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World

Development,

Vol. 23, No. 8, pp. 1421-1438,

1995

Copyright 0 1995 Elsevier Science Ltd


Printed in Great Britain. All rights reserved

Pergamon

0305-750x/95

$9.50 + 0.00

0305-750x(95)00043-7

The Developmental

State, Government,

Singapores Economic Development

and

Since 1960

W. G. HUFF*

University of Glasgow, U.K. and Australian National University, Australia

Summary.
Government interventionism is widely acknowledged to characterize less-developed
countries, but consensus is lacking as to whether it promotes economic development, and if so, how. The
present article analyzes the nature of government involvement m the Singapore model of economic development, and emergence of a developmental state closely associated with this model. It compares
Singapores experience with South Koreas and Taiwans, where government also contributed to
development success, and with other Asian countries where government failed to play a strong developmental role.

1. INTRODUCTION
Singapore has been described as the worlds most
successful economy (Lim, 1983) and regarded as
the most successful of East Asias four dragons,
which also comprise South Korea, Hong Kong and
Taiwan (Giordano
and Kato, 1993). In 1992,
Singapores Gross National Product (GNP) per capita
reached US$1.5,750, with further growth of 9.9% in
1993 and 10.5% during the first half of 1994. Per
capita income is the 16th highest in the world, and
over two-thirds of the US level, compared to oneseventh in 1965 (World Bank, 1967 and 1994). An
island of 3.1 million people, Singapore is the worlds
eighth largest exporter of machinery and transport
equipment and ranks 12th in exports of services
(GATT. 1993). By any measure, social welfare has
improved markedly, and absolute poverty has all but
disappeared.
Since the 197Os, such economic development has
drawn a stream of delegations from Africa and Asia
(Financial
Times, 1978; Lee, 1993) to find out how
Singapore did it. A seminal article by L. Lim (1983)
which exploded the myth of Singapore as a luissezfaire
economy opened the way to an increasing recognition that a heavily interventionist
state guided
Singapore.
Most observers
now recognize
that
Singapores government was on the whole very
intrusive in both the economy and the society
(Krause, 1988, p. S62), and that The state has played
a central role in the development
of Singapore
(Findlay and Wellisz, 1993, p. 7). Interventionism has
been accompanied by remarkable political continuity:
since 1959, when Singapore gained independence

from Britain, the Peoples Action Party (PAP) has


held power, for much of the period winning all the
seats in regular parliamentary elections. Lee Kuan
Yew led the government until his retirement in 1990,
by then as the worlds longest-serving Prime Minister.
One aim of the present article is to draw together
the major features of government interventionalism in
the Singapore model of economic development. This
provides a framework for the articles other, and main,
purpose, which is to focus on a wider issue, and one
hitherto given little systematic consideration: what
factors made government interventionism successful
in promoting economic development in Singapore.
After all, government involves itself in the economy
and is powerful in nearly evev developing country
(Sen, 1983, p. 752). but often with poor results, or
worse. Indeed, by the 197Os, the frequency of a negative outcome had given rise to a development economics literature which had at its core the rejection
of intervention. Government was the problem rather
than the solution (Fishlow, 1991, p. 1730).
More recently, however, not least in the light of
Singapores interventionism,
but also South Koreas

* This paper has benefited from the comments of R. B.


DuBoff, J. F Ermisch, J. C. B. Chau, two anonymous referees, seminar participants at the Australian National
University and the Umversitys ECHOSEA Group led by A.
J. S. Reid. Work was carried out with the aid of grants from
the Scottish Economic Society. John Robertson Bequrst and
generous help from the Nuffield Foundation which financed
an indispensable research tnp lo Singapore. The help of ail
these bodies is gratefully acknowledged. Final revision
accepted: January 26, 1995.

1422

WORLD DEVELOPMENT

and Taiwans, the emphasis has shifted from govemment failure - a lapse into inept economic policies
- to include the possibility of the developmental
state which plays an integral part in promoting economic development. East Asian experience showed
that government intervention can work well if done
properly (Collins, 1987, p. 446) and the sometimes
policy-driven nature of dynamic comparative advantage (Bardhan, 1993, p. 133). The key question
became not whether there is government action in the
Far Eastern economies, but rather how these successful economies managed their intervention and strategic decisions-making in ways that dominate those of
the unsuccessful ones (Bhagwati, 1987, p. 285).
The development economics agenda again features
state and market - indeed, as perhaps the central
issue of todays development debate (Lipton, 1992,
p. 426).
The article is structured in three further sections.
The next identifies where state intervention was crucial in the Singapore development model. Section 3
attempts to answer the question of what allowed a
developmental state to emerge in Singapore, and sets
out five main features which combined to create it. A
final section draws some lessons of government interventionism in Singapore and assesses how relevant
its experience may be to less developed countries
(LDCs).

2. THE SINGAPORE DEVELOPMENT MODEL


This section focuses on major constituents contributing to the Singapore development model, and
analyzes them in turn. Subsection (a) draws attention
to Singapores favorable 1959 starting point, indicates recent economic performance and considers
two highly unusual features which differentiated
Singapore from nearly all other developing countries
- its strong locational advantages and city state status. What might be regarded as the Singapore model
proper, as opposed to the setting in which it was
embedded, is dealt with in subsection (b).

Table 1.

Annual real GDP growth rate


Annual inflation rate*
Savings ratio+
Investment ratiot

(a) Foundations for rapid economic development


and peculiarities

of the Singapore

model

The first, 1956, estimates of national income for


Singapore showed that per capita income had
increased fairly steadily and rapidly since 1948 and,
at probably over a third of the United Kingdoms, was
very much greater than almost anywhere else in Asia
(Benham, 1959, pp. l-2). Prosperity had spread, so
that Singapore was almost certainly the only place in
Asia where there is a really substantial middle class
(Silcock, 1959, pp. 43, 158). After the islands union
with Malaya to form Malaysia in 1963, the August
1965 separation from Malaysia and British military
withdrawal beginning in 1966 were macroeconomic
shocks to the new Republic of Singapore, creating significant unemployment. But neither negated earlier
developmental advantages. During 1960-66, including a period of import substitution as part of the
Malaysian experiment, Singapores economy grew at
an annual average rate of 5.7% (Table 1).
Upon becoming a Republic in 1965, Singapore,
alone among developing countries, existed as a city
state able to close its borders and regulate labor flows
to prevent the erosion of rising per capita incomes
through immigration from the surrounding region
quicker than labor could be absorbed. By contrast,
Hong Kong was subject to massive labor inflows during 1945-55, causing population increase of about
400%, with continued rapid growth into the mid1960s (Szczepanik, 1958; Chow and Papanek, 1981).
A second highly unusual aspect of Singapore is location. Its geographical situation, astride the worlds
main east-west communications routes and bridging
the time zone gap between the New York/London and
Hong Kong/Tokyo financial markets, can be thought
of as a useful national resource. Location has been
exploited to further economic development in manufacturing and services - the two main pillars of
Singapores economy (Table 2).
The breakup of Malaysia left Singapore with little
option but to turn decisively outward to export domestically made manufactures. Initially, development

Singapore macroeconomic indicators, 1960-92

(%)

1960-66

1960-69

1967-79

1970-79

1980-92

5.7
1.1
6.7
17.5

8.0
1.1
11.5
20.7

9.7
5.4
27.5
38.5

8.3
5.8
28.8
40.5

6.7
2.4
42.7
41.3

*GDP deflator.
tfbe savings ratio and investment ratio are defined respectively as Gross National Savings and Gross
Capital Formation divided by Gross Domestic Product, All variables are in real terms deflated by the GDP
deflator.
Sources: Singapore, Department of Statistics, Singapore National Accounrs 1987 (Singapore,
1988);
Singapore, Ministry of Trade and Industry, Economic Survey of Singapore 1993 (Singapore, 1994).

1423

SINGAPORES ECONOMIC DEVELOPMENT


Table 2.

