The Foundation of Knowledge-based Economy Chi Schive President of Taiwan Academy of Banking and Finance Lecture for Bank of Taiwan, May 21, 2001 2019/4/11

Outlines Magatrends of Our Age Globalization Rapid Changes in Production Technology New Economy of the United States in the Last Decade Development of the U.S. ICT Industry Labor Market Reforms in the U.S. Challenges for Taiwan Moving Toward KBE Financial Market in Retrospect Final Remark 2019/4/11

全球化趨勢(1984-98) 全球化趨勢下，貿易障礙減少，全球經濟活動與貿易互動關係日益緊密。 商品貿易量成長率(%) 全球產出成長率 I.l 全球化趨勢 全球化趨勢(1984-98) 全球化趨勢下，貿易障礙減少，全球經濟活動與貿易互動關係日益緊密。 商品貿易量成長率(%) 全球產出成長率 (%) 商品貿易量成長／全球產出成長(倍數） 84-88 89-93 94-98 84-88 89-93 94-98 84-88 89-93 94-98 2019/4/11

I.l 全球化趨勢 區域化趨勢 東亞經濟區域內貿易盛行，我國對外貿易亞太化。 2019/4/11

全球流入開發中國家、亞洲新興工業國家及轉型中社會主義國家之民間資金於1990年代大幅跳升。 I.l 全球化趨勢 新興市場資金流入情形(1984-99) 全球流入開發中國家、亞洲新興工業國家及轉型中社會主義國家之民間資金於1990年代大幅跳升。 10億美元 註: 1.民間資金淨流入包括直接投資淨額、證券投資淨額、銀行貸款及其他投資淨額。 2. 亞洲新興工業國包括香港、韓國、新加坡、台灣。 3. 每年平均。 資料來源: IMF, World Economic Outlook, December 1999. 2019/4/11

全球民間資金流入亞洲金融危機五國概況 1995 1996 1997 1998 1999 外銀貸款 外人直接投資 證券投資 600 400 I.l Globalization 全球民間資金流入亞洲金融危機五國概況 外國銀行對亞洲金融風暴受創國貸款大幅波動是金融風暴主因；外人直接投資相當穩定；外人證券投資也相對穩定。 600 外銀貸款 400 外人直接投資 200 億美元 證券投資 1995 1996 1997 1998 1999 -200 -370 資料來源: World Investment Report 1999. 2019/4/11

Production Technology in History I.2 Production Technology Production Technology in History The Tonne Age Industrial revolution - 1950s Steel, ships, textile, construction The Kilo Age 1960s Cars, consumer electronics, appliances The Gram Age 1970s - 1980s Micro electronics, robotics The Vacuum Age 1990s Services, systems, media Source: Slightly revised from Jean-Pierre Lehmann,“The Future of the Asia Pacific Economies: Dynamism of Trade and Investment” presented at APEC Economic Committee Symposium The Future of Asia Pacific Economies, December 6 1999, Tokyo. 2019/4/11

I.2 Production Technology 資訊傳遞速度 2019/4/11

服務通道趨勢－銀行處理成本 通道 成本／交易 1.分行 2.電話銀行 3.ＣＤ／ＡＴＭ 4.（專屬）ＰＣ銀行 5.網際網路銀行 ll.2 Production Technology 服務通道趨勢－銀行處理成本 通道 1.分行 2.電話銀行 3.ＣＤ／ＡＴＭ 4.（專屬）ＰＣ銀行 5.網際網路銀行 成本／交易 ＵＳ＄ 1.07 ＵＳ＄ 0.54 ＵＳ＄ 0.27 ＵＳ＄ 0.015 ＵＳ＄ 0.010 Source: Booz Allen & Hamilton research (1996/North American) 2019/4/11

