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

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 sector
management. The discussions have speculated that the government no longer uses an
authoritarian way of governing the country, in keeping with its promotion of democratic
development. However, this article shows that the change from the previous Kuomintang
(KMT) government to the Democratic Progressive Party (DPP) government has not changed
the way public enterprises are managed. The DPP government resembles the KMT
government 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. The
regime turnover has not meant public enterprises are any better placed than they were
previously, in terms of their potential to improve autonomy, profitability and governance.

Introduction

This article presents some significant outcomes of research to date into

political changes affecting Taiwanese public enterprises over the past two
decades.1 Politically, three major milestones in democratic development
were experienced during this period, but the changes, although they appear
to have closely affected the operation of public enterprises, have not been
comprehensively examined, especially in regard to the way public
enterprises are managed. Certainly, some issues related to public enterprises
have arisen as a result of the democratisation process, but the related
discussions have created confusion, leaving it unclear whether the means
of managing public enterprises has changed in any fundamental way.
There have been three political milestones in Taiwan's recent democratic
development process. First, martial law, under which Taiwan was ruled as
an authoritarian country by the Kuomintang (KMT) government, was lifted
in 1987. The KMT, dominated by the mainlanders who had come to Taiwan
after their defeat by the Chinese Communist Party (CCP) in 1949, had
believed martial law was essential to maintain Taiwan's internal security
against a possible invasion from Communist China; and, of course, the KMT
always had the ambition to return to China as the rightful government. In
1975, General Chiang Kai-shek died and his son, Chiang Ching-kuo, became
President. Until 1987, the KMT governed Taiwan through a one-party

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system, prohibiting all opposition political parties, street protests and

demonstrations, labour strikes, and other forms of industrial action.2
The second milestone came when Taiwan's first direct presidential
election was held in 1996 and Dr Lee Teng-hui was elected as the first native
Taiwanese President. This election was pivotal in the process of Taiwan's
democratic 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's
advance towards political democracy in that this was when the Democratic
Progressive Party (DPP) took over the KMT's position of power in the central
government. 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 collaboration
comprised of the KMT and the People First Party (PFP). However, while
the DPP has been in political power since 2000, the party has suffered from
having only a minority of the seats in the Legislative Yuan, the country's
unicameral parliament.3
During its governance period, the KMT generally used an authoritarian
way to manage public enterprises. It was anticipated that the DPP
government would move public enterprises into a new era, since it had
previously promised them more autonomy and a change in the government-
public enterprise relationship. As the political environment of public
enterprises within the Taiwanese state has changed significantly through
the democratisation process in recent years, it is appropriate to examine
whether 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 dealing
with the significance of public enterprises in Taiwan during post-war period.
An earlier article provided more detail on the history of Taiwan's public
enterprise sector and on its governing arrangements (Pu 2005). This article
also explains the methodology of how this research has been conducted so
far. A number of critical issues are addressed, including the original
motivation for the study, the hypothesis and the framework for conducting
the study, and the selection and collection of essential materials. Also, field
work was conducted during the period December 2005 and January 2006
in an attempt to gather information and learn about the effect of the political
changes on public enterprises and their everyday affairs in Taiwan's recent
democratisation process. Following this, there are discussions focusing on
the subject of whether the change to the DPP government has significantly
impacted public enterprises during the time of its governance. The
discussion covers the government's control mechanism, the government-
enterprise relationship, the industrial relations issues, and the implications
of enterprise reform and privatisation.

