Knock-on Effects of Accelerating Demographic Changes in Taiwan

Knock-on Effects of Accelerating Demographic Changes in Taiwan

Knock-on Effects of Accelerating Demographic Changes in Taiwan

Taiwan’s population will start shrinking this year. That contraction coincides with the population’s continued aging, as reported by Focus Taiwan, citing official data from the country’s National Development Council: “Taiwan will become a super-aged society by 2025, meaning that one in five citizens will be aged over 65, due mainly to a falling birth rate and a fast-aging population.” This news, coming amidst the COVID-19 pandemic and intensified concerns about China’s near-term designs on the country, is unlikely to calm nerves on the island. Such demographic trends have negative implications for Taiwan’s continuing ability to defend itself and maintain its economic growth. A shrinking population also raises questions about Taiwanese society’s (very) long-term viability and its ability to adapt to changing demographic conditions. Yet even as Taiwan looks for ways to adapt to this new demographic reality, it might discover that there are silver linings to the NDC’s new statistical forecast.

China’s Reaction

Speaking to reporters last month, Taiwan Foreign Minister Joseph Wu (吳釗燮) fretted, “if we look at the contested issues around China’s periphery, we see that for China, Taiwan would be an extremely convenient sacrificial lamb.” Although there are good reasons to worry that the Chinese threat to Taiwan may have grown more imminent, Xi Jinping (習近平) may not yet be eager to resort to aggression across the Taiwan Strait. If that is the case, the new reminder of Taiwan’s demographic decline may encourage greater patience from the Chinese leader.

A shrinking, aging population is a significant challenge for the Republic of China (Taiwan) Armed Forces, especially as Taiwan has shifted to an all-volunteer force. Taiwan already faces a labor shortage. The deepening of that shortage spells trouble.

Taiwan’s population aged 15-64 has been shrinking since 2015, while its share of the overall population has been shrinking since 2012, when it peaked at 74.22 percent. Competition for labor is likely to increase as both numbers continue their downward trends and as the elder care burden that falls on that age bracket increases. Fewer job applicants will demand better pay and perks, and military recruitment and retention will suffer for it. The result may well be a military that is undermanned and that does not include among its ranks Taiwan’s best and brightest.

If that is the future that leaders in Beijing are projecting for Taiwan, they have good reason to continue delaying any move towards forceful unification. What would likely be a very tough fight for the People’s Liberation Army (PLA) today might be a slightly easier one years down the road.

Adaptation and Follow-on Effects: The Economy

Of course, Taiwan is unlikely to stand pat in the face of these demographic challenges. Indeed, adapting to demographic decline, if not arresting it, could have follow-on effects, leading to a stronger, more secure Taiwan.

Perhaps the easiest way for Taiwan to address its demographic changes is to permit and encourage greater immigration. In her second inaugural address, President Tsai Ing-wen (蔡英文) suggested she would take a step in this direction, promising to “bring in the world’s top technical, R&D, and management talents to help globalize Taiwan’s workforce, widen our industries’ horizons, and give them the ability to compete in the international arena.” Indeed, the New Economic Immigration Act (新經濟移民法), debated in the Legislative Yuan earlier this year, would seek to do just that.

Taiwan should consider going further by opening the doors to a larger influx of immigrants. The domestic resistance to such a move may be less fierce than in places like Japan and South Korea, where opposition to accepting more immigrants appears to be rooted, at least in part, in strong national identities based on a shared ethnicity. This is less true for Taiwan, as Sheena Chestnut Greitens and Aram Hur argued recently for Foreign Policy. They describe a “civic basis” for Taiwanese identity: “rather than taking an ethnic or pan-Chinese approach, as it once did, Taiwan sees itself as a democratic nation, first and foremost.” In theory, such a civic identity should make it easier for current citizens to embrace would-be nationals as long as the latter embrace Taiwan’s democracy.

Greater immigration to Taiwan would, in turn, have positive economic effects. Most obviously, more substantial immigration could solve Taiwan’s labor shortage problem. Without mitigation, Taiwan will forego opportunities for economic growth (on a global scale, the Boston Consulting Group has assessed that projected labor shortages over the next 20 years will result in USD $10 trillion of “GDP not created”). As a report from The Conference Board on US labor shortages described, higher wages put downward pressure on company profits:

Lower profits make companies more reluctant to spend, a trend that may slow down economic growth. […] In addition, the drop in corporate profits and growing labor costs may force more industries to raise prices and lead to a higher overall inflation rate.

