Taiwan has a great story to tell and many lessons from which developing countries could learn a great deal. This island country has transformed itself from a poorer, aid-recipient country into a developed economic powerhouse. ‘In 1950, Taiwan was receiving aid amounting to 9% of its GPD from the USA alone’, the deputy director of Taiwan International Cooperation and Development Fund told me. In 1996, the country set up its own development agency and has since been providing aid to other countries as part of its foreign policy, all within four decades.
On a recent trip to this beautiful, rocky and mountainous country, I was amazed by the infrastructure and order that characterized this island – all of which were achieved in a relatively short time. Today, world class cities sit on beautiful sea shores and beneath the green mist of breath-taking mountains. The tunnels which cut through the rocky mountains and Taipei 101, the world’s second tallest building, are a testimony of Taiwan’s economic success and engineering capabilities.
It has not always been so.
In 1962, Taiwan was a much poorer country with an average annual per capita income of just 170 USD (at the time, this income was on par with Congo, today’s poorest nation and paradoxically one of the world’s richest in natural resource endowments).
Taiwan currently boasts the 19th largest economy in the world by purchasing power parity with only 23 million people. It has a per capita income slightly over 37,000 US dollars in 2011, a figure on par with countries such as Germany, Denmark and the United Kingdom.
The island’s specular economic growth is known as the Taiwan Miracle and is part of what has come to be known as the Four Asian Tigers, along with South Korea, Singapore and Hong Kong. These four countries attained rapid industrialization from the 1960s to 1990s and are now high-income advanced countries.
In fact, Taiwan has proved that leapfrogging in economic development is possible. The country has jumped from an agriculture-based economy in which land was a key resource in the 1950s to an industrial economy in which machines were important resources in the 1980s to a knowledge-based economy today in which the deep potential of the human mind matters most.
How did Taiwan rise to success so quickly and what lessons can other developing countries learn from Taiwan?
Although there is no simple ‘one-size-fits-all’ formula for economic development, there are broad policy orientations that can make a difference in a country’s economic transformation. Such policies focus on what economic development is all about: creating wealth and adding value to resources. Taiwan’s land does not possess large quantities of oil, diamonds, gold or many other natural resources to justify the large leap in its economic development over the last four decades. This is because it no longer matters whether a country contains or does not contain natural resources beneath the surface of its land. What matters in today’s increasingly globalized and competitive world is another kind of resource, in fact the world’s greatest resource: human capital.
And Taiwan got it right: it made investment in human capital a top priority and developed a skilled and talented labour force which transformed the country into a sophisticated modern economy with relatively fair and inclusive growth. Taiwan recognized early on that its people were its most valuable resource and invested in education, healthcare and skills-training. With a strong leadership known for its competence and as a result of strong institutions, Taiwan channeled its then meagre resources into harnessing the potential of its people.
As a result of that investment, Taiwan has specialized in high value production, currently manufacturing many of the world’s consumer electronics such as personal computers and telephones. I visited the Taiwan Pavilion Excellence and viewed the cutting edge technologies being developed in Taiwan. There is a good chance that the phone in your pocket, or the laptop in your briefcase, was made in Taiwan. Foxconn, the world’s largest contract manufacturer according to The Economist and the 43rd biggest company in the world with $117.5 billion in revenues according to Fortune 500 Global Rankings, originated in Taiwan. It makes products for companies such Apple, Cisco, Nokia, Toshiba, Dell, and countless others.
Taiwanese students still rank among the world’s top in science and mathematics, as the latest TIMSS report released in December 2012 show. The country’s policies helped to propel an entrepreneurial spirit, unleashing the creativity of its people. Unsurprisingly, Taiwan has an expanding number of hi-tech parks such as Hsinchu Science and Industrial Park, Neihu Science Park, and Nankang Software Park, creating entire new industries and moving the economy forward towards a modern knowledge based economy.
Aside from Taiwan’s success story, the country offers another lesson to the world – a warning, rather. When I asked a number of officials in Taipei about the main challenge facing the island, I received the same straightforward answer multiple times. The answer was not the increasingly mighty China next door. Demographic decline, they told me. The same ingredient that made Taiwan an economic powerhouse is sadly now in deep scarcity.
In 2011, Taiwan made headlines when its own national statistics showed that its fertility rate was the world’s lowest, well below one baby per woman (at 0.9 to be exact), despite numerous government policies to boost birthrate. If Taiwan succeeds in reversing its demographic winter as it so desperately desires, it will birth another ‘Taiwan miracle’. Taiwan has built an incredible universal healthcare system but an official at the ministry of health, while explaining the system to us, both rejoiced and worried about the number of hospital visits an average Taiwanese person makes per year: 50.
This number brings joy to the health ministry official because Taiwan has come a long way to arrive at a modern, European-style, universal healthcare coverage system. However this number also brings him worry because, as he wonders, who will soon pay for these healthcare costs?
Developing countries should take note.
Obadias Ndaba is President of World Youth Alliance, an international organization with consultative status with the United Nations and European Union, among other institutions. He recently visited Taiwan.
