“The government played a more critical role than any other factor in the economic

transformation of Taiwan between 1970 and 1990.” How far do you agree?

The given question requires an examination on whether the government played a more significant
role than other factors, which led to Taiwan’s unprecedented economic growth and, consequent,
economic prosperity between 1970 and 1990. This ‘economic transformation’ of Taiwan can be seen
in her high speed industrialization which was done by maintaining remarkable annual average
growth rates of 9-10% from 1970 to 1980 and 7-9% from 1980 to 1990, while achieving high levels
of development rivaling that of already industrialized countries. Certainly, proponents of the
argument would avouch that the state should be given credit for playing a more critical role in the
economic transformation of Taiwan, as it was the foundation in her prosperous economic growth
because its guidance influenced the trajectory of Taiwan’s economic developments. However, in
order to construct a more conclusive and analytical synthesis, it is pivotal to consider the
contributions of other factors, such as local actors, being private enterprises and the role of
Taiwanese culture, as well as foreign actors, such as the USA and Japan, because even though they
acted as catalysts in the economic growth of Taiwan, they still worked in tandem with the
Taiwanese government to achieve economic prosperity. Ultimately, this essay will highlight that
even though the state played a more critical role than other factors as the aforementioned factors
are contingent upon the actions undertaken by the Capitalist Developmental State, these other
factors still should not be undermined.

Indubitably, the government did play a very critical role had a more critical role than any other
factor in the economic transformation of Taiwan because the Capitalist Developmental State served
as the foundation for the prosperous economic growth of Taiwan because its guidance influenced
the trajectory of Taiwan’s economic developments. This can be seen when the government
embraces a shift towards [so, a shift that predated the 1970s] which Export-Oriented
Industrialization (EOI), which fuelled the industrial sector in the Taiwanese economy. In 1973,
Taiwan’s industrialization strategy switched towards a specific focus on heavy industry, which was
encompassed in the Ten Major Developments Policy. This strategy was fulfilled through the
expansion of state-owned firms and capital-intensive industries. The establishment of large-scale
domestic production of steel and petrochemicals provided a high quality local source of supply of
inputs for the growth of shipbuilding, plastics, synthetic textiles and cars. This led to the rapid
growth of Taiwan’s economy between 1971 and 1980 with annual GDP growth rate and exports
averaging 9.7% and 16.5% respectively. Additionally, in the late 1970s, the state focused on
technological upgrading and deepening to further enhance export competitiveness and accelerate
economic growth by producing high-value exports that will be more desirable to foreign countries.
For instance, the Hsinchu Science-Based Industrial Park and the United Microelectronics
Corporation (UMC), both established in the late 1970s, along with the formation of the Taiwan
Semiconductor Manufacturing Company in 1987, led to the rapid growth of the domestic computer
and electronics sectors. These structural changes envisaged in the program of technological
upgrading came to fruition in the late 1980s, as the private sector had grown to account 84% of its
production value in 1985 as compared to the 28% in 1949. Hence, the government played an
important role in the economic transformation of Taiwan because its shift towards EOI fuelled the
economy’s industrial sector, leading to greater economic growth.

In addition, the government’s critical role in the economic transformation of Taiwan can be seen in
its influence in the financial sector of the economy due to the careful financial-monetary control as
well as the stewardship of the Capitalist Developmental State, which fuelled Taiwan’s economic
growth through investments. The Taiwanese government controlled the banking sector tightly by
setting low interest rates, restricting entry of new banks and then, channeling bank credit to
favored state enterprises and exporting firms. This was done to prevent cost-push inflation so as to
boost savings rates. However, in the 1980s, Taiwan saw a mismatch of high domestic savings and
large trade surplus in relation to relatively low domestic investment and, as a result, investors began
looking for alternate ways to invest their money, leading to real estate and shock market boom.
Nonetheless, the mismatch faced by the government did not last long and was negated due to the
careful financial-monetary control as well as the stewardship of the Capitalist Developmental State,
whereby the annual per capita income rose from less than US$100 to US$7500 by late 1990. The
government’s success and cautious financial policies enabled Taiwan to possess great foreign
currency reserves and helped it retain a solid base of industrial production by the 1980s. Hence, the
government’s involvement in the financial sector of Taiwan helped boost economic growth and
their ability to navigate through the financial realm in Taiwan, through their efficient
implementation of policies, helped negate the effects of challenges that engendered from the
financial sector, emphasizing the criticality of their role in the economic transformation in Taiwan.

