The industrial complex revisited: Petrochemicals in Taiwan

G?qimm, vol. 23, No. 1, pp. 29-40,1992 PrintedhGreatEaiti

a)1~7185@2 $5.00+0.00 @1992PergamalPresapk

The Industrial Complex Revisited: Petrochemicals in Taiwan

DANIEL TODD, * Winnipeg, Canada, and YI-CHUNG HSUEH,? Yangmingshan, Taiwan

Ahstraetr The industrial complex promises economic advantages to both the firms involved and the communities within which it is located. A further characteristic, one appealing to planners intent on regional balance, is its purported ability to moderate regional disparities by enacting an industrial programme of such a magnitude as to be capable of reversing the tilt in economic development towards the core. While the fortunes of industrial complexes in advanced countries have been decidedly mixed, they remain potent symbols of industrialization in those countries which have recently espoused this road to development. They retain their cogency as a result of their claim to economies of scale and scope, to say nothing of the fusion of agglomeration benefits which seems to find its most practical expression within them. For some industries, petrochemicals not least among them, these advantages are shown in an especially favourable light when wedded to port expansion. The economies attendant on the industrial complex are added to those of efficient terminal operations and the resultant port industrial complex bodes well for a number of industrial and spatial goals. The network of plants investing in the Taiwanese port city of Kaohsiung, with a major petrochemical industry, is used in this paper as an example of an industrial complex of sufficient maturity to be investigated. As a precursor to petrochemical complexes throughout developing Asia, the Kaohsiung case serves to expose the pitfalls as well as the strengths of such a complex. On the one hand, it has never failed to bolster the emerging petrochemical industry and, in so doing, has increased substantially the city’s workforce and well- being. On the other hand, however, is the finding that Kaohsiung’s growth has not materially disturbed the coreperiphery disparities prevailing on the island. The industrial complexes in the city are manifestly not the means to cause a structural change of that magnitude. Policies which place a premium on economic efficiency will continue to make use of industrial complexes, but there is little likelihood that these devices, once implemented, will produce anything more than local spread- effects.

Introduction

Thanks to the resourcefulness of the first band of

regional scientists in the 1950s we now have a useful concept which blends considerations of interindustry linkage with those rooted in industrial location theory, namely, industrial complex analysis and the

*Department of Geography, University of Manitoba, Winnipeg, Manitoba, Canada R3T 2N2. TDepartment of Geography, Chinese Culture University, Yangmingshan, Taiwan.

industrial complex. The strict concept of the industrial complex, unlike the looser term employed in everyday parlance, rests on the activation of agglomeration economies in conjunction with the appear- ance of a form of industrial organization that draws together related activities in a vertically integrated manner. The value of the industrial complex proper consists in its appeal, at one and the same time, to advocates of economic efficiency and proponents of social equity masquerading as regional planners. As

originally envisaged by the likes ‘of AIROV (1959)

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and ISARD et al. (1959), the industrial complex focused on process industries-petrochemicals and synthetic fibres were the favourites-capable of act- ing as the centrepiece for a veritable host of downstream activities. Such industries were extremely sus- ceptible to economies of scaIe and, by extrapolation, their linked offshoots were also conducive to the generation of external economies. We are indebted to regional scientists not only for making explicit the connection between internal and external production economies, but also for affirming that these economies are at their best when spatially concentrated as agglomeration benefits. More to the point, under the guise of a body of closely-argued material dignified as industrial complex analysis, these pioneer workers marshalled a rationale to explain the relevance of induced industrial complexes-those planned from the ground up-to regional development. In short, if it was deemed appropriate to choose industrialization as the means for countering regional underdevelop- ment, then there were excellent reasons for suppos- ing that an induced industrial complex afforded a promising strategy for fulfilling that purpose. The pioneers were careful, however, to stipulate the drawbacks of their brainchild, and were not afraid to bracket it with conditions requiring that economic efficiency goals should always be in the forefront. A parallel concept, which gained some currency in the 196Os, also made great play of the advantages derived from the collocation of economic activities bearing more than a passing resemblance to each other. The concept in question, the MIDA (Maritime Industrial Development Area), was devised by the now defunct U.K. National Ports Council, an agency charged with the mandate of divining long-term futures for seaports and their attendant businesses. While limited in its operation to certain classes of ports, and in any case not called an industrial complex, the MIDA nonetheless emerged as merely a particular version of the general idea formulated by regional scientists. Of course, it is axiomatic that the particular case should share much of the rationale underscoring the general case, and the port industrial complexes which flour- ished in the 1960s and afterwards did so by persuading process industries of their special locational charac- teristics. Rotterdam is usually presented as the quintessential port industrial complex, based on a judicious mix of marine commercial services and petrochemical plants which, in turn, hinge on a cornerstone of oil terminals-cum-refineries (MOLLE

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and WEVER, 1984). Needless to say, both cham- pions of port industrialization and upholders of induced industrial complexes were not averse to par- ading the development benefits which their endeav- ours promised to generate profusely.

