The Gini in Taiwan’s Bottle

Taiwan’s status as a just and equitable country has been burnished by its handling of the COVID-19 pandemic.

One of the reasons Taiwan has done so well in halting the spread of COVID-19 is the nation’s relative wealth equality. Experts say this factor contributed to the establishment of a universal healthcare system and has led to better outcomes for disease prevention and morbidity. 

Though the COVID-19 story is still developing, nations with relative wealth equality such as Taiwan, Norway, and Vietnam have registered fewer infections and deaths compared to countries with much higher levels of inequality like Brazil, Chile, and the U.S.

Numerous economists and international academics have pointed to Taiwan’s successful efforts at fighting the disease as evidence for making the case for a correlation between wealth equality and the degree of success in coping with COVID-19. 

Among the first to make this point was prominent Serbian-American economist Branko Milanovic. In a June tweet, he posted a graph showing Taiwan to have the lowest inequality of labor income among a select range of major economies. Commenting on the low level of income inequality in South Korea and Taiwan, Milanovic observed it was likely due to “wage policies that constrain the top/bottom salaries’ ratio.”

The relative distribution of income within a population is measured by what is known as the Gini coefficient, named after Italian sociologist Corrado Gini who devised the method in 1912. Low inequality countries score between 0.25 and 0.35, and medium inequality between 0.35 and 0.5. High inequality is any score over 0.5.  

Photo: Branko Milanovic

Explaining Taiwan’s current Gini coefficient of under 0.4, lower even than that of Norway and Denmark, geography professor Max Woodworth of Ohio State University notes that “apart from mega-earners (the 1%), Taiwan is still largely a nation of small businesses and entrepreneurs.” Although incomes in the two Scandinavian countries are probably four times higher than in Taiwan,” he says, “what Taiwan’s low labor income inequality suggests is that people who earn money through wages tend to find themselves close in income terms to their neighbors.”

Woodworth adds that many Taiwanese likely supplement their wages with capital income, given the large number of small business owners, widespread participation in the stock market, and investment in rental properties. He notes that income inequality generally translates into inferior health outcomes for people at the low end of the income distribution. The U.S. is a prime example of this disparity.

Taiwan’s previous healthcare system, which Woodworth says was fairly typical of poorer developing countries, produced similarly negative results for its population, who had to choose between financially disastrous healthcare costs and allowing their health problems to go untreated.

However, the introduction of the National Health Insurance system in 1995 “massively reduced out-of-pocket burdens and encouraged more preventive care – and generally more use of health services,” says Woodworth, whose research focuses on Taiwan and China. He says that since equality was a basic principle and objective of the NHI and the government’s economic policy at that time, Taiwan’s overall health landscape is now more reflective of its income level. “Health indicators are extremely good, and life expectancy is higher than in the U.S.,” he points out.

Demonstrating the link between wealth equality and a successful response to the pandemic, Woodworth posted a map on Facebook showing COVID-19 trends for the first eight months of this year and another displaying the World Bank’s estimate of income inequality in 2018.

A comparison of the two maps shows that countries with higher income inequality tend to be the most seriously affected by COVID-19. “South Africa, Brazil, India, Russia, and the U.S. are all notoriously unequal societies, and they happen to also be suffering from uncontrolled outbreaks,” he says. Meanwhile, COVID-19 deaths in Vietnam, whose per-capita income is roughly 10% that of the U.S., remain at zero.

Ian Rowen, assistant professor of geography at Nanyang Technological University in Singapore, agrees with Woodward’s theory. In an article published in the July issue of The Asia-Pacific Journal: Japan Focus, Rowen describes how Taiwan was the first country to anticipate the threat of COVID-19 and create a successful public health initiative that has become known worldwide as the “Taiwan Model.” He sees Taiwan’s “commitment to and consistent implementation of universal health coverage” as corresponding with Taiwan’s relatively egalitarian income distribution.”

Rowen told Taiwan Business TOPICS that Taiwan’s success was due to “past experience with SARS, extreme wariness of China, and a highly responsive public health administration coupled with universal health coverage.” He notes that Taiwan’s exclusion from the World Health Organization may have been another factor in its successful response since it forced leaders to take a more precautionary approach.

For Taiwan, the epidemic response became part of a wider strategy focused on democracy and transparency to increase Taiwan’s international space.

Global comparisons

According to the 2018 World Inequality Report produced by the World Inequality Lab at the Paris School of Economics, growth in global income since 1980 has been distributed overwhelmingly to the top 1% of earners, who capture twice as much growth as the 50% poorest individuals.

