Rediscovering Historically Alternative Capitalism: Industrial Transformation and a Decentralized Economy in Taiwan

A distinctive feature of Taiwan’s post-war economic development was decentralized industrialization; a system of small and medium enterprises (SMEs) clustered in a geographical locale where numerous small firms specialized in one phrase of production complemented each other in the production process. The dynamism of the SMEs was a showcase for the network perspective theories in the 1990s, which contended that alternative forms of organizations can compete equally with hierarchical organizations, and was associated with the flexible specialization theories in understanding the post-Fordist transition. This view has receded in the face of globalization and financial liberalization. Concentration and polarization dominate the current debate on the structural transformation of the global economy. Increasingly, studies suggest that Taiwan is going through a major transformation in which Chandlerian large modern corporations are prevailing in the country’s quest for industrial upgrading and aiding the global trend of modern industrial capitalism.

This paper connects with the old debate by examining the competing questions of whether the SME network-based economy is hollowing out and whether Taiwan is tending to confirm the homogenizing thesis that large corporations dictate the economy. The study is carried out through a detailed sectoral analysis using industrial and commerce census data from 1996 to 2011, a period when Taiwan’s economy was allegedly making the transition to high tech industrialization led by the IT industries. The data reveals that the decentralized production system of SMEs and the network among them for coordinating economic activities has continued to persist and thrive. I draw on the industrial performance of three industries in the less celebrated machinery sector (bicycle, auto parts, and machine tool) and long-term fieldwork data to examine the continuity thesis of the persisting organizational principles of the decentralized system and contrast them with the semiconductor industry in the IT sector.

The specifics of Taiwan’s experience contribute to the literature on governing network economies that examines the restructuring processes in advanced countries like the US, Germany and Japan with a shift to decentralized networks of production and the associated changes in organizing the economy in the face of the expansion of transnational production networks. Taiwan is an important case because its integration into the global economy since the 1970s has specifically contributed to the shift. The findings contribute to the discussion by highlighting the ways in which the decentralized system facilitates learning by constructing cross-cutting ties/cross industry networks, namely, the role of para-public institutions in disseminating information and resources among various stakeholders and connecting firms from different production networks for learning and innovation, and the overlooked role of parts makers in creating value-added.

Theoretically, Taiwan’s experience sheds light on the recent debate of de-industrialization vs re-industrialization for latecomers in their urgent quest for knowledge- based economies and shows that manufacturing still matters. The cases illustrate how some clusters could remain resilient and globally connected in the face of globalization. Lastly, this specific experience of governing decentralized production has relevance for the debates on models of Asian capitalism(s).