Port industrial complexes have thrived from Mar- seilles to Singapore (BIRD, 1980; HOYLE and HILLING, 1984), while the idea of petrochemical- specific complexes has been taken up with gusto by a number of Asian countries, becoming a central plank in their industrialization schemes (OECD, 1988). The latter have found inspiration in the example set by Taiwan, an example motivated in its turn by the experience of Japan, where coastal land reclamation and the creation of heavy industrial complexes on it were an integral part of the industrialization drive during the 1950s. A string of petrochemical complexes resulted, corresponding closely in operational terms to the concept of the port industrial complex then finding favour in the academic literature. Yok- kaichi, Ise Bay, Sakai-Senhoku, Harima, Iwakuni, Idemitsu and Tonen (Yokohama) all come to mind as representatives of this phenomenon (MIYAKAWA, 1980; MURATA, 1980). Unlike the other early ex- ponent of the planned industrial complex, the petrochemical industry in Puerto Rico, the Japanese cases confirmed the validity of interindustry linkages (the agglomeration factor) for fostering buoyant local economic expansion (CHAPMAN, 1982). Not sur- prisingly, then, later advocates of petrochemical port industrial complexes have been careful to stipulate the need to establish a critical mass of interlinked activities from the outset in order to trigger agglomeration economies. Such economies, it is contended, will lead to regional development as a matter of course. While it is true that explicit applications of industrial complexes to correct imbalances in regional development have not always lived up to expectations-as the South Korean case shows (AUTY, 1990)-it is important to stress that these ventures have not proved prejudicial to development. On the contrary, they have often spearheaded macro- level policies aimed at rapid economic transform- ation. In fact, given the correspondence between industrialization as a national goal and industrial complexes as the means expressly tailored to further- ing industrial advance, it is no accident that the concept should have commanded the attention of decision-makers in the newly-industrializing

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countries (NICs). Those responsible for creating the petrochemical industry in Taiwan were in the van- guard.

activities-process industries chief among them- capable of capturing the benefits of mechanized and automated production technologies. Regional scientists know, for instance, that the ratio of the increase in capital outlay to the increase in capacity for oil refining hovers round a value of 0.7 for many of the key production processes involved in obtaining petroleum derivatives (MOLLE and WEVER, 1984, p. 54), and planners are well aware of the moderate demands of large oil refineries on local labour-supply markets. For process industries, such as oil refining, the technology is a critical factor in their functioning as producers (FREEMAN, 1990). The absence of a suitable technology would clearly compel the enterprise to operate inefficiently, and thus it is of the utmost importance that NICs secure technology- transfer agreements with firms, governments and other agents in the more technologically-advanced countries before even contemplating the establishment of process industry based complexes (CORTES and BOCOCK, 1984). Put bluntly, competitive plant economies of scale are a downright impossibility if emerging complexes are deprived of the contempor: ary best-practice process technology.

Centred, at the behest of the government, in the city of Kaohsiung, this coherent mass of affiliated activities has all the hallmarks of an induced industrial complex. Moreover, since the oil refinery and terminal, which acts as the cornerstone for the local petrochemical industry, owes its existence to the port of Kaohsiung, the whole complex can be regarded as a MIDA. There is no lack of signs that the state was mindful of the regional development dimension when it took steps to initiate the development of the complex. The deliberate decision was taken in the 1950s to bequeath to Kaohsiung the lion’s share of the island’s capital-goods industries and any other manu- factures in which the government held the paramount interest. Sensible of the invidious pressures emerging as a result of the multitude of light industries spring- ing up in and around the capital, Taipei, but not much in evidence elsewhere, the government sanctioned an industrial policy (or what amounts to such) infused with subsidiary ambitions geared to striking some sort of regional balance in the distribution of economic activities. By developing a petrochemical complex of major proportions, it was envisaged that Kaohsiung would be transformed into a vibrant growth centre, able to act as a counterpoise to the dominant Taipei- centred region in the north. How this design has fared, both in promoting industry-specific development and in contributing to a greater degree of balance in regional development, will preoccupy us in the rest of this paper. To begin with, however, we must outline the fundamentals of the concept and the industry before dwelling on their representations in Taiwan.

