Taiwan Today

The Taiwan Institute of Economic Research depends heavily on government clients for its survival. Its reputation for high-quality work remains an invaluable magnet in a time that is characterized by shrinking funds for research.

  “Think tank” is not a familiar term in Taiwan. Not many people know what such organizations do, or why. But public understanding is changing, along with Taiwan's political and economic scenes. “The more devel­oped and democratized a country be­comes, the greater the problems and pressures its government has to face,” says Wu Rong-i (吳榮義) , president of the Tai­wan Institute of Economic Research (TIER). “The government needs good ad­vice to help solve problems, but it can't afford to hire hordes of experts in different fields. Think tanks are an efficient and af­fordable solution.”

In 1976, busi­nessman Koo Chen- fu (辜振甫), inspired by the need for Taiwan to adapt to a rapidly changing domestic and international eco­nomic environment, established TIER, the ROC's oldest and largest private think tank. Koo, currently a senior advisor to the ROC President, head of the Straits Exchange Foundation, and chairman of Taiwan Cement Corp. , Tai­wan Polypropylene Co. , and a host of national-level business organizations, can today look back on a prescient decision. The history of TIER parallels Taiwan's transformation from an agriculturally based economy in the seventies, to a labor­-intensive and export-oriented one in the eighties, to a high-tech and services economy in the nineties. TIER's research agenda has steadily adjusted to the times, providing consultancy services for gov­ernment and businesses on domestic and international macroeconomic issues, espe­cially industrial economics.

“When first established, we planned to focus on industrial economic problems rather than macroeconomic ones,” says TIER executive secretary Chuang Chao-jung(莊朝榮). “But macroeconomic theories and problems are often bound up with industrial economic research, so we adjusted, and now we try not to neglect any important economic field.”

The institute currently provides analy­ses of a broad range of economic-related issues—macroeconomics and policy research, economic forecasts and analy­ses, policy analyses of the manufacturing industry, and devel­opment trends and strategies in indus­trial sectors, to name but a few. One meas­ure of a think tank's impact is its publica­tion record, and TIER has a strong history of published research. In addition to specific studies, the institute has been commis­sioned by a number of government agencies to produce official publications covering special fields. These publications include The International Economic Trends Weekly Report, commissioned by the Council for Economic Planning and Development (CEPD); Japan’s Industrial Policy Monthly, backed by the Ministry of Economic Affairs (MOEA); Energy Monthly, funded by the MOEA's Energy Commission; and The Rural Sentiment (monthly), supported by Taiwan Power Company. TIER's own periodicals, the Taiwan Economic Research Monthly, and Annual Survey of Economic Trends and Forecast, are also well-known resources for economists.

Each of TIER's six research divisions covers different areas, from domestic macroeconomics to international econom­ics (see chart, p. 22) , and is responsible for publications in its own research fields. But although the areas covered are much more extensive than when the institute was founded, TIER main­tains its original strategy of putting strong emphasis on case studies and fieldwork.

Besides con­ducting research, TIER also plays a role in international affairs. Koo Chen-fu and his nephew, Jeffrey L.S. Koo (辜濂松) , have served, respectively, the former and current chair of TIER's board, and they have made it a high priority to maintain good con­nections with the international business community. The institute's Of­fice of International Affairs now acts as the secretariat for the Chinese Taipei Committee of the Pacific Basin Economic Council, and for the Chinese Taipei Mem­ber Committee of the Pacific Economic Cooperation Council. These two organiza­tions, known more widely by their acro­nyms, PBEC and PECC, are important regional forums that regularly bring together regional businesspeople, oftentimes with academics and relevant government officials in a non-official capacity, to discuss Asia-Pacific economic issues.

Jeffrey Koo and Wu Rong-i also rep­resent the ROC in several regional eco­nomic organizations, including the Pacific Trade and Development Conference, and two APEC organizations, the Eminent Persons Group and the Pacific Business Forum.

