5.

The Fruits of Economic Development

The ultimate goal of economic development is to elevate the standard of living. Economic development usually includes three parts: economic growth, distribution of wealth, and quality of life. Generally speaking, not only has Taiwan achieved great results in all three aspects, but it also has done quite well according to other economic indicators. For example, it has enjoyed a mild inflation rate, low unemployment rate, and has accumulated vast foreign exchange reserves with almost no foreign debt. A prosperous society has been firmly established. It could be fairly stated that the countries today which possess all of these outstanding characteristics are few and far between. Rapid Growth and Equitable Prosperity The first stage of Taiwan's economic development extended from 1952 through 1980. During this period, Taiwan averaged an annual economic growth rate of 9.21 percent, which was the highest in the world. In 1962, agriculture lost its key position as the driving force behind Taiwan's economy, making way for the rapidly developing industrial sector. With the exception of two energy crises, in 1973-1974 and 19791980, Taiwan's industries maintained an average annual growth rate of around 14 percent. The second stage of Taiwan's economic development ran from 1981 through 1999. During this period, economic conditions around the world and within Taiwan itself underwent great changes. Combined external and internal forces exerted a rather detrimental effect on Taiwan's economic development, slowing the growth rate to a low of 7.15 percent. The focus of Taiwan's economy slowly shifted from the industrial sector to the service sector. Meanwhile, the agricultural sector grew a mere 0.63 percent annually as its GDP share continued to diminish. Limited natural resources and a high population density mean that Taiwan is not self-sufficient. Hence, foreign trade has come to play a leading role in Taiwan's economic development. The development of foreign trade and the increase of foreign investment are driving forces behind Taiwan's industrial sector, which in turn fuels development in the service sector. From 1952 through 1980, the annual growth rate of commodity and labor exports averaged 16.5 percent, while local demand grew an average of 10.97 percent per year. During the second stage of economic development, commodity and labor exports grew 10.05 percent per year, while local demand grew 7.51 percent. From these figures, the importance of foreign trade to Taiwan's economic development can be seen quite clearly.

The large crowds found daily in Taiwan's department stores are a reflection of the greater purchasing power held by modern Taiwanese consumers.

Despite the fact that the average economic growth rate declined between the two stages of economic development, the average overall economic growth rate from 1952 through 2001 was still 8.13 percent. Such an astonishing rate of growth has seldom been seen in other countries. Of course, whether the results of rapid economic development will be enjoyed by a select few or by everyone is a major concern for many. In other words, has the high economic growth rate narrowed the gap in the distribution of wealth, or widened it? Two methods are often used to evaluate how evenly a country or society's wealth is distributed. The first method is the Gini coefficient. A small coefficient means a fairly equitable distribution of wealth, while a large coefficient signals inequities. The second method involves dividing all income-earning households into five groups according to the amount of income earned. A ratio is then calculated by comparing the income of the top fifth earners with that of the bottom fifth. The higher the ratio, the more unfairly the income is distributed. In 1964, the Gini coefficient for Taiwan was 0.321. This figure fell to 0.277 in 1980, indicating that the distribution of wealth had improved in step with Taiwan's advancing economic development. However, since 1981, the Gini coefficient has been slowly increasing. By 2000, the coefficient had reached 0.326. By using the second method, a similar trend in the distribution of Taiwan's wealth can be seen: In 1964, the income ratio between the top fifth and the bottom fifth was 5.33. It declined to 4.17 in 1980 but, for the most part, managed to maintain a steady increase from 1981 to 2000, when it reached a high of 5.55 (see Table XI). Examining the reasons for the reversal of these figures yields several causes: y In 1986, the price of real estate began to skyrocket. Those lucky enough to own land or property suddenly found themselves members of the upper class almost overnight. Members of the middle class who did not own any land or property discovered that, even if they saved money their entire lives, they would still find it difficult to purchase a home. Large households were slowly broken down into groups of smaller households. Since both of the aforementioned methods of evaluating income distribution use the number of households as the basis for calculations, an increase in the number of small families has an adverse effect on how income appears to be distributed. As industries became more technologically advanced and knowledge-intensive, demand for personnel with specialized skills and a higher level of education also increased. Thus, those who possessed such expertise could often command a higher salary than those who did not.

