Taiwan Today

This is my first visit to Taiwan and what an exhilarating one it has been. It was my privilege to be Prime Minister of the United Kingdom during an uniquely exciting stage in world history, with such great events as the collapse of communism and the rebirth of democracy in Eastern Europe and the former Soviet Union. It was an exceptional time, one of those rare periods when one felt history moved decisively forward.

What you have created in Taiwan is no less exceptional. Starting with very little in the way of natural resources, you have built a world class economy by dint of unremitting hard work, an unquenchable spirit of enterprise, and sound economic policies. I am heartened to find that Thatcherism is clearly alive, well and living in Taiwan! You are the industrialists, the bankers, the managers who have built the re­markable economy of this gallant island. I congratulate you on what has been achieved and on your bold plans for the future.

The willingness to work hard, the desire to improve oneself, the wish to see one's country succeed are very powerful in this part of the world. One only has to look:

—At the extraordinary economic growth being experienced in southern China, some of the highest growth rates recorded since sta­tistics have been kept.

—At Japan's outstanding skill in manu­facturing ability to spot market trends and design the products of the future.

—At how Hong Kong has grown from a tiny outpost on the China coast to become the hub of trade and investment for the Asia-Pa­cific region.

—And at the outstanding leadership shown by that remarkable man, Senior Min­ister Lee Kwan Yew, in building Singapore's economy.

And as one looks forward to the turn of the century, the prospects are brighter still.

By the end of this decade trade within the Asia-Pacific area—just within it, not count­ing trade with the United States, Europe and the rest of the world—will exceed trade within Europe.

Or, to give you another statistic: between now and the end of the century, the number of people in the crucial 20-39 year old age group will decline in the United States. It will de­cline in Japan. It will decline in Europe. But in the Pacific Rim countries it will increase by some 80 million, representing a huge advance in buying power and capacity to produce more goods and services.

As a result of my visit, I am even more convinced that this Asia-Pacific region will be the world's economic center of gravity well into the next century. An unusually gul­lible American visitor to the Soviet Union in the early years of Communism came back and announced: "I have seen the future and it works." We all know now how wrong he was.

But today, in the very different setting of Taiwan's enterprising market economy, I paraphrase his words: "I have seen the future in the Asia-Pacific region and it will work­ - if we all adhere to the policies which have been the foundation stone of our present success."

The Opportunities

Let me start by talking about the oppor­tunities which I see.

China under the leadership of Mr. Deng Xiaoping is going through a remarkable trans­formation. The stain of the events in Tienanmen Square in 1989 cannot be wiped out. I remember the intense revulsion and disappointment which we all felt at the time, just when it seemed that China had turned a comer.

But how much has changed in the world in the three years since then. The fundamental principle of communism, that human beings do not matter and that all the politics and all the economics can be run from the center, is now thoroughly discredited.

In China that process of change has started too, not with politics as was the case in the Soviet Union, but in the management of the economy. The market is being allowed to work in ever more sectors of China's economy. It is a considerable achievement for the world's most populous state just to feed and clothe its teeming millions. Now their living standards are improving rapidly as well, and the economy is steadily being opened up to outside investment, in which Taiwan is playing a foremost part.

But the greatest incentive of all to further progress is the demonstrable success of freer markets inside China itself. People can see for themselves that markets work and give a higher standard of living. Chinese people know about markets, they are natural capi­talists. Now even their leaders are saying that China must learn from the capitalist system.

No doubt those who rule China hope that economic reform will stave off the need for political change. I think that view will turn out to be utterly mistaken. A sophisticated economy needs a well-educated work force who will demand more freedom. Prosperity produces a middle class who will not be con­tent to be deprived of political rights. And telecommunications and computers defy na­tional boundaries and open up access to information about the outside world. At the end of the day, the dynamism of the market will inevitably lead to political change as well.

The best help which the rest of us can give is to encourage the economic reform associated with Deng Xiaoping and speed the great industrial revolution which is about to happen in China. One thing which I have learned from dealing with the Chinese lead­ers, and particularly Deng Xiaoping, is their ability to think decades ahead. I learned in 1984 that his aim was to see China reach Hong Kong's level of development within 50 years. The impetus which he gave to eco­nomic reform by his visit to southern China earlier this year was, I am sure, undertaken with that goal in mind.

What is profoundly misguided is to try to restrict China's trade with the United States as a way of putting pressure on China over human rights and democracy:

—First, it won't work.

—Second, it hits hardest at precisely the wrong people, namely the practitioners of the market system who are the best hope for re­form.

