The Politics of Price Control in Taiwan

• In Event: Democratization and Local Politics in Taiwan

Abstract

While managing inflation is a key challenge for modern states, the Taiwanese case in the last twenty years show an unusually paradoxical picture. On the one hand, the general price level was under strict and successful control. One related result is that Taiwan has the highest gap between nominal GDP per capita and the substantial one adjusted by price index among rich countries. On the other hand, housing price in Taiwan has been continuously out of control for almost two decades. Housings in Taiwanese cities have been the least affordable in the world and caused strong public resentment, especially for the younger generation. This disparity is not only important for understanding contemporary Taiwanese political economy but also has strong theoretical implications.
Drawing on the literature of historical institutionalism and globalization, in this paper I suggest that the politics of controlling price level in Taiwan is shaped by three factors: the historical legacy of statism during the authoritarian period, the cut-throat mode of political competition between the two major parties after democratization, and globalization that squeezed the wages. The statism model of governance equipped the Taiwanese state effective policy tools such as direct state control of the utility sectors, the highly centralized system of health insurance, highly regulated higher education and the distribution system of agricultural products controlled by the state to control price levels. Unlike other advanced countries that can only rely on indirect measure such as monetary policies, taxation, and exchange rates, these policy tools allowed the Taiwanese government to directly set the price in many key sectors to control the price level. Furthermore, while the Taiwanese government continuously developed plans of liberalization that may reduce their ability of direct price control, the cut-throat competition between the two major parties and the stagnant wages caused by globalization forced both parties to retract these plans and even to strengthen the mechanisms of price control.
This paper adopts the method of process tracing to examine the dynamics of prices and policies in the following sectors: electricity, telecommunication, gasoline and natural gas, food, health care, and housing between 2000 and 2020. I traced the major events of price hikes, policies, and their outcomes. I find that incumbent parties were often punished by voters under the combination of stagnant wages and hikes of prices. On the other hand, the lack of public housing and state ownership of lands and high ratio of house ownership forbad the governments from effectively intervene with the housing market. This result provides an important but often overlooked factor in contemporary Taiwanese political economy. It also shows the theoretical importance of state capacity of price control for advanced capitalist democracies.

Author

• Li-Hsuan Cheng, National Chengchi University