Singapore

GDP and employment

by industrial

sector, 1960-92

($m at 1985

marketprices,

persons and %)

1960

1969

1979

1992

(a) GDP*
Total $m
Agriculture & quarrying
Manufacturing
Construction & utilities
Commerce
Transport & communications
Financial &business services
Other services

5.0585
3.8
16.6
7.0
24.6
8.8
14.0
19.6

10,730.o
2.1
23.2
10.7
22.9
7.2
16.5
15.7

26.284.7
1.5
29.4
9.1
19.4
11.6
18.9
12.2

64,771 .O
0.4
27.6
8.9
18.2
14.7
26.1
10.2

(b) Employment+
Persons 000
Agriculture & quarrying
Manufacturing
Construction & utilities
Commerce
Transport & communications
Financial &business services
Other services

471.9
7.3
15.7
6.1
24.2
10.7
4.6
31.4

650.9
3.8
22.0
7.8
23.5
12.1
3.5
27.3

1.021.0
1.6
28.9
6.3
23.3
11.6
7.1
21.2

1592.0
0.2
27.0
6.9
22.9
10.5
10.9

*For GDP, the percentage shares may not add to 1002, since imputed bank service charges are deducted
and import duties added to arrive at total GDP, but account is not taken of these for individual industries.
+Employment figures for 1960 are from the 1957 Census and for 1969 from the 1970 Census. Employment
figures for 1992 refer to June 1993.
Sources: Singapore, Census of Population 1957 (Singapore, 1964); Singapore, Department of Statistics,
Economic and Social Statistics, 19604982
(Singapore, 1982); Singapore, Department of Statistics,
Singapore National Accounts 1987 (Singapore, 1988); Singapore, Department of Statistics, Yearbook of
Statistics (various years); Singapore, Ministry of Trade and Industry, Economic Survey of Singapore 1993
(Singapore, 1994).
relied largely on manufacturing as the engine of
growth, with a particular emphasis on electronic and
electrical products. During 1967-79, manufacturing
employment increased over fourfold, and the share of
manufacturing in GDP rose from 20.5% to 29.4%
(Singapore, Department of Statistics or Economic
Development Board, 1990; Singapore, Department of
Statistics,
1988). Manufacturing
production
was
highly export-oriented, as measured by the increase in
direct manufactured exports (excluding petroleum)
from 13.6% of GDP in 1967 to 47.1% by 1979
(Table 3).
Singapores geographical position and excellent
international
transport links helped to make the

Table 3.

Sm
% of GDP*

Singapore

direct manufactured

Republic an attractive manufacturing


location by
keeping down the distance costs of exporting to the
West (Helleiner, 1973). Location was even more
important in Singapores development
of services
exports (internationally traded services sold to nonSingapore residents). These included air traffic,
telecommunications,
shipping, and cargo handling
activities, but above all international financial and
business services. Government systematically built on
Singapores location and time zone advantages to promote the Republic as a regional and international
financial center. After 1979 financial and business services replaced manufacturing as the engine of growth
and between 1979 and 1992 grew at an annual average

exports,

1960-92

(at 1985

marketprices)

1960

1966

1967

1969

1979

1992

542.5
10.7

933.3
12.7

1,127.5
13.6

1.827.4
17.0

12,368.O
47.1

37.950.5
58.6

*Data are deflated by the GDP deflator for manufacturing.


Statistics refer to firms with 10 or more workers, and exclude petroleum, rubber processing and granite
quarrying.
Sources: Singapore, Department of Statistics or Economic Development Board, Report on rhe Census of
bldrrstrial Production (various years); Singapore, Department of Statistics, Singapore National Accounts
1987: Singapore. Ministry of Trade and Industry, Economic Survey of Singapore (various years).

1424

WORLD DEVELOPMENT

rate of 9.9%, to make up 26.1% of GDP by the later


date (Table 2). By 1993, Singapore was the worlds
fourth largest foreign exchange market, after London,
New York and Tokyo, the center of the Asian dollar
market, and host to 115 foreign banks and 78 merchant banks.
(b) The role of government
development

in the Singapore
model

Initial advantages can always be dissipated and


existing strengths ignored: this subsection, which
shows how government played a central role in shaping the Singapore development model, also carries the
message that policy choices matter. Government
intervention in Singapores economy concentrated in
three areas - the labor market, taxation and fiscal
incentives, and state-owned enterprises. Although
Singapores was a strongly private enterprise economy, it is important to note, as will be stressed later,
that interventionism in these three strategic areas
allowed a substantial measure of government direction of the entire economy. All three areas in which the
government intervened could be controlled through
the domestic sector of Singapores economy as
opposed to attempting to influence the international or
world economy on which Singapore, as a small country, could have no effect.
(i) Labor market regulation
The most distinctive feature of the Singapore
development model was government control over
wages and labor. Historically, Singapore was a highcost manufacturing producer, with wage costs
20-30% too high for world markets (United
Nations, 1961, p. 115). In 1967 and 1968, labor legislation framed by the PAP, which de-politicised the
labour movement, established de facto government
control over unions [and] transferred bargaining
power from workers to employers (Lim and Pang,

Table 4.

1986, p. 1 i), rapidly dealt with this problem. By 1969,


for comparable job classifications in key electrical and
electronics assembly industries, hourly compensation
costs in Singapore were less than one-eleventh of the
US level, and below those in South Korea, Taiwan and
Hong Kong. Productivity levels were as high as in the
other newly industrialized countries (NICs) and
higher than the United States (US Tariff Commission,
1970). At the beginning of the 197Os, Singapore had
the lions share of offshore assembly activities of
the US and European semiconductor industries
(Chang, 1971).
Although Singapores ability after the split with
Malaysia to close its borders and regulate labor flows
obviated the typical developing country difficulty of
workers being drawn into urban areas faster than
modem sector jobs can be created, this was quickly
replaced by the potentially even more serious problem
of how to prevent wages being bid up above internationally competitive levels in a small, rapidly
industrializing country nearing full employment. In
1972, the government responded by establishing
the National Wages Council as a tripartite body with
equal representation from the government, the
Peoples Action Parry (PAP) controlled National
Trades Union Congress and employers. Thus, the
Singapore Government has not felt inhibited from getting directly involved in labour-management negotiations and at least until 198 1 was the central focus of
power because it performs the dual functions of defming national objectives and inter-relating parochial
interests through the executive authority of the state
(Kim, 1981, p. 67). After 1981 the governments role
is said to have altered from a dominant partner to
one whose influence on wage changes remains
strong (Pang, 1988, p. 214). By any account, as
Manning and Pang (1990, p. 71) conclude the
National Wages Council has had a powerful influence on wage determination. The National Wages
Council could successfully establish itself as a body
which achieved consensus in line with government

Singapore. United States, Japan and Asian countries hourly compensation costs for producrion
workers in manufacturing, 1975-92 (current VS$ and index, United Stares = 100)
1975

United States
Japan
Singapore
South Korea
Taiwan
Hong Kong
Asian NICs*

1980

1992

Index

Index

Index

6.36
3.00
0.84
0.32
0.40
0.76
0.52

100
47
13
5
6
12
8

9.87
5.52
I .49
0.96

100
56
15
10
10
15
12

16.17
16.28
4.95
4.93
5.13
3.92
4.84

100
101
31
30
32
24
30

*Asian NICs refers to a US trade-weighted


Hong Kong.
Sources: US Department of Labor (1994).

average

1.oo
1.51
1.17

level for Singapore,

South

Korea,

Taiwan

and

SINGAPORES

ECONOMIC

Singapore
real average monthly earnings for all
workers, 1978-92 (1988 = 100)

Table 5.

1978
1979
1980
1981
1982
1983
1984
1985

91.4
93.8
100.0
107.3
113.3
119.6
126.5
131.3

1986
1987
1988
1989
1990
1991
1992
1993

57.9
60.5
63.3
63.5
70.8
77.1
83.2
89.4

Sources: Singapore, Ministry of Labour,


L.abour Starisrics (various years).

