Beyond Late Development: Taiwan’s Upgrading Policies

Originally published in 2003 in The Business Economist, volume 34, issue 3. The original publication day is unrecorded.

Alice H Amsden and Wan-wen Chu, MIT Press, 2003, 207 pages, £21.95.

From The Business Economist, volume 34, issue 3 (2003).

This book from MIT Press comes replete with some high-profile reviews keen to persuade the prospective reader that the authors have made an important contribution to the debate over modern economic development rather than simply presenting a case study of Taiwan’s experience over the last 20-30 years. The authors seem a tad more modest about this. Nevertheless they offer some cogent arguments from Taiwan suggesting that recently-favoured theories and buzz concepts (such as networking, clustering and the popular myth of the small company) may not have been so important after all in Taiwan’s late phase of development. Some readers may be surprised to find how little is really new or special about any of the developments of the last 20-30 years (but I may be pushing this argument further than the authors). Indeed, the authors note that networks actually existed for the sewing machine and bicycle industries over 50 years ago (page 81) and may have been more important then than for the electronics industries of the last 10-20 years.

What then is in the book? Most of it is clearly devoted to presentation of detailed statistical and anecdotal evidence on the development of Taiwan’s leading industries and companies. This comes under a number of chapter headings covering ‘Scale’ (this also acts as a form of introduction, which seems unhelpful in clarifying the arguments to be put forward), ‘Second Movers: Electronics’ (a third of the book, basically covering the history of Taiwan’s electronics industry from TVs to PCs to cell phones), ‘Government-led Networking’ (the government’s invisible, or not so invisible, hand), ‘Modern Services’ (diversification by big companies making use of their financial muscle and political contacts) and, finally, ‘Policies for Upgrading’ (which serves as a conclusion).

Apart from telling the story of Taiwan’s economic and company development, the authors are at pains to demonstrate what they see as a key point and one that may have been overlooked, or downplayed, previously. This is the role played in the rapid growth and international success of Taiwan by large Taiwanese companies (led by Taiwanese ‘big men’ – a nice story on pages 41-44). Contrary to popular conceptions over the role of FDI, foreign companies, networking and small businesses, the data presented back up a view that the promotion of the most important industries (whether TVs, electronics or, more recently, services) has been orchestrated by just a few large national enterprises with the backing of the government in one form (technology, training and investment subsidies) or another (protection of the domestic market for services). Whilst many will see this as being true for Korea (dominated by a handful of chaebols), it was not so obviously the case for Taiwan. So what we find is that Taiwan may indeed be close to the Korean (or perhaps we should say Asian) development model after all. The message seems to be that late development may depend more on growing national champions than relying on multinationals (page 76) although the latter may have some role in the earlier stages of development.

The thrust of the late development argument is that size matters (to generate rapid upscaling of new ‘hot products’, the driving force of growth). The rise of Taiwan’s computer industry has been due to excellent second-mover skills – more or less copycat operations on a very large scale. Never mind the hi-tech buzz, the rise of this industry really seems no different from that of the early radio and TV companies. Or, I might add, to the textile producers of yesteryear? Computers are the new TVs are the new frocks? The book seems to suggest that Taiwanese companies needed to upgrade organizational skills to move on but the essential business skills look rather similar after all. Isn’t this is why Taiwan was so easily successful in all these businesses over 50-60 years? After all, the factory floor (possibly recycled from the textile industry, see page 47) may be robotized and the designers PhD engineers (coaxed back from the US if necessary) but it takes a lot of the same operating/ management/selling skills to ensure that this season’s copycat ‘fashions’, or ‘hot products’ as the authors call them, get on the shelves before the competition, piled high and at the right price. Well, computer models seem to have about as short a life span as this season’s frock. Time-tomarket is a key factor for both.

The final policy conclusions quite reasonably point out that appropriate strategies for promoting success of ‘second movers’ are not likely to be the same as those followed by the world’s leading-edge economies/companies. A decision to focus on second-mover skills may also imply less emphasis on the concept of a ‘core product’ as diversification makes sense as long as products belong to a class that can be successfully cloned on a large scale. Firm structure (degree of integration etc) will also be affected by the dictates of scale and adjustment speed.

This seems useful advice, although the first step has to be the clear recognition of the aim to excel at being a second mover: such a focus is not necessarily the case in other countries, whether appropriate or not. Also, by page 149, the authors appear to start hankering after a new push by Taiwan into more basic research (‘R’ as well as ‘D’) and into brand name development: they do not make it clear if this represents a final move to join the world’s leading economies or the rather dubious abandonment of previous tactics to ensure success as second movers.

In the last four pages, the authors briefly look at the ‘Generalizability of the latecomer model’ to other countries, industries and time periods. For industries and time periods, they mostly point out that second movers are dependent on a ‘hot product’ stream and on the business structure preferred by the leading-edge companies (eg subcontracting versus integration). They also refer to recent second-mover developments in the chemicals and pharma industries. On the question of generalization to other countries, the main argument seems to be that other countries should have the same success if they copy Taiwan (in the creation of national champions based on second-mover skills). The book just seems to fizzle out here.

Technically, this book is an easy read: not much required in the maths department nor even in economics as the authors feel obliged to explain terms such as ‘economies of scale’ and ‘rationalisation’. It seems unlikely to merit any prizes for clear exposition. The prose is rather uneven and convoluted at times. In places, it is so well peppered with references and quotes, often in juxtaposition, that readers may be in danger of indigestion as well as further confusion about the main arguments being put forward by the authors themselves. On the whole, the book seems to have grown out of a couple of core papers repackaged into a book. Better editing and organization of references could have improved various aspects of the presentation. As it stands, it seems doubtful that the book will actually be widely read, although it may be made use of for its plethora of statistics, anecdotes and references by those keen to use Taiwan as an example of economic development in the modern era.

Vanessa Rossi Oxford Economic Forecasting

Archived source: 2004-02-23 website capture.