andTSMC,whichareamongtheworld’sleadingsemiconductorfoundries.

Inthe1980s,thegovernmentundertookmoreinstitutionalreforms,includingtradeliberalizationandfinancialderegulation,tobetterintegrateTaiwanintotheworldeconomy.AsTaiwanwasbecomingamoreopeneconomyanditsproductioncostsrose,manymanufacturersfromboththelabor-intensiveandhigh-techindustriesbegantorelocateproductionfacilitiestolow-costSoutheastAsiancountriesandChina.TheopeningofChinainthelate1970sinparticularattractedmanyTaiwanesemanufacturers,whosetupproductionthereasawaytomitigaterisingcostsathome,despitethegovernment’seffortstolimitthemigrationoffirmsandthetransferoftechnologicalandmanagerialknow-how.Somearguethatthisoffshoringhas“hollowedout”Taiwan’sindustrialbase,whereasothersbelievethisstrategyhelpedrestorethestrengthofTaiwanesemanufacturers(BergerandLester,2005;WangandMai,2001).

Thehigh-techsectorhasbeenthemainstayofTaiwan’seconomyintherecentthreedecades.Althoughthegovernmenthasadvancedvariouspoliciesandinitiativestosustainitseconomicandindustrialdevelopmentstartinginthe1990s,they’vebeenlesseffectivethantheprogrambackinghigh-tech.TherecentlacklusterperformancesignalsTaiwan’sneedtorecraftitsstrategies,whichitrecognizes.Inadditiontotheefforttostrikemoretradeagreements,PresidentTsaiannouncedthatthegovernmentwillnurturefivepillarindustriestospurtheeconomy:greentechnology,nationaldefense,theInternetofThings,biomedicine,andadvancedmachinery.Yetthedetailsoftheplan,anditseffectiveness,remaintobeseen.2.ThePrivateSector’sModels DespitethedebateaboutwhethertherelocationofproductionhurtsTaiwan’seconomicdevelopment,thecostreductionsachievedbyrelocationdidbenefitmanyofitscompanies.ThisstrategyallowsTaiwanesefirmsinvariousindustries,high-techinparticular,toassumetheroleoforiginalequipment

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manufacturer(OEM).UndertheOEMmodel,Taiwanesecompaniesmainlyfocusonmanufacturingproductsformultinationalcorporationsthatspecializeinproductdesignandresearchanddevelopment(R&D).Inthe1990s,asubstantialnumberofTaiwanesefirmsbegantoengageinproductdesignandevenbranding,knownastheoriginaldesignmanufacturer(ODM)andoriginalbrandmanufacturer(OBM)models.ThisOEM/ODMmodeladoptedbyTaiwanesemanufacturers(especiallyintheelectronicsandtechnologysector)hasbeendrivingTaiwan’seconomysincethe1980s.However,manyobservershavepointedoutthatthestrategyhaslostitsluster.Anincreasingnumberofhigh-tech,low-costfirmsfromdevelopingeconomiesnowcompeteinthemarketplacesTaiwan’sfirmsoncedominated.

Thecutthroatcompetitionhasseverelycompressedprofitmargins.Inaddition,Taiwanhaslostmuchofitstechnologicaledgeoverdevelopingcountrieswhileitsfirms’longstandingspecializationinmanufacturinghashelditbackindesignandR&Dcapacitycomparedwiththeircounterpartsinotheradvancedeconomies.Taiwanesehigh-techfirmsnowfindthemselveschallengedtocompeteonpricewithrivalsindevelopingeconomiesandnomatchfortheinnovationprowessoftechfirmsinadvancednations(BergerandLester,2005).Overall,theisland’sexcessiverelianceonaweakeningmanufacturingsectorhasputitinadifficulteconomicposition.

InadditiontotheOEM/ODMmodel,theotherkeyforcepropellingtheTaiwaneseeconomyissmallandmedium-sizedenterprises,orSMEs.AlthoughthereareafewlargeTaiwanesefirmssuchasHonHai/FoxconnTechnologyGroup,mostcompaniesfitintotheSMEstratum.Theyareknownforbeingentrepreneurialandflexible,andtheyarecreditedwithinsulatingTaiwanagainstthe1997Asianfinancialcrisis.However,theirrelativelysmallersizedisadvantagesTaiwanesefirmsintheglobalcompetitivearena.

