Let's call it (James) Carvel's Caveat: In a "down" economy, the incumbent loses - other things being equal. In 1992 Bill Clinton showed George Bush, Sr. just how devastating a faltering economy is for the sitting president. Chen Shui-bian knows that, too.

Since Chen became president in May 2000, Taiwan has joined the world recession with over 5% unemployment and a stock market decimated by half. This Asian tiger has some glaring vulnerabilities. Negotiating through these economic doldrums will not be easy, Chen Po-chih, Chairman of Taiwan's (cabinet level) Council for Economic Planning and Development (CEPD), told our group of parliamentary election observers. Still, he is optimistic. To clarify, he divided his economic analysis into 3 parts: the Taiwan economy itself, the economic impact of the mainland on Taiwan's economy, and the effect of Taiwan's joining the World Trade Organization (WTO). In part one of this synopsis, I will characterize Dr. Chen Po-chih's ideas on how Taiwan seeks to pulls itself out of recession and the impact of the mainland economy. In Part 2 I will review Taiwan's new membership in the WTO. The ramifications of this new membership could be quite far reaching. 

First a note on the chairman, Dr. Chen Po-chih. His qualifications for the role are extraordinary. Prior to his appointment as chair of the CEPD, he served as director of the ROC's Central Bank, secretary general of the Chinese Economic Association and long-time professor of economics and director of the Department and Graduate School of Economics at National Taiwan University. He also learned how to carefully nuance American English at Brown University in Providence, RI, as a visiting professor in the early 1980's.

Now to Chen's analysis of Taiwan's economy. Adam Smith in his 1776 book Wealth of Nations called economics "the dismal science." But Chen Po-chih is far from dismal; he's downright enthusiastic. He is part analyst and part salesman for President Chen Shui-bian's economic program. It consists of three parts, or "broad directions," as Chairman Chen characterized them: broadening the development of information technology (IT), expanding biotechnology, and continuing to emphasize and [develop] tourism.

When asked if the current economic downturn is serious, he acknowledged quickly that it is. There was another serious economic crisis 16 years ago, he said, when labor-intensive industries moved to lower-cost producer-countries. But then information technology came on-line to soften the crisis. This time, however, said Dr. Chen, future directions are not so clear, and thus the crisis appears more severe and perhaps psychological as well - a crisis of confidence among the Taiwanese.

In the first of the 3 "broad directions" for Taiwan's economic future, information technology, Chen acknowledged that Taiwan was already strong, but would seek to develop more information appliances and uses for semi-conductors. Taiwan is already the 4th largest patent holder (after the U.S., Japan and Germany) and on the basis of per-capita patents, is 2nd only to the U.S. This is a well-developed field, which will be plumbed for still more applications, as well as basic research.

The second strategic direction is biotechnology. In this field, Taiwan holds a sizeable comparative advantage. For example, Dr. Chen noted that more than half Taiwan's college graduates go into the field of medicine. He added that Taiwan benefited both from the medicines of modern science as well as the traditional practice of medicine endemic to Asia. In addition, he emphasized Taiwan's diversity of plants and animals, as well as the highest mountains in East Asia, as a way of underscoring that Taiwan is a unique laboratory for bio-medical research and development. And, he noted, the development of genetic engineering in agriculture, as in many industrial economies, is an important companion to advancement in the field of biomedicine. One questioner asked how Taiwan would treat the issue of cloning and genetically modified organisms (GMOs), if Taiwan's different cultural background would be a help or hindrance to research in those controversial fields. Chen's short answer: "Taiwan will follow international norms" and was probably not technologically developed to do cloning, anyway.

The third, broad policy direction the Chen (Shui-bian) government and Dr. Chen Po-chih himself is advocating is a more inviting society, a package of societal developments including tourism, senior-citizen care and responsibility and a more comprehensive recycling program, all aimed at improving Taiwan's quality of life. Anyone who remembers Taiwan in the 1960s will say "bravo"! In 4 decades Taiwan has improved quality of life for its citizens and visitors by light years. And they want to do even more.

The second part of Chen Po chih's analysis of Taiwan's economy focused on the economic impact of mainland China, which at one and the same time seems to be a boon and a bane. Chairman Chen began to square the circle by noting that Taiwan's "outward investment" in the mainland was largely in labor-intensive industries, including the manufacture of computers. While computers might seem "high tech," their manufacture is not. Research and development is considered high tech, however, and that capacity will remain in Taiwan. Thus mainland manufacturing is not seen as a setback to Taiwan's economic-growth strategy. Rather, Taiwan will be forced to enhance its comparative advantage and to eliminate many low paying, low tech-type jobs. That is in Taiwan's long run advantage, not disadvantage, said Chen.

A questioner asked how important the mainland's market is to Taiwan, implying that Taiwan's economic future lay with the mainland/PRC. While everyone agrees China's market is important, Chen said, it is clearly exaggerated. First, he said, don't forget China's Gross Domestic Product (GDP) is a mere 3% of the global economy. The United States' share of the global economy is 33%. Second, he noted that analysts frequently neglect to adjust the mainland's GDP for "purchasing power," which results in a substantially lower growth rate than is usually claimed. By way of a very brief synopsis of Chairman Chen's fast-paced analysis, I came away feeling Chen believes China is challenging Taiwan in some very helpful ways, like making it, Taiwan, open up its markets to more efficient producers and labor intensive economies. If the mainland didn't force this economic change on Taiwan, the WTO would. The short-term challenges could be painful. The long-term consequences will be beneficial.

And that's the story for next time. Just what will be the effect of Taiwan's joining the World Trade Organization? Chen had some blunt observations on the WTO and the mainland relation, too.