However, it is also important to consider the impact of other factors, as they also stimulated the
Taiwanese economy. Another local actor, being private enterprises, played a critical role in the
economic transformation of Taiwan as they drove economic growth by taking major roles in the
financial, technological and manufacturing sectors. The Small and Medium Enterprises (SMEs) in
Taiwan played a major role in Taiwan’s overall manufacturing capacity well into the 1980s. There
were many globally successful Taiwanese brands that emerged between 1970s and the 1990s. For
instance, the Hon Hai Precision Industry was founded in 1974 and it focused on manufacturing
electrical components that were valuable to the Taiwanese economy. Similarly, the Taiwan
Semiconductor Manufacturing Company Limited (TSMC) was established in 1987 and it was the
world’s first dedicated semiconductor industry and the leading company in its field. These brands
helped Taiwan’s exports to increase from 5.5% in 1980 to 9.1% in 1989 in total exports.
Furthermore, the contribution of manufacturing to Taiwan’s GNP grew from 26% to 36% in those
years. This helped boost economic growth in Taiwan. Hence, besides the government, private
enterprises also played a critical role in the economic transformation of Taiwan as they pushed for
economic growth through their capital, labor and technological inputs, which drove the financial,
technological and manufacturing sectors in the Taiwanese economy. However, the contributions of
private enterprises are contingent upon the foundational factor, being the Capitalist Developmental
State because the foundational role of the government and its policies were complementary to the
role of private enterprises. The determination of the Taiwanese government to protect their infant
industries, to introduce new technologies and to limit foreign investment while generating tis own
savings rate, helped local firms and private enterprises to gain strength and independence without
being displaced by foreign internationals. Major government activities were directed towards
facilitating the growth of private enterprises, providing the infrastructure, technology, low-cost
capital and export incentives that were advantages to them. For instance, in the 1970s, the
government tried to develop heavy industries producing steel and shipbuilding through private
enterprises when the government resorted to market forces. These governmental actions also
contributed to the increase in Taiwan’s GNP and exports. Hence, even though the role of private
enterprises was crucial in catalyzing the economic transformation of Taiwan, the state acted as the
foundation of private enterprises, allowing SMEs to serve its function.

Culture also played a pivotal role in the economic transformation in Taiwan because the
fundamental Confucian tradition prevalent throughout East Asia helped model the education
system in Taiwan as well as encourage frugal behavior among the masses, catalyzing economic
growth. The Taiwanese economy started to shift to more technology-intensive production after
1980. The labor-intensive industrial production expanding in the 1970s required a mass labor force
with basic labor skills. Taiwan’s emphasis on education, due to its long-standing indigenous
tradition of respecting learning and scholarships based on Confucianism, helped students to gain
such skills as the education system was constantly revised and adapted to meet industrial needs. As a
result, in 1955, there were 420773 people with junior high education, which multiplied by more
than six fold to 2745717 in 1985. Additionally, in 1951, only 31% of primary school graduates were in
junior high school. However, this number increased to 80% in 1971 and 96% in 1980. By a similar
vein, there was an increasing savings rate in Taiwan due to the Taiwanese culture being rooted in
Confucianism, which values frugality and thrift. This can be seen when Taiwan’s gross domestic
savings as a percentage of GDP went from 25.6% in 1970 to 32.9% in 1985. These high savings went
into investment, leading to a high domestic capital formation. This led to a virtuous cycle of high
growth, high savings and high investments in Taiwan. Hence, culture played a pivotal role in the
economic transformation in Taiwan because the fundamental Confucian tradition helped boost
economic growth in Taiwan. However, the states’ foundational element should not be disregarded
because the government set the basis for culture to take root. The government was able to
implement policies on the fiscal facets and education system of Taiwan’s economy, to provide an
avenue for the cultural roots of Taiwan to flourish. For instance, the government’s dedication to
education is evidenced by the increasing percentage shares of the educational budget at all levels of
the government. As a result, the share of the educational budget to the total governmental budget
climbed from 16.5% in the 1970s to 18.5% in the 1980s. Furthermore, in addition to the
government’s policies to keep inflation down in order to encourage savings and maintain high
public investments through restrained public expenditure, the government also removed
hindrances of savings such as lack of insurance and high transaction costs, which immensely
boosted the savings rate in Taiwan. Since the government’s fundamental policies were
complementary to the roles of the local actors, economic growth was better achieved with the help
of the state. Hence, the government played a more critical role than local actors because the
contributions of local actors were dependent upon the role of the government as the foundation of
Taiwan’s economy.

