The Global/Regional Development and
Historical Transformation of Taiwanese Welfare Regime
Hung-Jeng Tsai
(draft only, please do not quote)
Paper Presented in the Joint Annual Conference of the East Asian Social Policy
Research Network (EASP) and the United Kingdom Social Policy Association (SPA),
University of York, United Kingdom,
July 16th-18th 2012

Associate professor, the Department of Sociology of National Sun Yat-sen University, Taiwan.
E-address: [email protected]
0
Abstract
In this article we explore the transformation of Taiwanese welfare regime and its
possible scenarios in the coming future. In order to apply welfare regime to Taiwan’s
case, we first give a critical inspection on Esping-Andersen’s Three Worlds model and
propose that analysis of historical institutions, instead of quantitative index, should be
a better approach to extend regime analysis into other developing countries. Second,
due to Taiwan’s highly export-dependent development, institutional analysis on
domestic transitions of capitalism and welfare regime must take into consideration
global/regional structural changes, especially East Asian regionalism, as an embedded
matrix.
We divide welfare regime in Taiwan into three periods. The first one was the
period of the Bretton Woods System from 1945 to 1979, in which Taiwan’s
conservative welfare regime based on occupational social insurance was set up within
the US anti-communist strategy and the KMT authoritarianism. The second period
was from 1980 to 1999, in which regional economic structural change interacted with
liberalization movement in Taiwan. Demands for welfare reform in tandem with rapid
process of democratization stemmed from this critical historical conjuncture cast by
intertwined top-down international pressure and bottom-up politico-social movement.
A relatively social-democratic National Health Insurance (NHI) scheme was quickly
projected and put into practice in dealing with these challenges. In the third period
from 2000 to date, while the NHI has taken a firm hold and a more equal pension
system across different occupation groups is building, some factors are putting
Taiwan’s burgeoning social-democratic welfare regime at a disadvantage. The first is
currently unfolding population aging, which originated in the family plan promoted
for quicker capital accumulation in the first period. Aging will critically impact on
NHI and pension insurance by raising contribution rates up to 2-3 times from now on.
The second is merchanting trade due to economic regionalization after the failure of
WTO’s Doha round in the early 2000s. This integration increases unemployment and
stagnant wage which together cut off insurable income. The third factor is the
tendency of populist democracy in which political elites solicit votes by flirting
welfare as free lunch, a well-established concept inherited from the first period. Fiscal
deterioration is thus eroding financial stability of social insurance system.
Key words: welfare regime, BWS, East Asian regionalism, democratization, social
insurance
1
The Global/Regional Development and
Historical Transformation of Taiwanese Welfare Regime
1. Methodological Reflections on Welfare Regime Analysis
For those who believe in free market, market mechanism provides the most
efficient way of production and distribution because it will automatically reach price
and quantity equilibrium due to the force of demand and supply. A self-regulated
market thus can only function in a market society in which social and political orders
are subordinated to economic requirement. However, Polanyi has potently argued that
economic order is merely a function of a society, in which economic operations
embed. A self-regulated market which requires to commodify humans as labor will
simply bring disaster on humans themselves.
Labor is only another name for a human activity which goes with life itself, which in its
turn is not produced for sale but for entirely different reasons, nor can that activity be
detached from rest of life, be stored or mobilized. (Polanyi, 1957: 72)
For the alleged commodity “labor power” cannot be shoved about, used indiscriminately,
or even left unused, without affecting also human individual who happens to be the
bearer of this peculiar commodity. In disposing of a man’s labor power the system would,
incidentally, dispose of the physical, psychological, and moral entity “man” attached to
the tag. (Polanyi, 1957: 73)
In Polanyi’s point of view, a basic tension in the development of a capitalist
society is that, on the one hand, humans have to be commodified as labor as possible
for the sake of capital accumulation, but, on the other, humans simply cannot be
totally commodified because they are also moral, religious, and artist beings which
are not “things” as other kinds of commodity. This forms a self-contradictory “double
movement.” That is, while people work hard to build up a self-regulated and
profit-optimized market by radically changing social configuration, the damages from
creating this brave new world will simultaneously push a society to fight against this
commodification for self-protection of the society per se.
Putting Polanyi’s decommodification and T. H. Marshall’s concept of social
citizenship together, Esping-Andersen argued, ‘A minimal definition (of a welfare
state) must entail that citizens can freely, and without potential loss of job, income, or
general welfare, opt out of work when they themselves consider it necessary.’
(Esping-Andersen 1990, 23) Based on the idea of decommodifying welfare state, he
proposes his famous three worlds of welfare state regime: the liberal, the conservative,
2
and the social-democratic regime. He indicates that the social-democratic regime is
the idealist one as it scores highest marks on the degree of decommodification and
lowest effect of stratification.
There are many critical reflections on Esping-Andersen’s trichotomy model since
its publication. Most of criticism points to the necessity of three-plus welfare regime.
So many new types of welfare regime are proposed that a scholar called this
phenomenon “welfare modelling business.” (Abrahamson 1999)
Leibfried (1992) argued that ‘Mediterranean States’1 should be categorized as
another regime. Although their regime carries conservative attribute of diverse social
security system, generous benefits are distributed through a special network of
clientelism, rather German-style social insurance. Nominally, these countries do not
have minimal social security protection, but they actually enjoy health care as one
kind of social citizenship.
Castles（1996）maintained that Antipodean States2 should be set up as another
welfare regime. It is true that their welfare distribution mainly relies on market wage
and means-tested social assistance. However, thanks to their strong labor union,
wages are determined through negotiation and demand-based system. Although social
assistance is means-tested, it covers broad assistance items. Together, these
decommodification protections created a wage earners’ welfare state, which cannot be
simply attributed to a liberal regime.
Holliday（2000）and Holliday and Wilding（2003）proposed a special kind of
productivist welfare capitalism. By verifying many variables in Taiwan, Lee and Ku
(2003) later expanded this concept into an East Asian developmental welfare regime.
In this kind of regime, the government with strong autonomy intentionally pursues
economic growth by promoting human capital through increasing education expense.
People can then rely on personal or family savings because wages are growing in a
robust economy. The government thus subordinates social policy to economic growth
on the one hand, but provides generous benefits for civil servants, military staffs and
teachers, on the other. The former appears similar to the liberal regime, while the later
presented middle-high level of stratification in the conservative regime.
Arts and Gelissen (2002) critically examined the advantages and main problem of
Three-Worlds model and provided a detailed list for all proposed fourth worlds. Their
main finding was that although scholars suggested a variety of the fourth (or fifth,
sixth) world, most models included Esping-Andersen’s original Three-Worlds. Most
scholars also agreed that the US was a typical case of liberal regime and Germany as
the prototype of conservative regime. Nevertheless, the consensus stops here. For all
1
2
They mainly referred to South European countries like Italy, Portugal, Spain, and Greece.
They are Australia and New Zealand.
3
other countries, what kind of regime they should fall into depends on what attributes
of a specific social program the researchers would like to attach more importance than
the others. The even bigger problem is hybrid cases like Netherland, Switzerland and
Japan. Even Esping-Andersen himself considers them as unsolved puzzle.
( Esping-Andersen 1990, 1997)
Esping-Andersen admitted that ‘two avenues of criticism that merit attention.’ The
first is if we need some other ‘fourth world’ models in addition to the original triad.
The second is about the basic criteria employed in the construction of the typology.
According to Esping-Andersen’s explanation, these are two interconnected questions,
in which the second one actually settles the resolution of the first. (Esping-Andersen
1999, 73)
Three reasons, Esping-Andersen explained, ask us to establish a typology: greater
analytical parsimony, identifying logic of movement, helpful tools for generating and
testing hypothesis.（Esping-Andersen 1999, 73）The principle of analytical parsimony
usually can be maintained at the cost of neglecting differences in empirical details.
‘[T]he question is how much they matter.’ （Esping-Andersen, 1999, 86）Unless
ambiguous cases point out another distinct institutional arrangement in terms of
welfare allocation and production, there is no need to set up another regime type.
