Public Enterprise Management

8/8/2019 Public Enterprise Management

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THE ASIA PACIFIC JOURNAL OF PUBLIC ADMINISTRATION VOL 28, NO 2 (DECEMBER 2006): 143-169

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Public Enterprise Management in Taiwan:Has the Change of Government Made

Much Difference?

Cheng-Chiu Pu

Taiwan's transition towards political democracy has been widely discussed in recent years,but not much attention has been paid to the effect of these changes on public sectormanagement. The discussions have speculated that the government no longer uses anauthoritarian way of governing the country, in keeping with its promotion of democraticdevelopment. However, this article shows that the change from the previous Kuomintang(KMT) government to the Democratic Progressive Party (DPP) government has not changedthe way public enterprises are managed. The DPP government resembles the KMTgovernment in that it continues with an authoritarian way of managing public enterprises,despite the party's long established commitment to a democratic way of governance. Theregime turnover has not meant public enterprises are any better placed than they werepreviously, in terms of their potential to improve autonomy, profitability and governance.

Introduction

This article presents some significant outcomes of research to date intopolitical changes affecting Taiwanese public enterprises over the past twodecades.1 Politically, three major milestones in democratic developmentwere experienced during this period, but the changes, although they appearto have closely affected the operation of public enterprises, have not beencomprehensively examined, especially in regard to the way publicenterprises are managed. Certainly, some issues related to public enterpriseshave arisen as a result of the democratisation process, but the relateddiscussions have created confusion, leaving it unclear whether the meansof managing public enterprises has changed in any fundamental way.

There have been three political milestones in Taiwan's recent democraticdevelopment process. First, martial law, under which Taiwan was ruled as

an authoritarian country by the Kuomintang (KMT) government, was liftedin 1987. The KMT, dominated by the mainlanders who had come to Taiwanafter their defeat by the Chinese Communist Party (CCP) in 1949, hadbelieved martial law was essential to maintain Taiwan's internal securityagainst a possible invasion from Communist China; and, of course, the KMTalways had the ambition to return to China as the rightful government. In1975, General Chiang Kai-shek died and his son, Chiang Ching-kuo, becamePresident. Until 1987, the KMT governed Taiwan through a one-party


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The Asia Pacific Journal of Public Administration

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system, prohibiting all opposition political parties, street protests anddemonstrations, labour strikes, and other forms of industrial action.2

The second milestone came when Taiwan's first direct presidentialelection was held in 1996 and Dr Lee Teng-hui was elected as the first nativeTaiwanese President. This election was pivotal in the process of Taiwan'sdemocratic development, because the KMT, no longer a mainlanders-dominated political party, prompted political democracy until it lost power.

Third, the 2000 presidential election was a huge watershed in Taiwan'sadvance towards political democracy in that this was when the DemocraticProgressive Party (DPP) took over the KMT's position of power in the centralgovernment. The DPP's Chen Shui-bian won the presidential position; then,later, in the 2004 presidential election, Chen won another victory by defeating

the "Pan-KMT" (also called the "Pan-Blue") alliance, a collaborationcomprised of the KMT and the People First Party (PFP). However, whilethe DPP has been in political power since 2000, the party has suffered fromhaving only a minority of the seats in the Legislative Yuan, the country'sunicameral parliament.3

During its governance period, the KMT generally used an authoritarianway to manage public enterprises. It was anticipated that the DPPgovernment would move public enterprises into a new era, since it hadpreviously promised them more autonomy and a change in the government-public enterprise relationship. As the political environment of publicenterprises within the Taiwanese state has changed significantly throughthe democratisation process in recent years, it is appropriate to examinewhether the DPP government has had any impact on public enterprise

management issues.This article addresses the position of public enterprises in the Taiwanese

governance system, and summarises most of the research to date dealingwith the significance of public enterprises in Taiwan during post-war period.An earlier article provided more detail on the history of Taiwan's publicenterprise sector and on its governing arrangements (Pu 2005). This articlealso explains the methodology of how this research has been conducted sofar. A number of critical issues are addressed, including the originalmotivation for the study, the hypothesis and the framework for conductingthe study, and the selection and collection of essential materials. Also, fieldwork was conducted during the period December 2005 and January 2006in an attempt to gather information and learn about the effect of the political

changes on public enterprises and their everyday affairs in Taiwan's recentdemocratisation process. Following this, there are discussions focusing onthe subject of whether the change to the DPP government has significantlyimpacted public enterprises during the time of its governance. Thediscussion covers the government's control mechanism, the government-enterprise relationship, the industrial relations issues, and the implicationsof enterprise reform and privatisation.


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Public Enterprise Management in Taiwan: Has the Change of Government Made Much Difference?

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The Governance System

Taiwan's central government structure consists of the Office of the Presidentand five branches called "Yuan". The President appoints the Premier whoheads the Executive Yuan, without the consent of the Legislative Yuan. Withthe consent of the Legislative Yuan, he appoints the presidents and vice-presidents of the Judicial Yuan, the Examination Yuan and the Control Yuan.