The Rudiments of the IndustriaLComplex Concept

Principal among the benefits underscoring a proper industrial complex is the advantage of operating a plant at an optimum level, a level connoting a large- scale output. Large-scale production economies offer lower capital costs per unit of capacity, as posited by conventional economic theory, but they also offer the prospect of sharply reduced labour costs in those

The ability to diversify through the proliferation of products is another critical ingredient of an industrial complex. Indeed, the prime object of the complex is to propagate a variety of production lines, both as a means of exploiting the full potential of the existing facilities and as a method of enhancing external economies for all members of the complex through encouraging the starting up of new productive activities. After all, it is the multiplicity of activities which give the complex its distinctive character. However, there are finite limits to the variety of activities contemplated by a complex and any assortment of processes and products is restricted by the need to be similar, that is, the group of activities must co-exist in a manner which builds on their inter- or intraindustry linkages. As a rule, this requirement is realized through some form of explicit or implicit vertical integration, where the corporate owners of the core activity also contrive to own the downstream activities or, in the implicit case, forge agree’ments with the operators which ensure guaranteed markets for intermediate (feedstock) products. Also called quasi- integration, the latter option is favoured in Japan, since it ensures the eradication of much uncertainty, restrains ‘harmful’ competition, improves product

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quality control, and heightens the awareness of new technologies (KONO, 1984, pp. 122-123). One might also note that such synergistic benefits have not been lost on the managers of Taiwan’s ,petrochemical complexes. At any rate, incipient downstream activities constituting the net additions to the complex are thoroughly predictable in view of the manipulation of input-output tables and the tracing of inter-industry transactions. The prediction of the expansion of production lines within an existing plant is much more difficult, however. In fact, the spawning of production lines within an activity is often underrated because it involves the notion of economies of scope, a sumewhat fuzzy concept to most planners. In reality, economies of scope can be clearly defined, occurring “where it is less costly to combine two or more product lines in one 8rm than to produce them separately” (PANZAR and WILLIG, 1981, p. 268). As all ,firms attempt to maximize the value to be realized from their ‘input services’ (equipment and workforce overheads), they readily accept the advantages accruing from diversification. Multi-product outputs are conducive to economies, provided, as stated, that the firm (read ‘establishment’ in our context) can manufacture two or more products together at a cheaper rate than that obtained from two or ,more individual firms (establishments) producing the items separately. An astute manager should be able to coax into existence economies of scope by dint of plant reorganization; in particular, through the application of unused capacity, acquired for the main product, to the manufacture of by- products which do not require a radically different process technology. As we shall see, the petrochemical industry thrives on the production of by-products and, accordingly, is highly prone to the kind of rearranging which yields economies of scope. Com- menting -on the chemical industry, very similar to petrochemicals, AIROV (1959, p. 56) argued that the “typical chemical plant is a multiproduct plant com- posed of many production units. A single large-scale unit within the plant may produce from a basic feedstock a raw material for a number of smaller units, each producing a particular chemical product. Integration of many units at the same site also enables the manufacturer to utilize a by-product in one process as the raw material for another. In addition, many chemical processes yield joint products.” In short, economies of scope find practical expression as agglomeration economies.

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Petroohewiiua~s as the Complex Archetype

Petrochemical manufacturing as a distinct industry grew out of the desire of oil firms to make the most of the residue remaining after the petroleum had been relined. Disposed to capitalize on this so-called valor- ization procedure,, these tirms installed cracking and reforming plants in order to convert refinery liquids and gases into by-products. In so doing, they created the petrochemical industry at about the time of the First World War. The two principal by-product lines developed over the following years were olefins and aromatics, the former relying mainly on the cracking of naphtha and the latter derived from the reforming of naphtha. Cracker-based complexes have sprung up in which naphtha is converted into ethylene, propylene and butadiene, each of which results in a se- quence of manufacturing operations leading to a group of products such as detergents, explosives, paints, solvents, synthetic rubbers, fibres and plastics (ISARD et al., 1959, pp. 30-31). For its part, the reforming process, undertaken in platformers, has acted’as a catalyst for the development of an array of by-products of benzene, toluene and xylene which result in end-products similar to those for olefins, namely, polyester Qbre, nylon, detergents and plastics. Vital to the complexes, crackers have conformed to the dictates of economies of scale. For example, neophyte producers in South Korea and Malaysia are the latest in a long line of complex operators observ- ing minimum-scale criteria, erecting ethylene crackers fully in keeping with the standards of the best-practice plants in the West, that is, with capacities in the range,of 450,800-608,ooO metric tons per year (MTA). It has been estimated that a 650,000- MTA unit in South Korea would enjoy a 21% rate of return compared to the 14% arising from the running of a 300,000-MTA cracker (VERGARA and BABE- LON, 1990, p. 53) an observation which strongly endorses the efficacy of internal economies of scale in this industry. Aromatic platformers, meanwhile, are almost invariably found alongside oil refineries on account of their ability to tap economies of scope, a versatility which allows their use as a resource for gasoline production as well as for aromatics (indeed, about 35% of reforming capacity in the U.S.A. is dedicated to aromatics, with the balance reserved for gasoline production). Accordingly, their ability to realize economies of scale rests on the size of the refinery, but, since refining is highly sensitive to such

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1 Monomw 1

figure 1. Kaohsiung’s largest cracker and its affiliates.

considerations, platformers are also run with an eye to production economies (FAYAD, 1986).

