The Singapore Economic Review

The papers in this volume provide a retrospective analysis of Singapore's economic development during the past 50 years, from the perspectives of different policy domains. This introductory review highlights common themes among the papers, chiefly the primacy of economic growth in driving social as well as economic policies, the interconnection between different policy arenas, the persistence of a particular development model despite sharp changes in policy direction, and the dominant role of the state. The authors collectively conclude that economic policy was both innovative and effective in the first two to three decades of independence, particularly in simultaneously delivering on both rapid economic growth and improved social welfare. In more recent decades, economic growth and social welfare for a significant minority of residents have begun to diverge. Looking ahead, there appears to be a consensus that slower GDP growth, higher productivity, a relative shift from manufacturing to services and from a global to a regional market orientation, and more vibrant and innovative local private entrepreneurs, are necessary for continued economic development. There is also consensus that public policy must pay greater attention to directly meeting the growing social needs of the population, especially the poor, low-income, elderly and other vulnerable groups.

The Singapore economy went through several changes due to changes in its mode of governance from being a trading outpost of the East India Company (EIC) to being part of the colony of the Straits Settlements, and more recently to being a British colony by itself, then to being part of Malaysia and now an independent republic. These modes of governance enabled the economy to grow until Singapore became more important and also more closely linked to the outside world. British rule, British capital and the response of the people who came, enabled Singapore to integrate technological change so that it is now part of a global network. However a declining rate of births and a large foreign population now compel Singapore to make further changes.

While Singapore is grappling with policy options to sustain its success over the next 50 years, the developing world is wondering what made it such a success so far. By looking at some developing countries that are stuck in a roller-coaster ride of economic development I highlight some policy lessons they can learn from Singapore's success story. In a nutshell, as pointed out by Singapore's economic architect, Dr. Goh Keng Swee, non-economic factors matter more than the economic factors for a successful take-off of a developing economy. The paper also highlights some complementary development strategies that are instructive to developing economies.

This paper looks at how government intervention shapes the evolution of the Singapore economy and accounts for its successes and failures over the past 50 years. Compared with other dynamic Asian economies, the Singapore government's approach to intervene in the economy is both more extensive and more intrusive, but with a narrow focus on GDP growth and surplus accumulation as the primary objectives. The ruling government's near complete dominance in politics has enabled it to mobilize resources to create the preconditions for strong GDP growth and high savings. But the impact on the broader development of the economy and the long term sustainability of growth is less obvious. High GDP growth and strong savings have been achieved without developing the inherent production and indigenous innovation capacity, securing a larger hinterland and providing a less skewed income distribution and higher quality of life for residents. As the economy enters a new phase where more complex and multi-faceted development is needed, the Singapore government will require more than its vaunted competency in mobilizing resources to deliver the outcome.

This paper reviews Singapore's monetary policy and financial development since independence, including the immediate challenges in the 1960s, the turbulent years of the 1970s with the collapse of the Bretton Woods fixed exchange rate system and the global oil shocks of 1973 and 1979, the introduction of a unique exchange rate-centered monetary policy in 1981, the Asian financial crisis of 1997–1998 and the global financial crisis of 2007–2009. Despite being a late starter (1971) and given a number of obstacles, not least the high degree of openness of the Singapore economy to trade and capital flows, the Monetary Authority of Singapore has built up a high degree of credibility within a relatively short space of time and delivered low and stable inflation. Although financial development has been "government made" rather than market-driven, proactive and sensible policies have built on Singapore's long history as a regional trading hub to turn Singapore into a premier financial center in terms of foreign exchange trading, offshore money market intermediation and asset management. Nonetheless, some challenges remain: How monetary policy can deal with asset price bubbles and deflationary pressures and steer a careful course to maintain price stability without jeopardizing Singapore's transitory restructuring process to achieve sustainable economic growth.

Public financial management (PFM) has played an important role in Singapore's remarkable economic success since its independence. This paper analyzes select characteristics of Singapore's PFM strategy and prospects for their continuation. An underlying theme has been ensuring that PFM is consistent with and enables Singapore's location-based growth strategy. Other characteristics include conducting economic activities outside the conventional government budget giving rise to a much larger role for the public sector than reflected in the budget; extensive use of non-conventional sources of revenue such as from the lease of land, creating property and usage rights to generate tax-like revenue; and limited social risk pooling in financing national spending on healthcare and pensions. As Singapore's business-location-based strategy reaches its limits, and an affluent and ageing population aspires for greater economic and social security, transparency, and effective participation in public policies, current PFM practices will need to undergo significant changes towards a more citizen-centric governance focus. Policymakers' response will not be constrained by lack of fiscal resources, or by institutional and organizational capacities.

