The Taiwan Democracy and Security Project at Stanford University is hosting a presentation today by Gary Hamilton, professor emeritus of sociology at the University of Washington. Prof. Hamilton will speak about his new book from Stanford University Press, Making Money: How Taiwanese Industrialists Embraced the Global Economy. 

The talk is free and open to the public. Additional details can be found at the official event page. 

Abstract
Making Money: How Taiwanese Industrialists Embraced the Global Economy is a record of a thirty-year research project that Gary G. Hamilton and Kao Cheng-shu began in 1987.  A distinguished sociologist and university administrator in Taiwan, Kao and his research team (which included Prof. Hamilton during his frequent visits to Taiwan) interviewed over 800 owners and managers of Taiwanese firms in Taiwan, China, and Vietnam.  Some were re-interviewed over ten times during this period.  The length of this project allows them a vantage point to challenge the conventional interpretations of Asian industrialization and to present a new interpretation of the global economy that features an enduring alliance between, on the one hand, American and European retailers and merchandisers and, on the other hand, Asian contract manufacturers, with Taiwanese industrialists becoming the most prominent contract manufacturers in the past forty years.

Bio
Gary G. Hamilton is a Professor Emeritus of International Studies and Sociology at the University of Washington.  He specializes in historical/comparative sociology, economic sociology, with a special emphasis on Asian societies. He is an author of numerous articles and books, including most recently Emergent Economies, Divergent Paths, Economic Organization and International Trade in South Korea and Taiwan (with Robert Feenstra) (Cambridge University Press, 2006), Commerce and Capitalism in Chinese Societies (London: Routledge, 2006), The Market Makers: How Retailers Are Changing the Global Economy (co-editor and contributor, Oxford University Press, 2011; paperback 2012), and Making Money: How Taiwanese Industrialists Embraced the Global Economy (with Kao Cheng-shu, Stanford University Press, 2018).

On October 17, the Taiwan Democracy Project at Stanford University will host our first event of the fall quarter, a talk by James Lee of Princeton University. The talk is co-sponsored with the U.S.-Asia Security Initiative in the Walter H. Shorenstein Asia-Pacific Research Center at Stanford. Mr. Lee's talk will draw from his dissertation research, which examines the role of the United States in the emergence of the "developmental state" in Taiwan--the interlocking set of state and regime institutions that oversaw the island's transformative economic growth from the 1960s through the 1980s. 

The title of his talk is "U.S.-China Rivalry and the Origins of Taiwan's Developmental State." The event is free and open to the public; details on the talk and speaker are below.

​Tsai Ing-wen and the DPP are headed for a historic victory in Saturday’s elections, and the battle has already begun to define the narrative about what that means. One fairly common refrain is that this likely outcome will presage a fundamental realignment of the party system around issues beyond the blue-green divide over cross-Strait relations.
 
I’m skeptical that we are about to see this kind of realigning election, despite the attention given to the campaigns of the so-called “Third Force” parties. I’m also skeptical that this result will be the death knell for the KMT as a political party capable of winning elections. The KMT's coming defeat clearly reflects deep unhappiness with Ma Ying-jeou and the KMT’s rule over the last eight years, intensified by a spectacularly ill-timed economic downturn over the last few months (at least if you are a KMT member!) But an unpopular leader, toxic party brand, and disillusioned supporters are not fatal to major party survival, as the DPP showed after its 2008 electoral thrashing. So while a KMT recovery is not assured, and will at a minimum require some major leadership shakeups, we shouldn't expect the party simply to fade away, and for all those pan-blue supporters (still at least 30 percent of the electorate) to suddenly become fans of the DPP or one of the new parties.

Of course, I could be totally wrong--I'm just some guy on the internet, after all. But either way, we'll know a lot more soon: elections have a nice way of splashing everybody with a cold dose of reality. The results of the election this Saturday will give us the most concrete evidence we'll have to evaluate these competing narratives. So, in the interest of intellectual honesty, let me lay out my own expectations about what will happen, and what it means. Beyond who wins and loses, here's what I'll be watching most closely to see where Taiwanese politics is headed.