Yearbook of

market (Fields and Wan, 1989, p. 1475) produced the


internationally competitive wages and the absence of
strikes attractive to multinational enterprises (MNEs)
manufacturing for export as part of vertically integrated international
operations. As important for
political stability,
which must underpin
longer
term economic development
in the host country,
Singapores real wages doubled during 1978-90, and
continue to grow strongly (Table 5). Furthermore, the
Singapore government promoted skill acquisition and
human capital development to the benefit of workers.
(ii)

objectives

because by the

1970s

two of its constituents

nonwere the government,


because no significant
government trade unions existed in Singapore, and
because employers apparently did not feel strong
enough to break the cartel and bid up wage rates,
despite incentives to do so due to Singapores labor
scarcity and desirability as a production base (Lim,
1987, p. 51).
While not mandatory, throughout the period since
1972 National Wages Council recommendations have
been closely observed. A measure of the National
Wages Councils effectiveness
is that, as Table 4
shows, during 1975-92, compensation
levels for
production
workers in Singapore
manufacturing
increased more slowly than in the other Asian NICs the benchmark against which the government measured success in containing labor costs. Although rising female labor force participation rates and the
presence of at least 200,000 guest workers helped to
dampen wage pressure, a growing chorus of complaints about widespread job-hopping in Singapore
was indicative of wage rates held below free market
levels. At the same time, the government all but eliminated work stoppages. Singapores regulated labor
Table 6.

Singapore

measures

of the contribution

1967-92 (1985 marker

1425

DEVELOPMENT

Direct

foreign

invesfmenr

A small economy like Singapores can be usefully


thought of as able to tap a perfectly elastic supply of
capital at a given world rate of profitability. Labor
market regulation by government which pegged wage
rises at or below productivity gains was essential in
safeguarding this required rate of profit, and allowed
two further features of the Singapore model to
emerge: high foreign investment and an associated
reliance on foreign enterprise. Fundamental to the
Singapore model was that capital came largely not as
portfolio investment but as direct foreign investment
which gave rise to almost complete foreign MNE
dominance of the manufacturing export sector. After
1967-69, direct foreign investment made a growing
contribution
to domestic
capital
formation
in
Singapore (Table 6). By the 1970s capital account
inflows in excess of Singapores balance-of-payments
current account deficits, reflected in Table 1, allowed
the Republic to begin its accumulation of large foreign
reserves (Wong, 1986). During 1980-90, Singapore
received more direct foreign investment in absolute
terms than any other LDC. On a per capita basis, and
using 1990 population, the figures were US$767 for
Singapore compared to US31.50 for China, the fourthof directforeign
prices, annual

invesrmenr
uverqes)

to cupirul

uccumulutiorl,

Gross fixed
capital formation

Foreign investment in
manufacturing sector gross

IMF figures for direct


foreign investment in

(GFCF)

fixed assets

Singapore
Q of

$m
1967-69
197&79
198c92

2.382.2
6,648.6
17.498.2

$m
261.4
896.7
2.1 12.3

GFCF

$m

h of
GFCF

11.0
135
12.1

219.0
1.471.3
4.609.3

9.2
22.1
26.3

*For 1980-91, the figures for Foreign investment in manufacturing sector gross fixed assets refer to
1980-90.
Sources: Singapore, Department of Statistics, Singapore
Nurionul Accorrn~s 1987; Singapore, Mimstry of
Trade and Industry, Economic Survey r$ Singupore
(various years); Singapore Economic Development
Board, Annual Report or Yeurbook
(V&OUS
years); International Monetary Fund, Btrkmce o( Ptr~~rerrf.r
Sturistfcs Yearbook.
Vol. 27. 1967-74, p. I of Singapore section, Vol. 29, 197X, p. 532 and part I of the following years: 1985, p. 559, 1986, p. 581, 1987, p. 597, 1992, p. 617, 1993, p. 613: InternatIonal Monetary
Fund, btferntrtionul
Finuncinl
Srutisrics Yeurbook 1990, pp. 634-635, Aprrl 1994, p. 480.

WORLDDEVELOPMENT

1426
Table 7.

Singapore manufacturing value added as a percentage of output,

1973

1978

1984

1992

1973-92*
% of total
1992
manufacturing
value added

All industries
Electronic products
and components
Electrical machinery
and apparatus

32.0

Transport equipment
Machineryexcept electrical
and electronic
Fabricated metal oroducts

26.3

27.0

34.6

100.0

32.2

29.9

27.9

38.5

39.0t
46.8

33.7

37.6

38.7

4.4

47.4

51.7

45.2

8.6

39.9
36.8

49.1
34.5

45.7
38.7

38.5
37.8

6.4
7.1

*Figures include petroleum refineriesand products.


tlncludes electronicproducts.
Sources: Sineanore. Deoartment of Statistics or Economic Development Board, Report on the Census of
Industrial Prkhctih

(kious

years).

largest LDC foreign investment recipient (United


Nations, 1992). In 1975, wholly- and majority-owned
foreign companies accounted for 71.3% of the output
and 84.1% of the direct exports of Singapores manufacturing sector. By 1992, this dominance had
increased even further, to 74.2% of output and 845%
of direct exports (Singapore, Department of Statistics
or Economic Development Board, 1975, 1992).
According to Lee Kuan Yew (1990), in 1990 of the
top 20% of key positions in our society...nonSingaporeans would comprise at least 40% of the key
decision makers.. .at the moment we are using borrowed brainpower, that of the multinationals.
Singapore now hosts some 4,000 MNEs, and over
two-thirds of the Fortune 100 companies (Financial
Times, 1994; Lim, Pang and Findlay, 1993, p. 127).
The value-added share of gross output at free trade
prices measures technical development in manufacturing, and although in Singapore this ratio rose somewhat for the sector as a whole during 1978-91, in the
electronics industry it actually fell (Table 7). A manufacturing sector run by multinationals which primarily
undertake research and development elsewhere, weak
local inputs to technological progress, small indigenous research and often repetitive, low-value added
operations heavily dependent on relatively poorly paid
female workers, are all consistent with Singapores
remarkably high share of GDP going to foreigners
(Lim and Pang, 1984; Lim, 1987). During 1985-92,
fully 32% of Singapores GDP accrued to foreign
firms and individuals (Singapore, Department of
Statistics, Yearbook, 1992, p. 79).
(iii) Government-forced savings
Control of the labor market and massive direct foreign investment, which led to job creation by MNEs,
made it possible for the government to force a high

level of domestic saving. Its achievement and correspondingly high investment was long regarded as a
key to rapid growth by Singapore planners and policy
makers. As early in 1963, Singapores Minister of
Finance, Goh Keng Swee, pointed to a high investment ratio as the paramount need.. .in an economy
which wants to expand its basic wealth at a fast rate,
a target like 20% or more should be aimed at
(Singapore Legislative Assembly, November 1963).
Goh concluded in 1968 that Singapore had achieved
take-off, and recalled telling Lee Kuan Yew that the
higher savings rate which could thus be attained
would sustain double-digit growth (Goh, 1989).
From the late 196Os, jobs created by MNEs augmented the savings base in three ways. One was to
reduce unemployment, which fell from 8.9% in 1966
to 4.5% in 1973, the latter effectively constituting full
employment. Second, the savings base widened as
more women joined the labor force. The female participation rate, in 1957 just 21.6%, rose to 44.3% by
1980 and to 53.0% in 1990. Third, the savings base
depended as jobs created by MNEs encouraged labor
reallocation to higher paid jobs. This last was reflected
in a fall in the proportion of own-account, and unpaid
family, workers in Singapores labor force from
20.7% in 1970 to 13.3% in 1980 and 7.8% by 1990
(Singapore, 1973 and 1993).
Singapore fully realized its increased savings
potential. Although under 10% for most of the 196Os,
the savings rate averaged 29% in the 1970s and over
40% from 1980-the worlds highest (Table 1). Little
was voluntary about the savings process. Public sector saving was the driving force, and increased from
less than a quarter of national savings in 1974 to threefifths by 1984 (Table 8). Seven main statutory boards,
with monopoly power, were central in determining
the Housing and
public sector savings -

1427

SINGAPORES ECONOMIC DEVELOPMENT


Table 8. Singapore sources of gross national savings, 1974-85
Public sector
savings