This paper discusses how Singapore's labor market policies since independence have been molded by the state-driven, foreign investment-led, export-oriented, manufacturing-focused development model the country has followed over the past fifty years. The literature we review shows that high GDP growth has been achieved through factor accumulation rather than productivity increase, a strategy of extensive growth that has now run into diminishing returns as well as political, social and resource constraints. Prolonged heavy dependence on imports of foreign labor and skills to attract foreign investment has contributed to low, declining and even negative productivity growth, with low real GDP growth in recent years. In response, the government is pursuing renewed economic restructuring, limiting foreign labor inflows, targeting investments more selectively, and promoting productivity and innovation, so far with uncertain results. This paper suggests that Singapore should let market forces propel the economy toward services, domestic consumption and regional trade, led by domestic private enterprise. But the retreat from established state industrial and social policies will be difficult.

The Singapore economy has undergone rapid growth and structural transformation from a Third World laggard to a First World sophisticated and dynamic economy. It has overcome constraints of land and natural resources by adopting free trade and investment strategies and building on its global and regional maritime and air links. However, despite its very high per capita income, Singapore's technological, innovative and entrepreneurial capabilities are not on par with the most advanced economies. High dependence on foreign multinational corporations (MNCs) and government-linked-companies (GLCs) has contributed to the underdevelopment of local private enterprise and innovation. High dependence on "foreign talent" has also contributed to the underdevelopment of local talent. For future sustainable development, Singapore has to succeed as an innovative economy, and the state will have an important role as facilitator of local innovation and enterprise.

The trajectory of Singapore's population size and composition can be mapped out with its progression through the various phases of demographic transition from high birth and death rates in the post-war years to very low birth and death rates today, all within the context of rapid economic and social development that has taken place in the past 50 years. Population planning has been integral in Singapore's national development strategy, balancing the economy's needs for more and better qualified workers with social considerations such as the dependency burden and the integration of large numbers of foreigners in a global city-state. This paper considers Singapore's population and manpower planning policies, with an account of the country's passage through the various stages of its demographic transition, and how its working age population composition has evolved. Population and labor force policies are examined with specific consideration of the social, economic and political implications resulting from those policy choices. A final section considers the challenges for the future stemming from these demographic trends.

Singapore has developed its own unique state-driven housing system, with more than three quarters of its housing stock built by the Housing and Development Board and homeownership financed through Central Provident Fund savings. As a result, it has one of the highest homeownership rates amongst market economies. This paper provides a historical perspective of the main housing problems faced by successive prime ministers and their respective policy responses. Under the leadership of Prime Minister Lee Kuan Yew (1959–1990), the government established an integrated land-housing supply and housing finance framework to channel much needed resources into the housing sector to deal with a chronic housing shortage. Under Prime Minister Goh Chok Tong (1990–2004), asset enhancement schemes to renew aging estates as well as market deregulation measures were implemented. Prime Minister Lee Hsien Loong (2004–present) has been confronted with a different set of challenges — investment demand for housing, rising inequalities and rapidly aging population. These problems have brought about the introduction of carefully crafted macroprudential policies, targeted housing grants to assist low and middle income households, and schemes to help elderly households monetize their housing equity.

The Central Provident Fund (CPF) system has worked well for majority of Singaporeans who are able to work consistently over their life cycle and have made prudent housing choices. However, the inherent structure of CPF, which is based purely on contributions, is unable to address retirement adequacy for its vulnerable members. Adding a means-tested non-contributory basic pillar to the system will make the system more inclusive. This paper studies the pension cost of a targeted old-age income support system for needy elderly to help meet their basic living expenses. A Lee–Carter stochastic model is used to forecast the elderly population. Pension costs depend on coverage and benefit levels and the cost of living adjustments. The viability of a basic retirement support scheme would also depend on the speed of ageing and the rate of economic growth.

This paper reviews the trends in poverty and inequality in Singapore since independence, as well as policy recommendations adopted through the years, and their results. Poverty is discussed not only in terms of wage earnings, but also in relation to employment conditions, social challenges that pile up together with income poverty, and intergenerational mobility. The paper finds that notwithstanding improvements in early decades, after fifty years, the problems of a social divide and poverty have come full circle. Social policy in Singapore retains its fundamentally productivist philosophical orientation, but the recent deterioration in poverty, inequality and mobility trends is leading to adoption of more welfare-oriented and universalist policy solutions. Social inclusion is now a national priority, and policy redirection for the future needs to take place in wide-ranging policy domains, including the labor market and economic growth.

Energy and environmental policies in Singapore have had two goals — to help the Singapore economy grow, and to keep Singapore clean and green. Energy policies such as development of an energy industry and an energy trading hub have contributed to economic growth and high per capita income, while enhancing energy security. There has been clear success toward achieving water self-sufficiency while providing water for all, and Singapore has become a global leader in the development and commercialization of water reclamation technologies. On the environmental front, indicators such as the share of green space, the ratio of wastes recycled, and decrease in some air pollutants show progress toward being clean and green. Per capita energy consumption has jumped to a high level by international standards, due to industrial structure, but energy efficiency and carbon emissions (per capita and per $ of GDP), have improved.