The Executive Yuan is the equivalent of the cabinet in parliamentarysystems, and consists of the Premier, the Vice-Premier and a number ofministers and chairpersons.4 It heads an apparatus of eight ministries and anumber of ministry-level councils, commissions and administrations. TheLegislative Yuan is the unicameral parliament, with 225 members popularly

elected for three-year terms and eligible for re-election. As already noted,although the DPP has won the last two presidential elections, it has notsecured a parliamentary majority so far. The Judicial Yuan has the Councilof Grand Justices (responsible for interpreting the Constitution5, laws andordinances) as its main body, with the Supreme Court, high courts, districtcourts, supreme and high administrative courts, and the Commission onDisciplinary Sanctions of Public Functionaries as subordinate units. TheExamination Yuan is responsible for all examination-related mattersconcerning the selection of government officials and the qualifying ofprofessionals and technocrats, as well as for dealing with the pay scales,insurance, retirement and pension matters of public sector employees; also,it supervises several ministry-level organisations such as the Ministries ofExaminations and Civil Service. The Control Yuan, a quasi-judicial

organisation, is empowered to conduct impeachment proceedings againstgovernment officials, including officials of provincial/municipalgovernment, local government and public/state-owned enterprises, andhas the National Audit Office as a subsidiary unit.

The term "public enterprise" in Taiwan is used for any enterprise that issolely owned by the government or other public enterprises, or is jointlyowned by the government or other public enterprises and privateindividuals, provided the public sector holds more than 50 percent of thecapital/shares. If that shareholding drops to below 50 percent, privatisationis considered to have taken place. In addition, Taiwanese public enterprisescan be categorised in several ways according to the level of governmentand the organisation's legal form and ownership type. In particular, these

enterprises can be classified as central government-owned, provincial/municipal government-owned, or county/city government-owned (Pu 2005:168-169).

Legally, public enterprise is treated as an important part of thegovernment structure, with annual budgets, critical investment plans, high-level personnel nomination, personnel management, financial auditing andeven day-to-day matters all under the strict regulation and supervision


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of relevant government organs and processes. Accordingly, the"Administrative Law of State-run Enterprise" prescribes that the relevantministries as well as the above Yuans (excluding the Judicial Yuan) allexercise their legal powers and informal influence to intervene in the dailyoperation of public enterprises owned by relevant ministries of the centralgovernment.

Over several decades Taiwan has established a well-organised systemfor the supervision and control of public enterprises. This system consistsof several main supervision/control elements, including the Premier (alsocalled Prime Minister, the President of the Executive Yuan), the shareholdingministers and Parliament/Audit. Ministerial control or influence over publicenterprises within each of the portfolios under the Executive Yuan is

exercised through the appointment and removal of board members, theissuing of ministerial directives, inspections, the receipt and evaluation ofreports, and budgetary control. In practice, numerous critical decisionsrelating to public enterprises owned by the central government need to besubmitted to the Premier for final approval, so that, in fact, he has theultimate authority in decision-making about enterprise matters. To assistthe Premier in this function, several ministry-level organisations exist toconduct relevant reviews and give appropriate advice to the Premier forfinal approval.

The operations and budgets of public enterprises are subjected to thereview and legal approval of the Legislative Yuan. Several appropriatecommittees within the Yuan look after the reports from public enterprises.Regularly, questions raised in these standing committees have influenced

the activities of public enterprises. In addition, the Control Yuan isempowered to scrutinise public enterprises through using audit, censureand impeachment means. The Examination Yuan is weak and indirect inexercising control over public enterprises, because it is only empowered tosupervise such matters as the payment-scales, insurance, retirement andpension matters related to public enterprise employees. Finally, the JudicialYuan has no power to exercise its administrative directives over publicenterprises. Accordingly, within the Taiwanese government, the ExecutiveYuan, Legislative Yuan, Control Yuan and Examination Yuan are allempowered to exercise administrative or legal controls, and so influencepublic enterprises owned by the central government.

Figure 1 illustrates the position that public enterprises occupy within

the Taiwanese governance system and shows the control mechanisms thatthe central government imposes on them. The central government canexercise control over public enterprises through its executive, legislative,control and examination branches. When it does so, the governmentgenerally exercises control through a variety of measures, ranging frompersonnel appointments, staff employment regulation, pricing policy,budget and accounting, reports and questions, audits, and censure andimpeachment, among others.


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Figure 1The Context and Control Mechanisms for Taiwan's Public Enterprises

The Significance of Public Enterprises in Taiwan

In most countries the motives for establishing public enterprises mix"practical necessity" and "political philosophy" (Friedmann 1970: 303-305).The Taiwanese experience is quite similar. The genesis of Taiwan's state/public ownership system can be traced back to the time when the Republicof China government (at that time the KMT government) took over all thepreviously Japanese-owned industries and companies at the end of theSecond World War in 1945, transforming them into the public enterprisegroup (Cheng 2001; Cheung 2002). Later when the KMT government fledto Taiwan in 1949, the KMT's political ideology and its failure in mainlandChina further intensified the significance of this system in Taiwan. In

particular, its previous experiences in Mainland China had taught the KMTa lesson, namely, that there is a need to control essential services andproducts. As Amsden held (1985: 90), that which has "obsessed the KMTstate since its defeat in China is economic stability". It has been confirmedby numerous writers that the KMT believed its failure in Mainland Chinain 1949 resulted from its inability to maintain economic stability (eg, Amsden1985; Haggard 1988; Lee & Lee 1992; Klintworth 1995).