Gross national
savings*

$m
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985

$m
736
1,362
1,470
2,021
2,230
2,801
3,407
4,261
5,936
8,649
11,291
11,052t

3,220
3,985
4,580
5,079
5,928
7,300
8,282
10,483
12,885
16,306
18,596
16,543

Private sector
savings

% GNS
22.8
34.2
32.1
39.8
31.6
38.4
41.1
40.6
46.1
53.0
60.7
66.8

Central Provident
Fund
%GNS
$m
643
821
831
888
1,027
1,534
2,036
2,599
3,506
3,849
3,166
4,159

20.0
20.6
18.1
17.5
17.3
21.0
24.6
24.8
27.2
23.6
17.0
25.1

Other
(corporate +
peisonal)
% GNS
$m
1,841
1,802
2,279
2,170
2,671
2,965
2,839
3,623
3,443
3,808
4,139
1,332

51.2
45.2
49.8
42.7
45.1
40.6
34.3
34.6
26.7
23.4
22.3
8.1

*Gross national savings equal public sector savings plus private sector savings. Public sector savings are
the current surplus in the consolidated accounts of the public sector, which consists of government plus
seven major statutory boards, namely the Housing and Development Board, Jurong Town Corporation,
Public Utilities Board, Port of Singapore Authority, Telecommunication Authority of Singapore, Urban
Redevelopment Authority and Sentosa Development Corporation. Central Provident Fund savings are the
net addition that year to the accumulated fund due to members. Because of members withdrawals of funds,
this figure was normally less than members contributions. Other private sector savings are gross national
savings minus public sector and Central Provident Fund savings. Figures which divide other
private sector savings into corporate and personal savings are not available.
*The 1985 figure for public sector savings is provisional. Comparable figures for public sector savings are
not available after 1985, due to changes in the official statistics.
Sources: Singapore, Department of Statistics, Singapore National
Accounrs
1987;
Singapore,
Parliamentary
Debates. Vol. 36, No. 10 (February 28, 1977), ~01s.607-608, Vol. 37, No. 7 (February 27.
1978). ~01s. 485-486, Vol. 38, No. 7 (March 5, 1979). cols. 417-418; Singapore, Ministry of Trade and
Industry, Economic Survey of Singapore 1979, p. 30, 1980, p. 36, 1981, p. 40, 1982, p, 45, 1983, p. 49,
1984, p. 43, 1985. p. 34, 1986, p. 38, 1987, p. 46; Singapore, Department of Statistics, Yearbook of
Statistics 1982/83. p. 194, 19X5/86,p. 216.
Development
Board, Jurong Town Corporation,
Public Utilities Board, Port of Singapore Authority,
Urban Redevelopment
Authority,
Telecommunication
Authority
of Singapore
and
Sentosa
Development Corporation. Singapore, almost alone in
Asia, allowed bank deposit and lending rates to reach
market-clearing
levels. But the government relied
heavily on price manipulation (McKinnon, 1993, p.
12), since it used the monopoly power of statutory
boards to extract an economic surplus from con-

Table 9.

Singapore

expenditure

Private consumption expenditure


Government consumption expenditure
Gross capital formation
Net exports of goods and services

sumers and effectively to subsidise public housing


provided through the Housing and Development
Board. Implicit taxation of consumers effectively
mobilized savings, since the government avoided the
Please effect of increasing its own consumption in
line with taxes (Please, 1967). During 1966-92, public consumption as a proportion of GDP changed
little; virtually the whole of the dramatic fall in
private consumptions GDP share during this period
could be channelled into savings (Table 9). The

on gross domesnc product,

1960-92

(%)

1960

1966

1970

1979

1992

89.4
7.5
11.4
-14.0

76.7
10.6
21.9
-8.2

67.5
11.9
38.7
-20.3

55.0
9.9
41.8
-7.1

43.0
9.4
40.4
7.2

Sources: Singapore, Department of Statistics, Econonlic and Socia/ Statistics, 1960-1982, pp. 56, 63;
Singapore, Ministry of Trade and Industry, Economic Survey of Singapore 1993 (Singapore, 1994), pp.
106. 112.

1428

WORLD DEVELOPMENT

government typically realized budget surpluses, further adding to public savings. As Singapore shows,
however, such surpluses need not imply low govemment spending on development.
A substantial proportion of the private sectors contribution to Singapores high savings rate was due to
savings forced by the government through the Central
Provident Fund, a social security scheme. The Central
Provident Fund could increase the domestic savings
rate because (unusually among developing countries)
it operated on the provident fund principle: on retirement, individuals were paid benefits determined by
total past contributions from themselves and their
employers plus interest, rather than payments being
made to retirees from the contributions
of those
still working. According to one study, the Central
Provident Funds effect was to raise Singapores overall savings rate by 3.8% during 1967-89 (Monetary
Authority of Singapore, 1991).
The recollection that savings and investment are
distinct acts is crucial in understanding
why in
Singapore, although government so largely controlled
savings, investment came chiefly from the private sector. Beginning in the 1960s the public sector never
accounted for as much as two-fifths of gross fixed capital formation, and during 1980-92 its share was a
little over a quarter. Long before the late 1980s.
when Singapores own savings could have entirely
financed the economys high investment ratio, the
government had begun to invest much of public savings abroad in equities, bonds, real estate and shortterm assets. In effect, Singapore exchanged an outflow
of national savings for an inflow of private foreign
capital.
It can be argued that by the 1980s governmentforced abstinence pushed the savings ratio to a level
that Singapore was oversaving, meaning the unwarranted
sacrifice of current consumption
by
Singaporeans (Young, 1992; Lim, 1988; Koh, 1987;
see Straits Times Weekly, August 29, 1992 for a
defence of government policy). In 1992 the share of
private consumption expenditure in Singapores GDP
was 43%. The insurmountable problem, however, of
discovering and aggregating individual Singaporeans
utilities to arrive at a social utility function makes it
impossible to know whether Singapore oversaved.
A separate issue is overinvestment, because investment came largely from the private sector, not the government which forced Singapores high savings rate.
Overinvestment
is suggested by the work of Young
(1992), who calculated that during the 1980s the average before-subsidy
real rate of return on capital in
Singapore had been pushed to one of the lowest in the
world. Taking I = investment, Y = income, and K =
capital, Youngs finding would be consistent with a
Singapore policy to step up the investment ratio (I/Y)
to a point at which the incremental output-capital ratio
(AY/AK) equalled zero and economic growth was

maximized. In line with this analysis, recent govemment policy statements emphasize the objective of
growth
(Straits
Times
Weekly,
maximization
November 12, 1994). Since the incremental capitaloutput ratio (AWAY) is the reciprocal of the outputcapital ratio, an economic growth maximum would
help to explain a capital-output ratio in Singapore
which during 198%89 was, at 7.1, the highest in Asia
after the Philippines (Amdt, 1993, p. 244).
Government
control
of savings
nevertheless
contributed in two ways to the high direct foreign investment which was a feature of the Singapore
development
model. One was that large savings
removed the balance-of-payments
current account
deficit as a constraint on capital inflows and so promoted macroeconomic
stability. The other, more
important, contribution of high savings and government control of them was that public sector savings
and those of the Central Provident Fund provided a
cheap, noninflationary way to finance infrastructural
development,
further facilitated
by government
dominance of the land market. Singapores superb
infrastructure
including
port, airport, roads,
telecommunications
and a mass rapid transit system
-together
with fiscal incentives such as tax holidays
and accelerated depreciation allowances, ready-tomove-into factory sites and a range of development
expenditure including training and education effectively acted as subsidies to MNE investment. Through
helping to assure MNEs required rate of profitability
and attracting their investment,
domestic savings
which financed this subsidy also drew in the MNE
entrepreneurship,
technology and guaranteed access
to world markets central to the Singapore development model.
(iv) State-owned enterprise
State-owned enterprise - in 1983 estimated to
include some 490 wholly or partially governmentowned companies - had two main roles in the Singapore economy. First, in combination with monopoly
power, statutory boards with significant commercial
operations
could mobilize savings because, like
Singapores state-owned enterprise as a whole, and
indeed the government itself, they remained notable
for efficient and effective management (Lim, 1983;
Low, 1984, 1988). In this Singapore had the advantage
that public enterprise began afresh rather than through
the nationalization of already loss-making lirms. But
efficiency in Singapore was bolstered by long tradition dating back to British colonial rule, and, probably
more important, as discussed below, a policy of high
pay for public sector employees.
The other principal role of state-owned enterprise.
emphasized by L. Lim (1983), was to till strategic
gaps in the economy. If a sector was not attractive to
international investment, or (like communications)
too much of a public good and/or too strategic to turn

