The State Governance in the Economic Growth and Technology Growth Hsu, Chen-Min

1. The State Governance in the Economic Growth and Technology Growth Hsu, Chen-Min Professor of Economics, National Taiwan University 2014.9.10

2. Outline I. Introduction II. Literature Reviews III. The Development of Taiwan’s ICT Industries IV. Implementation of Science and Technology Policies Performed by ITRI V. Development of Science and Technology Human Resources VI. Hsinchu Science and Industrial Park VII. Conclusion: Technology Industries’ Advancing to Mainland China for Production and Investment 2

3. I. Introduction • The reason of why Taiwan’s electronics industry can find a foothold in international economy and industry division of labor can be mainly attributed to the contribution of science and technology development promoted by government. • (1) the fact government science and technology authorities’ working closely with universities and that the local governments is a major key to success. • (2) government leaders had adequate wisdom and determination capable of identifying sticking points of problems, and had the courage and execution power capable of putting solutions and measures, which should be taken, into practice. • (3) government leaders made good use of policy promoters able to spread concepts and ideas to the whole society, so that they had changed social attitude towards acceptance of science and technology projects to be promoted, and further to generate strength of collective action. 3

4. I. Introduction • In the course of Taiwan’s economic and industrial development, three times of industrial structure transformation had occurred in three different stages. • (1)major industries shifted from agricultural field to industrial field aiming for economic development • (2)major industries shifted from labor-intensive industries to heavy and chemical industries for economic development • (3)major industries shifted from heavy and chemical industries towards the development of hi-tech industries 4

5. I. Introduction • With regard to the successful development experience of hi-tech industries • 1974 the Premier Chiang Ching-Kuo ordered Executive Yuan Secretary-General Fei Hua to study breakthrough measures for industrial development in conjunction with relevant ministries, and thus commenced the development of IC industry. • 1977 the “Applied Science and Technology Research and Development Team” was established • 1978 Li Kwoh-Ting convened the “1st National Science and Technology Conference” • 1972 to 1988, many peripheral and supportive institutions and facilities required for developing hi-tech industries had been set up 5

6. I. Introduction • Under government’s effective leadership Taiwan had completed the full deployment and promoted hi-tech development to lay a solid foundation for future development of Taiwan’s hi-tech industries, enabling Taiwan to become one of the world’s hi-tech industry powerhouses in 1990. • During the ruling of Chiang Ching-Kuo in 16 years, Taiwan had enjoyed a high average annual economic growth rate of more than 9%, the unemployment rate fell to less than 2%, exports climbed 11th country worldwide in 1986. In 1980 gap between the rich and the poor dropped to 4.17 times, became one of a few countries with most even income distribution in the globe. 6

7. II. Literature Reviews • Robert Solow: Neoclassical Growth Theory • the economic growth of a country will lead to the stationary state of balanced growing eventually and the growth rate of long-term balanced of average national income will be influenced by the growth rate of the development of technique. • Robert Lucas and Paul Romer: Endogenous Growth Theory • the development of technique can be created by combination of the Human Capital and researches of innovation. • the education policy and R&D strategies can be conducted to encourage or to induce private enterprises to achieve the target of development of technique. 7

8. II. Literature Reviews • Schumpeter : creative destruction • the entrepreneurs could seek for enormous margin through the innovation, then, to create new technique to replace the old one by applying innovation afterwards. • Gary Becker and Robert E. Lucas : human capital • under the situation of knowledge-based economy, the economic growth will occur on the investment on human capital from personal and families which all analysis from the demanding side of investment. • To apply on the policy, it can be assumed that if governments can provide the allowance and the exemption of educational investment or lower education fees, it may enhance the willing of education investment both personal and families. 8

9. II. Literature Reviews • Philippe Aghion • the innovation of technology could be obtained by 2 ways, internal R&D of the enterprises and the basic research carried out by schools with cooperating of industrial technologies research institute and venture organization. • The educational training of human resource can be completed by two education systems, the regular general education and a system of vocational education. The former is the general university education and the latter is the education of technological institute or college. 9

10. II. Literature Reviews • Daniel Bell • “information” is a strategic resource for today’s society, which is the media to step into the post-industrial society, as well as the principle key point while step into the new social structure society which based on the telecommunication. • three major characteristics of the information society in post-industrial, which are: (1) Transfer from the currency and finance production into the services economics, (2) the increasing dependence on the theoretical knowledge, (3) applying computer and other smart machine to create new intellectual technology. 10

