The US exerted tremendous influence over Cold War Taipei’s economy.
As Bruce Cummings notes:
Often it was difficult to know if natives or Americans were writing the plans and policies.
Importantly, the US encouraged the Nationalist leaders to give up their ambition of taking over the mainland by force and to concentrate instead on making Taiwan a model of peace and prosperity so that the population of China would rise up against their communist rulers.
The United States exercised leverage over Taiwan’s economic and security policy in the following three areas:
- by creating an environment for private sector growth
- by pressuring for a liberalized economic policy
- by urging the regime to curb military spending.
So far as private sector growth is concerned, the American Agency for International Development (AID) — with its commitment to the development of private enterprise — used its influence to improve the private sector climate in Taiwan. As one observer states:
. . . without AID’s influence and active intervention, the private sector would not have become Taiwan’s foremost source of economic growth.
Nevertheless, the US provided little direct assistance to private enterprises. Instead, it funded government projects with large external spread effects, and the associated spillover to public enterprises helped increase the productivity of private industry.
For example, American aid amounted to 74% of the investment in Taiwan’s infrastructure between 1950 and 1965.
American advisers also pressured the Taipei government to liberalize economic controls.
The US used economic support as a carrot and a stick by promising to increase the level of assistance if the government undertook favorable actions.
When the Americans threatened to reduce aid unless the KMT accelerated economic development, a 19-Point Program of Economic and Financial Reform was implemented which set the stage for export-led growth while, at the same time, emphasizing the maintenance and expansion of the sectors most critical for warfare.
Reform efforts were rewarded by a 1969 loan to build a factory to co-produce military helicopters with the Bell Helicopter Company.
AID also pressured Taipei to reduce military expenditures, but with little success. The Nationalist government continued to enlarge the military budget and to focus on the goal of retaking the mainland. Still:
Taiwan depended heavily on American economic and military assistance during the period from 1950 through the late 1960s, and this dependence reduced its autonomy in policy making. Clearly, during this period, Taiwan resembled a client state more than a capitalist or corporate one.
While Taiwan increasingly assumed the characteristics of a client state, Taipei continued to be affected by factors associated with the 1949 mainlander migration.
