Japanese Intervention

8/8/2019 Japanese Intervention

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Japanese Intervention; Tuesday, 27 February 2007

Industrial Development(1) Promoting an enabling environment at the international and national levels forindustrial development Improvement of legal system in regard to business transaction is crucial for thepromotion of overseas investment and trade. Improvement of and consistency among

relevant acts and laws are also essential and relevant capacity building is effective inthis regard. Providing technical support for improvement/development of the contents ofinfrastructure in the following areas are effective; a) Establishment of a standardcertification/ in order that domestic industrial products be appraised in theinternational market; b) Establishing an intellectual property right/ to avoidundermining international competitiveness by copy products; c) Upgrading ofstatistics/ in terms of introducing foreign investment and formulation of policymeasures on domestic industry.(2) Strengthening capacity-building support to developing countries to diversify exports ,with particular attention to SME In view of enhancing resources for business operation, the following measures areessential; a) capacity building on trade operation provided by public institutions fortrade promotion; b) establishing an institution to support technologies for businessoperators; and c) establishment and fostering of business unions. Many of developing countries do not have basic acts for protecting/fostering smalland medium-sized enterprises. Formulation of a master plan for promoting SMEs isimportant in such countries. Aiming to establish a venture capital for funding, a) providing training for officials incharge of securities administration; b) improvement of securities act; and c) supportfor formulating screening manuals are important.(3) Changing unsustainable patterns of production and consumption pattern To promote sustainable patterns of consumption and production in industrialdevelopment, it is essential to establish sustainable production and consumptionpattern by taking into account whole stage from production through disposal. In

view of aiming at establishing a sound materialcycle society, Japan has beenadvocating 3R Initiative. It is important to disseminate a concept that we shouldpromote environmental conservation and economic growth in a consistent manner.To promote voluntary contributions to 3R Initiative by business sector, it is effectiveto formulate waste management / recycle guidelines. In this regard, the Governmentof Japan has established a guideline in 1990 and has been revising every two years. It is essential to establish a basis for promoting environmentally conscious corporatemanagement in addressing various environmental issues such as waste managementthrough promotion of life cycle assessment project and dissemination of EnvironmentManagement Accounting. In order to formulate a sound material-cycle society in a local community,environment businesses should be promoted through supporting large scale recyclingfacilities utilizing local industrial accumulation and through support forenvironment businesses to raise awareness of people in grass roots level.

REPORT OF THE NATIONAL COMMISSION ON LABOUR

CHAPTER-III

INDUSTRIAL DEVELOPMENT & PROGRESS


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AFTER INDEPENDENCE

India has made considerableeconomic progress since its

Independence. Most noticeable are theexpansion and diversification ofproduction both in industry andagriculture. New technologies wereintroduced in many industries.Industrial investment took place in alarge variety of new industries. Modernmanagement techniques wereintroduced. An entirely new class ofentrepreneurs have come up with thesupport system from the Government,

and a large number of new industrialcentres have developed in almost allparts of the country. Over the years,the Government has built theinfrastructure required by the industryand made massive investments toprovide the much-needed facilities ofpower, communications, roads etc. Agood number of institutions werepromoted to help entrepreneurshipdevelopment, provide finance forindustry and to facilitate development

of a variety of skills required by theindustry as well as agriculture. TheGovernment also followed a policy ofencouraging indigenous industries andprovide them all facilities andencouragement. As a result, we havenow a widely diversified base ofindustry and an increased domesticproduction of a wide range of goodsand services. The index of industrialproduction has gone up from 7.9 in

1950-51 to 154.7 in 1999-2000.Electricity generation went up from 5.1billion Kwh to 480.7 billion Kwh in thesame period.3.1 Particularly significant achievementhas taken place in the field ofagriculture. Between 1950-2000, theindex of agricultural production


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economy were opened for foreigncompetition.

3.4 In this chapter, we will brieflytrace the developments that took placein the field of industrial economic policyof India during these years. The year1991 will now be regarded as alandmark in the economic history ofIndia. Therefore, a more detailedreview of the economic policies after1991, and their effect on Indianeconomy has been attempted in thenext chapter.INDUSTRIAL POLICY ANDINCENTIVES SINCE 1947

3.5 After India became independentin 1947, the country embarked upon an

ambitious plan of industrialdevelopment and encouraged thesetting up of new industries and theexpansion of existing industries.

3.6 We may briefly recapitulatesome of the steps that were taken toachieve these objectives.3.7 PROTECTION TO INDIANINDUSTRIES: India is probably one ofthe few countries in the world whichused its import policy for the healthydevelopment of local industries.

Barring the first few years afterIndependence, the country was facinga shortage of foreign exchange, andbecause of this shortage, imports hadto be restricted. Imports of consumergoods were, therefore, disallowed. A140REPORT OF THE NATIONAL COMMISSION ON LABOUR

good number of restrictions were puton the import of industrial goods, andthe effort of the Government was toencourage the production of thesegoods indigenously. Local industrieswere encouraged to have foreigncollaborations and to import thetechnical know-how needed to producewhat was being imported into thecountry.3.8 Levying higher tariffs restrictedimports, and there was also a total or


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partial physical ban on the imports ofsuch products. This gave a muchneeded

sheltered market for Indiangoods, and many industries thrivedwithin these protective walls. Initially,products produced by Indian industrieswere not of good quality. But as yearswent by, industries acquired experiencein manufacturing and turned outquality products comparable withimported products. There was acontinuous effort to improve quality.3.9 During the Second and Thirdplans, the emphasis was on thedevelopment of capital goodsindustries. India wanted to makemachines that helped to produce

other machines. Therefore, greateremphasis was given to thedevelopment of machine tools, textilemachinery, power equipment and soon. We were importing these mothermachines, and the new effort was toproduce them in India, to achieve selfsufficiency.

As a result of this policy,encouragement was given to importtechnical know-how and to enter into

foreign collaborations to undertakemanufacture of capital equipmentlocally. This gave further fillip toindustrial development.3.10 Protection from importsencouraged Indian industry toundertake the manufacture of a varietyof products. There was a ready marketfor all these products. TheGovernment also gave encouragementto industries to import parts andcomponents that were required forindigenous production. The import

policy was meant to serve twocategories of importers - actual usersand established importers. Actual usersof imported raw materials or productswere given preference over thecategory of established importers i.e.traders. Certain items that were scarceand not available were channelised


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through the State Trading Corporation,Mines & Minerals Trading Corporation

and such other Government bodies.They arranged for the import of suchproducts and distributed them toindigenous industries according torequirements. Thus, imports werestrictly controlled by the import policyannounced every year by theGovernment of India.REPORT OF THE NATIONAL COMMISSION ON LABOUR

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3.11 HIGH CUSTOMS TARIFFS: Apartfrom strict control over imports and thephysical ban on the imports of manyproducts, customs tariffs were raised insome cases to 200 to 300% on

imported products. This gave protectionto local industries. The price of localproducts was comparatively cheaperthan those of imported goods. TheGovernment also followed a policy oflow tariffs on the import of rawmaterials, parts and componentscompared to those on finishedproducts. This encouraged Indianindustries to import parts andcomponents, and to manufacture orassemble final products in India.

3.12 FINANCIAL INFRASTRUCTURE:To provide the financial infrastructurenecessary for industry, the Government

set up a number of development banks.The principal function of a developmentbank is to provide medium and longterminvestments. They have to alsoplay a major role in promoting thegrowth of enterprise. With thisobjective, the Government of Indiaestablished the Industrial FinanceCorporation of India (IFCI) (1948),Industrial Credit and InvestmentCorporation of India (ICICI) (1955),Industrial Development Bank ofIndia (IDBI) (1964), IndustrialReconstruction Corporation of India(1971), Unit Trust of India (UTI)(1963), and the Life InsuranceCorporation of India (LIC) (1956). For


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financial assistance to smallentrepreneurs, Finance Corporations

were established in all states on thebasis of an Act that was passed byParliament in 1951. In addition to this,the National Small IndustriesCorporation was also established at theCentre and a Small IndustriesDevelopment Bank of India wasestablished in 1989.3.13 CONTROL OF INDIANBUSINESS: As a consequence of therestrictions on imports, those who wereimporting products entered intocollaboration with their principals andentered the field of manufacturing.Thus, what was once a trading

community, gradually transformed intoa community of industrialists.3.14 Regulations under the ForeignExchange and Regulation Act (FERA)restricted foreign investment in acompany to 40%. This ensured thatmuch of the control in companies withforeign collaboration remained in thehands of Indians. To succeed, Indianbusinessmen had to learn and apply

modern management and productiontechniques.3.15 ENCOURAGEMENT TO SMALLINDUSTRIES: Though some of thepolicies of the Government resulted ininhibiting the growth of large-scale142REPORT OF THE NATIONAL COMMISSION ON LABOUR

industries, they gave encouragement tosmall-scale industries by providing anumber of support measures forgrowth. Policy measures undertaken bythe Central and State Governmentsaddressed the basic requirements ofthe SSI like credit, marketing,technology, entrepreneurship development,and fiscal, financial andinfrastructural support. Thesepromotional measures covered:a) Industrial extension servicesthrough small industries serviceinstitutes and other organisations.