It is important to elicit the linkage chain corresponding to vertical integration which gives the petrochemical complex the potential for achieving agglomeration economies. The best way to make intelligible the ties that bind the complex is to adopt an empirical example, which we do by outlining the breadth of activities which are contingent on what is currently the largest naphtha cracker in Taiwan, namely, Kaohsiung no. 4 (Figure 1). To avoid confusion, it is necessary to define some terms. The upstream sector combines refining, cracking and reforming; the midstream sector consists of the production of intermediate materials, such as vinyl chloride, polyethylene, styrene and cumene; whereas the downstream sector includes the manifold users of intermediate materials, including the makers of rubber products, synthetic fibres, plastic products and detergents. Since the downstream sector caters to the final demand while also exhibiting a propensity to spawn small plants uninterested in economies of scale, it is

generally divorced, both geographically and taxono- mically, from the petrochemical complex itself (CEPD,, 1983). Subsequent references to petrochemical complexes, therefore, are made on the understanding that their constituents are confined, by and large, to the upstream and midstream plants, the prime beneficiaries of vertical and spatial integration.

Ranking as a facility fully amenable to the realization of economies of scale, cracker no. 4 profits from the nearby location of an oil refinery which furnishes the input material. In turn, the cracker is responsible for the efficient operation of a plethora of plants built to use its output of ethylene, propylene, butadiene and butadiene raffinate. With respect to the first of these, ethylene, the number of second-stage intermediates totals seven, each boasting one or more plants. Thus, the 224,000 MTA of high-density polyethylene (HDPE) which owes its origin to the feedstock provided by the cracker, is actually made by the Formosa Plastics Group, a major Taiwan corporation, and US1 Far East, a subsidiary of the US National Distiller and Chemical Corporation. Formosa Plastics alone

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accounts for the sizeable output of vinyl chloride monomer (VCM), China Man-Made Fiber supplies the ethylene oxide (EO) and ethylene glycol (EG), Dairen Chemical produces the vinyl acetate monomer (VAM), Lee Chang Yung Chemical Industry produces the acetaldehyde; while, between them, Grand Pacific Petrochemical and Taiwan Styrene Monomer Corporation control the production of styrene monomer. For their part, recipients of propylene execute production processes which transform the feedstock into polypropylene (Yung Chia Chemi- cal and Taiwan Polypropylene), to say nothing of isopropanol (IPA), methyl isobutyl ketone (MIBK) and acetone (Lee Chang Yung) and acrylates (For- mosa Plastic). Butadiene, in turn, is used by manufacturers of polybutadiene and thermoplastic elastomer (TPE) (Taiwan Synthetic Rubber), acrylonitrile- butadiene styrene (ABS) (Grand Pacific, Chi Mei Industrial and Taita Chemical) and latex (President, Jeou Lien and Shin Foong). Finally, derivatives of butadiene raffinate-methyl ethyl ketone (MEK) and methyl t-butyl ether (MTBE)-are produced by the Taiwan Synthetic Petrochemical Corporation. Since all the activities downstream from the naphtha cracker are in the hands of enterprises other than the Chinese Petroleum Corporation (CPC), the owners of the cracker, the complex conforms to the implicit form of vertical integration. In this, as in the generous admixture of local and foreign corporate interests, it is typical of the Taiwanese petrochemical industry. What is more, these dependent plants are generally located close to the cracker, offering a visible testi- mony to the prevalence of agglomeration economies. This bundle of interdependent activities comprises just a part, albeit a large part, of the grand petrochemical aggregation that clusters round Kaohsiung. We now turn to the evolution of this larger constella- tion of plants.

l Refineries (capadty in bards per day)

0 Ethane Crackers (ethylene capadly k MTA)

Figure 2. Crackers and oil refineries in Taiwan.

