During his terms as minister of economic affairs and chairman of the Council for Economic Planning and Development (CEPD), Chao Yao-tung (趙耀東) was among the most outspoken of the ROC's top government officials. This interview, conducted by Economic Daily News reporters Lu Shih-hsiang and Weng Teh-yuan and first published in that Chinese-language newspaper, shows that semiretirement as a national policy advisor has not in the least mellowed Chao's penchant for forthright criticism. In the interview, he voices sharp objections to the current development track of small and medium enterprises, and gives his evaluation of Taiwan's economic direction.
Q: What do Taiwan's enterprises need to do in order to ensure their survival?
Chao: What worries me most are small and medium enterprises. The Chinese tradition of austerity and hard work has been hard-hit by the money games of recent years. Bosses of the past didn't have the get-rich-quick mentality that today's bosses have, and laborers were willing to work hard. If the previous conditions had not existed, Taiwan could not have made the achievements it enjoys today. Small and medium enterprises account for 70 percent of our total export value, so they have made great contributions. In its future economic development, Taiwan will continue to depend on small and medium industries.
Q: What are the future directions of development for small and medium industries, and for industry in general?
Chao: It's very simple: industrial upgrading, and development of high-technology and high value-added products. These are the only products with which we can be competitive in the international market, the only products that can provide us with space to survive in the world.
Recently, government officials and the general public have frequently discussed the economic slump. But that's not the problem; it's only a short-term cyclical economic phenomenon. The real problem is that political instability has eroded the private sector's willingness to invest and caused an outflow of capital. High technology has not taken root, and small and medium enterprises do not engage in R&D. That's the main problem.
Small and medium enterprises should organize to carry out collective R&D efforts. If the Chinese here keep holding to the mentality of each person going his own way, as they have in the past, then they will either migrate to distant lands or will find their own destruction at home.
Q: Can you give actual examples?
Chao: It's the trend overseas. Japan is an economic world power now, and England, America, and other countries cannot compete with it. The reason is the difference in cultural backgrounds: the individualism of the Americans and the English cannot match the cooperative and collective efforts of the Japanese.
The Japanese government considers R&D work by medium and small industries as very important. So it has organized them. A certain kind of product is developed by a certain agency, and the results are turned over to individual companies for production.
The countries of Europe and America are also changing in this direction in order to compete with the Japanese. Siemens of Germany and Philips of Holland recently cooperated in developing 0.5-micron very large scale integrated circuits. A total of US$800 million was invested in the project, with the governments of the two countries sharing the burden with the two companies.
Since the Chinese lack sufficient solidarity, each small and medium enterprise has to move on to a low-wage country and use its past experience to continue existing there. The government should come up with practicable methods so that small and medium enterprises will not have to live or die on their own.
Q: That involves the role of the government in economic development. Do you think that the government should continue to play such an active role?
Chao: The government doesn't have to get involved in everything. But at a time when the economic structure is changing, the number of enterprises that are able to engage in industrial upgrading and the development of high-tech, high value-added products on their own is very small. Enterprises in Japan and the countries of Europe and America are already cooperating. If our government continues to avoid involvement as it does now, then what hope do our small and medium industries have of surviving five or ten more years? Land, labor, and other production costs in the LDCs are now much lower than ours, and they will catch up.
Tax breaks and other favorable treatment offered by the government can serve only a subsidiary function. If an enterprise does not have the will to upgrade, then even financial grants will not necessarily help. What the government should do is give health examinations to small and medium enterprises, and call academic, official, and industrial people together to discuss the directions in which small and medium industries should go. If you say that the present guidance measures alone can cause industry to upgrade, then I can't agree with you. I don't think our present government structure is adequate to meet the coming of the high-tech age.
Q: What did you do to promote industrial upgrading when you were minister of economic affairs?
Chao: The central-satellite factory system was an important task at that time. The system was promoted by the ministry through fourteen industrial associations. I called a meeting every week with a different industry—a total of twelve meetings. We wanted to use the strength of the government to encourage R&D, but the program had just begun when I was made chairman of the CEPD.
I've been away from the Ministry of Economic Affairs for ten years now, and our policy toward small and medium industries during that time has been a blank. I was rearranging some of my old speeches a couple of days ago, and discovered an article entitled "Meeting the Coming of the 1980s" that I published in the Economic Daily News eleven years ago. I looked its contents over; all I would have to do is change "1980s" to "1990s," and that article could be used again. Although a decade old, my theories then are equally applicable today.
