How capitalism developed in Taiwan and South Korea – any parallels with China today? Part One

The conclusions the
bourgeois “experts” draw from the economic development of China are
completely off the mark and, above all, there is not much new in it. The
fact is that bourgeois ideologists have begun to believe in their own
propaganda, losing sight of past experience and history itself. In order
to create illusions about the future, they have forgotten their own
past!

For decades, they lectured the world about globalisation,
forcing the governments of the “emerging” economies to sell off
everything to big multinationals, mainly from western countries, to
reduce state intervention in the economy, to crush trade unions and so
on. Then, all of a sudden, the IMF and all the rest discovered how risky
these very same policies are in the face of the present crisis. As they
have forgotten their own history, now they find it difficult to
understand what is going on.

Role of private capital and role of the state

That
private capital promotes growth is historically a rare exception. Once
the first European powers had started to develop as capitalist
economies, no one else could develop in the same way. Even Germany, the
most powerful capitalist nation in Europe, and countries like Italy and
other smaller European capitalist economies were not developed by
private capital alone. If Germany, that was already a powerful economy
at the end of the 19^th century, was not able to grow without
permanent and strong help from the state, it was certainly impossible
for Asian nations that had been colonies or semi-colonies of the
imperialist countries.

Today’s big multinational companies cannot
be challenged by the small emerging capitalists of the less developed
economies. If these “newcomers” wish to compete with these giants, they
can only hope to do so by using the combined resources of the state.
Without such help these emerging economies would be simply squeezed out
by the higher efficiency, the greater productivity of the multinationals
and forced to produce what the imperialist giants deem necessary to
maximise their own profits.

All the fundamental economic and political events of the 20^th
century flow from this fact, that Marxists define as the “law of uneven
and combined development”. This law explains why a spontaneous
development of economies outside the grip of the imperialist countries
is impossible. It also explains why the indigenous bourgeoisies of the
developing countries can only aspire to being the local errand boys of
the more powerful imperialist powers. Trotsky drew the political
conclusions from this situation in developing the theory of the
Permanent Revolution[1].

Planning
and state intervention – contrary to what many believe – play a role in
capitalist development. Indeed they are by far the most used methods in
underdeveloped economies because there is no alternative other than to
remain completely subdued to imperialism. This is particularly true in
Asia. Japan was the first country to endogenously develop capitalism on
the continent. This happened in a very peculiar way, basically
transforming former soldiers into businessmen[2].

The
success of Japan was remarkable. Before the Second World War, it had
already become a world power with a vast sphere of influence in Asia.
Japanese imperialism was no less cruel than its western version, albeit
with Japanese ideologists pretending that the Land of the Rising Sun was
protecting Asia from western invasion, giving back to the continent its
historical primacy. The reality was that Japan was amassing territories
and slaves for its big companies.

The way Japan became a world
power influenced the whole of capitalist development in Asia. Then came
the 1949 Chinese revolution that also strongly changed the outlook of
the ruling classes in Asia. Thanks to the victory of the Maoist Red
Army, for the first time since western powers had occupied Asia, China
was united and independent, and able to decide on its own destiny,
whereas the other Asian countries were basically puppets of US
imperialism or, in the best case scenarios, instruments of the Kremlin’s
foreign policy. The political and economic examples of Japan and China
show how state planning and intervention has been the accepted norm of
capitalist development on the continent.

As we have dealt
elsewhere with Japan (see above quoted article) here we will deal with
the two most prominent cases after Japan: South Korea[3]
and Taiwan. It is worth noting that both of these states came into
being as the result of revolutions and civil wars between emerging
deformed workers’ states and imperialism. Taiwan was occupied by the
Kuomintang defeated on mainland China. South Korea started to develop
after a bloody war that provoked the partition of the country. Their
origin and position explain the desperate need for rapid economic growth
to counter the influence of Stalinist neighbours. US imperialism and
the national elite of these countries discovered in practice that the
only way of achieve that goal was through economic planning, albeit on a
capitalist basis.