The Emergence of the Keohsiung Complex

The beginning of Taiwan’s petrochemical industry can be dated to 1958 when the CPC oil refinery at Kaohsiung initiated the production of sulphuric acid, a step followed shortly by the erection of an aromatic plant at Chiayi in the south-central portion of the island. Reliant on oil delivered from the Kaohsiung refinery, the Chiayi plant was given the task of producing butadiene raffinate. However, the real incep-

tion of the industry occurred in 1968 when CPC inaugurated naphtha cracker no. 1 with the object of supplying US1 Far East with low-density polyethylene and Taiwan VCM with vinyl chloride monomer. Concurrently, an ethane cracker was set up to feed a complex at Toufen in the north of the island. Unlike the larger Kaohsiung complex, this installation tapped local natural gas deposits, extracting ethane for cracking into ethylene and forwarding the latter to the manufacturers of vinyl chloride monomer (Figure 2). The steady depletion of the gasfield hindered the expansion of the Toufen cracker, effectively capping the growth of midstream sector there. Instead, increasing reliance was placed on upstream activities which utilized imported oil and, as the principal terminal, Kaohsiung was destined to receive the second, third and fourth crackers, respectively, in 1975, 1978 and 1984. A fifth cracker, in process of construction, is also earmarked for Kaohsiung where it will serve as a replacement for the first two, which are now nearing the end of their useful lives. Some indication of the rising stature of the industry can be obtained from a review of the ethylene output. The 1974 total of 66,000 MTA jumped to 228,000 MTA in 1976 after the addition of the second cracker, and to 473,000 MTA in the year following the start-up of the

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third. By 1985, however, output had reached 792,000 MTA and by 1988 it had climbed to 852,000 MTA, but the market remained unsated. The 400,000- MTA-capacity fifth cracker will go a long way towards meeting that demand, although not in its entirety.

Discharging the obligation of forming a major industry by virtue of its monopoly over the supply of oil and gas, the CPC state enterprise chose to position the first two crackers near the main oil refinery at Tsoying on the northern fringes of Kaohsiung, while placing the later pair in the then newly-opened industrial park (or ‘industrial district’, to adopt the official language) of Linyuan at the southern extremity of the city (Figure 3). Occupying much of the arc between the two poles are the Tashe and Jenwu industrial districts, and studded throughout them are the midstream plants that make use of the feedstock. Table 1 shows the current capacities of the Kaohsiung crackers and platformers, together with the capacities of the Toufen ethane cracker and the Chiayi aromatic plant. Notably, Kaohsiung’s share of the ethylene output amounts to 94% of the island’s total, its share of propylene is 92%, while its share of butadiene is 100%. As far as aromatics are concerned, it has cornered 63% of the production of benzene, 98% of the production of toluene, and 72% of the production of xylene. The city also controls the bulk of Taiwan’s midstream output as a concomitant to its command-

ing share of upstream activities. In fact, government policy encouraged these activities to gravitate to the city, partly because of the desire to cement vertical integration and partly because of the wish to instl some form of balance in the regional distribution of manufacturing. To the latter end, industrial policy has been imbued with a locational element which tacitly allows planners to steer plants to preferred sites. Empowered to assemble the land to accommodate manufacturing premises, the planners have opened 62 industrial districts and district extensions since 1964 (INDUSTRIAL BUREAU, 1986). Only five of these are designated as recipients of petrochemical operations, one of which is located at Taoyuan, another at Toufen, and the remaining three in Kaohsiung. In short, midstream producers are not free to stray from their upstream suppliers even if they should be so inclined.

Government policy-making has also been crucial in one other respect, namely, the structure of industrial organizations comprising the Kaohsiung cluster. Fully alive to the critical necessity of having an advanced technology for effecting optimum-sized complexes, the government attempted from the outset to persuade foreign investors to participate in midstream activities. Their efforts did not go unre- warded. US1 Far East Corporation has already been noted as a major player connected with the working of crackers no. 1 and no. 4. In fact, this U.S. firm was

Unhal Metallu

A Ammatics plant

0 Ammatii intermediates plant Q Oil refinery

b Naphtyba crackers 0 Olefin htermediates p*nts

Figure 3. Chief constituents of the Kaohsiung complex.

Table 1. Capacities of upstream plants*

Plant Material capacity (MTA)

Olefin

Cracker no. 1 Cracker no. 2 Cracker no. 3 Cracker no. 4 Ethane cracker

Ethylene Propylene Butadiene

54,ooo 27,000 - 2308 104,300 35,ooo 230,ooo 104,300 35,ooo 385,000 200,ooo .%,ooo

54,000 - -

Aromatic

Benzene Toluene Xylene

Aromatics no. 2 37,000 48,500 57,000 Aromatics no. 3 36,500 116,ooO 190,ooO Aromatics no. 4 159,000 101,500 93,ooo Chiayi 1000 600

*Source: Petrochemical Industry Association of Taiwan.