11. III. The Development of Taiwan’s ICT Industries • Around 1960s, during 1963-1972, Yen Chia-Kan served as the Premier. • (1)make good use of the scholars residing abroad who can run neck and neck with international scientists • (2)fully support Taiwan’s agricultural and industrial R&D talents trained in Japanese colonial period and their research results • In the cooperation of these two resources, Taiwan should be able to transform from agricultural economy to industrial economy, and further march toward the development of more advanced science and technology. 11

12. III. The Development of Taiwan’s ICT Industries • “Science and Technology Development Plan”(1967) • including objectives, strategies, important measures and key implementing points, research projects and budgets, and implementation and review. • The first three parts are the essence of this Plan, their formulation was based the spirit of “OST” • “O” stands for Objective • “S” for Strategy • “T” for Tactics 12

13. III. The Development of Taiwan’s ICT Industries • In August 1974, Sun Yun-Suan depicted vision of Taiwan’s future economic development, he hoped to emulate agricultural development pattern from Netherlands and learn industrial development from Switzerland, pursuing self-sufficiency. • the top priority was to establish basic heavy industrial and petrochemical industries. • Sun believed that machinery industry should be studied by manufacturers themselves, with research funding and technological assistance granted from government; as for the development of hi-tech electronics, should be led and actively planed and promoted by government. • Sun required ITRI to assume the tasks of R&D and spread research results of integrated circuits, electronic watch, and computer to business sector for production; and make use of the base of existing electronics industry to accept commissions from manufacturers to carry out R&Ds of various advanced novel products. 13

14. IV. Implementation of Science and Technology Policies Performed by ITRI • “Industrial Technology Research Institute (ITRI)” (1973) • ITRI is an important R&D powerhouse of Taiwan. It specializes in applied research and technology development, and its origin is mainly based on “Union Industrial Research Laboratories” originally focusing on natural gas research, added with “Mining Research & Service Organization” and “Metal Industrial Research Institute.” • Later the Union Industrial Research Laboratories changed its name as “Chemical Research Laboratories”, and restructured its Electronics Center to set up “Electronics Research Laboratories” to commence R&Ds of electronics industry raw materials, including integrated circuits, transistors, and semiconductors. 14

15. IV. Implementation of Science and Technology Policies Performed by ITRI • After years of R&D, training and international cooperation, in 1979 UMC was established, followed by a range of hi-tech electronics companies including TSMC, Taiwan Mask Corp., Vanguard International Semiconductor Corporation, etc., gradually laid the foundation of Taiwan’s IC semiconductor industry. • In 1987, Electronics Research Laboratories commenced TFT-LCD Flat Panel Display Industrialization R&D Project. • In 1990, the “Information and Communications Research Laboratories” was established to vigorously promote the development of information and communication technology (ICT) industries, and eventually led to the establishment of Taiwan Notebook PC Consortium. 15

16. IV. Implementation of Science and Technology Policies Performed by ITRI • In 1979, “Union Industrial Research Laboratories” set up a “Composite Materials Team” focusing on the R&D of composite materials. • In 1982, Material and Chemical Research Laboratories set up an Optoelectronics Material Team, and later restructured and founded as “Optoelectronics Research Laboratories” to develop CD-ROM drive. It had accelerated the development of CD, DVD and LED industries in Taiwan. • Chemical Research Laboratories has further extended its R&D works into pharmaceutical synthesis and biotechnology fields, and set up the “Biomedical Center.” 16

17. IV. Implementation of Science and Technology Policies Performed by ITRI • Overall, ITRI can be said the cradle and origin of Taiwan’s Silicon Valley industries. For the sake of meeting the country’s industrial policies, the research priorities of ITRI focus on self-developing new technologies, improving technological levels, and solving problems of energy raw materials and industrial raw materials. • From 1994, ITRI has began to carry out technology transfer, and the annual growth rate of average number of transfers reached 8.1% in early period from 1994 to 1998. And for bridging with latest international researches and seeking technological exchange, cooperation, transfer or import of new technologies with enterprises and research institutes all over the world, ITRI had set up overseas bases in the United States, Europe, Russia, and Tokyo. 17

18. V. Development of Science and Technology Human Resources • Aiming at accommodating the technological reform requirements of domestic industrial development and establishing a demonstration standard for cultivating advanced technological manpower, the government set up the National Taiwan Institute of Technology in 1974. • Then, this was followed by encouraging industry sector to universally set up “private technological institutes” through adopting school-enterprise cooperation method in order to promote the progress of industrial technology and industrial management. • This technical and vocational education focuses on further study of technical personnel, rather than engaging in invention, so it can not flow into the ordinary line of research universities, colleges. • In these technological institutes, skilled technicians, rather than masters and doctors without practical experience, are hired and appointed as teachers. 18

