World Development, Vol. 23, No. 8, pp.

1421-1438, 1995
Copyright 0 1995 Elsevier Science Ltd
Pergamon Printed in Great Britain. All rights reserved
0305-750x/95 $9.50 + 0.00

0305-750x(95)00043-7

The Developmental State, Government, and

Singapore’s Economic Development 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 devel-
opment, and emergence of a developmental state closely associated with this model. It compares
Singapore’s experience with South Korea’s and Taiwan’s, where government also contributed to
development success, and with other Asian countries where government failed to play a strong develop-
mental role.

1. INTRODUCTION from Britain, the People’s Action Party (PAP) has

Singapore has been described as “the world’s most
successful economy” (Lim, 1983) and regarded as
“the most successful of East Asia’s ‘four dragons’,”
which also comprise South Korea, Hong Kong and
Taiwan (Giordano and Kato, 1993). In 1992,
Singapore’s 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 one-
seventh in 1965 (World Bank, 1967 and 1994). An
island of 3.1 million people, Singapore is the world’s
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 luissez-
faire economy opened the way to an increasing recog-
nition that a “heavily interventionist” state guided
Singapore. Most observers now recognize that
Singapore’s 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
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 world’s 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 article’s 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 nega-
tive outcome had given rise to a development eco-
nomics 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
Singapore’s interventionism, but also South Korea’s
* This paper has benefited from the comments of R. B.
DuBoff, J. F Ermisch, J. C. B. Chau, two anonymous refer-
ees, seminar participants at the Australian National
University and the Umversity’s 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 Taiwan’s, the emphasis has shifted from “govem-
ment failure” - a lapse into inept economic policies
- to include the possibility of the “developmental
state” which plays an integral part in promoting eco-
nomic 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 advan-
tage” (Bardhan, 1993, p. 133). The “key question”
became “not whether there is government action in the
Far Eastern economies, but rather how these success-
ful economies managed their intervention and strate-
gic 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 today’s development debate” (Lipton, 1992,
p. 426).
The article is structured in three further sections.
The next identifies where state intervention was cru-
cial 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 inter-
ventionism 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 con-
tributing to the Singapore development model, and
analyzes them in turn. Subsection (a) draws attention
to Singapore’s favorable 1959 starting point, indi-
cates 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 sta-
tus. 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).
(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 Kingdom’s, 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 island’s 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 sig-
nificant unemployment. But neither negated earlier
developmental advantages. During 1960-66, includ-
ing a period of import substitution as part of the
Malaysian experiment, Singapore’s 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 dur-
ing 1945-55, causing population increase of about
400%, with continued rapid growth into the mid-
1960s (Szczepanik, 1958; Chow and Papanek, 1981).
A second highly unusual aspect of Singapore is loca-
tion. Its geographical situation, astride the world’s
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 manu-
facturing and services - the two main pillars of
Singapore’s economy (Table 2).
The breakup of Malaysia left Singapore with little
option but to turn decisively outward to export domes-
tically made manufactures. Initially, development

Table 1. Singapore macroeconomic indicators, 1960-92 (%)

1960-66 1960-69 1967-79 1970-79 1980-92

Annual real GDP growth rate 5.7 8.0 9.7 8.3 6.7
Annual inflation rate* 1.1 1.1 5.4 5.8 2.4
Savings ratio+ 6.7 11.5 27.5 28.8 42.7
Investment ratiot 17.5 20.7 38.5 40.5 41.3
*GDP deflator.
t’fbe 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).
 SINGAPORE’S ECONOMIC DEVELOPMENT 1423

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 5.0585 10,730.o 26.284.7 64,771 .O
Agriculture & quarrying 3.8 2.1 1.5 0.4
Manufacturing 16.6 23.2 29.4 27.6
Construction & utilities 7.0 10.7 9.1 8.9
Commerce 24.6 22.9 19.4 18.2
Transport & communications 8.8 7.2 11.6 14.7
Financial &business services 14.0 16.5 18.9 26.1
Other services 19.6 15.7 12.2 10.2

