Monday, March 19, 2007

External Incorporation and Internal Reform

Chapter 7: External Incorporation and Internal Reform

“Development by invitation” is a process that is recognized by world-system theory, and is the way in which Taiwan achieved its development in contrast to the predictions of previous dependency theory, which states that peripheral states’ development is retarded or distorted by involvement with core states.
Chapter seven examines how the “third phase” of land reform, which not only redistributed land, but also had an impact on the distribution of industrial capital and was strongly influenced by U.S. policies, helped Taiwan to achieve not only development, but a high level of equity across society. Key issues that the chapter looks at were: What would be the relative proportions of the private and public sectors; how concentrated would capital be in the private sector; how concentrated would capital be in the private sector; and what level of involvement would the Taiwanese have in the private industrial sector. The more general question was what role the U.S. would play and how much influence would it have.

The U.S. articulated its influence through the Mutual Security Agency (MSA) and its two parts—the Military Assistance Advisory Group (MAAG), and the AID mission, which focused on building Taiwan’s infrastructure.

The Nationalist government, embodied in the KMT, resented the level of involvement by the MSA, especially the pressure towards land reform that set the terms for Taiwan’s incorporation into the postwar global political economy. The chapter, however, asserts that it was the result of this U.S. involvement that paved the way for Taiwan’s eventual economic success.

Briefly, land reform was composed of three steps: 1. rent reduction to 37.5 percent of main crop yield; 2. sale of public lands; and 3. the land-to-tiller program. The point of the land-to-tiller program was to convert tenants into land owners and to shift the economic power of the original landholders into the industrial sector by compensating them for their land with land bonds or stock shares in government enterprises.

Public versus Private Control
An important issue regarding the four government enterprises (Taiwan Cement Corporation, Taiwan Pulp and Paper Corporation, Taiwan Agriculture and Forestry Corporation, and Taiwan Industrial and Mining Corporation) whose stock was given to the landholders was how much control the state would exercise over the economy.
The Chinese government wanted a lot of control, which left private entrepreneurs at a disadvantage. The U.S. was concerned that the situation could make it impossible for private ownership of industry to succeed. Still, to make the point that foreign influence could not determine domestic policy, the Nationalist government went ahead with the plan to transfer the government corporations to private control. Eventually the government was also pressured into allowing greater openness to foreign trade and investment.

Despite the government’s publicly stated support for private sector development, at the time of writing the author states that the Taiwanese private sector was still very wary of the government and its potential for intervention in private industry.

Concentrated Versus Dispersed Assets
The main point of this section is to illustrate how the alliance between some segments of big business and the government was formed. It turns out that the land reform effort, the intention of which was—at least in part—to break up the concentration of resources into more hands, resulted in the concentration of stocks in a relatively few hands. This is because most of the landholders who received stocks in exchange for their lands immediately sold it, thinking it to be relatively worthless. As a result, a few former landlords and mainland financier-bureaucrats ended up owning most of the four government enterprises.

Mainlander versus Taiwanese Interests
The relationship between the Taiwanese and mainlandrs was unequal in politics as well as in economics. Taiwanese were not allowed equal representation of their interests in the government, and were not allowed positions of responsibility in government industries. Neither did they fare well under land reform.

An interesting note is that some of those dispossessed by the Nationalist government eventually ended up overthrowing it in the form of the DPP.

The chapter illustrates the success of the U.S. AID program in securing a private sector in Taiwan and in ensuring Taiwanese participation in it, despite what dependency theory and world-system theories might predict. It also points out the limitation of the U.S. AID role, but asserts that its success was the result of creating the conditions necessary for the private industry to take root, and for a shift from foreign aid to foreign investment. In addition, rather than causing to become dependent on aid, U.S. policies and involvement helped Taiwan to establish industries that could compete internationally so that it could become a self sufficient entity in the world political economy.


What made it possible for foreign intervention by the U.S. to set the stage for Taiwan’s ultimate success, especially considering the predominant theories that predicted the opposite outcome?

How much of this success was the accidental result of the U.S. desire to contain communism and how much was the intentional result of the desire to create a viable economic zone in East Asia?

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