For the anomaly of ‘Mediterranean States’, Esping-Andersen argued that they
were actually familialism as one sub-category of conservatism. As for Antipodean
States, Esping-Andersen admitted its distinct operational logic of de-commodefication
for market economy, but he pointed out that the model had gradually turned to liberal
regime when it was impacted by economic liberalization after mid-1980s. This
demonstrated that the fundamental operation of Antipodean States model was around
the principle of market.
Esping-Andersen did not directly respond the thesis of Productivist Welfare
Regime in East Asia. He also admitted that Japan was a hybrid of liberal and
conservative regime. (Esping-Andersen 1997) Nevertheless, he argued that the hybrid
problem was because Japanese welfare system ‘has not yet arrived at the point of
crystallization.’ (Esping-Andersen 1997, 187) It seems that Esping-Andersen believed
caring burden from population aging would eventually force Japan to end familialism
and then transform into American liberal regime. (Esping-Andersen 1997, 187-188)3
Three worlds model is therefore good enough to satisfy three reasons he mentioned
above for setting up a typology.
Esping-Andersen’s welfare regime is an inspiring conceptual framework, however,
his response to the fourth world acquires only limited success. We may agree with the
3
Actually our analysis on the case of Taiwanese National Health Insurance also implies the probability
of this scenario. Please refer to pp. 31-32.
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principle of theoretical parsimony which abstains from adding extra concepts or
variables in addition to original three worlds unless necessary. Nevertheless, his
argument is so close to a tautology when Esping-Andersen maintained that three
world model can also apply to Japanese hybrid regime once it reaches to its point of
crystallization.4 The significant message this tautological explanation reveals is that
most countries are in the status of welfare mixture rather one of three distinct regime.
To categorize 18 countries into three worlds, Esping-Andersen (1990) first
operationally defined three distinct regimes by some empirical indicators, calculated
their standard errors, and then concluded that some countries belonged to a certain
regime.5 Three clusters of regime were then determined by differences of standard
errors.6 Theoretically we cannot argue which regime of a certain country is, but only
its degree to a certain regime than the others. This was clearly displayed on the table
of welfare state clusters summarized by Esping-Andersen. In this table, Germany
registered the highest mark in terms of stratification index, but it also scored middle
level of liberal and social democratic regimes respectively. Australia, New Zealand
and Canada were in the group with highest mark of liberal regime, they also carried
middle level social democracy. Norway as one of Scandinavian countries owned
highest social democracy, notwithstanding it presented middle-level conservative
regime as well. (Esping-Andersen 1990, 74) Therefore, most of countries are
institutionally welfare mixture because potentially they all carry characteristics of
liberal, conservative and social-democratic regime to a certain degree.
As regime is defined as a set of institutional arrangement, we suggest that a
country is legitimately considered as a certain welfare regime should focus on its
dominant institution rather the sum of standard errors. A certain dominant institution
produces and distributes well-beings according to its dominant regime principle. In
this way, we can retain the conceptual advantage of three worlds model on the one
hand. On the other, the concept of dominant institution does not exclude other
auxiliary institutions, so we can explain the regime transformation when dominant
institution is replaced by auxiliary institutions during some historical conjunctures.
This in fact echoes and actualizes Espig-Andersen’s second reason to set up a
typology: identifying the logic of movement.
We may then rephrase Esping-Andersen's point as follows. According to Polanyi,
4
The argument form is as follows. (1) three world model can explain Japanese case；(2) if not, it will
be able to in the future.
5
For example, stratification in a conservative regime was defined as ‘expenditure on pensions to
government employees as % GDP. (Esping-Andersen 1990, 70-71)
6
Actually, some important issues remaind unexplained here. For example, in calculating the indicator
of decommodification, Esping-Andersen added up numbers deduced from standard deviances of
sickness and pension. How can we pile up together two different kinds of standard deviances from
qualitatively different populations?
5
the 'great transformation' of human society originated in an imposed myth of
self-regulated market by human themselves. Market competition thus became the
dominant institutional principle of welfare production and distribution. The British as
the forerunner of modern industrial capitalism is the typical example of this liberal
regime. To counterbalance the destructive force of commodification, the direct
response of society was to conserve political, social and cultural order before the rise
of self-regulated market. As nation-state managed centralized power within a defined
territory, the government in representation of state emerged as the dominant
institution and tried to regulate market by integrating traditional social protection
means of guilds, tribes and families into a conservative regime. The social insurance
system founded in Prussian Germany was the prototype of this model. Only after
1960s and under certain historical conjuncture, state intervention with market for
social welfare acquired its universal and democratic form due to the success of
Scandinavian countries we call social-democratic regime. Accordingly, market, strong
state and social-democratic state come out as three dominant institutions which
produce their own effects of decommdification and stratification. To recognize a
country's dominant institution and institutional transformation under certain historical
periods thus constitutes the main reason to judge which welfare regime the country
should belong to.
However, this approach implies a substantial methodological revision. To adapt
empirical diversity and mixture of welfare regime while keep theoretical parsimony as
well, we cannot classify all countries into three regime by some statistical regressions
at a certain temporal point as Esping-Andersen did. What we should do is to
investigate diverse and changing historical conditions that make an institution turn to
be dominant and/or replaced by other institutions under different historical situations.
It is therefore suggested that a proper combination with some insightful analytic
concepts of historical institutionalism can provide three worlds model both wider and
more accurately analytic application than statistical models in dealing with empirical
diversity.
Our second revision is about international impact on a national welfare regime.
The institutional formation and change in developing countries are more easily shaped
by institutional arrangement of international organizations.7 Specifically, two reasons
require us to discuss the impact of international institutions on Taiwan. The first is
that Taiwan's trade openness8 is always above 95% and hence its willingness and
capacity to implement social welfare system is highly conditioned by global economy.
7
Gough and Wood (2004) has already been well aware of this global dimension and proposed another
two welfare regime: informal regime and insecurity regime. Important as it is, both informal or
insecure regimes do not apply to Taiwan.
8
This is defined as imports plus exports divided by national GDP.
6
The second reason is about external state sovereignty and internal political legitimacy.
Taiwan was expelled from the United Nations after 1971. To compensate its loss of
international political presence, the sovereignty of 'the Republic of China' crucially
relies on international economic connections with other countries. This creates the
structural niche for building a liberal regime in Taiwan. However, this structural
preference for capitalists is counterbalanced by the effect of democratization which
demands for a more equal distribution. It is in this 'double movement' that Taiwan's
first universal social insurance, the National Health Insurance (NHI), was begot and
reshaped. Under what kind of historical path did this universal insurance emerge? By
what institutional factors does this NHI move toward its transformation. Does this
transformation illustrate further consolidation of Taiwanese social-democratic regime
or rolling back toward its structural favor for capitalist class as liberal regime? They
are the questions we try to explore in this article.
Our analysis develops along with two dimensions. The first one is institutional
interactions among global, regional and national levels. Like the Russian dolls,
national institution embeds within a wider regional base, which again roots in global
capitalism. This does not mean the global/regional base will determine national
welfare regime. On the contrary, it aims to disclose the richness and complication of a
national welfare inscribed with global and regional institutional arrangements and its
response to this inscription. The second dimension is to see how three level
institutional interactions go through different historical periods in which new
institutions or their transformation are created under the condition of previous
institutional inertia.
We divide welfare regime in Taiwan into three periods: the Bretton Woods System
(BWS) from 1945 to 1979, the transformative period from 1980 to 1999, and
regionalization after the East Asian financial crisis during the late-1990s. In the first
period, the global trade and financial regime aimed at facilitating both national
development and stability of international economy. In East Asia, it was embodied in
the form of the US anti-communist containment strategy upon which the
Kuomingtang (KMT, Nationalist Party) authoritarianism and Taiwan’s conservative
welfare regime based on occupational social insurance was settle up. Although
dollar-gold standard of the BWS was terminated in 1971, path dependent
development led to dollar standard which gave the US even bigger leverage for
financial expansion and continued to support capital accumulation of East Asian
flying geese pattern. The authoritarian government took advantage of this fast
economic development to continue its conservative welfare regime even after Taiwan
was expelled from the United Nations.