TIER is an independent think tank, so all its income comes from commissioned research, leaving its US$5.5 million endowment fund to accumulate interest. “We operate on a project-by-project commission basis,” We Rong-i says. “Just like any business, we take orders from our clients and deliver the goods—in our case, research reports.” But more than 95 percent of Taiwan companies are small medium-sized enterprises (SMEs) with less than a thousand employees, and their expenditure on R&D, especially for tar­geted research reports, is minimal. It is therefore difficult for an economic think tank to survive only on private sector requests, so government agencies and government-run enterprises have always been TIER's largest clients. Each of the in­stitute’s research divisions has as its ma­jor client a counterpart government agency. For example, 95 percent of the total budget for Division II, which focuses on the manufacturing industry and SMEs, derives from the MOEA's Medium and Small Business Administration.

The Industrial Development Advisory Council, set up by the MOEA in March 1985, is TIER's most important means of liaison with government agencies. Organized by academia, businesses, and the govern­ment agencies themselves, the council has different sections responsible for problems involving commerce, trade, SMEs, and various industries. The council serves as an official channel for private sector involve­ment in the government decision-making process by sending suggestions to rel­evant official agen­cies. TIER, which has been participating in the council since its planning stage, is commissioned by the Executive Yuan to conduct research and take on secre­tariat functions in conjunction with the MOEA. “Before any decisions are made, the government needs hard data,” Chuang Chao-jung says. “That takes professional knowl­edge and a lot of manpower, which the government can't afford, so they hire us to do these jobs.”

In the past, the council's research projects, like other government research projects, were farmed out within a closed circle of think tanks and university research departments. But as of three years ago, either a govern­ment research projects goes through a bid­ding process, or the commissioning agency has to give a reason why it has not done so. Most of the time, a research institute will be specifically commissioned only if it has been engaged on a particular project for many years. For example, TIER has been doing policy analyses of the manufacturing industry for nine years, and has established prime sources of information in that area. If another organization were to take over the project it would have to start from scratch, which would create problems for both the commissioning agency and the newly contracted think tank. But when research projects are needed in new areas, tendering is now the usual way to go.

This bidding system, fair as it appears to be, has drawn a lot of complaints. “It’s fair to bid for civic engineering projects because there’s an objective standard,” says Chu Cheng-chung(朱正中), TIER associate research fellow and director of Division II. “But with research projects, it’s difficult to set such a standard.” He explains that in construction contracts there is a price for everything—construction materials, labor costs, and so on.

There are different approaches to doing the same research projects, and the quality of the ensuing reports will vary. For example, an economic forecast can be made in minutes, based on information already at hand, or it can be done by reference to a complicated model which may take months or even years to build. The results from both approaches can be backed up by strong economic theories, but the differences in cost do not properly manifest themselves in a bidding situation. “We know which approach is best, so we can calculate the costs for a given project, but the commissioning agencies can’t,” Chu says. “For them, a report is a report. It doesn’t matter how you get there, so the lowest bid wins the project.”

Even when bidders plan to use the same research approach, the outcome is still unfavorable to TIER. In the past, the institute’s major competitor was the Chung-Hua Institution for Economic Research. Now, universities are also joining in the battle, especially since the University Law was revised in 1994, a move that forces some of them to raise more of their own funding. Given that Chung-Hua is backed up by a US$52 million endowment fund, and that university research teams get to use many school resources free, or at very low cost, TIER is at a disadvantage. Because it has to foot all its own bills, it loses out even before bidding has begun. Chu Cheng-chung recalls that TIER once bid US$93, 000 for a project, but a competitor offered US$56, 000. “Whenever there’s a tender, universities offer the lowest,” he says. “We usually don’t have a chance, so my division doesn’t even bother now.”