19. V. Development of Science and Technology Human Resources • In the “National Science and Technology Conference” held in January 1978, President Chiang Ching-Kuo indicated that “Taiwan must develop technology-intensive industries, because they have a significant implication of long-range value and economic structure transformation.” • Therefore, Taiwan must nurture industrial personnel and heavily culture science and technology talents because technology-intensive industrial products demand high quality human resources. 19

20. V. Development of Science and Technology Human Resources • In May 1979, Sun Yun-Suan approved the “Science and Technology Development Plan”. Three national objectives developed according to this Plan include: • (1) developing new weapons to strengthen defense self-dominance and self-reliance; • (2) supporting economic construction, developing technology-intensive industries, promoting agricultural modernization, strengthening natural resource development and application, and conserving the use of imported resources; • (3) improving people’s well-being, strengthening medical researches, maintaining ecological environment, and improving nationals’ nutrition. 20

21. V. Development of Science and Technology Human Resources • In 1970, the government had set up the “National Science and Technology Development Fund” and allocated yearly budget of several hundred million New Taiwan Dollars (first year NT$ 400M) to strengthen scientific and technological R&Ds related to national defense, economy, people’s livelihood, and national development objectives, and support research projects in industrial, agricultural, medical fields through granting research subsidies. • the research projects funded by this Plan have become an annual routine system operation, so it has made a considerable contribution to science and technology researches of various universities and research institutions. 21

22. VI. Hsinchu Science and Industrial Park • In 1979, Executive Yuan passed a new “Science and Technology Development Plan” to commence the planning of the establishment of “Hsinchu Science and Industrial Park”. • This Science and Industrial Park is a successful experience of government investment and has encouraged private businesses to invest in production. • The reason of selecting Hsinchu is using the convenience of Taoyuan International Airport, and being located close to National Tsinghua University, Jiaotong University and ITRI, thus forming a research environment and clustering with stronger surrounding research atmosphere. This has the same rationale of Silicon Valley, California with the existence of surrounding Stanford University, UC Berkeley and other universities. 22

23. VI. Hsinchu Science and Industrial Park • In 1981, Li Kwoh-Ting pointed out that “the focus of Taiwan’s science and technology development lies in ‘four major key technologies,’ including “energy technology, material technology, information technology, and automation technology.’” • In order to develop these four major key technologies, it is necessary to integrate strengths of government, academic circles, and industry sector. • Hsinchu Science and Industrial Park can be said a concrete practice with government’s stepping-in to integrate domestic and overseas hi-tech talents and industry sector to accelerate technological investment. 23

24. VI. Hsinchu Science and Industrial Park • In 2008, total area of Taiwan’s science parks had been expanded to reach 3,746 hectares, accounted for 0.1% of total area of Taiwan. • In 2013, total revenue of these science parks reached NT$ 1,970.8B, accounted for 14.93% of Taiwan’s total manufacturing production value. Among all industries in these science parks, integrated circuit industry and optoelectronics industry had highest revenue, accounted for 90.96% of total revenue. • A total of 691 enterprises have set up in science parks all over Taiwan, 444 in Hsinchu Science Park, 157 in Tainan Science Park, and 90 in Taichung Science Park, respectively. There are 99 foreign manufacturers. Number of total employees in all science parks has amounted to 203,943. 24

25. VII. Conclusion: Technology Industries’ Advancing to Mainland China for Production and Investment • 1990s is a period of rapid development of Taiwan’s electronics industry, in 1993 the export to Mainland China reached peak of market share 12.52%, and Taiwan was the second largest importer of Mainland China. • In the expectation of exchanging with Taiwan, and developing biological industry, new energy industry, new materials industry, energy-saving environmental protection industry, and new energy automotive industry similar to Taiwan, as well as integrating with integrated circuit industries (including design, production, packaging and finished products) in order to facilitate and shorten Mainland China’s hi-tech development process, Taiwan’s successful experience in hi-tech development in 1990s had urged Mainland China to emulate Taiwan’s system to set up a similar “industrial research institute”. 25

26. VII. Conclusion: Technology Industries’ Advancing to Mainland China for Production and Investment • Taiwan’s successful industrial development experience depends on government’s effective planning, supervision and promotion of science and technology policies, as well as integration of talents and industries to proactively engage in technology R&D, investment, and industrial production. And, through engaging in foreign direct investment, Taiwan has taken a further step to spread technological progress into mainland China and East Asian countries to achieve the result of regional cooperation and competition. • Such experience is quite worthy countries developing industries to learn. 26

27. Thank you Q & A 27