Put simply, it is important to fill empty jobs, and immigration is an effective way to do so.

But beyond addressing the labor shortage, more immigration could give the Taiwanese economy a helpful jolt. In “Assuring Taiwan’s Innovation Future,” a Carnegie Endowment report, Evan A. Feigenbaum addresses challenges to Taiwan’s “innovation ecosystem.” One problem?

Bluntly put, a new generation of Taiwan-based technology startups has yet to emerge. Indeed, while Taiwan now has a vibrant and flourishing startup scene, few of these firms have agglomerated around new or fast-growing areas of science, technology, engineering, and mathematics (STEM).

One potential reason for this deficiency is that Taiwan’s aspiring entrepreneurs are more isolated than in past decades. As Feigenbaum explains:

With the United States, meanwhile, Taiwan saw diminished connections to Silicon Valley in the 2000s for two reasons: first, with more opportunities at home, fewer students from Taiwan came to the United States to study; second, Silicon Valley firms like Apple increasingly partnered with lower cost Chinese, not Taiwan, firms for their manufacturing needs.

Immigration may provide one solution to this deficiency. Peter Vandor and Nikolaus Franke of the Vienna University of Economics and Business, in seeking to explain why immigrants often account for an outsized share of entrepreneurial activity, found evidence that “cross-cultural experiences may increase individuals’ capabilities to identify promising business ideas” and that such experiences “may also stimulate creativity.”

Recognizing that Taiwan would benefit from more foreign entrepreneurs, the country instituted the Taiwan Entrepreneur Visa in 2015. The qualifications for the program, however, are narrow and the visa requires that grantees hit the ground running. Taiwan’s immigration policy should ensure immigrants have the opportunity to become entrepreneurs, rather than solely seek to import established ones.

Taiwan’s high-tech ecosystem is not evolving on its own. But immigrants permitted entry due to growing labor shortages could end up giving that critical ecosystem—and the economy writ large—the boost it sorely needs.

Adaptation and Knock-on Effects: National Security

Shrinking populations in Taiwan and Japan (the latter’s population decline began in 2010) should provide added impetus for the two to cooperate more closely in the national security realm. Tokyo has long had a deep and abiding interest in Taiwan’s continuing de facto independence, but it has also tended to hold Taipei at arm’s length for fear of upsetting its ties with Beijing. With demographic trends placing similar constraints on both countries, over time squeezing both human and material resources and thus compounding the threat both face from China, a less cautious embrace may now be in order.

Jennifer Dabbs Sciubba, in her book The Future Faces of War: Population and National Security, identifies three ways in which countries might compensate for military manpower shortages: by pursuing technological superiority (“technology can, to some degree, replace lost manpower”), alliances (“as part of strong alliances, states have strength in numbers, even if they are individually weakened by aging”), and military efficiency (“aging EU members states have been working to combine their military resources and reduce redundancy to improve efficiency,” which “can reduce reliance on military manpower and relieve pressure on budgets”). [1] In all three pursuits, Taipei and Tokyo may find reason to work together.

Given the ROC military’s impending challenges with recruitment and retention, it is likely to look to technological solutions to overcome manpower shortfalls. Japan, with its expertise in robotics and automation, may have some answers and, given concerns regarding Taiwan’s ability to defend itself going forward, may be willing to share them.

Beyond tech cooperation, Japan may be more willing in the future to pursue the type of security cooperation that has thus far made it nervous: robust intelligence sharing, track 1 security dialogues, combined military exercises, and even coordinated military operations. A formal alliance, per Sciubba, may remain a bridge too far for both countries, but burden sharing (in the pursuit of efficiency) in patrolling and monitoring littoral waters and skies may not be. Importantly, if Tokyo follows such a course, it may make it easier for other interested US treaty allies and security partners to do so in the future.

Contrary to expectations, then, Taiwan’s demography-induced security challenges could lead to a more secure Taiwan—one with stronger international security partnerships that contribute to deterring Beijing.

Taiwan’s demographic trends do not amount to a blessing in disguise. The country would be better served by a healthy demographic profile marked by a younger, growing population. But if Taipei meets the challenge head on, it can still ensure itself a bright future—one in which it maintains its independent, democratic, and prosperous existence.

The main point: As Taiwan looks for ways to adapt to its shrinking and aging population, it might discover that there are silver linings to its new demographic reality.

[1] Jennifer Dabbs Sciubba, The Future Faces of War: Population and National Security (Denver, CO: Praeger, 2011), 46-50.