Unpacking U.S. Aid in Taiwan: Developmental Perspectives

Written by  Wednesday, 25 July 2018 14:09
Unpacking U.S. Aid in Taiwan: Developmental Perspectives flickr/user Photo Phiend

     For development scholars, few postwar success stories are more fascinating than that of the four Asian Tigers in the twentieth century. Due to its political isolation, many authors have attributed Taiwan’s miraculous economic growth to long-term stimulus from U.S. aid packages in the post-WWII period. International relations (IR) scholars have historically neglected development studies, preferring to focus on the state-centric power dynamics of the overall international system rather than developing nations of the global “periphery.” IR theorists often view the global system in terms of national interest, balance of power, material capacity, and institutionalism; these levels of analysis frame cooperation (e.g. development assistance) as either a self-interested means to bolster state security or a selfless effort to affect positive change. Beginning in the postwar period, classic development theories emerged that sought to explain how underdeveloped nations might join the industrialized world, a question that contemporary scholars continue to examine today. This piece examines the mechanisms underlying Taiwanese development from a variety of theoretical perspectives developed in the second half of the twentieth century.

 

     Modernization theory suggests any country can achieve highly developed status as long as it follows in the footsteps of the industrialized North, and has been characterized as a classic American approach to development. Key to this belief is the need for a “big push” of foreign support to drive development and capital accumulation. In terms of U.S. aid to Taiwan, this “push” was the outpouring of U.S. aid that stabilized the Taiwanese economy and supported commodity import programs (CIPs) starting in the 1950s. During this period, U.S. aid financed Taiwanese budget deficits (both internal and external) and limited military Taiwanese spending. At the same time, strategic CIPs provided necessities like food and clothing for the Taiwanese people, as well as technology and infrastructure vital to modernizing the agricultural and industrial sectors. These aid activities allowed Taiwan to build up domestic savings and pour government efforts into stabilizing the economy through import substitution industrialization (ISI) programs, and, later, export-oriented growth strategies.

 

     When painted in broad strokes, the postwar history of Taiwan presents a strong case for modernization theory – massive foreign development assistance cushioned the island from economic shocks and reduced the need for military spending, allowing Taiwan to flourish in the second half of the twentieth century. Considering Taiwan’s political and financial isolation, however, as well as the exceptional ability of the U.S. to influence Taiwanese policy, it is unsurprising that Taiwan developed (at least superficially) according to the U.S.-based growth models.

 

     Other classic development theories do not fit Taiwan so well. Neoclassical economics underlying what has been dubbed “the Washington Consensus” on development deemphasize the role of the state, instead stressing the importance of macroeconomic strength and trade liberalization. Most of all, neoclassical scholars denounce ISI for limiting developing countries from exporting in the global market. Neoclassical theory, which has faced criticism for ignoring the diversity of developing countries and promoting a “one-size-fits-all” approach to development, is ill suited to the case of Taiwan because it fails to account for the centrality of dual-track development in Taiwanese growth. The reduction of government heralded by neoclassical development scholars and policymakers overlooks the importance of a strong state to Taiwan’s initial ISI strategy, which depended on state protection of infant industries in order to build up production capacity.

 

     Even as one of the largest capitalist economies in Asia, Taiwan relies heavily on state-owned enterprises and planning today. Modern developmental statism responds to the disregard of the state by neoclassical scholars, arguing that government promotion of social structures and political institutions (e.g. rule of law or civil liberties) ultimately enables economic growth. The concept of the “developmental state” has emerged from this theoretical background, describing the state-led macroeconomic growth of select countries in East Asia (of which Taiwan is a key example). As the only nation willing to offer resources to the KMT for the move to Taiwan, the U.S. clearly held significant power over Taiwanese development; the U.S. leveraged that unique political influence to encourage state cultivation of capitalists in key Taiwanese industries. In this way, the expanding market system (itself supported by state investment) supplied the capital needed to stimulate a “productive boom” and more effective ISI. The simultaneity of state-led and market-led advancement, however, was key to Taiwanese development. Without the economic safety net of state-led planning, infant industries may have failed; without an expanding capitalist class, the transition to a more market-based economy might have overwhelmed Taiwanese firms.