These three factors are the main reasons why the disparity of income distribution has been increasing for the past 15 years (see Table XI and Chart II). Mild Inflation and Low Unemployment Inflation is a matter of concern throughout the world--not only because of its unfavorable effect on a country's competitiveness, but even more so because of the negative impact that it has on the standard of living and distribution of wealth. During the early stages of Taiwan's economic development following the relocation of the central government, the aftermath of several wars and an overall lack of basic necessities drove the inflation rate up very high. Afterward, though, with the exception of the periods during two energy crises, from 1973 to 1974 and from 1979 to 1980, inflation in Taiwan has been moderate. For example, between 1952 and 1980, the consumer price index rose at an annual rate of 7.95 percent, whereas the wholesale price index averaged an annual increase of only 7.14 percent. If the four years of energy crisis were excluded, the consumer price index rose only 5.39 percent annually, and the wholesale price index increased by a mere 4.3 percent per year. From 1981 to 2000, the inflation rate in Taiwan was even lower. During this period, the consumer price index averaged an annual increase of 2.87 percent, and the wholesale price index averaged an annual

decrease of 0.01 percent. On average, from 1952 through 2000, the consumer price index went up annually by 5.87 percent and the wholesale price index by 4.24 percent (see Table XII). At the beginning of the 21st century, there were new developments in the world economy and dramatic changes in Taiwan. Consumer and wholesale price indexes fell. Even more noticeable was the large decrease in interest rates, from 5 percent for one-year time deposits in December 2000 to an all-time low of 2.1 percent in the third quarter of 2002. Many countries struggle to keep unemployment down, or suffer from high unemployment that refuses to drop. Fortunately, with the exception of 1950, Taiwan has not had a serious unemployment problem. This is mainly because exports from Taiwan have been strong. Moreover, labor-intensive export enterprises have provided jobs to large numbers of people from both rural and urban areas. Before 1970, the unemployment rate in Taiwan stood above 3 percent; since then, the rate has been steadily dropping. In fact, during the late 1980s, it dropped below 2 percent and a labor shortage emerged, forcing Taiwan to begin employing foreign laborers. Again, such a low unemployment rate was a phenomenon rarely seen in the world (see Chart III).

In order to meet the needs of major construction projects, Taiwan began to import foreign labor in the 1980s.

Money in the Bank and No Debt Foreign exchange reserves accumulate when a country's exports exceed its imports (i.e., when there is a trade surplus). Between 1952 and 1980, Taiwan for the most part imported more than it exported, enjoying a trade surplus for only eight of those years. From 1981 to 1999, however, Taiwan enjoyed a continuous trade surplus. In fact, in 1985, exports accounted for about 20 percent of Taiwan's total GNP. By 1995, accumulated foreign exchange reserves reached US$100 billion. Foreign exchange reserves decreased slightly thereafter, but by the end of 2000, they had again increased to US$110 billionXa truly outstanding accomplishment, especially considering Taiwan's small size. In fact, Taiwan has been one of the world's largest foreign exchange reserves holders, and was second only to Japan for many years. In 2001, China moved up to second place, having accrued large amounts of foreign exchange for a decade. Taiwan ranked third and remained so by October 2002, when increased exports pushed its foreign exchange reserves to US$150 billion. However, China accumulated foreign debts of over US$160 billion, while Taiwan had practically no foreign debt.