Path dependent development in the first period could not continue in the second
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period of the 1980s. In 1983 the US, for the first time after WWII, turned from a
creditor country to a debtor one. To keep stability of the dollar standard, the Plaza
Accord was signed in 1985 to raise currency value of the East Asian countries, then
main holder of international dollar reserves. The cost of export-led development thus
soared up and opened the door for extending division of labor into Southeast Asia and
China through foreign direct investment (FDI). This top-down pressure hit the KMT
government then strained by bottom-up demand for democracy and consequently
pushed Taiwan moving toward the process of democratization. Two forces fought
against the authoritarian government during democratization. One was social demands
suppressed by the government for state-led development, shown as various social
movements to improve labor conditions, pollution problems and low level of social
welfare. The other was capitalist class used to be a junior partner under state-led
development now demanded for further capital accumulation. Government’s response
for the former issue was to promulgate a variety of social reforms, including social
welfare programs, which formed the potential of social-democratic welfare regime.
The most important example was the National Health Insurance claimed to be
effective by 1995. As for the issue of capital accumulation, government decided to
privatize business domains long monopolized by state-owned enterprises on the one
hand and to continue tax concessions for investment and industrial promotion on the
other. Taiwanese bourgeoisie grew stronger and increase their power to subordinate
state and society to the principle of market. This development formed the potential
toward liberal regime in the next stage.
In the third period, while globalized economy dependent on over issued dollars is
still the main cause for economic crisis, the East Asian regionalization of trade and
investment triggered by financial crisis and impasse of the WTO Doha round is
gaining more weight. Taiwanese enterprises lower costs by exporting labor-intensive
manufacturing investment, but this kind of merchanting (triangle) trade results in the
rise of unemployment rate, GDP growth but stagnated wage and increasing gap
between capital income and wage income. As the core institution of welfare system,
contribution is collected by wage income. Rising unemployment and decreasing ratio
of wage income in GDP will directly hit financial stability of social insurance, which
will be exacerbated by quick aging population accelerating by 2013. Financial
imbalance requires to lift contribution rate, which, however, is viewed as one political
taboo as we can find in the past Taiwanese elections. If this political reality is not
changed, lowering benefit qualifications and level will be a likely scenario. Universal
insurance established in the transformative period will decline into a cheap system
which no longer provides protection enough for middle class and above. Commercial
insurance could rise to satisfy this ‘market demand’ and then Taiwanese burgeoning
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social-democratic welfare regime might turn to a liberal regime.
2. Institutional Origin of Postwar Taiwanese Welfare Regime (1945-1979)
2-1 global/regional institutional arrangement
After the Second World War, the core Western states sought to reconstruct their
economies to ensure economic growth and full employment and to create a stable
world economic order (Gilpin, 1987, 131). In the classical Gold Standard era
(1870-1914), domestic credit system was based on gold and linked with the other
countries through relatively fixed exchange rates. Therefore a stable world economy
usually circumvented a national economic purpose, for instance, domestic full
employment. To mobilize their economies for war and domestic needs, states
unhooked themselves from the system of fixed exchange rates and set up trade
barriers to improve their balance of payments. “A major consequence of the First
World War was a nationalization of the world monetary system” (Gilpin, 1987, 128).
Polanyi (1944) called this phenomenon as "the snapping of the golden thread." The
economic nationalism in this era ended with the decade of the Depression that
prepared the stage for the postwar Bretton Woods System (BWS).
The BWS required that every currency fixed its exchange rate to the dollar, the
value of which was then fixed in terms of gold at $35 an ounce. Exchange rates fixed
through dollar, not gold directly, produced more international financial flexibility
compared to the automatic adjustment of the Gold Standard. Two organizations were
set up to keep the regulation for international monetary order and balance of payments
of individual countries. One is the International Monetary Fund (IMF). It provided
‘bail-out’ loans for countries with short-term balance-of-payments difficulties so that
those countries would not need to start a competitive devaluation or import
restrictions. The other institution was the World Bank. It provided large-scale loans
for national infrastructural projects like dams, highways or power plants. With the
loans from the IMF and World Bank, states had more capacity to carry out their
national development in coordination to the world economic system. As Ruggie said,
this was the compromise of embedded liberalism. “Unlike the economic nationalism
of the thirties, it would be multilateral in character; unlike the liberalism of the gold
standard and free trade, its multilateralism would be predicted upon domestic
interventionism” (Ruggie, 1982, 393).
Obviously, a stable dollar-gold ratio was the pivot of the BWS. This seemed
quite natural at that time since the U.S. held 70 % of the world total financial
monetary gold stock in 1947 (Walters 1992, 73). This overwhelmingly high ratio of
gold stock supported the dollar as world money since the BWS. The U.S. had to run a
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balance-of-payments deficit in order to pump up capital into world economy even
though the U.S. had already accounted for one-third of the world‘s economic output
and more than half of its production of manufactured goods in 1945 (Rapley, 1996,
35). While the U.S. could not adjust its exchange rate to improve international trade,
this disadvantage was greatly compensated with the unparalleled advantage for
expanding its purchasing power to support its economic, political and military
presence abroad simply by printing more money only if other countries still had
confidence in the dollar‘s value. The strongest capability of material output and
capital export were operated in coordination with the strong demands for postwar
European recovery (the Marshall Plan) and a general wave of national
industrialization in the Third World. Together they backed up the U.S. worldwide
intervention in the postwar development of the other countries and constructed the
core foundation of the U.S. hegemony.
The US intervention in East Asia was deployed in the Cold War starting from the
burst of the Korea War. The initial goal of the U.S. postwar East Asian policy was to
dismantle Japanese imperial militarism so as to guarantee a peaceful, democratic new
Japan. The package of reconstruction included taking apart the financial engine for
war, zaibatsu, democratizing the political system and reforming its militaristic culture.
However, the emergence of the Cold War confrontation during the late 1947 to 1948
changed this project radically. The priority was then no longer Japanese sociopolitical
reform, but the balance-of-power in East Asia. Given the deep colonial connections
built in the prewar East Asian Co-Prosperity Sphere, restoring this network through its
Japanese head would be crucial for the U.S. to check the communist powers in East
Asia. Beginning in 1947, Washington and the Supreme Command for the Allied
Powers under General MacArthur started to reconstruct Japan as the economic
linchpin of Asia within the U.S. anti-communist alliance framework. As Borden said:
This “reverse course” enabled traditional Japanese business bureaucrats and
political elites to remain entrenched in political power and ended the attempt to
diversify ownership of industry. By 1949 the United States instituted a full-blown
“Japanese recovery program,” which closely paralleled the European Recovery
Program (otherwise known as the Marshall Plan) (Borden 1984, 3).
The basic economic operation of this ‘Asian Marshall Plan’ is known as “flying
geese model”. Japan was chosen as the linchpin to integrate the regional economy. As
the only industrial power in the region before the war, Japan was assigned to access
raw materials in Southeast Asia and to export capital goods and manufactured
products to the other East Asian countries. Through this cycle, Japan was able to make
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up their dollar deficit with the U.S. In turn, the ‘following geese’, like South Korea
and Taiwan, exported their labor-intensive products to U.S. market in order to
accumulate capital through trade surplus. The consequence was a regional economic
growth based on export-oriented industrialization centered on the US market in
contrast to the import-substituting industrialization of Latin America in the same
period.
The political economy of flying geese system was to create a vibrant regional
economy but kept the region politically and militarily dependent upon the U.S. Rapid
economic growth in this region would help to reduce the military expense supported
by the US, while military and diplomatic dependence made East Asia subject to the
U.S. unilateralism. At the best, economically prosperous East Asia could even receive
the US investment for its offshore production base (Gold 1988, 185). Authoritarian
state-led development in East Asia, in its prototype of Japanese keiretsu, was thus
acceptable or even intentionally promoted because it served both to the top priority of
US anti-communism and national economic development of individual states in the
region.