Pricing

Policy

Impeachment,

Censure, Audit

Staff

Employment

Regulation

Report,Question

Budget,

Accounting

The Executive Yuan

(The Premier andMinisters)

Personnel

Appointment

The

Legislative

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The

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Measures


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Later, in the early 1950s, Taiwan still suffered from severe inflation.Accordingly, the KMT government was strongly committed to the publicenterprise system as the best method of controlling any extreme inflationand of maintaining Taiwan's political, economic and social stability. In thedecades of economic development that followed, public enterprises wereparticularly prevalent in key industrial sectors. They were the primary toolsused by the Taiwanese state to implement its economic policy, and publicenterprises usually enjoyed a monopoly or near-monopoly position (Liou1992; Prybyla 1991). Since the early 1980s, the private sector has grown at amuch faster rate than the public sector; nonetheless, the public enterprisesstill remain powerful in Taiwan's politics and economy (Chu 1992; Amsden1985; Wu 2004). In particular, the government has determined to use its

state-owned enterprises as pioneers and innovators in establishing new-generation high risk, high capital and high technology industries in orderto remain competitive in world trade markets (Rimmer 1995). This strategyhas been particularly important since the private sector has been reluctantto invest in an industry until its profitability has been demonstrated (Lee &Lee 1992; Wu 2004).In brief, the Taiwanese experience bears out Hanson's(1959) message of the late 1950s: public enterprise can be applied as apowerful means of overcoming many obstacles of economic developmentin underdeveloped countries, especially where private enterprise is not yetwell developed.

The KMT maintained a special link with the public enterprises until itlost political power. There were several reasons for this. First, numeroussenior positions within the public enterprises were used as rewards to

encourage KMT elites and politicians to remain loyal to the party (Wen1989: 49). Second, private enterprises owned by the KMT or the KMT elitesmaintained close commercial links with public enterprises and did wellfrom those links. So the KMT attracted much revenue through the activitiesof public enterprises, and used this revenue to fund its political campaignsand to develop its organisational base. Third, public enterprise employeeswere major supporters of the KMT in national and local elections; and theparty was able to maintain its hold over their electoral loyalty through itsdecades in power (Bellows 1994: 9). These circumstances probably explainwhy numerous writers have argued that Taiwanese privatisation shouldbe regarded as part of a process to reduce the role of a particular party (theKMT) in the economy and also as a de-politicising measure (Liou 1992;

Bellows 1994) rather than as a reduction in the role of the state generally(Cheung 2002).

The special link between the KMT and public enterprises was notnecessarily inconsistent with the drive for Taiwan's post-war development.The public enterprise sector particularly provided a self-sufficient training base for the KMT government's economic bureaucracy to accumulatemanagerial and planning expertise (Chu 1992: 134). It is evident that two


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In the case of Taiwan, the state's nature has changed. The DPP governmenthas replaced the previously authoritarian-style one. This question remainshowever: have the Taiwanese public enterprises moved to a new era aswell? The DPP promised to allow public enterprises more autonomy, andto change the way they are managed; but have these changes reallyhappened in practice?

In examining whether the DPP government's activities have had anysignificant impact on public enterprise management issues, the discussionhere focuses on four critical aspects of public enterprise management. Itdoes not examine all aspects related to the topic of public enterprisemanagement, but it is believed that what is covered is sufficient to answerthe question being examined. The four aspects are: mechanisms the

government's control organs and measures imposed upon publicenterprises; cognitionthe government's intention and its implications forthe relationship between government and public enterprises; employeesthe impact of industrial relations on public enterprise management; and

prospect the implications for public enterprise reform and privatisation. Theanalytical framework is outlined in Figure 2.

Five major Taiwanese public enterprises owned by either the Ministryof Economic Affairs (MOEA) or the Ministry of Transportation andCommunication (MOTC) were chosen as the cases for closer investigation.They are: the Chinese Petroleum Corporation (CPC), the Taiwan PowerCompany (TPC), the Chunghwa Telecom Corporation (CHT) 6, theChunghwa Post Corporation (CHP), and the Taiwan RailwayAdministration (TRA). These five enterprises were chosen for several

reasons: they are larger than the average private company; they are thelargest or have monopolistic power in the infrastructure sector; they offertypical examples of good and bad business performance; they cover threedifferent types of public enterprise organisation state-owned company,statutory corporation, and departmental organisation; they have each beenthe scene of either privatising or corporatising programmes; and theassociated trade unions, the Taiwan Petroleum Workers' Union (TPWU),Taiwan Power Labour Union (TPLU), Chunghwa Telecom Workers' Union(CTWU), Chunghwa Postal Workers' Union (CPWU) and Taiwan RailwayLabour Union (TRLU), have provided labour movement leaders since thelate 1980s. These five enterprises are thought to represent a majority ofTaiwanese public enterprises in terms of the above vital elements.

In collecting essential materials, numerous key persons wereinterviewed. They included a number of senior officials working in relevantministries or ministry-level organisations who were in charge of managingand/or supervising public enterprises7, several departmental directorsworking in the selected public enterprises, and several presidents leadingthe associated trade unions within the selected public enterprises.

During the period the interviews were conducted in Taiwan, political


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Figure 2A Framework for Analysing Public Enterprise Management

Intention &

Relationship

Reforms &

Privatisation

Industrial

Relations

Public

Enterprises

Measures

Organs

Mechanisms

Cognition Employees

Prospect

Political Environment

and organisational sensitivities remained strong among the above seniorofficials and departmental directors, even though Taiwan's politics has beendemocratised for many years. They all preferred the option of remaininganonymous, so their viewpoints are cited here without names. Interestingly,the union presidents were not concerned with such political andorganisational sensitivities.

In addition to conducting the interviews, official documents such as

reports, statistics, laws and directives were collected from the aboveorganisations. In an attempt to ensure the requested anonymity, thediscussion here only identifies information which is already published bythe government and the selected public enterprises themselves.8 Local newsreports and academic articles were also collected and are referred to whererelevant.