Taiwan's ability to maintain an almost continuous trade surplus in recent years is a result of the government's policy of encouraging exports and limiting imports. Such significant foreign exchange reserves have the following special implications for Taiwan: y y Since Taiwan is not a member of the United Nations nor a participant in the World Bank, it needs to have the large foreign exchange reserves to demonstrate its credibility. Although Taiwan shares official diplomatic relations with a small number of countries, it has established trade and cultural ties with more than 100 nations. Thus, having extensive foreign exchange reserves helps demonstrate that Taiwan commands solid financial power. Lastly, having large foreign exchange reserves guarantees Taiwan's domestic security; should any crisis occur, Taiwan knows that it can fend for itself without having to rely on foreign loans.

On the other hand, having excessive foreign exchange reserves can have some harmful consequences for the entire economy. For example, during the late 1980s, Taiwan suffered from a financial crisis and a bubble economy. At the same time, the excessive trade surplus caused the New Taiwan Dollar to appreciate drastically, reducing the competitive edge of Taiwan's exports and forcing many laborintensive industries into the "sunset" stage. By the end of the 1980s, the United States had become the number one debtor nation in the world, despite its outstanding economic achievements. Meanwhile, Taiwan did not accumulate much foreign debt. In 1986, Taiwan's foreign debts stood at roughly US$4 billion; however, by 1987 this figure had been reduced to US$1.4 billion. The Dawning of an Affluent Society After 40 years of hard work and struggle, it can be said that the ROC government succeeded in creating prosperity for its people by the end of the 1980s (see Chart IV). In Taiwan today, a full 85 percent of people own their own homes. In terms of major home appliances such as television sets and telephones, Taiwan has almost reached the same level as England and the United States, with just about every household possessing such amenities. The number of households in Taiwan that own automobiles and personal computers is also rising, and is expected to reach the level of those in the developed world within ten years. Finally, between 2000 and 2001, the number of trips abroad was equivalent to more than 30 percent of the total population of Taiwan (see Chart V). This figure is comparable to that for other developed countries.

5. The Fruits of Economic Development

The ultimate goal of economic development is to elevate the standard of living. Economic development usually includes three parts: economic growth, distribution of wealth, and quality of life. Generally speaking, not only has Taiwan achieved great results in all three aspects, but it also has done quite well according to other economic indicators. For example, it has enjoyed a mild inflation rate, low unemployment rate, and has accumulated vast foreign exchange reserves with almost no foreign debt. A prosperous society has been firmly established. It could be fairly stated that the countries today which possess all of these outstanding characteristics are few and far between. Rapid Growth and Equitable Prosperity The first stage of Taiwan's economic development extended from 1952 through 1980. During this period, Taiwan averaged an annual economic growth rate of 9.21 percent, which was the highest in the world. In 1962, agriculture lost its key position as the driving force behind Taiwan's economy, making way for the rapidly developing industrial sector. With the exception of two energy crises, in 1973-1974 and 19791980, Taiwan's industries maintained an average annual growth rate of around 14 percent.

The second stage of Taiwan's economic development ran from 1981 through 1999. During this period, economic conditions around the world and within Taiwan itself underwent great changes. Combined external and internal forces exerted a rather detrimental effect on Taiwan's economic development, slowing the growth rate to a low of 7.15 percent. The focus of Taiwan's economy slowly shifted from the industrial sector to the service sector. Meanwhile, the agricultural sector grew a mere 0.63 percent annually as its GDP share continued to diminish. Limited natural resources and a high population density mean that Taiwan is not self-sufficient. Hence, foreign trade has come to play a leading role in Taiwan's economic development. The development of foreign trade and the increase of foreign investment are driving forces behind Taiwan's industrial sector, which in turn fuels development in the service sector. From 1952 through 1980, the annual growth rate of commodity and labor exports averaged 16.5 percent, while local demand grew an average of 10.97 percent per year. During the second stage of economic development, commodity and labor exports grew 10.05 percent per year, while local demand grew 7.51 percent. From these figures, the importance of foreign trade to Taiwan's economic development can be seen quite clearly.

The large crowds found daily in Taiwan's department stores are a reflection of the greater purchasing power held by modern Taiwanese consumers.