—And third, it damages Hong Kong, many of whose people have fled from China to live under a rule of law and a more demo­cratic system. President Bush is right to veto the short-sighted attempts by Congress to use this blunt weapon of attaching conditions to most-favored-nation treatment-just as we are all of us right to keep up political pressure on China to change.

In Hong Kong, you see an extraordinary example of how British law and administra­tion and Chinese talent can work successfully together. The decision to return Hong Kong to China's sovereignty after 1997 was an anxious one, even though there was no other course open to us under the terms of the original lease. What eased our concern was Deng Xiaoping's inspired concept of "one country, two systems." The joint declaration of 1984 codifies that vision and is Hong Kong's basic guarantee for the future, an in­ternational treaty deposited at the United Nations and carrying with it the support of the world community. Both sides have commit­ted themselves solemnly to honor it and I am sure that both will.

But Hong Kong's future does not rest on that alone. Already Hong Kong's business community is deeply involved in China's economic development, and that will surely increase by leaps and bounds up to 1997 and beyond. Hong Kong benefits greatly from access to the hinterland of Guangdong prov­ince: a market of 70 million people, similar in size to France, Britain, or Germany, and with the fastest growth rate in the world.

Indeed, nowadays it is fashionable to talk not just of Hong Kong but of Hong Kong Plus—that is Hong Kong and the neighboring regions of China. Hong Kong is set to become the great trading and financial service center for China's industrial revolution, in the same way that London played this role for Britain's in­dustrial revolution in the nineteenth century and New York for great cities such as Chicago, Detroit, Cleveland, and Pittsburgh. Hong Kong's strategy is to make itself an indispen­sable part of China's hopes for economic suc­cess, and in the process guarantee the continuance of its own way of life.

Beyond that I see the economies of Tai­wan, Hong Kong, and southern China meshing ever more closely with each other to become the focus of prosperity for the region as a whole, and a challenge to Japan's present pre-eminence.

Look further field and the picture is no less encouraging. The countries of Southeast Asia have been growing at 8 percent a year, compared with an average of 2.5 percent for Europe and the United States. They too are achieving it by letting the market decide and by encouraging foreign investment.

And in far away New Zealand, we have seen a commitment to tough economic policies to squeeze out inflation, reduce subsidies, and curb the trade unions. It takes great political courage not to be shaken off course. But New Zealand has stood firm through hard times and now the results are coming through. I hope their persistence—and its reward—will be a lesson to countries in other parts of the world.

In short, what is happening in the economies of the Asia-Pacitic region is rightly and deserv­edly described as an economic miracle. Its con­ sequence is that East Asia is emerging as one of the three great pi liars of the world economy alongside the United States and Europe and with many advantages which they do not have.

The Policies

But there is nothing automatic about pros­perity. It comes only when you have the right policies and the right basic framework for en­terprise to flourish.

The most essential element is a rule of law. That's not something which you can create overnight. In Britain's case it comes from cen­turies of experience and precedent. It provides the foundation of certainty so essential for business: the knowledge that agreements and obligations will be honored and disputes justly resolved, on a basis which is equal for all with­out fear or favor.

With that rule of law goes the freedom which is essential to the operation of the market. Some people look at Asia's experi­ence and say that it shows you can achieve great economic success without having full democracy. I do not believe that can be sus­tained over any length of time. In the short term you can achieve rapid growth under au­thoritarian government. But it will not be sustained, because authoritarianism is the enemy of the freedom of the individual, and it is millions of individuals who make the mar­ket work. If the countries of East Asia are to make the most of the opportunities for eco­nomic growth which are there to be taken, then they must steadily extend democracy and representative government. The experi­ence of Latin American for much of the postwar period is a dreadful warning of how unlimited potential for economic growth can be recklessly squandered by authoritarian governments.

The rule of law and democratic govern­ance are fundamental. With them must go a sense of responsibility towards the wider world. Because it is only under conditions in which the world economy as a whole contin­ues to grow that Taiwan and its neighbors can assure their own future prosperity.

The world trading system has been kind to Taiwan and its neighbors. It has permitted you to develop your industries with a degree of protection from outside competition. You have now reached the point where such pro­tection is no longer justified or necessary. Just as you in Asia have been able to achieve such remarkable growth because world markets have been open to you, so you now have an obligation to open your own markets to the goods and services of others and to get rid of restrictions of all sorts.

Taiwan has taken some important steps. But significant structural barriers are still there which make it more difficult for other countries to do business with you than it is for you to do business with them. Now is the time for them to come down.