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The Control Mechanisms

The Taiwanese government had already established a well-organised systemfor public enterprise control when Taiwan was a one-party system underthe KMT prior to the lifting of the martial law. During this period, despitethe fact that the Taiwanese government operated with its so-called five-branch government structure, there was in practice a "one-party dominantand Executive Yuan-led system" (Chang & Lam 1996: 117). Therefore,"within the government, power was concentrated in the hands of theexecutive, with the legislature reduced to a rubber-stamping 'legislativebureau' of the executive branch of the government" (Kau 1996: 288). TheExecutive Yuan enjoyed a superior position and was able to implement its

policies without paying too much attention and accountability to theparliamentary body (either the Legislative Yuan or the Control Yuan).The parliamentary function at that time is described by Liao (2005: 390)

as: "A legislature in an authoritarian system usually is portrayed as a 'RubberStamp', and it therefore has only symbolic meaning, no substantivefunctions". Under such political circumstances, the Executive Yuan ratherthan the Legislative Yuan and the Control Yuan enjoyed a superior positionin exercising control over public enterprises. Therefore, the public enterprisesusually operated their day-to-day activities by mainly following thedirectives from the Executive Yuan (the Premier and relevant ministers).

Later, during the late 1980s and the 1990s, public enterprises came tounderstand that they should pay more attention to the attitudes of thelegislators. The state now operated in such a way that Chao and Myers

(1994: 230) could claim, "Government business now requires more time tobe finalised. The Legislative Yuan scrutinises the budget more closely andpasses laws checking the government's power. Leading officials no longerhave their way in managing the government". The most critical factor tochange the way Taiwan was governed was clearly the development of theDPP (Fell 2005). Nevertheless, the DPP was still incapable of challengingthe KMT's predominant position in Taiwan's politics during the KMT'sgovernance period. This meant that the effect of the Legislative Yuan andControl Yuan on public enterprises was still relatively sporadic and weak,although influence on public enterprises was increasing.

Certainly, during the previous KMT regime, the Executive Yuan couldenjoy a dominant role when compared with the Legislative Yuan or other

Yuans in dealing with critical issues related to public enterprises and theiractivities. The left side of Figure 3 shows the dynamics of the government'scontrol mechanisms over public enterprises during the period of KMT rule.It indicates that the effect of the Executive Yuan was very strong andcontinued over the public enterprises during the KMT-ruled years, whilethe effect of the President was relatively sporadic and the effect of the otherYuans was also relatively weak and sporadic.


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Since replacing the KMT, the DPP government has not changed themechanisms for public enterprise control. Why is this so? First, the DPPgovernment has had to govern the country with a legislative minority sincethe "Pan-KMT" alliance has continued to dominate the Legislative Yuan.Second, the DPP government has had to rely on the KMT-established statebureaucracy to govern the country, and the state bureaucracy has no desireto change the control mechanisms which have been in use for severaldecades. Finally, while the DPP understands previous manifestos areimpossible to implement, it has found the KMT mechanisms for managingpublic enterprises very useful and effective.

The DPP's weakness in the parliamentary body in particular illustratesa political reality in Taiwan that has already been noted by other researchers.

Rigger (2001: 944) writes that "Although the president is empowered toappoint the head of government, or premier, lacking the support of alegislative majority, neither president nor premier can govern effectively".while Hsieh (2001: 930) points out that " the loss in the presidential electiondoes not mean that the KMT will no longer play a significant role inTaiwanese politics . . . Given Taiwan's constitutional form of government . . .the KMT will continue to exert a great deal of influence on Taiwan's politics".

The government's control mechanisms remain essentially unchanged,but they have been varied somewhat in their operational characteristics.For example, President Chen Shui-bian of the DPP government, unlike thePresidents of the previous KMT government, has been frequently involvedin manipulating the appointments of top officials and other aspects ofdecision-making within the public enterprises. In addition, the DPP's

position with a legislative minority has allowed the Pan-KMT alliance withinthe Legislative Yuan and Control Yuan to exercise its powerful influenceon public enterprises. In particular, the Pan-KMT alliance within theLegislative Yuan could have frequently and effectively boycotted annualbudget bills and other critical bills relating to public enterprises. Accordingly,the effect of the Legislative Yuan and the Control Yuan on public enterpriseshas become much stronger and continuous.

Taiwan's public enterprises are now facing growing pressures fromdifferent branches of the government. They are operating in a quiteambiguous and difficult situation; sometimes their situation is chaoticbecause they are being subjected to different directives and dominationfrom various government branches. In contrast, the public enterprises were

generally encountering a "one-line and top-down" type of pressure imposedby the Executive Yuan during the KMT governance period, since the effectsof the President and the other Yuans were relatively weak and sporadic.During the DPP's governance period, the pressures public enterprises areencountering have changed from the previous "one-line and top-down" typeinto a "multi-directions" type. The changed trend can be seen in Figure 3.The right side of the Figure indicates how the government's control over


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Figure3

ChangingCharacteristicsofGovernmentControloverTaiwan'sPublicEnterprises

St

rongandcontinuous

Weakandsporadiceffect

Ove

rtheDPPperiod

D

uringtheKMTperiod

The

Examination

Yuan

TheLegislative

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TheCo

ntrol

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n

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Enterprises

TheExecutive

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TheControl

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KMT government was always seen as more important than giving moreautonomy to the enterprises. Quite evidently, the government-publicenterprise relationship pattern could be classified as the "command-type"described by Thynne (1998), or as the "authority-model" described byStretton (1984).

