To discuss the future of Taiwan's economy, I'll jump back first to an era past. In the early 1980s, I was in charge of Philips' Chien-yuan plant near Kaohsiung when I received a government report predicting that Taiwan's per capita income would reach US$6,000 within ten years. I passed this information on with a note, "What does this mean?" What it meant, it turned out, was that the salaries at the Chien-yuan plant would rise in step with national standards. This was shocking because only twenty years before-in 1960-our average monthly salary was less than US$10!

In our view, the Chien-yuan plant, based on its productivity, could not bear such a salary increase. We asked ourselves: How could productivity be improved? What changes could be made to products? How could manpower be streamlined? What new equipment might improve efficiency? Step by step, we analyzed our situation, and after drafting and implementing carefully laid plans, the Chien-yuan remained strongly competitive.

Pass the baton, don't hold it!

Every company must monitor changes in the business world, and respond quickly and effectively to new trends. Isn't this the same for a government? Regrettably, in Taiwan, few people are concerned with what will happen five or ten years down the road. Most focus instead on the issues of the current day. This leads to reactive management-everyone running around putting out fires on a day-to-day basis-and the results are less than impressive.

For example, one of today's big issues is whether Taiwan businesses should be allowed to relocate manufacturing facilities to China. Government policy insists that their "roots remain in Taiwan." But the debate is shortsighted. The issue is always framed by concerns over things like the current rise in unemployment, or the flight of capital offshore. But, in the long term, these issues have little to do with increasing the competitiveness of Taiwan's companies.

Some people fear that if Taiwanese businesses go to China, then China will surpass Taiwan. In rebuttal, let me offer an analogy. If a skinny guy and a fat guy were to compete in a foot race, would you worry about the fat guy winning? In comparing ourselves with China, aren't we holding ourselves back? Shouldn't Taiwan measure itself against the US, Europe, Japan and other advanced nations? In evaluating ourselves, we should think in terms of what we cannot do currently, and what we want for the future.

In other words, the speed at which we push our industries into the future depends on the rate at which we let go of the past. It is like a relay race: Until we pass the baton, we won't be ready to take on new commitments and forge ahead with new industries.

In our current situation, I worry that China is developing at too slow of a pace to absorb our outdated industries. If so, how can we pass it the baton? This will become an obstacle to our future growth and advancement. Further, today's global corporations are using China as a manufacturing base and as a market to be exploited. It doesn't matter whether or not we pass the baton, the race will go on without us. But if we hold the baton in our hands, we are going to find ourselves out of the race as well.

That's why, in my view, China isn't the country we should be competing against. Instead it presents an opportunity. In the short-term, it can help us extend the life of certain industries. In the long-term, it is a fabulous new market. This can be a win-win situation for Taiwan and China, so why do we see it as a zero-sum game in which our loss is their gain? The future of the world economy is in the hands of three major players-the US, the EU, and Asia. If Taiwan is locked out of China, it will be marginalized.

Creating a new order for Taiwan

Another point worthy of consideration is whether or not Taiwan must protect its position as a manufacturer. In any of the OECD nations, only 30-40% of the labor force works in manufacturing, while in Taiwan this percentage is considerably higher-50%. If our development was better planned, the output of value-added services would exceed that of manufacturing. Yet, in Taiwan, manufacturing is highly competitive, while services-such as transportation, communications and finance-are relatively weak. This is the outcome of government protectionism, and it is preventing us from achieving world standards of competitiveness in these sectors.

The value of service industries is derived from a county's overall standards of living. It is a pity that, although Taiwan has attained democracy, it has yet to rationalize its public sector. Instead it is increasingly a "street vendor" culture, with fractious grassroots movements here and there, or just plain vulgar. This points to the necessity of us following the path of advanced nations and upgrading our domestic services. Taiwan must create a quality environment in which people want to live. Isn't it unfortunate that we have yet to do so?

But a solution is being championed by the newly appointed cabinet of Premier Yu Shyi-kun, and his proposal bears the slogan "Let culture lead the nation." This is an idea that I hope will take root and become a reality.