Brighten Taiwan's Smile--CEPD Holds Service Industry Development Conference

Though going through the worst wave of overseas relocations by local industry in history and facing increasingly bitter competition in industrial development, this year, thanks to a turn for the better in the international economy, Taiwan's economic performance has stabilized. According to figures announced in August by the Directorate-General of Budget, Accounting and Statistics, the forecast for economic growth for this year can again be upgraded, to 5.87%.

Naturally it is good news that the economy is rebounding. But after several years of weak performance, business, government, and academia now all understand that Taiwan, which has relied on manufacturing, must go the next step and transform itself into an economy led by the service sector. Contemporary service industries can be divided into two main categories: productive services (tied to the needs of business) and lifestyle services (tied to the needs of ordinary consumers).

Based on these two criteria, the CEPD has compiled a list of 12 critical service industries for future development. These are: financial services; research and development; design; cultural and creative services; telecommunications and media; medical, health care and caregiving; engineering consulting; information services; distribution and transportation; manpower training, manpower services and property management; tourism, sporting and recreational services; and environmental protection.

In fact, the value added by the service sector in Taiwan already accounts for over 67% of GDP, a figure comparable to other countries at a similar level of per-capita income. Therefore, Taiwan cannot be considered to be lagging in this respect. In comparison with neighboring countries, in fact, such as Korea, Singapore, and Japan, where the ratios are 57.2%, 65.7%, and 59.1% respectively, the growing importance of the service sector is already clearly reflected in the amount of GDP it generates.

But from another point of view, though services account for two-thirds of Taiwan's GDP today, labor-intensive industries like caregiving, property management and tourism are clearly somewhat behind. As a result, the service sector in Taiwan is performing less well than its counterparts in Singapore or Japan in terms of job creation. Thus the objective set out at the conference of creating 600,000 new jobs in the service sector by 2008 immediately became a central issue, as well as a focus of media attention the following day.However, given that it is uncertain whether this bonanza of 600,000 new jobs will become a reality, on the day the conference opened, people from more than ten labor organizations came to voice their concerns about the proposed manpower services law. They pointed out that the experiences of other countries show that the increased labor flexibility brought by "temping" has only a very limited impact on job creation, and moreover using agency labor is an important tool for capital to avoid providing social guarantees to labor and to reduce corporate overhead in terms of wages and salaries.

Kung Ming-hsin, director of Research Division II at the Taiwan Institute of Economic Research, says that the greatest threat to the development of the service sector in Taiwan is not a lack of markets or opportunities, but whether supply and efficiency can be increased.

For a long time now, the manufacturing sector has driven economic development in Taiwan. Although the service sector has been quite large, it has been widely plagued by problems of insufficient competitiveness and inadequate investment capability. One clear example is that Taiwan lags far behind advanced countries in services such as design, information services, research and development, and engineering consulting. These "technical services" have stayed at around only 2% of Taiwan's services market.

At the conference the CEPD pointed to four keys to the continuing development of the service sector in Taiwan, that will determine whether Taiwan can get to the same level as leading countries internationally: education and training of the required manpower, liberalization of laws and regulations, incentives for investment, and more effective financing mechanisms. With this in mind, Premier Yu put forward a list of 31 specific liberalizing regulatory changes that could be made, as well as a proposal for the creation of a "Special Project Office for Service Industries" under the CEPD, in order to help the private sector in developing service businesses. Only with a more complete transition from manufacturing to services can Taiwan's economic modernization take a giant step forward.