Some of the sharper commentary on the upcoming election has noted how livelihood issues, such as a growing wealth gap, soaring housing prices, and stubbornly high youth unemployment rate, are a big part of the reason public opinion has swung so dramatically against the KMT over the last two years, rather than cross-Strait relations. If I can hammer one thing home to outside observers about this election, it's that domestic issues, rather than cross-Strait relations, are what will decide this coming election. The outcome is not really a referendum on Taiwan's relationship with China, or an indication of a sudden surge in Taiwanese nationalism, but instead reflects deep concerns with "bread and butter" issues.  

So what do I mean by bread and butter issues? Well, the commentary linked above is focused mostly on the concerns about income and wealth distribution that have been salient for a while and have gotten a lot of press in recent years. But in addition, there's something much more recent and fundamental working against the KMT right now: the economy is just not doing very well. Here's a sample of the (English-language) economic news reports coming out of Taiwan over the last few months: 

Taiwan is in a recession, and it's China's fault -- Forbes (December 1)
Weaker growth exposes downsides of China ties -- The Economist (November 14)
Industrial production falls 15% -- Taipei Times (November 20)
Unpaid leave hits 3-year high -- Taipei Times (November 17)
Taiwan nears recession, exports to China slump -- (October 31)
Taiwan exports in decline -- Voice of America (October 16)
GDP growth forecast cut to below 1% -- FocusTaiwan (October 15)
Tax revenue falls by 14.3% over previous year -- Taipei Times (October 13)
Rising pessimism about economy  -- China Post (October 12)
TISR poll: 81% believe economy in bad shape -- via Solidarity.tw (September 14)
TAIEX suffers worst-ever one-day drop -- Taipei Times (August 25)

What all that reporting is trying to say can be summed up succinctly by the chart at the top of this page: Taiwan's economy is now rather suddenly headed into a recession, if it's not already in one. And that makes this a terrible moment to be running as an incumbent party. 

Economic Voting in Democracies. The theory of economic voting behind this claim is that economic conditions powerfully shape electoral outcomes in democracies everywhere. As Michael Lewis-Beck puts it in a great review article, "good times keep parties in office, bad times cast them out."

I should note that the evidence for this effect and its size varies a lot across countries, and the sometimes puzzling variation in the size of economic effects remains an open area of inquiry in political science. 

For instance, when the government is supported by a coalition of several parties, it's harder for voters to figure out which members deserve the blame for bad performance. The lack of a credible alternative to the incumbent--an opposition party or candidate who appears likely to do better--also leads to a weaker effect. (The opposition to the LDP in Japan has long struggled with a credibility problem, for instance.) And sometimes it's clear to voters that governments don't have much influence at all over bad economic outcomes because of global factors beyond their control, so they are less likely to punish incumbents at the ballot box.

In addition, voters turn out to have really short memories (i.e. they're "myopic," in the jargon of the discipline): the performance of the economy over the last six months matters a great deal more than the performance over a government's whole term in office. This is probably why the Conservatives in Britain, for instance, recently won re-election after presiding over an austerity-induced downturn during much of their first term.

Nevertheless, the basic claim, that economic downturns motivate voters to vote out incumbent governments when they can, is quite robust. In the United States, in fact, the state of the economy in the few months before a presidential election appears to be the single most important factor in who wins, more than the candidates themselves, their parties' policy platforms, or their campaigns.  

Bad Economy = Bad Polls. At about the same point that the economy started to sour over the last six months, Taiwan's presidential election turned from a competitive race into a rout. As the Taiwan Indicators Survey Research survey reproduced above shows, at the beginning of June, one could at least imagine a combined pan-blue effort that would give Tsai Ing-wen a real race: support for Hung Hsiu-chu and James Soong together was at 44.8%, above Tsai's 37.1%. But then what happened? Support for both cratered.

Part of that was Hung's own shortcomings as a candidate, but once she was replaced by Eric Chu, the KMT should have seen a real bounce. It hasn't. Chu is now down around 20% in the polls. That's likely to go up somewhat as pan-blue voters come back to the fold, and there are other polls showing him getting up to 30%. But even if pan-blue voters coordinated on a single candidate, the combined Chu-Soong support is nowhere near enough to make this a race anymore. It's all but over now. 