(b) Employment+
Persons 000 471.9 650.9 1.021.0 1592.0
Agriculture & quarrying 7.3 3.8 1.6 0.2
Manufacturing 15.7 22.0 28.9 27.0
Construction & utilities 6.1 7.8 6.3 6.9
Commerce 24.2 23.5 23.3 22.9
Transport & communications 10.7 12.1 11.6 10.5
Financial &business services 4.6 3.5 7.1 10.9
Other services 31.4 27.3 21.2
*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 Republic an attractive manufacturing location by

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).
Singapore’s geographical position and excellent
international transport links helped to make the
keeping down the “distance costs” of exporting to the
West (Helleiner, 1973). Location was even more
important in Singapore’s development of services
exports (internationally traded services sold to non-
Singapore residents). These included air traffic,
telecommunications, shipping, and cargo handling
activities, but above all international financial and
business services. Government systematically built on
Singapore’s location and time zone advantages to pro-
mote the Republic as a regional and international
financial center. After 1979 financial and business ser-
vices replaced manufacturing as the engine of growth
and between 1979 and 1992 grew at an annual average

Table 3. Singapore direct manufactured exports, 1960-92 (at 1985 marketprices)

1960 1966 1967 1969 1979 1992

Sm 542.5 933.3 1,127.5 1.827.4 12,368.O 37.950.5

% of GDP* 10.7 12.7 13.6 17.0 47.1 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 world’s
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 mer-
chant banks.
(b) The role of government in the Singapore
development model
Initial advantages can always be dissipated and
existing strengths ignored: this subsection, which
shows how government played a central role in shap-
ing the Singapore development model, also carries the
message that policy choices matter. Government
intervention in Singapore’s economy concentrated in
three areas - the labor market, taxation and fiscal
incentives, and state-owned enterprises. Although
Singapore’s was a strongly private enterprise econ-
omy, it is important to note, as will be stressed later,
that interventionism in these three strategic areas
allowed a substantial measure of government direc-
tion of the entire economy. All three areas in which the
government intervened could be controlled through
the domestic sector of Singapore’s economy as
opposed to attempting to influence the international or
world economy on which Singapore, as a small coun-
try, 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 high-
cost manufacturing producer, with wage costs
“20-30% too high for world markets” (United
Nations, 1961, p. 115). In 1967 and 1968, labor legis-
lation 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. 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
S Index
United States 6.36 100
Japan 3.00 47
Singapore 0.84 13
South Korea 0.32 5 0.96
Taiwan 0.40 6 1.oo
Hong Kong 0.76 12
Asian NICs* 0.52 8 1.17
*Asian NICs refers to a US trade-weighted average
Hong Kong.
Sources: US Department of Labor (1994).
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 lion’s share of offshore assembly activities of
the US and European semiconductor industries
(Chang, 1971).
Although Singapore’s 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 inter-
nationally 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
People’s Action Parry (PAP) controlled National
Trades Union Congress and employers. Thus, “the
Singapore Government has not felt inhibited from get-
ting directly involved in labour-management negotia-
tions” and at least until 198 1 was “the central focus of
power because it performs the dual functions of defm-
ing national objectives and inter-relating parochial
interests through the executive authority of the state”
(Kim, 1981, p. 67). After 1981 the government’s 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 influ-
ence on wage determination.” The National Wages
Council could successfully establish itself as a body
which achieved “consensus” in line with government
1980 1992
$ Index $ Index
9.87 100 16.17 100
5.52 56 16.28 101
I .49 15 4.95 31
10 4.93 30
10 5.13 32
1.51 15 3.92 24
12 4.84 30
level for Singapore, South Korea, Taiwan and
 SINGAPORE’S ECONOMIC DEVELOPMENT 1425

