Good question. But, before we ask "how" let's examine the prices themselves. Taking a cursory look shows that, yes, it is indeed true. According to a recent New York Times report on Taipei prices, sleeping at the Lai Lai Sheraton costs US$160/ night, eating there costs US$40, and having a cup of coffee there costs US$3.35.

However, as our taxi driver would surely note, life in the Lai Lai is not exactly a parallel with reality. "If you want to enjoy things that are imported into Taiwan, you're going to have to pay for it," says Andrew Tsuei, executive director of Union Group of Companies. "But if you drink tea and eat traditional Chinese food, it isn't so expensive in Taipei."

Chen Ch'ao-wei, deputy executive secretary at the Commodity Price Supervisory Board of the Ministry of Economic Affairs, agrees. He says, "Everybody says Taiwan is expensive, but there's more to the picture than just prices." The NT dollar has appreciated 33 percent in the past 18 months. He went on to explain that in terms of US dollars everything is suddenly 33 percent more expensive.

What seems to really hurt consumers most is, amid all the talk about lower import duties and the plethora of foreign goods flooding the island, the realization that prices really haven't come down as they should have. The R.O.C. Consumers' Foundation has tried to construct some formulas with importers as to how the price should reflect the now cheaper imported goods, but with very little success.

Importers have explained their embarrassing riches with a sweep of the hand over their huge inventories. Large inventories, they say, will insulate the local market from current price reductions for a "certain" period of time. It takes time before the duty reductions will be reflected in local prices. Do the importers have a point?

Wu Cheng-chi, associate professor of the graduate school of economics at National Taiwan University, says, if prices are determined by supply and demand as classic economic theory tells us, then one must look at the level of profits and competition in the market. He pointed to Taiwan's hotels as a prime example. Taiwan only has 6,000 rooms for visiting tourist across the whole island. And even as tourists and businessmen complain about the high rates, some of the hotels have calmly raised them 10 percent higher.

However, their monopoly is headed for much greater competition in the near future, he said. In the next few years, four large hotels will be completed, which will bring prices down in a hurry. There may even be a surplus of rooms for the Taiwan market, he continued, which means that hotels will have to compete in price, service, and comfort to get their share of the market.

If businessmen are earning unreasonable profits, the best cure is to open the market to more competition. The problem has been Taiwan's traditional protection afforded to her "nascent" industries and her inefficient agriculture sector. A history of high tariffs and a variety of import restrictions have left some local industries well off, but fat and lazy. "We've always been an export economy," Wu says, "and now that imports are allowed we can see the results of the market distortions."

Taiwan's domestic market has been protected for too long, says Yin Hui Li, general manager of Waston's Chaist in Taiwan. The market place is just being opened now and the situation will get better, he offered. Better indeed. An established chain store on the island recently lowered prices on selected items.

The over-protected agriculture sector of Taiwan and the large percentage of farmers (22 percent) in the population have created special problems for the government. The agricultural distribution system resembles Japan's with its myriad middlemen, all wanting their share. Besides increasing cost, the system creates a tremendous amount of waste, sometimes approaching 50 percent. The sticky agriculture question is currently giving the government its share of headaches.

The problem that arises from a lack of competition is a monopolistic or oligopolistic form of market. In theory, there are no monopolistic industries in Taiwan, except those run by the government and whose prices are strictly controlled. However, there are oligopolies. Cosmetics and concrete are two industries where "cooperation" among competitors has historically governed the local market. Especially in concrete production, where Taiwan has been "divided" into separate markets. Each producer tends to its own field. Overproduction is strictly frowned upon, because it could lead to competition, which could lead to a cut in prices, resulting in a loss in profits.

Adequate competition in the market is predicated on a free flow of information for producers as well as consumers, which the country lacks. In the United States, consumer groups, buyers' guides, ombudsmen, and other institutions abound in the market for the benefit of the consumer. The consumer, armed with information, is on more equal ground with the seller. Taiwan is moving in that direction with the monthly consumer report published by the R.O.C. Consumers' Foundation, which some newspapers have been printing in their Sunday editions.

Another reason for the rise in local prices is the rise in labor costs. Last year's 10 percent rise in labor costs was more than South Korea's 8.9 percent and far more than the United States'2.1. A higher standard of living means, necessarily, higher costs for everybody.

Often overlooked is the fact that Taiwan's economic structure is built on small and medium-sized firms, which can never reach the economies of scale of large-scale multinationals. Obtaining loans, making purchases, advertising, and managing are all more expensive when done on a small scale.

Some people look to the tax system when pointing an accusing finger. Compared with Europe, the U.S., and Japan the amount taken from income is relatively small. This adds more to the disposable income of wage earners and to the money in circulation in the economy, which increases the upward pressure on prices.

Taiwan's "unofficial" economy is enormous, said Casper Shih, managing director of the China Productivity Center, and the government has never really documented the real source and level of incomes. It isn't that inflation doesn't exist in Taiwan; it's more that its influence has been masked by the rising NT dollar and the lowering of import duties, he explained.

Andrew Tsuei says, in the long term, the rising of prices is a good and necessary factor in the development of the economy. Prices in Taiwan have been incredibly stable over many years and this is harmful. If prices don't rise, this reduces the will to invest and eventually the development of the entire economy.

It seems that the problem of today's prices on Taiwan is finding a way to balance the benefits to all involved.

[Picture Caption]

Taipei is more expensive than New York?!

Imported cosmetics and cars are two or three times more expensive on Taiwan than in their countries of origin.

Street vendors sell their wares next to the Eastern District's expensive department stores, where the price differential prevents the two from becoming competitors.

Large supermarkets can often offer cheaper prices than a street vendor selling vegetables, because of a more direct and efficient distribution system.

Western fast food is "worth" something special in the hearts and stomachs of people on Taiwan.

The R.O.C. Consumers' Foundation working for a consumer protection law to ensure the rights of all consumers.

Imported cosmetics and cars are two or three times more expensive on Taiwan than in their countries of origin.

Imported cosmetics and cars are two or three times more expensive on Taiwan than in their countries of origin.

Street vendors sell their wares next to the Eastern District's expensive department stores, where the price differential prevents the two from becoming competitors.

Large supermarkets can often offer cheaper prices than a street vendor selling vegetables, because of a more direct and efficient distribution system.

Large supermarkets can often offer cheaper prices than a street vendor selling vegetables, because of a more direct and efficient distribution system.

Western fast food is "worth" something special in the hearts and stomachs of people on Taiwan.

The R.O.C. Consumers' Foundation working for a consumer protection law to ensure the rights of all consumers.