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a pioneer of the Taiwanese petrochemical industry, introducing polyethylene manufacture and paving the way for a number of emulators. Foremost among them is China American Petrochemical: located in the Linyuan industrial district, it specializes in producing purified terepthalic acid and is half-owned by Amoco. Taita Chemical, another tenant of this site, actually preceded US1 Far East to Kaohsiung, open- ing its first plant there in 1965. Initiating polystyrene manufacture on the island, this joint venture of local capital and Mobil was directly responsible for stimu- lating the production of styrene monomer, an indis- pensable input for a large proportion of the plastics industry (LI, 1989). On the Tashe site is Taiwan Polypropylene, a subsidiary of the U.S. Hercules corporation. Notwithstanding the presence of foreign interests, Taiwanese entrepreneurs entered the industry from the start, aided and abetted by the government. Initially, several were beset by start-up difficulties, but their perseverance has been generally crowned with success. The most illustrious case is the Formosa Plastics Group which, apart from operating midstream plants in the Jenwu and Linyuan industrial districts, runs a massive petrochemical complex in Texas. However, the recent history of this firm hints at the limits confronting continued development of the industry not only in Kaohsiung, but also in Taiwan as a whole. ‘Squeezed out of Kaohsiung by land shortage and frustrated in its plans to erect a large naphtha cracker (the island’s sixth) elsewhere owing to opposition on environmental grounds (Figure 2), Formosa Plastics declared its intention of creating an alternative complex at Xiamen in main- land China. Disgruntled residents in the neighbour- hood of the Linyuan industrial district forced 18 petrochemicals plants to temporarily suspend operations in 1988, demonstrating that Kaohsiung, too, could not evade public dismay at the externalities occasioned by this industry. The arousal of popular opposition to environmental degradation, reminis- cent of comparable moves in Japan and the West, looks set to herald a period of restraint, if not outright retrenchment, for the Taiwan petrochemical industry; and this is likely in spite of corporate and government leanings towards expansion. Be that as it may, the industry’s record of growth in recent decades cannot be gainsaid and this record has been instrumental in provoking far-reaching consequences for the island’s GNP. By the same token, however, the industry cannot be appraised solely in terms of its

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ability to add to Taiwan’s string of economic sectors; rather, it must be judged equally on its competence in irrevocably altering the island’s industrial geography so as to dislodge the embedded privilege of the core and bring about a rise in the development prospects of the periphery. We now turn to this last aspect.

Regional Overtones

To the extent that development can be gauged from patterns of job creation, it follows that prolonged and deliberate attempts to foster employment growth in some regions rather than others might prove effica- cious in restoring a sense of balance to the national distribution of development. Certainly, governments in Taiwan bent on demonstrating their commitment to regional equity are accustomed to putting great store on industrial employment, using it as a proxy for development benefits. As the progenitor of a downstream sector which accounted for 641,000 workers in 1981, fully 34.5% of Taiwan’s industrial workforce, the existence of a basic petrochemical industry enjoys a significance far out of proportion to the number of workers active in it. There is good reason to suppose, then, that the generation of jobs in all manufacturing is a more accurate indicator of the effects of this propulsive industry than any mere enumeration of the distribution of its direct employment (which, in any event, is heavily biased in favour of Kaohsiung) . The port industrial complex, resting on a core of petrochemical plants, presented Kaohsiung with an industrial labour force totalling 139,097 jobs in 1976, 176,851 in 1981, and 191,675 5 years later.

Given a national perspective by conversion into location quotients (LQs), this solid growth maintained Kaohsiung’s standing as a place enjoying a disproportionate share of industrial jobs and yet, paradoxi- cally, it was of insufficient magnitude to prevent a decline in the city’s relative importance (Table 2). In other words, an LQ comfortably exceeding the benchmark value of unity in 1976 steadily declined to a position 10 years later which implied that the city barely exceeded its ‘fair’ share of industrial employment. In 1976 only Taipei County and Tainan City exhibited industrial concentrations disproportion- ately greater than Kaohsiung. However, by 1981 these areas had been joined by Taoyuan County and Hsinchu County, and by 1986 this group had under-

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Tw f. Relative indumbkation

Secondary employment locatim @tients

Area 1976 ml 1986

Taipei Municipality 1.132 0.919 0.859 Keelung City 1.235 1.063 0.938 Taipei County 1.606 1.470 1.367 Taoyuan County 1.235 1.323 1.354 Ilan County l.ooO 1.042 1.091 Hsinchu County 1.300 1.289 1.278 Miaoli County 1.143 1.121 1.233 Taichuug City 1.152 1.100 1.094 Taichuug County 1.161 1.091 1.143 Changhwa County 0.779 0.857 0.%8 Nantou County 0.553 0.618 0.645 Hualieu County 0.667 0.722 0.750 Yunlin County 0.345 0.396 0.488 Chiayi County 0.615 0.638 0.628 Tainan City 1.448 1.300 1.267 Tainan County 0.881 0.860 0.923 Kaohsiung Municipality 1.368 1.167 1.016 Kaohsiung County 0.789 0.870 0.640 Taitung County 0.368 0.471 0.533 Pingtung County 0.456 0.623 0.640 Penhu County 0.286 0.333 0.600

government-engineered industrial growth in Kaoh- siung has singularly failed in its objective of effecting a wholesale change in the regional imbalance in spite of undoubted progress in increasing local secondary employment. Moreover, even the local success is equivocal, qualified as it is by the city’s declining share of industrial jobs.

