Taiwan is poor in natural resources, with few coal mines, a negligible oil reserve, and limited natural gas. In an area the size of Maryland and Delaware, there is a population of more than 19 million people. Only one fourth of the land is arable. These assets of themselves do not add up to much potential for becoming an economic power.
At the end of World War II, the economic situation on Taiwan was simply one of desperate destitution. Physical facilities had been destroyed, leaving almost none of the infrastructure intact. U.S. bombing of the Japanese-occupied island had inflicted extensive damage on ports, railroads, power plants, and irrigation systems. Production was at an extraordinarily low level. Prospects for economic recovery and success were bleak indeed.
The post-war political system was also in an upheaval. After the ROC government withdrew from the China mainland in 1949, it began the difficult task of both political and economic reconstruction. It saw the two areas of endeavor tightly linked—somewhat like the Puritan concept of "stewardship." The idea was to create a sound economy on Taiwan in order to safeguard the well-being of Chinese as a whole.
After almost four decades of development, people on Taiwan have seen per capita GNP of the ROC increased more than 30-fold, from about US$100 in the late 1940s, to over US$3,700 at present. The success of Taiwan's economic transformation has been widely promoted as a model for developing countries around the world.
The transformation can be divided into several stages. The first priority was to eliminate runaway inflation. In the period from 1946 to 1948, for example, commodity prices rose at an annual rate of 500 percent. In the first half of 1949, the inflation took a sudden lunge for the worse and prices soared. For example, the price for a single watermelon equaled 430,000 Old Taiwan dollars.
In June 1949, the government responded to the intolerable situation by issuing a new currency, the New Taiwan dollar, pegged at the U.S. dollar and backed by gold, silver, and foreign exchange. The exchange rate of the old currency against the new one was 40,000 to one. This measure turned out to be an effective check to the hyperinflation and eventually established a sound foundation for Taiwan's financial stability.
The second stage aimed at three reforms: the promotion of agricultural production, the upgrading of farmers' living standards, and the implementation of the land reform program. All three were initiated as countermeasures to solve the food shortage, complicated further by the sudden influx of well over a million people from mainland China in 1949.
As a result of foreign financial and technical assistance and a successful land reform program, this second stage of economic development brought marked growth to the island's agricultural production and contributed substantially to social stability. During this period, U.S. economic aid played a significant role. The first American wheat cargo was unloaded at Keelung harbor in 1950, and U.S. aid continued for 14 years. In terms of money alone, the aid amounted to some US$1.5 billion, equal to about 40 percent of Taiwan's then total fixed capital. The aid markedly assisted stabilization of the then chaotic economic conditions.
In addition, the government concentrated its efforts on rehabilitating basic transportation infrastructures that had been badly damaged during the war years. With U.S. aid, these were reconstructed even beyond pre-war standards, and helped set the scene for Taiwan's industrial development during the next two decades.
The third stage was ushered in by a burning problem—the choice of a proper direction for Taiwan's industrial development in light of the relatively low skill levels of its populace and tight capital of local industry. But, characteristic of developing countries, Taiwan enjoyed cheap labor. Inevitably, efforts converged on the development of labor-intensive industries.
To assist this stage of development, in 1953 the government began a series of six four-year economic construction programs. There were three priorities: first, to encourage growth of consumer industry commodities in order to meet local market needs, including light bulbs, umbrellas, tooth paste, and soap; second, to promote manufacture of chemical products like fertilizers and medicines in order to curb the outflow of foreign currency reserves; and third, to increase the production of export items, especially lumber, sugar, salt, coal and pineapples.
At this time, Taiwan created the economic strategies of "import substitution" and "export expansion." These proved tremendously successful in promoting the expansion of private interests, which in turn turned out to be the biggest asset for Taiwan's economic development.
There have been two follow-up stages. A six-year plan (1976-1981), and the current series of economic projects begun in 1980. The decades of planning and effort saw the ROC become the world's 15th largest exporting country, and now the industrial structure confronts yet another challenge posed by its transformation from labor-intensive industries to those more technology-intensive. And once again, the people of Taiwan expect to meet the challenge.
