As the Asian economic crisis mounts, the cries for bailouts have
become deafening. But amid the din, there is an island of
tranquillity -- one piece of troubled Asia where only the low, busy
hum of productivity is heard: the Republic of China on Taiwan.
In 1997, while stock markets plummeted by 55 percent in
Thailand, 52 percent in Indonesia, and 42 percent in Korea,
Taiwan's stock market rose by 18 percent. And while inflation was
shooting up by 12 percent in Indonesia and 8 percent in Thailand,
it rose a scant 0.2 percent in Taiwan.
How did Taiwan immunize itself against a continent-wide economic
crisis? To a greater degree than other Asian nations, Taiwan
harbors a deep respect for democracy, the rule of law, and economic
freedom. To maintain a healthy economy, Taiwan's government has
largely avoided interfering with the right of its people to take
risks, create wealth, and keep what they earn. Money-losing
ventures are allowed to go bankrupt, rather than being propped up
by government assistance. Taxes remain low, regulations minimal,
and spending restrained. In short, Taiwan's government fosters an
environment conducive to free enterprise -- as evidenced by its
ranking as the seventh freest economy in the world on the 1998
"Index of Economic Freedom," published by the Heritage Foundation
and Wall Street Journal editorial page.
Another advantage: Taiwan's leaders have long been committed to
policies that promote entrepreneurship, which has led to more jobs
and higher standards of living. Specifically, Taiwan has encouraged
the formation of small and medium-sized enterprises. Over time,
these enterprises evolved from home-based light manufacturing to
high-tech industries such as semiconductor and computer memory
board plants. These nimble companies are better able to adapt to
the ever-changing global economy, and are less likely than larger
enterprises to form bonds of corruption with government and banks
on a scale that could jeopardize the entire economy. Moreover, the
sheer number of these companies means greater competition, which
lessens the risk of poor management and the kind of large-scale
industry failures that lead to a national crisis. And where there's
no crisis, there's no need for an international bailout.
All this has enabled Taiwan to buck the Asian trend. Taiwan's
gross domestic product is expected to grow by nearly 7 percent in
1998, even as analysts predict recessions in Indonesia and Thailand
and anemic 2 percent growth in Korea. And although Taiwan's
currency lost 15 percent of its value in 1997, it still fared far
better than the currencies of Korea, Thailand and Indonesia -- all
of which lost more than half their value.
Taiwan's economic performance has been achieved through its
free-market institutions, not through government planning and
intervention. It was also achieved during a time of intense
democratic competition, not under the heavy hand of Asian
authoritarianism. Yet Taiwan still faces challenges. The government
must continue down the path of economic freedom by further lowering
trade barriers, opening the economy to foreign competition, and
lowering taxes and other barriers to wealth creation. These
measures will be critical to the success of Taiwan's bid to join
the World Trade Organization.
That said, Taiwan's economy remains a sterling example of how to
adapt to the ever-changing demands of a global economy. Its low
debt, high savings rate and strong economic growth are reasons for
optimism. Indeed, if other Asian nations want to know how to avoid
economic crises in the future, they should pay attention to how
Taiwan avoided the current crisis.
Even the West still has something to learn from the "Asian way"
of economic development -- as long as the correct Asian model is
chosen. Taiwan, with its strong commitment to low taxation, light
regulation and economic freedom, is the right model. Best of all --
from the American taxpayer's point of view -- it doesn't need the
international community to bail it out.