2-2 formation of Taiwanese conservative welfare regime before 1971
Global/regional institutional arrangement created the soil for the conservative
welfare regime in Taiwan. The mission of the US was to build Taiwan as an
economically self-sustained and politically anti-communist garrison. It was under this
strategy that the US pushed strongly the KMT government to carry land reform,
family plan and labor insurance. Land reform successfully channeled land capital into
industrial capital and squeezed rural labor into urban industrial sector. Family plan
promoted capital per capita by reducing Taiwanese fertility rate. Labor insurance was
set for the quality of this nascent urban industrial sector.
The KMT government shared with the US strategy in terms of capital
accumulation and political stability, but the government got its own agenda.
Externally the KMT government faced following up attack from the Communist
military. Internally a Taiwanese society colonized by Japan for half-century was cold,
if not resentful, to this suppressive military ruling machine after the tragedy of the
2-28 incident.9 To survive these double challenges, externally the KMT government
9
On the evening of February 27, 1947, a Chinese agent of Tobacco and Wine Monopoly Bureau beat
an old Taiwanese woman selling illegal cigarettes and shot a bystander who protested against this
violent abuse. The news spread over the island in three days and ignited an island-wide riot. In only
four days after the event, the 2-28 Resolution Committee was organized by the representatives from
business associations, labor unions, students, people, and electoral elites who asked for a
self-governing Taiwan. On March 9th, the Chinese troops landed in Keelung pronounced the
Resolution Committee illegal and started a deliberate massacre, both raking the streets with random
firing and systematically bagging and executing intellectuals and electoral elites. Some thirty thousand
or more Taiwanese fled to Hong Kong, Japan, and China. The number of casualties has been officially
11
took advantage of the US Aid and aligned itself with the US anti-communist strategy
as a ‘free China’ which was willing to carry out limited democracy and social reforms.
Internally this 'free China' actually demobilized the civil society in all-round ways.
The Martial Law was implanted in 1949 which frozen the Constitution and banned
free speech, free association and free assembly. Social groupings such as workers,
farmers and professionals were organized into hierarchal structure of state-licensed
associations infiltrated by the KMT.
As retaking mainland China was the priority of the KMT government, most of
resources accumulated were devoted into military expense. Only a very limited ratio
was distributed to social insurance programs. People qualified for these meager
welfare programs were government employees and labors who performed functions of
ruling and industrial production crucial for the regime’s survival. These two kind of
people covered by social insurances only accounted for 6.66% of total population
before 1960 (figure 1). In contrast, peasants who accounted for over half of total
population and bore the burden for squeezing labor and capital from rural to urban
sector did not receive any social protection at all. Even within insured groups, the
government still showed its differential benevolence. The most important difference is
that government employees under the Government Employee’s Insurance (GEI)
enjoyed both inpatient and outpatient medical benefits while workers under the Labor
Insurance (LI) only had inpatient benefits. This difference turned to be a driven force
for reforms as medical costs soared up during the 1980s.
Therefore, the initial establishment of social insurances was not a response to
bottom-up demand for socioeconomic issues, but the preference of an authoritarian
state shown for those people it favored. Since this was the mercy from the state and
the benefits was low, contribution rate was accordingly set at a relatively low level. In
GEI, the payroll tax was set at 7-9% of ‘insured income’, of which the state paid 65
percent. For LI, payroll tax was set at 7% of insured wage, of which workers paid for
only 20% and employers for the rest 80%.
Taiwan’s social insurance system thus started with a state-led conservative
regime. An authoritarian state created an occupation-based insurance system to
neutralize external communist challenge and internal social hostility. With financial
resources devoted as limited as possible, this fragmented insurance system did not
respond to social needs and had quite low decommodificaton effect except for
government employees and military persons. The main dominant institution to
estimated as at least eighteen thousand. Some scholars who study this ‘incident’ maintain that the
Resolution Committee wanted to “set up a government that, whether ultimately sovereign or not, would
be run by Taiwanese largely unconstrained by the Chinese central government.” Therefore, they call the
conflict an uprising or rebellion instead of an incident (Lai et al. 1991, 7-8). A deep ethnic demarcation
was carved between Taiwanese and Chinese after the 2-28 conflict.
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distribute resources was an authoritarian state strong enough to overlook the need of
labor and farmers in order to accelerate development and capital accumulation.
2-3 Gradual institutional change in the 1970s
The BWS friendly for national development finally encountered its demise in
1971 because offshore dollars had already exceeded the U.S. gold stock by over 300
percent (Walters 1992, 75). To keep its political and economic autonomy, U.S.
President Nixon rescinded the convertibility of the dollar into gold in 1971.
Theoretically, the international monetary order based on the fixed currency rate of the
BWS was thus deregulated into a floating system. In reality, as the US market was
still the pivotal engine to absorb majority of world exports and the US still strongly
kept its international hegemony, the dollar therefore maintained its irreplaceable role
in the international financial and trade systems. East Asian flying geese development
thus retained on original institutional course and moved toward more capital-intensive
industrial upgrade.
However, the situation was more complicated in the case of Taiwan. As time
went by, Taiwan as the sole legitimate representative of the whole China appeared
more and more impractical, if not absurd. This legitimacy of the Republic of China on
Taiwan was seriously damaged by the US-China rapprochement due to the
Sino-Soviet conflicts and Vietnam War.10 On July 9, 1971, U.S. Secretary of State
Kissinger visited China for three days. In September, Japan severed diplomatic
relations with Taiwan. On October 25, Taiwan was expelled from the United Nations.
Finally, the US terminated official diplomatic relation with Taiwan in 1979. External
diplomatic disaster touched off internal doubts about the legitimacy of the KMT’s
authoritarian rule over Taiwan. Political opposition took the opportunity to regroup
and demanded democratic reform.
The KMT government coped with these dramatic challenges by political,
economic and social reforms. Politically, it recruited young Taiwanese elites and
intellectuals into the KMT regime; it also allowed the Taiwanese to directly elect
‘supplementary’ seats in three national representative bodies so as to reinforce the
legitimacy of the KMT government. Economically, the government planned to
enhance economic connections with other countries so as to compensate the loss of
international political presences. To back up this so-called ‘practical diplomacy’, the
government actively started the ‘ten major projects’ that aimed at promoting Taiwan’s
economic muscle by upgrading heavy industrial capacity of petro-chemical industry.
In terms of social reform, outpatient care was added to the LI and more employees
10
The U.S. President Nixon clearly stated in 1967, “Any American policy toward Asia must come
urgently to grip with the reality of China . . . Taking the long view, we simply cannot afford to leave
China forever outside the family of nations” (Liu 1997, 283-284).
13
including white collar class like journalists, cultural workers, employees in non-profit
organization were allowed to join LI. As a consequence, the percentage of insured
people quickly grew up from 6.14% in 1970 to 13.01% in 1979 and kept rising as the
process of democratization through the whole decade of the 1980s (figure 1). The
government intended to keep people’s political loyalty by incorporating more people
into the social insurance based on ‘state mercy’.
All these reforms effectively cushioned great external impact and stabilized the
KMT regime. However, with the benefit of hindsight, we found that these institutional
modifications triggered a series of changes in state-society relation and eventually
pushed the authoritarian state-led development into crisis. Political reform opened the
gate of a more intensive period of liberalization in the turbulent 1980s and led to
democratization in the 1990s. Economic reform made state more dependent on the
cooperation of growing capitalists and thus more vulnerable to capital strike. As for
social reform, quick increase of insurees created bigger deficits as contribution rates
were set too low to keep financial balance. The contrast of power among state, market
and democratic society was in a position for change and so was Taiwanese
conservative welfare regime.
3. Conjuncture of Historical Transformation (1979-1999)
3-1 global /regional institutional transformation
The operation that the growth of the international economy rested on the U.S.
balance-of-payments deficit could not last forever. Eventually the amount of official
dollar holdings abroad would reach or even exceed the value of American gold
reserve if the deficit kept growing this way. Unfortunately it is the tendency going
through postwar period and the main driven power for financial crisis to date 11
(figure 2). Besides, the overvalued dollar exported by the U.S. then became a
unilateral political action that forced recipient countries to support U.S. hegemony.
The balance-of-payments deficit of the U.S. would probably not serve well for the
collective interests of international economy or those of the U.S. allies. With U.S.
spending ballooning due to the Vietnam War, Eurodollars grew from $3 billion in
1960 to 75 billion in 1970. By 1984 the amount had reached more than one trillion.