One of the greatest "intangible" resources for Taiwan over the decades has proved to be human: the industriousness of the people themselves, which is no small source of local pride. There is good reason for this, as FCR's Chang Chiao-hao found out in a series of "on the street" interviews. He asked a wide range of people for their personal impressions of the past decades, thoughts from those who lived through the economic transformations—those who recall things "as they were." He also asked them to comment on the most impressive general economic changes they see influencing their everyday lives. The results follow:
Yang Yueh-li, 60, a mother of five: "I used to take the youngest kids with me to the vegetable fields to pick up leaves that had been dropped or left behind as unusable. I used these to feed my family as well as our poultry. When I was a child myself, my family couldn't afford the small fees to send me to school. Because I am illiterate, I realize the importance of education. I'm glad my sons went to college—and one even has a master's degree from an American university. When I was young, very few women could afford to go to a hospital to have their babies. The best thing we could hope for was to find a midwife we were acquainted with, because she would charge less than someone we didn't know. The most significant change for me and my family is that we don't live in a slum anymore."
Chen Chih-li, 40, principal of Yangming Primary School: "In the late '40s and the '50s, the pupils' book satchels were made either of flour sacks or unusable clothes, even old underwear. Now school satchels of less-known brand names will sit stacked on shelves for a long time, and often won't be purchased at all. Today, students have so many choices that they choose only the best ones. Another big change is in food. In the past, parents worried a lot about being able to afford anything besides rice for the lunch boxes their kids took to school. Now they are worried about selecting what is the most nutritious food. Like the school bags, there are now so very many possible choices."
"I think that the most significant economic change I've seen is the fast development of the transportation system. In the past, it was not unusual for students to walk more than 10 miles to school. Now kids go to school either by bus or in their parents' cars. Very few walk anymore. And those that do walk, do so not because they can't afford to take a bus, but because they live near the school."
Lin Chung-shan, 31, a Ph.D. student at National Taiwan University and lecturer at the Chinese Culture University: "I remember hearing the story that my mother did not really like my father before they got married and was worried about what life would be like with him. But my grandmother encouraged mother to make the best of it, saying that my father 'at least had a house that was constructed partly of bricks.' This was true, but actually it was built with bricks of dried, hard mud, and only to knee height. Nevertheless, this was really excellent compared to most other houses in the community which were built only of bamboo, rice stalks, and pieces of tin."
"The most significant economic change I have seen in the past decade or so is the prosperity brought about by the government policies assisting light industry and land reform—the Land-to-the-Tiller program. Since our family was not involved with industry, and because we didn't have any land, these didn't directly affect us. My mother had to help support a family of four children by buying fruit in a wholesale market, and then selling them on the streets. Now here I am working on a Ph.D. only one generation later. I have been very lucky."
Dr. T.S. Lin, chairman of the board of Tatung Company and president of Tatung Institute of Technology: "I remember when Taipei's population was just over half a million, and there were probably only two or three cars in the whole city. Now there are over 2.5 million people here, and traffic congestion from too many cars is a major problem. Also, I recall that the kids all wore khaki uniforms in school, but even this cloth had to be imported from abroad. Today the ROC is one of the world's largest exporters of textiles. What an amazing change!"
"I think the most significant economic change is that the foreign market has expanded to include almost the whole world because of the government's policy of free trade. In the past, the markets for different products were quickly saturated because they were so limited."
Chen I-hsia, 24, an accountant at her father's restaurant, which is located in a night market frequently visited by tourists: "To help support the family, my grandmother, even though she was pregnant, had to peddle fruit. The stories of hardship are sometimes upsetting to think about. I remember that there were lots of rice fields on both sides of the road where we lived, but now there are only lines of buildings. These 'box buildings' also tell a sad story. When we were young, we had much more room to play in the old-style quadrangle buildings. Today they have all been torn down and replaced by ugly high-rises."
"One economic change I'm interested in is the return of some old traditions, like 'bamboo rice.' It was only a 'dish' for children's play in the rice fields after harvest. Children put rice into the space between two knots of bamboo, then fried or steamed it for fun. Today it has become a popular and rather famous dish in formal feasts. From one point of view, it's like a game being played by adults."
Kuo Ah-chu, 61, an oriental food store owner: "Most children went to school by foot, bare foot. In the winter, it was so cold that our feet turned red. We were a bit richer than most people, so I did have a pair of shoes. But I put them on only in very formal situations such as New Year's Day and graduation. Afterwards I had to carefully put them away until the next use.
We were a farming family, so all the men and boys had to be in the fields doing whatever they could to help the family survive. My job was to take care of the cows as soon as I returned from school. For me, the most significant economic change I see is that the small town where I grew up has grown to a big industrial city of about 500,000 people. This is more than 25 times larger than thirty years ago. The rice fields are now all gone; replacing them are buildings and more buildings."