 

     Contemporary neoinstitutionalism also responds to a major gap in development literature by exploring the effect of non-market institutions, such as regime type, on development. Studies have shown that repressive or authoritarian regimes sometimes precede successful industrialized economies – this was certainly the case for Taiwan, which spent almost four decades under martial law after World War II. The ambiguous effects of democratization aside, post-decolonization land reform in Taiwan (carried out with U.S. backing) and the strengthening of property rights laid the foundation for economic growth. Land reform in Taiwan (overseen by the Sino-American Joint Commission on Rural Reconstruction) involved resale of Japanese land, rent reductions, and redistribution of land, making economic development more equitable. U.S. aid thus worked towards reducing the power of the previous land-owning colonial Japanese, making space for the eventual rise of a capitalist-led private sector in Taiwan.

 

     The legacy of Western aid and colonialism in developing countries is a continual source of controversy in development studies. Dependencia, another of the classic development approaches of the postwar period, argues that Western imperialism created a reifying system of unequal exchange between the “metropolitan industrialized center” and developing nations on the global periphery. Interestingly, fear of deteriorating terms of trade contributed to Taiwanese reliance on ISI, but it was export-led participation in the global economic system that ultimately spurred Taiwan’s intense economic growth. Dissociating Taiwan from Western/Northern economic markets (as advised by dependencia literature) would have been economically and politically disastrous. Without U.S. financial and political aid, the newly transplanted R.O.C. would have faced even greater difficulties managing internal insurrection, food shortages, inflation, and political isolation. U.S. aid arrived with political strings attached, almost forcibly creating a free market system and strategically positioned ally in the region; dependencia scholars question whether or not U.S. aid to Taiwan was just another way to entrench Northern hegemony in Asia.

 

     Whereas contemporary statism and neoinstitutionalism seek out structural elements to explain development, feminism and postcolonialism explore downsides of development activity. A feminist interpretation of Taiwanese development might contrast its flourishing gender equality with current controversies over marriage equality and indigenous people’s rights. Kevin Gray (2014) offers an interesting postcolonial case comparison of Taiwanese, South Korean, and Vietnamese development. He identifies differences in Japanese and French imperialism responsible for the varying developmental success (or lack thereof) of their former colonies, particularly Japanese-led land reform and infrastructural development. The Japanese empire also held a fundamentally different view of colonialism than, for example, the British did. Japanese colonies like Taiwan were in Japan’s East Asian backyard, and were thought of as a defense against growing Western influence in the region. This motivated the Japanese government to invest in the production capacity of its colonies (especially Taiwan and South Korea) instead of taking a purely extractive approach to colonialism, as Western powers did. Unfortunately, postcolonial studies are inherently retrospective and historically situated – obviously, it would be impossible to implant potentially beneficial aspects of colonial legacies into other developing countries. While feminist and postcolonial approaches fail to distinguish mechanisms triggering Taiwanese growth that are replicable for other developing countries, they do provide a basis for addressing ongoing social issues in Taiwan today.

 

     Taiwanese postwar development was politically and economically unique: Japanese colonialism shaped preexisting industrial and agricultural systems and at the same time, the reliance of the KMT government on aid money made it unusually susceptible to U.S. political influence. In this context, it seems obvious that modernization theory, the quintessential American approach to development, would account for Taiwanese development fairly well. A more nuanced understanding of Taiwanese growth, however, involves neoclassical economics and contemporary statism, as well as an eye to ongoing social inequality issues resulting from colonialism and postwar development. Furthermore, development scholars have yet to tackle some of Taiwan’s more imminent political concerns. Now that Taiwan is economically well-developed, how should it deal with “the China problem”? Arguably, the successful economic development of Taiwan (along with its democratization) has tied it closely to the U.S. and the political protection that relationship entails. Perhaps the next question for development scholars regarding southeast Asia is not how to pursue further economic growth in the region, but rather how to establish political security. Of the Asian Tigers, at least Taiwan and Hong Kong (and arguably South Korea) face significant external threats to political autonomy that will inevitably affect quality of life for citizens and their further economic development.

 

References

Honke, Jana and Markus Lederer, “Development and International Relations.” Handbook of

International Relations, (2012): 775-800.

 

Kevin Gray, “U.S. Aid and Uneven Development in East Asia.” ANNALS, AAPSS, 656

(November 2014): 41-58.

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