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b) Factory space in industrial estatesthrough cooperative and other

industrial estates, ready builtshades and developed industrialplots made available throughState Government agencies.c) Credit facilities at concessionalrates of interest and creditguarantees through commercialbanks and State FinanceCorporations.d) Special financial assistanceschemes at concessional rates ofinterest and low margins fortechnician entrepreneurs.e) Availability of indigenous scarceraw materials through special

quotas and imported materialsthrough import licenses.f) Provision of training facilities.g) Subsidised power tariffs andexemption of electricity duties.h) Supply of local and importedmachinery on hire purchase basis.i) Assistance for domestic as well asexport marketing.

j) Special incentives for setting up

units in backward areas.k) Differential central excise leviesfor the small-scale sector.l) Preference for products producedin small-scale industries and 15%price preference to them in StateGovernment purchases.m) Reservation of products forexclusive manufacture in thesmall-scale sector.n) Creation of a large number ofinstitutions both by the StateGovernments and the Central

Government to help smallenterprises.o) Special effort to promote newentrepreneurs by providing themtraining in entrepreneurshipdevelopment.REPORT OF THE NATIONAL COMMISSION ON LABOUR

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3.16 While most of the institutional


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support services and some incentiveswere provided by the Central

Government, the State Governmentsoffered others in varying degrees toattract investments and to promotesmall industries.3.17 INVESTMENT IN INFRASTRUCTURE:Energy-Transport-Communications facilities are extremelyessential for smooth and acceleratedindustrial growth. The Governmentmade huge investments in providingsuch infrastructure facilities toindustries. The Central Government, aswell as the State Governments investedhuge funds in power generation anddistribution, and many new power

Table 3.1Production of Commercial EnergyForm of energy Unit 1950-51 1990-91Coal Million tonnes 33.00 211.73

Lignite Million tonnes - 14.07Crude oil Million tonnes 0.26 33.02Natural gas Million cubic mets - 17,998.00Thermal power Billion Kwh 3.00 186.45

Hydro power Billion Kwh 2.52 71.54Nuclear power Billion Kwh - 6.24projects were undertaken andcompleted. Similarly, investments were

made in road building,communications, creation of portfacilities etc. Apart from this, variousState Governments made developedplots of land or industrial estates withpower, water, roads, andcommunications available toentrepreneurs who wanted to set upindustries. This helped considerably inthe growth of industries.3.18 Changes in the production of

primary commercial energy since 1950-51 are summarised in the followingtable:144REPORT OF THE NATIONAL COMMISSION ON LABOUR

3.19 Oil and natural gas emerged assignificant sources of energy since theeighties.3.20 The pattern of sectoral


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consumption has also undergonenoticeable changes over the years as

can be seen from the following table:3.21 Power shortages caused bysubstantial shortfalls in achievingpower targets have been a recurringtheme from plan to plan.3.22 OIL AND NATURAL GAS: The Oiland Petroleum industry must beconsidered a gift of the planning era.The indigenous oil explorationprogramme gained credibility in theseventies. New sources of oil werediscovered, and considerable refiningcapacity was created. The Oil andNatural Gas Commission was set up foroil exploration. Additional refining

capacity was created through theexpansion of some of the existingplants, and the commissioning of newrefineries.3.23 TRAINING AND SKILLSDEVELOPMENT: Trained manpower isnecessary for industrial growth. Tocater to the growing needs ofindustries during the last fifty years,the Government set up a large number

of industrial training institutes, all overthe country to train skilled workers. Italso set up Indian Institutes ofTechnology, Management Institutes andEngineering Colleges to train personswith higher management and technicalskills.Table 3.2Shares Percentage in Final Energy ConsumptionSector 1953-54 1990-91

Industry 39.8 50.4Transport 46.2 24.5Domestic 9.9 13.8

Agriculture 1.7 9.0Others 2.4 2.3Total 100.0 100.0REPORT OF THE NATIONAL COMMISSION ON LABOUR

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3.24 Our youth have been quick atlearning skills. We have therefore hadno shortage of skilled manpower tocater to the growing requirements of


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industry.3.25 SCIENTIFIC RESEARCH :

Research in science and appliedtechnology is very much needed inorder to sustain technologicaldevelopment in industries. TheGovernment of India set up 48 nationallaboratories to undertake appliedresearch in chemistry, physics,electronics, botany, etc., and theseresearch institutes developed a numberof new processes which arecommercially exploited by industries.Indian scientists and technologists alsoushered in the Green Revolution, andthe White Revolution, and developedspace technologies on their own.

3.26 BACKWARD AREA DEVELOPMENT:Before Independence, industries weremostly located in and around port citieslike Mumbai, Kolkata or Chennai. AfterIndependence, new centres ofindustries were developed as a result ofthe infrastructural facilities that weremade available by the StateGovernments. Baroda, Coimbatore,Bangalore, Pune, Hyderabad, Faridabad,

Rajkot, and many others, grew up asnew industrial cities.3.27 Both the Central Governmentand the State Governments followed adeliberate policy of encouragingindustries in backward areas. TheCentral Government selected a fewbackward districts and offered 25%capital subsidy for industries setup in these areas. Various StateGovernments also offered similarcapital incentives, exemption from salestax levy, subsidies on power rates,

cheap developed land, sales tax, loansand other facilities for the growth ofindustries in these areas. Thisconsiderably helped the growth ofunder developed or backward areas inthe different states.EMPHASIS ON PUBLIC SECTOR

3.28 Right from the beginning, the


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planners attached great importance tothe public sector. It was expected that

the sector would control theCommanding heights of the Indianeconomy.3.29 In the Industrial PolicyResolutions of 1948 and 1950, a veryimportant role was assigned to thepublic sector. Power, telephones,communications, atomic energy,defence industries and some areaswere reserved for the public sector.Certain industries like life insurance,civil aviation, banks were nationalisedand were included in public sector.Thereafter, whenever there was a146

REPORT OF THE NATIONAL COMMISSION ON LABOURshortage, the Government stepped into bail out, as it did with the cementand paper industries. The Governmenttook over sick industries to provideemployment. That is how a largenumber of textile industries came intothe public sector.3.30 Upto the year 1999, there were235 public sector undertakings and theGovernment had invested an amount ofRs. 273700 crores in such

undertakings. In 1998-99, they madea gross profit of Rs. 397.7 crores.EVOLUTION OF INDUSTRIALPOLICY IN INDIA

3.31 Before Independence, the policyof the British Government was againstencouraging industrial development inIndia. No incentives were offered toIndian industries for their growth.There were many desired andundesired hurdles placed in the way ofthe growth of Indian industry.Whatever industrial development tookplace in India was in spite of thenegative and hostile attitude of theBritish Government. Credit must begiven to pioneers like Jamshedji Tata,Walchand Hirachand, Lala Sriram, G.D.Birla and others, who laid thefoundations of modern industry in


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was, more or less, left open to theprivate sector.

3.34 INDUSTRIAL (DEVELOPMENT &REGULATION) ACT, 1951: The IndustrialPolicy Resolution of 1948 was followedby a Government of India (GOI)Resolution on 2nd September 1948,constituting a Central Advisory Councilof Industries under the chairmanship ofthe Minister for Industry.3.35 In 1951, the Industrial(Development and Regulation) Act waspassed by the Parliament. The mainprovisions of the Act were:a) All existing undertakings at thecommencement of the Act, exceptthose owned by the Central

Government were compulsorilyrequired to register with thedesignated authority.b) No one except the centralGovernment would be permittedto set up any new industrialundertaking except under and inaccordance with a licence issuedin that behalf by the CentralGovernment.

c) Such a licence or permissionprescribed a variety of conditions,such as, location, minimumstandards in respect of size andtechniques to be used, which theCentral Government may approve.d) Such licenses and clearanceswere also required in cases of

substantial expansion of anexisting industrial undertaking.e) The industries to be broughtunder regulation were dividedinto two parts, Part I and II in the

Schedule to the Act.3.36 In regard to the industries listedin Part I of the Schedule, the CentralGovernment could issue necessarydirections in respect of quality of itsproducts, falling production, rise inprices etc.a) Government could transfer


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industries specified in one part toanother.

3.37 IMPLEMENTATION OF THEINDUSTRIAL DEVELOPMENT ANDREGULATION ACT, 1951 (IDR): TheIDR Act gave very wide powers to theGovernment. This resulted in more orless complete control by the148REPORT OF THE NATIONAL COMMISSION ON LABOUR

bureaucracy on the industrialdevelopment of the country. They hadfull control over:a) approval of any proposal oncapacity, location, expansion,manufacture of new products etc;b) approval of foreign exchange

expenditure on the import ofplant and machinery;c) approval for the terms of foreigncollaboration.3.38 INDUSTRIAL POLICYRESOLUTION, 1956 : After 1948, Indiaadopted a democratic constitution,guaranteed fundamental rights andalso enunciated certain directives ofstate policy. The Parliament acceptedthe socialistic pattern of society as theobjective of social and economic policy.

