He Who Knows, Wins! Interview with CEPD chairman Chen Po-chih

Q: Is this a new concept, the idea of the "knowledge-based economy," and why has it come to the fore at this time?

A: In macroeconomic terms, today's world differs from the past in two important respects. The first is globalization, which has had a dual impact. For one thing it has led to a massive expansion of the international labor force, with developing countries that previously shunned capitalist competition now hurling themselves into it, adding over a billion workers from places like mainland China, India and Eastern Europe. At the same time we have the globalization of international trade, with capital and technology increasingly free to circulate rapidly around the world. Advantages that were once monopolized by Taiwan and the other Asian dragons, including close economic cooperation with the leading industrial nations, a cheap and productive workforce, and capital reserves built on the back of high savings rates, have gradually been lost to other countries.

Day Sheng-tong, chairman of the National Association of Small and Medium Enterprises, often cites the example of the plain black umbrellas that we used to export from Taiwan at a price of nearly US$30 per dozen. The same umbrellas are now produced on the mainland and are shipped for just US$8 per dozen. The rate at which prices for medium and low-level computer and IT products have fallen is even more startling. So what can Taiwan do to maintain its profits in the future? The only choice is to make things that others can't make, or can't make as well as we do, which means products involving a special element of knowledge. Because of the pressure from global competition, knowledge is now more important than ever. In the past, the only way of getting ahead was to "go all out," whereas now what matters is that you've "got the know-how."

The second of the big changes, compared with the past, is itself an aspect of globalization. Greater advances have been made during the past decade or so, in terms of global knowledge, than at any other time in history. Advances in knowledge, plus the integration of international markets, have dramatically raised the importance of knowledge.

To give an example, there used to be a well-known noodle establishment in Tainan selling Tainan danzai noodles. After being in business for over a century, its clientele was still limited to Tainan-the range over which its knowledge was applied didn't extend beyond Tainan itself. But with the globalization of knowledge, you can separate the skill of preparing noodles from the noodle cook himself, and replicate it anywhere in the world, thereby making money off the sale of Tainan danzai noodles in the US, mainland China or wherever. So the era of globalization extends the range over which individual skills or technologies can be applied. Hence the falling value of labor and capital compared with the rising value of knowledge, all as a result of globalization.

Knowledge has a higher value than before but this doesn't mean that the value of every kind of knowledge has risen. Globalization means anyone can access knowledge from anywhere in the world and copy it at no cost, so people will tend to use only the best knowledge. There's only first place in the knowledge competition, no prizes for coming second. It's winner takes all, which makes the competition even fiercer.

That's why I believe that if we don't make rapid headway as a knowledge-based economy then our competitors will soon catch up, despite our previous developmental achievements. It's fair to say that Taiwan has been ahead of the game at every step during the past 100 years or so, from the infrastructural development that took place under [late Qing dynasty governor