Some of this decline in the polls is undoubtedly self-inflicted--the fiasco with Hung and the presence of James Soong in a spoiler's role yet again could probably have been avoided. But even if Eric Chu had accepted the nomination back in March, and Soong hadn't joined the race, I still don't think this would be much of a contest right now. The reason is those economic figures: Chu is the standard-bearer for a party that in voters' eyes is squarely to blame for this economic downturn, and they're going to have a chance in less than three weeks to weigh in.

​Tsai Ing-wen is not Ma Ying-jeou or the KMT, and in these circumstances that looks like all she needs to win a comfortable victory. Cross-Strait policy, debate performances, campaign promises, VP selections--none of it is going to matter. In this election, it really is about the economy.

I had the privilege yesterday of joining a two-panel roundtable session at George Washington University's Sigur Center for Asian Studies on the probable outcome and impacts of the upcoming Taiwan elections. Thanks to all who came to the event and asked great questions, and to Bruce Dickson for the invitation to participate.

I've gotten a couple requests for the slides from my presentation; they're linked here.

​The short version of the talk: reform of the Legislative Yuan should be at the top of the priority list for the next president. Outside of Taiwan, the potential twists and turns in cross-Strait relations dominate the conversation and tend to overshadow everything else happening in the domestic arena. But there are a lot of problems facing Taiwan right now that don't directly involve cross-Strait relations.

The incoming administration will face several daunting domestic policy challenges, including:

• a low tax base combined with a highly uneven distribution of the tax burden;
• widespread unhappiness with the Ma administration's China-first economic strategy, but no consensus about what to do instead, and long-standing opposition in the legislature to the kinds of domestic reforms required to enter the Trans-Pacific Partnership;
• a declining defense budget, now at 2% of GDP, and rising personnel costs from the faltering transition to an all-volunteer military force;
• a potential energy crisis driven by rising opposition to nuclear power without development of realistic alternatives. 

Whatever the next administration tries to do, it will face opposition from some corners of the legislature representing vested interests that would lose out under reforms. Under the Legislative Yuan Speaker Wang Jin-pyng, the LY's cross-party negotiation mechanism has in practice given any party caucus--even one with just three members--the ability to block most legislation. So the current system will prevent major changes on any of these issues unless Speaker Wang is replaced and the negotiation mechanism is weakened or abolished. 

If the DPP wins a majority in the legislature, it will have a golden opportunity to reform the party caucus system and make it easier to pass legislation with a simple majority vote. It's critical for their own political future, for Tsai Ing-wen's, and probably for Taiwan's, that they do.​

We're now four months away from the presidential and legislative elections in Taiwan, to be held on January 16th. At this point polls start to tell us something meaningful about how the election will turn out. To my eye, there are three things that stick out:

1. Taiwanese voters care most about the economy, and they overwhelmingly evaluate it as "bad."
A Taiwan Brain Trust poll that came out yesterday reports that about 64% of respondents named economic development as the primary issue in next year's elections--far outstripping government effectiveness (about 17%) and cross-Strait relations (only about 4.5%). 

Another poll from Taiwan Indicators Survey Research ll (TISR) that came out on Monday finds that an astounding 84% of respondents evaluated the overall state of the domestic economy as "bad" ("認為國內整體經濟狀況不好“); only 8% thought it was good. 

The headline numbers in both these polls focus on support for the three major candidates--Tsai Ing-wen, Hung Hsiu-chu, and Soong Chu-yu (aka James Soong). I think they're burying the lede. Economic conditions are a powerful determinant of election outcomes: in general, incumbents get the credit when people think the economic is doing well, and they get the blame when it is not--whether or not they actually have much control over economic outcomes at all. So the fact that most Taiwanese poll respondents are emphasizing the state of the economy, and that the large majority think it is bad, bodes very poorly for the KMT. (Note that this cannot just be Pan-Green supporters expressing discontent about the economy: this is 84% of all respondents. Dissatisfaction with the economy crosses party lines.) 