3.39 A new Industrial policy wastherefore announced in 1956.3.40 This Industrial Policy divided

industries into three categories. Allbasic and strategic industries were tobe set up in the public sector, and werecalled category A type of industries. Incategory B industries were privateenterprises who could participate alongwith public enterprises. This sector wascalled the joint sector. All remainingindustries falling in category C, wereleft to be developed by the privatesector.3.41 The Industrial Policy of 1956,for the first time, emphasised the roleof small-scale industries in thedevelopment of the national economy.The statement pointed out theimportance of the SSI Sector in


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providing employment. It also laidemphasis on the equitable distribution

of national income and the effectivemobilisation of resources. The industrialpolicy, therefore, recommended thedevelopment of ancillary industries inareas where large industries were to beset up.3.42 MONOPOLIES COMMISSION: In

April 1964, the Government of Indiaappointed a Monopolies InquiryCommission to inquire into theexistence and effect of concentration ofeconomic power in private hands. TheCommission was requested to look atthe prevalence of monopolistic andrestrictive practices in important

sectors of economic activity, the factorsresponsible for these and the legalsolutions for them. The Commissionlooked at concentration of economicpower in the area of industry, andexamined industrywise and productwiseconcentration. The Commission alsoexamined the concentration ratio. ThisCommission drafted a law to controlmonopolies and recommended the

setting up of a permanent Monopoliesand Restrictive Trade PracticesCommission. On this basis, an Act wasREPORT OF THE NATIONAL COMMISSION ON LABOUR

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passed and a Monopolies Commissionwas appointed by the Government in1969.3.43 INDUSTRIAL LICENSING POLICYINQUIRY COMMITTEE: In July 1969,an Industrial Licensing InquiryCommittee was appointed to examinethe shortcomings in licensing policy.The Committee felt that the licensingpolicy had not succeeded in preventingthe practice of pre-empting capacity bylarge houses; it had not ensureddevelopment of industries according toannounced licensing policies; it did notprevent investment in non-priorityindustries etc. In 1969, the Monopoliesand Restrictive Trade Practices Act


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(MRTP) Act was passed by theGovernment and following the report of

Industrial Licensing Policy InquiryCommittee (ILPIC), a number of newrestrictions were put on the largeindustrial houses in the industriallicensing policy announced in February1970.3.44 FERA AMENDMENT, 1973: TheForeign Exchange and Regulation Act(FERA) was amended in 1973. Thisbrought a great change in the foreigninvestment policy of the Government ofIndia. Foreign equity was to bepermitted only in companies in

Appendix 1 industries, or in those thatwere engaged in exports. Foreign firms

were not allowed more than 40% ofequity. Only certain industries in thearea of sophisticated technology wereallowed 51% foreign capital. FERAcompanies were subject to manyrestrictions, and were not allowed toparticipate in certain industries. Theywere also not allowed to expand andtake up production of new products.3.45 INDUSTRIAL POLICY

STATEMENT, 1973 : The PolicyStatement of 1973 drew up a list of

Appendix 1 industries to be started bylarge business houses so that thecompetitive effort of small industrieswas not affected. The entry ofCompetent Small and mediumentrepreneurs was encouraged in allindustries including Appendix 1industries. Large industries werepermitted to start operations in ruraland backward areas with a view todeveloping those areas and enabling

the growth of small industries around.A Secretariat for Industrial Approvals(SIA) was set up in November 1973,and all industrial licenses, capitalgoods, import licenses, terms of foreigncollaboration were brought under theSIA.3.46 INDUSTRIAL POLICY


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STATEMENT, 1977: The thrust of theIndustrial Policy Statement of

December 1977 was on effectivepromotion of Cottage and SmallIndustries widely dispersed in rural150REPORT OF THE NATIONAL COMMISSION ON LABOUR

areas and small towns. It emphasisedthat whatever can be produced bysmall and cottage industries must onlybe so produced. The focal point ofdevelopment of small-scale industrieswas taken away from the big cities todistricts. The concept of DistrictIndustries Centres was introduced forthe first time. Each district would havesuch a district centre which would

provide all the support and servicesrequired by small entrepreneurs.These included economic investigationof the districts, supply of machineryand equipment, raw material and otherresources, arrangement for creditfacilities, call for quality control,research and extension etc.3.47 Within the SSI sector, a newconcept of tiny sector was introduced.It was defined as an industrial unit withinvestment in machinery and

equipment upto Rupees one lakh, andsituated in towns with a population ofless than 50,000 according to the 1971

census. This tiny sector was to begiven special attention and extendedhelp, by way of provision for marginmoney assistance.3.48 The policy statementconsiderably expanded the list ofreserved items for exclusivemanufacture in the small-scale sector.This concept was recommended by theKarve Committee and was introduced in1967 with 47 products. The list of suchreserved items was 504 till 1977. Thenew policy expanded this list to 807.3.49 ERA OF LIBERALISATION: After1980, an era of liberalisation started,and the trend was gradually to dilutethe strict licensing system and allow


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more freedom to the entrepreneurs.The steps that were taken in

accordance with the policy included:a) Re-endorsement of licenses: Thecapacity indicated in the licensescould be re-endorsed, provided itwas 25% more than the licensedcapacity (1984).b) Automatic re-endorsement oflicensed capacities (1988).c) Broad banding and selective delicensing(1985-86) extended to25 industries.d) Liberalisation of 31 May 1990.This policy included:lExemption from licensing forall new units and those having

an investment of Rs.2.5 croresin fixed assets, and anentitlement to import upto30% of the total value of plantand machinery.lInvestment of foreign equityup to 40% was freely allowed.REPORT OF THE NATIONAL COMMISSION ON LABOUR

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lLocation restrictions wereremoved.lInvestment ceiling for small

industries were removed.3.50 Though the Government policiesand procedures were aimed at industrial

development of the country, theenactment of the IDR Act, procedureslaid down for obtaining industriallicensing and various rules made underthe Act acted as a great deterrent tothe growth of industries in the country.The bureaucracy acquired unprecedentedpowers and authority over allkinds of industrial activities andindustrial entrepreneurs felt that theywere placed at the mercy of thesebureaucrats. Apart from the IDR Act,there were a number of other Actswhich were enacted and which acted asobstacles and retarded the industrialdevelopment of the country. Despiteindustrial licensing, an entrepreneur


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had to obtain clearance from manyAgencies, like:

(i) Secretariat for IndustrialApprovals (SIA)(ii) Department of IndustrialDevelopment(iii) Chief Inspector of Factories(iv) Pollution Control Board(v) Director of Town Planning(vi) Department of Company Affairs(vii) Registrar of Companies(viii) Exchange Control Department ofRBI(ix) Chief Controller of Explosives(x) Chief Inspector of Boilers(xi) Commissioner, Food & Drug

Administration

(xii) Director of Mines(xiii) Controller of Capital Issues(xiv) Chief Controller of Imports andExports etc.3.51 Thus, when the Government ofIndia announced the new economicpolicy in July 1991, Indian industrieswere not competitive in the worldmarket. We propose to deal with theconsequences in the next Chapter.

3.52 Our industries were suddenlyrequired to face internationalcompetition. It is no wonder that manyof these industries allowed their foreigncollaborators to take over, sold theirinterests or preferred to close down.Those who remained in the field aretrying to downsize and reduce theiroperations. For the existing ones, it isbecoming increasingly difficult not onlyto face competition in the world, butalso competition at home with theproducts of multinationals, either

produced in the country or importedfrom abroad.152REPORT OF THE NATIONAL COMMISSION ON LABOUR


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Institutions and Institutional Changes:

the Case of Taiwans Non-Urban Land Development SystemKuo-Cheng Hsu1 Tsung-Yu Lai21 PH. D. student, Department of Land Economics, Nationa l Cheng chi University Taipei, Taiwan;

2Professor, Department of Land Economics, National Cheng-chi University Taipei, Taiwan,

AbstractLand management system in Taiwandivides the nationalland resources into urbanplanninglandandnon-urban planningland. The aspects ofland use control includedevelopmenttypes anddevelopment intensity, and requisition procedures of urbanplanninglandandnon-urban planninglandare different. For instance, there is 87.5%of Taiwanarealocates inthe non-urban planning regions. Since the implementationofnon-urbanlanddevelopment system in 1976, because ofdisorder inlandconversion behaviours, urban-rural spatialdevelopment confronts sprawlinglandscape, environment pollution, inadequate public infrastructure, anddeterioratingliving environment in recent years. Accordingto operations mechanism of system, wefind ithas an orientationtowards economic and political factors. The important

purpose of protectingland resources and urban-rural spatialdevelopment is neglect.This situations cause debate abouthow to revise the institution in orderto expectperfect urban-rural spatialdevelopment.Revision of institutionneeds support from certain backgroundand conditions. Thispaper will explore the evolve history ofnon-urbanlanddevelopment system withinatheoretical backgroundthat relies onnew institutionalism. Inaddition, we, via pathdependency approach, documentthe characters of institutional change process. Withsuch operation course, we not only elucidate how related economic and politicalfactors interact with institutions to reachthe path change, butalso create ananalyticmethodto clarify the non-urbanlanddevelopment system in Taiwan.