As if getting government research projects weren’t difficult enough, now official agency budgets are shrinking on account of the government’s own tight financial situation. TIER won projects worth US$9.3 million in FY1993, US$8.1 million in FY 1994, and US$6.7 million for the current one. Even though the research budget for the same size or level of projects has shrunk by 15 to 20 percent, the institute has tried to maintain the highest-quality results. “ You don’t haggle over physicians’ fee, because you know they charge not for a few words on a prescription but for their knowledge and the investment they’ve made in professional education,” Wu Rong-i complains. “It’s the same for research reports, but most people don’t seem to think so.”

To deal with the resulting money shortage, TIER has to operate with fewer research staff. Over the past year, it has reduced its manpower from 250 to200, of which 150 are full-time researchers and administrative personnel. To maintain the high quality of their reports the staff have had to work extra hard. Chu Cheng-chung estimates that the workload for a TIER researcher is at least double that of a university professor.

The increased competition is influencing plans for future staff structure. While more than half of the research staff in other think tanks have Ph.D. degrees, only 10 percent of TIER researchers hold doctorates. Cost aside, another reason for this atypical staff structure is TIER’s emphasis on case studies and fieldwork. “These involve a lot of hard work, and usually there are very few academic breakthroughs, so many with doctorates are not interested,” Chu Cheng-chung says. “Then again, since holders of masters’ degrees are perfectly capable of carrying out our projects, considering the nature of the research we do, why spend the extra money for a Ph.D.?

Nevertheless, from the point of view of TIER's academic reputation, Wu Rong-i feels it necessary to recruit more Ph.D.­ level researchers in the future. “The com­petition is strong, and society is placing greater emphasis on educational back­ground,” he says. “Without researchers with advanced degrees, people may start to doubt the credibility of our work.” Over the past few months, TIER has started to re­cruit doctorate holders. Its eventual aim is to raise the proportion of its research staff with doctorates to one-third.

Despite its financial and manpower difficulties, TIER has managed to build a solid repu­tation as an economic thinktank. One important reason is its empha­sis on intensive fieldwork, considered one of the most difficult components of eco­nomic research. Twenty years of experi­ence have taught TIER that large enterprises are more enthusias­tic about helping with these research reports than smaller ones. Many of them even hire special staff to help the in­stitute's researchers. “Big enterprises aim mainly at the do­mestic market, and so are more influ­enced by govern­ment policy,” Chuang Chao-jung explains. “Our re­search reports sometimes influ­ence or speed up the policymaking proc­ess, so they're glad to help.”

But dealing with SMEs is a totally different situation. Since Taiwan's SMEs are basically export-oriented, the less the government regu­lates, the easier their operations become, so they are not in­terested in policy­making. “They started without any government assist­ance or research reports,” Chu Cheng-chung says, “and they're used to depending on them­selves. For them, answering question­naires or assistmg researchers is a waste of time.”

TIER has never­theless managed to establish good rela­tions with some SMEs. As a result, in­dustrial economics has become one of its strongest areas. But it is difficult to evaluate the influence of these TIER re­search reports on official policy. In the past, the government did not take them very seriously.“The government financial situation was good, so it could afford more re­search projects,” Chu says. “But what it wanted was just nicely printed, fancy reports. Con­tent quality wasn't much of an issue.” Decisions were often made years after TIER had com­pleted the relevant reports. “I don't know what the problem was,” Chuang Chao-jung says. “Maybe the government thought the timing wasn't right, or maybe it was just being conserva­tive.” Wu Rong-i thinks that the situ­ation has improved since the govern­ment came under increasing pressure to solve specific economic prob­lems, and that Tai­wan's think tanks will have a very ac­tive role to play in future.

Operating as it does on a project­ by-project com­mission basis, TIER has no extra funds to devote to its own large-scale ven­ tures or follow-up research. Nor can it afford to work with foreign think tanks and research organizations. But this financial pressure has its positive side. “Pressure forces us to work extra hard to maintain high quality and keep our good reputa­tion,” Wu Rong-i says. “As an independ­ent think tank, that's the only way to survive.”