Why Taiwan Overtook Korea

There is now a forecast that Taiwan will overtake Korea. Taiwanese President Tsai Ing-wen said, “This year, per capita GDP is expected to exceed $36,000, allowing Taiwan to surpass Korea for the first time in 19 years.” Taiwan’s source of pride today is TSMC, a non-memory semiconductor company. Since November 2019, when TSMC surpassed Samsung in corporate value, Taiwan has been on a steep upward trajectory.

TSMC is the world’s largest foundry company, and its full name is Taiwan Semiconductor Manufacturing Company. In Korean, this translates literally as “Taiwan Semiconductor Manufacturing Company.” The two companies currently leading the global semiconductor market are TSMC and Samsung Electronics. Given the nature of an industry in which the scale of investment continues to grow, it will be difficult for both companies to maintain competitiveness going forward.

If only one company secures clear superiority, which one will it be? Overseas observers believe TSMC has the advantage. TSMC is already ahead in the investment race. After the United States, it is now also building large-scale plants in Japan. As Korea moved to strengthen friendly relations with China, Taiwan moved toward closer ties with the United States and Japan. This difference made TSMC’s swift investment possible.

In the past, Taiwan envied Korea. That was because Korea’s economic strength was solid, backed by global companies such as Samsung, Hyundai, LG, and SK, and because it showed a competitiveness that did not easily fall behind in world markets. Taiwanese people reevaluated their own business model, which had failed to foster large corporations. They adopted policies aimed at nurturing big business and have finally reaped the rewards.

By contrast, within Korea, large corporations were criticized by left-wing economists as chaebol and owner-managed businesses. It was precisely because such large companies existed that the world envied Korea as a successful country, yet critics of big business began tearing down what should have been a source of national pride. Left-wing intellectuals criticized Korea’s economic structure, with its many large corporations, as flawed, and argued that a country like Taiwan, with mostly small and medium-sized enterprises, had a better economic structure. They therefore advocated dismantling the chaebol.

Their arguments produced countless regulations on large corporations, including the Fair Trade Act. As misguided claims that fostered anti-business sentiment were turned into legislation, Korea’s corporate economy began to stagnate. In the end, a regulatory hell emerged in Korea, one in which no new large corporations could arise.

The reason Taiwan has overtaken Korea is closely connected to the reason Taiwan once lagged behind Korea. The answer lies in the corporate economy. Countries with vibrant business sectors achieve economic growth, and their people enjoy prosperity. By contrast, countries that neglect institutions that enable businesses to grow see their citizens’ standard of living fall behind.

Korea is once again being pushed into a position where it must catch up with Taiwan. The responsibility lies with politics. What is needed is reflection from the political sphere, which has churned out anti-business policies accumulating since the late 1980s. There is no future in politics that seeks to preserve its own power through hostility toward business. The political establishment must once again move toward policies that revive the corporate economy. It must break away from anti-business, pro-union, and divisive politics, and remove misguided regulations.

The government should play a role in helping expand the market economy. That is because the core competitiveness of an economy comes from business. Countries that provide an environment that revives the corporate economy prosper.

Sung-no Choi, President of the Center for Free Enterprise (CFE)

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Original title: 대만이 한국을 추월한 이유

Author: Sung-no Choi

Date: 2022-05-09

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=press&idx=24721