SINGAPORES ECONOMIC DEVELOPMENT

I429

to foreign enterprise, the government did not hesitate


to step in. Accordingly, the Singapore government
began as nonstatutory undertakings a range of enterprises, including Singapore Airlines, Neptune Orient
Line (an international shipping line) and International
Trading Company (Intraco). Beginning in 1985, however, the onset of privatization and, more important,
the continued rapid growth of private enterprise probably reduced the contribution of state-owned enterprises to GDP. It is now perhaps no more than about
lo%, although the government retains a majority
holding in profitable and key undertakings
like
Singapore Airlines and Singapore Telecom.

and because Fund beneficiaries were permitted to


withdraw savings to spend on housing. Together with
a massive public housing program, this last meant that
by 1990, 88% of households owned the houses they
occupied, compared to less than one-third in 1970.
The rapid gains in real wages (Table 5) and home
ownership for Singaporeans induced acceptance of
government wage control and thereby completed a
virtuous circle of macroeconomic policy: low inflation with consequent real exchange rate competitiveness helped to ensure the continued foreign capital
inflows with embodied MNE technology which made
real wage gains possible.

(v) Macroeconomic stability


Macroeconomic stability, often stressed as basic to
rapid growth in East Asia (World Bank, 1993), was
secured in Singapore by government intervention in
the economy.
Indicative
of this stability was
Singapores exceptionally low inflation (Table l), to
which government control over wages was fundamental. Macroeconomic
management
was unconventional: a governments ability to secure international
competitiveness
through limiting wage rises to productivity gains is not typically among the range of
policy instruments available. But in Singapore, the
substitution of institutional arrangements centered on
the National Wages Council for a conventional
macro-policy
instrument - the exchange rate freed the latter to become an instrument targeted
specifically on inflation. Because in an enrrepot economy like Singapores import and export prices rose
about equally, domestic inflation was kept low by
allowing the nominal exchange rate to appreciate in
line with foreign inflation (Corden, 1984; Lim, 1988).
Although exchange rate appreciation as an anti-inflation device has proved effective in Latin America in
the medium term, it has typically been undermined by
government inability - unlike in Singapore - to
control domestic wage settlements, with consequent
upward pressure on prices which wrecked international competitiveness.
Government-forced
savings in Singapore helped to
dampen inflation by draining purchasing power from
the private sector and neutralizing the expansionary
effect of large inflows of foreign capital. Moreover,
government borrowing from the Central Provident
Fund (the largest holder of government securities)
provided a ready source of finance, characteristically
at below-market interest rates. Because in relying on
the Central Provident Fund the government borrowed
already-existing private-sector savings, it could avoid
inflationary financing of developmental expenditure
through money creation. At the same time, public
willingness to comply with the Central Provident
Fund was strengthened by positive real interest rates,
the expectation of low inflation, tax concessions for
savers with sufficiently high income to be tax payers,

(vi) Infernationaljnancial
services developrnenr
Singapores geographical location and pre- 1960
growth as a center for financial activities were strong
advantages in the Republics subsequent development
as an international financial center. But financial
development has not been accidental. It followed
development strategy mapped out in the late 1960s
(Fry, 1988, p. 354). Government contributed to tinancial services development in three main ways. One
was the provision of public goods -the
maintenance
of honest markets, an environment conducive to easy
operation and the stability of the Singapore dollar.
This achievement of the PAP government should not
be underestimated,
since such public goods were
dissipated in many parts of Asia.
The second aspect of the governments contribution was more specific and had the direct effect of augmenting Singapores natural comparative advantage
(i.e. when a free competitive market prevails) in providing financial services. The government targeted
the development of specific activities which typically
were then strongly encouraged with tax or other fiscal
incentives. In 1968, the Singapore government, in
consultation with international banks, immediately
reacted to the possibility of establishing an Asian
Dollar Market. It abolished a withholding tax of 45%
on interest paid to nonresidents, quickly followed by a
variety of other fiscal measures targeted at establishing the market (Hodjera, 1978). Government response
to the opportunity available to Singapore paid dividends. As a result of government policy, it has been
argued, Singapore stole the march on Hong Kong,
where the authorities lacked a similar development
commitment (Jao, 1985, p. 44. 1979). Strategic advantage, once gained for Singapore, was not lost. and subsequently Hong Kong found it impossible to challenge
the Republic as an Asian Dollar Market. After rcaching US$54.4 billion in 19X0, Singapores Asian Dollar
Market grew to US$355.4 billion in 1992. annual
average growth of 16.9% (Monetary Authority 01
Singapore, 1993). Development of an Asian Dollar
Bond Market - which the Singapore govcrnmcnt
itself took the lcad in starting by iloatinp US rlollardenominated
bonds led to signiticant rnarkct

1430

WORLD DEVELOPMENT

specialization and complementarily in Singapores


offshore banking system.
Throughout the 197Os, in line with planning strategy to establish Singapore as a financial center (Hon,
1972) the government moved aggressively to attract
international financial institutions and broaden the
range of financial services available. Demonstrable
success, indicated by the engine of growth role
which financial and business services had assumed by
1980, led to a redoubling of government effort in the
1980s to promote this sector. The establishment of
Singapore as a financial supermarket (Singapore,
Ministry of Trade and Industry, 1981, pp. 10-l 1) was
central to the Economic Development Plan for the
Eighties; during that decade, every budget statement
contained fiscal incentives aimed at financial innovation. Government initiative was instrumental in establishing a new futures and options market, organized
through the Singapore International
Monetary
Exchange (SIMEX). As the government planned,
merchant banking has taken off, and Singapore is
increasingly a center for fund management.
The third aspect of the governments contribution
to the development of financial services arose because
it had a leading role in promoting the accumulation of
physical and human capital on which the augmentation of comparative advantage in financial services
heavily depends. Singapores telecommunications
system is a good example of physical capital provision. In the early 197Os, the rapid expansion of the
Asian Dollar Market created serious difficulties for
banks in obtaining a London line through the
Singapore telephone exchange. The temporary solution of the government was to set aside for calls to
London several operators with a secret number given
only to banks (Bryant, 1985). Subsequent government
investment in telecommunications obviated the problem, and by 1988 international calls made from
Singapore numbered one-third as many as made from
the whole of Japan (GATT, 1990).
Singapore planners also showed flexibility in
responding to the changing educational needs arising
from development as an international financial center
as well as from efforts to promote higher quality,
higher value-added manufacturing. In 1967 the government had determined that We will cease making
the mistakes which nearly all developing countries are
now making - over-producing unemployable numbers of educated white collar workers and not turning
out the skilled artisans and technicians we need for
industrial growth (Singapore, Ministry of Labour,
1969, front cover, quoting Goh Keng Swee). But the
government underwrote a strong expansion of tertiary
education as the need for this grew: enrollment in
higher education expanded at 3.7% per annum during
1967-79, but at over twice that rate during the 1980s
(Singapore, Department of Statistics, Yearbook, 1976,
1985/86, 1991).

