Thread by @royngerng

Is Taiwan's government over reliant on the export market to drive Taiwan's growth? Is there enough focus on SMEs that contribute less to the export market? This is an important question to ask on how Taiwan's government views Taiwan's role globally.

en.rti.org.tw/news/view/id/2…

What are the reasons why Taiwan's SMEs think they earn low profits? Is it because prices of Taiwanese products for local consumption are low? Taiwanese-made products can be half the price that of their international competitors (e.g. hair dryers, food products etc)

One reason for the low prices of Taiwan's local products could be due to the low wages. Workers earning low wages cannot afford higher prices, which therefore keep prices of local products low, and trapped in a cycle between low wages, low prices and low profits.

Do lower profits in Taiwan cause businesses to be more conservative and less willing to expand into overseas market, because they think they do not have enough profits to take risks? Does lower profits make them focus on reaping profits instead of invest in marketing/innovation?

Taiwan's export companies are largely able to pay higher and more globally-competitive wages, so the argument has turned to wages being low in Taiwan, because it is the local SMEs that are paying low wages.

The question then is, if Taiwan's export companies are already earning profits and paying wages equivalent to that of other global competitors, then what is the argument for the continuation of keeping costs low for these major export companies?

If keeping costs low in Taiwan is no longer that much needed for Taiwan's export companies, low costs therefore become a hindrance instead for Taiwan's SMEs which are forced to keep prices low due to the low costs. Low wages -> low consumer spending -> low prices -> low profits.

On the contrary, higher wages mean a larger consumer market with the spending power to purchase local products, helping to drive up both demand & prices. The higher value accorded to local products could help SMEs gain confidence to expand globally, thereby increasing demand.

The low-cost ideology is an uncreative ideology being adopted by policymakers in Taiwan who are therefore not imagining beyond what they are repeatedly used to doing. Taiwan's export companies have plugged into the global market and are on par with other advanced countries.

Is the differentiation between the large export companies and local SMEs widening due to the export vs local market differentiation, the former being able to charge higher prices and earn higher profits, while the latter able to only charge lower prices and earn lower profits?

If so, a rebalancing in Taiwan's economy is needed. What value, if any, does Taiwan's low cost ideology truly provide to non-export companies? Even if Taiwan's @DPPonline government is pro-business, how do low costs help businesses to earn higher profits at all, ...

... when the low wages of workers (and actually consumers as well) result in Taiwan's local products being devalued and therefore preventing these local products from finding a global market which they might otherwise be able to do so, if they are able to charge higher prices?

There is therefore a need for a fundamental relook on the need to maintain a low cost regime for Taiwan. As it is, among the 'five shortages' often complained about in Taiwan (land, water, power, manpower, and talent), there exists a contradiction.

As long as the idea exists that costs need to be kept low including wages, talent will continue to be in shortage because good talent will seek out places overseas with higher wages. The low costs and 'five shortage' ideology therefore exists in contradiction to Taiwan's growth.

Even if Taiwan's @DPPonline government wants to develop Taiwan as an export market, allowing costs (and wages) to increase, and therefore prices locally, means that SMEs will therefore be able to create new market segments to compete globally.

Taiwan therefore needs to abandon the low cost ideology not only because it does not work for workers, it also no longer works for SMEs/businesses which need higher domestic consumer spending (and higher wages), in order to spur their growth to help them enter the global market.

Instead of artificially trying to link local SMEs to global markets, which can be inefficient because there are simply too many SMEs to try to facilitate, the idea perhaps is to look at how to better reorganize resources locally to enable their natural entry into global markets.

There is therefore a need to rethink the low cost strategy, if Taiwan's @DPPonline government wants to strengthen its ability to export & become more relevant globally. Increasing costs as an approach, so as to increase prices & profits could instead strengthen Taiwan's position.

But prices of local products can only increase as fast as wages can afford, and Taiwan's stagnating low wages means that price increases are most probably maxed out, and if local prices are to be further increased, then they would need to rely on wages increasing.

At the next step of Taiwan's economic development, the question is whether Taiwan needs to start adopting a "cost increase" strategy if it wants to grow its export market and become more globally relevant. As it is, costs are low and moderate cost increases will allow Taiwan ...

... to still remain cost competitive, while allowing local prices and wages in Taiwan to catch up. In other words, while Taiwan wants to position itself in between high- & low-cost economies, the cost equation has changed and Taiwan needs to increase costs to rebalance itself.

Thus if the aim is to broaden the #TaiwanCanHelp strategy, then breaking out of the low-cost ideology, to adopt a (cost/wage-) growth mindset will be needed to strengthen Taiwan's position and influence internationally. A new growth mindset is needed to make Taiwan more relevant.

It should be recognized that the relationship between SMEs and workers in Taiwan is no longer that of a zero-sum game. Increasingly, there are shared interests as the low costs SMEs are facing is similar to that of the low wages confronting workers - both have damaging impacts.

Even if Taiwan believes it runs on a free market non-interventionist approach, the artifical low cost suppression strategy has creates a lopsided economic system that has tipped the scales for meaningful economic development for local SMEs.

As such, Taiwan's low-cost 'strategy' is no longer reflective of free market economics. Rather, it has become a political fixation which increasingly contradicts with Taiwan's free market goals. In the end, Taiwan's policymakers are sabotaging its own economic objectives.

The lack of imagination among Taiwan's policymakers to move beyond using low costs to sustain the economy is therefore taking the life out of the economy and needs to be reconfigured. This requires acknowledging that political stagnation is crippling Taiwan's economic vitality.