The theory of global division of labour force and international

Chapter 2、The theory of globalization and human capital flow

2.2 The globalization theory and human capital flow

2.3.2 The theory of global division of labour force and international

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that show the migration only occurred by upper middle levels with more inforamtion and rarely occurred by the low-income levels. Thus, the wage-gap is not the only reasons of human capital flows.

2.3.2 The theory of global division of labour force and international trade

The maximum change of the economic globalization is to promote the world resources to the most propriated configuration. A country is limited by the national resources and market limit regardless how high efficiency of its economic growth. It is the only way to integrat the global resources and market limited by the national resources and market insufficient. The economic globalization caused the phenomenons of the international division, industry transfer, funds and technology flows, and transnational mutual deepened after 1990.

Adam Smith in his book "The Wealth of Nations" stated that the theories of globalization illustrated a country's economic growth is from its productivity, which means maximum increase attributed to the result of the division of skilled labour productivity. Thus, the division of labour and development will raise the workers' professional skills and progress the labour productivity. The productivity also depends on the specialization of labor. Allyn Young (1928) stated the "Young Theory" to solve the question of the division of the labor in the article of the increasing returns and economic progress. This theory stated that increasing return scale depends on the evolution of division of labor and market size determines the division of labor standards.

Houthakker (1956) made it clear that trade efficiency determines the market size affect the division of labour standards¹⁸. Peter Munz.Kemp said that the developing countries in the globalization increase economic development opportunities as the industrialized

18 胡鞍鋼主編，《全球化挑戰中國（北京：北京大學出版社）》，2002 年 6 月，頁 15-18。

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countries^19.

With the economic globalization, countries by the economic integration of legal, regulatory and market globalization through the international division of labor made labour classified, levels upgraded, professional upgraded from the theory of international trade. Yang and Borland (1995) stated the "International Trade Theory"

that the three modes of the economic growth by the progress of the dicition of the labor.

Firstly, the undeveloped division of labor not will decelerate the econimic growth. Next, the well-developed division of labor will progress the econimic growth. Then, the fully developed division of labor will slow down the econimic growth. According to the above theory, it can found the division of labor and transactions efficiency is major factors related to a country’s economic growth²⁰. P.M.Romer stated that the developed country entered the period of economic growth and the developing country still in the low stage. Their economic growth differences will be expanded and gradually have more divergence²¹. Sala-Martin staed that the developed country entered the period of economic mature (division degree high but division progress slowed) and the developing country entered the period of economic growth. Both economic growth rates will appear convergence²².

According to World Bank（WB） in 2002 research displayed that the global economic of trade, funds and immigration were continued growth after 1870²³. It can be divided ito three stages including the period of 1870-1945, 1945-1980 and 1980-present , which the developed countries in third time migration activly participate

19 張驥，《經濟全球化與當代社會主義的發展（北京：中央編譯出版社）》，2002 年 6 月，頁 168。

20 胡鞍鋼主編，《全球化挑戰中國（北京：北京大學出版社）》，2002 年 6 月，頁 15-18。

21 P.M.Romer, "Increasing Returns and Long-Run Growth", p1030-1035.

22 Sala-Martin, "Convergence", Journal of Political Economy Vol 100, No.5, 1992, p223-251.

23 World Bank, "World Development Report（New York: Oxford University Press, 2002）", p23-30.

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the international division of labor, such as China, India, Malaysia, Philippines and Thailand. They gradually play an important role in the global market. Due to the differences degree of the economic and development, the global human capital migration has the trend of migration from the backward to the advanced regions, Southern hemisphere to Northern hemisphere, lower development to the higher one and developing to developed countries. Thus, the degree of participation globalization and resources effective distribution are the important factors to promote and shorten countries into modernization. The division theory in the economic growth plays an important role.

2.3.3 Specialized division of labor and endogenous growth theory

Theodore W.Schultz, Nobel economic Prize laureate, clearly stated on "Human Capital Theory" that human capital is the most important of the four factors of production including land, human force, capital and technology. The levels of the human capital depend on education, while human resources with high quality attracting other countries poaching human resources. Human capital is the main factor to progress the national economy growth. The human future is decided by the population quality and knowledge investment, in which the most important factor is human resources. The economic development depends on personnel quality improved, and the quality of personnel can be improved only through knowledge education, which is divided into

"professional knowledge" and "general knowledge". The professional knowledge refers the knowledge to help upgrade the material capital quality. In economic modernization, the professional human capital of accumulated is to upgrade the professional

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knowledge²⁴. Michael E.Porter said in the Competitive Advantage of Nations that affecting the production factors are divided into higher and lower categories. The national competitive advantage must be reached by advanced, professional, and creative factors²⁵.