3. ACHIEVEMENT OF A DEVELOPMENTAL
STATE IN SINGAPORE
The emergence of a developmental state associated
with the Singapore model rested on five interrelated
factors government autonomy from interest
groups; stability, perpetuated by a favorable sequencing of events; material gains for the bulk of the population which promoted government control without
harsh repression; the ability of individuals in charge of
the government; and a state which treated the market
with respect and established a creative relationship
with it. The interplay of these five considerations
explains the success of government interventionism in
Singapore. Two intertwined questions run throughout
the discussion of these factors. First, what prevents the
government from acting in ways which inhibit development? Second, what pushes the state to follow policies which actually promote development?
(a) Development commitment and exclusion of
interest groups
The first of the five factors -the autonomy of government - allows an all-out systematic commitment
to economic development, which is a different, altogether rarer, thing than the proclaimed allegiance to
the goal of development usual in LDCs during the
1950s and 1960s. Government identification with, and
capture by, particular interest groups - a lack of
autonomy - was typically the rock on which a determined, sustained drive to development foundered
(Bardhan, 1990). Singapore had such interest groups
in a local entrepreneurial class described in 1958 as
both extensive in numbers and high in quality (Goh,
1958, p. 1), which derived from its Chinese-educated,
China-oriented majority as well as a similarly oriented
trade union movement. The size of Singapores
China-oriented majority can be gauged by the fact that
in 1957 over twice as many of the islands Chinese
were literate in Chinese as in English (Singapore,
1973, p. 103).
The political achievement of Lee Kuan Yews PAP
in the 1959 colonial government-sponsored elections
and afterward was simultaneously to stand on a
strongly development-oriented economic platform
(Peoples Action Party, 1959) and to gain the backing
of the majority of the Chinese population. Chinese still
often say that Lee won the support of the rickshaw
pullers. But in 1961, Lee, in control of the levers of
state power, split with the leftist wing of the PAP and
subsequently neutralized his political opponents with
a carefully judged combination of repression and
achievement-oriented policies, which gained endorsement, if not a mass popular following.
The Lee Kuan Yew government saw its political
future not as a communist outpost of Peking (Mills,

SINGAPORES ECONOMIC DEVELOPMENT

1964, p. 268) but as an agent of rapid economic development. The English-educated, Chinese leadership,
headed by Lee, feared the local Chinese business class
which backed China and Chinese-language rights, and
once in power was determined not to be beholden to
it. Among the leaders of the Chinese business community who strongly supported China and Chineselanguage education, Tan Kah Kee had been the
foremost pre-WWII figure. After the war, he was the
real Chinese leader with a mass following (Lee,
1988, p. 25), but in 1950 was forced by the British
colonial authorities to remain in China, where he
became an official of the Chinese Communist Party.
Following Tans exile to China, his successor was Tan
Lark Sye.
In 1956 Tan Lark Sye was instrumental in the
establishment of the Chinese-language Nanyang
University as a bastion of Chinese culture, with the
support of a wide section of the Chinese business community and Chinatown. In 1963, in the first business
session of the new Singapore Legislative Assembly,
Lee Kuan Yew addressed head-on the threat of
Nanyang University, and drew attention to its wider
implications:
The Nanyang University Council has hitherto spumed
every Government grant to help it raise its standards and
put its organisation into shape, largely because the
Communists have been able to manipulate some leaders
of the Chinese merchant community who have pretensions to greatness, and perhaps to inherit the mantle of
another Chinese patriot like the late Mr. Tan Kah Kee.. .a
situation is developing which, if left unchecked within
five years, will make it more a University of Yenan than
of Nanyang with young pro-Communist graduates and
student leaders manipulating the entire governing
Council of Nanyang University (Singapore Legislative
Assembly, December 1963).
Tan Lark Sye had as trenchant views, expressed in

his well-known observation that English education


resulted in increasing taxes, laying traps, turning out
fools and wasting public funds. He warned that If
we do not take steps to preserve our culture now.. .in
40 or 50 years perhaps we shall no longer call ourselves Chinese (Far Eastern Economic Review,,
1980, p. 161). His views did not prevail: at the beginning of the 198Os, Nanyang University was finally
subsumed under government direction into the
English-language Singapore National University,
Adaptation, frequently suggested in the mid-1960s.
of a Hong Kong development model reliant on small
Chinese manufacturing enterprise and so local entrepreneurs appears never to have been seriously considered by the PAP (Singapore Legislative Assembly,
Debates, 1964; Singapore Parliamentary Debates,
1965). Its decision to rely for economic development
on MNEs and state-owned enterprises allowed
Singapores local business elite largely to be excluded

1431

from the decision-making process. Businessmen


could not decide policy, nor can they exert pressure
on the government (Lee, S. Y., 1978, p. 50). Neither
was backing derived from the Chinese trade union
movement which had flourished in Singapore. Rather,
new unions and the National Trades Union Congress,
which did not have roots in the older Chinese radicalism, were created as part of the PAPs overall economic strategy.
In Singapore, the process through which the government achieved autonomy from interest groups also
pushed it to seek economic growth to legitimize itself
and retain power. A fundamental check against the
danger of government failure was the PAPs need for
rapid economic development to protect the partys
own interest in gaining reelection. Singapores 1965
split with Malaysia, creating what has been described
as a state of siege (Lim, Pang and Findlay, 1993, p.
104), gave further impetus to the PAPs already strong
desire to achieve rapid economic growth as a condition for political perpetuation. Perhaps more important, however, the separation from Malaysia allowed
Singapores government to take firmer control of the
economy, especially the labor movement, and pushed
government policy toward heavy reliance on MNEs to
achieve quick results. The fact that most directly productive activity in the economy was left to MNEs
furnished an additional check against government failure. In Singapore, a high degree of trust and close relationship between government and the private sector,
often stressed as important to the developmental state
(Rueschemeyer and Putterman, 1992), was basic to
attracting multinationals.

(b) Sequencing, stab&y

and economic progress

The second and third factors - a sequencing to


product stability and material gains - which explain
Singapores developmental state can be considered
together. In 1959, independent Singapore inherited,
not just a successful economy, but, as Lee Kuan Yew
emphasized, an administration that worked (1967,
p. 2). Singapore suffered no xenophobic hangover
from colonialism (Lee, K. Y., 1978, p. 13). In a first
phase, this acceptance of the past prevented any break
in government. This was also true of Hong Kong and,
like it, Singapores inheritance was solidly free trade.
The Singapore government assumed a leading role
in the second phase of sequencing from independence
until the early 197Os, a period in which the basis for
development-oriented institutions was laid. In 1959,
the Economic Development Board was set up as the
spearhead for industrialization by direct participation
in industry and building necessary infrastructure
(Singapore, Economic Planning Unit, 1964, p. 37).
After 1966, the Economic Development Board and its
offshoots - the Development Bank of Singapore and

1432

WORLD DEVELOPMENT

Jurong Town Corporation - could be harnessed to


The Monetary
export-oriented
industrialization.
Authority of Singapore, established in 1971 as a quasicentral bank, became a strong and responsive institution which, together with the Development Bank of
Singapore, the government could use in its strategy to
turn Singapore into the Zurich of the East.
In a third and final phase, as the government
extended and consolidated its control - notably over
the trade unions - management of the mass media
was a key part of the overall effort. A leading
Singapore economist emphasized how this was seen
as contributing to economic development: The mass
media can be made to play a crucial role in an all-out
and all-round development
effort.. .The deliberate
omission of such a use by a government in a poor
country is unforgivable irresponsibility,
whatever is
the view in some unrealistic circles in already affluent
societies about press freedom (Lim, 1983, p. 96; and
see New York Times, 1993). S. Rajaratnam, a former
Foreign Minister, elaborated the last point: How
many Singaporeans really want free speech anyway?
They want orderliness, a decent living (Buruma,
1989, p. 143). Both of these were achieved.
Corruption, endemic in many LDCs, was absent in
Singapore. The Republic was -and remained in 1994
- among the few Asian exceptions to Myrdals soft
state characterized by a lack of social discipline,
unwillingness of the people to accept obligations and
weak (or no) enforcement of policies by the government (Myrdal, 1968, pp. 891-900).
The Singapore government acted systematically to
break up potential political or special interests based
on racial or ethnic (Chinese dialect) groups. This policy could be applied virtually universally through an
educational approach which made English the first
language in all schools, and through the governments
rehousing program, which allowed the PAP to manipulate electoral constituencies and disperse political
opposition (Economist, 1979; Lim, Pang and Findlay,
1993, p. 125). Government upgrading of public housing estates, including privately owned dwellings,
involved a considerable subsidy; in 1992 the PAP
announced its intention to upgrade first in constituencies which voted most heavily for the party (Straits
Times Weekly, 1992).
By a somewhat different route to Singapores,
South Korea and Taiwan experienced
sequencing
which yielded a similar combination of stabilization,
followed by institutional development and growing
government
control accompanied by rising living
standards with consequent incentives to political stability (Sachs, 1987; Mason eral., 1980). Palpable economic progress contributed to the PAPs acceptance
by voters and Singapores one-party elected parliament. But the government took no chances and tolerated no more than mild criticism. A law lecturer at the
National University observed of the Singapore judi-

ciary: It is absolutely futile for people to talk about


challenging executive decisions in court. If it is not
legal, the government will make it legal, and it will
make it legal retrospectively (Srruits Times Weekly,
1991). At the end of 1994 the government went a step
further in apparently trying to rule out significant
political critique by Singaporeans unless they were
willing to risk standing openly against the PAP when
Prime Minister Goh Chok Tong declared that anyone
who wanted to comment regularly on politics and set
the political agenda should become politicians themselves (Straits Times Weekly, December 24, 1994).