It was the same with the big auto plant project. The chairman of Toyota had already come here, and just before the contract was to be signed the conditions were changed to require the plant to export 50 percent of its cars. Do you think that could get through?
I admit I was wrong. I never should have accepted the chairmanship of the CEPD. But [then] Premier Sun Yun-suan said I wasn't free to turn it down, so there was nothing else I could do.
Q: What pressure was exerted over the big auto plant plan? Were there political considerations?
Chao: Pressure came from vested interests, of course. And on the political stage, even today, that hasn't changed.
Q: You once banned the import of more than 1,500 Japanese products. What is your view of the ROC's present trade deficit with Japan?
Chao: The Japanese have absolutely no sympathy. The only way we can reduce the trade deficit with Japan is through industrial upgrading, which would alleviate our dependence on Japanese imports. Most of our imports from Japan today consist of machinery and equipment. If we stop buying, our industry won't be able to survive. But if we can make the equipment ourselves, then we can get away from Japan.
One of my goals in banning certain imports from Japan was to stimulate patriotism in our people, but there were still those who tried every way they could to smuggle. Today, nobody's screaming to upgrade industry, and only this old man is worried about it—to no effect.
Q: Last September you took the pulse of the economy and said that it had a cold which had developed into pneumonia. Is the cold better now?
Chao: With our huge amount of foreign exchange reserves, our physical condition is quite healthy, and it will be OK for three to five more years. But if we don't seek progress now, what will we do in the future? If we wait until the year 2000 to take action, it will be too late.
Such countries as Argentina, Brazil, and the Philippines were all richer than us twenty years ago, and now they're poorer than we are. If we don't progress, we'll follow in their path. But a great many of our people won't become anxious about the situation until it is too late to do anything. Our industrial upgrading absolutely can't be delayed any longer.
Q: What concrete suggestions do you have about the Six-Year National Development Plan?
Chao: The Six-Year National Development Plan is definitely correct. Except that it's biased toward construction in the areas of communications, transportation, and culture. This is to make up for past deficiencies, but we must not neglect industrial development. It's like the two wings of a bird: industrial development should be balanced with communications, transportation, and cultural construction.
In the past there was too much emphasis on economic development, and the result has been an imbalance that is reflected in the congested traffic, environmental pollution, and cultural deficiency. Today, however, if we make up for these oversights while neglecting industrial development, it will bring about an imbalance of another kind and lead to an even more serious crisis.
Q: You once said, "the future of mainland China is in Taiwan, and the hope of China is in the mainland." How do you feel now about the mainland's economic and trade policy?
Chao: People from other countries are going to the mainland for raw materials and markets, and of course we should do that, too, But we first have to separate economics from politics. If we mix them, it will mean trouble.
If I were economics minister, I would let chairman Y.C. Wang of Formosa Plastics go and invest on the mainland—whatever he wants to invest in, or however much he wants to invest. There is no problem of the hollowing out of our industry; we don't have to worry about that. What the government should be concerned about is this: Why does he want to go there?
Q: What do you think about the Evergreen Group cutting back on its investment in the Six-Year National Development Plan?
Chao: If Evergreen doesn't want to invest, fine. If the government gives Y.C. Wang special privileges to keep him here, is that fair to the people of our country? We can't let our large industries develop to the point where they can control government policy. The country won't collapse if one enterprise or one person leaves it. Nobody's indispensable.
Q: How do you see Taiwan in the year 2000?
Chao: That will be an epochal time. It will be the beginning of the economic war, and now is the time to integrate and prepare for it. Such events as the formation of the European Single Market are preludes to that war.
An economic war will not be as cruel as an armed war. But it will still be a life-and-death struggle, power against power, with no time or territorial limits. Its result will be to make the rich richer and the poor poorer.
Q: Is what the government doing now sufficient to meet the challenge of the year 2000?
Chao: Now is the time of planting. What the government officials are doing is sowing seeds, and the harvest won't be seen in eight or ten years. The government must make the people understand that without a period of preparation, there will certainly be defeat in the future. It's easy to criticize the work of sowing, and entrepreneurs are not exempt from complaining. But the government must insist on doing what it feels to be correct, and not allow itself to be led around by the nose.
Today, the authority of the government is on a downward slide, with officials going to the Legislative Yuan to be scolded there by legislators who act like stern fathers scolding their sons. With government administrators being subjected to such insults, how can they establish a proper image before the people? With no public confidence, how can they exercise their authority? There must be mutual respect.
(Reprinted with permission from Business Taiwan.)