From the perspective of human resource, the higher factor means the human force from the higher education. In other words, the countries own more high-quality human capital, which will be able to achieve leading position in the world after 1990 of the economic globalization. Therefore, a country's economic growth relied on division of labor not only levels of refinement, but internal specialization of human capital. Thus, to upgrade human qualities meets the economic development needs of the countries.

"Theory of international division of labour" for the developing countries can promote the economic growth, but for the developed countries of the stages of economic maturity have been insufficient to respond to the development needs of the country. Thus, “New Grow Theory" becomes the developed countries pursuing the economic growth theory. "New Grow Theory" started in the mid of 1980, was based on neo-classical growth theory that mainly increasing the scales of returns and internal mining technology are the major factors for a country's long-term economic growth.

2.3.3.1 External, increasing returns and economic growth

Arrow (1962) explained firstly that the endogenous technological progress in economic growth, technological advances and productivity gains for capital accumulation effects, the outputs the overflow effect of that investment²⁶.

24 王瑞琦，《全球化與兩岸應與人才開發策略比較分析》，中國大陸研究，2002 年 11 月，頁 85。

25 Michael E.Porter 著、李明軒譯，國家競爭優勢（上）（台北：天下出版有限公司，1997 年），頁114-115。

26 Arrow, "The Economic Implication of Learning by Doing", Review of Economic Studies, Vol 29, 1962, p155-173.

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P.M.Romer (1986) on "Knowledge Overflow Model" assumed that knowledge is an endogenous factor in the economic system that the knowledge overflow can improve the social productivity and economic growth²⁷.

R.Lucas further explained P.M.Romer theory that the global economic and external human capital overflow caused by external effects of human capital to improve the productivity and economic growth of all factors of production²⁸. When the government does not intervene in the economy equilibrium, the investment in human resources will be reduced, especially in the high level of human capital in developed countries. Based on increasing returns of capital, it makes human capital migrate from the developing countries to the developed countries. Barro illustrated the importance of government intervention, because the government is the key factor of economic growth through provided by various government services and infrastructure, which will represent the production rendering "increasing returns to scale and endogenous economic growth" effect²⁹.

2.3.3.2 Division of labor and economic growth

Adam Smith³⁰ has seen the division of labor as a source of economic growth first. Allyn Young³¹ deepened this statement further that the economic division of labour is a professionalized economics. G.S Becker. and K.M.Murphy(1992) further stated the division of labor as a professional process in the "Becker-Murphy Model".

The identity model illustrated that the division of labor and technological progress

27 P.M.Romer, "Increasing Returns and Long-Run Growth", p1030-1035.

28 Lucas, "On The Machanics of Economic Development", Journal of Political Economy, Vol 98, No.5, 1990, p103-125.

29 Barro,R., "Government Spending in a Simple Model of Endangerous Growth", Review of Economic Studies, Vol 29, 1962, p155-173.

30 譚崇台，《發展經濟學（台北：五南圖書出版有限公司，2004 年 1 月）》，頁 86。

31 朱鳳，《技術進步與經濟的內生增長》，中國社會科學，1999 年第 1 期，頁 27。

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does not have a direct relationship, but the interaction relationships. One is promoting function of productivity is from the economic knowledge. On the other hand, the division of labour can promote the knowledge accumulation driven by the degree of specialization of workers with the proprietary technical standards.

When the knowledge economy is increasing, the accumulation of knowledge can reduce the cost of economic coordination, evolving and sustained economic growth will enable the division of labor, specialization and economic growth through the accumulation of knowledge, human capital and technological progress as the economic sources of growth. In the globalized market, due to international trade frequently, it makes widely disseminate knowledge and human capital to accelerate the country's economic growth by the overflow effect, which is the phenomenon of "Brain Drain". Therefore, it is only through government intervention to reduce the loss of investment in knowledge by the effect of overflow.