The example of Taiwan

For most of the first decades of the 20^th
century, the Chinese economy was in a state of permanent chaos due to
war, civil war and military occupation. The only viable modern economic
initiatives were taken either by Japanese imperialism in what it
considered its sphere of influence or by the nationalists (the
Kuomintang). Since the 1930s the Kuomintang (KMT) had set up a Central
Committee for Planning in charge of managing most of the big factories
of the country, to help in the military efforts. When the Chinese
Communist Party took power in 1949, it seized the around 3,000 companies
that were already state owned and that formed the backbone of Chinese
industry. The Kuomintang on its part, having been pushed onto a small
island, subjugated the population and started from where it had finished
on mainland China.

Taiwan, just after the war, was in ruins. The
Japanese army had fled leaving behind chaos and hyper-inflation.
Moreover, there was a threat of a Maoist invasion. The government needed
social cohesion and a base of support among the population to resist.
That is why the KMT was forced to carry out an agrarian reform. On the
surface, the fact that a national bourgeois government actually carried
out such a policy may seem to disprove the theory of the permanent
revolution. In reality, as Marxists always explain, reforms are a
by-product of revolution. The Chinese revolution terrified the ruling
classes all over Asia and the agrarian reform in Taiwan was a direct
consequence of this. It was either this or lose any base of support the
regime may have had. It is also true that Japanese imperialism had
already begun to implement an agrarian reform after 1895 in order to
facilitate their own corporations in grabbing the best land on the
island. That process was accelerated after the break out of the Korean
War. It was US imperialism that forced its Asian allies to carry out
these reforms in order to to appease the masses:

“With American
help, the government implemented a land reform programme. This programme (1)
sold public land to tenant farmers, (2) limited rent to 37.5% of the
expected harvest and (3) severely restricted the size of individual
landholdings forcing landlords to sell most of their land to the
government in exchange for stocks and bonds valued at 2.5 times the
land’s annual expected harvest. This land was then redistributed. The
land reform increased equality among the farm population and
strengthened government control of the countryside”[4]

In
the 1950s, economic planning was firmly established as the core
strategy for the development of the island. In 1953, the Taiwanese
government adopted the first four-year plan. In the forty years from
1953 to 1993, the government adopted and carried out ten “medium term
plans”. It is true that Taiwan succeeded because it enjoyed the benefits
of an expanding world market in the post-war boom and US aid.
Nevertheless, the results, thanks to economic planning, were
astonishing.

In 2009 the Council for Economic Planning and
Development published a document that summarises fifty years of economic
growth strategy of the Republic of China (the official name of the
Taiwan state)[5].
In this interesting document we find that between 1952 and 2007, the
average annual growth of Taiwan was 7.8% (10.4% according to other
sources), raising the per capita GDP from id="mce_marker"97 to almost
id="mce_marker"7,000. In the 1950s, Taiwan was basically a third world
country, but by the 1990s it had become one of the “Asian tigers” and
enjoyed world leadership in many economic sectors.

This remarkable
development was achieved by successive stages. First came the agrarian
reform that motivated the peasants and increased productivity in the
primary sector, freeing manpower for the industry. Then the state
created export powerhouses in heavy industry. After the 1970s, the CEPD
and the government directed Taiwanese industry towards high-tech
sectors, where the country conquered a leadership position that it has
kept until now.

As we said, as well as the role of the state we should not overlook aid from Washington:

“Taiwan
benefited enormously from a huge infusion of economic and military aid
from the United States, totalling more than four billion U.S. dollars.
Economic aid alone accounted for 7.4% of GNP and 30.5% of government
revenues; altogether, U.S. aid provided 85% of the money spent by the
government carried out one of the most extensive land reform programmes
undertaken in Asia.”[6]

The
point here is, however, that this aid was used within the dynamic of
state planning, with the Taiwanese government using foreign investment
as well as internal resources to plan the national economy, with very
good results.

