As America drifts toward Europe, Asia is stepping up. For some paying close attention, developments may be discomforting.

I recently spent a week in Taiwan, where I saw an attitude towards real progress sorely needed in an indulgent and debt-ridden America.
Taiwan was hosting the Asia-Pacific Economic Cooperation (APEC) Business Advisory Council meeting (ABAC). The meeting’s theme was promotion of “knowledge-based growth,” meaning a determined movement upward in value-added industries across the region.

One of the most forceful speakers was Risaburo Nezu, director of Japan’s Research Institute of Economy, Trade and Industry. He understands the competitive nature of the world economy and the need for government and business to work together in the national interest. He called for a concerted effort to upgrade industrial structures and devote more resources to research and development. His talk focused on narrowing society’s income – not by expanding welfare programs but by expanding job opportunities in a more productive economic system.

Nezu talked about opening markets for trade and investment while protecting intellectual property. However, he didn’t couch these terms in the same naïve “free trade” manner that has driven U.S. policy into massive deficits. Instead, he talked of the “horizontal division of labor” and the pursuit of high value-added activity in domestic industrial policy. Japan has run a trade surplus every year since 1981, exporting high-end manufactured goods such as automobiles, construction equipment, semiconductors, and heavy machinery to buy raw materials, oil and consumer goods. Japan leads the world in advanced production technology, with 70 percent of the world’s robots.

In early May, an International Monetary Fund (IMF) team held discussions with top Japanese officials and business leaders. The IMF concluded, “Japan’s recovery is gaining strength. Decisive policy action and strong external demand are driving the recovery, with GDP expected to grow by around two percent in both 2010 and 2011.”

This growth rate may seem modest, but Japan is a mature economy with one of the world’s highest living standards. Last year, its unemployment rate was 4.8 percent, half that of the United States. Japanese banks not only avoided the worst of the financial collapse that hit America and Europe but so far have been largely unaffected by the new turmoil in the European Union (EU). But Nezu warned ABAC that Asian nations should be ready to act if the European crisis spread or if U.S. finances again faltered.

A common theme of many speakers was the need to improve educational systems, particularly in science, engineering and management. Government needs to create an environment favorable to investment and entrepreneurs. The term “business morale” was often used, particularly in regard to small and medium enterprises critical to innovation and growth. The state cannot be passive; it must promote and support expansion.

The same sentiments were expressed at an ABAC-related briefing with David Hong, president of Taiwan’s Institute of Economic Research. Taiwan must develop more advanced technology if it is to stay ahead of “emerging rivals.” Green technology is a priority. Taiwanese firms have invested in China, but not just to reach into that market. According to Hong, half of what Taiwanese firms produce in China is exported to third countries, including to the United States. Chinese investment in Taiwan, however, is not allowed for fear of an economic takeover by the Beijing regime.

I was given a tour of the Southern Taiwan Science Park (STSP), whose government-financed infrastructure is devoted to giving the country an edge in global competition. More than a hundred Taiwanese companies—plus 16 Japanese and seven American firms—operate in the STSP, employing 50,000 people. Fields include bio-medical devices and pharmaceutical manufacturing, solar cells, precision machinery, telecommunications, computer equipment and optical systems. Also, STSP boasts Taiwan’s most vertically integrated flat panel display industry.

The STSP has its own housing (dorms and condos for workers, townhouses for executives), as well as schools and a shopping mall. Power demands are large but met by a new electrical grid that draws on nuclear power, coal and natural gas. Taiwan has three nuclear power complexes, each with two reactors. A fourth is under construction, with its reactors set to go online in 2011 and 2012.

The STSP is located in Tainan, which is on the new Japanese-built high-speed rail system that began operating in 2007 and runs the length of the island. Further, the STSP is one of three such complexes on the island. The Hsinchu Science Park was Taiwan’s first and is the center of its world-leading semiconductor industry. In the proximity of the park are prestigious research and academic institutions, such as the Industrial Technology Research Institute, National Tsinghua University, and the National Chiao Tung University. The new Central Taiwan Science Park took less than a year from approval to the establishment of its first manufacturing enterprise. Taiwan may be small in population, but it is large in ambition and achievement.

While I was in Taiwan, U.S. Commerce Secretary Gary Locke was leading a delegation of American business executive to mainland China. They were looking for export opportunities in Green technology only to find that Beijing was ahead of the curve. China’s central planners are expanding solar and wind power, laying thousands of miles of new transmission lines, and adopting “smart grid” technology to distribute power more efficiently. And they will use Chinese firms to do the work, not imported American equipment. Indeed, the export flow is in the other direction.

The Chinese Communist Party newspaper Global Times editorialized on Locke’s visit:

“This is not an ordinary trade offensive. Green technology will be a big driver of economic growth in the future. But previous examples have taught us the lesson that trading market share for technology is not a good deal. China should instead protect its robust and still growing green technology industry, and be careful about U.S. stratagems at this dialogue.”

In America, the stimulus has stalled because it expanded the structural deficit, not the structures of production. The model to follow is not in a bankrupt Europe, but in vigorous Asia.

William R. Hawkins is a consultant specializing in international economic and national security issues.


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