Keywords: new institutionalism, non-urban land development system,

institutional change2

1. IntroductionThe slogan of promotingnational economic developmenthas long beenthe coreof overallnationaldevelopmentgoaland rulinghighlights proposed by reigningpoliticians fordecades. Underthe circumstances, policy portfolio, connected withnational economic growth, consists of policies relatedto land resource management,social welfare, technologicaldevelopment, andthe like. From the opinion oflandresource development, the concept of sustainable development in environment changehas beengradually involved inland use policies. However, exploring practicallevelofthese policies, urban renewalandnon-urbanlanddevelopmentactivity still can be

regardedas appendage facilitating overalldevelopment ofnational economy, enablingthe land management structuringland resource utilizationto be the practical facilitypromoting economic development. The weird phenomenon seems to differ from ourcognitionthatland policies purposes to facilitate proper configuration oflandresource and create sustainable development inthe environment. In current policyframe, land policy becomes the internal player supportingnational economicdevelopment policy in Taiwan, orthe field of profiteering for profit-entities buildingconspiracy with politicians inlocaland centralgovernments. Therefore, withinthe


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specific social economic frame in Taiwan, coupled with involvement of politicalandpower operationas external factors, landdevelopment system and policyimplementationleadto distortion of space structure to some extent. Moreover, inthetransition of overalllanddevelopment system, political environmentand economicdevelopment inthe society take dominant status. As a result, what is the focus of

reigning politicians inthe progress of institutiondevelopmentand proposal ofcorresponding policies? Do they purpose to maintainlong-term development oflandresource, achieve the needs of economic growth via utilizingland policy, or justfurther ensure continuity of reigning power?Past relevant studies on Non-UrbanLand Development System more focused onthe aspects oflaw and implementationdeficiency, and few addressed formationandtransition ofthe system through combining special politicaland economicenvironment in Taiwan. Therefore, this paper plans to explore causal relation ofNon-UrbanLand Development System duringthe transition progress of social,politicaland economic environment in Taiwan.this paperalso will presentinstitutional pathand changes of pastdecades inthe progress of proposing

institutionaldesign, establishingthe system, implementation, and modification withinspecial social economic frame of Taiwan since 1970s when Non-UrbanLand Controlfirst occurred, by adopting relevant sequence analysis over events and reviewingtherelationship betweenthe institution & statutes and significant political & economicconditions.3

2. Comprehending Institution and Structural Features

of Institutional Change2.1. The concept of institution

Accordingto North(1981: 201, 1996: 344), Institutions are a set of rules,compliance procedures, and moraland ethical behavioralnorms designedto constrain

the behavior of individuals inthe interests of maximizingthe wealth or utility ofprincipals. They are made up of formal constraints (rules, laws, constitutions),informal constraints (norms of behavior, conventions, and self-imposed codes ofconduct), andtheir enforcement characteristics. Proper balance will be achieved incooperationand conflict ofhuman behaviors via institutional operation, to solveseveral issues generated in collective action. Agents generally establishand changeinstitutions to achieve procedural or policy objectives (Cortell etal2001).Various theories address institution from different perspectives. Institutionalismemphasizes historic feature, believingthat institution is embedded inthe path ofhistory developmentand corresponding social, economic and cultural environment.However, the theory does not provide the actor with independent space in facing

institution, adoptingthe hypothesis ofallavailable options comprehended byindividuals, sufficient information in final remunerationdistribution, andthe limitedroles ofgovernment. Consequently, questions occurlike if system, history orcollectivity is simple restriction, limit ordecisionto individuals, or ifthey can provideindividuals with feasibility inaction, behavior or rational selectionto make thingshappen. New-institutionalism can be regardedas a response to the question.Moreover, the theory emphasizes importance ofgovernment role, organizationalfunctions and political consultative system. Almond(1990:14) points outthatthe


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public choice people seekananchorage in reality, anew-institutionalism, to housetheir powerfuldeductive apparatus; the political econometricians wantto relate tohistoricaland institutional processes; the humanists cringe atthe avoidance ofpolitical values by scientism, and suffer from feelings of inadequacy ina worlddominated by statistics andtechnology; andthe radicaland critical politicaltheorists,

like the ancient prophets, lay aboutthem withanathemas againstthe behaviorists andpositivists, andthe very notion ofa political science professionalism that wouldseparate knowledge from action.Focusing onthe core of studied issues ofthis paper, Non-UrbanLand Developmentin Taiwan can be adjustedand controlled viathe operation of price system and freemarket, with institutionand operation system different from thataddressed in4

institutionalism. Except consideration oftransaction cost, significant factors affectingNon-UrbanLand Development System consist of role ofgovernmental organizationand political interest calculation, etc. Therefore, this paperadopts institutiondefinitionandthe opinion explaining modification of change path provided bynew-institutionalism.

2.2. The structure of institution changeNew-institutionalism canlabelthree schools ofthought: historical institutionalism,rational choice institutionalism, and sociological institutionalism (Hall etal 1996). Theseprovide different interpretations of institutions. Inthe historical perspective, institutionsas systems of social, economic, and political power relations, which frame the regulation

and coordination of economic activity? The historical institutionalism approachconsiders that institutions are durable overlong period, built up through slowaccretion, and subjectto hysteretic pathdependence andlock-in. Inthe rational choiceperspective, the focus is onhow institutions generate particular organizational formsunder capitalism. Institutions are seenas the outcome of market behavior, constantly

changingthrougha process ofcompetitive selectionin response to shifts in

relative prices andtransactions costs. By contrast, the sociological model seeks to

understandthe economy as a socio-institutionallyembeddedsystem. Institutional

change is process of social constructionaroundnew logics of sociallegitimacy ornew-shared cognitive maps (Granovetter 1985, Zukin etal 1990, Swedberg 1997,Martin2000: 83).Institution change occurs inthe progress, caused by introduction of external force,intrinsic capacity ofthe institution, or interaction of both factors. Thenew-institutionalism conceptualizes institutions as dynamic entities. Scholars haveidentifiednumerous examples of institutional change, both incrementaland radical,thathave had significant consequences foractor preference, coalition formation, andpolicy choices (Cortell etal2001). The institutional changes will increase net socialdividend. However, how can we characterize the process of institutional change?North(1990: 83) describes institutions change typically consists of marginaladjustments to the complex of rules, norms, and enforcementthat constitute theinstitutional framework. The interaction ofactorand institution via social practicesadopts custom as media fortransition, and causes change of institution path.

Alston(199627-28) makes clearthat institutional change can be thought ofas the

result of supply anddemand forces ina society. He put forwardthe view of


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institutional change. First, institutional change is endogenous to the system butexogenous to individualdemanders and suppliers. Institutional change is not seenas achoice variable forany individual but is the result ofthe aggregation ofthepreferences of individuals for change. Second, Institutional change as endogenous to5

the certaindemanders. The analyst must specify who in society the demanders forthestatus quo or institutional change are. Finally, Institutional change as endogenous tothe suppliers. The analyst must specify the scope fordiscretion faced by the suppliersof institutional change, usually governmentactors.No institution is createdde novo. Institutionalare historically specific, and forthisreason it is necessary to be sensitive to historical context. This is particularly true forthe dynamics of institutional change. Much ofthe developmental path of societies isconditioned by their past. Evenafter revolutions, institution builders do not start of inahistorical vacuum (Riker 1995: 121, Alston 1996: 25). Therefore, no matter if wediscuss the basis of institution establishment or modificationand change of institutionduring implementation, currentand past events should be reviewedas the base toexplore system issues. Atthe phase of origin, actions selected by the actor causedthesystem to develop towards specific path; during implementation, external conditionand response to the path would become the change point of institutionaldevelopmentandtransition. Therefore, more and more studies have notedthe importance of pathdependence, increasing returns, positive feedback, etc., in explaining behaviorandinstitutional change.2.3. The characteristics of path dependent processes

Institutions are characterized bypathdependence,that is they tendto evolve

incrementally ina self-reproducingand continuity-preserving way. As such,

institutions are therefore importantcarriers ofhistory,inthatthey serve to impart

pathdependence to the process of economic development(David 1994, setterfield

1997, Martin2000) . As North(1990:118) expresses that institution connects the pastwiththe presentandthe future, so thathistory is alargely incremental story ofinstitutional evolution in whichthe historical performance of economies can only beunderstoodas a part ofa sequential story. Moreover, they are the key to understandingthe interrelationship for economic growth(or stagnationanddecline).

