Economic Growth

[updated Dec 20, 2011]

1.4  Economic growth

In the early 1950s, the KMT implemented a major land reform.  Land reforms are notoriously difficult, because landowners usually have sufficient power to block them.  However, the landowning elite had been suppressed by the White Terror and did not dare resist, and the KMT, as an outside force, did not include any Taiwanese landowners.  As a result, one of the most comprehensive land reforms in the world was possible.  The KMT at first simply reduced rents, but eventually they confiscated large tracts of land from landlords and allowed the tenants to purchase it at reasonable rates.  Landlords were compensated with stocks in a few new state-run corporations, but most landlords did not understand the world of securities and sold their stocks for pennies on the dollar.  This served to further emasculate the traditional Taiwanese elite class.  More importantly, the land reform created a very large class of landowning farmers who would form the foundation of the future middle class.

In the early and mid-1950s, the KMT followed a policy of import substitution.  In 1957, they changed to an export-led strategy.  The economic miracle ensued.  By 1970, more people worked in industry than in agriculture and by the late 1980s and early 1990s labor costs had risen enough that Taiwan started moving its manufacturing base to China.

High growth rates started while CKS was in power and continued through the Lee Teng-hui years, but many people associate the economic miracle with CCK and his regime.  If there had been no economic miracle during the authoritarian era, the KMT might not have been able to retain power when democratization arrived.  However, when democratic elections were finally held, many Taiwanese voters did not want to expel the party that had produced the economic miracle.

According to the IMF (and Wikipedia), in 2010 Taiwan had the 24th largest economy in the world, just larger than Norway and Iran and just smaller than Saudi Arabia and Sweden.  In nominal terms, Taiwan’s per capita GDP is not too impressive at $18,558, roughly equivalent to the Czech Republic.  However, prices in Taiwan tend to be low (with the notable exception of real estate), and Taiwan’s PPP is quite high.  In fact, if you go by PPP, Taiwan’s per capita income of $35604 is a bit lower than Canada’s, about the same as those in  Germany and the UK, and a tad higher than  Japan’s and South Korea’s.  For reference, here is how Taiwan compares to some other notable countries; the Gini info uses different years for different countries.

country GDP(nominal) Per capita(nominal) Per Capita(PPP) CIA Gini %
Taiwan 429845 18558 35604 32.6
USA 14526550 46860 46860 45.0
Canada 1577040 46303 39171 32.1
China 5878257 4382 7544 41.5
Japan 5458797 42783 33885 37.6
South Korea 1014482 20756 29997 31.4
Thailand 318908 4992 9221 53.6
EU 16242256 32537 30455 30.4

8 Responses to “Economic Growth”

  1. Carlos Says:

    How significant were foreign sources of capital during this process?

    • frozengarlic Says:

      I don’t know. I’m really out of my depth in economic history and/or political economy. I do know that several studies have cited American aid as a major factor leading to the economic takeoff.

  2. Anon Says:

    I really enjoyed reading this history and am quite touched that someone like you would devote so much of their personal time and effort to Taiwan. I was wondering if you could explain to me what you meant by “This served to further emasculate the traditional Taiwanese elite class.” I don’t quite understand that sentence. Also, do you think it too verbose to add the name of the land reform “耕地三七五減租條例 / 375 Rent Reduction Act” I personally have very strong feelings against the 375 Act, but almost all of the publications I have read have stated positive things about the 375 Act and its contribution to the Taiwanese economic growth (also keeping in mind that all of these publications were official government publications or written by historians that were guests of the government). I’ve heard that there is a museum in Taipei devoted to the 375 Act, but that the neutrality of the museum exhibits is questionable.

  3. frozengarlic Says:

    I deliberately skipped over the details of the land reform because it is an extremely complex event. For example, rent reduction (to a maximum of 37.5% of the crop) was only the first stage. If the KMT had stopped there and not continued on a few years later to confiscate large landholdings and transfer land titles to tenants, it would not have had such a large impact on Taiwan’s history.

    My point about emasculating the elite class is that the land reform undercut much of their economic base. This combined with the 228 incident, in which their political and social status was devastated, to severely weaken the power of the traditional elites. As a result, they was no possibility that they could challenge the KMT’s power. These events also contributed to the formation of a sector in society with strong grievances against the KMT, and many of these dispossessed elites and their heirs would later become an important part of the support base for the Tangwai movement.

  4. Anon Says:

    Oh, I see. Thanks for taking the time to further explain your point. I have one more question. In your opinion, from a purely economic point of view (ignoring political and ethical/moral grievances about the land reforms) do you think the land reforms did contribute positively to Taiwan’s economy? Also, do you think these land reforms also partly contributed to KMT wealth? I know you’re busy, so I’ll be happy with just a short reply if you have time.

    • frozengarlic Says:

      I’m really out of my depth on this question, but if you force me to answer, I’d say that land reform probably had a very positive impact on Taiwan’s growth. I don’t know whether the KMT gained any wealth from it.

  5. Election Watcher Says:

    Nice blog! By the way, the IMF PPP figure for Taiwan in 2010 is 35,604. All your other PPP numbers are correct, so I wonder where you got the 39,245…

    • frozengarlic Says:

      Thanks. I took the numbers from Wikipedia, the authoritative source of all knowledge. However, I seem to have completely made up that number. I don’t know where it came from either. It did seem a bit high. I will correct it.

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