Public enterprise top-officials frequently played a significant role withinthe KMT government in helping structure its major national policies suchas heavy industries, energy development, and other public infrastructure.The reason was that the majority of the KMT politicians had been trainedthrough and/or recruited from the top-officials within public enterprises.Given this, the KMT politicians always maintained a trustful attitudetowards and/or friendly interaction with public enterprise top-officials, so

the public enterprise officials could significantly take part in the decision-making processes within the KMT government.Since being in power, the DPP government has invariably adopted the

KMT way of dealing with public enterprise management. Numerous boardchairpersons have been replaced by appointees from the DPP politicians orfrom DPP supporters. The DPP has learnt from the KMT experience and soused senior public enterprise positions as a reward to satisfy its ownsupporters. This, therefore, means it has determined to maintain its regimeby using the same means that the KMT did before it. Why? As numeroussenior officials and departmental managers noted, the DPP governmenthas not fully trusted top officials appointed and trained by the previousKMT government presently working in the public enterprises.

Also, the DPP government has moved away from its previous promise

and has not allowed public enterprises more autonomy to make theirdecisions relating to the prices of products and services, and so has attemptedto make this a means of achieving multiple objectives. Two events thathappened in 2005 confirm this. It was reported by the local press that a DPPtop-level politician invited a few board chairmen (of former as well as currentpublic enterprises) to take part in a dinner with him on 26 July 2005. Thechairmen were then required, informally, to buy more commercials fromthe Taiwan Daily News, a pro-DPP news company, in order to save it frombankruptcy (China Times 5 August; United Daily News 4, 5 August). A secondevent of note occurred when the CPC and the TPC were not allowed toappropriately reflect fluctuating costs of imported oils in their pricing, eventhough the crude oil price had reached a record level high on the

international market, because at that time the DPP was seeking to win the"three-in-one" election county magistrate/municipality mayor, county/city council members, and township chiefsbeing held on 3 Decemberthat year (Merit Times 12 January 2006; the event was also noted by someinterviewees).

It is evident that the government-public enterprise relationship patternwithin the DPP regime is now being maintained in a similar way to how it


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was during the KMT governance era. That is, the DPP government prefersto maintain the government-public enterprise relationship as an "authoritymodel" rather than an "enterprise model". This means that the DPPgovernment still regards government control rather than corporateautonomy as the priority when dealing with public enterprise managementissues. The relationship is depicted in Figure 4.

While the DPP resembles the KMT in the way of maintaining thegovernment-public enterprise relationship, the KMT allowed publicenterprises considerable influence in helping structure national policies.The current DPP government has severely reduced the significance of publicenterprises in this respect. Take the case of the TPC in shaping Taiwan'selectric-power policy, for example. The TPC traditionally played a significant

role in shaping the KMT's electric-power policy, and was able successfullyto urge the KMT government to develop nuclear power as a major meansof maintaining economic growth in Taiwan (Rang & Kuo 2003). In contrast,the DPP government has not only weakened the TPC's role in helping decidenational energy policy, it has undermined the TPC's activities altogether bydeclaring its aim to abolish all nuclear-power plants and transform Taiwaninto a nuclear-free country. According to the DPP government's plan,Taiwan's total nuclear power will be replaced by wind, hydro and solarenergies in the future.9 The TPC has been incapable of changing the DPPgovernment's mind in this respect; rather, it has obeyed the government'slead and tried to achieve the government's determined goals.

Industrial Relations

Recently, researchers have attempted to explain some political features thathave been part of public enterprise industrial relations during the post-warera, features that are generally not found in the private enterprise sector.One such feature is "political contingency". This affects industrial relationsmanagement strategies in public enterprises and has forced the governmentto adopt consistent and equitable industrial relations policies (Batstone,Ferner & Terry 1984). A second feature is the existence of the belief that thegovernment is the embodiment of the "good employer"; that is, a notionthat public enterprises should represent a good model to the privateemployer (Batstone, Ferner & Terry 1984; Fredman & Morris 1989;Winchester 1983). A third feature is associated with the monopolistic status

that public enterprises frequently have, and the fact that any labour disputeswithin such enterprises could seriously affect essential services for whichthere are no alternative sources of supply (Morris 1986). In suchcircumstances, trade unions can be smart in using strikes as a means ofputting political pressure on the government (Beaumont 1981; Ferner 1988),so the notion of "political exchange" has quite often been applied to explainthe relations between the government, management and trade unions(Crouch & Pizzorno 1978; Ferner 1988; Crouch 1993).


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Figure 4The Government's Intention and Relationship Model for Public Enterprises

TheGovernments

intention

Authoritymodel

Enterprisemodel

Governmentcontrol (Priority)

Corporateautonomy

During the martial law period in Taiwan, the KMT government enacteda number of pieces of legislation to ensure that labourers worked understrictly controlled conditions. In this way, the KMT ensured that public

enterprises could maintain their operations continuously, withoutinterruptions caused by trade union activity (Lee & Lee 1992; Lin 1988). Itmeant that trade unions were used effectively as an arm of government forpolitical, economic and social policy purposes, and that trade unions playedonly a limited role in fulfilling the interests of their members (Hwang 1993;Lee 1989). In fact, trade unions were not permitted to undertake industrialaction against either the KMT or the government, and were assigned todelivering welfare services to their members rather than representing workerinterests. Thus, trade unions reinforced traditional employer paternalism(Kleingartner & Peng 1991). This situation was, quite probably, the reasonfor Lee's (1989: 24) comment that "unions were merely an administrativearm of the ruling party".

