The figures are able to speak for themselves

By Hwan C. Lin, Taipei Times, Dec 22, 2007

The Directorate General of Budget, Accounting and Statistics (DGBAS) has announced an economic growth rate of 6.92 percent for the third quarter, up from 5.24 percent for the second quarter. This is 2.45 percentage points higher than the government's forecast of 4.47 percent in August and 1.76 percentage points higher than the average forecast of 5.16 percent made by 12 Dow Jones economists. The DGBAS has thus revised its forecast of 4.58 percent to 5.46 percent, an increase of 0.88 percentage points.

The gradual revitalization of the economy has made several politicians lose their bearings. Chinese Nationalist Party (KMT) vice presidential candidate Vincent Siew (蕭萬長) and former DGBAS director-general Duan Wei (韋伯韜) say the figures are purely for election purposes and suspect they have been made up.

Last week, Yeh Wan-an (葉萬安), a former KMT government official, said the DGBAS figure might be overestimated by at least 1 percentage point.

As national economic statistics follow a set of strict, internationally observed procedures, Wei and Yeh should understand that forecasts and outcomes are often inconsistent and that discrepancies can be large. It is not so much that the statistics are wrong but that the economic environment cannot be controlled.

For example, Singapore's economic growth forecast based on annualized third quarter growth was 6.4 percent, but the final figure was only 4.3 percent -- a discrepancy of 2.1 percent.

As a reflection of the uncertainty of the global economy, the Singaporean government has forecast that growth next year will fall between 4.5 percent and 6.5 percent. The difference of 2 percentage points is meant to accommodate a large discrepancy between the forecast and reality.

As for the US, the forecast annual growth rate based on annualized third quarter figures is 4.9 percent, 1 percentage point higher than the rough forecast of 3.9 percent a month earlier. This is the highest third quarter growth in the last four years. Contrary to expectations, the subprime mortgage crisis didn't have an impact on third quarter growth.

The real manipulators of distorted economic figures are politicians. The question of whether economic growth benefits all sectors of society is a matter of income distribution and whether deteriorating trade conditions will hurt proportional income growth.

Anyone contesting growth figures because of existing income distribution problems is unprofessional or lost in the attempt to manipulate political interests.

During President Chen Shui-bian's (陳水扁) first term, Taiwan's average annual economic growth rate was 2.8 percent, but that figure reached 5.2 percent in his second term.

From a GDP perspective, Taiwan has returned to a potential level of approximately 5 percent growth after undergoing the 2001 economic recession when the global high-tech bubble burst.

It is impressive to see Taiwan's economy retaining such resilience and flexibility after suffering years of political conflict.

However, Taiwan's worsened trade conditions have indeed meant that real GDP, which is used to calculate economic growth, includes a high proportion of illusory income -- according to my estimate, approximately 4 percent in 2004, 6 percent in 2005 and 7 percent last year.

In part, this is a reflection of how domestic industry is climbing the technological ladder, but also that their efforts to develop high-end products have been insufficient.

This is something the government should draw up careful and effective policies to deal with.

Hwan C. Lin is a research fellow at the Taiwan Public Policy Council and associate professor of economics at the University of North Carolina at Charlotte.

Translated by Ted Yang

Taiwan is heading in the wrong direction

By Hwan C. Lin 林環牆

The Taipei Times, Nov 26, 2007, Page 8

The actual direction of Democratic Progressive Party (DPP) presidential candidate Frank Hsieh's (謝長廷) "happiness economy" is now clear. Despite the proposal to dynamically manage the cap on China-bound investments, the basic principle is to continue opening up to China. This "new silk road" is similar to the policy of Chinese Nationalist Party (KMT) presidential candidate Ma Ying-jeou (馬英九) and his running mate, former premier Vincent Siew (蕭萬長).

Of course, there is room for rational debate about the "Taiwan victorious" strategy, but if the predicament from 17 years of growing economic integration with China is not confronted and China-bound investments are allowed to continue, Taiwan will be threatened, not renewed.

In the past seven years, I have repeatedly made suggestions about Taiwan's economic policies. Yet, the supposed new trend of "confident openness" proposed by the DPP still holds sway. Is this phenomenon a consensus reached after logical debate, the arrogance of political factions or a persistent enthusiasm for China resulting from being permanently lost along the "Silk Road?"

In 2001, the North American Taiwanese Professors' Association's public policy committee formed an economic and technological policies team. I was responsible for drafting several policy recommendations that were published on April 28 of that year, including "three strategic considerations, four major obstacles and 10 policy proposals."

In brief: "Taiwan's globalized economic integration should aim toward North America, the European Union, Japan and other technologically innovative global centers. Only then would it aid in the importation and dissemination of technological advancements and raise Taiwan's ability to evolve economically. Contrariwise, over economic integration with technologically weak developing countries, including China, would remove Taiwan's limited resources from innovative global centers and distance Taiwan from high tech markets in developed nations. This is not conducive to Taiwan's long term interests."

This kind of strategic discourse is vastly different from the "active opening and effective management" policy set by the 2001 Economic Development Advisory Conference. Seven years later, our previous concerns have materialized. As an opinion piece about Taiwan's economic policy and its alienation from the US and Japan in the Nov. 14 edition of the Liberty Times (the Taipei Times' sister newspaper) said: "On the surface, Taiwan's outward economy appears prosperous. However, deeper analysis reveals the reverse of these: a one China structure diametrically opposed to the DPP's independent position which alienates allied nations and leans self-destructively toward the enemy state."

Some say that to open further to China and increase Taiwan's "winning circle" is the way to go. There is some basis for this belief. Yet one should remember that this theory assumes that key production elements do not migrate across countries and technologies remain in stasis. Once Taiwan's capital and technology migrates to China en masse, and Taiwan has to invest in itself to increase its lead in advance of China, then the so-called "winning circle" will be expanding in China, not Taiwan.

Hsieh's "sovereignty versus opening-up" thinking that seeks to relax economic cross-strait strictures over-simplifies the issue. Taiwan's winning strategy lies in proactive innovation and increasing globalization.

Hwan C. Lin is a research fellow at the Taiwan Public Policy Council, a US think tank, and associate professor of economics at the University of North Carolina at Charlotte.

Translated by Angela Hong

*Upon request from The Taipei Times, the article is translated from one of my Hanji articles published in The Liberty Times, a Hanji-based newspaper from Taiwan. The Hanji version of the Taipei Times article is posted in another blog.