Public and Private Sectors: Cultivate InnovationFacingstiffercompetitionandtheintertwiningofhigh-techproductsandservicesintheconsumermarket,Taiwanneedstoreignitetechnology-ledgrowthandrecaptureitscompetitiveedge.ToinitiatechangeandremaketheTaiwanMiracle,apublic-privatepartnershipisneeded.Fortheprivatesector,webelievethatcultivatinginnovation,establishingandstrengtheningthe“Taiwanbrand,”andenhancingserviceofferingswouldmakeTaiwanesebusinessesmorecompetitive,sustainable,andresilient.Wesuggestthatthepublicsector,ontheotherhand,shouldserveasafacilitator,creatingaregulatoryandinstitutionalenvironmentthatpromotesinnovationandentrepreneurshipandexpandsanddiversifiesindustriesandthetalentpool.1.ForGovernment TofosteranenvironmentthatenablesTaiwaneseindustrytoupgradeandexpand,webelievethegovernmentshouldfocusitseffortsonthefollowingfourareas.2Anagencyortaskforceshouldbe

2.WerecognizetheimportanceofTaiwanbeingbetterintegratedintotheglobalandregionaleconomies.Inthispaper,however,wefocusoneconomicandindustrialpolicy.

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dedicatedtotrackingglobaleconomicdevelopmentsandhelpingtheprivatesectorturnthemintoopportunities.SPURRESEARCHANDDEVELOPMENTGovernmentcantaketheleadinencouraginginnovationinvariousindustries.However,therelativelysmallscaleofmostTaiwanesefirmspresentsanobstacle.SMEstypicallylackthefundingandcapabilitiesnecessarytosetupinnovativeR&Ddepartments.AlthoughofficialshavepresentedsuchinitiativesastheStatuteforIndustrialInnovation,theireffectivenessremainsunclear.

Toaddressthisissue,thegovernmentshouldencouragemorecompanies,emergingandhigh-value-addedtypesinparticular,todeveloptheirownR&Ddepartments.Itcanbeverycostlytoinvestininnovation,sothepublicsectormayestablishapartnershipwiththeprivatesectortohelpprovidespace,equipment,funding,ancillaryservices,andnetworkopportunities.3Althoughthereislittlecashtospareinthegovernmentbudgetcurrently,Taiwanesesocietyhasahighsavingsrate,demonstratingthatmoneyisplentifulintheprivatesector.Thegovernmentshoulddesignpolicytoolsthatencourageprivateenterprises,researchinstitutions,andthegeneralpublictoinvestinR&D,eventuallybenefitingallstakeholders.

Inaddition,thepublicsectorcanfacilitatecooperationbetweenindustryandpubliclyfundeduniversitiesorforeignresearchinstitutions.Inparticular,thegovernmentshouldfacilitatethetransferandapplicationofknow-howdevelopedinacademiaandinthehigh-techsectortootherindustriestodevelophigher-value-addedproductsandservices.4Throughthismechanism,eachsidecanlearnfromtheotherandmayhelptheprivatesectornurtureitsR&Dcapacityandconvertresearchoutcomesintosales.DIVERSIFYINDUSTRIESANDNURTUREENTERPRISESInthelast30years,techexportssuchascellphonesanddynamicrandom-accessmemorysemiconductors,oftencalledDRAMs,havebeentheengineofTaiwan’seconomicdevelopment.However,demandforelectronicsisvulnerabletobusinesscycles.Also,thecutthroatcompetitionintheindustryfurtherdampensTaiwan’sprospects.Tomitigatetheriskofoverrelianceonthetechsector,Taiwanneedstocultivateotherindustries,asthenewgovernmenthasdeclared.Todiversifytheeconomicbase,itwillbeimportanttocraftanecosystemthatbuildsmorerobustsupplychainsinarangeofindustriesbypullingresourcesfromboththepublicandprivatesectors,domesticallyandglobally.Thegovernmentcanalsoencouragemoreentrepreneurstostartbusinesseswithgreatgrowthpotential.Thesuccessfulstartupswilllikelygeneratemorepermanent,high-payingjobs.Inadditionto

3.LabCentral(aprivate,nonprofitinstitutioninMassachusetts)andtheVentureDevelopmentCenterattheUniversityofMassachusetts,Boston,provideaffordablesharedspaceandequipmentforstartups.TheycanserveasR&DcultivationmodelsforTaiwan’spublicandprivatesectors.4.Currently,facultymembersinTaiwaneseuniversitiesarenotallowedtostartbusinesses.Wethinkthegovernmentshouldconsiderencouraginginstructorstoconverttheirresearchintoproducts,yieldingrevenuethatwouldexpandR&Dactivities.