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The Governance System

Taiwan's central government structure consists of the Office of the President

and five branches called "Yuan". The President appoints the Premier who
heads the Executive Yuan, without the consent of the Legislative Yuan. With
the 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 parliamentary
systems, and consists of the Premier, the Vice-Premier and a number of
ministers and chairpersons.4 It heads an apparatus of eight ministries and a
number of ministry-level councils, commissions and administrations. The
Legislative 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 not
secured a parliamentary majority so far. The Judicial Yuan has the Council
of Grand Justices (responsible for interpreting the Constitution5, laws and
ordinances) as its main body, with the Supreme Court, high courts, district
courts, supreme and high administrative courts, and the Commission on
Disciplinary Sanctions of Public Functionaries as subordinate units. The
Examination Yuan is responsible for all examination-related matters
concerning the selection of government officials and the qualifying of
professionals 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 of
Examinations and Civil Service. The Control Yuan, a quasi-judicial
organisation, is empowered to conduct impeachment proceedings against
government officials, including officials of provincial/municipal
government, local government and public/state-owned enterprises, and
has the National Audit Office as a subsidiary unit.
The term "public enterprise" in Taiwan is used for any enterprise that is
solely owned by the government or other public enterprises, or is jointly
owned by the government or other public enterprises and private
individuals, provided the public sector holds more than 50 percent of the
capital/shares. If that shareholding drops to below 50 percent, privatisation
is considered to have taken place. In addition, Taiwanese public enterprises
can be categorised in several ways according to the level of government
and 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 the
government structure, with annual budgets, critical investment plans, high-
level personnel nomination, personnel management, financial auditing and
even 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 relevant
ministries as well as the above Yuans (excluding the Judicial Yuan) all
exercise their legal powers and informal influence to intervene in the daily
operation of public enterprises owned by relevant ministries of the central
government.
Over several decades Taiwan has established a well-organised system
for the supervision and control of public enterprises. This system consists
of several main supervision/control elements, including the Premier (also
called Prime Minister, the President of the Executive Yuan), the shareholding
ministers and Parliament/Audit. Ministerial control or influence over public
enterprises within each of the portfolios under the Executive Yuan is
exercised through the appointment and removal of board members, the
issuing of ministerial directives, inspections, the receipt and evaluation of
reports, and budgetary control. In practice, numerous critical decisions
relating to public enterprises owned by the central government need to be
submitted to the Premier for final approval, so that, in fact, he has the
ultimate authority in decision-making about enterprise matters. To assist
the Premier in this function, several ministry-level organisations exist to
conduct relevant reviews and give appropriate advice to the Premier for
final approval.
The operations and budgets of public enterprises are subjected to the
review and legal approval of the Legislative Yuan. Several appropriate
committees 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 is
empowered to scrutinise public enterprises through using audit, censure
and impeachment means. The Examination Yuan is weak and indirect in
exercising control over public enterprises, because it is only empowered to
supervise such matters as the payment-scales, insurance, retirement and
pension matters related to public enterprise employees. Finally, the Judicial
Yuan has no power to exercise its administrative directives over public
enterprises. Accordingly, within the Taiwanese government, the Executive
Yuan, Legislative Yuan, Control Yuan and Examination Yuan are all
empowered to exercise administrative or legal controls, and so influence
public 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 that
the central government imposes on them. The central government can
exercise control over public enterprises through its executive, legislative,
control and examination branches. When it does so, the government
generally exercises control through a variety of measures, ranging from
personnel appointments, staff employment regulation, pricing policy,
budget and accounting, reports and questions, audits, and censure and
impeachment, among others.
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Public Enterprise Management in Taiwan: Has the Change of Government Made Much Difference?

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

Organs

The Executive Yuan

Measures
(The Premier and Ministers)

Personnel
Appointment

Budget, Impeachment,

The Accounting Censure, Audit The

Legislative Public Control Yuan
Yuan Enterprises
Report, Pricing
Question Policy

Staff
Employment
Regulation

The Examination Yuan

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 Republic
of China government (at that time the KMT government) took over all the
previously Japanese-owned industries and companies at the end of the
Second World War in 1945, transforming them into the public enterprise
group (Cheng 2001; Cheung 2002). Later when the KMT government fled
to Taiwan in 1949, the KMT's political ideology and its failure in mainland
China further intensified the significance of this system in Taiwan. In
particular, its previous experiences in Mainland China had taught the KMT
a lesson, namely, that there is a need to control essential services and
products. As Amsden held (1985: 90), that which has "obsessed the KMT
state since its defeat in China is economic stability". It has been confirmed
by numerous writers that the KMT believed its failure in Mainland China
in 1949 resulted from its inability to maintain economic stability (eg, Amsden
1985; Haggard 1988; Lee & Lee 1992; Klintworth 1995).

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Later, in the early 1950s, Taiwan still suffered from severe inflation.
Accordingly, the KMT government was strongly committed to the public
enterprise system as the best method of controlling any extreme inflation
and of maintaining Taiwan's political, economic and social stability. In the
decades of economic development that followed, public enterprises were
particularly prevalent in key industrial sectors. They were the primary tools
used by the Taiwanese state to implement its economic policy, and public
enterprises usually enjoyed a monopoly or near-monopoly position (Liou
1992; Prybyla 1991). Since the early 1980s, the private sector has grown at a
much faster rate than the public sector; nonetheless, the public enterprises
still remain powerful in Taiwan's politics and economy (Chu 1992; Amsden
1985; 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 order
to remain competitive in world trade markets (Rimmer 1995). This strategy
has been particularly important since the private sector has been reluctant
to 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 a
powerful means of overcoming many obstacles of economic development
in underdeveloped countries, especially where private enterprise is not yet
well developed.
The KMT maintained a special link with the public enterprises until it
lost political power. There were several reasons for this. First, numerous
senior positions within the public enterprises were used as rewards to
encourage KMT elites and politicians to remain loyal to the party (Wen
1989: 49). Second, private enterprises owned by the KMT or the KMT elites
maintained close commercial links with public enterprises and did well
from those links. So the KMT attracted much revenue through the activities
of public enterprises, and used this revenue to fund its political campaigns
and to develop its organisational base. Third, public enterprise employees
were major supporters of the KMT in national and local elections; and the
party was able to maintain its hold over their electoral loyalty through its
decades in power (Bellows 1994: 9). These circumstances probably explain
why numerous writers have argued that Taiwanese privatisation should
be regarded as part of a process to reduce the role of a particular party (the
KMT) 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 not
necessarily 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 accumulate
managerial and planning expertise (Chu 1992: 134). It is evident that two

