Chapter V: Root Causes of the Studied Event
5.3 Root Cause 2: Overinvestment in Physical Capital by Technology Industries
GDP is commonly used as the indicator for economic development. Many studies found that Taiwan’s GDP has increased but not for the share of the compensation to employees. This is revealed by the existing statistics. In 2000, Taiwan’s ratio of compensation of employees to GDP is 48.89%; and, in 2014, the ratio is 45.22%. This difference of 3.67% caught people to believe that the employers do not distribute profit evenly. Whereas, our investigation on the distribution found that the operating surplus that nets the other three components of GDP does not change over the period of 2000-14. The ratio of operating surplus to GDP in 2000 is 35.35 and 35.69% in 2014. This suggests that the operating surplus stay the same proportion of the entire economic pie of GDP. However, there is a drastic change in the distribution of GDP. We found that over the period, the ratio of the consumption of fixed capital to GDP escalated from 12.41% in 2000 to 16.53% in 2014, increasing 4.12% over the 14 years; and, the ratio even reached to its highest to 17.91% in 2009. This finding explains where the profit goes.
From the perspective of critical realism, we found that the tendency of the labor-saving technology is important for the structure of global capitalism to influence the way capitalists act. Due to the fact that the global capitalism structure provides an environment that advocate free trade, laisse-faire, and free competition, the capitalists will naturally exercise their power to apply labor-saving technology to survive in the market. Taiwan’s
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manufacturing industry is highly competitive that companies compete both inside and outside of their home country, so those capitalists spend much on the physical equipment acquired from other countries to stay competitive. This action is generated by the role employers play in this society; thus, when employers exercise their right to buy more equipment, they unconsciously justify the structure of global capitalism. Under this structure, capitalists are intrinsically equipped with the power to make use of labor-saving technology.
In 2001, Taiwan government implemented the Two Trillion and Twin Star Development Program, setting the tone that semi-conductor, TFT-LCD are the key developing areas. Therefore, since then, Taiwan has largely invested in the semi-conductor industry. This human activity of governmental policy also reinforced the mechanism of adopting labor-saving technology, making the employers buy more physical equipment.
More equipment means more of the repair and depreciation. Owing to the rapid development of Taiwan’s high tech industry, specifically, electrical parts and components manufacturing, more and more companies worldwide have started to invested in more and more physical capital to stay competitive, preventing themselves from being eliminated in the industry. Moreover, customers’ fast changing preferences on products and manufacturers improvement on producing efficiency results in the even faster product life cycle, accelerating the depreciation of physical equipment. As consumers are encouraged to obsolete old products and buy new ones, manufacturers can only live up to the fast pace of changing consumption behaviors by non-stop upgrading their productivity, resulting in a highly capital intensive environment that relies more on higher equipment consumption.
陳昱璋 (2016) discussed the issue of our studied event. He narrated that since 1998, Taiwan enterprises’ investment in fixed capital has increased tremendously, making the consumption of fixed capital skyrocketed. Ideally, the increase of capital investment can propel productivity, and thereby salary level can increase. However, excessive fixed capital investment, together with the shrinking product life cycle, brought along extensive depreciation, eating away the room for increasing salary. In the article, industries such as Information and Communication Technology (ICT) industry and Public Administration
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and National Defense industry are identified as the two that have seen fast increase in the GDP distribution of fixed capital; and, they also account for great portions of GDP with around 17.01% and 6.77$, respectively. The two industries account for almost one fourth of Taiwan’s GDP, let alone taking into account the two industries’ upstream suppliers and downstream buyers. Consequently, this result conforms to our claim that labor-saving technology is critical to the emergence of our studied event.
Taiwan’s mainstream industry is the high tech industry which requires significant capital investment. Companies, in order to be competitive and efficient in mass-producing low cost products will largely invest in physical equipment to increase scale of production.
These physical equipment increase mainly the scale of production, not the added-value.
Those mass-produced products are in low price competition because of free competition in the market; capitalists will then enhance their ability to product efficiently and at the same time keep their cost as low as possible to stay competitive in the market. Owing to the rapid growth of high tech industry and the demand for better high tech product, the product life cycle is short for the industry, making the depreciation of physical equipment escalate year by year over the past dozens of years. Therefore, to cover the expenditure on physical equipment, the earned profit is transferred to cover the increasing depreciation, making the increase of labor salary an impossible undertaking. What’s worse, labor cost is also the most easily adjustable and effective item within the entire cost structure because labors bargain power is weak in Taiwan and other items such as raw materials and cost of depreciation are not under employer’s control. As a result, employees’ compensation is always the first item to be reshaped when structuring the cost compositions.
Through the retroductive/abductive inference, we can formulate the following: “the surprising fact, C (i.e., the studied event), is observed; but, if A (i.e., the argument that overinvestment in physical equipment for the technology industries is the cause of the studied event) were true, C would be a matter of course. Since the studied event has been observed and hence is true, we have reason to believe that the argument ‘overinvestment in physical equipment for the technology industries is a cause of the studied event’ is true in accordance with the abductive inference. In other words, we have reason to believe that
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overinvestment in physical equipment for the technology industries is a force that generate the studied event. That is, overinvestment in physical equipment is a root cause of our studied event. This is a root cause because it is transcendental and lies underneath the empirical stratum.