Ask most people what they know about Taiwan, and they’ll tell you it makes the world’s most advanced semiconductors. They’re right. TSMC sits at the center of the global economy — the single firm on which phones, cars and the entire artificial-intelligence boom depend. Its share price moves Taiwan’s stock market. Its hiring shapes Taiwan’s labor market. By almost any measure economists use, it is a triumph.
So here’s a question that should be easier to answer than it is: is TSMC the reason Taiwan stopped being poor?
It feels like it must be. A rich island, a world-beating firm — surely the second explains the first. But I’ve spent twenty-five years studying how poor communities escape poverty, and the lesson that keeps surfacing is an uncomfortable one for the development mainstream: the things that make a country rich and the things that lift its poor are not always the same things. Sometimes they’re barely related. Taiwan is the clearest case I know — and to see why, you have to read the island with two clocks rather than one.
How did Taiwan actually escape?
Not the way you’d guess from its skyline today. The escape happened early, and it happened small.
In the 1950s Taiwan ran one of the most thorough land reforms in the non-communist world. Rents were capped. Public land was sold to tenants. Under the “land-to-the-tiller” program, holdings above a modest ceiling were bought from landlords and resold to the families who actually farmed them. By the figures economic historians have assembled, the share of farm families who were tenants fell from about 39 percent in 1949 to 13 percent by the mid-1960s; owner-cultivators nearly doubled. A farmer who owns his plot invests in it. A countryside full of such farmers is a countryside that can feed a young industrial workforce — and buy what it makes.
And what that workforce made, it made in small firms. Taiwan industrialized through small and medium enterprises — workshops, family firms, what the sociologist Ping-Chun Hsiung called the “living rooms as factories” system, where households took in piecework between other tasks. Even today, after all the scaling up, the government’s own SME White Paper counts small and medium firms as over 98 percent of Taiwan’s enterprises and around 80 percent of its jobs. In the export decades of the 1970s and 80s, this dispersed, low-barrier structure did something rare: it grew the economy quickly while the distribution of income improved. Growth with equity, the economists Fei, Ranis and Kuo called it in their classic 1979 study. And the equity was not an accident. It was built into the structure of who got to take part.
This is the small works pattern I’ve traced from Guizhou to Barbados to Kerala. Reduce the barriers. Spread the opportunities. Let people with little education and less capital find a rung they can actually reach. Taiwan, in its first clock, did exactly that.
So what went wrong?
Nothing — and that’s the trouble.
I want to be careful here, because this is the point where my argument could cut against itself if I’m not honest. When Guizhou — the Chinese province at the heart of my first book — abandoned its small-scale strategy for gigantism, the gigantism largely failed. The debt mounted. The high-tech parks sat half-empty. The promised growth never fully arrived. It would be convenient for me if Taiwan’s turn to scale had failed the same way.
It did not. Taiwan’s pivot to the semiconductor frontier succeeded, magnificently, on its own terms. The growth is real. The innovation is real. TSMC is not a vanity project; it is one of the most important companies on earth.
And that is precisely the problem.
Because a national scorecard that reads “Taiwan is rich and getting richer” conceals what the growth does — and does not do — for ordinary people. Deflate Taiwan’s wages by the cost of living and a startling figure emerges: real regular wages rose about 4 percent across the entire quarter-century from 2000 to 2024. Four percent. Over twenty-four years. Nominal pay climbed nearly 37 percent in the same period, but inflation ate almost all of it, and productivity ran far ahead of both. Meanwhile income inequality — flat through the small works decades — began climbing after the mid-1990s and accelerated after 2000. The driver was not wages at all, but capital: a rising share of national income piling up as corporate profits, concentrated at the top.
The frontier economy, in other words, has no rung for the people the first clock lifted. Their wages didn’t so much lag behind the boom as detach from it entirely. It reminds me of the Indian election some years back fought under the slogan “India Shining” — a campaign built on glittering aggregate growth that the poor, who hadn’t felt it, decisively rejected at the ballot box. The poor were right. They usually are about their own condition.
If the market didn’t lift them, what did?
Here is the twist that completes the picture — and it’s the part that should unsettle anyone who assumes a booming economy eventually carries everyone along.
Taiwan’s poorest workers did gain ground over the last decade. But not because the growth economy built them a ladder. They gained because the government reached in and raised the minimum wage by roughly 44 percent between 2013 and 2024, after leaving it nearly frozen through the decade before. The floor rose by political decision, not by market reward.
I’ve come to call this compensated exclusion: a population kept out of poverty by redistribution precisely because the growth model has no place for it. It is not the same thing as inclusion. Inclusion builds an economy that has a role for ordinary people. Compensation redistributes the proceeds of an economy that doesn’t. Taiwan, in its prosperity, has leaned more and more on the second — lifting the floor by fiat while the frontier concentrates the gains above it.
None of this is an argument against Taiwan’s success, and it is certainly not nostalgia for being poor. It’s an argument about what we choose to measure, and therefore what we choose to value. The first clock asked: are ordinary people finding work they can do? The second clock asks: is the aggregate growing? Both questions matter. But a country that has forgotten how to ask the first one will keep producing the strange modern spectacle of a booming economy whose workers wonder why they feel left behind — and a state that answers not by changing the model, but by quietly topping up the people the model forgot.
Taiwan got rich the small way and is staying rich the large way. The island is, in that sense, a mirror held up to the whole development orthodoxy: proof that scale can deliver everything it promises and still leave the original question unanswered.
Who, exactly, is the growth for?
This essay draws on a chapter from my book in progress, Small Steps, which argues that poor communities reduce poverty through small-scale, accessible, appropriate-technology approaches rather than through the pursuit of scale for its own sake. The land-reform figures draw on work by Kim and Wang and by Chu (using data from the Joint Commission on Rural Reconstruction); the small-firm shares are from Taiwan’s SME White Paper; the “growth with equity” characterization is from Fei, Ranis and Kuo’s 1979 study; the ‘living rooms as factories’ characterization is from Ping-Chun Hsiung’s 1996 study of the satellite-factory system. The minimum-wage history is from Taiwan’s Ministry of Labor. The wage and price figures are my own calculations from Taiwan’s official statistics (DGBAS), and the inequality findings draw on the distributional national accounts research of Chu and colleagues.