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

small groups of individuals played central roles in the formulation of

economic policy in the KMT government. One group was largely educated
to be engineers and scientists and rose to top-level positions through the
government bureaucracy and public enterprises. The other, outside
government for the most part, was a group of economists trained in Western
countries (Hsueh, Hsu & Perkins 2001: 6). During the time of KMT
governance, several premiers and a large number of ministers (the Ministers
of Economic Affairs, of Finance, and of Transportation and Communication)
came to their political positions from positions as board chairmen within
public enterprises.
The KMT government summarised the role of public enterprises in these
terms: they allowed state control over strategic materials, assisted industrial
development and upgrading, aided implementation of counter-cyclical and
supply-side management policies, provided economic security for regime
supporters, created a training base for the state economic bureaucracy, and
extended the arms of the state through linkages with satellite suppliers and
downstream firms (McBeath 1998: 167). The current DPP government has
shown no desire to change this.

An Analysis of Public Enterprise Management

Framework and Cases

The management of public enterprises was fundamentally politicised during

the KMT-governance period; the KMT always employed an authoritarian
way of managing public enterprises and aimed to achieve multiple objectives
by doing so. However, the DPP has long been conceived as a non-
authoritarian-style political party. The DPP's Chen Shui-bian, when he
campaigned for the 2000 presidential election, specially promised that his
government would not adopt the KMT-way of managing public enterprises
if he won. His manifestos included: public enterprises shall be given more
autonomy to operate and make their own decisions; no political parties
shall be allowed to own enterprises and to run commercial activities; trade
unions shall have the right to participate in decision-making within public
enterprise boards, thus making the goal of "industrial democracy" a reality;
and privatisation plans in Taiwan will be re-evaluated, as just one of several
reforms available for public enterprises (Chen 2000).
As Ferner (1988: 12) argues, "public enterprise is part of the state; its
logic of action, and hence the functioning of its industrial relations, must be
understood in terms of the place that it occupies within the state". It is also
argued by Ahmad (1982: 49) that "the relation between the nature of the
state and the nature of public enterprise is obvious but often forgotten".
These arguments suggest that a country and government should have a
close link with its public enterprise sector at least in some managerial issues.

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In the case of Taiwan, the state's nature has changed. The DPP government
has replaced the previously authoritarian-style one. This question remains
however: have the Taiwanese public enterprises moved to a new era as
well? The DPP promised to allow public enterprises more autonomy, and
to change the way they are managed; but have these changes really
happened in practice?
In examining whether the DPP government's activities have had any
significant impact on public enterprise management issues, the discussion
here focuses on four critical aspects of public enterprise management. It
does not examine all aspects related to the topic of public enterprise
management, but it is believed that what is covered is sufficient to answer
the question being examined. The four aspects are: mechanisms the
government's control organs and measures imposed upon public
enterprises; cognition the government's intention and its implications for
the relationship between government and public enterprises; employees
the impact of industrial relations on public enterprise management; and
prospect the implications for public enterprise reform and privatisation. The
analytical framework is outlined in Figure 2.
Five major Taiwanese public enterprises owned by either the Ministry
of Economic Affairs (MOEA) or the Ministry of Transportation and
Communication (MOTC) were chosen as the cases for closer investigation.
They are: the Chinese Petroleum Corporation (CPC), the Taiwan Power
Company (TPC), the Chunghwa Telecom Corporation (CHT) 6, the
Chunghwa Post Corporation (CHP), and the Taiwan Railway
Administration (TRA). These five enterprises were chosen for several
reasons: they are larger than the average private company; they are the
largest or have monopolistic power in the infrastructure sector; they offer
typical examples of good and bad business performance; they cover three
different types of public enterprise organisation — state-owned company,
statutory corporation, and departmental organisation; they have each been
the scene of either privatising or corporatising programmes; and the
associated 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 Railway
Labour Union (TRLU), have provided labour movement leaders since the
late 1980s. These five enterprises are thought to represent a majority of
Taiwanese public enterprises in terms of the above vital elements.
In collecting essential materials, numerous key persons were
interviewed. They included a number of senior officials working in relevant
ministries or ministry-level organisations who were in charge of managing
and/or supervising public enterprises7, several departmental directors
working in the selected public enterprises, and several presidents leading
the associated trade unions within the selected public enterprises.
During the period the interviews were conducted in Taiwan, political

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

Figure 2
A Framework for Analysing Public Enterprise Management

Mechanisms
Intention & Industrial
Relationship Organs Relations

Measures
Employees
Cognition
Public
Enterprises

Political Environment

Reforms &
Privatisation

Prospect

and organisational sensitivities remained strong among the above senior

officials and departmental directors, even though Taiwan's politics has been
democratised for many years. They all preferred the option of remaining
anonymous, so their viewpoints are cited here without names. Interestingly,
the union presidents were not concerned with such political and
organisational sensitivities.
In addition to conducting the interviews, official documents such as
reports, statistics, laws and directives were collected from the above
organisations. In an attempt to ensure the requested anonymity, the
discussion here only identifies information which is already published by
the government and the selected public enterprises themselves.8 Local news
reports and academic articles were also collected and are referred to where
relevant.

