Living in Times of Uncertainty

Whoever thought that the day would come when Taipei looked like Venice, albeit without the lights? That Chunghsiao East Road would turn into a fork of the Keelung River? Or that the subway system would be turned into a giant underground swimming pool? For the people of Taiwan, the emotional impact of Typhoon Nari on September 17 was no less dramatic than that of the 9-11 terrorist attacks. Perhaps the only difference was the number of casualties. The long-term economic impact will be every bit as serious, as will the pall of uncertainty left behind.

A software engineer named Mr. Chen, who has lived on central Taipei's Chunghua Road for over 20 years, watched up close and in person for the first time in his life as flood waters came and submerged vehicles in the street. At first it was simply a centimeter or two lapping at the wheels. But the water kept rising, to half the wheel height, to the hood... At that point all the vehicles with burglar alarms went crazy. Electrical systems shorted out and turn signals started to blink, as if calling for help. The waters continued to rise, to the windows, to the roofs. . . All the streets suddenly became miniature versions of the Yellow River, with silt-laden waters coursing down their length.

Mr. Huang, a taxi driver, says with no slight frustration that his home in Neihu District flooded once again this year. After Typhoon Nari he bought an inflatable mattress so that if the water comes pouring into his home again he can just throw all the valuables on the mattress and let it float.

Huang Teng-hui, chairman of Rose House, a chain of teahouses with nearly 50 outlets across Taiwan, reports that while his business in Taichung was badly affected by the big earthquake of 1999, the impact of Typhoon Nari has been far worse.

Typhoon Nari left Taipei strewn with garbage. Residents threw out 100,000 tons of refuse. The losses were heavy, but they did spur a wave of spending.

Tag-team destruction

After the flood waters in Taipei City and Taipei County receded, people returned home to face a massive cleanup effort. According to statistics released by the Environmental Protection Administration, the people of Taipei City threw out 100,000 tons of trash from the 16th to the 18th of September, while the much smaller Keelung generated 240,000 tons over the same period. In the city of Hsichih, where floods always hit hard, residents tossed out about 10,000 tons.

Why was so much less trash generated in Hsichih? One person joked grimly that because they get a major flood every year, everyone has already thrown out pretty much everything that qualifies as junk, and if another big flood comes next year, the only thing people will throw out is the mud, because no one has any belongings left.

Says Hsia Chu-joe, a professor at the Graduate Institute of Building and Planning at National Taiwan University, "In the past there was a certain predictability about the location and severity of floods, but now they are taking us by surprise on both of these fronts." Hsia states that the concept of a 200-year flood is based on historical weather records. We can calculate that a flood of a given severity is likely to happen once again at some point within the next 200 years, but because this is merely a mathematical probability, the next one could actually happen at any time.

Hsia points to rapid economic development, and the attendant rush to invest in land, as the ultimate cause of the flooding in central Taipei: "Urban development in Taiwan stands in conflict with flood control. We haven't done a good job of flood control because the authorities, under pressure to promote urban development, are issuing building permits left and right." Hsia adds that as Taipei City has grown, the authorities have done their best to keep pace by building levees. These have protected Taipei City only to ensure that Taipei County would get all the flooding. Taipei County has more recently started building levees itself. Now the question is not whether it will flood, but where. If the authorities fail to take a hard look at policy, this problem will never be resolved.

Says Hsia: "A legendary official named Gun has the dubious distinction of being remembered over 3000 years after his death as the man who failed to protect China from flooding. Well, building levees was his idea of flood control. And now we're doing it again." China has a long history of flood control, and everyone knows the story of Gun and Yu. Gun tried to wall out the waters, and by failing went down in history as a big failure. Yu later channeled the rivers to make sure the water would flow away as quickly as possible, a breakthrough which earned him a reputation as a model government official. That's how important the issue of flood control is. From the president on down to local neighborhood officers, no one can afford to take the matter lightly.

Core Pacific Mall, touted as the largest shopping mall in Asia, opened recently in the middle of a sharp economic downturn. Observers expect the mall to trigger a revival of consumption in Taiwan.