Accordingto Pierson,The conception of pathdependence, in which preceding

steps ina particulardirection induce further movement inthe same direction, is wellcaptured by the idea of increasing returns. Inan increasing returns process, theprobability of further steps alongthe same path increases with each move downthatpath. This is because the relative benefits ofthe currentactivity compared with other

possible options increase overtime(Pierson2000). In other words, 0nce technology

develops alonga particular path; givens increasing returns, alternative paths andalternative technologies may be shuntedaside and ignored. It is not possible to reversethe process and returnto a previous equilibrium position because ithas beeneliminatedas the structure changed. An existing path may have beendetermined by a6

chance event inthe past or by the cumulative effects of pastactions.(North 1990: 76,Atkinson etal 1996)Inthe pathdependent processes, positive feedback means thathistory is


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remembered.These processes can be highly influenced by relatively modest

perturbations at early stages.smallevents early on may have a big impact, while

largeevents atlater stages may be aless consequential. To putanother way,

outcomes of early events or processes inthe sequence are amplified, while laterevents or processes are dampened. Thus, whena particular event ina sequence occurs

will make a bigdifference. In politics, the crucial implication of pathdependencearguments is that early stages ina sequence can place particularaspects of politicalsystems onto distincttracks, whichare then reinforcedthroughtime (Pierson2000). A

critical feature of pathdependent processes is the relativeopennessor

permissivenessof early stages ina sequence compared withthe relatively

closedorcoercivenature oflater stages (Mahoney 2000). Hence, Pierson

describes the pathdependent processes involve three distinct phases three stages in

atemporal sequence: (1) the initialcriticaljuncture, when events trigger

movementtowarda particularpathortrajectory out oftwo or more possible

ones (2) the period of reproduction, in which positive feedback reinforces the

trajectory initiated in phase one (3) the end of path, in whichnew events dislodge along-lasting equilibrium (Pierson2000).Overall, the opinion of pathdependence serves the discussion of institutionalchange, andhelps to understand relevant restrictingand facilitating factors in systemadjustment. Therefore, this paperaddresses the change progress of relevant statutesand regulations of Non-UrbanLand Development System in Taiwan based onabovediscussion.

3. Background Analysis of Special Political Structure and Land

Management System in TaiwanAtthe end of 1949, Kuomintang(KMT, the Chinese Nationalist Party) state startedto rein Taiwanafter retreating from China mainland, whenthe governmentdecidedto

implementa series of farmland reform policies, focusing on serious inflationandlivingdifficulty of farmers because of rice expropriation. The farmland reformproceeded inthree stages. First, in April 1949, farm rents were limitedto a maximumof 37.5 percent ofthe totalannual main-crop yieldas approved by specially appointedRent Campaign Committees. In stage two, lasting from 1948 to 1951, public farmland,whichhad formerly belongedto the Japanese government or individuals andhad beenconfiscated by Nationalists, was leased or soldto tenant farmers? By 1953, 151,2007

acre had been sold. The third stage,landto the tillerwas more complex and

requireddetailed preparation. The Landto The Tiller Act of 1953 setan upperlimit of

7.2acre of seventh-to twelfth-grade paddy field forlandlords to retain Allland over

7.2acre was subjectto compulsory purchase by the government for resale to presentcultivators(Gold198665). However, currentland policy, as the rulingtool of KMT

regime, is expectedto acquire support from farmers, reducing potential source ofopposition for KMT regime from the perspective of political interest. Atthe economiclevel, farmland reform policy leads Taiwan economy towards equaldistribution,reducing political pressure caused by social inequality. Initially arriving in Taiwan,KMT regime expectedto returnto China mainland, reflected in policy orientationasregardingthe islandas temporary stand. Onthe one hand, in establishment of state,


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the government was facing crisis caused by economic, financialand otherlivelihoodissues; onthe other, before 1960s, Taiwan economy was atthe phase of importsubstitution withoutthe issue ofland conflict between industrialandagriculturaldevelopment. Atthattime, land policy matchedthe context, improving farmerslivelihoodlevel via farmland reform policy to stabilize the regime, and implementing

several measures on urbanland, without macro-planning overallland use and control.Whenthe Americanaid program began in Taiwanlate in 1950, ithelped supplynecessities to the people and ease inflationary pressure. By the middle ofthe decade,basic stability andthe economy had recoveredto the level of prewar production peaks.Inthe critical 1950s, the KMT regime, guidedand supported by the United States,institutionalizedthe structure within which Taiwans economy, society, and politicswould evolve. Since 1960s, prosperity generally emerged in industrialized countriesincluding USA, when Taiwan economy transformedto export-orientatedindustrialization, developing fast with export expansion caused by prosperity in worldmarket. Inthe aspect of social population structure, the population was featuredashighnatality andlow mortality in Taiwan. Underthe circumstance, total population

doubled, reaching 12,628,348 in 1964 from 6,090,860 in 1948 andaccompanied withfastdevelopment of industry and commerce. Proportion of population inagriculturesectordeclinedto 37.2% in 1973 from 56% in 1960, andthat in industry sectorincreased from 11.3%to 23% inthe same period.Withthe development of industrialization, capitalist social & economic structurehas gradually formed in Taiwan, which is reflected inland supply anddemand.Landdemand for residentialand industrial use increases significantly to generally improveland value, accompanied with industrialdevelopment, large after-war population, andjob hunting of redundantlabor in cities, which cause structural change indemandandtype ofland use. Moreover, the government implemented / encouraged investmentpolicy in 1962, cognizingthat measures of past Urban Planning Acthindered8

industrialdevelopmentanddissatisfied currentneeds. In 1964, the government firstamended Urban Planning Act, removing statutes constituted in Japan occupationandstartingto include the attitude of satisfyingthe needs of economic and industrialdevelopment. However, Taiwan simply had clear statutes to regulate Urban Planningareas and some specific areas until 1973, without planning instruction innon-urbanlandareas, which causes mess inland use.

4. Path dependence Explanation of Taiwans Non-Urban Land

Development System4.1. Outset of Regulatory System of Non-Urban Land Use19721978

At initial establishment ofthe system, reigning politicianadopted institutional form

withouttheoretical explanation. Opinions ofhistorical institutionalism can extracteffect of relevant factors on institution establishment from path features, byconcluding previous social, politicaland economic conditions, andanalyzingrestrictionanddevelopment of overall environment. With powerful support from USAandthe trend of international industry division in 1950s, exporttrade grewdramatically in Taiwan Areaduringthe decade since 1960, when industrial structurepresentedthe developmenttrend, gradually transiting its principal part from the firstindustry to the second one. Accordingto statistics, industry output increased its


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proportion ingross production, from 28.82% in 1965to 44.87% in 1985, butagriculture outputdecreaseddramatically, from 26.23% in 1965to 6.98% in 1985.The income gap between farm andnonfarm families widenedduringthis periodbecause farm income was growingata slower rate thannonfarm income. The incomegap between ruraland urban sectors also widened. Inaddition, the income gaps

among family groups indifferentlocations, classified by the degree of urbanization,widenedduringthe same period. The wideninggap caused by industrializationand

urbanization can be observedthrough change in income disparities (Kuo etal1981

99). Underthe economic structure, petrol price suddenly increaseddramaticallyworldwide with emergence ofglobal inflation in 1973, when civiliantendedtopurchase real estate property as a value hedging method stimulated by rapid priceincrease. These reasons caused prosperous real estate transaction, resulted inexpansion of urbanarea, and more importantly, ascending intensity ofarbitrary landdevelopment for constructionandland conflict between industry andagriculture.Meanwhile, considering Non-UrbanLand Development System, socialand economicconditions for institutional environment occurred inadvance.

Observingthe attitude of reigning politician inlate 1960s, we could revealthat9KMT regime startedto acceptthe factthatthere was little andlittle chance to re-ruleChina mainland. Mr. Jing-guo Jiang, the Chief of Executive Yuan realizedthenecessity to build rationality forthe regime and obtain support from majority ofTaiwan population by formalizinglaw system and expanding power foundation, whilefacing fasttransition in Taiwan society anddiplomatic plight in 1970s. To surviveeconomically, it would be necessary to liberalize the economy, permitlarge globallycompetitive, Taiwanese-owned conglomerates to emerge, and reduce stateintervention. Politically, survival would entailabsorbing Taiwanese into the state atthe highestlevelandappealingto the masses onanew basis-the survival of Taiwan,

notthe returnto the mainland(Gold1986129). Moreover, facingaforementionedproblems like landdevelopment mess and planningand controllack, the governmentstartedto considerhow to efficiently and properly utilize limitedland resource, andfirst enacted Implementation Regulations on Building Site Expansion Control inOctober 1973. The Regulations strictly restrained farmland oflevel 1- 8 fromchangingto building site, expectingto protecthigh quality farmlandthrough partialcontrol. In Decemberthe same year, the government further constituted Regulationsof Building Management in Non-UrbanLand, prescribingthat constructionactivitywas notallowed innon-urbanland without permission from administrativeorganization. Above two regulations servedas the outset ofnon-urbanland control.Onthe otherhand, in orderto further solve problems and environment pollution

caused by economic development, whenthe Urban Planning Act was amended in1973, the regional plan was made independent ofthe Urban Planning Actto becomethe upper part of urban plan. The Regional Planning Act of 1974 became the legalbasis forthe formulationand implementation of regional plans.Later in 1976,Non-UrbanLand Use Regulation was promulgatedto establish control criterion ofnon-urbanlanddevelopmentactivities based on principles ofthe Act. Underthecurrent system, allland in Taiwan is divided into two basic categories--urbanandnon-urban. The Urban Planning Act regulates the uses of urbanland. Non-urban


