Pearls and Irritations

In Sleepwalk to War (Quarterly Essay Issue 86), Hugh White explores the potential responses of America and Australia to the growing strength of China. The latest Quarterly Essay (Issue 87) contains nine comments on Hugh White’s essay.  Like White, all the commentators discuss the issues from the viewpoint of Australia and America.

Might we get helpful insights if we look at some of the issues raised by White from a Chinese perspective?

Potential flashpoints

From an Australian viewpoint, White judges that the two principal potential flashpoints centre on Taiwan and the South China Sea. These would be high on China’s list, but another is obvious: the huge industrial complex in China’s north-east provinces. China might reasonably expect that any military intervention by America in Taiwan might quickly escalate to an attack designed to neuter this industrial heartland of China.

White does not discuss China’s interest in the region encompassing the Stans of central Asia. He cuts short any discussion by asserting that America would only be provoked to military intervention here if China gained hegemony over the whole of Eurasia and he dismisses that possibility.

Nevertheless, in discussing the Ukraine, White argues that Russia’s current military aggressiveness ‘reflects the failure of those that designed and built (the post Cold War) order in Europe to find a place for Russia that it was prepared to accept’ (Issue 86, p49). White implies that this needs to be addressed by Europe and America. One might think, however, that any attempt to address this by permitting Russia to regard its sphere of exclusive influence to include some of central Asia would now raise tension with China.

It is easy to think of China and Russia as ‘forever friends’, but that friendship may be tested should China’s influence in the Stans grow in the decade ahead. They have different priorities, different abilities to deliver and different time scales. The point which stands out is that the Australian public is remarkably poorly informed about this part of the world.

Taiwan: From independence to dependence

White is crystal clear on Taiwan: it is Chinese territory and in due course will be re-absorbed into mainland China. He goes no further. He does not explore what re-absorption may mean for Taiwan. He does not address the economy of Taiwan or issues relating to the nature of viable democracy in Taiwan. To address these issues, it may be instructive to compare Taiwan’s recent economic trajectory with that of Singapore. This may permit us the see more clearly the options open to Taiwan. And if we understand why Singaporeans have accepted what to us seem to be significant democratic restraints, we may better understand the dilemma confronting democracy in Taiwan.

Consider Taiwan’s economy. Like Korea, Taiwan was a Japanese colony for some fifty years until the end of the Pacific War. They both benefited. In addition to introducing advanced Japanese agricultural techniques, the Japanese placed a high priority on technical education and this subsequently proved important to both.

In the late 40s, with the victory of Mao, the defeated mainland Nationalist government retreated to Taiwan. Massive disruption followed and Taiwan struggled to find a way forward.

In the 60s, Taiwan watched developments in South Korea closely. South Korea was the first country to get a signal that Japan was losing comparative advantage in toys, garments, footwear and low-end shipbuilding: small Japanese firms that produced these products began to move to South Korea to access cheaper labour.

In response, the South Korean government went for both the big and the small fish. In respect of the big fish, the government provided substantial support for the development of heavy industry. Taiwan started to emulate South Korea but lacked the confidence to go as large-scale. By 1980, Taiwan had ceded heavy industry to South Korea.

With respect to the small fish, both established free-trade zones in the late 1960s and this proved to be the turning point for Taiwan. At that time, Taiwan had to restrict spending on imports severely for its export earnings were meagre. Firms, foreign or local, could set up in the zones, import what they needed duty free, but had to export all of their output.

Japanese toy and clothing manufacturers responded. But so did some small American firms in the then nascent electronic industry. They were all chasing cheap labour. The American firms got more than they expected: part of the Taiwanese labour force had a sound technical education. Before long, Taiwanese individuals had sufficiently mastered the technology to begin to set up their own businesses. They grew and the economy progressively became export-oriented.

Then in the 1980s, Taiwan got a major kick-along. China had opened itself to the world. Taiwanese-owned firms responded quickly. Mainland labour was not only cheap, a significant segment had a very good technical education. It was a win-win situation.

By 2000, Taiwan moved from being a country almost totally independent of the mainland to one quite highly integrated with it. Taiwan is now an important entrepot centre for China, handling the export of a wide range of Chinese produce and arranging to bring from America and elsewhere a wide range of products required by the provinces proximate to Taiwan. The links are complex. Severing them would inevitably lead to a significant fall in Taiwan’s standard of living. Its ability to hold a position of leadership in wafer fabrication and in other technologically innovative areas would be at risk. Likewise, the considerable knowledge that it has accumulated about the world market for technology-intensive products would be rendered much less valuable overnight.

Singapore: From dependence to independence

Consider now the development path of Singapore. Until the 1970s, Singapore was highly dependent on its region, particularly peninsular Malaysia and Sumatra. It was the entrepot of the region. When the region boomed, Singapore boomed. And vice-versa.

Singapore was a real world example of the libertarian economics of Friedrich Hayek and the Austrian School. No trade barriers, minimal government intervention, a monetary system that increased supply in booms and cut it back in slumps, and a migration system that brought in people (mainly from southern China) in booms and allowed them to return in slumps.

