Setting High Aspirations

In the recently released 2015 Index of Economic Freedom conducted by the Washington, D.C.-based think tank The Heritage Foundation in association with the Wall Street Journal, Taiwan received its best score ever, ranking as the world’s 14th freest economy (up two places from last year) and fifth in the Asia-Pacific. The exercise measures such factors as Rule of Law, Regulatory Efficiency, Open Markets, and Limited Government.

Taiwan’s recognition by Heritage is a noteworthy achievement, and is consistent with findings in AmCham Taipei’s 2015 Business Climate Survey, reported on in this issue of Taiwan Business TOPICS, that executives of foreign companies operating in this market generally regard it as an excellent place to do business. Most respondents expressed their intention to continue to expand investment and manpower.

At the same time, Taiwan’s competitiveness as an investment location needs to be looked at in a broader context. Although its “freedom score” from Heritage of 75.1 out of 100 placed it in the “Mostly Free” category, that level is substantially below the 89.9 attained by Hong Kong and 89.4 by Singapore, the highest rankings worldwide and two of only five economies to make it into the topmost bracket, labeled “Free,” without any modifier. It is no coincidence that many of the potential business opportunities that fail to materialize in Taiwan wind up in those two markets, especially for financial and other specialized services (both Hong Kong and Singapore) and for certain technology sectors (Singapore). Rather than being satisfied with its “Mostly Free” score, Taiwan needs to take up the challenge of how to vault itself into the ranks of the very best of the best.

In addition, Taiwan should draw no satisfaction from its superior performance in the Heritage survey compared with China (way down in 139th place) or South Korea (29th). Both of those countries enjoy other advantages that outweigh the economic freedom considerations – in China’s case, its rapid growth and the mammoth size of the economy, and for Korea its large corporations and high level of success in negotiating free trade agreements with other countries. Taiwan must compete on other factors, and the business-friendliness of the economic environment is the most salient.

Both the Heritage study and the AmCham Business Climate Survey, while giving Taiwan good marks overall, also serve to point up areas in need of improvement if Taiwan is to burnish its attractiveness to business. Among the weaknesses cited in the Economic Freedom report, for example, are an excessively rigid labor market that impedes mobility, overly complicated and time-consuming license-application processes, and perceived problems with corruption. Each year, the AmCham business leaders responding to the survey have complained about undue bureaucracy and the number of “Taiwan-unique” regulations that are out of sync with general international practices and standards. In the 2014 survey, the respondents cited “inconsistent regulatory interpretations” as their biggest headache.

Under Minister Kuan Chung-ming, the Taiwan government’s National Development Council has been spearheading efforts to carry out necessary deregulation and liberalization. Following Kuan’s decision to return to academia, the position is now being taken up by former economics minister Woody Duh. AmCham expects that under his leadership, the NDC will continue to advance an ambitious agenda for reform – one that it will receive the strong backing of both the Executive Yuan and Legislative Yuan.

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