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Taiwan's Sunflower Movement manifests global trend of income inequality

Publication Date : 25-04-2014

 

While the Sunflower Movement has its Taiwan-specific causes - most prominently the anxiety over mainland Chinese influence - the protest and the public discontent it represents are the manifestations of a more global trend of income inequality.

In addition to opening Taiwan's service sector to mainland investors, the controversial Cross-Strait Trade in Services Agreement is more fundamentally an extension of an economic cooperation agreement. Liberalisation generally favours businesses with higher competitiveness, which in many cases means those with more capital. Conglomerates mostly fare better than mom-and-pop shops in the globalised economy.

During Taiwan's “economy miracle” from the 1950s to the 1990s, the success of local capitalists were to a substantial degree translated to the improvement in living standards of the Taiwanese majority through increases in workers' income and national wealth. The public, in return, supported pro-business policies that they could see as beneficial to their own interests. The exodus of Taiwanese manufacturers to nations with lower labour costs such as China, combined with Taiwan's sluggishness in building high value-added industries due to its overdependence on low-profit margin high-tech contract manufacturing, resulted in a decade-long income stagnation.

To make matters worse, local capital moves from job-creating investment to the purchase of limited commodities such as real estate, driving up home-prices, just as the rise of populous emerging markets such as mainland China and India drives up food and gas prices. As a result, a generation of people who saw their parents fulfil their dreams of economic independence and home ownership found themselves disfranchised by society. The millennials, Taiwan's best educated generation in terms of college enrollment rates, found themselves underpaid and underemployed. In this light, it would have been a surprise if the younger generation maintained their parents' faith in pro-business and pro-trade policies.

One can tell that income inequality has become a major issue when a book on the statistics and history of world inequality gains blockbuster status. The new book by French economist Thomas Piketty, titled “Capital in the Twenty-First Century”, recently received global attention and was compared by prominent pundits as a watershed work. Nobel economics laureate Paul Krugman described it as “the most important economics book of the year - and maybe of the decade”.

In the book, Piketty compiles decades worth of available data from income and wealth records from the world's major economies. He tackles the question of wealth distribution with strong statistical analyses, engaging debates on the merit of free-trade capitalism and income inequality with strong statistical support - debates which the writer said have “long been based on an abundance of prejudice and a paucity of fact.”

Piketty rightly regards income inequality as more than a mere economic issue: “When the rate of return on capital exceeds the rate of growth of output and income, capitalism automatically generates arbitrary and unsustainable inequalities that radically undermine the meritocratic values on which democratic societies are based.”

Nowadays, the rich generally see rates of return on capital at around 5 per cent annually while rates of economic growth hover at around 1.5 per cent.

While Piketty challenges both the optimistic theory that wealth increase “raises all boats” and the gloomy prediction that capitalism will bring about an economic apocalypse, he regards postwar prosperity and the narrowing of the income gap not as a product of economic inevitability but of the abnormality of the catastrophic world wars, which wiped out the accumulated wealth of the “1 per cent” in the 1900s. In other words, without intervention, the widening of the income gap could be the norm, not the exception.

As Piketty points out, inequality is not necessarily bad in itself. Equalisation by strangling business will only make everyone poor. The government, however, should recognise the challenge of income inequality and realise that business as usual has to end. In the short-to-mid term, the government should incubate high value-added, innovative and job-creating businesses to replace high-pollution, high-energy-consumption and low-labor-margin industries as the engine of Taiwan's economy. It should also shift from traditional policies that tilt too much toward business owners. In the long term, the government should have measures ready to absorb the impact of industrial automation so that the wealth created by increasingly capable machines will not be shared only among people with the capital to own them.

 

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