According to above statements, many researchers said that the economic growth is by the technological progress, the accumulation of knowledge, the progress of human capital and increasing returns reached. When the overall economy raises, human capital and specialized knowledge will be upgraded to further accumulation and higher levels. Thus, it will contribute to the economic growth and endogenous technological progress mutually into the virtuous cycle of development. Analysis of today's human resource development in the globalization,

"New Grow Theory" view is the basis of the countries on human resources development since the beginning of the 1990s, but also for developed countries, developing countries and undeveloped countries start thinking about how to promote the country's economic growth and to win the competition.

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Chapter 3、The development of Taiwanese industries and human capital

Section 1、The business cycle³² and stages of economic development³³ The business cycle, a country's overall economic activity movement, can be divided into the classic cycle and the growth cycle. The former refers to the level of economic activity value fluctuations and the latter refers to the long-term trend without cyclic fluctuations.

Taiwan and the OECD adopted the concept of "growth cycle". Burns and Mitchell (1947) divided business cycle into four stages (Table-4 Four stages of business cycle) including recovery, expansion, contraction, recession, and then recovery. (Figure-2 The Business Cycles). A series of economic fluctuations will be occurred repeatedly for the duration from one year to ten years. A boom cycle includes a period of expansion (between the economy bottomed through the period of the boom peak) and a contraction (between the boom peak to the economy bottomed period). In the fact, on a period of expansion and contraction should continue for at least five months and the whole circulation is at least 15 months.

32 經建會，《我國第 11 次景氣循環高峰之認定與研析》。

33 http://big5.xinhuanet.com/gate/big5/news.xinhuanet.com/ziliao/2003-01/23/content_703815.htm

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Table-4 Four stages of business cycle Classified

Cycle Short Inventory

cycle 3-4 Production, sales and inventory adjustments

Cycle Construction 17-18 Length of housing, housing demand Figure-2 The Business Cycles

Ref：CEPD Taiwan has been experienced 12 full business cycles since the Kuomintang party came to Taiwan in 1949 (Table-5 Taiwan Business Cycle). Now, it is in period of recession of the 13th business cycle. Taiwan is facing the difficulties of the prices rising, unemployment rate increasing, payroll declining shown in the economic monitoring indicators (Figure-3 Taiwanese economic monitoring indicators, 1984-2010) and the unemployment rate (Figure

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-4 Taiwanese unemployment rate, 1978-2010), the main representative indicators of the business cycle. Because of facing of the global downturn, the government continues to increase the investment of public construction and the job opportunities such as "The development of six new strategic industries", "The economic dynamic progressive program",

"The golden ten years plan", "The development of the aviation city" and other policies to revive the economy, increasing the cultivation of HRD as the major promoter of Taiwan revitalization and recovery. The business cycles are closely related to the industrial development. The Taiwanese economic development before the 21^stcentury was divided into four stages and described as follows.

Table-5 Taiwan Business Cycle

Cycle List trough peak trough

Duration(months)

Expansion Contraction Cycle

1 1954.11 1955.11 1956.09 12 10 22

2 1956.09 1964.09 1966.01 96 16 112

3 1966.01 1968.08 1969.10 31 14 45

4 1969.10 1974.02 1975.02 52 12 64

5 1975.02 1980.01 1983.02 59 37 96

6 1983.02 1984.05 1985.08 15 15 30

7 1985.08 1989.05 1990.08 45 15 60

8 1990.08 1995.02 1996.03 54 13 67

9 1996.03 1997.12 1998.12 21 12 33

10 1998.12 2000.09 2001.09 21 12 33

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11 2001.09 2004.03 2005.02 30 11 41

12 2005.02 2008.03 2009.02 37 11 48

Average 39 15 54

Ref：CEPD Figure-3 Taiwanese economic monitoring indicators, 1984-2010

Ref：CEPD Figure-4 Taiwanese unemployment rate, 1978-2010

Ref：CEPD

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3.1.1 The period of economic recovery (1949-1952)

The Government of the Republic of China in the KMT-CPC defeated occupied Taiwan in 1949, resulting in the Taiwan society facing the rapid population growth, rising prices, industrial, agricultural production standstill, and military expenditure accounted for more than half of fiscal spending. The phenomenon of people living in difficult and the economy closed to collapse. The Taiwan authorities had adopted a series policies and methods of maintenance of stability and economic recovery such as the land reform, currency reform, foreign trade controls and giving priority to the development of electricity, fertilizer, textile and other basic industries. Since the 1950s, the rapid development of Taiwanese agriculture by the growth rate of 4.7% and coupled with the implementation of economic assistance by USA to inject a lot of money to assist recover the economic. In 1952, the foundation of Taiwanese economics has been the same as the pre-World War II standards.