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nurturingstartups,thegovernmentmayconsiderfacilitatingtheformationoflargerenterprises.BecauseofSMEs’inherentcompetitivedisadvantages,thegovernmentcaneithersupporttheformationoflargercompaniesorencourageSMEstoenterstrategiccollaborationswithsuchentities.CREATEAFAVORABLEREGULATORYANDINSTITUTIONALENVIRONMENTInthepastfewdecades,theTaiwanesegovernmentessentiallydrewthemapforeconomicandindustrialdevelopment.5Thispublicsectorguidancetendedtoexertaheavyinfluenceonthedecisionsofbusinessowners.ButasTaiwanshiftedfromanauthoritariantoademocraticandfreemarketsystem,thegovernment’srolediminished.Inaddition,astheworldeconomybecomesmorecomplexandlesspredictable,thepublicsectorfindsitselfchallengedtoobtainsufficientinformationtomakesounddecisionsfortheoveralleconomy.

Ontheotherhand,Taiwan’sprivateenterprises,despitemostlysmallormediumsized,havebeenknownfortheirabilitytolearnandadaptquickly.Theytendtoidentifynewmarketdynamicsandmaketimelyadjustmentsmuchfasterthanthepublicsectordoes.Hence,thegovernmentmustrepositionitselfasafacilitatorofeconomicdevelopmentandindustrialupgrading.Todoso,itshouldinteractfrequentlywithbusinessestolearnabouttheirneedsandthedynamicsoftheirmarkets,anditshouldcreateregulatoryandinstitutionalregimesthatfacilitatetimelyindustrialrestructuringandstreamlineprivate-sectoroperations.

Animportantrelatedissueforthegovernmenttoaddressisattractingandretainingmultinationalcompaniesandforeigninvestments.Inrecentdecades,quiteafewgloballyknownfirmsconsideredestablishingtheirbusinessesinTaiwan.However,Taiwan’srigidregulationsandlongadministrativereviewprocessespreventedthemfromsettingtheirfeetinTaiwanandinsteadtheyinvestedinotherAsiancountries.SomeinternationalcompaniessuchasBarclaysrecentlyclosedtheirofficesinTaiwan.Inaddition,foreigninvestmentlevelshavebeennearthebottomamongAsiannations.Taiwanmustmakeinstitutionalreformstobetteraccommodatemultinationalcompaniesandinvestors.CULTIVATEANDDIVERSIFYTHETALENTPOOLTaiwanhasalargepoolofhighlyeducatedpeople—42.7percentofthepopulationage15yearsandolderhaveabachelor’sdegreeandabove.6Universitiesandindustrieshavecollaboratedinconnectingacademicresearchandappliedtechnologies.Despitethis,arecentsurveyusingtheTaiwanEducationPanelSurveyandBeyond(TEPS-B)datashowthatmanycollegegraduateshaveoftenfoundithardtoapplytheircollegelearningtotheirjobs(Chang,2015).SincethegovernmenthasalargeroleinguidingTaiwan’shighereducation,itcouldfacilitateinteractionsamongauthorities,businesses,educators,andstudentstobettermatchstudents’learnedskillswithreal-worldneeds.

5.Sincetheearly1950s,Taiwan’sgovernmenthasimplementedeconomicplanswithfour-to10-yeartimespans.Theeffectivenessofgovernment-ledplanshaswanedinrecentdecades.6.DepartmentofStatistics,TaiwanMinistryoftheInterior(2016).“2016Week11InteriorStatisticsSummary,”http://www.moi.gov.tw/stat/news_content.aspx?sn=10392&page=0,accessedApril12,2016.