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land is underthe managementand control ofthe Regional Planning Act system. Basedonthe non-urbanland zoning plan, the planningauthority is supposedto map land usezones and establish various land use zones. Thus, uses of both urbanandnon-urbanlandare categorized by various land use zones. In 1976, promulgation of Slope LandConservationand Utilization Act startedto contain conservation concept in

constructionactivities on slope land, when overalland explicit institutional regulationoccurred innon-urbanland management. Moreover, in orderto control possibleconstruction fightamong builders caused by overall control ofnon-urbanland,administrative organization startedto buildthe filiation path of Non-UrbanLandDevelopment System and promulgate regulations relatedto non-urbanland10

managementaccordingto Regional Planning Act, including Regulations of BuildingManagement in Regional Planning Areas in 1977.We cannot regard itas the starting of Non-UrbanLand Development System, butrelatively systematized management extended from previous partial control. AsAlston(1996:25) addressed, much ofthe developmental path of societies isconditioned by their past. Evenafter revolutions, institution builders do not start off inahistorical vacuum. However, the phase could be regardedas the significantturningpoint inthe development of overallland control system in Taiwan. This paper plans todiscuss factors including socialand economic conditions then, domestic andinternational political environment, andthe like. From 1940s to 1960s, reigningpolitician focused on establishmentand maintenance ofagricultural productionenvironment inland management, because Taiwan economy was featuredas the firstindustry mode. Withthe transformation of industrial mode, social-economic structure,and composition features of population, coupled withgradually stable KMT regime inTaiwan, inlate 1960s, the government startedto emphasize non-urbanlanddevelopmentand constructionderived from prosperity of industrial economy andpopulationgrowth. In 1971, Taiwan quitted U.N., withdiplomatic relation boggeddown. The government concerned war potential betweentwo sides of strait,maintaining safe food supply via farmland protectionapproach. Consequently,promulgation of Regional Planning Actand Non-UrbanLand Use Regulationestablisheda foundation fornon-urbanland control in Taiwan. Inthis historicalcontext, the structure of Non-UrbanLand Development System was graduallyformed.4.2. Change of Non-Urban Land Development System Under Taiwans Land Use

Planning System (19791990)

Since 1970s, large-size capital investment emerged in Taiwan, exerting more andmore influence onnational economy. Followingthe logic of capital expansion, largeconsortiums were dissatisfied by existed economic adjustment policy as stateapparatus restraineddriving force of each consortium developingtowards upriversectors; inthe aspect of political environment, KMT regime adopted policies ofTaiwan-orientationand localizationto enhance association oflocal elites. Thereason should referto emergence of politicalactivities like oppositionaction. KMTregime was seeking for social supportafter quitting U.N., whenthe influence oflocalfactionhad caused monopoly and corruption inlocal politics notwithstandingrestrained inlocallevel. Expansion oflocal factiondirectly influenced planning of


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landdevelopmentand relevant plans. Reviewingnon-urbanland controldiscussed inthis paper, definitude and change of corresponding Development System reflectedreigning purposes ofthe government, as state politics was dominated by the11

government before 1980s; however, inlate 1980s, local factions gradually influencedlocalgovernment regarding planning ofnon-urbanlanddevelopment for personalinterest by means of shouldering public representatives. The phenomenonhadnotconcretely affectedthe path of Non-UrbanLand Development System yet, butreflectedthatlocal factions and politicians utilized institutiondeficiency or processoversightto influence institution operation.In 1979, the governmentdrafted Comprehensive Development Plan ofthe TaiwanAreaas the supreme guideline ofland management; in 1983, the government startedto design North Taiwan Regional Plan, whenthe Comprehensive Development Planofthe Taiwan Area, the Regional Plan, untilthen, the Urban Plan(local plan)constitute Taiwan's planning system. In formingnationalterritorial planning system,fundamental regulation controlhad been established innon-urbanlanddevelopment.Comparatively, construction on slope land presentedattractive profit because oflowland price withthe dramatic increase of residentialdemands. Developers startedtomove focus to slope landdevelopment withlarge community as the markettrend,under which, existed Slope-land Conservation Use Regulation was not effective anymore. Therefore, the government promulgated Regulation on Management for Slopeland Developmentand Building in 1983, addressingdevelopingactivities inregulations of relatively improved statutes via Slope Land Development Act from theperspective of construction management. The Act first includedthe concept ofplanning permission, prescribingthatdevelopment of slope land over 10 hectaresshouldapply for planning permission, sundries permissionand constructionpermission from administrative organization. Reviewing institutional path of overallnon-urbanlanddevelopment management, the enactment of planning permissionsystem generatedthe most significantdifference betweennon-urbanland system andurbanland system in Taiwan. Moreover, withthe markettrend oflarge communitydevelopment, large-scale landdevelopmentnot only involvedhuge profit, butalsoaffectedthe neighboringland or environment interms ofarchitecture constructionactivities. In 1988, Non-Urbanland Use Regulationaddedthe term thatnon-urbanlanddevelopment over 10 hectares should first obtainapproval from administrativeorganization, in orderto regulate business activities with strict inspection procedure.In 1990, the Act further prescribedthat slope landdevelopment under 10 hectaresalso neededto apply for planning permission; the same year, in orderto provideprecise principles forlanddevelopment inspection. Regulations on Examination ofGolf Course Development on Non-UrbanLandand Regulations on Examination of

Residential Community Development on Non-Urban Slope Land were establishedrespectively. The latter prescribed providing infrastructure anddonatingland bydevelopers as adevelopment obligation, endowingthe concept of initial planning12

permission with compulsory obligations in planning, andaffecting following principleorientation of regulations relatedto planning permission.By 1983, Taiwan was the worlds thirteenthlargest exporterand seventeenthlargesttradingnation, further reflecting its features of social-economic structure atthattime.


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undertake the costs of bringingabout such changes. The essential requirement forinitiatingan institution(ora product) is thatthe discounted expectedgains exceedtheexpected costs ofthe undertaking; only whenthis condition is met would we expecttofindattempts being made to alterthe existing structure of institutions and propertyrights withina society (North etal 1970: 3). Implementation of floorarea ratio control

negatively affectedthe value oflandasset oflords and investment profit ofdevelopers,and rebounded onthe government via political pressure, when innovation ofinstitutional pathapparently would encounter various difficulties because reigningparty couldnot simply suppress opposite opinions as anauthoritative body. Moreover,the behavior might incur construction upsurge indevelopers, creatinganother roundof prosperity in Taiwans real estate market, but oppositely, it caused millions ofvacanthouses underthe circumstance thatdemands didnot rise synchronously, whichhadnot solved yet. We could regard itas unexpected path of institutional innovatorsinthe changing progress.Onthe otherhand, duringthe period of institutionaltransition, the attitude ofTaiwangovernment regardingnon-urbanlanddevelopmentand control responded

developmentdemanding from industrialand commercial fields to some extent, withthe structure transformationand upgrade in industrialand commercial sectors afterentering post-industrialized society. In orderto solve land issues encountered inindustrialand commercial investment, andto clarify inspection procedure oflanddevelopment, Non-UrbanLand Use Regulation was amended in 1993, increasinglandfloorarea ratio for industrial use from active 40%to 300%.Later, Statute forUpgrading Industries was amended in 1995, changingthe landdevelopment systemfor industrial use from previous governmentdomination in planninganddevelopmentto entitle the public withthe rightlodgingapplication independently, as wellasintroducingthe concept of planning permissionto enable application of public andprivate landdevelopment outside restricted regions.14

Regarding efficiency enhancement ofnon-urbanland inspection procedure, CriteriaDefining Significant Investment Planand Non-UrbanLand DevelopmentExamination Procedure were proposed in 1998 to set inspectiontime ofnon-urbanlanddevelopmentapplicationas one year. The same year, Non-UrbanLandDevelopment Operating Procedure was enacted, prescribing one-year inspectiontermfornon-urbanlanddevelopment case definedas significant investment plan. TheProcedure adoptedapproaches like parallel inspectionand joint investigationtoshorten operationtime of four principal inspection systems, namely, targeted business,land use, environment protection, and waterand soil conservation, in orderto buildtransparentand standardnon-urbanlanddevelopment procedure. Moreover, zoninginspection ofnon-urbanlanddevelopmentadoptedtwo-level-two-inspection system

then. Underthe system, Regional Planning Commission ofthe Ministry of Interiorwas responsible for inspectionandlocalgovernment participated passively, whichusually causedthe case re-inspected by localgovernment while waiting for sundriespermissionand construction permission process. Based on prescriptions of Regulationon Management for Slope Land Developmentand Building, localgovernment shouldissue planning permissionaccordingto approval ofdevelopment plan in centralinspection, which formedthe weird phenomenonthat centralgovernmenthad powerwithout responsibilities, butlocalhad responsibilities without power. In2000, Council


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nationalland policies throughthe relationship spreadingalong close-grainedpolitical-economic network, based onassociationamong reigning party, local factionsand consortiums to some extent.4.4. Change of Non-Urban Land Development System after Party Shift (from

2000 to now)

In2000, shift of political parties first occurred in Taiwan, and Mr. Shui-Bian Chenfrom Democratic Progressive Party (DPP) was electedas the 10thPresident ofRepublic of China. At initial stage ofhis reigning period, vicious conflicts wereserious in political field, coupled withtransition ofglobal economic environment,whenlots of enterprises movedtowards westto cause industrial emptiness, incurringproblems like increase of unemployment rate and slowed economic growth rate, etc.16