Man proposes, heaven disposes

Now that the flooding is past, however, the welfare of the people has been forgotten. The ruling and opposition parties are absorbed in election campaigning, each hoping to become the biggest party in the Legislative Yuan so they can gain the upper hand in politics. Alas, the old saying rings true: "We can all hope, but we can't be sure our hopes will be met." The specter of politics adds to the uncertainty felt by the public.

Uncertainty in the face of life's vicissitudes is about as bad overseas as it is in Taiwan, and is actually worse in the United States. The city of New York had to struggle mightily to regain some sense of normalcy after the 9-11 terrorist attacks. Then everyone's nerves were jangled once again on November 12 when an American Airlines jetliner crashed in the borough of Queens moments after takeoff from John F. Kennedy Airport, killing over 260 people. The disasters at home and abroad seem to drive home more clearly than ever that no plan made by humans can withstand disaster, whether it be heaven-sent or brought on by the slip-ups and destructive passions of man.

There's a saying in Chinese that comes pretty close to the English aphorism "Man proposes, but God disposes." According to Lee Kao-chao, vice chairman of the Council for Economic Planning and Development, analysts had originally thought the economy would begin to recover in the fourth quarter because of the encouraging signs they had seen in the leading indicators for June, July, and August. But the terrorist attacks and Typhoon Nari sent the economy back into a tailspin. It is now anyone's guess as to when the recovery will take place.

By Lee's analysis, Taiwan's doldrums are the result of a convergence between international trends and a slump in the business cycle. By "international trends" he is referring to the end of the standoff between the world's two great systems of economic thought, and the changes that this is bringing about. Socialism as an economic system has collapsed, and the market economies springing up from its ashes are yielding big payoffs. Socialism puts the state in command, and most countries adhering to socialism favor the manufacturing of steel, machinery, and other capital goods over the production of consumer goods. Capitalism, in contrast, seeks to satisfy the demands of consumers. The confrontation between these two systems of economic thought came to an end over a decade ago, but the impact of this change is only now beginning to make itself felt.

Globalization will enable Taiwanese consumers to buy name brands from around the world. Shown here in the brand new Breeze Center mall is an outlet of Georg Jensen, a franchise from Copenhagen that has gained renown for its exquisite silver, jewelry, and timepieces.

New labor flows

The combined population of countries running socialist economies either now or in the past comes to over 3 billion, or 44% of the world's total population. The major socialist economies include mainland China (1.2 billion), India (1 billion), and the Soviet Union and Eastern Europe (0.3 billion). Since the collapse of socialism, the massive labor pool of these nations has gradually been incorporated into the global capitalist economy. This migration of labor got started ten years ago, and is now causing unemployment in some newly industrialized economies.

Secondly, Lee feels that everyone is wrong when they say that investment in Taiwan has hit the skids: "Our problem is an excess of investment. People have been over-investing in both property and capital goods ever since 1980. Business cycles can send investments to towering peaks, but you've got to come back down sooner or later, and the higher the mountain, the deeper the valley. Once the recovery comes, you're not necessarily going to get back to the heights of before."

Many feel that the current global downturn is comparable to the Great Depression of the 1930s. But Hsieh Chin-ho, president of the Wealth Group (an authoritative financial and economic publisher), notes a difference: The problem in 1930 was weak global demand, while the problem today is an excess of supply. "Industrial firms in Taiwan have expanded capacity furiously over the past decade and produced in huge quantities. The result has been destructive price competition that has left producers badly weakened." Central banks throughout the world have responded by lowering interest rates in an attempt to revive their economies. The US Federal Reserve Board has lowered the prime lending rate ten times this year, and Japan's interest rates have been at zero for a long time, but rapidly declining investments have greatly reduced the effectiveness of such monetary measures.