Ratio of Inventory to Sales in the U.S. ll.2 ProductionTechnology Lowering Real Inventory-to-Sales Ratios Ratio of Inventory to Sales in the U.S. 2019/4/11

l.2 Production Technology 資 訊 傳 遞 速 度 2019/4/11

服務通道趨勢－銀行處理成本 通道 成本／交易 1.分行 2.電話銀行 3.ＣＤ／ＡＴＭ 4.（專屬）ＰＣ銀行 5.網際網路銀行 l.2 Production Technology 服務通道趨勢－銀行處理成本 通道 1.分行 2.電話銀行 3.ＣＤ／ＡＴＭ 4.（專屬）ＰＣ銀行 5.網際網路銀行 成本／交易 ＵＳ＄ 1.07 ＵＳ＄ 0.54 ＵＳ＄ 0.27 ＵＳ＄ 0.015 ＵＳ＄ 0.010 Source: Booz Allen & Hamilton research (1996/North American) 2019/4/11

Ratio of Inventory to Sales in the U.S. l.2 Production Technology Lowering Real Inventory-to-Sales Ratios Ratio of Inventory to Sales in the U.S. 2019/4/11

The New Economy: Record-Breaking Expansion in the U.S. ll. New Economy The New Economy: Record-Breaking Expansion in the U.S. More than 22 million new jobs created since January 1993 85% of the new jobs created by SMEs Lowest unemployment rate since 1969 Lowest core inflation rate since 1965 Lowest poverty rate since 1979 Rising productivity Significant gains all across the income groups Federal budget in surplus for 2 years in a row after nearly three decades of deficits 2019/4/11

The U.S.’s Relative Performance ll. New Economy The U.S.’s Relative Performance Real GDP Growth 1991=100 United States Advanced Economies EU Japan Source: IMF, World Economic Outlook, September 2000. 2019/4/11

Unemployment in Japan, Taiwan and the U.S., 1981-1999 ll. New Economy Unemployment in Japan, Taiwan and the U.S., 1981-1999 % U.S. Japan Taiwan 2019/4/11

Current and Previous Expansions in the U.S. ll. New Economy Current and Previous Expansions in the U.S. Average annual change % Note: 1. Output per hour in non-farm business sectors. 2. Difference in 2-year average annual inflation rate from that of preceding 2 years. Sources: U.S. Department of Commerce (Bureau of Economic Analysis) and Department of Labor (Bureau of Labor Statistics). 2019/4/11

The Foundation of the ICT Industry lll. ICT Industry The Foundation of the ICT Industry ICT Capital Labor Venture Capital R&D People Institutional Setting 2019/4/11

資訊科技(IT)產業市值占股市總市值比率 lll. ICT Industry 資訊科技(IT)產業市值占股市總市值比率 資料來源: 1. IMF, World Economic Outlook, September 2000。 2. 臺灣證券交易所。 2019/4/11

Development of the World Derivative Market lll. ICT Industry Development of the World Derivative Market 註：係各年底契約總金額，商品種類包括期貨、選擇權、換匯及換利等。 資料來源：BIS, Annual Report,各期 2019/4/11

New v.s. Old Work Arrangements lV. Labor Market Reform New v.s. Old Work Arrangements Source: Richard B. Freeman, “The Shared Capitalist Model of Work and Welfare,” presented in The APEC Forum on Shared Prosperity and Harmony, March 31 - April 1, 2000, Seoul. 2019/4/11

New v.s. Old Welfare Arrangements lV. Labor Market Reform I New v.s. Old Welfare Arrangements Source: Richard B. Freeman, “The Shared Capitalist Model of Work and Welfare,” presented in The APEC Forum on Shared Prosperity and Harmony, March 31 - April 1, 2000, Seoul. 2019/4/11

lV. Labor Market Reform Shared Compensation System - Linking Pay to Group or Company Performance Source: Richard Freeman. 2019/4/11

