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How did Taiwan become a successful export economy?

How did Taiwan become an economic power in Asia? 
In continuation of the previous article pertaining to the contributing factors that led to the economic transformation of South Korea, we will now examine how Taiwan, also known as the ‘accidental nation’, achieved its economic success from the 1960s to the 1990s. Taiwan also undergone a process of rapid industrialisation, shifting its focus from domestic production to export-driven production that propelled the nation to its developed status.

Topic of Study [For H2 History Students]: 
Paper 1: Understanding the Global Economy (1945-2000)
Section B: Essay Writing
Theme II Chapter 3: Rise of Asian Tigers from 1970s to 1990s [South Korea and Taiwan] 

In the following section, we will focus on four major roles that led to the economic miracle in Taiwan. Take note that these points are to be evaluated based on role and factor comparison, so as to improve your comprehension of these contributing roles to the economic development of Taiwan. For example, you should analyse the varying degrees of importance for government and private businesses in affecting the economic transformation of Taiwan.

1. Role of the Government
a. Target Setting and Planning
Taiwan began its planning phase with the establishment of the Council for United States Aid (CUSA) in 1948, which was later reformed as the Council for Economic Planning and Development (CEPD). The CEPD played the role as a government agency to draft plans and set targets for the economic development of Taiwan. As a planning body, the CEPD decided on the allocation of state resources for the growth of industries, such as the distribution of development funds.

b. Policy Implementation
From the 1950s to 1960s, Taiwan’s economic policies were centred on the the implementation of the ‘import-substitution industrialisation’ (ISI) strategy, which focused on the protection of infant industries. For instance, the government introduced import restrictions on consumer goods to protect local firms from external competition. As a result, the agricultural sector flourished, contributing to the growth of the Taiwanese economy.

However, the economic contribution of the agricultural sector was low in value. As such, the Taiwanese government shifted its focus to ‘export-oriented industrialisation’ (EOI), which emphasised on the production of exports in capital-intensive industries. The government oversaw this development by passing laws that reinforced export-based production, such as the Provisions for Export Zone in 1965. Consequently, the EOI strategy was met with great success, as evidenced by the domination of numerous exporting goods in the international markets by the 1980s. For example, Taiwan was known for its exports of motherboards and computer terminals as it occupied more than three-quarters of the global exports.

2. Role of the Private Businesses [i.e. SMEs]
On the other hand, not only the public sector contributed to the economic transformation of Taiwan, but also the private counterpart, particularly the small and medium enterprises (SMEs). In contrast to South Korea, which is known for its few and massive chaebols that dominated the entire economy, Taiwan’s economic growth was driven by the existence of many SMEs. These SMEs played a crucial role in pursuing the goals set by the government, as observed by the large-scale production of exports. In the 1960s and 1970s, SMEs accompanied the government’s focus on EOI by producing standardised light-industry products. These goods were produced and sold at the international markets.

Over time, SMEs dominated the Taiwanese export production, accounting for nearly two-thirds of the entire country’s exports. Given that Taiwan’s economic developed hinged on export gains, this implied that SMEs became the key driver of the economy.

3. Role of Culture
Although Taiwan had a stark difference in the role of private businesses as compared to South Korea, the cultural factor remained similar, in the sense that favourable cultural influences could explain the remarkable economic performance of Taiwan from the 1960s to 1990s. Taiwan was also shaped by Confucianism, which is a philosophy that encouraged diligence, frugality and respect for authority.

One of the notable consequences of such cultural traits is the emergence of SMEs. In this case, the Taiwanese people were entrepreneurial. Their willingness to innovate and battle against the odds was critical in supporting this significant development. As a result, many business owners possessed the business acumen to deal with economic uncertainties.

Furthermore, the relevance of frugality to economic development can be explained by the high savings rate, which means that many firms have sources of financing to conduct investment activities that propel economic growth even more. Therefore, cultural values were important in helping us to understand the vigour that drives these firms.

4. International Developments [i.e. Role of USA]
The economic development of Taiwan was also supported by the role of USA, which increased its presence in Asia as a response to the perceived ideological threat of Communism. This response was carried out in the form of advancing economic progress by providing financial aid and other forms of support. For example, Taiwan was given exclusive access to American market and the privilege to impose trade protection temporarily. As such, USA occupied nearly two-fifths of Taiwan’s exports. From 1960s to 1970s, USA became Taiwan’s major export market, accounting for a large proportion of its economic growth.

Points to Ponder
Now that you have looked into the four major roles that affected the economic transformation of Taiwan, do consider the following ideas to reinforce your study of this topic for essay writing:
– How did the role of SMEs contribute to the economic miracle of Taiwan? 
– In comparison between South Korea’s chaebols with Taiwan’s SMEs, analyse their approaches in supporting the economic development of these two Asian Tigers. [to be discussed in class]

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JC History Tuition Bishan Bedok Tampines Singapore - How did South Korea become a developed nation - JC History Essay Skills

How did South Korea become a developed nation?