In Taiwan, the Gini coefficient has hovered around 0.34 for the past two decades, hitting a peak of 0.345 following the financial crisis of 2007-2008, and trending downward since then. Last year it was 0.337, according to the government’s Directorate General of Budget, Accounting and Statistics.

Ohio State’s Woodworth considers Taiwan’s low score for capital income “notable because it suggests not that there is a small class of super-rich capitalists, but instead a relatively large class of smaller-scale capitalists.” 

For Woodworth, this all adds up to a society that has successfully engineered rapid growth and industrialization without falling into the pit of high-income inequality, like Brazil and Chile, or creating a powerfully wealthy class that sways policy in its favor, such as South Korea, the U.S., Russia, and China.

Taiwan provides an example of what has been called “egalitarian capitalism,” refuting the argument of many economists that “high inequality is just an inevitable feature of contemporary capitalism,” says Woodworth.

Ian Rowen, meanwhile, argues that Taiwan’s unique political status – its limited formal recognition coupled with a strong and stable administration – pushes it to outperform other nations in terms of human rights, freedom, and democratic practice.

It’s not just the relative equality of the population in terms of wealth that generates fair outcomes for all, Rowen suggests. “Between the external pressure to perform as a good global citizen and thereby hopefully gain greater recognition and support, and domestic pressure from a strong civil society composed of NGOs, academics, activists and others, Taiwan has consolidated a relatively strong social welfare system,” he says. 

Social scientists have made the case for a correlation between Taiwan’s low Gini coefficient and its effective handling of the COVID-19 pandemic this year. Photo: Jules Quartly

Other indications of that strong social welfare system, in his view, include the increasing recognition of LGBT rights and a relatively high proportion of women in political office.

For example, Taiwan ranks first on the Gender Inequality Index for Asia, and ninth overall, according to the Gender at a Glance report produced by the Executive Yuan’s Gender Equality Committee.

Furthermore, 38.7% of the nation’s legislators are women (higher than in China and the U.S.), while women account for 51.1% of the workforce and the wage gap between the sexes has decreased to 14.2%. In May 2019 Taiwan also became the first Asian country to allow same-sex marriage, and it has been at the forefront of LGBT issues and activism.

In addition, crime has retreated in Taiwan. A recent research paper from Academia Sinica reports a 51% drop in the number of criminal cases over the past 15 years.

But the report also makes clear that problems remain, citing low salary levels and the concentration of wealth in the hands of the rich and elderly, making it difficult for young people to buy their own homes. The paper argues that official figures mask the fact that the “rich-poor divide has grown wider in the recent past” and the top 1% harvest 14% of the country’s total income. However, it also notes that this wealth gap is far less dramatic than in the U.S. and about the same as in Sweden and South Korea.

At the same time, it is widely recognized that Taiwan has a fairly equitable social welfare system and a popular and effective universal healthcare service. The society is also said to be the happiest in East and Southeast Asia, and is ranked 25th overall in the latest World Happiness Report.

Not only has Taiwan been resilient throughout the COVID-19 pandemic, it is likely to emerge from the challenge stronger than most countries. Despite the economy decelerating to a 1.54% growth rate in the first quarter of 2020, down from 3.31% in the same period the year before, net exports have been largely unchanged. In comparison, China’s economy contracted by 6.8% in the first quarter, and the EU’s by 2.7%. Meanwhile, the Taiwan dollar has been among the best performers in Asia, rising by 0.5% against the US dollar.

Another recent study, published on Our World in Data, showed the economic impact of COVID-19 worldwide as least severe in Taiwan, while the economies of countries such as the UK and Spain – where relatively large numbers of infections and deaths occurred – experienced declines of 20%. This, writes the report’s author, Joe Hasell, proves that “contrary to the idea of a trade-off between health and the economy,” countries experiencing the most severe economic downturns “are generally among the countries with the highest COVID-19 death rate.”

Hasell writes that factors contributing to a country’s successful COVID-19 response could include “previous coronaviruses, which may have boosted their level of alertness or people’s immunity and the speed of their response.” He notes that the study “does not compare the standard of the countries’ healthcare systems, [or] address cultural or political factors that may have contributed to or hindered their responses.”

Taiwan has made the most of promoting its “Taiwan Model” to counter COVID-19, while its soft power diplomacy, based on a just and equitable foundation, will no doubt continue to win friends internationally.