The rising oil prices provided another 50-80 billion petrodollars for recycling and thus
expanded the offshore capital market from $315 billion in 1973 to 2,055 billion in
1982. (McMichael, 2000, 115-117; Held et al. 1999, 202; Arrighi, 1994, 312).
The impact of floating exchange rates increased the instability of the
11
The US and its trade partners all worried about huge financial debt accumulated in 1987. However,
compared with the scale developed from 1992 to 2006, the financial debt in 1980s was relatively
minor.
14
import-substitution industrialization (ISI) countries, especially Latin America, which
relied on capital import from international money market to finance their ISI projects.
The growing debts of the ISI countries finally moved from commercial banks back to
the official BWS institutions, IMF and World Bank (Cox 1987, 301-302). By 1988,
the composition of loans to these ‘less developed’ countries was 6 percent from
private banks in contrast to 88 percent in multilateral loans (McMichael, 2000, 165).
Through repayment of the multilateral loans, the BWS institutions implemented the
Structural Adjustment Project (SAP), which emphasized export-led growth (trade
liberalization and exchange rate reform), improved domestic capital formation (tax
and financial reforms), and the reduction of government intervention (Table 1).
It was under this neoliberal transformation that bright performance of the East
Asian countries was praised as a successful paradigm because of their export-oriented
development. As a matter of fact, they were too successful due to their state
intervention in tariff, exchange rate and industrial policies, which were responsible for
their huge unbalance trade with the US. As the surplus of the U.S. financial account
accelerated since 1983 and reached its first peak in 1987, large debts pressed then the
Regan Administration to demand currency appreciation of trade partners against
dollar in order to boost up the U.S. export and to cut off deficit. In 1985 the Plaza
Accord was concluded to depreciate dollar in relation to its main trade partners.
This surge of appreciation started a cascade of FDI in the East Asian countries.
By 1989 Japanese firms invested four times as much as that before the Plaza Accord,
five times as much in South Korea and Malaysia, six times in Singapore, fifteen times
in Hong Kong, twenty five times in Thailand (Pempel 1999, 67). Similar impacts
appeared in South Korea, in which investment rates soared up by 56.4 and 43.5
percent respectively. Hong Kong accounted for 30 percent of the total FDI in China.
Taiwan also contributed another one-third FDI in China by 1996 (Palat 2001, 4475).
Surging intra-regional flows of trade and labor in corresponding to capital export led
to regionalization reinforced by the globalization trend since the GATTs of Uruguay
round negotiation from 1986 and WTO officially commenced in 1995.
This wave of capital export was actually a consistent extension of the
developmental state strategy. For EOI-led economies, a reasonable way to cushion
currency appreciation was to shift labor-intensive manufacturing to low-wage areas.
The industrial relocation under developmentalism was so effective that it boosted
regional manufacturing capacity dramatically.12 However, the promoted output had to
be coordinated by competent pilot bureaucrats that, unfortunately, had been fatally
compromised by cross-border expansion of production network and deregulated
12
By some estimates, just five states - Indonesia, Malaysia, the Philippines, South Korea, and Thailand
- accounted for almost 50 per cent of the growth in world manufacturing output between 1991 and
1996” (Palat 2001, 4477).
15
national control on private capital flow. As a consequence, overproduction, falling
profit margin and high debt-to-equity developmental strategy together cast a highly
vulnerable regional economy for financial disturbance that finally traveled down to
the Asian financial crisis around 1997-1998 (Palat, 2001). The neoliberal
transformation in the name of globalization since the 1980s had provided the
structural advantage for a rising capitalist class in East Asian state-led countries to
move beyond state regulations. It was under this structural change that Taiwanese
government carried out its liberal reform after the mid-1980s. Taiwanese capitalist
class started to export capital in the form of foreign direct investment (figure 3) and
developed itself into a ‘class-for-itself.’
3-2 democratization and the emergence of a bourgeois state
While the KMT opened supplementary elections to cushion eternal political
impact during the 1970s, these elections quickly turned to be the arena for dissenting
voices and mobilizing collective action. In the supplementary election for the central
representatives of 1975, Kuo Yu-hsin, a prominent native dissident, was defeated by a
co-opted Taiwanese big capitalist’s buying votes and the KMT’s cheating. About
twenty thousand furious people went to the street to protest the outcome of the
election. For the first time since the 2-28 Incident, this election showed the opposition
a more radical mass base was there for an alternative way to counteract the
suppression of the KMT. Encouraged by this phenomenon, many opposition figures
rose to challenge the KMT with the common label of Tang-wai (outside of the KMT)
for the 1977 election. In a vigorous competition for the Taoyuan county head, angry
crowds gathered again to protest the KMT’s ballot cheating. About ten thousand
people in Chungli, a major city of Taoyuan, went on a rampage, attacked a police
station, and finally burnt it down.
As Gold said, “In retrospect, the Chung-li Incident offers a unique key to
understanding both the success and the shortcomings of Taiwan’s development
strategy wherein a strong authoritarian state guides and participates in rapid economic
growth while suppressing the political activities of the social forces it has generated in
the process.” (Gold 1986, 3) The election victory and the Chung-li incident itself
encouraged the opposition to advance further toward organizational development.
When the KMT government unexpectedly cancelled the upcoming national election
due to Jimmy Carter’s announcement for establishing official diplomatic relation
between the U.S. and China on December 16, 1978, despite government threats and
arrests, the opposition shifted their political arena to more radical mass rallies and
prepared to organize a political party. These actions ended up in a comprehensive
arrest in 1979 after the violent conflict of a street demonstration, so-called the
16
Kaohsiung Incident.
Perhaps to the surprise of the KMT and the whole society, the Kaohsiung
Incident only gave a temporary blow to the opposition. In the resumed election of
1980, the wives, relatives, and defense lawyers of many imprisoned opposition
leaders embarrassed the regime with a landslide victory, which reflected the grass-root
judgment on the KMT’s March 1980 military trial. This victory revealed that
Tang-wai movement has established its legitimacy in society. Thus the Tang-wai soon
restored its momentum and continued its drive toward forming a political party.
The rebounding challenge of the opposition forces helped to induce an
unprecedented wave of social movements and protests after 1983. Rapid industrial
development for the past three decades had accumulated a lot of contradictions like
worker demands for retirement funds, pollution, rural underdevelopment, corruption,
and so on (table 2). These protests had close connections with the opposition camp in
terms of their timing, type of movement, and leadership. Social groups such as labor,
farmers, students, environmentalists or minority groups could speak out mainly
because of the political liberalization pushed by the opposition forces. While protests
before 1985 usually were under 500 people in size, they were often more than 500 or
even thousands of people after 1985. The type and frequency of social movements
interacted with political actions and made it difficult for the KMT to simply suppress
by coercion without damaging political stability and its own legitimacy. Social
welfare again was proposed for political integration. The typical example was Framer
Insurance that was tentatively put into effect in 1985 and only turned to a
comprehensive program after a violent farmer protest in 1988 (figure 1).
Starting from the early 1980s, most social movements attacked labor and pollution
problems and thus raised costs of wage and land which damaged Taiwan’s ‘excellent’
investment environment. So when Taiwanese dollar soared up to almost 40% between
1985 and 1987 after the conclusion of the Plaza Accord in 1985, Taiwanese capitalists
started to express their reluctance for new investment. The result of this capital strike
was clearly revealed in the discrepancy between the savings rate and the investment
rate, which quickly diverged from 1981 to 1986 (table 3).
All these political and economic, external and internal factors combined together
to indicate that the KMT needed a new regime to survive the inevitable qualitative
transformation of Taiwanese development. Politically, the Martial Law was lift and
Taiwan started to move on the road of election-driven democratization. Economically,
the government conducted a series of liberalization reform. Arenas used to be
monopolized by the state-owned enterprises were released for private investment.
Some important capital-intensive state-owned enterprises were even sold to big
consortium and started the process of privatizing public enterprises (see table 4).