Despite the fact that the average economic growth rate declined between the two stages of economic development, the average overall economic growth rate from 1952 through 2001 was still 8.13 percent. Such an astonishing rate of growth has seldom been seen in other countries. Of course, whether the results of rapid economic development will be enjoyed by a select few or by everyone is a major concern for many. In other words, has the high economic growth rate narrowed the gap in the distribution of wealth, or widened it? Two methods are often used to evaluate how evenly a country or society's wealth is distributed. The first method is the Gini coefficient. A small coefficient means a fairly equitable distribution of wealth, while a large coefficient signals inequities. The second method involves dividing all income-earning households into five groups according to the amount of income earned. A ratio is then calculated by comparing the income of the top fifth earners with that of the bottom fifth. The higher the ratio, the more unfairly the income is distributed. In 1964, the Gini coefficient for Taiwan was 0.321. This figure fell to 0.277 in 1980, indicating that the distribution of wealth had improved in step with Taiwan's advancing economic development. However,

since 1981, the Gini coefficient has been slowly increasing. By 2000, the coefficient had reached 0.326. By using the second method, a similar trend in the distribution of Taiwan's wealth can be seen: In 1964, the income ratio between the top fifth and the bottom fifth was 5.33. It declined to 4.17 in 1980 but, for the most part, managed to maintain a steady increase from 1981 to 2000, when it reached a high of 5.55 (see Table XI). Examining the reasons for the reversal of these figures yields several causes: y In 1986, the price of real estate began to skyrocket. Those lucky enough to own land or property suddenly found themselves members of the upper class almost overnight. Members of the middle class who did not own any land or property discovered that, even if they saved money their entire lives, they would still find it difficult to purchase a home. Large households were slowly broken down into groups of smaller households. Since both of the aforementioned methods of evaluating income distribution use the number of households as the basis for calculations, an increase in the number of small families has an adverse effect on how income appears to be distributed. As industries became more technologically advanced and knowledge-intensive, demand for personnel with specialized skills and a higher level of education also increased. Thus, those who possessed such expertise could often command a higher salary than those who did not.

These three factors are the main reasons why the disparity of income distribution has been increasing for the past 15 years (see Table XI and Chart II). Mild Inflation and Low Unemployment Inflation is a matter of concern throughout the world--not only because of its unfavorable effect on a country's competitiveness, but even more so because of the negative impact that it has on the standard of living and distribution of wealth. During the early stages of Taiwan's economic development following the relocation of the central government, the aftermath of several wars and an overall lack of basic necessities drove the inflation rate up very high. Afterward, though, with the exception of the periods during two energy crises, from 1973 to 1974 and from 1979 to 1980, inflation in Taiwan has been moderate. For example, between 1952 and 1980, the consumer price index rose at an annual rate of 7.95 percent, whereas the wholesale price index averaged an annual increase of only 7.14 percent. If the four years of energy crisis were excluded, the consumer price index rose only 5.39 percent annually, and the wholesale price index increased by a mere 4.3 percent per year. From 1981 to 2000, the inflation rate in Taiwan was even lower. During this period, the consumer price index averaged an annual increase of 2.87 percent, and the wholesale price index averaged an annual decrease of 0.01 percent. On average, from 1952 through 2000, the consumer price index went up annually by 5.87 percent and the wholesale price index by 4.24 percent (see Table XII). At the beginning of the 21st century, there were new developments in the world economy and dramatic changes in Taiwan. Consumer and wholesale price indexes fell. Even more noticeable was the large decrease in interest rates, from 5 percent for one-year time deposits in December 2000 to an all-time low of 2.1 percent in the third quarter of 2002. Many countries struggle to keep unemployment down, or suffer from high unemployment that refuses to drop. Fortunately, with the exception of 1950, Taiwan has not had a serious unemployment problem. This is mainly because exports from Taiwan have been strong. Moreover, labor-intensive export enterprises have provided jobs to large numbers of people from both rural and urban areas. Before 1970, the unemployment rate in Taiwan stood above 3 percent; since then, the rate has been steadily dropping. In fact, during the late 1980s, it dropped below 2 percent and a labor shortage emerged, forcing Taiwan to begin employing foreign laborers. Again, such a low unemployment rate was a phenomenon rarely seen in the world (see Chart III).