In 1966 the government set-up “export-processing
zones” to attract western multinationals that were seeking cheap labour
to exploit. This policy was to be copied by Deng some years later. The
Taiwanese leaders did not used communist rhetoric to justify this choice
of policy; instead they resorted to a more traditional Confucian
philosophy. The results were similar: factories mushroomed and both
countries enjoyed a big trade surplus used to finance the development of
infrastructure.

Starting from the 1970s, when a modern industrial
economy was already in place, Taiwanese planning started to change,
concentrating more on infrastructure than on actual industries:

“In
1973, the government launched the Ten Major Development Projects, a set
of national infrastructure projects for railway electrification,
freeway, International airport, steel plant, and nuclear power plant
construction, and other such works to drive forward the transformational
development of Taiwan’s economy. This was followed in 1978 by the
Twelve Development Projects, which encompassed not only physical
infrastructure for such purposes as developing heavy and chemical
industries, but also basic social, welfare and cultural infrastructure.
In the 1980s, as Taiwan’s national income rose rapidly, the government
turned its focus to enhancing national living quality. This formed the
main theme of the Fourteen Major Infrastructure Projects launched in
1984”[7]

This
turn in policy is very common at this stage of economic growth. In
capitalist economies the more the economy develops, the more the
bourgeoisie becomes hostile towards the role of the state as it begins
to feel that it is able to directly manage big companies to make profits
for themselves. Today, after the crisis of 2008, this approach no
longer has the force it had in the past as the state is more and more
forced to intervene to sustain private capital.

In Taiwan, this
change meant a gradual erosion of direct planning in favour of what the
French call “planification indicative”, that is a general analysis of
the direction of capitalist development and a mild indirect intervention
of the state based on fiscal tools such as tax incentives. In Taiwan,
the role of the state remained vital to economic growth during the
transition to ordinary “light” planning. For instance, in 1991 the
Six-Year National Development Plan was launched with the aim of
expanding sectors such as electric power and aviation, but also to
enhance environmental protection, medical care and public construction.

As
the CEPD points out, “the private sector overtook the public sector in
R&D spending for the first time in 1993”. This means that only after
40 years of economic planning under the guiding hand of the state did
private capitalists invest more than the state. The big role of the
state could also be seen in terms of total employment. Up to now, the
state sector has accounted for a third of GDP and a quarter of total
employment, more than in “Communist” China according to some statistics.

Economic
planning in Taiwan started to change even more significantly over the
last decade due to the growing integration with China, what the
Taiwanese government calls “cross-strait reconciliation”. Today, there
are hundreds of thousands, possibly millions, of Taiwanese working in
mainland China and tens of thousands of Taiwanese firms doing business
there. Many Taiwanese entrepreneurs complain that the situation on the
ground is too dependent on local authority vagaries, in other words,
paradoxically they complain of the lack of central planning. It is worth
noting that even if the two Chinas are getting closer by the day in
terms of economic development, the leaders of the CCP never forget their
“national” interests and they squeeze “bad” Taiwanese capitalists,
while they are very friendly to the “good” ones. What decides what a bad
Taiwanese capitalist is, has nothing to do with how he treats his
workers but only with his acquiescence or not to the demands of the CCP
leaders[8].

China and Taiwan

Economic
planning in a fully developed capitalist state normally finds many
constraints and, above all, it finds a political barrier in the organic
subordination of the state to the bourgeoisie. Basically, the capitalist
class accepts state intervention and planning only when other
alternatives have failed and inasmuch as these help to rebuild its
economic base putting the economy back onto its feet. After the collapse
of 1929, economic planning in one form or another was adopted by almost
all capitalist states in the world, not only the fascist ones but also
the “democracies”. This kind of intervention served to save industries
that already existed but were facing collapse due to the crisis and also
to expand infrastructure. The state seized firms to save and modernise
them. When they started to be profitable again, the state handed them
back to the capitalists. Sometimes, this handing over to the private
capitalists took decades because of the historical weaknesses of the
national bourgeoisie, such as in Italy where the banking sector was
mainly state owned from the 1930s to the 1990s. Public, of course, never
meant that these were used for public purposes; it only meant that
Italian capitalists were unable to manage banks and make a profit.