(c) Caliber of lendership


The caliber
and economic
competence
of
Singapores post-1959 political leadership cannot be
doubted. An elite very much in the British, rather than
the populist US, tradition, the same, small group of
leaders dominated politics between independence in
19.59 and Lee Kuan Yews 1990 retirement. The
observation of Silcock (1985, p. 293), among the most
acute academic critics of Asian development,
is
telling:
The number of those who made the difference and
enabled Singapore to make so much of a not very obvious opportunity was probably not above fifty. They have
meant far more to Singapore than any spreading of economic doctrine among the population in general or even
among the educated parts of the population.

In Singapore, distinguishing features of its post1959 political and economic leaders were their personal integrity, a high level of formal education and,
often, extensive training in economics. Although this
last did not extend to Lee Kuan Yew, his approach to
economics was that of a person recognising that he
has some training in the subject [who] uses it to
appraise the judgement of fully professional economists and use their advice to check some of his own
ideas (Silcock, 1985, p. 315). But there is a crucial
distinction, drawn by C. Johnson (1982, p. 25),
between an economic bureaucracy and a bureaucracy of economists.
Economic
success, while
almost certainly uncorrelated with the number of economics graduates in a government bureaucracy (Hong
Kong employs just 12 professional economists), does
require, as in Singapore, a political leadership and
associated economic bureaucracy willing and able to
think like economists to evaluate choices in hard economic terms.
Comparison with other countries confirms the relevance of the premium placed on economic judgement
by the PAP. Stories of groups as small as those in
Singapore, described as a handful of heroes, have
been interestingly
told for Latin America
by

SINGAPORES ECONOMIC DEVELOPMENT


Harberger (1993). Similarly, a few technocrats placed
their stamp on Taiwans post-WWII development:
This remarkable group of people.. .provided

consistent
and generally sound economic policy guidance, and
made a major contribution to Taiwans economic development. Chiang [Kai-shek] also brought in as consultants
a number of Chinese-American
academic
economists.. .listened to what they had to say, and often acted
on their advice (Galenson, 1992, p. 17).

Just as Chiang and other military and Kuomintang


officials in Taiwan recognized that economic matters

required skilled specialists (Vogel, 1991, p. 24) in


South Korea an economically-aware
and technically
trained elite was pivotal (Whang, 1992). By contrast,
almost everywhere else in post-colonial Asia, leaders
seldom had technical or specialized training of any
sort. They were generalists, skilled primarily in the art
of politics. .the new leaders rarely sought counsel
from.. .trained economists,
scientists, and technicians (Scalapino,
1989, p. 45). For example, in
Indonesia, Sukarnos immense oratorical talent and
his great charisma...were
not complemented by the
ability to recognise and use good economic advice
(Glassburner, 1991, p. 51). The acceptance of high
quality economic policy advice now said to be a feature of Indonesian development did not become characteristic until the post-1966 New Order (Hill, 1994a,
p. 172, 1994b). Economic realism among Singapores
leadership from the start opened the way to successful
economic planning.

(d) Planning for development


As Singapores recent Strategic Economic Plan
observed, Economic planning has played a very significant role in the development of Singapore for more
than thirty years (Singapore, Economic Planning
Committee, 199 1, p. 14)?. The fundamental difference
between a planned and a market economy is the
replacement of the price system with a combination of
positive commands and negative controls. In effecting
interventionism
in Singapore
this substitution,
extended to a degree of planning which went well
beyond the World Banks (1993, pp. 82-86) marketfriendly prescription for the role of the state in economic development.
But planning in Singapore was directed only at the
domestic economy, and unambiguously
aimed to
respond to the international economy to take advantage of developments in it. In the sense of adapting the
local economy to the international one, government
interventionism in Singapore was selective and planning market-oriented. The effect was to sidestep, at
least in the medium term, difficulties arising from a
crippling of the domestic market mechanism - typi-

1432

tally responsible for the disenchantment


with planning in less developed countries (Wellisz, 1971).
At the beginning of the 1960s although the
Singapore government already had little confidence in
formal planning documents (Goh Keng Swee, quoted
in Sharp, 1975), a general belief in planning to formulate a set of coordinated government policies, mobilize savings and provide public goods was evident.
Planning preferences and a coherent development
strategy,
essential
to any shade of planning
(Chakravarty, 1991). emerged from the later 1960s as
the political leadership/planners
increasingly
perceived the strength of the world economys new flows
of trade and foreign investment. As part of the same
process, Singapores leaders found control over strategic domestic markets and institutions the most effective way to respond to these opportunities in the world
economy in order to meet the main planning objectives of creating jobs, absorbing surplus labor and
rapid economic growth (Goh, 1989). Planning in
Singapore never involved detailed blueprints, because
of the priority accorded to reaction to the international
market, impossibility of predicting its course and need
for flexibility to ensure a quick and competitive
response. There was no ideological commitment to
free enterprise as such: The government has to be the
planner and the mobilizer of the economic effort but
the free enterprise system, correctly nurtured and
adroitly handled, can serve as a powerful and versatile
instrument of economic growth (Gob, 1972). Stateowned enterprise provided a significant outlet, especially in the absence of trade protection, for this
government role in gathering and directing a national
economic effort.
Singapore planners, helped by intelligence from
Economic
Development
Board overseas offices,
closely monitored the world market, and initiatives
were undertaken to attract desirable industries. For
example, the potential of electronics was spotted on a
1966 ministerial visit to Taiwan (Wee, 1966; Goh,
1992). The Economic Development Board targeted
manufacturing activities, in that the Board looked for
industries beneficial to Singapore - on criteria like
value added, skill content and capital intensity which were likely to be attracted to the Republic,
enquired as to the necessary incentives including tax
concessions
and then provided them (Singapore,
Economic Development
Board, 1993. pp. 26-27).
But in manufacturing, the aims remained general;
Singapore planners approach to the international
economy contrasted with the targeted protectionism
and idea of picking winners practiced in Japan.
South Korea and Taiwan, and perhaps possible for a
large developing country. Rather, in keepmg with a
tiny domestic economy. Singapore adhered to free
trade and tried to be attractive to a range of activities
through supply-oriented
policies, an approach later
likened to backing all the horses in a race (Gob. 1992:

1434

WORLD DEVELOPMENT

Singapore, Economic Planning Committee, 1991,


p* 68).
Planning depends crucially on enforcement,
reflected in Jawaharal Nehrus remark that India was
not quite so expert at implementation as at planning
(quoted in Waterston, 1970, p. 403). In Singapore,
interventionism was organized around government
directives and so had considerably more force than
indicative planning. Singapore planning featured the
concentration of decision making in a few hands, also
observed elsewhere in East Asia (Jones and SaKong,
1980; Wade, 1990). Typically, the same men, for
example Goh Keng Swee, Hon Sui Sen and Joseph
Pillay, served as directors for a host of state-owned
enterprises and PAP government development initiatives, which economized on entrepreneurial talent
(Singapore Trade and Industry, January 1969 and
April 1969; Lee, 1984; Bryant, 1985, p. 13).
Moreover, the policy helped to ensure loyalty to the
government and to further its tight control. The PAP
leadership achieved effective implementation of plans
and policies through the lower levels of bureaucracy
by a willingness to pay government officials salaries
comparable to or above the private sector and by an
emphasis on individual accountability (Chew, 1988,
pp. 222-223; Straits Times Weekly, December 4,
1993, October 22, 1994, October 29, 1994, November
5, 1994). Plan review procedures are now being used
as a means of publicity to mobilize support for government economic strategy (Singapore, SEP Working
Group, 1993).

