The Internet, R&D, and U.S. policy in the Taiwan Straits. Part I of II

Berglund Authority Level 3


by Jeffrey Barlow <barlowj@pacificu.edu>

Editor, Interface

INDEX:

.01 Introduction
.02 Taiwan: From the Government of China to a Political "Entity."
.03 Taiwan and the Internet
.04 The Rise of the China Market
.05 Conclusion: Taiwan and the China Market
.06 Notes

.01 Introduction (return to index)

I returned to Oregon in early February from a one-month research trip to Taiwan. The trip was sponsored in part by the Berglund Center, and in part by an Overseas Studies Program of Pacific University [1]. This was not my first trip to Taiwan [2]; that came in 1967 when I first began to seriously study the Chinese language. Since then I have lived nearly four years in Taiwan, and almost three in the mainland of China.

The reason that I have kept regularly returning to Taiwan is not only my love for the island, its peoples, and its cultures, but also because during my career, the status of Taiwan has consistently been the most troublesome issue in the always conflicted, and not infrequently violent, relations between what are arguably the world's two most powerful nation-states, the United States and the Peoples' Republic of China.

My purpose in this editorial is to discuss the impact of the Internet within the context of U.S.-Chinese-Taiwanese relations, centered in particular upon the issue of R&D spending in the U.S. following 9/11. I begin with a summary of the tangled history of Taiwan.

.02 Taiwan: From the Government of China to a Political "Entity." (return to index)

In 1968, when I first lived there, Taiwan was properly known as the Republic of China (ROC), and its government claimed to be the legitimate government of mainland China, from which its ruling party, the Kuomintang (KMT) had been expelled with the victory of Mao Tse-tung's armies and the founding of the Peoples' Republic of China (PRC) in 1949. The United States, a fierce enemy at this point in the Cold War of all communist states and a staunch ally of the KMT, had, in effect, followed the KMT to Taiwan and supported its claims. By 1968, however, these claims were increasingly hollow as it was quite clear that no matter the level of internal turmoil in China, including the dreadfully violent and costly Great Proletarian Cultural Revolution, the People's Republic of China was here to stay, and an increasingly overwhelming percentage of the world's nation states were acknowledging that fact by switching diplomatic recognition from Taipei to Beijing.

The problem for Taiwan, and for the United States, was that both entities [3] waited too long to acknowledge the above reality. Rather, China became so important, politically and economically, that by the time United States' policy caught up to reality, beginning under President Nixon and culminating with the U.S. formal recognition of China under President Carter in 1978, it was forced to affirm that Taiwan itself was a part of China, and to pledge itself not to support Taiwanese independence.

This position, ironically, pretty much suited the KMT, still the government of Taiwan. The KMT was made up overwhelmingly of refugees from the mainland whose ancestral graves, hearts, and often, economic interests, too lay in the mainland. They were prepared to play a waiting game, presuming that at some point they would arrange a mutually beneficial agreement with the mainland that would result in Taiwan returning to the motherland as the first among equals, due to its dynamic and modern economy.

More than 90% of the population of Taiwan, however, thought of themselves not necessarily as Chinese, but as Taiwanese. Their history and culture had been shaped by almost a full century of separation from the mainland, by the most generous of accountings. Japan had conquered Taiwan in 1895, and ruled it as a colony until Japan's defeat in 1945. Taiwanese culture was an odd blend of Japanese and Chinese, its language quite distinct from that spoken by most Chinese. Many Taiwanese argue today that Taiwan never was truly a part of the mainland, and would like to see Taiwan somehow achieve its own independent identity, including national autonomy whether legally recognized as such or not.

The dynamism of the Taiwanese economy, ironically, came from an almost Leninist process of state guidance on the part of the KMT, and the nimble creativity of the Taiwanese, who, being denied access by KMT overlords to state funds and support, became skilled at adapting to local markets and raising money through various cultural institutions such as family-dominated revolving credit associations. These firms were in an ideal situation to go into the booming high-tech industry. The KMT government, for its part, saw at least the handwriting on this particular economic wall and developed a number of non-intrusive devices for rewarding creativity and entrepreneurship, making Taiwan the Asian center for R&D and for outsourced production for Japanese and American firms.