Yet an individual living in Singapore in 1920 would have found Singapore in 1960 not that much different. One difference was that there was extensive unemployment and underemployment. Mao’s ascension closed the Chinese border to returning migrants from Singapore just as a post-war baby boom unleashed a significant increase in its work-force at young ages.

Singapore gained a measure of independence from the UK in the mid-1950s and the Peoples Action Party (PAP), led by Lee Kuan Yew, gained power in 1959. Lee’s government sought to develop manufacturing industry for the regional market behind trade barriers, a move that was pursued more vigorously following the formation of Malaysia in 1963. That failed, for peninsular Malaysia had the same idea. Singapore left the Malaysia federation in 1965. It was now completely independent.

Finding jobs was the top priority. The government offered tax breaks to attract firms, mainly from Hong Kong, that produced labour-intensive products that did not require much skill (garments, footwear, simple electrical goods). A condition was that all output be exported. That failed. The firms came, took the tax breaks but soon after moved to much cheaper labour sites in Thailand and elsewhere.

Singapore’s big breakthrough came in the early 70s when it began to focus on attracting globally successful American, Japanese and West European firms. It provided incentives to those firms to locate highly labour-intensive activities that were part of their production process in Singapore.

The government signalled that it was prepared to meet the specific requirements of these firms; it was determined to anchor them in Singapore. The firms pointed out the Singapore’s Paya Lebor airport was outdated. Result: Changi airport. The port needed modernisation. Result: the fully mechanised container Port of Singapore. The multinational firms that came stayed and progressively upgraded the activities they did in Singapore, and more came. To provide the increasingly skilled labour these firms needed, Singapore prioritised polytech education. Wages rose and Singapore recorded high growth year in, year out.

By the 1980s, the government was taking the lead in ensuring that Singapore was a model global city. The government increasingly appreciated the enormous value that flows from being amongst the most sought after global locations.

In 50 years, Singapore moved itself from heavy dependence on its geographical region to much more modest dependence. Taiwan, on the other hand, cannot reduce its dependence on mainland China without sacrificing its very modus operandi, its growth and its living standard. Taiwan’s economic trajectory reinforces White’s point that Taiwan and China are now inseparable. The analysis adds the dimension that if an attempt were made to isolate it, it would suffer enormously. And it indicates that Singapore’s path is not open to Taiwan.

Taiwan: The democracy matter

By and large, Australians hold that China is hellbent on eliminating democracy and democratic institutions. We would point to the recent experience of Hong Kong, inter alia.

There are as many forms of democracy as there are democratic countries in the world. Our democracy differs from that of America. The Scandinavian countries offer another alternative. Singapore yet another.

Australians would by and large be uncomfortable with democracy as practised in Singapore. Many Singaporeans may well feel deprived of voice. And yet, that voice has not registered as it did in Hong Kong. Why?

Over the years, most of the PAP politicians were hand-picked and of high calibre. In Parliament, they built respect: their abiding interest was in strengthening the position of Singapore as one of the world’s leading global cities. The same holds for public servants. One is impressed by the quality of their forward thinking as shown in their speeches and annual reports.

At the same time, the government has addressed the problems rife in Singapore in the 1960s and earlier. Corruption. Ethnic animosity. Traffic congestion. Pollution. Jobs. Housing. The environment: parks, trees, the river, recreational facilities. Education. Singaporeans are well aware that their standard of living has risen in most relevant dimensions significantly since 1970 and have been prepared to accept some restrictions on democratic rights in return. They also acknowledge that being citizens of a global city carries obligations.

Singapore has not neglected its neighbours. It has worked constructively with Indonesia to develop Batam and other proximate islands. The numerous steps taken to reduce racial tension since 1960 may have served to lower ethnic tension in Malaysia and Indonesia.

It is just possible that Singapore’s experience may offer pointers for Hong Kong and Taiwan.

Maybe, just maybe, China may prefer both Hong Kong and Taiwan continue to be semi-autonomous and continue to be democracies, but develop democracy in ways that respects the overriding challenge that China faces, that of improving the lot of 1,400 million people, not 25 million as in Taiwan. That will involve sacrifices, as in Singapore, but if geography severely constrains options, as it does for both Hong Kong and Taiwan, sacrifices may be worthwhile. Beijing’s interventions in Hong Kong seem to be in that mould: the flame of democracy has been lowered but not quelled. Better to take the initiatives oneself, and Taiwan is no doubt conscious of this. As Singapore realised, considering the sensitivities of your geographic region is a very valuable asset. Australia could help that process by being more aware of the different forms democracy can assume and appreciate that some sacrifices may be needed to sustain the core of democracy.

On the other hand, if Taiwan veers in the direction of American style democracy, the incompatibility with the task facing mainland China will likely lead to the outcome White predicts: re-absorption into China. If America and its allies respond, Taiwan’s future is indeed bleak: it may suffer the predation of war simply to find something it surely knows: geography is its destiny. Perhaps we ought not cheer if Taiwan’s democracy veers that way.