The lifting of martial law provided trade unions with a much more

favourable environment, one in which they could exercise bargaining powerwith the government and their employers (Lee 2000). The environmentencouraged public enterprise trade unions to develop the autonomy of theirorganisations that aimed to improve their members' rights and benefits.The unions generally preferred to adopt street protest as a major means ofputting political pressure on the KMT government for the achievement oftheir goals. In responding to such conflicts, the KMT government usually


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sought to avoid any disruption to essential services/products provided bythe public enterprises and did not undertake lengthy negotiations with theunions involved; instead, it reacted by offering some concessions in orderto end the protests quickly, especially if the concessions were not contraryto existing policies and laws (Pu 1994: 149-154).

At the same time, the KMT's domination within these unions graduallydiminished and the DPP became actively involved in the unions' internalelections. It is evident that, in practice, the DPP was doing the same thingas the KMT once did in order to increase the popularity of the DPP in thepublic enterprise unions and to win more political support from them duringnational or local elections. Obviously, the ruling KMT and the oppositionDPP were highly competitive in their attempts to win political support from

these unions. Accordingly, the reality became as San (1993: 374) writes:"Today all political parties are actively seeking the support of labour.Consequently, union leadership has become another arena for the rulingand opposition parties in which to do battle".

Along with the change to DPP government came optimism that tradeunions would grow and develop well in the more favourable environment,since the DPP has long had a pro-labour stance (Chen, Ko & Lawler 2003:327). However, the DPP's pro-labour inclination has not necessarily beentransformed into direct labour support. It has been observed that publicenterprise trade unions have used their huge membership to put politicalpressure on the DPP government and so achieve their goals, in the waythey once did against the KMT government.

What has made the public enterprise trade unions so angry towards

the DPP government in the past few years? It is primarily that the DPP hascontinued a series of privatisation plans. In response to this, the unionsorganised a series of street protests and strikes aimed at stoping the DPPgovernment's privatisation plans. The DPP government sometimes offereda few concessions to unions, but at other times it did not. In May 2005, theCTWU, the trade union within the CHT, held a one-day strike aimed atstopping the privatisation of the CHT. However, a counterattack of the DPPgovernment aggressively defeated the union, which meant it failed toachieve its goal. In contrast, during the post-martial law years, the KMTgovernment was much concerned with keeping industrial peace with thepublic enterprise trade unions when confronted with the same type ofindustrial conflicts. It usually offered some concrete concessions and used

a compromise strategy designed to end the conflicts quickly. In view ofthis, some union leaders have vowed that the previous KMT government(a so-called authoritarian regime) could express a benevolent attitudetowards public enterprise trade unions, while the current DPP government(a so-called democratic regime) can use unfriendly means when dealingwith this kind of conflict between the government and public enterprisetrade unions.


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While Taiwan's politics have been democratised for many years, bothof Taiwan's major political parties, the ruling DPP and the opposition KMT,have continued to intervene in the trade unions within public enterprisesthrough manipulating their internal elections, organisations and decision-making. Accordingly, public enterprise trade unions have remained a majorarena of combat for both political parties.

Reform and Privatisation

There are diverse viewpoints among analysts about the performance ofTaiwan's public enterprises. It is generally agreed that they probably havebeen less efficient and less profitable than comparable private enterprises

but that, on the other hand, they have been able to maintain a reasonablyhigh performance level considering their need to accomplish the multipleobjectives required of them by the government. There are severalexplanations for this. First, the government has always valued the surplusesof these public enterprises as a vital part of its annual revenue; it has thereforeforced them to upgrade their operational efficiency and also profitability.Second, many public enterprises have operated as upstream industries,serving as suppliers of essential energy, materials and goods for downstreamprivate enterprises, and this has forced them to maintain an acceptable levelof efficiency. Third, Taiwan's domestic market for power generation,petroleum and gas, telephone services, and bank and insurance serviceswas liberalised many years ago, forcing public enterprises to maintain theircompetitiveness against private rivals (Pu 2005: 174).

Despite their impressive records, in recent years opposition parties,legislators and the mass media have all focused their attention negativelyon some public enterprise issues, particularly issues relating to theirefficiency and profitability. They have argued that public enterprises shouldbe required to achieve the same levels of efficiency as private enterprises.Necessarily, such pressure has led to successive Taiwanese governmentsintroducing various reforms aimed at achieving greater public enterpriseefficiency and profitability.

According to Shirley and Nellis (1991: 3-4), most developing countrieshave introduced three major strategies for public enterprise reform: a policyframework, management reforms, and privatisation. In their view, the mostfundamental step is to establish an appropriate policy framework. This

means that a macroeconomic adjustment needs to be undertaken to createa more competitive environment for public enterprises. Once this action istaken public enterprises will become market-oriented firms, withoutfavoured status or a monopoly position. With the creation of the appropriateframework, public enterprises will have the opportunity to carry out moremanagerial reforms oriented to seeking the delicate balance betweenautonomy and accountability in addition to performance improvement.


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Finally, the most prominent mode of public enterprise reform isprivatisation, an action that could be expected to bring about the fulfilmentof the following objectives: a more efficient use of the assets by the newprivate owners, the overall strengthening of the market environment, andthe unburdening of government. In Turner and Hulme's (1997: 175) view,the wave of public enterprise reform has mainly committed developingcountries to a "private sector solution".