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Anotherchallengeistoretainandattracttalentedworkers.AccordingtoOxfordEconomics’GlobalTalent2021report,Taiwanwillfaceaseveretalentdeficitwithinfiveyears.Althoughithaslargepoolofhighlyeducatedworkers,lowwagescaleshavespurredabraindrainfromtheisland.Inaddition,Taiwanhashadrestrictiveregulationsonimmigration,yetlackedconcreteandconsistentimmigrationpolicies(Lin,2012),posingbarrierstotheentryofforeignprofessionals.Toliftwagelevels,long-termstructuraleconomicchangemaybenecessary.Toattractinternationaltalent,thegovernmentmayneedtodevelopforward-lookingpoliciessuchasastreamlinedgreen-cardprogramthatgrantsvaluedforeignworkerspermanentresidence.2.ForIndustry RetracingTaiwan’sdevelopmentinthelastfewdecades,it’sclearthatrobust,flexibleindustrialproductionandentrenchedglobalmanufacturingsupplychainshavebeenthefoundationsofitsprosperity.Reinventing,transforming,andadaptingtonewmarketplacesandproductsegmentsintoday’sglobaleconomicandtradeenvironmentarecriticaltobolsteringthecompetitivenessofTaiwan’sindustrialbase.Notably,thereareseveralareasinwhichTaiwan’sprivatesectorcanrealisticallymakeimprovementsandadaptationstoenhanceitsposition.DEVELOPHIGH-QUALITY,HIGH-VALUE-ADDEDPRODUCTSAsdiscussedabove,manyTaiwanesemanufacturersinsectorsrangingfromtraditionalindustriestohigh-techhavereliedontheso-called“low-coststrategy”byrelocatingtheirproductionfacilitiestoChinaandSoutheastAsia.However,productioncostsinthesealternativeregionsarerisingandthelowbarrierstoenteringtheseindustrieshavepressuredprofitmargins.

Althoughsearchingfornew,cheaperproductionsitescouldslightlyraisemanufacturers’margins,thecostadvantagecanbeonlytemporary.AnextendedstrategyderivedfromtheOEM/ODMmodelwouldbetousemoreadvancedtechnologiesandknow-howtoproducehigh-qualityproductswithlargerprofitmarginswhileraisingthethresholdforcompetition.Porite,aworldleaderinmachinepartsmanufacturing,isanexampleofaTaiwanesecompanythatusestheOEM/ODMmodeltosellsuchadvancedproducts.INNOVATIONASTHEKEYTOCOMPETITIVENESSMostTaiwaneseSMEshaveadoptedtheOEM/ODMmodelandnotemphasizedcostlyresearchanddevelopmentactivities(YuandKuo,2015).Butasprofitmarginsgetthinnerandproductcyclesshorter,innovationinproductsandoperationshasbecomeessentialtobusinesses’long-termsurvival.Indeed,themostforward-lookingstrategyistoinvestresourcesininnovationandR&D.ThisisparticularlyvitalifTaiwanistoreinventitshigh-techsector.Currently,despitethe“high-tech”moniker,mostengineersinTaiwanesehigh-techfirmsspendthebulkoftheirworkinghoursmonitoringthemanufacturingprocesstoensureproductquality.ComparedwiththeircounterpartsintheUnitedStates,onlyafewareinvolvedintheinnovationandR&Dthatyieldhigh-value-addedproductsanddrivelong-termgrowth.

EventhoughinnovationandR&Dareexpensiveandriskyinvestmentsforprivateenterprises,theproductsandservicesderivedfrominnovationaretypicallyuniqueanddifficulttoreplace.Hence,the

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returnscanbeabundantandlong-lived.Forexample,Giant,aTaiwanesebicyclemanufacturer,setitsglobaloperationalandR&DheadquartersinTaiwan.ItonceusedtheOEMmodelbutlaterdecidedtoengageinR&Dandbranding.Itisnowaworldleaderinitsindustry.STRENGTHENBRANDINGANDMARKETINGAnotherimportanttaskforTaiwanesecompaniestofocusonisbuildingandpromotingtheirownbrandsandexpandingtheirmarketreach.SinceTaiwanhasasmalldomesticmarket,companiesmustexpandtheirpresenceelsewhere.Currently,manyTaiwanenterprisesrelyonjustafewmarkets,Chinainparticular.Inaddition,thelivelihoodsofmanytechsuppliersarecloselytiedtotheperformanceofahandfulofgiantssuchasAppleInc.

