Friday 13 January 2012

Focus on economy & global peace (PO)

M D Nalapat
The first visit of this columnist to Taiwan was in 1997,three years after Prime Minister Narasimha Rao listened to the views of key advisors and established formal relations with the island, otherwise known as the Republic of China (ROC) to distinguish it from the Peoples Republic of China (PRC). The modern history of this important segment of the global economy begins in 1949,when KMT leader Chiang Kai-shek and several hundred thousand troops crossed the straits from the Chinese mainland to the island, having being routed by the Peoples Liberation Army (PLA). This “mainlander influx” and their progeny have since then constituted an important part of the island, including much of its political and business elite.

Naturally, those already resident in the island, including those of Polynesian race or aboriginal background, were unhappy at having their best lands and all their urban centres taken over by the KMT army units who crossed over with Chiang, who continued to call himself the ROC President, even though he now controlled only a small slice of territory rather than the vast reaches of Mainland China From an economic standpoint, Taiwan made the correct choices for long stretches of time. Until the 1980s,China was economically weak, made even more so by internal turmoil caused by numerous experiments such as the Great Leap Forward and the Cultural Revolution. During that time, the island was close to the US, which continued its post-1945 trajectory of economic expansion. Alignment with the US enabled Taiwanese businesses to grow rapidly, so that the per capita income of the island became one of the highest in Asia, far higher than that of the PRC, a situation which continues to the present. It was during the 1970s and 1980s that Taiwan developed a sophisticated consumer electronics sector, which remains the foundation for its prosperity. Since the beginning of the Deng Xiaoping reforms in the Chinese economy, Taiwanese companies have been the biggest investors in China, accounting for a total of more than $200 billion to date. Indeed, some estimates place the figure of Taiwanese investment in China to exceed $300 billion. Because India was closer to the USSR than to the US throughout much of the 1947-91 period, New Delhi refused to recognize Taiwan, even refusing to send a Trade Representative to the island till the mid-1990s. As a consequence, India has only a small share of Taiwanese overseas investment, far less in fact than even Bangla Desh or Vietnam.

Since 2000,the year when the Democratic Progressive Party (DPP) came to power in the Presidential elections, India has loomed larger in the strategic calculus of Taiwan. The DPP has several experts on India, such as Professor I-Chung Lai, who have long called for close strategic cooperation between Delhi and Taipei. However, except for someinvestments around Chennai, thus far Taiwanese businesses have refused to flock to India in sizeable numbers. They prefer China, a country that has the same language and culture as many Taiwanese. Many of the CEOs in Taiwan are in their 60s and even 70s,and for them, arriving in Delhi, Mumbai and other Indian cities has been a culture shock. In China, they are treated as VIPs, received at the gate of the aircraft and smoothly taken through Customs and Immigration to a waiting limousine. At their hotels, they are given every amenity they ask for. In contrast, when they arrive in Delhi or Mumbai, they often fail to locate their chauffeur in the melee. When they finally locate him, they have to cross numerous obstacles before reaching their car, and during the journey, the ride is usually unpleasant because of traffic and sights along the way. When they finally reach their place of stay, the hotel often tells them that a room will be ready only at the “Check In” time, or around 11.30am.This when they reach the lobby in the early hours of the morning. Waiting in the lobby or in the coffee shop for hours at a stretch does little tro attract them to invest in India. Hence the suggestion by this columnist that Taiwanese companies should first send younger people to India, so that they familiarize themselves with local conditions and prepare the ground for visits by their seniors! While China goes all out to welcome investors from overseas, the situation in India is the opposite.

Today, the economic linkages between Taiwan and the PRC have become so numerous that both sides would suffer grave economic damage if there were to be a rupture in relations. During 2000-2008,the DPP was in power in Taipei, and President Chen Shui-bian ( now in jail on corruption charges) sought to steer Taiwan towards full (or de jure) independence, thereby earning the ire of China. Because of the tensions that his policy caused, the business community in Taiwan was mostly against Chen, and were happy when the more China-friendly KMT took office in 2008.Since then, KMT leader and Taiwan’s President Ma Ying-jeou has signed an economic pact with China (ECFA) and has increased the direct flights from Taiwan to the PRC and vice-versa from zero to more than 500 each week. There has also been a huge boost in local tourism, because of Ma’s giving permission for PRC tourists to come to Taiwan. The consequence of such policies has been to shield Taiwan from severe effects of the post-2008 economic downturn. If Ma gets re-elected on January 14,2012,the reason will be the fear among Taiwanese voters that the Opposition DPP coming to power would sharply reduce the economic linkages with China that have created so many hundreds of thousands of new jobs in Taiwan. Indeed, this economic benefit is why even the DPP has moved away from its previous policy of all-out opposition to linkages with China in favour of a more nuanced line that calls for retaining several of the measures promulgated by President Ma, including ECFA Madame Tsai Ing-wen is the DPP candidate for the Presidential election. She has revived the DPP considerably since the 2008 defeat. At that time, the party was disgraced and demoralized.

Today, under her leadership, it has bounced back to health, and is given by most observers an equal chance of defeating incumbent Ma in the Presidential election, as also winning many more seats in the legislature than was the case four years earlier. Apart from the economic crisis (which has affected almost every incumbent candidate), another reason why the KMT seems to have lost a significant share of the vote since 2008 is the fact that it has mostly relied on old faces to fill its top positions, whereas the voters voted for change when they gave their mandate to Ma Ying-jeou the last time around. In that sense, President Ma has made the same mistake as Barack Obama, who was voted in on the promise of change, but once elected filled most of the top posts with retreads from the Clinton administration. This columnist has come up with a 21st century adaptation of the Mutually Assured Destruction (MAD) doctrine, which holds that no nuclear power would attack another, because of the immense damage that a retaliatory strike would cause. MAD has held the peace for more than four decades between the US and the USSR. Today, we have a situation of Mutually Assured Destruction of Economy (or MADE). Countries such as China and the US, that are closely linked to each other in economic terms, would be deterred from attacking each other, for fear of the colossal economic damage that such a conflict would cause.

Those who say that economic linkages did not prevent European countries from attacking each other in the 19th and early 20th centuries need to be reminded that at that point in time, almost all the combatants had colonies (that cushioned the impact of war). Besides, economic linkages were nowhere as pronounced as they are now between major trading partners. Just as MAD kept the peace during 1947-92 between the US and the USSR, the reality of MADE may result in the avoidance of conflict between the US and China, no matter what the military doctrines of either side claim. The economic losses for both would be too horrendous to accept, except in a situation where there is a direct attack by one side on the territory of another. As territorial space is much less important than mindspace in this era of the Knowledge Economy, such a direct attack seems so unlikely as to be almost impossible. Of course, both sides may enter into asymmetric battles through proxy powers, especially if tensions between them rise.

A focus on the economy may therefore ensure global peace. Which is why the NATO strategy of using war to gain commercial advantage (as in Iraq and Libya) is such an anachronism, one that harks back to the 19th century and to colonialist methods. Hopefully, NATO will soon understand that textbooks are far better guarantors of influence than bombs, and that soft power lasts, whereas military power succeeds only in the short run. Over a longer period, such a tactic creates enmity and discordance. Take as an example the US and Vietnam. What Washington failed to do in a decade of war (which is to become a powerful influence within the country) is being achieved by Barack Obama’s policy of conciliation and engagement between Hanoi and Washington. Ultimately, peace and prosperity trump other desires in all civilized countries.

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