In recent years, three similar strategies have been adopted regardingpublic enterprise reform in Taiwan. First, commercialisation has beenpromoted in their operations, meaning they have been expected to becomeprofit-seeking organisations. This implies a shift of enterprise objective fromsocial objective towards profit making. Second, a liberalisation process has

been introduced to transform the business environment of public enterprises,so they function in a competitive market instead of the previous monopolisticor oligopolistic one. Finally, the government has undertaken a series ofprivatisation plans10 for selling enterprises out fully or partly into the privatesector, showing no desire to fully own and continuously run them. Withthis change to privatisation, the enterprises will have more potential tomaximise their profits. There have been various objectives for conductingthe above strategies, but there is one thing they have in common, they areall intended to urge enterprises that are still or have been in the publicsector to seek greater profits. Figure 5 indicates the different effects of eachstrategy on Taiwan's public enterprises in terms of their operationalobjectives.

Figure 5The Effect of Different Reforms on Public Enterprise Objectives

The previous KMT government and the current DPP government haveboth been committed to introducing a number of reform measures to publicenterprises over the last two decades, but their actions have failed tocomprehensively upgrade the levels of operational efficiency and

Commercialisation Liberalisation Privatisation

Seeking

more profits

Maximising

profits


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profitability of the enterprises. The reasons for this include: public enterpriseshave not enjoyed sufficient autonomy to adjust product/service prices toreflect their real costs; and they have been required to help the governmentcarry out various policy and community obligations, as well as to contributecapital investment to the public infrastructure. Obviously, such non-profitactivities reflect negatively on their commercial profitability.

It seems that the governments have achieved a considerable amount inrespect of requiring public enterprises to reduce employees as much aspossible. In fact, a strategy combining "hard" and "soft" ways has beenadopted in order to achieve that goal. A policy of freezing employeerecruitment has been undertaken, making it more difficult for agedemployees to continuously work in their workplaces where their working

burdens have been increased significantly during the freezing process;further, aged employees have been encouraged to apply for voluntary early-retirement settlements, including some offers of generous financial benefitsas a reward. Despite these reduction processes, they have been unable tocompulsorily shed public enterprise employees. As shown in Table 1, asignificant proportion of the employees working in the CPC, TPC, CHT,CHP and TRA, respectively, have remained with the enterprises, andemployee reduction measures have had the effect of seriously ageing theremaining staff. Notably, the average age of the employees working in theCPC, TPC, CHT, CHP and TRA in 2004 was, respectively, 48.2, 47.2, 45.5,45.2 and 46.25 years old.

Table 1

Employee Variations in Five Taiwanese Public Enterprises: 1995-2004

CPC TPC CHT CHP TRA

1995 Year 20,763 30677 35875 29,993 16,981

2004 Year 15,090 26,032 28,518 24,557 13,839

Redundancy 5,673 4,645 7,357 5,436 3,142

Percentage -27.32% -15.14% -20.51% -18.12% -19.68%

Sources: the CPC, TPC, CHT, CHP and TRA

It has been more difficult for the DPP government to introduce a numberof large-scale or macro-level reform measures to public enterprises becauseit does not hold a legislative majority. However, when compared to theprevious KMT government, the DPP government has carried out somehighly radical reforms in dealing with public enterprises. In 2001, the ChinaShipbuilding Corporation was required to shed 47 percent of its employeesand cut the wages of its remaining staff by 35 percent, when it wasencountering a threat of bankruptcy. Similarly, the CPC, TPC, CHT, CHP,


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TRA and other public enterprises were all required to reduce their employeesas much as possible. The DPP government is expecting that, as a result, thelabour costs of the public enterprises may eventually approach the levels ofthe private sector.

The subject of whether the implementation of privatisation has impactedon the characteristics of the boards of public enterprises has been publiclydiscussed. It has been argued by Bozec, Zghal and Boujenoui (2004) that boards have, on the whole, evolved towards a set of structures andmechanisms that have the potential to improve independence andgovernance. Regrettably, this type of positive effect has not been particularlyevident or significant for Taiwan's privatised public enterprises. Their boardsare no longer accountable to the government, but in many respects the

government still maintains its influential role within the former publicenterprises. For example, as several interviewees noted, in an attempt tohelp its party to win the "three-in-one" election held on 3 December 2005,the DPP government required the CHT to reduce its mobile-phone ratethrough using its position as biggest shareholder in order to increase politicalsupport to win that election.

It is widely acknowledged that the previous KMT government remainedin control of the privatised public enterprises through its position as largestshareholder, and was able continuously to manipulate enterprise activitiesby determining the critical members of the company boards, influencingthe determination of corporate policies and plans, and giving informalwarnings. Numerous board chairperson positions within the privatisedenterprises continued to be occupied by the KMT or pro-KMT elites.Ironically, the DPP government has now adopted the KMT's way ofmanipulating former public enterprises. It has removed the majority of boardchairpersons appointed previously by the KMT government and replacedthem with its own elites and supporters.

Conclusions

This article has examined how the change to the DPP's governance has failedto move Taiwan's public enterprises into a better circumstance, providingthem with a greater degree of autonomy than that previously experiencedunder the KMT's rule. For example, the DPP government has not changedthe control mechanisms imposed on public enterprises and their activities.

The article has addressed how the activities of public enterprises, even whenthe enterprises are required to operate as private firms, generally continueto be distorted as a result of political interference exercised by differentbranches of the government; and how this intervention has damaged theirmanagement flexibility and autonomy, as well as their operationalperformance and commercial profitability. The DPP government has notchanged the authoritarian features that have occurred as part of the


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relationship between the government and public enterprises. The decision-making autonomy of public enterprises is still limited to a rather narrowarea of operation, and the top-official positions of public enterprises continueto be used as a training base and/or a reward for the ruling party's politiciansand supporters.