Table 5. Singapore real average monthly earnings for all market” (Fields and Wan, 1989, p. 1475) produced the
workers, 1978-92 (1988 = 100) internationally competitive wages and the absence of
strikes attractive to multinational enterprises (MNEs)
1978 57.9 1986 91.4 manufacturing for export as part of vertically inte-
1979 60.5 1987 93.8
grated international operations. As important for
1980 63.3 1988 100.0
political stability, which must underpin longer
1981 63.5 1989 107.3
1982 70.8 1990 113.3
term economic development in the host country,
1983 77.1 1991 119.6 Singapore’s real wages doubled during 1978-90, and
1984 83.2 1992 126.5 continue to grow strongly (Table 5). Furthermore, the
1985 89.4 1993 131.3 Singapore government promoted skill acquisition and
human capital development to the benefit of workers.
Sources: Singapore, Ministry of Labour, Yearbook of
L.abour Starisrics (various years).
(ii) Direct foreign invesfmenr
objectives because by the 1970s two of its constituents A small economy like Singapore’s can be usefully
were the government, because no significant non- thought of as able to tap a perfectly elastic supply of
government trade unions existed in Singapore, and capital at a given world rate of profitability. Labor
because employers apparently did not feel strong market regulation by government which pegged wage
enough to break the cartel and bid up wage rates, rises at or below productivity gains was essential in
despite incentives to do so due to Singapore’s labor safeguarding this required rate of profit, and allowed
scarcity and desirability as a production base (Lim, two further features of the Singapore model to
1987, p. 51). emerge: high foreign investment and an associated
While not mandatory, throughout the period since reliance on foreign enterprise. Fundamental to the
1972 National Wages Council recommendations have Singapore model was that capital came largely not as
been closely observed. A measure of the National portfolio investment but as direct foreign investment
Wages Council’s effectiveness is that, as Table 4 which gave rise to almost complete foreign MNE
shows, during 1975-92, compensation levels for dominance of the manufacturing export sector. After
production workers in Singapore manufacturing 1967-69, direct foreign investment made a growing
increased more slowly than in the other Asian NICs - contribution to domestic capital formation in
the benchmark against which the government mea- Singapore (Table 6). By the 1970s capital account
sured success in containing labor costs. Although ris- inflows in excess of Singapore’s balance-of-payments
ing female labor force participation rates and the current account deficits, reflected in Table 1, allowed
presence of at least 200,000 guest workers helped to the Republic to begin its accumulation of large foreign
dampen wage pressure, a growing chorus of com- reserves (Wong, 1986). During 1980-90, Singapore
plaints about widespread “job-hopping” in Singapore received more direct foreign investment in absolute
was indicative of wage rates held below free market terms than any other LDC. On a per capita basis, and
levels. At the same time, the government all but elim- using 1990 population, the figures were US$767 for
inated work stoppages. Singapore’s “regulated labor Singapore compared to US31.50 for China, the fourth-

Table 6. Singapore measures of the contribution of directforeign invesrmenr to cupirul uccumulutiorl,

1967-92 (1985 marker prices, annual uverqes)’

Gross fixed Foreign investment in IMF figures for direct

capital formation manufacturing sector gross foreign investment in
(GFCF) fixed assets Singapore
Q of ‘h of
$m $m GFCF $m GFCF