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The Control Mechanisms

The Taiwanese government had already established a well-organised system

for public enterprise control when Taiwan was a one-party system under
the KMT prior to the lifting of the martial law. During this period, despite
the fact that the Taiwanese government operated with its so-called five-
branch government structure, there was in practice a "one-party dominant
and Executive Yuan-led system" (Chang & Lam 1996: 117). Therefore,
"within the government, power was concentrated in the hands of the
executive, with the legislature reduced to a rubber-stamping 'legislative
bureau' of the executive branch of the government" (Kau 1996: 288). The
Executive Yuan enjoyed a superior position and was able to implement its
policies without paying too much attention and accountability to the
parliamentary 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 'Rubber
Stamp', and it therefore has only symbolic meaning, no substantive
functions". Under such political circumstances, the Executive Yuan rather
than the Legislative Yuan and the Control Yuan enjoyed a superior position
in exercising control over public enterprises. Therefore, the public enterprises
usually operated their day-to-day activities by mainly following the
directives from the Executive Yuan (the Premier and relevant ministers).
Later, during the late 1980s and the 1990s, public enterprises came to
understand that they should pay more attention to the attitudes of the
legislators. The state now operated in such a way that Chao and Myers
(1994: 230) could claim, "Government business now requires more time to
be finalised. The Legislative Yuan scrutinises the budget more closely and
passes laws checking the government's power. Leading officials no longer
have their way in managing the government". The most critical factor to
change the way Taiwan was governed was clearly the development of the
DPP (Fell 2005). Nevertheless, the DPP was still incapable of challenging
the KMT's predominant position in Taiwan's politics during the KMT's
governance period. This meant that the effect of the Legislative Yuan and
Control 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 could
enjoy a dominant role when compared with the Legislative Yuan or other
Yuans in dealing with critical issues related to public enterprises and their
activities. The left side of Figure 3 shows the dynamics of the government's
control mechanisms over public enterprises during the period of KMT rule.
It indicates that the effect of the Executive Yuan was very strong and
continued over the public enterprises during the KMT-ruled years, while
the effect of the President was relatively sporadic and the effect of the other
Yuans was also relatively weak and sporadic.

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

Since replacing the KMT, the DPP government has not changed the
mechanisms for public enterprise control. Why is this so? First, the DPP
government has had to govern the country with a legislative minority since
the "Pan-KMT" alliance has continued to dominate the Legislative Yuan.
Second, the DPP government has had to rely on the KMT-established state
bureaucracy to govern the country, and the state bureaucracy has no desire
to change the control mechanisms which have been in use for several
decades. Finally, while the DPP understands previous manifestos are
impossible to implement, it has found the KMT mechanisms for managing
public enterprises very useful and effective.
The DPP's weakness in the parliamentary body in particular illustrates
a political reality in Taiwan that has already been noted by other researchers.
Rigger (2001: 944) writes that "Although the president is empowered to
appoint the head of government, or premier, lacking the support of a
legislative majority, neither president nor premier can govern effectively".
while Hsieh (2001: 930) points out that " the loss in the presidential election
does not mean that the KMT will no longer play a significant role in
Taiwanese 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 the
Presidents of the previous KMT government, has been frequently involved
in manipulating the appointments of top officials and other aspects of
decision-making within the public enterprises. In addition, the DPP's
position with a legislative minority has allowed the Pan-KMT alliance within
the Legislative Yuan and Control Yuan to exercise its powerful influence
on public enterprises. In particular, the Pan-KMT alliance within the
Legislative Yuan could have frequently and effectively boycotted annual
budget bills and other critical bills relating to public enterprises. Accordingly,
the effect of the Legislative Yuan and the Control Yuan on public enterprises
has become much stronger and continuous.
Taiwan's public enterprises are now facing growing pressures from
different branches of the government. They are operating in a quite
ambiguous and difficult situation; sometimes their situation is chaotic
because they are being subjected to different directives and domination
from various government branches. In contrast, the public enterprises were
generally encountering a "one-line and top-down" type of pressure imposed
by the Executive Yuan during the KMT governance period, since the effects
of the President and the other Yuans were relatively weak and sporadic.
During the DPP's governance period, the pressures public enterprises are
encountering have changed from the previous "one-line and top-down" type
into 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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 Figure 3
Changing Characteristics of Government Control over Taiwan's Public Enterprises

The The
President President

The Executive The Executive

Yuan Yuan
The Asia Pacific Journal of Public Administration

154
The Legislative Public The Control The Legislative Public The Control
Yuan Enterprises Yuan Yuan Enterprises Yuan

The The
Examination Examination
Yuan Yuan

During the KMT period Over the DPP period

Weak and sporadic effect

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

public enterprises has been transformed, because the effects of the President,
the Legislative Yuan and the Control Yuan on public enterprises have
become stronger and more continuous.