17
These privatization and marketization resulted in some consequences. First, scale
of top 100 business groups grew bigger from 1981 to 1998 either in terms of group
divided by GNP (from 28.77% to 53.88) or group employees/total employed
population (from 4.62% to 8.29%)(Chu and Hung 2002). Second, in contrast to the
growth of capitalist class, income distribution was aggravating. Gini coefficient
reached its lowest point in 1977 (0.284) and then steadily climbed up to the highest
point in 2001 (0.35) as we can see in figure 4. Third, trade liberalization led to ratio of
custom duties in total revenue declined while income tax rose up as the primary
source of state revenue. Since payroll tax accounted for about 75% of income tax, it
reflected the intensifying commodification of Taiwanese labor. (Wu 2003, 55)
The complementary part of this privatization of production means was tax
reduction to promote private consumption. Since market was the most efficient way to
distribute welfare, government had no reason to replace private consumption with
public spending. In other words, when the KMT authoritarian regime was pushed
back by democratic pressure, Taiwanese civil society did not deliberatively tell the
difference between an authoritarian government and a big government with
social-democratic concerns. Democratic society was simply equated to a free society
with a free market. Tax elasticity dropped down from 1987 to 2002. In some years
they were even negatives. As a consequence, outstanding debts to GDP after 1992
raised to two-digit and accounted for one-third of GDP for the past three years.
Decreasing revenue constrained government's fiscal devotion to social welfare.
Although the ratios of social welfare expenditure increased at a two-digit pace after
1995 due to democratic pressure, their shares of the GNP actually remained stable
(table 5).
3-3 the formation of National Health Insurance
Wong (2004) argued that democratization competition plus state-led development
should be given credit for building such a universal health insurance scheme in 1980s
and resisting privatization in 1990s. On the contrary, Lin (1997) strongly argued that
instead of a democratic product this universal health insurance was a statist scheme
which was actually an unintended consequence of path-dependent development
because the state could not change institutional inertia set in the early period. Actual
situation was subtle. While democratization pushed back the authoritarian government
and made space for dissenting voices of nascent civil society and capitalists, both of
them were not strong enough to replace or even challenge state-led development,
especially on a technically complicated issue such as health insurance. This gave the
KMT government the Bonapartist space to engineer the whole system based on
professional opinions and to reach a balance among state fiscal burden, social need for
18
health care, and capital accumulation in medical enterprises.
Democratic competition pushed the KMT government to incorporate more people
into insurance system (figure 1). However, as low contribution rate was the gift of
state benevolence, more enrolled people directly brought government’s fiscal burden
and serious deficit in each insurance system. The deficit of GEI registered 3.5 billion
New Taiwan Dollars (NTDs) annually from 1986 to 1993, about 1.5 times of total
revenue. Total expenditure of LI reached 84-107% of annual revenue from 1980 to
1993. Although accumulated revenue showed 8 billion NTDs by 1993, but its unpaid
old-age benefits was about 108 billion. Thus the potential deficit of 100 billion was
about 86% of total annual premiums collected or 90% of total expenditure in
1993.The fiscal condition of FI was the worst. It had been in red since the first year’s
operation and total expenditure averaged 158% of revenues from 1986 to 1993. By
1993, the eve of implanting NHI, total deficit of all kinds of social insurances had
reached 123.6 billion, about 11% of total budget of the central government and over
all social welfare expenditure in the same year (Lin 1997, 137-140; 2002).
Democratization pushed the expansion of ‘state benevolence’ in form of low-rate
social insurance system. The increasing deficit of social insurance system was then
aggravated by privatization project which transferred premium burden from capitalists
to government in the form of deficit (table 6). This ‘double movement’, the
contradiction between commodification of labor and capital and politico-social
repercussions, drove social insurance system toward its financial crisis that required a
radical change. Consolidating the government’s political legitimacy and solving
deficit issue during the process of political democratization and economic
privatization paved the way to establishment of the NHI.
On 28 February 1986, 13 ten months before the Legislative Yaun (Congress)
elections, then the Premier announced that the KMT government will establish a
universal health insurance scheme by 2000. In July 1988, the NHI Planning Task
Force was formed to engineer the NHI. On May 20th of 1988, protesting farmers were
suppressed by the police in coercion, which enraged farmers’ movement even more.
On 28 February 1989, the Premier responded to this protest by making social welfare
concessions and advanced the date of implement of the NHI to 1995.
According to William C. Hsiao, the General-Consultant of the Task Force, they
reached a consensus on three basic principles in engineering the whole system. First,
the NHI should achieve equity in access to case and financial contribution；Second,
the old insurance system should be overhauled to improve its efficiency.；Third, the
new system should control costs at reasonable level to inhibit the growth of health
13
Although it was only till February 1997 that the government announced 28 February as the National
Memorial Day for the 2-28 Incident, the date chosen to announce FI clearly showed that social
insurance was, as usual, employed as a means to consolidate political legitimacy of the government.
19
expenditure (Lin 1997, 312). In order to achieve equity, efficiency and cost control,
the Task Force proposed an all-new grand integration of social insurance scheme into
which all people on the island over four months would be incorporated so as to take
advantage of risk pooling and to reach financial balance.
In 1990 the Task Force report to the Executive Yuan (the cabinet) a four-point
reform project. The first, perhaps the most significant reform, was a single-payer
system that was expected to maximize effects of risk pooling and spreading medical
cost more equitably. The second was to replace fee-for-service scheme with global
budget system as an important means to control cost. Third, preexisting payroll
contribution system was kept, but the ratio was readjusted to 50-50 for employers and
employees. The government could get rid of financial burden since after. The fourth
was the implementation of co-payment in order to prevent from overutilization of
medical resources (Task Force 1990).
Social insurance plays the core function of de-commodification in welfare
capitalism because it conflates ‘social’ and ‘insurance’ together. The ‘social’ side
achieves equity by the effect of risk pooling and income redistribution through
collection mechanism. The ‘insurance’ side uses financial actuary to weight benefits
by revenue in competitive medical market. Thus social insurance possesses both the
political implication of wealth socialization and market calculation of financial
actuary. Politically, the KMT government used the NHI to trump the
newly-established opposition party, Democratic Progress Party (DPP), by providing a
equitable health care system for all Taiwanese. This integrated system also
strengthened the government's administrative power in financial management and to
enhance efficiency and cost control. It was not supersizing that the government soon
adopted this new scheme and turned the scholars' ideas into policy
When the reform bill was finally presented to the Legislative Yuan (congress) in
1993, one significant change had been made for politically reason. In the original
design, the task force recommended that employed enrollees pay 50% of the
contribution and the employers pay the other 50%. However, since employed workers
in the LI only paid 20% of contribution, an increase of 30% was politically
unacceptable. By the same token, GEI, FI and the related insurance programs had to
keep this 'state benevolence' as well. The final conclusion was to inherit contribution
calculations in the pre-existing social insurance programs and thus became quite
complicated. The insured persons were divided into 6 categories which were further
subdivided into 14 groups. Each sub-groups correspondingly split different shares
among employees, employers and government (table 7).
Taiwan’s NHI thus represents an example of regime-mix with characteristics of
both social-democratic and conservative regimes. On the one hand, coverage
20
finally reached to all people sharing sickness risk in which 40% of the medical
expenses consumed by the lowest decile families. On the other hand, contribution
rates still kept different according to the insured person’s occupation status. This
welfare-mix reflected special characteristics of Taiwanese welfare regime in
transformation. The authoritarian KMT government had to respond to social needs
in a more active way in order to keep itself in power during democratization
process. However, medical delivery system was reserved for private enterprises so
capitalist class actually acquired another profitable area to continue capital
accumulation. The balanced solution was to found a universal NHI through which
the state reached its political mission by incorporating all citizens into a risk
pooling, got rid of accumulated deficit problem by a new financial control and,
finally, guaranteed the capitalists a lucrative return for their investment. 14
This Bonapartist balance was achieved because the state was still strong
enough to have executive dominance in engineering the whole system within a
relatively closed bureaucratic-technocratic circle which could take care of interests
of society and capitalists as planned. With the benefit of hindsight, we can see this
strong state was gradually phased out during the intensifying election competition.