Benefits under Different Work Scenarios lV. Labor Market Reform I Benefits under Different Work Scenarios *Single parent works full-time at minimum wage. Source: Richard B. Freeman, “The Shared Capitalist Model of Work and Welfare,” presented in The APEC Forum on Shared Prosperity and Harmony, March 31 - April 1, 2000, Seoul. 2019/4/11

lV. Labor Market Reform Productivity Growth Change v.s. Administrative Regulation, between 1980-90 and 1990-98 Difference in Productivity growth rates Indicator of administration regulation Source: Andrea Bassanini, Stefano Scarpetta and Ignazio Visco, “Knowledge, Technology and Economic Growth: Recent Evidence from OECD Countries,” OECD Economic Department Working Papers No. 259, October 2000. 2019/4/11

lV. Labor Market Reform Productivity Growth Change v.s. Employment Protection Legislation, between 1980-90 and 1990-98 Difference in Productivity growth rates Indicator of employment protection legislation Correlation coefficient -0.57 Source: Andrea Bassanini, Stefano Scarpetta and Ignazio Visco, “Knowledge, Technology and Economic Growth: Recent Evidence from OECD Countries,” OECD Economic Department Working Papers No. 259, October 2000. 2019/4/11

Functions of Financial Sector V. Challenges Ahead Functions of Financial Sector (1) mobilizing savings (4) easing transaction (2) allocating resources (5) monitoring corporate governance (3) managing risk Financial Sector Savings 1 Insurance Fund Short Capital Market (Direct Finance) 2 3 Long Investment 4 Banking (Indirect Finance) Consumption 5 4 4 Production 2019/4/11

Delivering oxygen, nutrients, hormones... V. Challenges Ahead 血液是輸送養份的流體 血液是輸送消滅病菌抗體的流體 Delivering oxygen, nutrients, hormones... Red blood cells White blood cells Looking out for signs of disease and producing antibodies and attacking 2019/4/11

金融分配資源之功能 金融部門: 分配資金 Resource Deprivation Inefficient Allocation V. Challenges Ahead 金融分配資源之功能 Investment Proposals 潛在投資人 資金提功者 金融部門: 分配資金 Resource Deprivation (RBC) (WBC) 投資失敗 壞帳 Inefficient Allocation 土地 勞工 設備 Case approved 生產順利 Resource Acquisition/Allocation Efficient Allocation 2019/4/11

Causes of rising NPLs Poor risk management and poor loan performance V. Challenges Ahead Causes of rising NPLs Poor risk management and poor loan performance Inappropriate lending, abusive influence from connections Inadequate supervision Bust of real estate bubble, fall of collateral value Restructuring difficulties in some traditional industries 2019/4/11

Non-Performing Loans in Taiwan, 2000 V. Challenges Ahead Non-Performing Loans in Taiwan, 2000 NPL ratios estimated by different organizations. Note: Local credit unions’ NPLs ratio of 15% is not included. 2019/4/11

Challenges from WTO Entry V. Challenges Ahead Challenges from WTO Entry Taiwan has fulfilled most of her WTO/GATS commitments even before her entry into the WTO. Mainland China’s financial sector will be affected significantly after entering into the WTO. Foreign financial institutions are likely to form strategic alliance with partners from Taiwan when penetrating the regional market, China in particular. 2019/4/11

Reform Remained in the Financial Market V. Challenges Ahead Reform Remained in the Financial Market Financial liberalization De-regulation on new financial products Establishing financial trust companies Enhancing financial supervision Consolidating financial supervision Introducing Prompt Correction Action (PCA) Transparency in administration: Reducing government interference Conforming to international norms 2019/4/11

Reform Remained in the Financial Market V. Challenges Ahead Reform Remained in the Financial Market Reorganizing financial institutions Establishing AMC/RTC Encouraging M&A 2019/4/11

Knowledge-based/ New Economy IV. Conclusion Knowledge-based/ New Economy Knowledge-Based Rule-Based 2019/4/11

IV. Conclusion Institutions matter “Adam Smith’s economy grows to its ‘full complement of riches’ as permitted by its laws and institutions, and there it rests.” Arthur W. Lewis, 1984 2019/4/11