DPP regime advocatedthe slogan of entire population fighting on economy, andsummoned National Economic Development Conference in January 2001,expectingto stimulate economic downturn. The conference included 10 topics likeindustrialland, anddrew the conclusion of correspondingto landdemand forindustrialdevelopment, simplifying inspection procedure oflanddevelopment, andlooseningland control. Inthe March of same year, promulgation of OperationHighlights of Examination by Municipal & County (City) Governments onNon-UrbanLand Zoningand Development Application fulfilledthe conclusion,continuedagreements in Proposal ImprovingLand Development Examination System,and regulatedland zoninganddevelopment onnon-urbanland. Ifthe scale was lessthan 10 hectares, localgovernment should be commissioned for inspectionandapproval. Simplification oflengthy administrative inspection procedure was setaspolicy direction, and improvement of operational efficiency in public departments hadpositive significance. As mentionedabove, cooperation of relevant measures wasrequired forlocalleaders, responsible staffand inspection commissioners to resistpressure from the political environment surrounded by local factions and publicrepresentatives, andto make correctdecisionafter inspection.Overall, nationalterritorial planning system has longlacked properlegislative basisin Taiwan, causinglong-term problem of ineffective instruction inland resourceplanninganddevelopment. Moreover, atthe layer of system implementation,solutions for issues relatedto urbanand ruraldevelopment orlanddevelopmentcaused by dynamic social-economic environment, were limited in partialand segmentpassive adjustment, no matter via modifying oradding statute regulations.Accumulated issues inland resource use included: system classification of urbanandnon-urbanland managementdisabledholistic harmonious development inlanduse, because ofdifferences in scope and functions; inefficientanddisorderedexpansion inlanddevelopment formed sprawledand inconsecutive landscape;

improved management system was lacked in farmland resource development control,impactingthe whole environment ofagriculture production; conservation strategyand control regulations were lacked in sensitive land resource management ,enhancing possibility and severity level ofdisaster. Therefore, the government startedto considerachievingthe goal of sustainable development ofland resource, viaestablishinglegislative basis forlanddevelopment plan, as wellas furtheradjustingclassificationand management system ofland resource. The Executive Yuan passedthe draft of National Territorial PlanningLaw in June 2004. This law intends to


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provide alegal basis for planningand managingallland in Taiwan. Once the NationalTerritorial PlanningLaw is enacted, the nationalland resources needto berestructuredand systematized. It willtransform the currentland management system.17

Underthis draft, allland is divided into three districts--National TerritorialPreservation District, Agricultural Development District, and City-CountryDevelopment District. These so-called functionaldistricts can be furtherdivided intosub-districts ifneeded in orderto establishanew development permission system.The landgradingand sorting system of National Territorial PlanningLaw willaffectthe land use control system as wellas development permission system.The Act involved wide aspects and would overalladjust management system ofcurrentland use, requiringnot only correspondingamendment in relevant statutes, butalso adjustment of involveddepartments andadministrative organizations. Afterimplementation, the Act significantly changedandaffected civil property, causingfierce discussion ingovernmental institutions andacademics, which was returnedtothe government for furthernegotiationafterdiscussed by Legislature andhadnotgeneratedany result by 2007. As mentionedabove, precondition of institutionalchange was based onholistic net social efficiency ofnew institution exceedingthat ofold one (North etal 1970). Moreover, new institutions often entailhigh fixed orstart-up costs, and involve considerable learning effects, coordination effects, andadaptive expectations. Established institutions generate powerful inducements thatreinforce their own stability anddevelopment(Pierson2000). The Regional PlanningAct was implemented since 1974, controlling relevantland use viathe classificationmanner of urbanandnon-urbanland. Althoughthe Actadopted partialadjustmentthrough statute amendmentandadditionto satisfy the needs of social-economicstructure and industrialdevelopment indifferenttimes, the system history over 30years had incurredlock-in phenomenon indevelopment. Introduction of institutionalreform in National Territorial PlanningLaw helpedachieve new balance betweenthetrend of economic structure change and sustainable development in future society.However, many efforts are requiredto accomplish implementationgoals, with factorsof institutional inertiaand special political structure in Taiwan.

5. ConclusionsFrom after-war periodto early 1980s, nationaldevelopment in Taiwan presentedthe characteristic ofdevelopmental state as a whole. Industrialand economicdevelopmentdriven by public departments was the key of Taiwans quickgrowthas anew country in Asia.Later, underthe policy of Taiwan Orientationandlocalization proposed by the government, public election of representatives wasgradually enabled, andassociation oflocal factions and reigning party was formed,which further facilitated formation ofnew lord class in Taiwan. The class acquiredbenefit from landdevelopmentto stabilize its political power inlocalareaandreturned reigning party with political support. Under special political-economic18

structure in Taiwan, implementation of institutionand modification of relevant pathshould considerthe negative impact on economic developmentand politicallayer,evidentthe characteristic reflected in Non-UrbanLand Development System. Becauseof features of scale economy, technical complementarity andnetwork externality, it isinevitable thatthe institutional change is featuredas continuous accumulationand


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pathdependence, which enable above economic and political characteristics toconstantly affect modificationand change of Non-UrbanLand Development System.This paper is conducted by dividing institutional change progress of Non-UrbanLand Development System to four phases (as shown in Figure 1), coupled withdevelopment pathat political, socialand economicallayers. The results revealthatthe

power forming institution pathdevelopment serves the purpose of political reigninitially, andgradually transforms to dual purposes of political considerationanddemands for economic development. Moreover, it is explicitthat economic prosperitydrives flourish in real estate marketanddevelopmentactivities, and publicdepartments gets usedto guide overheatedand irregulateddevelopingactivities viaadjustment of institutionand relevant policies. In marketand industrialdevelopmentdownturn, the government willadjust pace and pattern of industrialland supply viareverse adjustment in institution or relevant policies, in orderto facilitate industrialdevelopment. As concluded, modification of pathdoes not prevent occurrence ofissues, but is adopted when issues emerge. Another opinionaddresses that overallprudentthought is lacked innon-urbanland planning, underthe circumstance that

institutional change is mainly driven by the implicit power of politicaland economicfactors. Moreover, fundamental orientation facilitating sustainable development ofland resource will be ignored, with significant characteristics of each phase presentedunderthe frame as follows:

1Promulgation of Regional Planning Act in 1974 and implementation of

Non-UrbanLand Use Regulationtwo years later startedto establish controlregulations fornon-urbanlanddevelopment, whichalso representedthat since1960s, Taiwangradually entered industrialized society. Then, mess land use innon-urbanareahad beennoticed by the governmentas without systematizedplanningand control, causing formation of explicitdevelopment path ofnon-urbanlanddevelopment system.

2Withthe formation ofnationalterritorial planning system in 1983, regulationswas gradually established regarding slope landdevelopmentand use, andtheconcept of planning permission was included in relevant statutes ofNon-UrbanLand Control, which could be regardedas an importantmodification ofdevelopment path. However, inlate 1980s, local factionsgradually influencednon-urbanlanddevelopment planning by the local19

government, throughactingas public representatives.

3After 1990s, modification of statutes and establishment ofnew regulations

further strengtheneddevelopment path ofholistic institution. However,different from early stage of institutional path when was featured with path

change guided by the decision of reigning party, politicaland economic factorslike public representatives and consortiums startedto significantly affectchange of institution pathand modification of progress. Relying on formationof institutional frame and implementation of relevant regulations,administrative organizations and responsible personnel could buildlastline ofdefence against improper requirements accordingto existed rule andinstitution. Moreover, institutionand statutes transitedtowards improvedmanagement regulations via modification, correspondingto the tendency of


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ofnon-urbanland in Taiwan.Control criteria oflanddevelopmentand use innon-urbanarea wasestablished via classifyingnon-urbanlandto 10 zones and setting up 18 landuses.

1979

1990Comprehensive Development Plan ofthe Taiwan Area

1979

Regulation on Management for Slope Land Development

and Building1983

Amend Non-UrbanLand Use Regulation, prescribingthat

developedland over 10 hectares should first obtainapprovalfrom original planning organization inthe region(1988).Regulations on Examination ofGolf Course Developmenton Non-UrbanLand(1990)Regulations on Examination of Residential CommunityDevelopment on Non-Urban Slope Land(1990)KMT regime adopted policies ofTaiwan-orientationandlocalization,as wellas strengthenedassociationrelationship inlocal elite.Local public representatives startedtoinfluence localgovernment regardinglanddevelopment planandorientation of urban planning.Large-size capital mode graduallyincreased its influence onnationaleconomy.Industrial structure entered

post-industrialized society in 1987, andreal estate market was welcomingthesecond round of prosperity, whenthegovernment restrained overheatedandspeculation-oriented markettrend via

implementing measures like selectivecredit control, etc.Lodging planning permission clearly

prescribed obligations ofdevelopers inplanning, generatingthe biggestdifference betweennon-urbanandurbanland control in Taiwan.