gone considerable enlargement, embracing Taipei County, Taoyuan County, Hsinchu County, Tainan City, Miaoli County, .Taichung County and Taichung City, to say nothing of Ilan County. As Figure 4 reveals, these areas constitute a broad band of terri- tory sprawling over the northern part of the island, a band which in the 1980s threw out extensions which penetrated the midlands. At one level, this is a sanguine outcome, promising to infiltrate core benefits into areas further removed from the capital (TODD and HSUEH, 1988). At another level, and one directly impinging on regional balance, this outcome is far less consoling. The feeling of unease stems from the fact that, with the notable exceptions of the cities of Tainan and Kaohsiung, the south has stub- bornly resisted the tide of industrialization. In fact, the severity of the disparity between the north and the south in relative industrialization has moderated: the range of LQs for 1976 was 1.320 before decreasing to 1.137 in 1981, and 0.879 in 1986. Nevertheless, the northern economic heartland persists in garnering a disproportionate share of industrial jobs, a situation which moved one commentator to bemoan the impo- tence of Kaohsiung in its counteracting role (SELYA, 1982, p. 40). In the light of such circum- stances, one is left little choice but to aver that

If anything, this discouraging assessment is re- inforced when the focus of attention is shifted from employment to income. Average household income data for the 21 areas making up Taiwan were manipu- lated to arrive at weighted indicators of regional disparities in the manner recommended by WIL- LIAMSON (1965). The Williamson index (a device which adjusts the differences in average income between areas and the nation by the proportion of the national population in each area) is zero when there is a complete absence of regional disparities. Accord- ingly, any positive index value signals regional disparities, and the larger the index the more alarming the gap separating ‘have’ from ‘have-not’ regions. Ob- servers unanimously believe that Taiwan has so pro- gressed as to eradicate rampant distortions in income distribution society-wide and, on some counts, has scored more than a modicum of success in bridging the divide betweenthe richest and the poorest of its four big planning regions (CHANG, 1984). How- ever, there is no denying the fact that convergence is not much in evidence at the finer, 21-unit, scale of resolution. On the contrary, with index values of 0.212, 0.340 and 0.364 for 1976, 1981 and 1986, respectively, the most arresting aspect is the appar- ently remorseless trend towards income divergence between areas. It does not take much to uncover a north-south dichotomy in incomes comparable to that patently discernible for industrial employment levels. Thus, the capital enjoyed an advantage in average household incomes of major proportions, fully 39.8% higher than the national benchmark in 1976, and no less than 41% higher than that reference point 10 years later. Evidently, something akin to a spatial division of labour occurs on the island, where higher-income jobs gravitate to the capital and lower- income jobs-including those triggered by the expansion of petrochemicals-occur elsewhere. These sus- picions are supported when one considers that the core industrial zone spilling over from the capital, encapsulated in the record of Taipei County, wit- nessed a decrease in its income advantage over the

38 Geoforum/Volume 23 Number l/1992

1981

4L - PENHU

0

!& PENH

0

.\ . . . W u

& - PENI 0

1986

* If-: t&t : * -**ng :&q I: : v o

.* . . 2 . * . .C . . . . . . u

t -N-

Figure 4. Regional imbalance in industrialization.

national standard during this period, subsiding from Nevertheless, the north as a whole continues to out- 27.2% in excess of the island-wide average to only shine the south. For example, Taipei County’s record 10.7%. The capital is obviously at odds with the easily bears comparison with that of Kaohsiung pattern emerging throughout the rest of the island, County, the area immediately adjacent to the city,

GeoforunWolume 23 Number 111992

sheltering the port industrial complex. For the latter, the 1976 average household income verging on the national average (a meagre 0.2% below it) had vanished to be replaced, a decade later, by one falling short of the national average by 6.5%. When compared with these examples, the record of the city of Kaohsiung is mixed. On the one hand, it scarcely faltered in relative terms between 1976 and 1986, registering average income levels 16.5% above the Taiwan norm in 1976 and 14.9% above the national average in 1986. This approximate stability in the face of widening regional income disparities was rendered possible, at least in part, by the vigorous growth of the city’s petrochemical industry. On the other hand, though, the contrast between the relative affluence of Kaohsiung Municipality and the relative poverty of Kaohsiung County clearly suggests that the spread- effects generated by the city are sharply curtailed. This calls into question Kaohsiung Municipality’s ability to seriously dent the national-scale spatially- unbalanced development. While such regional effects may not be noticed by the plant managers charged with efficiently running Kaohsiung’s industrial districts (and perhaps rightly so), they are definitely of pressing concern to government planners attempting to rectify perceived differences in well-being. This division of interest, which threatens to drive a wedge between industrial planners and regional planners, is discussed in our concluding section.