In order to meet the needs of major construction projects, Taiwan began to import foreign labor in the 1980s.

Money in the Bank and No Debt Foreign exchange reserves accumulate when a country's exports exceed its imports (i.e., when there is a trade surplus). Between 1952 and 1980, Taiwan for the most part imported more than it exported, enjoying a trade surplus for only eight of those years. From 1981 to 1999, however, Taiwan enjoyed a continuous trade surplus. In fact, in 1985, exports accounted for about 20 percent of Taiwan's total GNP. By 1995, accumulated foreign exchange reserves reached US$100 billion. Foreign exchange reserves decreased slightly thereafter, but by the end of 2000, they had again increased to US$110 billionXa truly outstanding accomplishment, especially considering Taiwan's small size. In fact, Taiwan has been one of the world's largest foreign exchange reserves holders, and was second only to Japan for many years. In 2001, China moved up to second place, having accrued large amounts of foreign exchange for a decade. Taiwan ranked third and remained so by October 2002, when increased exports pushed its foreign exchange reserves to US$150 billion. However, China accumulated foreign debts of over US$160 billion, while Taiwan had practically no foreign debt. Taiwan's ability to maintain an almost continuous trade surplus in recent years is a result of the government's policy of encouraging exports and limiting imports. Such significant foreign exchange reserves have the following special implications for Taiwan: y y Since Taiwan is not a member of the United Nations nor a participant in the World Bank, it needs to have the large foreign exchange reserves to demonstrate its credibility. Although Taiwan shares official diplomatic relations with a small number of countries, it has established trade and cultural ties with more than 100 nations. Thus, having extensive foreign exchange reserves helps demonstrate that Taiwan commands solid financial power. Lastly, having large foreign exchange reserves guarantees Taiwan's domestic security; should any crisis occur, Taiwan knows that it can fend for itself without having to rely on foreign loans.

On the other hand, having excessive foreign exchange reserves can have some harmful consequences for the entire economy. For example, during the late 1980s, Taiwan suffered from a financial crisis and a bubble economy. At the same time, the excessive trade surplus caused the New Taiwan Dollar to appreciate drastically, reducing the competitive edge of Taiwan's exports and forcing many laborintensive industries into the "sunset" stage.

By the end of the 1980s, the United States had become the number one debtor nation in the world, despite its outstanding economic achievements. Meanwhile, Taiwan did not accumulate much foreign debt. In 1986, Taiwan's foreign debts stood at roughly US$4 billion; however, by 1987 this figure had been reduced to US$1.4 billion. The Dawning of an Affluent Society After 40 years of hard work and struggle, it can be said that the ROC government succeeded in creating prosperity for its people by the end of the 1980s (see Chart IV). In Taiwan today, a full 85 percent of people own their own homes. In terms of major home appliances such as television sets and telephones, Taiwan has almost reached the same level as England and the United States, with just about every household possessing such amenities. The number of households in Taiwan that own automobiles and personal computers is also rising, and is expected to reach the level of those in the developed world within ten years. Finally, between 2000 and 2001, the number of trips abroad was equivalent to more than 30 percent of the total population of Taiwan (see Chart V). This figure is comparable to that for other developed countries.