Thisisariskystrategy,whichcouldbeunderminedifthebusinessecosystemchanges.Forsustainability,Taiwaneseenterprisesneedtoexpandtheirclientbases.Theyneedtobuildtheirownbrandsandpromotetheirnamesinmoremarkets.AfewTaiwanesecompanieshavebeenmarketingthroughtheOBMmodeltocaptureshareinotherplaces.However,thereisstillroomtoexpandoperations,particularlyinsuchemergingmarketsasBrazil,India,andRussia.ThemarketingeffortwouldboostrecognitionofTaiwan’sindustrialcapabilitiesdirectlywithendusers.DEVELOPAFTER-SALEANDHIGH-ENDSERVICESThereisyetonebroaderitemontheto-dolistformajorTaiwanesecompanies:developbetterafter-saleandhigh-endservices.TheTaiwanesebrandAsus,forinstance,iswell-knownforitscomputerhardwareandelectronicsproducts.Ithaslongbeeninvolvedininnovation/R&Dandisseriousaboutbrandingitsproducts.However,customersoutsideTaiwanmayencounterdifficultytryingtofindAsusservicepoststosupporttheproductthey’vepurchased.ThatmayencouragethemtopurchasesimilarproductsfromcompaniessuchasAppleorotherswhoseservicenetworkismorewidespreadandaccessible.

High-endservicesisanotherareatocultivate.Taiwanesecompaniesshouldconsiderprovidinghigher-value-addedservicesthatcanattractinvestmenttoTaiwan,whichalreadyofferstheadvantagesofademocraticpoliticalsystemwithalargepoolofhighlyeducatedworkersandawell-establishedtechsector.Forexample,withtheriseofBigDataandFinTech,Taiwanesebusinessesshoulddevelopreliable,trustworthy,qualityofferingsinsuchareasasdatastorage,dataprocessing,andfinancialservices.

ConclusionInthesecondhalfofthe20thcentury,Taiwanwasaverysuccessfuleconomy.Althoughitscompetitivenessandrobusttechnology-drivenentrepreneurshiphaveeroded,Taiwan’sstrongtradelinksendureanditretainsitskeypositioninconsumerelectronicsproduction.Today,itsdevelopmentpath,ledbythetechnologysector,isstillamodelthatmanyemergingnationsemulate.Recently,Taiwan’seconomicperformancehasbeenmediocreatbest.Theheadwindsfacedbyhigh-techmanufacturingmaysuggestthatTaiwanneedstofindanalternativepathtoadvancetheisland’seconomyinthefuture.

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ToreclaimtheTaiwanMiracle,webelieveitisvitalforTaiwantomovefromthelow-costmanufacturingstrategytoahigh-value-addedonethroughinnovationandestablishingtheTaiwanesebrand.Mostimportantly,Taiwanmustrecaptureitsentrepreneurialspirit,whichblendedindustrialdevelopmentwithrapidadoptionofnewtechnologiesandenergeticcapitalformation.Thatveryspirit,alongwithsmartgovernmentpolicies,gavebirthtoglobalODM/OEMconglomeratessuchasHonHai,Asus,andTSMC,amongothers.

Inaddition,Taiwanshoulddiversifyitsgrowthenginesbeyondhigh-techmanufacturingintothehigh-techservicesareainAsia.GivenTaiwan’sadvantageofbeingademocraticsocietywithstrongintellectualpropertyprotection,Taiwancancaptureasubstantialportionoftherapidlyrisingdemandfortechnologyservicessuchascloudstorage.

Toachievethesegoals,itisimperativeforprivateandpublicsectorstocollaboratetocraftdiversifieddevelopmentstrategies.Privateenterprisestypicallyhavethemostcurrentandacuteinsightsintobusinessdynamicsandarepreparedtoadapttoleverageopportunities.Thepublicsector,ontheotherhand,tendstohaveabroadviewofeconomicprospects,anditcanprovideregulatorytoolsandresourcestofacilitatedevelopment.

