Achieving Effective Governance under Divided Government and Private Interest Group Pressure: Taiwan's 2001 Financial Holding Company Law

Abstract

For emerging democracies, how to reach state–society equilibriums conducive to both democratization and effective governance has been a most challenging issue. Illustrating such a predicament, in present-day Taiwan a situation of ‘divided government’ has been widely regarded in the literature as implying frequent legislative–executive stalemate and ineffective governance. In this article, we argue that while power games among the three conventional branches of government—the executive, legislature, and judiciary—may continue to produce a governmental stalemate equilibrium, the entry of increasingly important media and interest group players into the policy-making arena in Taiwan has shown strong potential to make up for the institutional failing of divided government. Drawing on the adoption process of the 2001 Financial Holding Company Law, we examine the conditions under which effective governance can still be achieved in Taiwan. Our analysis shows that concerted media pressure can succeed in forcing Taiwan's major parties to jointly pursue beneficial legislation. The analysis also suggests that interest group involvement in Taiwanese policy-making does not necessarily lead to crippling ‘regulatory capture’ but, on the contrary, can entail welfare enhancing change.