Ethos Issue 6, Jul 2009

Singapore’s Economic Growth Model:
Too Much or Too Little?
Linda Lim

The international community will continue to push for reduction in the international macroeconomic imbalances which have contributed to the current crisis. Undervalued managed-float currencies, large current account surpluses and massive foreign exchange reserves which are built up by Asian countries like Japan, China and Singapore and then recycled into financial and real assets in the West, will be less tolerated.

On the other hand, a retreat from quasi-mercantilist policies may well provide new sources of growth in expanded domestic consumption in Asia. Many Chinese economists, like Zhiwu Chen⁹ and Yasheng Huang,¹⁰ already recommend this change for China, which shares with Singapore the world’s lowest shares of consumption in GDP—about 40%.¹¹

AN ALTERNATIVE STRATEGIC VISION
Lee Soo Ann and I have argued elsewhere that Singapore’s economic growth model today is predicated on "more of the same" policies that may be out of place in a changed local, regional and global environment:

"This includes bureaucratic targeting of favoured sectors for receipt of (now much more costly) state subsidies and tax-breaks directed to attracting capital investment and technology from foreign companies and institutions serving international markets……the newly favoured sectors (such as "life sciences", gambling casinos and high value-added services like finance, medicine and education) create disproportionately more jobs for foreigners than for locals, at all skill levels, and can only be sustained by massive immigration. They are also much more capital-intensive and risky, and subject to stronger global and regional competition… Because of these simultaneous "big bets" in a small place, the reliance on external factors of production, and the costs of failure, are much higher…"¹²

From an economist’s perspective, it seems relatively clear that Singapore’s recent economic growth model has tried to do too much and for too little benefit, in contradiction to what economic theory tells us. From a business strategist’s perspective, what should be done?

First, there should be a national conversation on the purpose and nature of economic growth for an affluent and educated nation at our stage of development, and in our geographical location. While Singapore’s economic growth record to date has been admirable, it has emphasised quantitative targets over qualitative results and the distribution among beneficiaries. Focusing on "how much" growth does not necessarily tell us "how good" it is, or "for whom". "People for growth" (growth as an end in itself) is not the same as "growth for people" (growth as a means toward greater welfare for people, presumably citizen workers and consumers). The assumption that the former will inevitably lead to the latter should itself be re-examined.

Second, the growth we choose should be sustainable—both financially (i.e., without ongoing subsidies in an intensely competitive world economy, and without generating inflation through the import of excess labour and capital) and environmentally (i.e., without creating congestion costs and negative externalities that undermine competitiveness and growth, in a world already running up against severe natural resource constraints).

Third, what is the best process for growth? Do we stake our carefully husbanded national savings, accumulated over generations of restrained consumption, on a few major, capital-intensive, risky and expensive projects dependent on foreign capital, foreign labour, foreign skills, foreign entrepreneurs and foreign markets in which we have much competition and no intrinsic comparative advantage? Or do we privatise the economy, releasing capital and talent to local entrepreneurs who can allocate resources according to market forces, and innovate, creating value in smaller but nimbler, more diverse and more locally-rooted enterprises (which, if they fail, will take only small parts, rather than big chunks, of the economy down with them)? Fourth, we need to identify our distinguishing advantage. What is distinctive about us, as a nation and as a place, that will enable us to build a unique niche in the regional and world economy that cannot be fulfilled by others, however much they try to emulate our strategies?

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