3.1.2 The period of agricultural workers (1952-1960)

In agriculture area, Taiwanese economy is still dominated by agriculture. Due to the labor force surplus, foreign trade and the international balance of payments debit seriously and a tremendous shortage of foreign exchange, those situations lead to the people with the low income and inability consumer the imports of industrial goods.

The government tried to stimulate the development launching the guidelines of the cultivation of industry by agriculture, the development of agriculture by industry. Land reform promoted the agricultural labor productivity. The proportion of total exports of the agricultural products and processed products was increased up to 71.5% of foreign exchange in 1957. The government bought the rice with fertilizers and compulsory acquisition by not equivalent exchange to earn the profit and transfer to the industrial

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sector.

In industrial area, the government emphasized on small investment, low technology, and factory building cycle short of livelihood industries to alternative imports by the domestic production to adapt to domestic consumption, save foreign exchange spending, create job opportunities and reduce the unemployment rate. The industries of sugar, tea, pineapple and other agricultural products processing industry, cement, glass, wood products, paper, fertilizer, textile, flour, plastic products, artificial fibers and household appliances were formed.

3.1.3 The period of export-orientation (1961-1985)

The market of the imported product was saturated and the government caught the opportunity of the international division of labor and post-Fordist era to take advantage of low wages and vigorously develop the export processing industry to promote economic development. There were many succession amendment or develop export promotion policies including conducting foreign trade reform, the implementation of the investment, incentive ordinance, to encourage private savings, taxation and financing deals to export firms, the establishment of export processing zones and bonded warehouses,etc. In this period, the foreign investors played an important role in Taiwan's industrialization and export expansion. The civil enterprises from import substitution transferred to export industries as the main force of economic growth.

The raw materials of Taiwan enterprises were imported from Japan and exported industrial products to American. The formation of production was depended on Japan and market was depended the United States as the triangle trade relations that made the industries high-speed development. The industrial average annual growth rate was 18.3% in 1963-1973. The manufacturing industry average annual growth rate was

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20.1%. The industrial output value accounted for the proportion of gross domestic product (GDP) increased from 26.9% in 1960 to 43.8% in 1973. The exporting industry products rose from 32.3% in 1960 to 84.6% in 1973. Taiwan government established the export processing zones as the core processing industries such as textile, home appliances, industrial pillar to drive the economic miracle of Taiwan, making Taiwan’s economy strength among the first of the "Asian Tigers".

3.1.4 Period of economic transformation (1986-1996)

Since the 1980s, due to changes in the internal and external economic environment such as the sharp appreciation of the NT dollar against the U.S. dollar rose sharply, wages increasing and the labor shortages, the labor-intensive exporting industry is the gradual loss of comparative advantage and low private investment willingness. Thus, the economic development was into the difficulty. The government in 1986 proposed a policy of "Liberalization, Internationalization, Institutionalization" of economic restructuring to improve the mechanisms of a market economy, industrial upgrading and expansion of the foreign trade market besides the United States as a major adjustment. Moreover, the government determined the ten new industries as a pillar industry including communication, information, consumer electronics, semiconductor, precision machinery and automation, aerospace, advanced materials, specialty chemical and pharmaceutical, health care and pollution prevention.

Taiwan has experienced economic restructuring and economic progress in the liberalization and internationalization, industrial upgrading and also the early effectiveness of capital and technology-intensive industries accounted for the manufacturing sector reached 61.5%, including the development of the communication industry highlight, the output value has been ranked the top of world. Taiwan's

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exporting market was shifted to Asia from Europe and the United States. The proportion of exports to the United States was from 48.8% in 1984 down to 23.7% in 1995.The proportion of exports to Asia rose from 32.8% in 1988 to 52.6% in 1995. The structure

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