There are several areas where action is required. There are restrictions on foreign investment, on the ownership of land, on the purchase of shares, and on the holding of currency by foreigners. There is discrimina­tory taxation on imported spirits, and espe­cially Scotch whisky, which we would particularly like to be remedied. Our compa­nies want to see more open and transparent tendering arrangements for major contracts.

These are just a few examples and on some of them I know that action is being considered. I would only say this: the faster you go, the more positively the rest of the world will respond, and the more readily it will help Taiwan play its rightful role in the international trade and monetary institutions. It makes no sense for Taiwan as one of the biggest creditor and trading countries in the world to be outside the GATT, the IMF, and the World Bank. While membership can only be achieved with China's cooperation, and probably after China herself has been admit­ted, the climate for securing the support of others for Taiwan's membership will be greatly improved to the extent that Taiwan does everything possible to reduce unneces­sary regulation and open its markets.

I hope that you will press ahead with pri­vatization of industries which are still under state control. Our experience with privatization in Britain since the 1980s has been very posi­tive. Indeed, virtually only coal and railways remain in the public sector. Government has no place trying to run business and should not attempt to do so. In the United Kingdom I hope that by the end of this Parliament we shall have got government out of business alto­gether. And may I say that if you need advice on privatization, no one is better qualified to provide it than British merchant banks.

And secondly, while the world has ben­efited from Taiwan's exceptionally high sav­ings ratio, I hope you will think it is now time to give higher priority in future to improving the quality of life. It may be that we in Britain and in Europe have given too much attention to the quality of life and too little to earning the means to pay for it, while you have tended to go in the other direction.

Indeed, I saw the other day that the Japa­nese Prime Minister had made a speech in which he called on Japan to become a lifestyle superpower. Surely that is something for Tai­wan to aim at, too. A better lifestyle stimulates more spending and consumption of quality goods, and thus offers Taiwan's trade partners greater opportunities to sell to you. It would also cut the ground from under those in the United States and Europe who complain about unfair competition from low cost, low stand­ard of living economies in Asia.

Taiwan has so far, and understandably, thrown everything into defending itself and building a strong home base. Your success, for which you are to be warmly congratulated, has come by pursuing the right policies: Low taxes to maximize incentives, a strong commitment to private property, and sound finance.

Without abandoning any of that, I hope you will think the time is now right for you to take on a greater share of responsibility for the prosperity of the world economy. Taiwan has shown that it can think and plan and act on a grand scale at home. I am sure you will now think globally equally effectively.

Britain and Taiwan

I hope that in the process Britain will come to play a more prominent part in Tai­wan's economic life. We have a great deal to offer. We are a unique people and our service in the cause of freedom surpasses all save that of the United States. Yet our ability to be ac­tive in your country has inevitably been constrained by our responsibility for Hong Kong.

That responsibility continues to put a very high premium on our relations with China. But it is not a barrier to good business, trade, and cultural contacts with Taiwan. Progress has been made in recent months with the first visit by a British Minister, the upgrading of our trade office here, and easier and quicker procedures for obtaining visas. I hope that my own visit, particularly as some­one who understands mainland China, and has negotiated with her leaders, will be seen as a further step forward. The Taiwan Trade Of­fice in Britain does a very good job under its indefatigable head, Mr. Raymond Tai. The results are there for all to see. Last year trade between Britain and Taiwan comfortably ex­ceeded that between Britain and China, despite the vast differences in population.

Our experience in Hong Kong shows how well and effectively British and Chinese peo­ple can work together if given the opportunity. Our great companies like GEC, Rolls Royce, Glaxo, and ICI are among the most efficient and technologically advanced in the world. Would it not be possible to harness Taiwan's immense financial resources to the research and development capacity of British firms and universities, so as to develop new products and technologies? An effort of imagination is re­quired and it deserves to be made.

Japan's investment in Britain also pro­vides an encouraging example for Taiwan. Their experience has shown that the combi­nation of Japanese management with British workmanship gets results at least as good as Japanese firms can get at home. Britain has also been an ideal launching pad for Japanese firms entering the European market, because we have the great advantages of stable gov­ernment, sound finance, and the English lan­guage, And when some European countries tried to change the rules because they saw Britain was benefiting from Japanese invest­ment, our government has been robust in fighting for the interests of those who invest in Britain—and fighting until we win. That should be an encouragement to more Tai­wanese firms to set up operations in Britain.

We ought to have many more cultural and educational exchanges in both directions between Britain and Taiwan, especially by sending more Taiwanese students to study in Britain. It is the way that people get to know and understand each other and each other's countries better, and it leads to more trade and thus more jobs and mutual prosperity.

