Thursday, 19 April 2012

Solving Taiwan's talent deficit crisis

By Qi Dongtao, The Straits Times, 18 Apr 2012

IN THE past decade, between 20,000 and 30,000 white collar workers have left Taiwan annually compared with an inflow of about 20,000.

The government considers this brain drain a security issue. Taiwanese President Ma Ying-jeou convened a National Security Council meeting last April to discuss a taskforce report on the issue, sparking debate. Leaders from academia, media, business and the arts called on the government and the public last August to address Taiwan's talent deficit crisis.

Eye-catching cases of eminent emigrants from academia, industries, sports, and the arts who 'defected' to Singapore or China were highlighted, sparking discussions about wounded national pride and laments about the state of affairs in Taiwan that drove talent away.

Also relevant is the issue of the huge number of Taiwanese working in China as permanent residents. Taiwan's Straits Exchange Foundation conservatively puts the figure at 750,000 to 850,000, which suggests that up to 12 per cent of Taiwan's workforce between the ages of 30 and 54 were working in mainland China in 2010. Almost all are highly skilled managers, supervisors, technicians, designers, developers and consultants needed by Taiwanese and Chinese businesses in mainland China.

Domestically, Taiwan's low wages and poor career opportunities - the result of the island's slower economic growth and delayed industrial upgrade over the past decade - are the main causes of emigration. Rapid expansion in higher education has also resulted in an oversupply of workers with high career expectations.

As a developed economy with slow growth and not much foreign direct investment, Taiwan should have a liberal immigration policy to attract the highly skilled, including those from mainland China. Instead, the government's foreign talent policies are severely criticised by the public as extremely conservative and lagging far behind other Asian countries.

In response, the Taiwanese government has budgeted NT$60 billion (S$2.55 billion) for policy changes to tackle the talent deficit crisis.

Taiwan's current talent deficit must be seen in the context of its last brain drain between the 1960s and 1980s. That occurred in a developing, labour intensive Taiwan economy under an authoritarian regime. Fewer countries were competing for talent. By contrast, Taiwan is today a developed democracy with a technological and capital intensive economy, in a more competitive, globalised talent-seeking environment.

Emigrant types and destination countries are also different. Before the 1980s, 'brain drain' mainly referred to graduates from Taiwanese universities who went mostly to the United States for postgraduate education and did not return. The current wave are white collar workers with valuable work experience, knowledge and skills, leaving for better jobs in mainland China, Hong Kong, Singapore, Canada, the US, and Australia. The immediate impact of losing highly skilled workers is greater than losing smart students.

The Taiwanese emigrants' return destinations also differ. Many Taiwanese returned from the US to their homeland after the 1980s, thanks to Taiwan's development during that period, the government's recruitment efforts and a more liberal social and political environment. The return of these emigrants helped Taiwan to develop its high-tech industries, causing a brain drain to become a brain gain.

The current brain drain, however, is a talent dispersion. Overseas Taiwanese talent do not return to Taiwan, but move to the US, mainland China, Hong Kong, Singapore and other Asian countries.

Conditions have changed dramatically over the past decade. Taiwan's industrial sector and pace of growth are now slower than other advanced Asian economies. While others have significantly improved their talent-hunting efforts, Taiwanese policies remain conservative.

About 15 years ago, China started becoming a magnet for Taiwanese talent and investment. An increasing portion of Taiwanese investment goes to mainland China: from 1.7 per cent in 1995 to 12.6 per cent in 2007. This has boosted demand for Taiwanese talent to manage Taiwanese enterprises in China.

Other economies such as Singapore, South Korea and Hong Kong are also recruiting Taiwanese talent. Singapore is reportedly more interested in Taiwanese medical professionals like experienced nurses, while South Korea wants scientific and technological talent, and Hong Kong is looking for professors.

A major push factor for Taiwanese emigrants is stagnating wages.

Real wage increases are discouraging. Taiwanese non-agriculture workers' monthly real wages in 2010 had decreased by 3.3 per cent since 2000. By contrast, Singapore, Hong Kong and South Korea recorded between 13 per cent and 35 per cent increases over the same period.

Two important factors explain Taiwan's weaker wage growth: its lower economic development level and slower economic growth.

