[Finance] Chen Po-chih Column: Unbalanced Growth is a Normal Development Method
bellala 央廣4h ago
Faster growth in some industries is normal for economic development.
In recent years, the rapid growth in production and exports of Taiwan's semiconductor and AI-related industries has driven rapid economic growth and stock price increases. This is fundamentally a rare good thing, but some people question that while these industries grow rapidly, others are shrinking, which is a form of K-shaped or unbalanced growth and causes social inequality. However, from a theoretical and experiential perspective, unbalanced growth is the norm during economic development and progress. Refusing unbalanced growth makes good economic development difficult. The phenomenon of low growth in some industries and the relative decline in income from some factors of production are not only necessary adjustments for market economies seeking efficiency, but also due to the complex mutual influences of their adjustment mechanisms, governments should not and cannot completely prevent these adjustments. If the government truly intervenes, it must also be careful not to overlook certain mechanisms that might bring adverse effects. Utilizing the benefits brought by high growth to support or even rescue severely affected people is one feasible countermeasure.
Without unbalanced growth, there would be no highly developed Taiwan today.
Looking at actual history, the growth rates of various industries during economic growth often differ, gradually changing the proportion of each industry in the economy. If Taiwan's industries had grown at the same rate for hundreds of years, the result of this balanced growth would be that most people would still be engaged in low-income agriculture, forestry, fishing, and animal husbandry, with many having to make a living by catching wild deer. In the early 20th century, Goto Shinpei and Nitobe Inazo developed the sugar industry in Taiwan. Within 20 years, Taiwan was covered with sugarcane fields, sugar factories, and over 3,000 kilometers of narrow-gauge railways for transporting sugarcane, rapidly modernizing Taiwan, but traditional industries like sugar mills quickly disappeared. After the 1960s, labor-intensive manufacturing quickly dominated the country, with even living rooms becoming factories. The proportion of the sugar industry and many agricultural sectors declined significantly, and rural labor moved in large numbers to industry and cities. In the last 40 years, the ICT industry has become the mainstay of production and exports, while many traditional labor-intensive industries have shrunk or moved overseas. It is evident that unbalanced industrial growth is a common phenomenon and an important way of progress during economic growth.
Industries that gain international comparative advantage should grow rapidly.
From a theoretical perspective, Taiwan is a small country that must produce more products with international comparative advantage to trade with foreign countries. This means that the proportion of products with comparative advantage in production must often be higher than in other countries to exchange for more foreign products, leading to higher income and public welfare. The products with international comparative advantage gradually change with economic development, for example, from primary products derived from nature to agricultural processed goods, labor-intensive manufactured goods, capital- and technology-intensive manufactured goods, to high-tech products and services. The evolution of products with comparative advantage inevitably leads to different industries having particularly high growth rates at different times. Without this unbalanced growth, international comparative advantage cannot be leveraged, and economic growth is difficult.
Taiwan has now developed into a high-income country in the era of the knowledge economy. Products where knowledge innovation and technology surpass those of other countries will have international comparative advantage and competitiveness. Once such products achieve global technological leadership, they can capture a very high global market share, thus experiencing a period of extremely high growth rates. Taiwan must also increase the production and export of such products to fully benefit from knowledge and technological leadership, rather than restricting the development of these industries to avoid so-called unbalanced growth or K-shaped growth. The current rapid growth of Taiwan's semiconductor and AI-related industries is the result of years of accumulated knowledge and technology exploding in an environment where global demand is rapidly increasing. Taiwan should certainly enjoy this benefit as much as possible, rather than pursuing incorrect balanced growth.
Full text available in the June 2024 issue of "Taiwan Economic Research Monthly"
Author: Chen Po-chih, Professor Emeritus of Economics at National Taiwan University, Advisor to the Taiwan Institute of Economic Research.
Source Link: https://www.rti.org.tw/news?uid=3&pid=215388
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