Generally
speaking, the subordination of the state to large companies holds true
also for Asian capitalist states. The problem was that in Taiwan, right
after the war, there were no big private companies to serve. The role of
the state could not be limited to merely putting in order the situation
as in the West; it had to be expanded considerably: there was no
industry to seize; it had to be created from scratch by state planning.
This gave to Taiwanese planning a sweeping role as many commentators
have noted: “as the private sector lacked economic power, the government
commanded great influence in the national economy”[9].
Of course, here we are not dealing with the kind of planning that we
observed in deformed workers’ states such as the Soviet Union, but
neither was it the typical “light touch” capitalist planning. To be more
precise, it was not so at the beginning. Later, in the 1990s, it
started to become similar to classical capitalist planning in the sense
that the development plans only fixed general targets, not detailed
instructions for every factory and every sector. This change is
perfectly clear to the Taiwanese bourgeoisie:

“Many economists
believe that the less a government interferes in the economy, the
better… However, in general, developing nations are not like their
advanced counterparts. Since a government exercises direct influence
over a nation’s economic development, it can make or break the economy.
The role of the ROC government has changed along with advances in the
nation’s economic development, the general level of education, and the
arrival of full democracy.

“From the 1950s to the 1960s, the
government assumed the role of an economic babysitter. As such, the
government usually approached problems related to industrial development
from the protectionist angle, while solving such problems in an equally
controlling fashion…

“By the 1980s, Taiwan’s economy had achieved
considerable success, with private enterprises sprouting up in large
numbers. The government’s grasp of the international market was nothing
compared to that of the private sector. This fact rendered REI less
attractive to investors. At the same time, the utilisation of the export
processing and industrial zones set up by the government was also on
the decline. Private enterprises wanted the government to loosen up
regulations and provide a better investment environment. However,
economic planning at that time only targeted government agencies and
state-run enterprises, and not the private sector.

“Under such
circumstances, the government had to adjust its role, from that of
babysitter to mentor. As mentor, it could provide private enterprises
with information on economic growth and technology as well as assistance
in training personnel.”

In other words, in Taiwan as anywhere
else, the state, even a strong semi-bonapartist state, is obliged to
follow the interests of the big capitalists and planning is only a way
of achieving profits in the long run, not an end in itself. To put it
differently, the fact that in any given economy there is planning is not
sufficient in and of itself to pinpoint the nature of that economy and
the direction it is going in.

It is also a mistake, when assessing
the social nature of an economy, to single out an aspect that can be
easily used to confirm a thesis, especially for such a complex economy
that has been in transition such as the Chinese one. Red flags in
Tiananmen Square do not make China Communist; neither is economic
planning automatically proof of its Stalinist nature. Some comparisons
with Taiwan can help to highlight how China is very far from even that
primitive and terribly deformed form of workers’ state that existed
under Mao in the past.

Firstly, the actual control of the central
state over the economy is in today’s China far less pervasive in most of
the economic sectors than it was in Taiwan some decades ago. For
instance financial regulation in the PRC now is by far less invasive. As
recently as 1989, in Taiwan it was not possible to set up new banks,
interest rates were fixed by the state and foreign banks were allowed to
operate only with strong limitations. Nowadays in China rates are fixed
by the market, new banks are created regularly and foreign banks have
important stakes in the biggest Chinese banks. There remains the planned
exchange rate, which is considered the only anomaly left in the Chinese
financial sector, because the yuan is not fully convertible yet. In
contrast, Taiwan totally controlled its exchange rate until 1978.

