I have seen the future, and it's in the Far East

Economic lessons from the Far East

6 minute read
It's been two months since I arrived in Taiwan, and no one has asked me for money. For that matter, last time I lived in Taiwan, back in the early 1990s, it was three years and no one asked me for money. In my hometown of Philadelphia, by contrast, I am asked for money at least once a day as I walk up to Broad Street to go to work. That's a sad economic comparison, but also an interesting economic lesson.

To understand the current economic situation in the U.S., it helps a lot to leave the U.S. Americans console themselves by pointing out that the economic crisis hit everywhere in the world, not just at home. But that's far from an accurate reflection of reality.

You can sense this the moment you arrive in a place like Taipei, and compare it to a place like Philadelphia— or even Washington, D.C., since Taipei is a capital city, too. There are virtually no homeless people here. The percentage of the population in Taiwan below the poverty line has hovered around 1% for several years. In the U.S., it's above 14%. More important, there are none of those "you shouldn't go there" neighborhoods for which the U.S. is so famous.

It's not that there are no criminals— it's that there is very little economic crime, because there is not such gross inequity in the distribution of wealth. There is even a funny little joke here among foreigners: "You know why foreigners are never the target of muggings here? It's because the locals are richer than we are."

Taiwan did indeed experience an economic slowdown in 2008. People lost their jobs, businesses closed, and times were tough. But unemployment is less than half of what it is in the U.S., and now the economy here in Taiwan is recovering. The downturn was also mitigated here by several interesting factors.

Making do

For one, the Taiwanese— like other Asian cultures — still know how to make do. It's only a generation or so since Taiwan was a relatively poor country, and people here still are able to trim down their lifestyles in lean times. In the U.S., we may be finally learning to do that, but making do is certainly not a cultural trait.

More critically from the perspective of a U.S. citizen living overseas, here in Taiwan when you lose a job, you don't lose your health insurance, which is largely subsidized by the government. Health insurance for me, my wife, and our child— combined— costs only $100 a month, including prescription drugs. Education too is also almost free, with just a nominal monthly payment, in a high-quality public system.

So Taiwan has survived through a peculiar combination of what Americans might call "socialist" structures, along with what the Tea Party might embrace as a spirit of Asian hard work and independence.

Conservative and liberal

Indeed, while Taiwan has created a social safety net in the areas of education, medical care and care for the elderly, it has also taken a very traditional stance in terms of entrepreneurship, taxation and saving— stances that would make any American conservative proud.

Taiwan is a relatively easy place to set up a business. There is little red tape, and tax rates are low— for employees of regular businesses as well as for business owners. In fact, for essentially the same salary that I make in the U.S.— in absolute terms— I pay only half the tax rate.

By contrast, U.S. tax law hits sole proprietors especially hard, making them actually pay what is essentially a penalty for running their own operation and being entrepreneurial. Philadelphia is an especially bad case, with its absurd "Business Privilege Tax."

No deficit

Even given that Taiwan was hit by the global economic crisis, there is a critical difference between its situation and America's: The U.S. has a huge deficit, while Taiwan has billions (yes, billions) of dollars in foreign exchange reserves, ranking about fourth in the world. Taiwan also has a personal savings rate some 20 times that of the U.S. This means it's in good shape to weather future economic storms.

These facts are critical to understanding that the crisis in the U.S. is quite different from Asia's, both in degree and kind. Places like Taiwan and Japan are not suffering the related ills that now plague America: an aging infrastructure, millions who lack health insurance, high dropout rates in schools, and so on.

The Times views Japan

Last month The New York Times ran an article entitled, "Japan Goes From Dynamic to Disheartened." The article's general tone repeated a false mantra that we've seen in the media generally: that the U.S. is not alone in this recession, that somehow "even the great Japan also has its economic foibles," so the decline we see in the U.S. is somehow part of a normal economic pattern.

But I lived in Japan during its recession in the 1990s, and visited again during the economic downturn that started in 2008. Did Japan suffer? Certainly. Did people lose their jobs? Yes. Did the banks and the government make critical errors in terms of investment and financial policy? Without a doubt. But the end result was nothing like what we see in the U.S.

Whose resilience?

The Times article also makes the baseless assumption that somehow the U.S. has what it takes to "bounce back," while Japan doesn't, "largely because of the greater responsiveness of the American political system and Americans' greater tolerance for capitalism's creative destruction." The "responsiveness of the American political system" so far has been quite debatable, and our future promises political stagnation, not thoughtful policy implementation.

One likely reason: Japan still has a strong manufacturing base as well as a highly educated population. A more subtle issue, and one hardly mentioned in the Times article, is that Japan — like Taiwan, and mainland China— has enormous cash reserves, which the U.S. lacks. Tight as times are for the Japanese, they still have money to draw upon.

One other thing: Like the Taiwanese, the Japanese know how to "do without" when things go bad. After all, they've survived a lot worse: a devastating war and two atomic bombs. Americans, when things go bad, ask the government for a bailout.♦

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