Taiwan’s Development Experience: lessons on the roles of government and market, edited by Erik Thorbecke, Henry Wan. Kluwer Academic Publishers, Boston /Dordrecht / London, 1999. x+454pp. US$xxx (hardcover).

The structure of the book follows the proceedings of the conference held at Cornell University in May 1996 to honour the memory of two pioneer economists from Taiwan: T. C. Liu and S. C. Tsiang, whose economic reform proposal in the late 1950s had decisive influence on the change of Taiwan’s import substitution policy to export oriented policy

The book starts with an introduction by the editors, who explain the background and intention for the conference and pinpoint the main arguments of the book: 1) Outward-orientation vs. inward-orientation; 2) Sources of growth; 3) Dynamic balanced growth process: the interaction between agricultural and non-agricultural sectors; 4) The role of government in the transition to a more market-oriented economy; and, 5) The potential transferability of the Taiwanese development experience to developing countries.

All the themes centred on the debate of government or market-led development, as the book’s title shown. Since the conference was to honour the two Taiwan economists, most articles in the collected volume spent some length to talk about government’s economic policy. Two extreme views are found in the book, which can be represented by Alice H. Amsden (chapter 4: Taiwan’s Industrialization Policies: Two Views, Two Types of Subsidy), and Pochih Chen (chapter 11: The Role of Industrial Policy in Taiwan’s Development). Amsden suggested that the role of Taiwan government played during the catch-up phase has been closer to the learning-based model, contrast to market failure model. The learning-based model emphasizes the government’s distortion policy to “get the price wrong” in order to create the production capacity necessary for either export or import substitution activity. At a later stage, the firm creates competitive assets in Schumpeterian fashion, and the government’s role at the stage is to strengthen these competitive assets using procurement policies, subsidies to R&D and other measures. Her prediction for the role of Taiwan government is that it will hardly approach the minimalism idealized by the neoclassical economics.

Chen uses a simple method to measure the effectiveness of Taiwan government’s industrial policy, i.e., to see the correlation between the planned and the realized growth rates of targeted industries. He finds that the correlation is quite low since 1960. If so, it is either the industrial policies not consistent with the targets, or the policies were not successful. He rejects both hypothesis, and proposes to examine the nature of Taiwan’s industrial policies to explain why industrial development is successful while the realized growth rate of targeted industry is low. He argues that in Taiwan, though many polices were aimed at specific industries at the very beginning, political pressures made the government impossible to maintain these policies, and these policies had to be extended to other industries. Once the policies became so general that the private sector did not bother too much about the industrial targets of the government. “If there is something to learn from the industrial policy of Taiwan”, he concludes, “these general simplified rules would be better candidates for explaining Taiwan’s successful development than would industry-specific policies….”

They represent the two views of present development theory: state-oriented or market-led development. The latter camp in the book includes Jagdish Bhagwati, who attributes the success of Taiwan development to the enormous growth in rates of private investment (chapter 2), Gustav Ranis, who views the development as the consequence of mutually beneficial trade-growth interactions (chapter 5), John C. H. Fei and Yun-peng Chu, who argue that liberalization promotes development (chapter 9), Walter Galenson, who believes that the behaviour of the labour market in Taiwan has been a major factor in promoting the country’s rapid economic development (chapter 13), Arnold C. Harberger, who finds two factors, i.e., the higher rate of investment together with higher rate of return to capital, and the contribution of total factor productivity, account for the most part of the observed differences in the median growth rates of Latin America and East Asia (chapter 15), Mohammad Sadli and Kian Wie Thee, who propose to create a greater distance between government and the private sector to prevent corruption, and the state should keep a minimal role in providing basic infrastructures (chapter 17), and Henry Wan and Erik Thorbecke, who support Bhagwati’s main arguments with the detailed analysis of textile, machine tool, bicycle and computer industries (chapter 18).

State-led development camp includes Tzong-shian Yu, who views that ‘the wonderful achievement [of Taiwan] was made under stable, a harmonious social and political conditions, provided by an effective and strong government’ (chapter 6), Tsu-tan Fu and Shun-yi Shei, who probe the impact of government interventions affecting the agricultural sector with the impact of the market in the process of building the foundation for development (chapter 10), Irma Adelman, who tries to explain why government intervention led to superior economic results, in contrast with most other developing economies (chapter 14), and T. Ademola Oyejide, who suggests that Sub-Saharan African states should learn from Taiwan’s experience to provide adequate overall and sectoral development (chapter 16).

The structure as well as the contents of the book make this publication interesting. However, the main problem with the volume is its lack of coherence, as is to be expected with most publications originating from conferences. Most of the chapters barely have substantive links with each other. In addition, the quality of various chapters is enormously different. For readers interested in the introduction to Taiwan’s economic policies, this is a good book for reference. For advanced readers in development studies, there are only a few chapters available.

Hong-zen Wang

Tamkang University, Taipei