GiventhattheTaiwanesegovernmentlacksthefinancialcapacitytopourlargesumsintoinitiativesithopeswoulddriveeconomicdevelopment,anaccommodatinginstitutionalandregulatoryenvironmentisthemostsuitableapproachtospurringprogress.OfficialshavethemeanstoencourageprivatecapitaltoinvestinTaiwan’sfutureandmakeTaiwanabaseformanagerialandinnovationactivities.WebelieveTaiwan’seconomicresurgencewilllargelydependontheclosecollaborationbetweentheprivateandthepublicsectors.

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GlobalTaiwan:BuildingCompetitiveStrengthsinaNewInternationalEconomy(Berger,SuzanneandRichardK.Lestereds.).NewYork:M.E.Sharpe.

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About the AuthorsDR.MICHAELC.Y.LINisaresearchanalystattheMilkenInstitute.PriortojoiningtheInstitute,LinwasateachingassociateattheUniversityofSouthernCalifornia(USC)inurbanandregionaleconomics,informalhousing,policyandprogramevaluation,andquantitativemethodsandanalysis.HisarticleshavebeenpublishedinsuchacademicoutletsastheAnnalsofRegionalScience,andhehaspublishedtwobookchaptersaboutcommunityplanningandshrinkingcities.Hewasalsoinvolvedinwritingpolicyreportsongreenbuildings,sustainablecommunitydevelopment,andinformalhousing.Hiscurrentworkisfocusedonurbanandregionaleconomicdevelopment.Linhasalsoparticipatedinpeerreviewsforacademicjournalarticles.Heholdsabachelor’sdegreeinarchitectureandamaster’sdegreeinurbandesign,bothfromtheNationalTaipeiUniversityofTechnologyinTaiwan,aswellasaPh.D.inpolicy,planning,anddevelopmentwithaspecializationinurbaneconomicsfromUSC.PERRYWONGismanagingdirectorofresearchattheMilkenInstitute.Heisanexpertinregionaleconomics,development,andeconometricforecastingandspecializesinanalyzingthestructure,industrymix,development,andpublicpoliciesofaregionaleconomy.Hedesigns,manages,andperformsresearchonlaborandworkforceissues;therelationshipbetweentechnologyandeconomicdevelopment;andtradeandindustry,withafocusonpolicydevelopmentandimplementationofeconomicpolicyinbothleadinganddisadvantagedregions.WongisactivelyinvolvedinprojectsaimedatincreasingaccesstotechnologyandregionaleconomicdevelopmentinCaliforniaandtherestoftheUnitedStates.Hisworkextendstotheinternationalarena,whereheisinvolvedinregionaleconomicdevelopmentingreaterChinaandotherpartsofAsia.PriortojoiningtheInstitute,WongwasasenioreconomistanddirectorofregionalforecastingatGlobalInsightInc.(formerlyWhartonEconometricForecasting),wherehemanagedregionalquarterlystateandmetropolitanareaforecastsandprovidedconsultation.Therehedesignedregionalmodelingsystemsandcontributedtoregionaleconomicimpactstudiesonsuchtopicsasbudgetreductionandhealth-carereform.Wonghasconductedmanyresearchstudiesregardingregionaleconomicdevelopmentandpolicyimpactsonthepublicandprivatespheres.TheseincludetheimpactofU.S.budgetandtradepolicyonkeyU.S.industriesandregions;health-carereformanditsimplicationsforthefederalbudget;theKyotoAgreementanditsimpactonthewell-beingofU.S.regionaleconomies;andthepharmaceuticalindustry’scontributiontoPennsylvania’seconomy.

About the Milken Institute TheMilkenInstituteisanonprofit,nonpartisanthinktankdeterminedtoincreaseglobalprosperitybyadvancingcollaborativesolutionsthatwidenaccesstocapital,createjobsandimprovehealth.Wedothisthroughindependent,data-drivenresearch,action-orientedmeetingsandmeaningfulpolicyinitiatives.THEMILKENINSTITUTEASIACENTERpromotesthegrowthofinclusiveandsustainablefinancialmarketsinAsiabyaddressingtheregion'sdefiningforces,developingcollaborativesolutionsandidentifyingstrategicopportunitiesforthedeploymentofpublic,privateandphilanthropiccapital.©2016MilkenInstituteThisworkismadeavailableunderthetermsoftheCreativeCommonsAttribution-NonCommercialNoDerivs3.0UnportedLicense,availableathttp://creativecommons.org/licenses/by-nc-nd/3.0/