1967-69 2.382.2 261.4 11.0 219.0 9.2

197&79 6,648.6 896.7 135 1.471.3 22.1
198c92 17.498.2 2.1 12.3 12.1 4.609.3 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 fol-
lowing 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.
1426 WORLDDEVELOPMENT
Table 7. Singapore manufacturing value added as a percentage of output,
1973
All industries 32.0
Electronic products
and components
Electrical machinery
and apparatus 39.0t
Transport equipment 46.8
Machineryexcept electrical
and electronic 39.9
Fabricated metal oroducts 36.8
*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 Singapore’s manu-
facturing 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...non-
Singaporeans would comprise at least 40% of the key
decision makers.. .at the moment we are using bor-
rowed 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 manufac-
turing, and although in Singapore this ratio rose some-
what for the sector as a whole during 1978-91, in the
electronics industry it actually fell (Table 7). A manu-
facturing sector run by multinationals which primarily
undertake research and development elsewhere, weak
local inputs to technological progress, small indige-
nous research and often repetitive, low-value added
operations heavily dependent on relatively poorly paid
female workers, are all consistent with Singapore’s
remarkably high share of GDP going to foreigners
(Lim and Pang, 1984; Lim, 1987)‘. During 1985-92,
fully 32% of Singapore’s 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 for-
eign investment, which led to job creation by MNEs,
made it possible for the government to force a high
1973-92*
1978 1984 1992 % of total
1992
manufacturing
value added
26.3 27.0 34.6 100.0
32.2 29.9 27.9 38.5
33.7 37.6 38.7 4.4
47.4 51.7 45.2 8.6
49.1 45.7 38.5 6.4
34.5 38.7 37.8 7.1
level of domestic saving. Its achievement and corre-
spondingly high investment was long regarded as a
key to rapid growth by Singapore planners and policy
makers. As early in 1963, Singapore’s Minister of
Finance, Goh Keng Swee, pointed to a high invest-
ment 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 aug-
mented 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 par-
ticipation 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 Singapore’s 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 world’s highest (Table 1). Little
was voluntary about the savings process. Public sec-
tor saving was the driving force, and increased from
less than a quarter of national savings in 1974 to three-
fifths by 1984 (Table 8). Seven main statutory boards,
with monopoly power, were central in determining
public sector savings - the Housing and
 SINGAPORE’S ECONOMIC DEVELOPMENT 1427

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

Gross national Public sector Private sector

savings* savings savings
Other
Central Provident (corporate +
Fund peisonal)
$m $m % GNS $m %GNS $m % GNS
1974 3,220 736 22.8 643 20.0 1,841 51.2
1975 3,985 1,362 34.2 821 20.6 1,802 45.2
1976 4,580 1,470 32.1 831 18.1 2,279 49.8
1977 5,079 2,021 39.8 888 17.5 2,170 42.7
1978 5,928 2,230 31.6 1,027 17.3 2,671 45.1
1979 7,300 2,801 38.4 1,534 21.0 2,965 40.6
1980 8,282 3,407 41.1 2,036 24.6 2,839 34.3
1981 10,483 4,261 40.6 2,599 24.8 3,623 34.6
1982 12,885 5,936 46.1 3,506 27.2 3,443 26.7
1983 16,306 8,649 53.0 3,849 23.6 3,808 23.4
1984 18,596 11,291 60.7 3,166 17.0 4,139 22.3
1985 16,543 11,052t 66.8 4,159 25.1 1,332 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, sumers and effectively to subsidise public housing
Public Utilities Board, Port of Singapore Authority, provided through the Housing and Development
Urban Redevelopment Authority, Telecommuni- Board. Implicit taxation of consumers effectively
cation Authority of Singapore and Sentosa mobilized savings, since the government avoided the
Development Corporation. Singapore, almost alone in “Please effect” of increasing its own consumption in
Asia, allowed bank deposit and lending rates to reach line with taxes (Please, 1967). During 1966-92, pub-
market-clearing levels. But the government relied lic consumption as a proportion of GDP changed
heavily on price manipulation (McKinnon, 1993, p. little; virtually the whole of the dramatic fall in
12), since it used the monopoly power of statutory private consumption’s GDP share during this period
boards to extract an “economic surplus” from con- could be channelled into savings (Table 9). The

Table 9. Singapore expenditure on gross domesnc product, 1960-92 (%)