So there is work to be done by both Britain and Taiwan, and when I return to London I shall give it my whole-hearted support.

The Wider Picture

But you can do only so much at the na­tional level. We have to raise our eyes to wider horizons and consider how we can en­sure that the steadily rising prosperity which all of us have enjoyed over the last forty years continues. Because it is by no means a fore­-gone conclusion that it will do so.

There are two vital requirements.

The first is to extend the open world trade system which has been at the heart of our growing prosperity. That means carrying on the work of removing barriers to trade whether they be the conventional ones like tariffs or the so-called "cultural barriers" to imports and to services. To my mind, that expression is just an excuse: it is quite easy to persuade people to change their purchasing habits, as we have seen in our own consumer­- orientated societies.

Much will depend on bringing the cur­rent round of world trade negotiations in the GATT to a successful conclusion. Indeed that ought to have been done at least two years ago, and two or three European countries carry a heavy responsibility for blocking a solution to the crucial problem of agricultural subsidies. The time available to achieve a result by the end of the year is very tight, especially given the American presidential election. But succeed we must because the consequences of failure are too grim to contemplate.

We face a very clear choice. Either we continue to remove restrictions and barriers to trade, including hidden barriers—and we do it in manufactures, services, agriculture, and intellectual property—or we embark on beggar-my-neighbor policies which, in the long term benefit no one. A foretaste of what that would mean can be seen in some of the trade legislation which the United States already has on its statute books, particularly the so-called Section 301. If the world goes that way; we would get stuck in a vicious spiral of retaliatory actions which would rapidly impoverish us all.

Also, it would very likely lead to the emergence of rival trade blocs, favoring their own members and excluding the products of others. We have seen in the past what such competitive protectionism can do. Ultimately it leads to ruin, dam­aging the interests of consumers through higher prices and of producers by re­stricting their markets. Yet some of the danger signs are there. Not least in Eu­rope, where the Commission of the Eu­ropean Community and some of the member states seem to want to turn Europe into a tight-knit, protectionist bloc. And those with long memories in this part of the world will recall the unhappy at­tempt to impose a co-prosperity sphere.

Let us make sure that sort of thinking is consigned to history once and for all. It is up to us—and especially those who have reaped the biggest benefits from a free world trade system—to avoid such an outcome. We can do so by maximizing trade links and opening our own markets to the greatest possible degree.

The new USA, Canada, and Mexico Pact for Free Trade in North America is an example of the kind of free-trade agreement allowed under world trade rules and should be regarded as an exam­ple of widening free trade not building a highly regulated protective bloc. It would be good now if Europe and the three na­tions of the pact came together in a North Atlantic free-trade area—a proposal I made some 18 months ago in a speech in Washington. The North American Pact will I hope help to liberalize world trade and further the free-trade principles es­tablished in the GATT.

We need a broader political dimen­sion too. Europe's recovery after World War II was not based just on trade ar­rangements and the Common Market. It had the much more fundamental under­pinning of the North Atlantic Alliance. It was NATO and the transatlantic partner­ship which provided the security and political stability, enabling the European Community to flourish and prosper.

The three economic power centers—the United States, Europe, and East Asia should be more ambitious from time to time and consult on political and security issues too. When countries are confident that their security concerns can be recognized and settled in discussion, there is no need for them to seek domination or aggrandizement. They can concentrate their energies and their national ambitions on achieving growth and prosperity.

It is also important to give the United States every encouragement to go on playing a global role as the leader of the free world. Asia's present peace and stability is based on a delicate balance of power in which the United States' presence is a crucial element.

It is a lot to ask of the Americans to con­tinue the role which they have played for forty­-five years in underpinning the peace and security of others. Europe and Asia have known stability only when the United States has been physically present in both regions. You in Taiwan have as much reason to know that as we in Britain. It has been the willing­ness of the United States to stand by its friends which has guaranteed your safety and ours. Take away that central ingredient of the bal­ance and you risk setting loose forces which could lead us back to competing nationalisms, intimidation, and predatory behavior which should have no place in the modern world.

It will call for continued leadership from the United States and its people and at a time when many wish to reduce their burdens. They will rise to the challenge only if they see the rest of the world taking their interests into account, including their vital trade in­terests. It is, to use that old American ex­pression, all one ball of wax, all of a piece. We entered the last decade of this century in a mood of hope and optimism. To translate that into reality will require our politicians and governments to rise above the detail and look at the broad strategic implications of their decisions. The future is a big place; it has no borders and has no end, and the life we seek to bequeath to the generations that will inherit it is one of peace, with freedom, with honor, and with justice.