What are the Four Asian Tigers? 
To understand how South Korea become a developed nation, we must start off the discussion with the understanding of the ‘Four Asian Tigers‘. The ‘Four Asian Tigers’ refer to the fast-developing nations of South Korea, Taiwan, Hong Kong and Singapore. These four Asian economies were identified as remarkable case studies, given their high levels of sustained economic growth from 1960s to 1990s. Due to their extensive focus on export-oriented industrialisation, these countries have caught up with developed countries and competed at the international markets

Topic of Study [For H2 History Students]: 
Paper 1: Understanding the Global Economy (1945-2000)
Section B: Essay Writing
Theme II Chapter 3: Rise of Asian Tigers from 1970s to 1990s [South Korea and Taiwan] 

In the following section, we will examine the contributing factors that can explain the economic transformation of South Korea.

1. Role of the Government
a. Target Setting and Planning
At the stage of economic development, the South Korean government undergone a process of central planning that involved target setting and resource management. Central planning was essential in the prioritisation of promising industries to nurture and expand, especially the family-owned chaebols. Institutionalisation of planning procedures took the form of the Economic Planning Board (EPB was established in 1961), which took the lead in formulating Five-Year Plans (FYP), which were important in charting the direction on a progressive basis. The EPB was accredited for the successful policy shift from import-substitution industrialisation (ISI) to export-oriented industrialisation, which propelled the South Korean economy significantly.

b. Policy Implementation
The strategies employed by the South Korean government have evolved over time. At the initial stage, the South Korean economy was built upon the foundations of domestic production. This strategy is known as ‘import-substitution industrialisation‘, which refers to the use of artificial trade barriers to insulate the domestic economy from foreign competition. The main purpose of ISI was to nurture local firms, such that they will develop and expand to become the key driver of the South Korean economy. In this case study, the government imposed trade protection to develop labour-intensive sectors that produce textile, agriculture and light consumer goods.

However, the South Korean government realised the economic gains of ISI were not sustainable as the above-mentioned goods yielded low-value economic growth. Hence, they turned their gaze towards foreign markets. This approach involved ‘export-oriented industrialisation‘. In contrast to ISI, EOI involved the production of exports (i.e. domestically-produced goods to be sold in the international markets) to promote economic development. In order for exports to be competitive, the South Korean government provided financial support to exporting firms, such as tariff exemptions on the import of raw materials for export production. Given that the foreign markets were much larger than the domestic market of South Korea, it was evident that the country enjoyed tremendous success, which was indicated by the increase in per capita income from $100 from 1963 to $6614 in 1990.

2. Role of the Private Businesses [i.e. Chaebols]
In addition to the notable contributions by the South Korean government, the economic transformation was made possible through the efforts of the private enterprises. In this case, the chaebols played a crucial role in the economic development of this Asian Tiger. Chaebols are family-dominated conglomerates that serve as the key pillars of support for the development of the South Korean economy. These major business corporations (e.g. Samsung and Hyundai) were formed in the 1960s under the auspices of the government, which provided extensive financial support and exclusion from stiff foreign competition. As such, these companies expanded and dominated the economy.

It was an economic success as the chaebols could compete in international markets against multinational corporations (MNCs) as they possessed large capital to innovate and improve the quality of exports. By 1980s, these major companies were self-sustaining and no longer needed government support to function. In return, these companies acted as the lifeline of the South Korean economy. For instance, Samsung occupied nearly one-fifth of South Korea’s Gross Domestic Product (GDP), implying that a single chaebol could support nearly 20% of the entire nation’s economy.

However, the remarkable achievements of these chaebols were blemished by structural flaws that began to appear over time. The over-bearing influence of these major companies was observed in the monopolisation of markets, which crowded out small and medium enterprises (SMEs). The nearly-absent competition cultivated a culture of complacency, which resulted in the deterioration of product quality. Furthermore, the family-oriented structure of chaebols encouraged the top management to appoint family members, which translated to the growing inefficiencies of these corporations. As such, it was imperative for the government to intervene and address the dominance of chaebols.

3. Role of Culture
The ‘Miracle on the Han River’ can also be explained by the inherent characteristics of the South Koreans, particularly the cultural traits shaped by Confucianism. Similar to the Japanese, many look up to the South Koreans for their work ethics, as they are described as industrious and reliable. In economic terms, many firms benefited in terms of higher labour productivity levels, which contributed to increase in economic growth rates.

Additionally, the frugal mindsets of South Koreans were beneficially for economic developments as savings rate was high. This meant that many firms could take loans from banks to finance their investment activities, thus promoting economic growth.

4. International Developments
South Korea’s economic development can also be explained by the tremendous economic support provided by USA during the Cold War period. During and after the Korean War (1950 to 1953), USA supported Korea’s industrialisation policy as part of its strategy to stem the tide of Communism in Asia. For example, USA provided post-war financial aid to South Korea, in which the financial resources were important for public infrastructure projects, like road-building and airport construction. From 1950 to 1980, the estimates of American aid to South Korea amounted to nearly US$6 billion. Due to the efforts of the USAID (United States Agency for International Development), South Korea’s exports increased from US$4 million to over $150 billion in 1980. Therefore, it can be observed that USA played a significant role in the development of the Korean economy.

Points to Ponder
Now that you have covered the four major factors that could explain the economic transformation of South Korea, consider the following pointers to integrate your knowledge for essay writing application:
– Which role was more important in the economic transformation of South Korea: Government or Private Enterprises [explain why]
– “The role of USA was most crucial in achieving the economic miracle of South Korea.” Assess the validity of this statement. [to be discussed in class]

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