The state could no longer keep a compromising balance between dissenting voices
of civil society and capitalist class to maintain the financial stability of the NHI. In
the new millennium, the power of capitalists getting robust during the
19080s-1990s gradually overwhelmed the call of equity because of a new round of
regionalization. The relatively social-democratic side of the NHI faced its serious
challenges.
4. Political Economy of NHI Financial shortage: Taiwanese Welfare Regime on
the Cross Road (2000-)
4-1 financial instability impact by global/regional capitalist development
In the beginning, implement of the NHI was actually not be blessed by both
experts and bureaucrats. However, as it was put in operation, public satisfaction
quickly rose from 33% in 1995 to 50% in six months and then even reached to 70%
after one year. In addition to universal enrollment, the NHI also achieved
redistribution of medical resources. More than 40% of the medical expenses
consumed by the lowest decile families were compensated by rich decile families
(Cheng and Chu 2008, 24-25). Taiwn's health care was thus ranked second in the
world, only next to Sweden, by the evaluation of the Economist journal in 2000. ABC
14
The NHI Committee for the Arbitration of Medical Costs under the Department of Health negotiates
with medical enterprises for the annual medical expenses for the program. Usually the Committee will
promise 25% profit for those ecterprises.
21
News of the US even introduced Taiwan's NHI entitled "Health Utopia" because the
NHI accomplished the major goal of reducing the public's economic burden for health
care with low contribution rate15 and high benefit coverage.
Popular as it is, the NHI is always inflicted with its problem of financial stability
which will be aggravated in the future for two structural factors. The first problem is
phasing in population aging which owes its origin in the state-led development under
the period of the US Aid (Tsai 2007).16 In order to raise capital per capita for
rebuilding Taiwanese economy as soon as possible, the US pushed the KMT
government to carry out family plan which reduced fertility so quickly from late-1950
to 1983 (figure 5). Accelerating falling fertility rate during 1960s-1970s did release
load of childbearing at that time. However, it creates a much larger old dependency
ratio after 40 years. This accelerating ‘aging tsunami’ in the next decade will strain the
NHI expenditure from both sides. On the one hand, medical expense will soar up
because costing services for long-term care and rising morbidity rate due to falling
mortality in aging people (Chen et al. 2009). On the other hand, old dependency
ration will go up so quickly as to severely weaken the capacity to finance expenditure
for aging problems.17
Since almost 90% of revenue comes from contribution, the direct solution to deal
with rising up expenditure of the NHI is to raise contribution rate. However, this is a
politically sensitive issue because it will touch off the debate on inequality not only in
occupation-based contribution shares but worsening income distribution and taxation.
As we have argued, Taiwan started its outward investment since 1987 when its
currency appreciated due to the Plaza Accord. However, most direct investment for
the merchanting trade started with the investment toward China after 1993 (figure 6
and 7). Off-shore production in China gradually accounted for a larger portion of GDP
and reaches over 50% in 2011 by official statistics. Although this kind of merchanting
trade helps to boost GDP growth rate, it also brings about the problems of
unemployment and stagnant wage level because moving out labor-intensive sector cut
off job opportunity (figure 8). As a consequence, capital gains increase along with the
growth of GDP while wage income rolls back to the level of 1998 if deflated by
inflation rates (figure 9 and 10). Income inequality is widening along with increasing
outward investment and GDP growth (figure 4). Since premium was calculated by
wage income, the revenue thus lags behind the growth of GDP. Average growth rate
15
The total NHI expenditure accounts only about 5.6%-6.09% of GDP between 1995 and 2006 (Cheng
and Chu 2008, 26).
16
This logic of geo-political economy exactly applied to the case of South Korea as well. In Japan, it
happened two decades earlier. In other words, decline of fertility rates also represented the pattern of
flying geese development.
17
According to the estimate of the CEPD, Taiwan's old dependency ratio will catch up Japan in about
10 years from now. See http://www.cepd.gov.tw/m1.aspx?sNo=0000455, accessed by 2012/6/20.
22
of insurable income in the period of 2002-2006 was 2.46% compared to 3.53% of
GNP per capita. Increasing expenditure due to aging confronts slowing down growth
rate of revenue. Structural shortage pressed the government to revise the old
occupation-based contribution mechanism in terms of financial balance and
distribution equality. Unfortunately, this time democratic competition brings
deterioration rather than help in finding a balanced solution to manage the problems
incoming.
4-2 Toward social-democratic or liberal regime?
In 2000, for the first time, the DPP defeated the KMT in the second presidential
election. At first, scholars and people hailed to the completion of democratic
transformation in Taiwan by this party alternation. Unfortunately and paradoxically,
rational improvement of the NHI could not get political support during the period of
democratization. As we argued above, democratization in Taiwan evolves through
election competition. Ideally speaking, people will benefit from election competition
because different parties will propose their policies to attract voters. However,
political competition is crucially based ethnic identity directly connected with the
issue of unification with or independent of China rather than social policy except for
the time of building up political legitimacy. Policy debates on social welfare are thus
marginalized or turned into a means of pork-barrel politics to buy off voters.
In addition, the political culture of civil society is still weak and fragmented
under the process of state-led democratization.18 Legalization of civic associations
did not start until the early 1990s and were often organized by particularistic lines
corresponding to political factions. The prominent example in the NHI policy debates
was the differences and even conflicts within the Committee for Action and Labor
Legislation, the Taiwan Labor Front, and the state-sanctioned China Federation of
labor (Wong 2004, 82). Cross-class social solidarity through legalization of social
policy still has a long way to go. As a result, election competition in Taiwan is turning
to be more and more populist and particularistic debates, in which long-term and
rational institutional design or discussions are often too fragile to be held. In this war
of everyone blaming everyone, the gimmick to staying in power for most of leading
political and social figures is to avoid blame rather than expression of any
constructive perspective.
The 2nd generation NHI reform was soon officially convened in 2001. It includes
three core components. First, it cancels all classifications among enrollees so that the
18
Wong (2001) and Lin (1997) both reported the weak, if any, influence of civic associations in the
policy decision-making of the NHI scheme formation and reform. My interviews to some NGOs
organizers and labor activists also laments that the bottom-up civic networks are too meager to foster
robust or significant social mobilization.
23
NHI will be a universal social citizenship. Second, tri-party contribution sharing
among the insured, employers and governments has been kept for social solidarity.
Third, to improve equality of financial burden and confirm to economic development
in Taiwan, annual revenue is linked with global budget negotiation with providers and
sharing self-paid contributions among the insured by household income rather than
payroll salary.
The revision draft of the NHI Act was finished in 2005, submitted to the
Legislation Yuan in May 2006 and passed the procedure of first review in October
2006. Unfortunately, it lay in there from 2006 to 2008 due to political stalemate. After
2008, the KMT regained power by winning the presidential election. In 2009,
Chi-Liang Yaung, once the core member of the task force in the CEPD, was appointed
as the minister of the DOH and clearly announced that getting the 2nd generation of
the NHI was his priority.19
On 4th February 2010, the Executive Yuan promulgated a populist20 ‘differential
rates’ reform program which would set different contribution rates for different
income-level people. This induced strong criticism of social groups which correctly
pointed out differential rates was contradictory to the spirit of equality and
mutual-help in social insurance. Even the minister Yaung also oppose this program
and claimed to resign. The Executive Yuan finally compromised by proposing a
modified version of ‘flat rate with differential subsidies.’ It raised the contribution rate
from 4.55% of wage to 5.17%, but still provided different compensation for people
with different wages. This populist reform brings the original complicated
contribution shares by 14 subgroups of enrollees into a even more fragmented
arrangement.
On 8th April 2010, the DOH delivered the 2nd generation NHI reform Act to the
Legislative Yuan again. However, when this reform bill entered the second read,
legislators started to worry that contribution based on household income would
influence too many high-income persons without dependents. In the mid-December,
the DOH had abandoned two most important reform of the 2nd generation NHI:
cancellation of all classification among all enrollees and collecting contribution by
household income. Without any actuarial research, a new policy showed up after the
minister Yaung had been invited to communicate with the KMT legislative caucus.