Says Hsieh: "Taiwan is one of the places where the global economy is getting worse. Ten years ago we got off onto the same path as Japan, with the result that our land assets have just kept declining in value, and there are no signs of recovery yet. After the bubble burst in the US high-tech sector last year, Taiwan also took a hit. So we're looking at a post-bubble phenomenon on both the property and high-tech fronts at the same time. It's never been this bad before."

Unemployment is high and the government's budget is strained. Where are badly suffering workers to turn for help? (photo by Pu Hua-chih)

US catches cold, world sneezes

The global economy has been growing rapidly for 20 years now, and globalization has without doubt played a big role in the process. Back in the days when the United States and the Soviet Union held each other at bay with a balance of terror, other nations had to decide whether they would opt for a market economy or a planned economy. Now that the authoritarian regimes of the Soviet Union and Eastern Europe have been dismantled, however, the world has entered into a period of economic and political globalization led by the United States.

Taiwan has benefited in the past through its participation in an international division of labor under US leadership. In the 1960s and 70s, on the strength of its cheap labor costs, Taiwan became an offshore processing base for firms in North America and Europe. In the 1980s, the shift to high-tech industry gave Taiwan a chance to establish itself as a leading high-tech manufacturer.

Capitalism reigned supreme by the close of the 20th century, but the entire world stared in horror on September 11 as their TV sets relayed scenes of destruction in New York and Washington, DC. It gave rise to a disquieting thought: Have the accomplishments of the highly globalized capitalist system of the West over the past century led to an excessive concentration of risk that makes the system extremely vulnerable?

Social commentator Nan Fang Shuo notes that the German scholar Ulrich Beck had written in 1986 about the global nature of risk, arguing that we are made vulnerable in an increasingly integrated world where everything is closely linked to everything else. Beck uses the analogy of a precision watch, which can stop ticking if a tiny screw works loose.

Says Nan Fang Shuo: "The complexity of the system generates risk. If you have a problem or let down your guard at any point in the system, everyone suffers the consequences." Mad cow disease provides a classic illustration of the problem, for it only takes one country's mishandling of the problem for it to spread to other countries. Similarly, travelers can pick up diseases like tuberculosis, cholera, malaria, or smallpox and carry them back to countries where those diseases had previously been eliminated. The collapse of the overheated IT sector in the United States last year has set off a domino effect that is now wreaking havoc throughout the world.

Brakes on globalization

Nan Fang Shuo notes that the basic philosophy of globalization is to use economic power to overcome political and social power, which would dilute the power of the state.

After the 9-11 terrorist attacks, many scholars felt that the US economy had suffered a severe blow that would temporarily slow the pace of globalization, but many others have worried that if capitalism were to lose its capacity for self-regulation, we might see the appearance of what has been predicted by Nan Fang Shuo: a world run by big money interests.

In recent years, every major meeting among industrialized nations having anything to do with economic globalization has been accompanied by rioting and protests. In particular, the huge riots in Seattle in 1999 have ignited a big upsurge in opposition to globalization. The G8 summit held this past July in Genoa, Italy was besieged by over 100,000 protesters.

According to an editorial in the China Times: "The 9-11 terrorist attacks show that the logic of globalization doesn't apply equally to everyone throughout the world." Globalization is a battle in which survival itself is at stake, continues the editorial. It is about survival of the fittest in a world without national borders, but the poor and weak have already been excluded from the game. People living in marginalized countries do not regard the rules of globalization as valid, but neither is there any other alternative open to them. "In a structural sense, the 9-11 terrorist attacks could perhaps be seen as an extreme reaction to globalization. The attacks were targeted against the world's US-led financial and military centers."

The process of globalization may appear to be temporarily stalled, but there can be no turning back. Nan Fang Shuo notes that the long-faltering process of globalization got a big boost on November 10 when mainland China's accession to the World Trade Organization (WTO) was approved: "When mainland China joined the WTO, it meant that they had officially begun to align themselves with the global economy. With factories there producing for companies from around the world, and with the tremendous potential of their emerging markets, mainland China is sure to have a huge impact upon the global economy.

Short-term losses, long-term gains

Joining the WTO means that we've hopped on board the globalization bandwagon. What changes will it bring to Taiwan?