The Government-Enterprise Relationship

The government-public enterprise relationship has received much academic

attention around the world. For example, Morrison (1964) in Britain
advocated that the relationship between a minister's political control and
the corporate autonomy of public enterprises could be expected to become
a working-balance through the establishment of an "arm's length"
relationship. Evans (1995) in Australia has argued that an "accountability
chain" could be employed to manage the relationship between government/
ministers and public enterprises. However, in practice a number of
difficulties exist. This uncertain situation of public enterprise management
has been attributed mainly to the basic dilemma of balancing government
control and corporate autonomy with respect to public enterprises (eg,
Hanson 1959; Prosser 1986; Seidman 1954, 1983).
In attempting to resolve the dilemma, Boyer (1957: 31) suggested that
public enterprises should have an equal status with ministers in their
accountability to parliament. He said that "a statutory corporation in
Australia should be responsible, not to its Minister, but to Parliament
through its Minister, and that means the Parliament could require of a
statutory corporation the same degree of accountability as it requires of its
Minister". Stretton (1984), however, has argued it would be better to employ
the enterprise model rather than the authority model in dealing with the
management issue in public enterprises. Thynne (1998) has suggested that
there are actually three types of relationship models between government
and public enterprise: command, exchange and associational. The existence
of such diverse viewpoints simply confirms why Musolf (1959: viii-ix)
claimed that "to arrive at a working balance between freedom and
accountability is an exercise in artful government". The government-public
enterprise relationship appears to be like a pendulum swinging between
an authority model, on one side, and an enterprise model, on the other
side, as Stretton (1984) has argued well.
In Taiwan, the previous KMT government almost completely dominated
all personnel issues of public enterprise boards, since it regarded public
enterprises as a part of the government and it thought it normal and
necessary to determine all appointments of board chairmen and other critical
persons in every public enterprise. The KMT's domination also affected
public enterprises and their boards in respect of the decision-making
autonomy. Take pricing policy as an example. Public enterprises could not
decide the prices of essential products and services they provided without
the government's permission. In this sense, the control exercised by the

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KMT government was always seen as more important than giving more
autonomy to the enterprises. Quite evidently, the government-public
enterprise relationship pattern could be classified as the "command-type"
described by Thynne (1998), or as the "authority-model" described by
Stretton (1984).
Public enterprise top-officials frequently played a significant role within
the KMT government in helping structure its major national policies such
as heavy industries, energy development, and other public infrastructure.
The reason was that the majority of the KMT politicians had been trained
through and/or recruited from the top-officials within public enterprises.
Given this, the KMT politicians always maintained a trustful attitude
towards 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 board
chairpersons have been replaced by appointees from the DPP politicians or
from DPP supporters. The DPP has learnt from the KMT experience and so
used senior public enterprise positions as a reward to satisfy its own
supporters. This, therefore, means it has determined to maintain its regime
by using the same means that the KMT did before it. Why? As numerous
senior officials and departmental managers noted, the DPP government
has not fully trusted top officials appointed and trained by the previous
KMT 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 their
decisions relating to the prices of products and services, and so has attempted
to make this a means of achieving multiple objectives. Two events that
happened in 2005 confirm this. It was reported by the local press that a DPP
top-level politician invited a few board chairmen (of former as well as current
public enterprises) to take part in a dinner with him on 26 July 2005. The
chairmen were then required, informally, to buy more commercials from
the Taiwan Daily News, a pro-DPP news company, in order to save it from
bankruptcy (China Times 5 August; United Daily News 4, 5 August). A second
event of note occurred when the CPC and the TPC were not allowed to
appropriately reflect fluctuating costs of imported oils in their pricing, even
though 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 chiefs — being held on 3 December
that year (Merit Times 12 January 2006; the event was also noted by some
interviewees).
It is evident that the government-public enterprise relationship pattern
within 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 prefers
to maintain the government-public enterprise relationship as an "authority
model" rather than an "enterprise model". This means that the DPP
government still regards government control rather than corporate
autonomy as the priority when dealing with public enterprise management
issues. The relationship is depicted in Figure 4.
While the DPP resembles the KMT in the way of maintaining the
government-public enterprise relationship, the KMT allowed public
enterprises considerable influence in helping structure national policies.
The current DPP government has severely reduced the significance of public
enterprises in this respect. Take the case of the TPC in shaping Taiwan's
electric-power policy, for example. The TPC traditionally played a significant
role in shaping the KMT's electric-power policy, and was able successfully
to urge the KMT government to develop nuclear power as a major means
of maintaining economic growth in Taiwan (Rang & Kuo 2003). In contrast,
the DPP government has not only weakened the TPC's role in helping decide
national energy policy, it has undermined the TPC's activities altogether by
declaring its aim to abolish all nuclear-power plants and transform Taiwan
into a nuclear-free country. According to the DPP government's plan,
Taiwan's total nuclear power will be replaced by wind, hydro and solar
energies in the future.9 The TPC has been incapable of changing the DPP
government's mind in this respect; rather, it has obeyed the government's
lead and tried to achieve the government's determined goals.