. People and Government Working Together

When reviewing the magnificent achievement of Taiwan's economic development, we discover that there are other important factors in addition to the government's timely adjustment of its role. These include the diligence of the people and the industrial sector's relentless pursuit of industrial development and foreign trade. The Power of the Industrial Sector With a diligent labor force and high adaptability to market changes, Taiwan's small- and medium-sized enterprises normally have been able to rely on their own capabilities and explore resources and markets throughout the world. They have therefore been able to shoulder the great responsibility of being at the forefront of foreign trade. In the initial stages of economic development, countless small- and mediumsized enterprises sprang up in export processing zones, on the outskirts of urban areas, and near farming villages. By the end of the 1970s, they constituted more than 98 percent of Taiwan's businesses and accounted for 75.1 percent of its total exports. The emergence of small- and medium-sized enterprises is closely linked to the government's economic, social, and educational policies. Of these, the "land-to-the-tiller" reform program implemented in 1953, the Statutes for the Encouragement of Investment enacted in 1960, the nine-year compulsory education program adopted in 1968, and the Ten Major Construction Projects launched in 1973 created an environment that was highly conducive to the development of small- and medium-sized enterprises. The ROC government has maintained greater latitude in its economic measures than have governments of other developing nations. As a result, there was more inclination to work industriously for personal benefit and make efficient use of Taiwan's limited resources. Positive factors related to traditional culture have also played a vital role in the development of small- and medium-sized enterprises. Influenced by traditional social standards, many people prefer to start their own businesses and put their talents to use. Since most small- and medium-sized business owners enjoy much decision-making power, they possess a vigorous and enterprising spirit. They are prepared to work hard for their money and are not afraid to take risks to expand their operations. As a result, quite a number of small businesses have developed into large enterprises.

(Left) Taiwan's high-speed railway, which will connect Taipei to Kaohsiung in just 90 minutes, is the first major infrastructure project on the island to be built using the BuildOperate-Transfer (BOT) model. (Right) The 12.9-kilometer Syueshan Tunnel along the Taipei-Ilan Expressway will be Asia's longest highway tunnel when it is completed in 2005.

Although traditional cultural factors have served to boost Taiwan's small- and medium-sized enterprises, one cannot overlook how the overall economic environment has had a positive impact as well. In the 1950s, the relatively small capital requirements and an abundant supply of labor meant that most smalland medium-sized enterprises were engaged in light industries. Due to growing international competition in recent years, however, the versatile small- and medium-sized enterprises have gradually shifted from labor-intensive to technology-intensive operations. A People Undaunted by Hardships Taiwan's people are industrious, frugal, and not afraid of hardship. Equal opportunity to receive an education has allowed them to apply their talents. Furthermore, a free environment with a level playing ground has also allowed the people to use their talents and wisdom to the fullest extent. The development of human resources has greatly compensated for Taiwan's lack of natural resources. At the economic policy-making level are a group of experts on economics, finance, and technology who contribute their wisdom for Taiwan's economic development. In the private sector are highly capable, accomplished and far-sighted entrepreneurs who are prepared to work hard for their businesses and who strive and make sacrifices for Taiwan's economic development. Indeed, the rising standards of education have to a large extent met the needs of industrial upgrading. Between the 1950s and the 1970s, the average worker received six years of basic education. By the 1980s and 1990s, Taiwan had shifted from low-tech to hitech production. Industrial transformation was made possible in part by a nine-year system of vocational education, while education at the university and graduate school level and above contributed to the rapid takeoff of Taiwan's electronics and information industries. Government: From Babysitter to Mentor The role of the government has changed along with advances in the nation's economic development, the general level of education, and the arrival of full democracy. From the 1950s to the 1960s, the government assumed the role of an economic babysitter. As such, the government usually approached problems related to industrial development from the protectionist angle, while solving such problems in an equally controlling fashion. For instance, in the 1950s, the government employed US aid to steer the course of industrial development, such as that of the textile and milling industries. In addition, it distributed limited foreign exchange reserves to those industries that were capable of exporting, just as it protected the domestic auto industry from international competition by levying import tariffs at a rate of over 100 percent. In the 1960s, the government influenced the direction of investment from the private sector by enacting the Regulations for the Encouragement of Investment (REI). By the 1980s, Taiwan's economy had achieved considerable success, with private enterprises