These events of 1978 began a process in which Taiwanese firms began to invest in the mainland, at first illegally in the eyes of Taiwan law, and then increasingly legally as the economic attractions of the mainland could no longer be denied. As a result, the KMT was forced to open up politically, recognizing the increasing importance of native Taiwanese capital and leadership. This opening permitted the development of a multi-party democracy. One result was the presidential victory of Li Teng-hui, who while titularly a KMT politician, was still the first native-born president of Taiwan. Li since has consistently called for independence, and although forced immediately to back down, at one point virtually did declare independence.

The political rift on the island widened with the victory in XXX of a non-KMT party, the Democratic Progressive Party, led by the current president Chen Shui-bian. Chen had never made any secret of his intentions, eventually to declare independence, and has since done so in every sense but a formal one on many occasions.

.03 Taiwan and the Internet (return to index)

Without the development of the Internet, Taiwan's many high-tech firms would have been of some importance anyway. But it was the boom consequent upon the development of the Internet that made the personal computer a desirable home appliance in the eyes of the entire world, and it was then that Taiwan came into its own. Taiwanese firms became dominant in producing storage devices, CRTs, flat panels, then in the manufacturing of computer chips themselves. Today a great many PC's sold under the name of hundreds of manufacturers are entirely built in Taiwan. Taiwan is also very important in the development of semiconductor tools sales. In short, Taiwanese firms have benefited as much or more from the development of the Internet as any firms on earth.

But as Taiwan developed, it began to run into problems familiar to other states that have clawed their way up the development curve. Labor costs began to rise as Taiwanese themselves wanted more and more expensive products and made the wage demands necessary to secure them. For a considerable time, this had no impact as Taiwanese wages started from a very low base (In 1968 my household enjoyed the services of a full-time amah or housekeeper, a child-care amah, a part-time gardener and washerwoman, as well as the services of an on-call laborer who would do any necessary heavy lifting. My total bill for wages was about two hundred dollars per month. Today all these roles are filled by laborers imported from the Philippines, if they can be filled at all.). And Taiwanese sophistication in research, development, and production provided sufficient value-added to keep investment rolling in and international purchasing agents calling.

.04 The Rise of the China Market (return to index)

But for all its late start and the years lost under Maoist utopian leadership, the mainland inevitably began to work its way up the development curve. It had (and has) however, a unique advantage over Taiwan, and over the United States as well. China has both a huge internal market and a potentially perpetually low cost of labor. Many countries have relatively large internal markets, but all, of course, are dwarfed by the awesome reality of one billion plus Chinese consumers. And as laborers, a sufficient number of Chinese can be held to a pleasingly (to their government at least) low wage rate. The Chinese economy is increasingly a dual one, similar to that of Japan from the mid-nineteenth century Meiji restoration to the 1960's. One sector of that economy is ultra-modern; one almost feudally backward.

Americans, in particular, have a problem with the notion of an ultra-modern Chinese economy. I wish that I could spend one day with doubters in Shanghai, with its incredible array of consumer goods, ranks of brand-new high-rise buildings-- many designed by internationally famous architects---its skyline dominated by hundreds of construction cranes throwing up still more such buildings, its Pudong industrial area, and its ultramodern new airport (where presumably world-class security is completely unobtrusive).

The inhabitants of Shanghai drive a surprising number of Mercedes Benzes, as well as any other luxury car that one might recognize (and many that I personally do not), eat in world-class restaurants, consume luxury products imported from all over the world, or produced here first and subsequently exported all over the world. At the lower end of the market, Chinese now buy more Volkswagens than any nation except Germany itself. And all of these consumers, of course, need a cell phone, a PDA, the most recent and fastest computer, DSL or other broad-band Internet access, and an excellent technical education for their children.