From 2000 to 2010, Taiwan's per capita gross domestic product increased by only 26.4 per cent whereas Singapore and South Korea's increased by 87.4 per cent and 82.9 per cent, respectively. In 2010, Taiwan's per capita GDP of US$18,588 (S$23,300) was the lowest among the 'four little dragons', which also include Singapore, South Korea and Hong Kong.

While slower growth contributes to general wage stagnation, the populist political environment has also restrained the wage increases of outstanding researchers. Since 2009, under populist pressure, the Taiwanese government's series of 'anti-fat cat' policies monitor and cap the salaries of top executives and board members in poor performing companies. In March last year, the list of potential 'fat cats' was expanded to include those in research institutes funded mainly by the government.

Business leaders' salaries are determined by the companies' Compensation Committees, and based on the government's 'anti-fat cat' policies. The monthly salary of chairmen and managers of these institutes should be lower than ministers (S$7,922), while for professionals, the cap is at the parliamentary secretary level of about S$6,900. According to Mr Tsai Ching-yen, president of the Industrial Technology Research Institute, these wage caps have not only prevented him from recruiting international talent, but also pushed several of his researchers to work in China instead.

Only prestigious universities with special government funding are allowed to offer flexible pay packages to a small group of outstanding professors. The salary ceiling and inflexible civil service salary scale have been heavily criticised by Taiwanese academics.

Taiwan's foreign talent policies are the biggest deterrent to any brain gain. Singapore and Hong Kong have further liberalised their policies, with Japan and South Korea close on their heels in their recruitment drives. Taiwan has been very slow by comparison.

Unlike Singapore and Hong Kong, which integrate foreign talent employment with permanent residency, Taiwan only allows employment but discourages permanent residence. Among the four little dragons, Taiwan has the least liberal and the most passive foreign talent policies.

Foreigners working in Taiwan with permanent residency status have other hurdles to cross. They cannot receive pension after retirement unless they renounce their foreign citizenship in advance. One foreign professor who has worked in Taiwan for over two decades has a long list of problems faced: restrictions on his employment contract renewal, ATM card usage, his family members' applications for permanent residence and driving licences, and so on.

While Taiwan seems averse to recruiting foreign talent, with the restrictions set, mainland Chinese talent have become a major target of Asian economies' headhunting effort.

Taiwan's affinity with mainland China - geographic proximity and common language and culture, coupled with higher living standard and a more advanced economy - should have endowed the island with advantages over other Asian economies in recruiting mainland Chinese talent. But in fact, there are extra restrictions on mainland Chinese who work in and travel to Taiwan. They have to provide extra documents and go through special visa applications, and are restricted to six-year stays.

Some restrictions have been lifted recently. However, there are still the 'three restrictions and six nos' that curb the number of mainland Chinese students coming to Taiwan universities to study, limit their study choices and forbid them from taking scholarships or working part-time, among other restrictions.

These restrictions are effective in reducing the potential negative impact brought about by mainland students. However, they work against Taiwan's ability to attract foreign talent when other places in Asia, such as Singapore, Hong Kong, Japan and South Korea, are offering better packages such as scholarships, future employment opportunities and permanent residence to Chinese students.

Taiwan was once an Asian role model with its rapid economic development, social equality and peaceful democratic transformation. Political and social populism, partly the result of frequent elections and free but parochial media, has become a serious obstacle in recruiting foreign talent.

The fundamental solution to Taiwan's talent deficit crisis is to increase wages and create more job opportunities. The government has taken the lead in introducing a 3 per cent salary increase for civil servants, military personnel and teachers in the hope that Taiwan's business sectors will do likewise for their employees.

The Taiwanese government has set aside NT$60 billion and mobilised several ministries to resolve the talent deficit crisis. Under a short-term plan, 31 relevant laws and regulations will be revised. Regulations on the entry, work and residence of foreign talent in Taiwan have been simplified.

In the long term, the government will focus on increasing foreign direct investment and upgrading its industries to vitalise the economy so as to create better job opportunities and increase wage levels in Taiwan.

The Taiwanese government and society will also have to recognise that in a knowledge-based economy and with globalisation, both local and foreign talent are not short of choices. It is thus imperative for Taiwan to create strong comparative advantages over other talent-hunting economies, such as mainland China, Hong Kong, Singapore, Japan, and South Korea.

The writer is a research fellow with the East Asian Institute (EAI).
This is an edited excerpt from a EAI background brief published on March 29.

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