1990

1999Amend Non-UrbanLand Use Regulation, increasing floor

area ratio ofthe land for industrial use from active 40to

300.(1993)

Environmental Impact Assessment Act(1994)Soil And Water ConservationLaw (1994)Non-urbanLand Development Review Standards (1995)

Amend Statute for Upgrading Industries (1995)Criteria Defining Significant Investment Planand

Non-UrbanLand Development Inspection Procedure (1998)Non-UrbanLand Development Operating Procedure (2000)Proposal ImprovingLand Development ExaminationSystem (2000)Legislative commissioners opened

public election, enabling publicrepresentatives to influencelegislationand system


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implementation relatedto landcontrol.Close political-business relationshiphelpedto acquire suddenandhuge

profit viadeveloping publicconstruction, and residentiallandaswellas manipulating establishment of

central statutes and policies.Withtransformationand upgrade ofthestructure of industrialand commercialsectors, request forgovernmentadjustingland supply and controlapproaches emerged in industrial world.In 1990, floorarea ration was roundlyimplemented innon-urbanland, whichcausedthe third round of prosperity inreal estate market, butalso incurredserious vacant rate in Taiwan because ofunbalanced supply-demand relationshipinthe market.Planning permission startedto

possess legal basis.

Key factors affecting institutionmodification involved various

behaviors inland use, operation ofpoliticalalliance, anddemands fromindustrial sector.2000 - Now Operation Highlights of Examination by Municipal &County (City) Governments on Non-UrbanLand Zoning

and Development Application(2001)National TerritorialLaw (draft) (2004)First shift of political parties causedvicious conflicts in political world ofTaiwan, and DPP regime expectedtochange the status of bad political

performance via facilitating industriesand economy.

Change ofglobal economic environmentand westward movement of businessworld caused industrial inanition,incurring plights like rise ofunemployment rate, slow economicgrowth, etc.The governmentadjusts the systemwithguiding principles as simplifyinginspection procedure andlooseningland control.National TerritorialLaw (draft) is

proposedto provide the opportunityof re-structure for planningandcontrolling overallland resource.

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Journal of Sociology, Vol.91:481-510.11. Hall, P. A.and Taylor, R. C. R.(1996), "Political Science and Three NewInstitutionalism", Political Studies, Vol.44 (2):936-957.12. Kuo, W.Y., Ranis, G.and Fei, C.H.(1981), "The Taiwan Success Story: RapidGrowth with Improved Distribution inthe Republic of China 1952-1979", Boulder:Westview Press.13. Mahoney, J.(2000), "Path Dependence in Historical Sociology", Theory andSociety, vol.29:507-548.14. Martin, R.(2000), "Institutional Approaches in Economic Geography", in22

Sheppard, E., and Barnes, T.J.(eds.), A Companionto Economic Geography,Oxford: Blackwell Press, 77-94.15. North, D. C.(1981), "Structure and change in economic history",New York:Norton Press.16. North, D. C.(1990), "Institutions, Institutional Change and EconomicPerformance", Cambridge: Cambridge University Press.17. North, D. C.(1996), "Epilogue: Economic Performance Though Time", in Alston,L. J., Eggertsson, T., and North, D. C.(eds.), Empirical Studies in InstitutionalChange, New York: Cambridge University Press, 342-355.18. North, D. C.and Thomas, R. P.(1970), "An Economic Theory ofthe Growth ofthe Western World", Economic History Review, vol.23:1-17.19. Pierson, P.(2000), "Increasing Returns, Path Dependence, andthe Study ofPolitics", The American Political Science Review, Vol.94 (2):251-267.20. Riker, W. H.(1995), "The Experience of Creating Institutions: The Framing oftheUnited States Constitution", in Knight, J.and Sened, I.(eds.), Explaining SocialInstitutions, Ann Arbor: The University of Michigan Press, 121-144.21. Swedberg, R.(1997), "New Economic Sociology: What Has Been Accomplished,What Is Ahead? ", Acta Sociologica, Vol.40:161-182.22. Zukin, S.and Dimaggio, P.(1990), "Structures of Capital: The SocialOrganization ofthe Economy", New York: Cambridge University Press.


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E. Industrial Development and EmploymentKey FindingsWell Paid Industrial Jobs Are a Fundamental Community NeedHistorically Jolietthrived because of employment inheavy industry, where jobs that werefrequently unionized paid enoughto supportatypical family with some surplus. The citysfortunes beganto change inthe 1970s as global economic pressures that impacted much ofindustrial Americahit Joliet. Duringthe early 1980s Joliets unemployment rate rose to 26%.The social consequences of such job losses in many American cities are described by Harvardsociologist William Julius Wilson inhis book When Work Disappears in passages that mirrorsome interviewed stakeholders descriptions of events inthe Planning Areas mosthard-hitneighborhoods duringthe 1980s.21 Ona percentage basis, the most severe job losses occurredamong minorities andthe young. For young minority men, role models of workers who madegoodlivings as industrial employees became less relevant. As realand perceived optionsdwindled in some neighborhoods ofthe Planning Area, drugaddictionand crime became

common, leadingto the devastation of minority communities. A percentage ofthe populationbecame criminalized, drivinganegative cycle of unemployment.More thanthirty community stakeholders interviewed forthe Quality ofLife (QOL) Plandescribed sucha process joltingthroughneighborhoods ofthe Planning Area inthe 1980s andearly 1990s. Since the mid 1990s the Planning Areahas been recovering withthe rest of Joliet,thoughnotto the same degree. Employmentlevels are higher, crime rates lowerthan inthe1990s. Yet more thanthirty community stakeholders have reportedthataddiction problems andtheir consequences lingeralong withan exaggerated perceptionheld by many Jolietarearesidents thatthe Planning Area is adangerous place.Although employmentlevels in Joliethave generally been rising for more thanten years, morethantwenty ministers ordirectors of social service agencies interviewed forthe QOL Plan

identifieda shortage of jobs that pay aliving wage and benefits as the root cause of problemsranging from inadequate foodto lack ofaccess to medical care, to marital stress and mentalhealth problems. Some jobs, they report, are available, but jobs with salaries and benefits thatwill meetthe needs ofahouseholdare scarce. This widely held impression is confirmed by themost recentState of the Workforce report ofthe Workforce Investment Board of Will County.This report foundthat between 1991 and2001, the County-wide net increase in manufacturingjobs was only 992, while the increase in retailtrade jobs overthe same period was 8,737. In2001Manufacturingaccounted for only 16% ofall jobs in Will County butapproximately 23% ofpayrolldollars. In contrast, Retail Trade in2001 made up 22% of jobs inthe County but only12% of payrolls. The report points outas a major concernthat Many ofthe fastestgrowing jobsare relatively low wage andlow skill.2221 William Julius Wilson, When Work Disappears: The World of the New Urban Poor(New York: Knopf, 1996).22Workforce Investment Board of Will County, State of the Workforce 2003, October2003, 5.

Joliet Quality of Life Plan November 5, 2007 112Joliet Quality of Life Plan November 5, 2007 113Job Gowth % All Jobs % Wages

Industry Sector 1991 1996 2001 1991- 2001 2001 2001Agriculture 979 14552351 1372 1.98% 1.00%Mining294 197 314 20 0.26% 0.50%Cons truction5793 9510 12487 6694 10.49% 13.00%Manufacturing 18304 19170 19296 992 16.21%23.00%


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Transportation, Communications , Electric 6356 6389 8393 2037 7.05% 10.00%Wholes ale Trade 40625329 8697 4635 7.31% 11.00%Retail Trade 17951 22574 26688 8737 22.42% 12.00%Finance, Insurance, Real Es tate 3495 4307 4328 833 3.64% 4.00%Services 20930 29681 36465 15535 30.64%25.50%

Non-Clas s ifiable Es tablishments 66 45 0 -66 0.00% 0.00%Total, All Sectors 78230 98657 119019 40789 100.00% 100.00%

Source: "State ofthe Workforce Report2003", Workforce Inves tment Board of Will CountyNumbers of Jobs

Some Growth Industries in Will County Offer Good JobsA somewhat more hopeful view of job growth in Will County is provided if we consider jobgrowthdata forthe range of industrial categories provided inthe State of the Workforce 2003citedabove and summarized inthe followingtable.Table E-1. Will County Employment by Standard Industry Code (SIC)

As this data indicates, job growthhas been substantial inthe fields of Wholesale Trade,Transportation & Utilities, and Construction, sectors in which contributions to payrolls areproportionately higherthanthe percentage of jobs inthe labor force. This data is consistent withfindings ofthe Target Industry and Workforce Analysisprepared by the Workforce Investment

Board of Will County andthe Will County Center for Economic Development(WCED), whichidentifies four major fastgrowth fields with quality jobs:23Medical Care: Doctors andnurses were among 15types of jobs in Will County rankedasTop Opportunities by the Workforce Investment Board based onan integratedconsideration ofthe number of jobs inthe field, projectedgrowth in job numbers, andaverage annual wages. Additional positions for other medical professionals (such physicaltherapists andnutritionists) as wellas positions forless highly trained workers suchasnursingassistants, medicaltechnicians, medical record clerks, and facility maintenanceworkers are also certainly available in medical facilities, althoughthe numbers of suchpositions has

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