Industrial Relations

Recently, researchers have attempted to explain some political features that

have been part of public enterprise industrial relations during the post-war
era, features that are generally not found in the private enterprise sector.
One such feature is "political contingency". This affects industrial relations
management strategies in public enterprises and has forced the government
to adopt consistent and equitable industrial relations policies (Batstone,
Ferner & Terry 1984). A second feature is the existence of the belief that the
government is the embodiment of the "good employer"; that is, a notion
that public enterprises should represent a good model to the private
employer (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 disputes
within such enterprises could seriously affect essential services for which
there are no alternative sources of supply (Morris 1986). In such
circumstances, trade unions can be smart in using strikes as a means of
putting political pressure on the government (Beaumont 1981; Ferner 1988),
so the notion of "political exchange" has quite often been applied to explain
the relations between the government, management and trade unions
(Crouch & Pizzorno 1978; Ferner 1988; Crouch 1993).
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Figure 4
The Government's Intention and Relationship Model for Public Enterprises

The
Government’s
intention

Authority Enterprise
model model

Government Corporate
control autonomy
(Priority)

During the martial law period in Taiwan, the KMT government enacted
a number of pieces of legislation to ensure that labourers worked under
strictly controlled conditions. In this way, the KMT ensured that public
enterprises could maintain their operations continuously, without
interruptions caused by trade union activity (Lee & Lee 1992; Lin 1988). It
meant that trade unions were used effectively as an arm of government for
political, economic and social policy purposes, and that trade unions played
only a limited role in fulfilling the interests of their members (Hwang 1993;
Lee 1989). In fact, trade unions were not permitted to undertake industrial
action against either the KMT or the government, and were assigned to
delivering welfare services to their members rather than representing worker
interests. Thus, trade unions reinforced traditional employer paternalism
(Kleingartner & Peng 1991). This situation was, quite probably, the reason
for Lee's (1989: 24) comment that "unions were merely an administrative
arm 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 power
with the government and their employers (Lee 2000). The environment
encouraged public enterprise trade unions to develop the autonomy of their
organisations that aimed to improve their members' rights and benefits.
The unions generally preferred to adopt street protest as a major means of
putting political pressure on the KMT government for the achievement of
their goals. In responding to such conflicts, the KMT government usually

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sought to avoid any disruption to essential services/products provided by

the public enterprises and did not undertake lengthy negotiations with the
unions involved; instead, it reacted by offering some concessions in order
to end the protests quickly, especially if the concessions were not contrary
to existing policies and laws (Pu 1994: 149-154).
At the same time, the KMT's domination within these unions gradually
diminished and the DPP became actively involved in the unions' internal
elections. It is evident that, in practice, the DPP was doing the same thing
as the KMT once did in order to increase the popularity of the DPP in the
public enterprise unions and to win more political support from them during
national or local elections. Obviously, the ruling KMT and the opposition
DPP 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 ruling
and opposition parties in which to do battle".
Along with the change to DPP government came optimism that trade
unions 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 been
transformed into direct labour support. It has been observed that public
enterprise trade unions have used their huge membership to put political
pressure on the DPP government and so achieve their goals, in the way
they 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 has
continued a series of privatisation plans. In response to this, the unions
organised a series of street protests and strikes aimed at stoping the DPP
government's privatisation plans. The DPP government sometimes offered
a few concessions to unions, but at other times it did not. In May 2005, the
CTWU, the trade union within the CHT, held a one-day strike aimed at
stopping the privatisation of the CHT. However, a counterattack of the DPP
government aggressively defeated the union, which meant it failed to
achieve its goal. In contrast, during the post-martial law years, the KMT
government was much concerned with keeping industrial peace with the
public enterprise trade unions when confronted with the same type of
industrial conflicts. It usually offered some concrete concessions and used
a compromise strategy designed to end the conflicts quickly. In view of
this, some union leaders have vowed that the previous KMT government
(a so-called authoritarian regime) could express a benevolent attitude
towards public enterprise trade unions, while the current DPP government
(a so-called democratic regime) can use unfriendly means when dealing
with this kind of conflict between the government and public enterprise
trade unions.