Conclusion

If the industrial complex is to continue to find much support, it is in its reputed ability to blend economies with ease of organization: the two conspiring to spur area development (local if not regional). Enough ideas have been volunteered about the economies and the logic of vertical integration to dispel any misgivings about the sectoral relevance of the industrial complex, and the evolution of the Kaohsiung petrochemical complex has generally borne out their practical importance in the generation of a national petrochemical industry. That complex has acquitted itself well with respect to the national entry into the global petrochemical field. A spirited defence of the original decision to target the industry is out of place here-particularly in view of the contemporary awareness of its grave environmental implications- but it is worth noting that Taiwan now ranks twelfth

39

among the world’s petrochemical industries (using ethylene capacity as the yardstick). What is more, environmental issues have not tarnished the repu- tation of petrochemical manufacture among countries aspiring to economic development, and several have plunged into the industry or are on the brink of so doing. In all cases, the industrial complex is the preferred mode of entry. For example, hard on the heels of Taiwan was that devotee of goveniment- orchestrated industrialization, namely, South Korea. It began to establish petrochemical complexes at Yeochon, Ulsan and Desan as part of the Second Five-Year Plan of 1967-1971. If anything, these centres have achieved a higher grade of vertical integration than that accomplished by Kaohsiung, a circumstance attributed to their dominance by Kor- ean conglomerates (chaebol) resolved to capture the synergistical benefits, including agglomeration economies, through control of most of the linkage chain. Striving for economies of scale, the conglomerates have been bent on building optimum-sized plants from the outset. New to the challenge of industrialization, but equally intent on realizing minimum- scale criteria, is Thailand (HANDLEY, 1988). Selecting Mab Ta Phut on the eastern seaboard as the location for the incipient petrochemical industry, two complexes costing $2 billion are proposed. The first, utilizing local natural gas to produce ethylene and propylene, combines four midstream plants, while the second, revolving round aromatics and olefins, would turn out a variety of products. These two examples are typical of others under way in countries such as India, China, Malaysia and Indonesia which aim to develop centres where economies of industrial integration are coupled with the general benefits ensuing from port locations. Evidently, the port industrial complex has much to recommend it in the eyes of NIC governments and looks set to prosper as a means to foster petrochemical development. This acquiescence in both petrochemical manufacture and the industrial complex form of organization is, in large measure, a legacy of the Kaohsiung experience, the first basic petrochemical complex sanctioned by the government of an Asian NIC and the first in a developing country anywhere to actually spawn downstream activities [recall CHAPMAN’s (1982) exposure of Puerto Rico’s failure on that score].

It is also, of course, an implicit acknowledgement of the credibility of the port industrial complex that its

40

site is peculiarly fitted to blend the efficient operation of process industries with the minimization of transfer costs attached to good port-handling practices. As mentioned, the NICs readily appreciate these merits and are keen to do them justice by way of induced MIDA-like centres. From their viewpoint, not only is a port ideal for conversion into a MIDA as part of an obvious and inescapable harnessing of assets in the ongoing drive to industrialization, but it also deserves development in its own right as a focal point through which trade is channelled. Since export-oriented manufacturing informs industrial policy in these countries, planners are not averse to establishing new activities such as petrochemical complexes at the locations most suited to onward transportation, that is, the ports. Equally, because the oil and gas raw materials for the petrochemical industry usually have to be imported, planners envisage an industrial complex as a necessary adjunct to the port terminal needed to accommodate them. However, it is one thing to justify the rash of induced port industrial complexes on efficiency and national policy grounds; it is quite another to uphold them as agents of balanced regional development. After more than two decades of intensive development, the Kaohsiung MIDA cannot be credited with removing the discrep- ancy between north and south in Taiwan. To be sure, it has given rise to a formidable industrial city, a city still firmly in the throes of expansion; however, one looks in vain to trace the larger regional effects of this growth. In the final analysis, the thought that an industrial complex, albeit a large one, could put its stamp on national development to the extent of instilling a more equitable balance among the regions was perhaps too quixotic. The graphic failure of grandiose projects to remedy core-periphery disparities in Taiwan and elsewhere has left regional planners little recourse but to turn to local, place-by-place programmes of rejuvenation, a change which should not be altogether decried.

Acknowledgement-We are indebted to the Pacific Cul- tural Foundation for advancing the financial assistance necessary to permit on-site fieldwork.

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Documents

The industrial complex revisited: Petrochemicals in Taiwan