This paper attempts to explain the dynamics of Taiwan capitalism by the interaction among the political, economic, and social sectors. The Nationalist Party, which retreated to Taiwan in 1949, attempted rapid economic development in response to the US demand for self-defense through economic growth and its recognition of futility of "retaking mainland China" around 1960. Although the state-led export-oriented economic development plan was successful to achieve a high level of economic development in a short period of time, it entailed a higher level of education among the populace, increased number of professionals, a middle class, severe industrial pollution, and increased number of laborers, that raised the possibility of cultural, social and political conflict in Taiwan. Consequently, Taiwanese civil society has raised their voice to achieve higher cultural tolerance and full democracy, especially the autonomy by Taiwanese locals. Since the 1980s, democratization and reform have taken place, and three regime changes since 2000 have consolidated democracy in Taiwan. Past history is, however, still haunting Taiwan: the slaughter of Taiwanese locals followed by suppression and harsh control by the Nationalist party. The conflict structure between Taiwanese locals and Nationalist party supporters persists even today. The limitations of SME-oriented economic structure are also evident. More importantly, the unsettled relationship among government, labor and civil society limits further development. The challenge of labor and civil society to the state hampers the autonomy of the state to manage the economy effectively. The relationship with China also affects the future Taiwan capitalism. The interplay of internal and external factors will form the future Taiwanese capitalism.