1960 1966 1970 1979 1992

Private consumption expenditure 89.4 76.7 67.5 55.0 43.0
Government consumption expenditure 7.5 10.6 11.9 9.9 9.4
Gross capital formation 11.4 21.9 38.7 41.8 40.4
Net exports of goods and services -14.0 -8.2 -20.3 -7.1 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, fur-
ther adding to public savings. As Singapore shows,
however, such surpluses need not imply low govem-
ment spending on development.
A substantial proportion of the private sector’s con-
tribution to Singapore’s 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 retire-
ment, 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 Fund’s effect was to raise Singapore’s over-
all 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 sec-
tor. Beginning in the 1960s the public sector never
accounted for as much as two-fifths of gross fixed cap-
ital formation, and during 1980-92 its share was a
little over a quarter. Long before the late 1980s.
when Singapore’s own savings could have entirely
financed the economy’s high investment ratio, the
government had begun to invest much of public sav-
ings abroad in equities, bonds, real estate and short-
term 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 government-
forced abstinence pushed the savings ratio to a level
that Singapore was “oversaving,” meaning the un-
warranted 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 Singapore’s 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 invest-
ment came largely from the private sector, not the gov-
ernment which forced Singapore’s high savings rate.
Overinvestment is suggested by the work of Young
(1992), who calculated that during the 1980s the aver-
age 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, Young’s 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 govem-
ment policy statements emphasize the objective of
growth maximization (Straits Times Weekly,
November 12, 1994). Since the incremental capital-
output ratio (AWAY) is the reciprocal of the output-
capital 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 in-
vestment 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 pro-
moted macroeconomic stability. The other, more
important, contribution of high savings and govern-
ment 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. Singapore’s 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-to-
move-into factory sites and a range of development
expenditure including training and education effec-
tively 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 develop-
ment model.
(iv) State-owned enterprise
State-owned enterprise - in 1983 estimated to
include some 490 wholly or partially government-
owned companies - had two main roles in the Singa-
pore economy. First, in combination with monopoly
power, statutory boards with significant commercial
operations could mobilize savings because, like
Singapore’s 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 tradi-
tion 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
 SINGAPORE’S ECONOMIC DEVELOPMENT
to foreign enterprise, the government did not hesitate
to step in. Accordingly, the Singapore government
began as nonstatutory undertakings a range of enter-
prises, including Singapore Airlines, Neptune Orient
Line (an international shipping line) and International
Trading Company (Intraco). Beginning in 1985, how-
ever, the onset of privatization and, more important,
the continued rapid growth of private enterprise prob-
ably reduced the contribution of state-owned enter-
prises 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.
(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
Singapore’s exceptionally low inflation (Table l), to
which government control over wages was fundamen-
tal. Macroeconomic management was unconven-
tional: a government’s ability to secure international
competitiveness through limiting wage rises to pro-
ductivity 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 econ-
omy like Singapore’s 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-infla-
tion 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 interna-
tional 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,
I429
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 infla-
tion with consequent real exchange rate competitive-
ness helped to ensure the continued foreign capital
inflows with embodied MNE technology which made
real wage gains possible.
(vi) Infernationaljnancial services developrnenr
Singapore’s geographical location and pre- 1960
growth as a center for financial activities were strong
advantages in the Republic’s 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 tinan-
cial 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 government’s contribu-
tion was more specific and had the direct effect of aug-
menting Singapore’s natural comparative advantage
(i.e. when a free competitive market prevails) in pro-
viding 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 establish-
ing the market (Hodjera, 1978). Government response
to the opportunity available to Singapore paid divi-
dends. 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 advan-
tage, once gained for Singapore, was not lost. and sub-
sequently Hong Kong found it impossible to challenge
the Republic as an Asian Dollar Market. After rcach-
ing US$54.4 billion in 19X0, Singapore’s 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 rlollar-
denominated bonds - led to signiticant rnarkct
1430 WORLD DEVELOPMENT
specialization and complementarily in Singapore’s
offshore banking system.
Throughout the 197Os, in line with planning strat-
egy 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 innova-
tion. Government initiative was instrumental in estab-
lishing 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 government’s 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 augmenta-
tion of comparative advantage in financial services
heavily depends. Singapore’s telecommunications
system is a good example of physical capital provi-
sion. 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 solu-
tion 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 prob-