sprouting up in large numbers. The government's grasp of the international market was nothing compared to that of the private sector. This fact rendered the REI less attractive to investors. At the same time, the utilization of the export processing and industrial zones set up by the government was also on the decline. Private enterprises wanted the government to loosen up regulations and provide a better investment environment. However, economic planning at that time only targeted government agencies and state-run enterprises, not the private sector. Under such circumstances, the government had to adjust its role, from that of babysitter to mentor. As mentor, it could provide private enterprises with information on economic growth and technology as well as assistance in training personnel. In the 1990s, the private sector was no longer so concerned with incentives created by government financial and monetary policies. Instead, companies hoped that the government would furnish a healthy investment environment and regulations which conformed to the times and were efficiently implemented. Economic Policies Prior to 1990, the government implemented a series of four-year economic plans, which gave it power over public agencies but not the private sector. The plans therefore served largely as "indicators." In this way, the government could control state-run enterprises and public investment while supervising those private industries receiving government assistance and guidance. State-run Businesses Some of Taiwan's state-run enterprises were inherited from the Japanese upon Taiwan's retrocession, and some were established to further develop the economy. During Taiwan's economic development, state-run enterprises have served the following functions: y y financial: these enterprises have been required by the government to pay a certain amount of their profits as a form of indirect taxation; economic: the government has created production incentives for the private sector by setting up price scales. For example, electricity for industrial use is the cheapest, while that for commercial use is the most expensive; societal: the government provides the public with cheaper services, such as transportation and medical care.

The output of state-run enterprises accounted for 57 percent of the total industrial production value in 1952. However, this share decreased to 20.9 percent in 1980 and shrunk further to 18 percent in 1990. Since state-run enterprises are often monopolistic and inefficient, they have often been the target of public criticism. The government, therefore, has decided to privatize them over the next few years. However, privatization attempts have met with several difficulties, including opposition from labor unions at state-run enterprises, the time of stock release, and the identity of share owners. The labor unions are convinced that privatization will take away their work guarantee, and if stocks were released when market prices were low, there would be allegations that it was designed to "create profits for some people." There is also fear that the stocks of state-run monopolies might fall into the hands of financial conglomerates. These problems are yet to be addressed.

Public investment in basic infrastructure projects, such as the Taipei Rapid Transit System, has helped to lay a solid foundation for sustained economic growth.

Public Investment Just after Taiwan's retrocession, the average person earned little and private enterprises were still small in scale. Thus, the private sector was not interested in bidding on public construction projects. The government has therefore taken the initiative. Since the 1970s, it has launched a series of large-scale public investment projects: the ten, twelve, and fourteen "major construction projects"; the Six-Year National Development Plan; and the Twelve Economic Construction Projects. These projects have primarily involved the construction of the ROC's infrastructure, such as airports, railways, highways, ports, and new cities and towns. Revision of Laws Social order and trade transactions should be regulated by laws, and it is the government's responsibility to enact and administer these laws properly. Prior to 1980, the government administered the laws quite strictly, resulting in a high level of social and economic order. However, in the 1980s, government authority weakened in the face of the challenges brought by heightened democracy and political opposition. Due to rapid social change, existing regulations and laws became outdated and in urgent need of an overhaul. Yet, before new laws could be instituted, societal disputes had already started to spring up in many areas. The government was hard-pressed to formulate laws to solve these disputes and achieve economic breakthroughs. Incentives and Guidance The government failed to supervise protected industries with the result that they remained unable to compete in the international market. In the initial stages, the government's policy to reward and guide these industries did achieve positive results, but these results wore off over the course of a decade. More importantly, some incentives eventually began to backfire. Some businesses pretended to engage in export to take advantage of export tariff returns and government subsidies. Meanwhile, many private enterprises, without receiving any government assistance, grew to be export leaders in Taiwan by breaking new ground.