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

Reform and Privatisation

There are diverse viewpoints among analysts about the performance of

Taiwan's public enterprises. It is generally agreed that they probably have
been less efficient and less profitable than comparable private enterprises —
but that, on the other hand, they have been able to maintain a reasonably
high performance level considering their need to accomplish the multiple
objectives required of them by the government. There are several
explanations for this. First, the government has always valued the surpluses
of these public enterprises as a vital part of its annual revenue; it has therefore
forced 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 downstream
private enterprises, and this has forced them to maintain an acceptable level
of efficiency. Third, Taiwan's domestic market for power generation,
petroleum and gas, telephone services, and bank and insurance services
was liberalised many years ago, forcing public enterprises to maintain their
competitiveness 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 negatively
on some public enterprise issues, particularly issues relating to their
efficiency and profitability. They have argued that public enterprises should
be required to achieve the same levels of efficiency as private enterprises.
Necessarily, such pressure has led to successive Taiwanese governments
introducing various reforms aimed at achieving greater public enterprise
efficiency and profitability.
According to Shirley and Nellis (1991: 3-4), most developing countries
have introduced three major strategies for public enterprise reform: a policy
framework, management reforms, and privatisation. In their view, the most
fundamental step is to establish an appropriate policy framework. This
means that a macroeconomic adjustment needs to be undertaken to create
a more competitive environment for public enterprises. Once this action is
taken public enterprises will become market-oriented firms, without
favoured status or a monopoly position. With the creation of the appropriate
framework, public enterprises will have the opportunity to carry out more
managerial reforms oriented to seeking the delicate balance between
autonomy and accountability in addition to performance improvement.

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

Finally, the most prominent mode of public enterprise reform is

privatisation, an action that could be expected to bring about the fulfilment
of the following objectives: a more efficient use of the assets by the new
private owners, the overall strengthening of the market environment, and
the unburdening of government. In Turner and Hulme's (1997: 175) view,
the wave of public enterprise reform has mainly committed developing
countries to a "private sector solution".
In recent years, three similar strategies have been adopted regarding
public enterprise reform in Taiwan. First, commercialisation has been
promoted in their operations, meaning they have been expected to become
profit-seeking organisations. This implies a shift of enterprise objective from
social 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 monopolistic
or oligopolistic one. Finally, the government has undertaken a series of
privatisation plans10 for selling enterprises out fully or partly into the private
sector, showing no desire to fully own and continuously run them. With
this change to privatisation, the enterprises will have more potential to
maximise their profits. There have been various objectives for conducting
the above strategies, but there is one thing they have in common, they are
all intended to urge enterprises that are still or have been in the public
sector to seek greater profits. Figure 5 indicates the different effects of each
strategy on Taiwan's public enterprises in terms of their operational
objectives.

Figure 5
The Effect of Different Reforms on Public Enterprise Objectives

Commercialisation Liberalisation Privatisation

Seeking Maximising
more profits profits

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

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profitability of the enterprises. The reasons for this include: public enterprises
have not enjoyed sufficient autonomy to adjust product/service prices to
reflect their real costs; and they have been required to help the government
carry out various policy and community obligations, as well as to contribute
capital investment to the public infrastructure. Obviously, such non-profit
activities reflect negatively on their commercial profitability.
It seems that the governments have achieved a considerable amount in
respect of requiring public enterprises to reduce employees as much as
possible. In fact, a strategy combining "hard" and "soft" ways has been
adopted in order to achieve that goal. A policy of freezing employee
recruitment has been undertaken, making it more difficult for aged
employees 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 benefits
as a reward. Despite these reduction processes, they have been unable to
compulsorily shed public enterprise employees. As shown in Table 1, a
significant proportion of the employees working in the CPC, TPC, CHT,
CHP and TRA, respectively, have remained with the enterprises, and
employee reduction measures have had the effect of seriously ageing the
remaining staff. Notably, the average age of the employees working in the
CPC, 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 number
of large-scale or macro-level reform measures to public enterprises because
it does not hold a legislative majority. However, when compared to the
previous KMT government, the DPP government has carried out some
highly radical reforms in dealing with public enterprises. In 2001, the China
Shipbuilding Corporation was required to shed 47 percent of its employees
and cut the wages of its remaining staff by 35 percent, when it was
encountering a threat of bankruptcy. Similarly, the CPC, TPC, CHT, CHP,
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Public Enterprise Management in Taiwan: Has the Change of Government Made Much Difference?

TRA and other public enterprises were all required to reduce their employees
as much as possible. The DPP government is expecting that, as a result, the
labour costs of the public enterprises may eventually approach the levels of
the private sector.
The subject of whether the implementation of privatisation has impacted
on the characteristics of the boards of public enterprises has been publicly
discussed. It has been argued by Bozec, Zéghal and Boujenoui (2004) that
boards have, on the whole, evolved towards a set of structures and
mechanisms that have the potential to improve independence and
governance. Regrettably, this type of positive effect has not been particularly
evident or significant for Taiwan's privatised public enterprises. Their boards
are no longer accountable to the government, but in many respects the
government still maintains its influential role within the former public
enterprises. For example, as several interviewees noted, in an attempt to
help 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 rate
through using its position as biggest shareholder in order to increase political
support to win that election.
It is widely acknowledged that the previous KMT government remained
in control of the privatised public enterprises through its position as largest
shareholder, and was able continuously to manipulate enterprise activities
by determining the critical members of the company boards, influencing
the determination of corporate policies and plans, and giving informal
warnings. Numerous board chairperson positions within the privatised
enterprises continued to be occupied by the KMT or pro-KMT elites.
Ironically, the DPP government has now adopted the KMT's way of
manipulating former public enterprises. It has removed the majority of board
chairpersons appointed previously by the KMT government and replaced
them with its own elites and supporters.

