Taiwan, the emerging M-shaped society

By Ong Hwee Hwee
Publisher:The Straits Times - Publication Date: 11-10-2007

A greasy stench fills the tiny, windowless apartment, yet Madam Chang Yu-fang, 40, hardly ventures out of the place she calls home.

"Going out costs money. We cannot afford that kind of luxury," said the housewife, who shares the flat with her husband, their two teenage children and her ageing mother-in-law.

The 36-sq-m apartment is slightly bigger than a one-room Housing Board flat in Singapore and has two bedrooms, each no bigger than a queen-sized mattress.

But the family is not complaining. They pay NT$400 (US$12) a month for the unit at Fu Min Complex, built by the government for low-income households.

They cannot afford better. The household survives on the NT$20,000 (US$612) a month Madam Chang's husband earns as a construction worker.

Their situation is not uncommon among residents in Wanhua district, one of the oldest and poorest areas in Taipei, Taiwan's capital and richest city.

Over at neighbouring Hsinchu city - dubbed Taiwan's Silicon Valley - Roger Luo, 38, lives in a different world from the Changs.

A manager at a leading Taiwanese information technology firm, he is the epitome of Taiwan's growing group of 'high-tech' millionaires, earning about NT$3 million (US$92,000) a year, including company stock options.

Madam Chang and Luo are at opposite ends of Taiwan's emerging 'M-shaped' society, representing the widening gap between the haves and the have-nots.

The term was coined by Japanese management guru Kenichi Ohmae to refer to the polarisation of income distribution.

In an M-shaped society, the rising numbers of top- and low-income earners resemble the peaks of the letter M, while the trough between them represents a dwindling middle class.

The idea has grabbed the attention of Taiwan, which is grappling with a widening rich-poor divide.

The island was ranked sixth among 15 economies which have witnessed the biggest jump in income inequality over the past decade, according to a recent survey by the Asian Development Bank.

Taiwanese statistics show that the number of millionaires like Luo has climbed steadily over the past six years.

Last year, there were 925,170 Taiwanese - or 7.65 per cent of the population - with an annual income of NT$1 million or more. This was up from 6.68 per cent in 2001.

Meanwhile, the number of Taiwanese at the lowest rung of the income ladder crept up for the first time following a five-year drop.

Last year, 10.11 per cent of the population made less than NT$200,000 a year, marginally up from 10.07 per cent in 2005.

Figures also show that the rich are getting richer at a faster rate.

Last year, the top 20 per cent of Taiwanese households earned six times more than the bottom 20 per cent.

An average household at the top end earned some NT$1.82 million last year, whereas it was NT$304,000 for the average household at the bottom.

A decade ago, the income difference was 5.41 times.

The real gap would have been even wider - at 7.45 times last year - if not for the government's increasing social welfare spending.

Last year alone, some NT$250 billion was handed out to the poor in assistance schemes that included monthly subsidies of up to NT$6,000 for the elderly and waivers of school fees for children.

But even with the welcome help, life remains tough for the poorest Taiwanese.

The bottom 20 per cent households managed to save only an average of NT$200 for the whole of last year - compared to some NT$20,000 a decade ago.

Observers say the sluggish economy and stagnant incomes have worsened the widening income gap.

"Taiwan's rich-poor gap is not that severe compared to that of some Asian countries," Professor David Hong, president of the Taiwan Institute of Economic Research, told The Straits Times.

"But Taiwanese, especially those at the lower end of the income ladder, are increasingly feeling the pressure because their incomes are not rising fast enough."

In recent years, the population at large has experienced stagnant or negligible growth in income. Last year, income for the average household grew by just 1.6 per cent - compared to 4.89 per cent a decade ago.

Analysts say the root of the problem lies with a sluggish economy.

Taiwan's economic growth has hovered around 4 per cent in recent years, trailing behind the other three Asian tigers - South Korea, Singapore and Hong Kong.

"If the pie is growing, the situation would not be that bad, even if income is distributed unevenly," opposition lawmaker and financial expert Christina Liu told The Straits Times.

"But if you have a sluggish economy and widening income gap at the same time, social problems could emerge."

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I feel bad for those people.

You see the haves and have not everywhere throughout asia. In HK you had the infamous Walled City before it was torn down under government and public pressure and you see the same in their public housing "Y" buildings.

The M economy is more familiar than most people think. It's just not in what is termed the typical '3rd world markets'.

Alan Greenspan said it best on Letterman actually. He said in evolving and producing markets, the changing of economic structures will inevitably lead to increase in the standards of living. BUT those changes will invariably lead to a lower income class and widening of the income gap in order to reach equitable distribution as those standards change.

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I just feel so stuck when I read stories like this.

North american economies have a slight and increasing M shape as well. The difference being government intervention and assistance programs has helped balance the income distribution and minimized the income gap. Whereas Asia does not have regulatory social framework to do that; thus the effect is a more pronounced M shape.

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