The original contribution collection was all reserved as the same, but plus a
supplemental contribution which would tax 2% of income from annual interest, stock
19
The Liberty Times, http://www.libertytimes.com.tw/2009/new/aug/7/today-fo5.htm, accessed by
2011/5/16
20
The political calculation in this populist reform is very clear because the Executive Yaun explicitly
claimed that the increase of contribution would avoid influencing majority (78%) of people.
http://www.cna.com.tw/ShowNews/WebNews_Detail.aspx?Type=FirstNews&ID=201003170018,
accessed by 2011/5/16.
24
dividend, working bonus, rent, and so on. This politically opportunistic reform bill
induced a lots criticism because it kept all defects of the old system and add another
dubious 2% tax without any actuarial reason. This opportunistic calculation also
exhibited in the different reflections of the minister Yaung. On the one hand, he
complained that the reform bill was ‘their 2nd generation NHI.’21 On the other hand,
he also claimed that it had been ‘everyone’s reform bill’ since it had passed in the
legislature. He also announced the revised NHI ‘is the more practical and more ideal
verson.’22
If state and civil society lose their dynamics in fixing financial stability, market
logic will phase in to dominate the reform direction of the NHI. Insufficient revenue
can only afford more limited coverage and low-level benefits. Apparently, those
middle class who can afford higher co-payment will be able to enjoy a better level of
health care. As for economic elites, they will then turn to luxurious commercial
insurance for best health care. When this scenario comes into being, the NHI with
relatively social-democratic spirit will break down into an institution embodying the
logic of liberal regime. A social-democratic welfare regime in Taiwan is after all an
incident begot in a historical contingency.
21
22
http://www.coolloud.org.tw/node/56398, accessed by 2011/5/16.
http://www.coolloud.org.tw/node/56402, accessed by 2011/5/16.
25
Figure 1. Percentage of all social insurances
Sources: Department of Household Registratiotn, Ministry of Interioe; Directorate-General of Budget,
Accounting and Statistics; Bureau of Labor Insurance.
Figure 2. Financial and current accounts of the US
Source: International Financial Statistics, IMF, 1997-2010
26
Figure 3. Taiwanese outward investment induced by the Plaza Accord
Source: Investment Commission, Ministry of Economic Affairs. Unit: 1,000 dollar.
Figure 4. Change of gini coefficient
Source: Directorate-General of Budget, Accounting and Statistics (DGBAS), Executive Yuan, Taiwan.
http://ebas1.ebas.gov.tw/pxweb/Dialog/statfile9L.asp.
27
Figure 5. Total Fertility Rates in Taiwan, 1951–2005
8.0
1951, 7.04
7.0
6.0
Total fertility rate
5.0
4.0
3.0
1997, 1.77
2.0
1984, 2.05
1.0
2005, 1.12
0.0
1947
1957
1967
1977
1987
1997
2007
Year
Source: Dept. of Household Registration Affairs, Ministry of Interior.
Figure 6. Taiwanese outward investment to China
Source: Investment Commission, Ministry of Economic Affairs. Unit: dollar.
28
Figure 7. Merchanting Trade
Source: Ministry of Finance. Unit: hundred million dollar.
Figure 8. Change of unemployment rate
Source: Directorate-General of Budget, Accounting and Statistics. Unit: %.
Figure 9. Ratio of Capital income to wage income
Source: Ministry of Finance. Unit: %.
29
Figure 10. Average monthly regular nominal earnings of employees
in manufacturing industry
Source: Directorate-General of Budget, Accounting and Statistics. Unit: N.T.$.
Table 1. Conditionality Contents of International Monetary Fund (IMF) and
World Bank Programs (Percentage of programs with particular conditions)
Condition
IMF, 1983-85
World Bank, 1982-89
Financial reform
44
51
Public enterprises reform and privatization
Trade liberalization
Exchange rate action
Tax reform
59
35
79
59
65
79
45
67
Source: Gywnne and Kay: 1999, 78.
Table 2. Type and Frequencies of Taiwan’s Social Protests
Issue Categories
‘83
‘84
‘85
‘86
Economic Issues
89
89
114
116
Environmental Issues
37
62
39
98
Labor Issues
27
40
85
40
Farmer Issues
3
0
3
2
Issues Related to Minority Groups
10
2
8
9
Issues Related to Political Issues
1
5
7
60
Others
6
6
18
12
Total
173
204
274
337
Source: Lin: 1988, 279.
30
‘87
293
146
69
24
49
119
34
734
‘88
407
200
296
51
53
136
29
1,172
Total
1,108
582
558
83
131
328
105
2,894
Table 3 Excessive saving during the 1980s
Year
Gross national
savings (1)
Gross domestic
investment (2)
Excess saving rate
((1)-(2)/GNP)
1981
5530
5298
1.31%
1982
5710
4792
4.84%
1983
6758
4928
8.70%
1984
8004
5193
11.87%
1985
8441
4713
14.82%
1986
11251
5006
21.35%
1987
12650
6598
18.40%
1988
12350
8160
11.69%
1989
12230
8851
8.51%
1990
12614
9458
7.29%
Source: modified from Wu (2003), p.63.
Table 4 Main events of marketization and privatization from 1980s to 1990s
Year
1985
Main events
The Economic Reform Committee established for
‘liberalization, internationalization and institutionalization’
1987
15 congressmen required for opening 38 monopolized
businesses.
1988
Act of Securities Exchange amended for private investment
1989
Open market for the US insurance company
Amendment of Banking Act passed for the criteria of setting
private banks
The Cabinet organized a cross-ministry Committee of
Privatizing Public-owned Enterprises’
1991
Ordinance of Transferring Public-owned Enterprises to Private
Enterprises approved by Legislature
1993
‘Project of Promoting Economy’ proposed by the Cabinet which
target was to increase10%-15% private investment in three
years
1994
Open security market for foreign investment
1995
Open electricity market for private investment
1996
Act of Telecommunication passed for private investment
Source: organized by the author.
31
Table 5. Tax reduction and expenditure of social welfare
Tax
elasticity
(%)
Outstanding Expenditure of
Expenditure of
debt to GDP social welfare by social welfare by
(%)
total expenditure GNP (%)
(%)
1987
0.9
2.8
1988
2.1
4.1
1989
1.9
5.1
1990
2.3
4.7
1991
-0.5
5.7
1992
1.6
10.8
1993
0.8
13.7
1994
0.8
14.3
1995
1
1996
9.2
2.5
15.8
12.1
3.4
-0.3
16.1
15.7
3.9
1997
0.7
16.9
15.7
3.7
1998
1.1
15.3
14.2
3.2
1999
-0.5
13.9
13.7
3.0
2000
0.7
24.1
16.9
3.6
2001
-1
27.8
16.5
4.3
2002
-0.8
27.4
16.5
3.7
2003
1.8
29.2
2004
2.5
29.6
2005
3.9
30.2
2006
0.33
29.6
2007
28.8
2008
29.9
2009
33.1
2010
33.4
2011
35.0
Source: Column 1 and 2 from National Treasury Agency, Minister of Finance and DGBAS; column 3
and 4 from Wu 2003, 124
32
Table 6. Contribution rates in Tripartite Sectors
Insured
Employers
Government
1973
30.33%
66.18%
3.49%
1993
32.05%
43.59%
24.43%
Source: Lin 1997, 146.
Table 7. The Contribution Sharing Scheme for the NHI scheme
Unit: %
Contribution Sharing Percentages
Category
The Insured
1 Government Employees Enlisted Military
The Employer
The
Government
30
70
0
Personnel in Private School
30
35
35
Employees of Public or Private Enterprises
30
60
10
Self-employed Persons and Employers
100
0
0
60
0
40
30
0
70
4 Servicemen of Compulsory Service
0
0
100
5 Low-Income Households
0
0
100
6 Unemployed Veterans
0
0
100
Veterans’ Dependents
30
0
70
60
0
40
Personnel
2 Members of Occupational Union without
Specific Employers and Seaman Serving on
Foreign Vessels
3 Members of the Farmers’ Association or the
Fishermen’s Association
Other Enrollees under the Aegis of District
Governments
Source: Bureau of National Health Insurance
33
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