The most eloquent point is the graph. This turns the fall of the Taiwan stock exchange by 45% since July 1997 into a striking success story; because the graph sails markedly higher by a wide margin of about 25% above the graph for Asian markets including China India, Indonesia, Korea, and Malaysia (no mention of Hong Kong - that graph perhaps follows next month).
The story is of the clever and virtuous Taiwanese who have introduced market management without all the negative features of the Malaysians, but the message is still the merits of market intervention.
And in marxist terms it makes sense. In a crisis the conflict is to a large degree about which areas of capital can be destroyed and which hold together. The graph shows the Taiwanese have been more successful in maintaining their stock of capital with less damage than some neighbours.
The secret, apart from the fact that Taiwan put its controls in place before the crisis is apparently that the Taiwanse managed to "modulate" capital flows without interfering with free-market forces. It did this not through "heavy-handed" Malaysian type controls but through what one investor called "capital stickiness" and another "administrative friction". There are a range of limits on the maximum percentage of a company that foreign investors can buy up (due for abolition in 2000). Foreign banks can open branches but not many.
Banks are limited in the extent they can lend Taiwan dollars for foreign exchange dealing and the turnover in the foreign exchange market is often under $200 million a day. When combined with a small foreign debt (=11% of GDP) the authorities can let the market largely determine the level of the currency without having to worry about hedge funds, because the market is thinly traded.
The virtue it is argued by Rohwer is that this is a complicated mess whereas capital controls that may be coming back into fashion, he argues create political favourites, corrupt constituencies and cause market distortions that lead to black market trading.
"Taiwan is the place to look for intelligent lessons."
Not obviously very profound but I thought this article, largely paraphrased above, was interesting for the shift in the debate in this paper. Loyalty to neo-liberalism is shown by attacking Malaysia, India and China. But the argument accepts that protection of a country's capital against turbulent foreign exchange dealing is sensible. It just argues there needs to be a range of stickiness that slows down the whole process without creating a black market with trading taking advantage of the difference between the official market and the black market. It could sound like the merits of putting a little grit into the machinery. That is what was said a long time ago about the Tobin tax. But that cannot be introduced by single countries.
Chris Burford
London