Public enterprises — linked to the KMT Party and the military — were particularly important in Taipei’s post WWII development.
Public enterprises accounted for a larger proportion of total investment in Taiwan than in 80% to 90% of other noncommunist countries. According to Robert Wade:
Their continued role owes much to the importance attached to public enterprises by Sun Yat-sen, coupled with the Nationalist government’s need to represent itself as the institutional custodian of Sun Yat-sen’s thought. But the continuity with the mainland period is still more striking. Taiwan’s public enterprises are concentrated in the same sectors as the National Resource Commission’s enterprises before 1949, especially in petroleum, steel, shipbuilding, heavy machinery, and engineering.
State-owned enterprises (SOEs) were integrally related to the on-going militarization of Taiwan.
SOEs allowed state control over strategic materials, aided military-related industrial upgrading and development, provided economic security for regime supporters — especially retired soldiers, created a training base for the state economic bureaucracy which increasingly focused on economic warfare, and extended the arms of the state through linkages with defense associated satellite suppliers and downstream firms. Importantly, they were also able to deter multinational control of Taiwan’s political economy.
Some SOEs were agencies of government organizations.
Examples include the Directorate General of Posts, Directorate General of Telecommunications, and the Ret-Ser Engineering Agency. However, most were government entities like the China Steel and China Shipbuilding corporations.
Six SOEs were controlled by Taipei city.
Thirty-five SOEs were governed by the Vocational Assistance Commission for Retired Servicemen (VACRS), a large holding company belonging to the military.
The VACRS was formally established in 1954 after it became clear that dumping military retirees (primarily mainlanders) on Taipei’s weak civilian economy was having disastrous effects.
A US grant of $42 million in 1955 facilitated the creation of the VACRS and, in time, it became the largest conglomerate on the island, with well over 100,000 workers employed in a complex of more than 40 firms.
The most important of the VACRS group was the Retired Serviceman’s Engineering Agency (RSEA or Ret-Ser).
RSEA began in 1956 as a small engineering company and, from the outset, it focused on military associated infrastructure projects.
Initial funding for RSEA came from $750,000 in US disbursements. The group’s first president was an army colonel on loan to VACRS.
Ret-Ser projects included the Taichung Harbor, Suao Harbor, North-South Freeway, Northern Link Railway, China Shipyard, China Steel Mill, Nuclear Power Plant, the widening of the Eastern Railroad Line, Kaoshiung Cross-Harbor Tunnel, Ming Hu Pumping Storage Power Generation Project, Feitsui Reservoir, Chung Cheng Memorial Hall, National Theater and Concert Hall, Veterans General Hospital Renovation Project, long tunnels of the South Link Railroad, No. 3 Chien An Construction, the Taipei Underground Railway and New Taipei Railway Station, and Wu Ku Model Factory Building Projects.
Not all ventures were located in Taipei, but those that were changed the physical appearance of the city and created the infrastructure needed to satisfy both military and economic demands.
The military itself was directly involved in the state’s management of the economy.
Military involvement was considered necessary for purposes of defense and social stability, both of which were critical to the primary goal of retaking the mainland.
The military particularly favored the promotion of specific industries like electronics. According to Wade again:
Taiwan’s drive into heavy and electronics industries was not entirely innocent. The military wanted it, as well as the economic technocrats. The military ran its own production facilities, working closely with public enterprises or special status private firms. By the early 1960s Taiwan’s military-industrial complex was already capable of making much of the equipment and less sophisticated weaponry needed by the armed forces.
The military’s emphasis on electronics was fortuitous.
At the start of the 1960s, US electronics firms began looking abroad for opportunities to relocate production to cheaper labor sites.
Taiwan’s government, with the assistance of US AID, aggressively sought out these American companies.
General Instruments was the first US corporation to begin production on the island.
By 1966, 24 US firms had entered into production agreements.
Military-led efforts resulted in industrialization and infrastructure projects which laid the groundwork for Taipei’s later economic development.
From the 1960s on, economic growth designed to make Taipei a model of socioeconomic progress became the overriding goal, supporting, but not supplanting, the military’s long-term objective of retaking the mainland.
From an American perspective, economic development — facilitated by US economic and military assistance — would demonstrate the superiority of free economic institutions as instruments of social progress and would replace the more military objective.