lem, 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 gov-
ernment had determined that “We will cease making
the mistakes which nearly all developing countries are
now making - over-producing unemployable num-
bers 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 sequenc-
ing of events; material gains for the bulk of the popu-
lation 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 devel-
opment? Second, what pushes the state to follow poli-
cies which actually promote development?
(a) Development commitment and exclusion of
interest groups
The first of the five factors -the autonomy of gov-
ernment - allows an all-out systematic commitment
to economic development, which is a different, alto-
gether 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 deter-
mined, 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 Singapore’s
China-oriented majority can be gauged by the fact that
in 1957 over twice as many of the island’s Chinese
were literate in Chinese as in English (Singapore,
1973, p. 103).
The political achievement of Lee Kuan Yew’s PAP
in the 1959 colonial government-sponsored elections
and afterward was simultaneously to stand on a
strongly development-oriented economic platform
(People’s 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 endorse-
ment, if not a mass popular following.
The Lee Kuan Yew government saw its political
future not as “a communist outpost of Peking” (Mills,
 SINGAPORE’S ECONOMIC DEVELOPMENT
1964, p. 268) but as an agent of rapid economic devel-
opment. 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 com-
munity who strongly supported China and Chinese-
language 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 Tan’s 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 com-
munity 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 preten-
sions 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 our-
selves Chinese” (Far Eastern Economic Review,,
1980, p. 161). His views did not prevail: at the begin-
ning 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 entre-
preneurs appears never to have been seriously consid-
ered 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
Singapore’s 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 radical-
ism, were created as part of the PAP’s overall eco-
nomic strategy.
In Singapore, the process through which the gov-
ernment 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 PAP’s need for
rapid economic development to protect the party’s
own interest in gaining reelection. Singapore’s 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 PAP’s already strong
desire to achieve rapid economic growth as a condi-
tion for political perpetuation. Perhaps more impor-
tant, however, the separation from Malaysia allowed
Singapore’s 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 pro-
ductive activity in the economy was left to MNEs
furnished an additional check against government fail-
ure. In Singapore, a high degree of trust and close rela-
tionship 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
Singapore’s 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, Singapore’s 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
export-oriented industrialization. The Monetary
Authority of Singapore, established in 1971 as a quasi-
central bank, became a strong and responsive institu-
tion 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 Myrdal’s “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 govern-
ment (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 pol-
icy could be applied virtually universally through an
educational approach which made English the first
language in all schools, and through the government’s
rehousing program, which allowed the PAP to manip-
ulate electoral constituencies and disperse political
opposition (Economist, 1979; Lim, Pang and Findlay,
1993, p. 125). Government upgrading of public hous-
ing estates, including privately owned dwellings,
involved a considerable subsidy; in 1992 the PAP
announced its intention to upgrade first in constituen-
cies which voted most heavily for the party (Straits
Times Weekly, 1992).
By a somewhat different route to Singapore’s,
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 sta-
bility (Sachs, 1987; Mason eral., 1980). Palpable eco-
nomic progress contributed to the PAP’s acceptance
by voters and Singapore’s one-party elected parlia-
ment. But the government took no chances and toler-
ated 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 them-
selves” (Straits Times Weekly, December 24, 1994).
(c) Caliber of lendership
The caliber and economic competence of
Singapore’s 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 Yew’s 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 obvi-
ous opportunity was probably not above fifty. They have
meant far more to Singapore than any spreading of eco-
nomic doctrine among the population in general or even
among the educated parts of the population.
In Singapore, distinguishing features of its post-
1959 political and economic leaders were their per-
sonal 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 econo-
mists 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 “bureau-
cracy of economists.” Economic success, while
almost certainly uncorrelated with the number of eco-
nomics 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 eco-
nomic terms.
Comparison with other countries confirms the rele-
vance 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
 SINGAPORE’S ECONOMIC DEVELOPMENT
Harberger (1993). Similarly, a few technocrats placed
their stamp on Taiwan’s post-WWII development:
This remarkable group of people.. .provided consistent
and generally sound economic policy guidance, and
made a major contribution to Taiwan’s economic devel-
opment. Chiang [Kai-shek] also brought in as consultants
a number of Chinese-American academic econo-
mists.. .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 techni-
cians” (Scalapino, 1989, p. 45). For example, in
Indonesia, Sukarno’s “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 fea-
ture of Indonesian development did not become char-
acteristic until the post-1966 New Order (Hill, 1994a,