On November 11, amidst cheers and congratulations in the government, Taiwan finally succeeded in joining the WTO, a goal it had been pursuing for 11 years. On that same day, some 2000 laborers took to the streets of Taipei for their annual "Autumn Fight" protest. The focus of this year's march was the pain of unemployment. Demanding nine measures to reduce joblessness, the marchers called for Taiwan and mainland China to sign an employment security treaty. They also urged the central government to provide long-term jobs for the unemployed, and demanded assurance that: (1) labor and health insurance for unemployed laborers would not be discontinued; (2) children of the unemployed would be able to receive schooling; and (3) retirement pensions and severance pay would not be cut.

The Council for Economic Planning and Development has predicted, however, that Taiwan's admission to the WTO will put some 20,000 persons out of work during the first year due to the need for industrial restructuring, causing a 0.22% uptick in the unemployment rate. An increasingly broad range of people will be feeling the pain, too; in addition to blue-collar occupations, highly educated white-collar workers will also take a hit. Nevertheless, Taiwan's manufacturers, trading firms, and consumers also stand to gain considerably from our admission to the WTO. Looking at the bigger picture, it appears that the advantages will outweigh the disadvantages, with losses occurring over the short term and gains over the long term.

Globalization is a two-edged sword, but Taiwan has no choice but to embrace it wholeheartedly. Our importance to the global economy will grow after we have joined the WTO. We must calmly accept the challenges of membership, and work hard to achieved enhanced competitiveness and adaptability.

Says Hsieh Chin-ho: "Once a country has joined the WTO, it must compete on an equal basis with everyone else. A 50-kilo guy has to go head-to-head with somebody weighing 100 kilos. It's tough!" Hsieh adds, however, that this is where the world is headed, so we'll just have to buckle down and prepare to meet the challenge.

Light at the end of the tunnel

With the global economy in a slump, many observers warn that we must be prepared to weather some hard times.

Continues Hsieh: "For the past 20 years, a lot of people have spent all their waking hours thinking about ways to make money. Many made a killing on land in the 1980s, then the electronics industry created incredible wealth in the 90s, but now we should be trying to conserve what we've got. If you don't lose, you've gained." Hsieh advises people now to reduce their debt and build up a strong cash position.

"Apart from that," says Hsieh, "you probably shouldn't have unrealistically rosy expectations for the future. If someone tells you about an opportunity to invest in an unlisted stock or a piece of property, you'd better think real hard before throwing your money around because you may not be able to get your cash back out for the next ten years. Don't take on more risk than you can handle. The most important thing is to keep financially solid at this point."

But amidst the tide of pessimism, some observers nevertheless see reason for optimism, and argue that disasters often provide just the fillip needed for economic recovery.

Says Wu Hui-lin, a researcher at the Chung-Hua Institution for Economic Research: "That idea might sound like sophistry, if not downright cruel, but it is well grounded in theory and has been borne out plenty of times in actual practice. When war unfortunately breaks out, it brings lots of casualties and destroys lots of property, but great destruction and great construction often go hand in hand." Wu feels that optimism is in order, for history has shown that war is the single most effective weapon for ending an economic depression. MIT economics professor Paul Krugman has noted, for example, that World War II ended the Great Depression of the 1930s.

A Mr. Hsu, well versed in the principles of the Book of Changes and the owner for the past ten years of a factory in Shantou, Guangdong Province, happened to be back in Taiwan when Typhoon Nari triggered massive flooding in Taipei on September 17. Says Hsu: "Typhoon Nari was a shot in the arm for Taiwan. It spurred a lot of spending in some economic sectors!"

Some say that one of Taiwan's great frustrations is that, as a member of the international community, it cannot influence the world, yet it is unable to insulate itself from external influence. This holds equally true for each of us as individuals. Since our uncertainties originate elsewhere, and have become a permanent feature of our lives, why not just relax, go with the flow, learn to keep an even keel in troubled waters, and seek life's simple pleasures wherever they may present themselves?