Industrial Organization and Cross-Strait Economic Interactions

Abstract

This chapter examines industrial organization in Taiwan and the institutional basis of government—business relations in economic interactions across the Taiwan Strait. Drawing on insights from the New Institutional Economics, I discuss Taiwan’s dichotomous market structure and its dual financial system and their impact on the organization and behavior of Taiwanese businesses at the level of interactions between business and government and between business and business. Unlike previous analyses that concentrate on state policy and the structural power of big business, the focus here will be on the organizational characteristics of SMEs. My hypothesis is that the organizational characteristics of businesses and their institutional links with the state affect the strategies they choose in their interactions with the state. In turn, the successful implementation of state policies depends not only on state power, but also on its institutional links with the private sector and the “compliance mechanisms” at its disposal. To the extent that state policies comply with the legitimate interests of the private sector and dominant social institutions, its policies have a chance of success. In this sense, the state’s capacity to intervene in the private realm can be weakened not because of a lack of autonomy, but because autonomy can deprive the state of valuable institutional links with the private sector.