Amid the economic recession, the government should promote domestic consumption to revive the local economy rather than using a strategy that won’t work, Chen Po-chih (陳博志), chairman of Taiwan Thinktank, said in a recent interview.
Chen said the economic recession was a global phenomenon, and countries around the world have been trying to expand domestic demand in the face of shrinking exports. This does not mean, however, that as long as money is spent the nation’s economy will grow, he said.
Chen served as the head of the Council for Economic Planning and Development from May 2000 to January 2002 in the administration of former President Chen Shui-bian (陳水扁).
BLIND SPOT
He said there was a huge blind spot in the Chinese Nationalist Party (KMT) government’s policy to stimulate the economy. Taking the planned consumer vouchers as an example, the vouchers could be used at large food outlets where many products are imported, but could not initially be used at food stands that sell domestic products, which was an illogical approach to economic stimulus, Chen said.
EXAMPLE
Another example is the government’s plan to rescue the auto industry by providing tax breaks for consumers who replace their old cars with new models.
“But the question is, if consumers replaced their small-sized domestic cars with imported high-emission cars, how would this kind of consumption benefit the nation’s economy?” Chen asked.
Cars with high emissions are usually imported, he said, but consumers who buy these cars will be able to receive more tax reductions, Chen said, criticizing the government of President Ma Ying-jeou (馬英九) for creating unhelpful incentives.
Although Taiwan is a member of the WTO and cannot levy different taxes on domestic and imported products, Chen said the government could encourage the public to buy domestic products, or prioritize the needs of the domestic industry.
BASIC ECONOMICS
Chen said this was basic economic theory, as imported products do not provide a positive contribution to GDP and only help improve the export performance of other countries.
Furthermore, as the government promised to bail out large enterprises with a lot of debt, Chen disagreed with this strategy, saying the government should only save troubled banks which are owed money.
To help businesses, Chen said the government’s assistance needs to vary depending on the type of industry, with the premise that the companies being rescued are competitive with sound operations, and are only encountering short-term cash-flow problems.
“Disappointingly, the government appears to have moved in the wrong direction by continuously mapping out the wrong policies,” Chen said.
Taiwan Thinktank is an independent, nonprofit public policy research organization based in Taipei.
TRANSLATED BY JERRY LIN
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