Taiwan: From Plastics to Semiconductors

How Taiwan grew from a poor, agricultural island into a high-income economy that makes most of the world's most advanced chips.

In the 1950s, Taiwan was poor and largely agricultural. Today it is a high-income economy and the world’s leading maker of advanced computer chips. Its story is one of the great development successes.

Land reform and agriculture

In the late 1940s and 1950s, Taiwan carried out land reform, reducing rents and transferring land to tenant farmers. Farm productivity rose, and rural incomes grew, providing savings and a market for industry.

Export-led growth

From the 1960s, Taiwan shifted to export-led industrialisation:

Export processing zones, such as Kaohsiung from 1966, attracted investment.
Industries moved from textiles and plastics to electronics and machinery.
Many small and medium enterprises, often family-run, drove exports.

The chip industry

A turning point came with government support for technology:

The Industrial Technology Research Institute was founded in 1973 to develop technology and transfer it to firms.
Hsinchu Science Park opened in 1980.
TSMC, the Taiwan Semiconductor Manufacturing Company, was founded in 1987 by Morris Chang. It pioneered the foundry model: making chips designed by other companies.

The foundry model allowed chip designers such as Apple, Nvidia and AMD to avoid building expensive factories. TSMC now makes the large majority of the world’s most advanced chips.

Challenges

Geopolitical risk: tensions with mainland China create uncertainty. The concentration of advanced chipmaking in Taiwan worries governments worldwide.
Ageing population and one of the world’s lowest birth rates.
Energy and water: chipmaking needs huge amounts of both.

Spreading production

Under pressure from governments, TSMC is building factories in the United States, Japan and Germany, though its most advanced production remains in Taiwan.

The foundry customer

A start-up designs a new AI chip but cannot afford a factory costing tens of billions of dollars. It sends its design to a foundry in Taiwan, which manufactures the chips. The start-up competes globally without owning a single factory.

Thinking Taiwan's success came only from free markets

Land reform, public research institutes and science parks played important roles alongside private enterprise.

Key takeaways

Taiwan grew from a poor agricultural economy to high income.
Land reform, export processing zones and small firms drove early growth.
TSMC, founded in 1987, pioneered the foundry model and leads advanced chipmaking.
Geopolitical risk and ageing are major challenges.