p. 172, 1994b). Economic realism among Singapore’s
leadership from the start opened the way to successful
economic planning.
(d) Planning for development
As Singapore’s recent Strategic Economic Plan
observed, “Economic planning has played a very sig-
nificant 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
this substitution, interventionism in Singapore
extended to a degree of planning which went well
beyond the World Bank’s (1993, pp. 82-86) “market-
friendly” prescription for the role of the state in eco-
nomic development.
But planning in Singapore was directed only at the
domestic economy, and unambiguously aimed to
respond to the international economy to take advan-
tage of developments in it. In the sense of adapting the
local economy to the international one, government
interventionism in Singapore was selective and plan-
ning “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 plan-
ning 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 formu-
late a set of coordinated government policies, mobi-
lize 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 per-
ceived the strength of the world economy’s new flows
of trade and foreign investment. As part of the same
process, Singapore’s leaders found control over strate-
gic domestic markets and institutions the most effec-
tive way to respond to these opportunities in the world
economy in order to meet the main planning objec-
tives 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). State-
owned enterprise provided a significant outlet, espe-
cially 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 Nehru’s 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 initia-
tives, 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 gov-
ernment economic strategy (Singapore, SEP Working
Group, 1993).
4. CONCLUSIONS
After the split with Malaysia, Singapore lacked a
development model to emulate, except perhaps Hong
Kong’s, In fact, both the Singapore model of develop-
ment 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 Singapore’s leadership had “a model in mind,”
Lee Kuan Yew replied, “No, we borrowed in an eclec-
tic 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 economy’s 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 Singapore’s was in
1959, a weaker human capital base and shakier insti-
tutional structure, all of which make successful inter-
ventionism 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 institu-
tional arrangements.
Even where geography provided a similar set of
conditions to Singapore’s, 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 coun-
tries prevent replication of the Singapore model. In
other settings, the power of special interest groups -
often capital rather than labor -is familiar. Such rela-
tionships never arose under Singapore’s PAP govem-
ment. It remained independent of interest groups.
Five general lessons and a major caveat may be
adduced from the experience of government interven-
tionism 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,
Singapore’s 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 authori-
tarianism or democracy (Przeworksi and Limongi,
1993). Insofar as conclusions can be drawn,
Singapore’s 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 macro-
economic stability, a relative freedom from corruption
and, of course, the ability to implement policies con-
ducive to growth.
Singapore therefore does not fit easily either the
bureaucratic-authoritarian model of Latin American
 SINGAPORE’S ECONOMIC
regimes or the Japanese consensus model. In the for-
mer, a ruling elite seeks to promote industrialization
by excluding previously mobilized economic groups
from power and by building a collaborative relation-
ship with MNEs, while in Japan, democracy prevailed
after WWII and for almost 40 years the ruling Liberal
Democratic Party forged a coalition of voters com-
mitted 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 con-
sensus 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 syn-
onymous 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 pri-
vatization 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, hav-
ing changed into stylish (and expensive) clothes for
Sunday lunch in central Singapore (Srruirs Times
Weekly, December 18, 1993b).
Third, government autonomy itself creates incen-
tives which push the government to act “developmen-
tally.” 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 incen-
tive to development is survival in the face of some per-
ceived external threat, as with South Korea and
Taiwan, or following a political trauma, as after the
split between Malaysia and Singapore.
NOTES
I. Wages are a good indicator of value added. In 1990,
72% of those in electronics production were female, com-
pared 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).
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 inter-
ventionism. 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 Singapore’s
development, amply confirmed by experience else-
where in Asia and Latin America, is the funda-
mental 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 devel-
oped. 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 suppress-
ing market signals for too long. In both types of
economy, it becomes less likely that planners’
guesses will end up as superior to those of the
market. In Singapore, difficulties arising from
long-term interference with the market are sug-
gested 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 acti-
vities and promote needed technological change
in the Singapore economy (Disney and Ho,
1990; Young, 1994).
Perhaps the most important reason why govem-
ment 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 under-
standing of the limitations of smallness and extreme
openness for an economy such as Singapore’s in
departing from free trade to “govern the market”
(Wade, 1990). In this regard, Singapore’s brand of
interventionism, not South Korea’s, may be the more
reliable model for less-developed countries aiming to
become late industrializers.
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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