Regardless of local actors, foreign actors also played critical roles in the economic transformation of
Taiwan. Namely, from the Flying Geese Formation view, Japan’s position as a regional economic
power and the USA’s financial aid immensely contributed to the economic transformation of
Taiwan. According to Japan, the process of pumping resources and financial aid from Japan to
Taiwan was efficient, emphasizing the importance of her role in Taiwan’s economic prosperity.
Taiwan’s industrialization and geographic proximity to Japan strengthened the Taiwan-Japan
economic relationship because the cheap labor and abundant supply of talents with production
skills and language proficiency in Taiwan helped it become the best overseas stronghold of Japanese
enterprises. As a result, Japan became the main supplier of technological supplies and resources to
Taiwan after World War Two. In accordance with the ‘Sino-Japanese Technical Cooperation
program’ by 1976, around 380 technicians and experts were dispatched to Taiwan. Similarly, Japan
was becoming a market for mid-technology electronics exports from Taiwan and Taiwan’s exports
of colored television sets to Japan boomed from 25,000 in 1986 to 370,000 in 1987. Additionally, by
1971, Japanese Official Development Assistance (ODA), which was its overseas economic aid,
amounted to USD$7.07 billion and 6.5% of the total sum went to Taiwan. Since the Plaza Accord in
1985, and with the appreciation of the Japanese Yen, coupled with the globalization of Japanese
enterprises, Japanese investment in Taiwan was accelerated, amounting to USD$838,940,000 in
1990. The financial aid and technological resources that were efficiently channeled from japan to
Taiwan helped stimulate its economy and boosted economic growth. Along with Japan, the USA,
another foreign power, also played a critical role in transforming the Taiwanese economy because
the financial aid supplied by the USA helped stimulate her economic transformation. Between 1950
and 1965, the USA poured about $1.5 billion of aid into Taiwan because Taiwan became an
important strategic point in the US defense of the Pacific Basin during the Cold War period. The
US financial aid that was pumped into Taiwan helped the Taiwanese government employ it and
channel it effectively into the economy. Hence, both Japan and the USA being external factors and
foreign actors, played critical roles in the economic transformation of Taiwan.

Nevertheless, the aforementioned external factors, being the contributions of foreign actors, were
also contingent upon the foundational factor of the Capitalist Developmental State. This is because
the technical assistance rendered by the USA and Japan, the capital injected by both these countries
and the Foreign Direct Investment (FDI) can only be judiciously utilized through the actions
undertaken by the government. Taiwan’s economic success stems from the technocratic
bureaucracy that implemented stringent but effective policies in Taiwan. The economic
development in Taiwan was overseen by the Council of Economic Planning (CEPD), established in
December 1977, which was run by technocrats turned bureaucrats that scrutinized every aspect of
economic policy in order to divert attention to the most profitable areas. The CEPD oversaw the
work of the China External Trade Development Council, established in 1970, which worked to
incentivize exports and provide financial assistance through incentives to export-oriented
companies. Similarly, the bureaucracy likewise set up the International Research Institute (ITRI) to
develop technology through Research and Development (R&D) for competitive development,
exports and growth. Furthermore, the Taiwanese Capitalist Developmental State worked through
export-oriented growth through the statute for Encouraging Investment, which set up Export
Processing Zones (EPZs) to attract foreign investors through its circumvention of government red
tape. In this way, Taiwan was able to capitalize on the access to Japanese market as well as the
financial aid and assistance offered by both the USA and Japan. Therefore, the government is more
critical than external factors in the economic transformation of Taiwan.
[So if you’re going to be splitting the argument into 2 paragraphs like that, then maybe it would be
better to have 1 LOA on USA and 1 on Japan, and then provide the link between govt and the
external actor in each paragraph]

Ultimately, the government played a more critical role than other factors, including both internal
and external factors, in the economic transformation of Taiwan because the Taiwanese Capitalist
Developmental State was the central organizer of Taiwan’s economy and acted as the foundation by
directing Taiwan’s economic growth and judiciously utilizing the factors to stimulate the Taiwanese
economy. However, in the final analysis, even though the government played a more critical role
than the other aforementioned factors, these factors should not be undermined as their
contributions also stimulated Taiwan’s economy and led to its economic prosperity between 1970
and 1990.

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