These results suggest that, like in the local elections in 2014, the KMT is going to be fighting a massive headwind. Even if they had a strong candidate (ahem, Chu Li-lun?) atop the ticket, I would expect them to lose with these numbers. With Hung Hsiu-chu as the nominee, and James Soong running yet another third-party campaign that's offering an alternative to Pan-Blue voters who don't like Hung, the presidential election already looks overdetermined. The KMT is going to lose, badly. And Tsai Ing-wen, by default, is going to win. 

At this point, though, I'd be very cautious about interpreting an impending DPP victory as anything other than a rejection of the KMT. There will inevitably be people in Taiwan and in Washington, DC who will frame this outcome as a repudiation of closer cross-Strait relations with the PRC, or an endorsement of Taiwanese independence. It's time to start beating the drum that the election is not about cross-Strait relations. It's not about independence or unification. It's not really even about a new "third force" of youth activism and social progressive politics. The 2016 election is about the economy. 
  

2. The KMT is really unpopular, but support for the DPP and Tsai Ing-wen is soft.
Dissatisfaction with the KMT is really high right now. Taiwan Brain Trust puts it at 71%, which is a significant improvement from December 2014, when the rate was 80%.

What is more surprising is that the DPP is still not very popular in absolute terms. Throughout 2015, the DPP has had higher negatives than positives in the Taiwan Brain Trust survey results. The most recent poll finds about 45% dissatisfied with the DPP, and 42% satisfied. That's actually a significant improvement as well; for polls in March, April, and June over half of respondents were dissatisfied with the DPP. The TISR results are more positive for both the DPP and KMT, probably because survey uses a "feelings thermometer" to rank the parties on a scale from 0 to 100: the DPP ranks slightly positively with a net score of 52.0, as compared to the KMT's 35.7. That's still not particularly strong given the circumstances. 

Tsai Ing-wen's polling support is also still short of 50%; TISR finds 43.6% of respondents intend to vote for her, which is a new high in recent months. Undecideds and those saying they won't vote combined are still 25% of the electorate. Taiwan Brain Trust puts it a bit higher, at 46.8%.

What this suggests to me, again, is that Tsai and the DPP are positioned to do well in 2016 mostly because they're not Ma Ying-jeou and the KMT. Given how widespread dissatisfaction with the economy is right now, they're going to win a lot of swing votes as the "lesser of two evils." 

3. The NPP might replace the TSU in the legislature.
The Taiwan Solidarity Union has three seats in the current LY. They're the deep green alternative to the DPP, and they've been struggling to hang on ever since the electoral system change in 2008 shut them out of the legislature. They need to pass 5% in the party list vote to get seats, which they did easily in 2012, winning 8.96%. They're currently polling at less than half that: they're at about 4.1% in the Taiwan Brain Trust poll. They're being outpolled now by the New Power Party (時代力量), at 6.8%, and James Soong's People First Party at 5.6%. 

There's a real possibility that the NPP takes a lot of votes from the TSU, passing the PR threshold while the TSU doesn't, and effectively replacing it on the deep green end of the political spectrum. It's notoriously difficult to poll support for small parties, so treat these as very rough estimates. The NPP is deliberately trying to appeal to young voters, who turn out at lower rates and are less predictable in their voting patterns than older generations. For another, the NPP is actually cooperating with the DPP in its district nominations--I'm not sure how this might affect the party list vote. 

(A third reason to be wary of the Taiwan Brain Trust numbers on the small parties: Hsu Yung-ming (徐永明), a professor at Soochow University, is both the polling director for the survey and now a legislative candidate for the NPP.)

There's a real danger here for the Pan-Green camp if their voters fail to coordinate in the party list vote: the Green Party and Social Democratic Party are running a joint list that may appeal to a lot of the same young, well-educated voters that the NPP is making a play for. They're currently polling at 1.8%, according to the Taiwan Brain Trust survey. It's not hard to imagine the NPP, Green-SDP, and TSU all pulling some Pan-Green support and each getting 3-4% of the PR list vote, leaving them all with no seats, while the PFP passes the threshold and wins several seats. If the district results end up closely split, the Pan-Green camp could even be denied a majority in the LY despite a significant advantage in the overall share of the vote. 

