The political economy of the semiconductor industry in Taiwan reflects a strategic partnership between the government, the private sector, and international partners. Here’s a brief overview of some of the key factors and policies:
Government Initiatives and Policy Support
The Taiwanese government played a critical role in the development of the semiconductor industry through a variety of policy measures and initiatives. This included the establishment of the Industrial Technology Research Institute (ITRI) in 1973, which carried out research and development in electronics and other strategic industries. The government also created the Hsinchu Science and Industrial Park in 1980, which became a hub for high-tech firms.
One of the most important initiatives was the creation of the Taiwan Semiconductor Manufacturing Company (TSMC) as a spin-off from ITRI in 1987. TSMC pioneered the foundry model of semiconductor manufacturing, where it produced chips designed by its clients. This allowed TSMC to specialize in manufacturing, investing heavily in advanced technologies and driving innovation in this area.
Role of the Private Sector
The private sector also played a crucial role in Taiwan’s semiconductor success. Companies like TSMC, United Microelectronics Corporation (UMC), and MediaTek leveraged the supportive policy environment to drive innovation and grow their businesses. They invested heavily in research and development, built sophisticated manufacturing capabilities, and established strong relationships with international clients.
International Partnerships
International partnerships were another key factor in the development of Taiwan’s semiconductor industry. In the early years, partnerships with foreign companies and institutions helped Taiwan acquire technology and know-how. For instance, when TSMC was established, it formed a technical cooperation agreement with Philips, a Dutch company, which provided access to advanced semiconductor manufacturing technology.
Foreign direct investment also played a role, with multinational firms setting up operations in Taiwan to tap into its burgeoning technology ecosystem. This brought additional capital, technology, and expertise into the industry.
The development of Taiwan’s semiconductor industry reflects a successful partnership between government, industry, and international partners. It showcases the power of strategic policy support, private sector innovation, and international collaboration in driving technological progress and economic development.
Did Taiwan engage in protectionist policies in any of its key industries throughout its history?
Like many other countries that successfully transitioned from developing to developed status, Taiwan used a mix of policies throughout its economic development history. These often involved strategic protectionist measures, but also included liberalisation policies and incentives designed to promote certain industries, especially those considered vital for economic growth and technology advancement.
In the post-World War II era, for example, Taiwan did employ certain protectionist measures to nurture its nascent industries. This was a part of its import-substitution industrialization strategy aimed at reducing dependency on imported goods. High tariffs and non-tariff barriers were imposed on certain goods to protect local industries from foreign competition, allowing them to grow and become more competitive.
In the 1960s, Taiwan shifted towards an export-oriented industrialization strategy, focusing on labour-intensive industries such as textiles and electronics. While this involved liberalisation in many areas to promote exports and attract foreign investment, the government still played a strategic role in directing resources towards these industries. This included providing them with subsidies, access to cheap credit, tax breaks, and other forms of support.
The development of Taiwan’s semiconductor industry in the 1980s and beyond is a notable example of strategic industrial policy. While not strictly protectionist in the sense of shielding local firms from foreign competition, the government played an active role in fostering this industry. This included direct government investment in research and development through the Industrial Technology Research Institute (ITRI), the establishment of the Hsinchu Science and Industrial Park, and the spin-off of the Taiwan Semiconductor Manufacturing Company (TSMC) from ITRI.
Over time, as Taiwan’s economy matured and its industries became more globally competitive, many of the initial protectionist measures were gradually phased out. Today, Taiwan is an active participant in the global economy and a member of the World Trade Organization. However, the government still plays an active role in promoting innovation and supporting strategic industries, such as the semiconductor industry.
Ross D. Franklin/Associated Press
It’s important to note that while strategic industrial policies and protectionist measures played a role in Taiwan’s economic development, so did other factors. These include a strong emphasis on education, the development of robust infrastructure, the fostering of a strong entrepreneurial culture, and the ability to attract foreign investment and technology.