Conclusions

This article has examined how the change to the DPP's governance has failed
to move Taiwan's public enterprises into a better circumstance, providing
them with a greater degree of autonomy than that previously experienced
under the KMT's rule. For example, the DPP government has not changed
the control mechanisms imposed on public enterprises and their activities.
The article has addressed how the activities of public enterprises, even when
the enterprises are required to operate as private firms, generally continue
to be distorted as a result of political interference exercised by different
branches of the government; and how this intervention has damaged their
management flexibility and autonomy, as well as their operational
performance and commercial profitability. The DPP government has not
changed 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 narrow
area of operation, and the top-official positions of public enterprises continue
to be used as a training base and/or a reward for the ruling party's politicians
and supporters.
The DPP government has broken its political promises and has carried
on with the KMT's authoritarian way of handling the management of public
enterprises. The DPP now understands that the KMT's authoritarianism is
better than its own previously declared democratic principles for dealing
with public enterprise management, so its earlier conviction that managing
public enterprises should be approached in a democratic way has been
abandoned. It also understands that the KMT's authoritarianism is a good
way to protect the political regime, so the DPP government has determined
to use public enterprises as a means of achieving the same purpose. While,
several features distinguish the previous KMT government and the current
DPP government in the way public enterprises are managed, they are not
of any real significance in practice.
In fact, it has been shown that the DPP government has exercised control
over public enterprises even more tightly than the KMT government did.
There are two reasons for this. First, the DPP government has been in a
critical political situation, being without a legislative majority in Taiwan's
parliamentary body. Second, the DPP government has not fully trusted top
officials who were appointed and trained by the previous KMT regime and
are presently working in public enterprises. Therefore, the ironical situation
exists whereby the previous KMT government, an authoritarian regime,
allowed public enterprises considerable influence in shaping national
policies and plans, while the DPP government, a so-called democratic
regime, has severely limited their significance in this respect.
The DPP government is less concerned with keeping industrial peace
with public enterprise trade unions than the KMT government was.
Currently, the ruling DPP and the opposition KMT continue to intervene in
trade union affairs, manipulating the election of leaders, methods of
organisation and operational activities, so the trade unions remain a major
arena of political conflict.
The DPP government, as the previous KMT government did, has
sought to improve the efficiency and profitability of public enterprises by
introducing some reforms particularly aimed at increasing their
commercialisation; but these reforms have not yet achieved their anticipated
goals. There can be little doubt that the reforms of the DDP, and the KMT
before it, have achieved only limited improvement in public enterprise
operational efficiency, autonomy and flexibility. The principal reason is
similar to what Cheung (2005: 257) summarises as the administrative reform
experience in Asia, namely that "The 'old' public administration regime has
largely coexisted with the 'new' public management approaches and tools".

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

Taiwan's transition towards political democracy has not yet

encompassed a better way to manage the country's public enterprises.
Taiwan's public enterprises have to operate in a situation in which they
have little opportunity to improve autonomy, efficiency and/or profitability.
It seems to be endemic to Taiwan's politics that the ruling party distorts the
management of public enterprises in order to win political elections and
protect its political position.

Notes

1. This is a progress report on a PhD thesis study being undertaken in the Centre
for 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 central
government for more than 12 years, including eight years in charge of evaluating
the 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 legal
status and it was recognised as a political party.
3. According to Taiwan's legislation, a presidential election does not require an
absolute 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, Chen
won again with over 50% of the votes. However, in the parliamentary election for
Legislative Yuan members held in December of the same year, the DPP obtained
less 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 not
members of the Legislative Yuan.
5. This is the Republic of China Constitution that dates back to before 1949 and
continues to operate in Taiwan; among other things, it provides for this type of
governance framework.
6. The CHT is currently a private company, as the government's stock in the
corporation was reduced to less than 41.48% in 2005. This type of privatised public
enterprise is generally classified as a mixed enterprise in Australia and Britain.
7. These organisations included the Ministry of Finance, the Ministry of Economic
Affairs, the State-run Enterprise Commission, the Ministry of Transportation and
Communication, the Research, Development and Evaluation Commission, the
Council 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 Enterprise
Commission Annual Report, Chinese Petroleum Corporation Annual Report, Taiwan Power
Company Annual Report, Chunghwa Telecom Corporation Annual Report, Chunghwa Post
Corporation Annual Report, Taiwan Railways Annual Report, Statistical Report of Taiwan
Railways Administration, Taiwan Petroleum Workers Bimonthly, Taiwan Power Labour
Union Bimonthly, Chunghwa Telecom Workers' Union Bimonthly, Chunghwa Postal
Workers' 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 Governing

reinvestment by State-owned Enterprises before Privatisation and Management of State-
owned Shares after Privatisation, Labour Union Law, Collective Agreement Law, The
Settlement of Labour Disputes Law, Labour Standards Law.
9. According to statistics published by the TPC in 2004, its three nuclear plants
produce over 20% of Taiwan's total electric-power.
10. Privatisation is not new in Taiwan. The KMT government previously privatised
four 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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