4. CONCLUSIONS
After the split with Malaysia, Singapore lacked a
development model to emulate, except perhaps Hong
Kongs, In fact, both the Singapore model of development and the evolution of government interventionism
basic to it involved a searching, probing and learning
which is at the heart of the economic development
process (Bruton, 1985). When asked whether after
1965 Singapores leadership had a model in mind,
Lee Kuan Yew replied, No, we borrowed in an eclectic fashion elements of what Hong Kong was doing,
what Switzerland was doing, what Israel was doing,
and we improvised. I also went down to Malta to see
how they ran the dry docks. (Lee, 1990/91, p. 24).
Just as Singapore had to find its own economic and
political development model, so the experience of
government interventionism evolved in the Republic
is unlikely to be applicable in any wholesale way to
other developing countries. Part of the reason for this
is that in 1959 Singapore already had a substantial
transformation capacity- the economys ability to
reallocate resources. That capacity gave the leaders of
independent Singapore more degrees of freedom in
engineering change when opportunities in the inter-

national economy appeared. Many LDCs have


economies less developed than Singapores was in
1959, a weaker human capital base and shakier institutional structure, all of which make successful interventionism more difficult. It is also true that a small,
island state such as Singapore is relatively easily and
cheaply controlled, or, put somewhat differently, that
in Singapore the low transaction costs of government
interventionism facilitated a particular set of institutional arrangements.
Even where geography provided a similar set of
conditions to Singapores, history often did not.
Griffith (1987) argues convincingly that historical
forces productive of a strong trade union movement
and special interest groups in the CARICOM countries prevent replication of the Singapore model. In
other settings, the power of special interest groups often capital rather than labor -is familiar. Such relationships never arose under Singapores PAP govemment. It remained independent of interest groups.
Five general lessons and a major caveat may be
adduced from the experience of government interventionism in Singapore. The caveat is that probably few
countries would be so willing as Singapore to tolerate
such a high foreign presence. In Singapore, however,
development through multinationals as a substitute for
local entrepreneurship required of the Republic no
more than what historically it had always done - to
respond to changes in the international economy and
the resulting requirements of foreigners. Moreover,
Singapores development as an international services
and financial center - an opportunity which by its
nature is available to few LDCs - made it easier to
accept a high foreign presence in manufacturing, since
services are more heavily dependent on local and
regional knowledge and create a greater role for
indigenous Singaporeans.
One lesson of interventionism in Singapore is that
the precise form of government does not appear to be
crucial. Research has failed to establish any clear link
between economic development and either authoritarianism or democracy (Przeworksi and Limongi,
1993). Insofar as conclusions can be drawn,
Singapores experience suggests that, if anything,
regimes shaded toward authoritarianism may have
advantages in the earlier stages of the development
process: investment and capital formation are central
to economic growth and the voluntary mobilization of
savings, difficult in wealthy countries, is harder still in
poor ones. Key features in Singapore were the broad
acceptance of government policies by the mass of the
population, continuity of policy with consequent
enhancement of credibility which furthered macroeconomic stability, a relative freedom from corruption
and, of course, the ability to implement policies conducive to growth.
Singapore therefore does not fit easily either the
bureaucratic-authoritarian model of Latin American

SINGAPORES

ECONOMIC

regimes or the Japanese consensus model. In the former, a ruling elite seeks to promote industrialization
by excluding previously mobilized economic groups
from power and by building a collaborative relationship with MNEs, while in Japan, democracy prevailed
after WWII and for almost 40 years the ruling Liberal
Democratic Party forged a coalition of voters committed to economic growth (Johnson, 1982, 1987).
Although Singapore had elements of both models,
what happened there was less polarized than either
model suggests. After forming a Japanese-style consensus in the 1959 elections, and subsequently putting
heavy reliance
on MNE-led
development,
the
Singapore
model showed how the government,
despite elements of authoritarianism,
could secure
broad and ongoing consent through the effective
delivery of economic growth.
Second, the autonomy of government - freedom
from special
interest
groups
is essential.
Nevertheless, government and a political party synonymous with it may increasingly coalesce into a
dominant interest group. Such a tendency has been
observed in Singapore (Lim, 1983; Lim, Pang and
Findlay, 1993) although the very process of rapid
economic development may offer some check to it. In
Singapore, development created pressures for the privatization now underway, and simultaneously private
sector rewards too high to attract many of the most
talented individuals to a lifetime career in politics
(Sirairs
Tinres Weekly, December
18, 1993a; Yeo,
1993). Evangelical fervor also abates, not merely
with time, but in the face of an increasingly attainable,
comfortable lifestyle. It is perhaps telling that after a
recent PAP rally, party stalwarts and one government
minister were seen carrying their traditional all-white
PAP uniforms on hangers to their automobiles, having changed into stylish (and expensive) clothes for
Sunday lunch in central Singapore (Srruirs Times
Weekly, December 18, 1993b).
Third, government autonomy itself creates incentives which push the government to act developmentally. Often the incentives appear to be related to the
fact that the government has become the dominant
interest group and requires economic development to
legitimize and perpetuate itself. A further key incentive to development is survival in the face of some perceived external threat, as with South Korea and
Taiwan, or following a political trauma, as after the
split between Malaysia and Singapore.

DEVELOPMENT

1435

Fourth, a high human capital base and a trained,


disciplined bureaucracy, as the example of Singapore
indicates, are essential to the success of interventionism. Such a bureaucracy cannot be recruited
unless government pay is competitive with the private
sector, the requirement recognized in Singapore. At
the highest level, the striking feature of Singapores
development, amply confirmed by experience elsewhere in Asia and Latin America, is the fundamental importance of a tiny elite in formulating
and guiding policy.
Fifth, interventionist government - like the man
spelling banana - must know where to stop. As a
rule, less government
intervention
than in the
Singapore of the late 1960s and 1970s is probably
desirable both in countries less developed
than
Singapore was at that time and in those more developed. In the former, government interventionism may
pose a problem because of the lack of administrative
capacity and competence. In the latter, the increasing
complexity of the economy makes interventionism
more problematic and adds to the danger of suppressing market signals for too long. In both types of
it becomes
less likely that planners
economy,
guesses will end up as superior to those of the
market. In Singapore,
difficulties
arising from
long-term interference
with the market are suggested by recent criticisms that the government may
have enforced oversaving in the sense of setting
a savings rate higher than necessary or sensible.
Similarly, government control of wages suppresses
market signals which should guide a reallocation
of labor from low to higher productivity
activities and promote needed technological
change
in the Singapore
economy
(Disney
and Ho,
1990; Young, 1994).
Perhaps the most important reason why govemment interventionism
succeeded in Singapore was
because of a pragmatism - the test of what works rather than rigid ideological commitment to a free
market or to state direction. There was a clear understanding of the limitations of smallness and extreme
openness for an economy such as Singapores in
departing from free trade to govern the market
(Wade, 1990). In this regard, Singapores brand of
interventionism, not South Koreas, may be the more
reliable model for less-developed countries aiming to
become

late industrializers.

NOTES
I. Wages are a good indicator of value added. In 1990,
72% of those in electronics production were female, compared to 43% in the rest of manufacturing;
wages in the
electronics industry were below the manufacturing
average,
itself less than wages in most other industrial groupings
(Singapore,
Department
of Statistics
or Economic
Development Board, 1990; Singapore, Ministry of Labour,
1993).

2. The main published planning documents in Singapore


were Singapore, Ministry of Finance, 1961; United Nations,
I96 1; Singapore Economic Planning Unit, 1964; Hon. 1972:
Singapore, Ministry of Trade and Industry, 198 1; Singapore,
Ministry of Trade and Industry, 1986; Singapore, Economic
Planning Committee, 1991; Singapore, National Science and
Technology Board, 1991; Singapore, SEP Working Group,
1993.

1436

WORLD DEVELOPMENT

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