The Economic System

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secondary importance of this position is caused by the international political status of Taiwan, which is not acknowledged as an independent nation, but just as a renegade province of China. The otherwise potentially important role Taiwan could have played between developing countries in the Southeast and advanced nations in the Northeast is therefore negated internationally, but seems deeply internalized in its somewhat schizophrenic politics between opposing ambitions and models, never wanting to take a definite direction in one way or the other, until dramatic or urgent events tilt the balance. All this too appears to be a reflection of its geographic and diplomatic isolation and the overwhelming importance given to national security. To sum up, Italy and Taiwan are similar in having renounced their natural geographic belonging in favour of more material and political benefits for the former, and more independence and security for the latter. The differences though are evident: Italy is a fully integrated nation within a supranational European Community and the international community, while Taiwan is kept in diplomatic isolation by the heavy influence of China, with which has still unresolved cross-strait relations.

5.3 The Economic System

In 1952 the agricultural sector in Taiwan contributed for 32 per cent to the national Gross Domestic Product; in Italy it was more or less the same. Over the years both countries experienced a rapid economic growth that culminated in the 1960s with the so-called economic boom. However, in Italy the prosperous period started faltering in the early 1970s, coinciding with two successive oil crises. Growth continued with ups and downs, but less spectacularly than before and constantly affected by internal and external factors, such as instable political governments or Cold War interventions. Social unrest and ideological protests also became a common feature of the Italian society in that period. However, the sheer economic size reached by Italy since the end of World War II elevated the peninsula to the ninth-largest rank in the world and the fourth-largest in Europe, according to international statistics. The 2012 GDP composition by sector puts agriculture at 2 per cent, industry at 24.2 per and services at 73.8 per cent of the total. The main Italian industries are in the sectors of tourism, machinery, iron and steel, chemicals, food processing, textiles, motor vehicles, clothing, footwear and ceramics. Its main export destinations are within the EU (56 per cent), with

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Germany (13 per cent), France (12) and Switzerland (6) among the most important export partners. The population’s labour force of 25.65 million people is concentrated on the services (67.8 per cent), industry (28.3 per cent) and agriculture (3.9 per cent). The unemployment rate is as high as 10.6 per cent in 2012 (in 2014 it has overcome 13 per cent) and the government consumption against the GDP is at 20.5 per cent, a sign that the public sector is still absorbing a large share of the state expenditure. The country’s public debt is at 127 per cent of the GDP (in 2014 it has grown to 130 per cent), meaning that in times of recession such as these the state cannot finance growth with more debt – as was the practice in the past – since it has to restrain public finances within limits fixed by the European Fiscal Compact.³⁹

In economic terms, immigration can be interpreted as the result of the mechanism of capital outflow and labour inflow elaborated by the World System Theory, according to which at a flow of capitals from core countries corresponds a counter-flow of labour from the peripheries. Until the early 1970s this scheme worked perfectly between Western European ex-colonial countries (such as the UK, France, the Netherlands, and so forth) and the African ex colonies where most immigrants came from. The 1973 Oil Crisis caused an economic downturn and prompted all West-European receiving countries to restrict borders. Those labour flows were then diverted to Italy, which at the time enjoyed a flourishing economy, but had porous borders and an almost absent immigrant legislation. In the late 1980s the Communist bloc collapsed and borders to Eastern Europe were opened again, not only for people but also for investments. Italy took advantage of these openings and started a massive outflow of capitals towards countries were labour was cheap and taxes low, such as Romania, Albania, Poland and so forth. Soon a counter inflow of labour was put in motion and reached Italy in great waves, confirming once again the World System mechanism earlier mentioned.

Taiwan in the early and late 1970s was also affected by the Oil Shocks but only temporarily. Its economy had still lots of steam and state intervention helped overcome those setbacks. Political stability and social control were assured by the

39 The Fiscal Compact is a treaty signed on 2 March 2012 by all member states of the European Union, except the Czech Republic and the United Kingdom.

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authoritarian regime of the KMT, which would not release its grip on power until the martial law lifting in 1987. Internationally, the diminished political status of Taiwan in favour of the PRC – with the loss of the permanent seat at the UNO Security Council in 1971, and the formal diplomatic relations established between China and the USA in 1979 – was widely compensated by the economic success of its manufacturing industries that exported worldwide. China’s opening to the market economy constituted a formidable opportunity for Taiwanese industries, but its recovered global influence also brought up again the heated question of the return of the island to the mainland, leading to frequent frictions and tensions in the cross-strait relations. The 2012 GDP composition shows agriculture at 2 per cent, industry at 29.8 per cent and services at 68.2 per cent.

The major industrial sectors of the island are (in order of importance) electronics, communications and information technology products, petroleum refining, armaments, chemicals, textiles, iron and steel, machinery, cement, food processing, vehicles, consumer products and pharmaceuticals. The 11.34 million labour force is occupied in services (58.8 per cent), industry (36.2 per cent) and agriculture (5 per cent). Major exporting countries, in percentages, are China (27.1), Hong Kong (13.2), USA (10.3), Japan (6.4), Europe (11), and ASEAN countries (12). The official unemployment rate is as low as 4.2 per cent, and the government consumption share is a modest 12.4 per cent of all the GDP. The island’s public debt is just 35.9 per cent of the GDP, which allows the government to launch periodical initiatives to revitalise the economy in times of sluggish growth such as these, though the typical multi-year long infrastructural projects of the past will probably not be seen any longer. In all, the two economies are fully developed and, as a consequence of their success, have experienced a constant labour shortage for the low-skilled sectors, along the pattern of the dual labour market theory. The only difference is that in general terms Italy is well established among advanced countries while Taiwan is still lingering in its fully-developed status but not quite willing to propel itself towards the Japanese and Singaporean models, as is shown by its lower percentage in services in comparative terms.

Here too the World System model of capital outflow and labour inflow can help explain the first mass immigration into Taiwan. Since the early 1980s Taiwanese

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capital investments in Southeast Asia intensified, and as a response the first labour inflow landed on the island, though mostly employed in the informal economy. In 1992 a general deregulation in the financial capital sector⁴⁰ allowed, for the first time, direct investment of Taiwanese capitals into the Chinese market, by-passing the usual back door of Hong Kong. As a consequence, the flow of capitals directed to the PRC grew enormously, especially in comparison with the one towards Southeast Asia; nevertheless the flow and counter-flow model was disrupted in this case, because Chinese labour was (and still is) barred from entering Taiwan. Therefore, the main workforce supply for Taiwan remains still today Southeast Asia.