One important recent change in China, in my opinion, as stated in an earlier Interface [4] editorial is that the ten newest members of the ruling elite of China, the Standing Committee of the Politburo of the Chinese Communist Party, are not the dour Leninist leaders of the past, but all engineers, graduates of China's top technical schools. Most of them have work experience as electrical engineers. This is a group more than familiar with the computer industry and with project management on a massive scale. Evidently, they have been successful at such projects, too, judging from their recent promotions.

But the postmodernist urban fantasy led by these men is balanced, of course, like that of developing Japan, by a rural population largely confined to a culture and economy that has progressed only slightly in the last century, just enough to keep it functional and its population submissive. But this rural poverty generates, of course, an effectively infinite supply of labor willing to take any job in the industrial areas.

This socio-economic model is, of course, a Victorian industrialists' dream of paradise. China has a population that will soon be able to consume (and produce) at a level approaching that of any industrialized country, and a labor force that will make them competitive in any market they can enter for the foreseeable future. It is no wonder that China worked so hard to join the World Trade Organization and is willing now to compete on equal terms with any nation in the world.

.05 Conclusion: Taiwan and the China Market (return to index)

The market and labor supply described above was, of course, irresistible to the Taiwanese high-tech firms. Cheap and docile labor, skilled engineers being churned out a faster rate than in any competing educational system, consumers ready to sacrifice almost anything to give themselves, and particularly their children, the advantages of world-class technology, all promised a renewal for firms increasingly less able to compete in the face of rising competition from China itself.

The desire to invest in the P.R.C. was not only an economic issue for Taiwanese firms, but also a particularly painful political one. The KMT fully favored such investment; after all, it was in the homeland. Moreover, mainland investors were able to tap into all the investment tools familiar to "Greater China" (Hong Kong, Singapore, the PRC and Taiwan as well as every significant Chinese immigrant community abroad, including such cities as New York, and Vancouver.). These included family ties, and a wide variety of traditional and modern business associations. A Chinese businessman meeting investors in his parents' hometown could happily proclaim upon meeting the many Chinese from that area invariably carrying the same surname: "A Thousand years ago we were one family!" And in particular areas, of course, this was literally true.

But for the Taiwanese, this very familiarity was a problem. The more Taiwanese firms invested in the mainland, the more dependant upon the Chinese economy became, and the less realistic the dream of an independent Taiwan seemed. Lee Deng-hui, and his successor as President of Taiwan, Chen Shui-bian, repeatedly stressed the dangers of the China markets, not its attractions, and continually advised their countrymen to invest in Vietnam, in the Philippines, anyplace but in China itself.
It is this problem to which we will return in the next issue of Interface, finishing by describing the impact of the radical reshaping of American R&D development on this important area with its perennially troubling policy

.06 Notes (return to index)

[1] I wish to acknowledge the assistance of two of my students, Sara Burnside and Corinna Hutchins, who were indefatigable research assistants as we visited Taiwanese and American governmental and business offices, and daily discussed our findings. I am also grateful for the perspectives of several Taiwanese friends who prefer to remain anonymous.

[2] My study in Taiwan was supported in part by two Fulbright grants, as well as by the Center for Chinese Studies at the University of California, Berkeley.

[3] One of the central problems discussed in this editorial is what precisely to call Taiwan. The world, and particularly China, refuses to recognize it as a sovereign state. United States policy publicly acknowledges that it is part of China, awaiting a return under some ideal future condition. But Taiwan itself, while hesitating to formally declare independence of China, prefers to be thought of as an independent state, albeit one recognized as such by no other significant nation states; hence, "entity" a term often used in Taiwan.

[4] See Jeffrey Barlow, "Filtering vs. Globalization" in Interface, December, 2002.
http://bcis.pacificu.edu/journal/2002/11/edit.php