As
for the strategic axis of development, the two countries are very
similar, as China is aping the Asian Tigers that, in their turn, aped
Japan. In post-Deng China, as was the case in Taiwan, FDI (Foreign
Direct Investment) played a key role at the beginning in helping
economic growth, which was then gradually substituted by internal
accumulation from the state and private capitalists. The difference is
that in Taiwan the process was more gradual. For instance, in 1952
industrial production by the State Owned Enterprises (SOEs) in Taiwan
accounted for 57% of the total, 1980 21% and in 1990 10 to 15%
(according to different measures). The same reduction in the PRC took
ten-fifteen years. Both countries based their development strategy on
exports. Ironically, Taiwan was accepted as a member of the WTO only
after the PRC. Historically speaking, Taiwan for years adopted a
protectionist policy, whereas China after Deng was one of the more
enthusiastic supporters of free trade on a world scale.

Stalinist
countries were known for providing a wide ranging, if not always
efficient, welfare state to their citizens. That is why, in fact, in
spite of the brutal nature of the old regimes, many Romanians look back
to the Ceausescu era and Russians to the Brezhnev era as periods when
many social services and reforms were available. Of course, this is not
the case in China. The Taiwanese welfare state is no match for the
Chinese and the gap is widening. However, differently to what happened
in most capitalist countries after the 1980s, the welfare state was
expanded in Taiwan:

“In March 1995, it introduced national health
insurance, which now covers almost the entire population; and in January
1999, an unemployment insurance scheme was inaugurated. Labor rights
received further protection from the enactment of the Employment
Insurance Law in May 2002 and the Labor Pension Act in June 2004. In
2008, the government actively implemented a series of measures to
promote employment, aiming to increase job opportunities and relieve
unemployment.”

While Taiwanese governments were actually building
up a welfare state, in Beijing they were busy destroying the conquests
of the revolution. What is even more striking is that Taiwan is now a
more egalitarian society than China. Traditionally, Taiwan has always
been a fairly egalitarian society for a capitalist state as. This was
due to the fact that it had to justify its existence vis à vis China.
For instance, in 1964 the Gini coefficient[10]
was 0.321 and in 1980 it reached a minimum of 0.277, much lower than
the international average. At that time, the Chinese coefficient was
even lower (about 10% less). After that, the Taiwanese coefficient
increased once again but it always remained low for capitalist
standards. On the contrary, the so called People’s Republic became one
of the most unequal societies and every year has become more so. Now the
Chinese Gini coefficient is around 10% higher than in Taiwan[11]. In fact, China is such a polarised society that even the bureaucracy is concerned[12].

To
sum up, in China we have an economy where the state has a role
comparable to that in Taiwan after the war (although proportionally less
important) but is shrinking, where the welfare state is smaller and
every year more so and inequality is higher and growing. Of course, the
Chinese bureaucracy quotes Marx and Mao, while the Taiwanese governments
prefer Confucius. Hot air, however, remains hot air even if tinged in
red. When the leaders at the top of the CCP think about their future
they have no central economic planning in mind. They are building a
“mixed economy”, where they see their heirs as being wealthy thanks to
the ownership and management of giant companies, together with the
brutal repression of the working class by the state. The Taiwanese CEPD
summarises as follows the history of economic growth on the island:

“Contrary
to popular perception, Taiwan’s economic growth did not result from the
ruling party’s commitment to a purely capitalist, free market economy.
Instead, the government has exerted direct influence by operating
enterprises and through economic planning. It also has channelled
capital, contracts, and other resources to favored sectors and firms,
and is able to make life difficult by denying licenses and funds to
entrepreneurs who support the opposition.

“Government enterprises
only accounted for 10% of industrial output in the late 1980s, down from
57% in 1952, but the government maintains monopoly control in such
industries as ship building, steel, electric power, petroleum refining,
and tobacco and alcoholic beverage production and distribution. The
state also enters into joint ventures with local and foreign firms: the
Taiwan Semiconductor Company, for example, is jointly owned by the
government, Taiwanese private investors, and the Dutch electronics firm
Philips. Until 1989, the government also held monopoly control over
domestic banking, and greatly restricted the activities of foreign bank
branches. Government-owned enterprises produce some 50% of state
revenues, thereby offsetting extremely lax income tax collection.”

The
top leaders of the CCP hope they will be able to tell a similar story
to their children in the future while, in the meantime, they are
carrying out similar policies in China.

[To be continued…]