While I don't think it's particularly likely to happen, a Pan-Green win in the popular vote that leaves a Pan-Blue majority in control of the legislature would be a serious problem for Taiwan's democracy. So one thing I'll be paying close attention to in this election is how, or whether, this coordination problem is resolved in some way before the election.

On October 17-18, 2014, the Taiwan Democracy Project will put on our annual conference on Taiwan's democracy. This year's theme is the politics of polarization. The conference is free and open to the public; you are encouraged to register at the official event page, here. The formal announcement is below.

First, in the figure above I've broken out unemployment level by age cohort, focusing on the two key "youth cohorts" (I've left out the 16-19 category, which can be misleading given that many people are not actively looking for work at this age). It's striking how much higher youth unemployment is than overall unemployment, which by international standards is quite low at about 4%. By contrast, unemployment in the 20-24 year age cohort is more than triple that, at near 13%.  Equally interesting, and easier to miss, is that the gap between the young cohorts and the rest has also increased over the last 14 years: that difference was a factor of two in 2000, but a factor of over three in 2014. This figure gives us some sense of why the forceful opposition to the cross-Strait Services in Trade Agreement (CSSTA) included so many students: they've done proportionately worse over the last decade and more, even as the total labor unemployment rate has returned to a level near what it was a decade ago. 

Second, the figures above show GDP change in several economies to which Taiwan's is often compared.  The presentation is a little messier than I'd like, but one can still get a good sense of how Taiwan's economy has performed in relative terms over the last 30 years.  

What's especially striking to me is the recent comparison with South Korea. The narrative of the Ma campaign in 2008 was that Taiwan's economy had drastically underperformed and was losing ground. By contrast, the data above show that, at least using GDP growth rates, Taiwan's growth was higher than Korea's for five consecutive years, from 2003-2007. (The economic shock that hit all of East Asia in 2008-09 originated in the United States, so it's hardly fair to blame either Chen Shui-bian or Ma Ying-jeou for the deep recession that followed.) But that generally positive story about the Chen years (2000-2008) gets turned into this (from the KMT's party website):

That is, the KMT is attempting to lump the entire eight years of the DPP presidency together, in which the gap between Taiwan and South Korea narrowed, and contrast them with the increasing rates of the subsequent Ma administration. At best, that's an incomplete picture, as the data in the first two tables demonstrate. While the gap narrowed, it did so during Chen's first term, not his second. And the increase in the Taiwan-Korea gap during the Ma years is due entirely to a giant spike in 2010, when Taiwan's economy rebounded much faster from the recession than did Korea's.  

One other point: this is a pretty rudimentary comparison. Average per-capita income growth can also be misleading, in that rapid income growth among a small elite can move the whole average up. (In fact, that is what appears to have happened: as this article notes, average wages for salaried workers are about the same as they were in 1998, adjusted for inflation.) It would be nice to see median salary, and even better, a comparison of income inequality and its cousin, wealth inequality, measured various ways over time. 

The first of these, income inequality, is shown in the figures below.

The last two figures show income inequality measured two different ways: as a Gini coefficient, and as a ratio of the top 1/5 to bottom 1/5 of all households. The pattern in both graphs is similar: Taiwan's income inequality was on a pretty steady upward trajectory from 1980 until 2000, then it leveled off.  (The spikes are during the recessions of 2001 and 2008-9, when unemployment jumped, driving income inequality higher during these periods.)  

This picture is surprising given the narrative in the media about rapidly increasing inequality in Taiwan--so surprising I'm not entirely sure what's going on here. I suspect using income instead of wealth is painting a much better picture of inequality than actually exists on the ground. For one, capital gains and real estate gains are not treated like ordinary income for tax purposes in Taiwan--if a household's wealth gains come mostly from these sources, then they are potentially classified as low-income! For another, the use of quintiles in the comparison above, rather than five percent margins (as reported in this article), or even something smaller like comparing gains to the top 1% or top 0.1%, would probably paint a starker contrast.  At any rate, worth investigating further, given how prominent this issue is becoming in public discourse in Taiwan.  Grist for a future post...