The DPP government has broken its political promises and has carriedon with the KMT's authoritarian way of handling the management of publicenterprises. The DPP now understands that the KMT's authoritarianism isbetter than its own previously declared democratic principles for dealingwith public enterprise management, so its earlier conviction that managingpublic enterprises should be approached in a democratic way has beenabandoned. It also understands that the KMT's authoritarianism is a good

way to protect the political regime, so the DPP government has determinedto use public enterprises as a means of achieving the same purpose. While,several features distinguish the previous KMT government and the currentDPP government in the way public enterprises are managed, they are notof any real significance in practice.

In fact, it has been shown that the DPP government has exercised controlover public enterprises even more tightly than the KMT government did.There are two reasons for this. First, the DPP government has been in acritical political situation, being without a legislative majority in Taiwan'sparliamentary body. Second, the DPP government has not fully trusted topofficials who were appointed and trained by the previous KMT regime andare presently working in public enterprises. Therefore, the ironical situationexists whereby the previous KMT government, an authoritarian regime,

allowed public enterprises considerable influence in shaping nationalpolicies and plans, while the DPP government, a so-called democraticregime, has severely limited their significance in this respect.

The DPP government is less concerned with keeping industrial peacewith public enterprise trade unions than the KMT government was.Currently, the ruling DPP and the opposition KMT continue to intervene intrade union affairs, manipulating the election of leaders, methods oforganisation and operational activities, so the trade unions remain a majorarena of political conflict.

The DPP government, as the previous KMT government did, hassought to improve the efficiency and profitability of public enterprises byintroducing some reforms particularly aimed at increasing their

commercialisation; but these reforms have not yet achieved their anticipatedgoals. There can be little doubt that the reforms of the DDP, and the KMT before it, have achieved only limited improvement in public enterpriseoperational efficiency, autonomy and flexibility. The principal reason issimilar to what Cheung (2005: 257) summarises as the administrative reformexperience in Asia, namely that "The 'old' public administration regime haslargely coexisted with the 'new' public management approaches and tools".


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Taiwan's transition towards political democracy has not yetencompassed a better way to manage the country's public enterprises.Taiwan's public enterprises have to operate in a situation in which theyhave little opportunity to improve autonomy, efficiency and/or profitability.It seems to be endemic to Taiwan's politics that the ruling party distorts themanagement of public enterprises in order to win political elections andprotect its political position.

Notes

1. This is a progress report on a PhD thesis study being undertaken in the Centrefor Research in Public Sector Management at the University of Canberra, Australia.The author, now a PhD candidate, has served as a civil servant in Taiwan's centralgovernment for more than 12 years, including eight years in charge of evaluatingthe performance of public enterprises.2. The DPP was established in 1986. Despite its illegal status under martial law,the KMT government tolerated it. In 1987, the lifting of the martial law gave it legalstatus and it was recognised as a political party.3. According to Taiwan's legislation, a presidential election does not require anabsolute majority. In the 2000 presidential election, the DPP candidate, Chen Shui-bian, won with a mere 39% of votes. Later, in the 2004 presidential election, Chenwon again with over 50% of the votes. However, in the parliamentary election forLegislative Yuan members held in December of the same year, the DPP obtainedless than 40% of the votes.4. The Premier, Vice-Premier, ministers and chairpersons of the Executive Yuan

are not entitled to legislator status in Taiwan's parliamentary body; they are notmembers of the Legislative Yuan.5. This is the Republic of China Constitution that dates back to before 1949 andcontinues to operate in Taiwan; among other things, it provides for this type ofgovernance framework.6. The CHT is currently a private company, as the government's stock in thecorporation was reduced to less than 41.48% in 2005. This type of privatised publicenterprise is generally classified as a mixed enterprise in Australia and Britain.7. These organisations included the Ministry of Finance, the Ministry of EconomicAffairs, the State-run Enterprise Commission, the Ministry of Transportation andCommunication, the Research, Development and Evaluation Commission, theCouncil for Economic Planning and Development, the Directorate General of Budget,Accounting and Statistics, and the Central Personnel Administration.8. These documents included: The Republic of China Yearbook, Annual Report of the

Performance of State-owned Enterprises, Taiwan Statistical Data Book, State-run EnterpriseCommission Annual Report, Chinese Petroleum Corporation Annual Report, Taiwan PowerCompany Annual Report, Chunghwa Telecom Corporation Annual Report, Chunghwa PostCorporation Annual Report, Taiwan Railways Annual Report, Statistical Report of TaiwanRailways Administration, Taiwan Petroleum Workers Bimonthly, Taiwan Power LabourUnion Bimonthly, Chunghwa Telecom Workers' Union Bimonthly, Chunghwa PostalWorkers' Union Bimonthly, Railway Workers Bimonthly, Administrative Law of State-Run Enterprise, Statute of Privatisation of Government-Owned Enterprises, Enforcement


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Rules of Statute of Privatisation of Government-Owned Enterprises, Rules Governingreinvestment by State-owned Enterprises before Privatisation and Management of State-owned Shares after Privatisation, Labour Union Law, Collective Agreement Law, TheSettlement of Labour Disputes Law, Labour Standards Law.9. According to statistics published by the TPC in 2004, its three nuclear plantsproduce over 20% of Taiwan's total electric-power.10. Privatisation is not new in Taiwan. The KMT government previously privatisedfour public enterprises to raise funds for the compensation of landlords in the early

1950s when its land reform policy was implemented.

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Cheng-chiu Pu is a PhD scholar in the Centre for Research in Public Sector Management, Universityof Canberra, Australia. His heartfelt thanks go to Professor Roger Wettenhall for his comments on adraft of the article.

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