The Only Road Singapore Can Take
Singapore has no hinterland. It’s only inherent resource is its people; which isn’t abundant either given the realities of both small living spaces and declining birthrates. It is only upon the combinations of:
1) Capitalism and Trade Liberalism as a trending economic ideologies (thank you Adam Smith and U.S for championing it)
2) Industrial Revolution (thanks to all the scientists/inventors up till that point in history who made the technological progress possible) which tore down a huge trade barrier: transport cost/efficiency
3) And the wisdom of our political leaders back then who were enlightened enough to see that an open economy was the only viable economic survival strategy for Singapore
That has miraculously made Singapore a prosperous nation.
So many things could have gone wrong and Singapore, which was accurately referred to as a nation that was never meant to be; prospered anyway. The only economic road that Singapore can ever take, until an economic idea that revolutionize the way we do economics comes into existence, is to remain OPEN.
“Singapore has a very open economy. From the moment we were separated from Malaysia, it was destined that, as a port city cut off from its natural hinterland, we had no way to develop other than to create very extensive links with the rest of the world. Today, accepting to the WTO figures, our trade to GDP ratio (416%) greatly exceeds those of our neighbors Malaysia (167%) and Indonesia (47%) as well as those of other Asian economies…such as Taiwan (135%), South Korea (107%) and Thailand (138%).”(Yew, 2013)
Reasons for our Prosperity
It is no secret that Singapore has miraculously prospered economically over the last 5 decades, especially from the 60s till 90s where growth was at an average rate of 8%. We have prospered through a multitude of factors. But the 2 most important ones are no doubt:
1) favorable external environment
2) government facilitation of:
a)investments (FDIs through attraction points like developed infrastructure, PAP’s political dominance which equates to stability, and low corporate taxes) into Singapore
b) free trade (through FTAs and diplomacy)
c) high saving rates (CPF, a compulsory saving scheme).
However, both of these factors (govt facilitation and favorable external environments) are equally indispensable. Without sound governance, we can be like North Korea; stuck in its own hermit kingdom since 1950 without much economic progression. Without favourable external environment such as a booming global economy as seen in the Golden Age of Capitalism (1945-75); our export (The X in CIG(X-M)=Aggregate Demand) will not grow. Since our external economy is the main engine of growth (416% external trade WRT GDP), it will be detrimental to our growth. Sadly, good things really never last, and an unfavorable external environment is the reality that we are facing right now.
Sluggish Global Economy
We have a slow growing global economy right now, I’m sure you can tell because it is always in the news. In almost every politic/economic articles you will see this phrase “slowing global economic growth” or its variants. Why? 3 main reasons, which admittedly, are speculations on my part:
1) The extra benefits that we are getting from opening up to trade is saturated. Back in the last half of the previous century, economic boom happened on such extreme scales because the act of opening up to trade opened up MARKETS, HUGE MARKETS. Now? Most economies are opened already and the only collective benefits we are getting is the global population growth – which would boosts demand for all inter-connected economies. The absence of the factor that caused that phenomenal growth back then can partially explain why the economy is so sluggish today.
2) The world is still recovering from the 2008 Financial Crisis. Yes it is, and since that event broke the growth momentum; economies have been slow to pick itself up. That results in slow global growth in general.
3) Governments agenda focus is mainly on counter-terrorism. It is quite logical to think that if governments are pooling resources to fight terror threats for the last decade; it is going to compromise its efforts to grow the economy, right? Even though war can be a lucrative pursuit, fighting terrorism is not so much of the case because it would seem that the cost has outweighed the benefit: search up on America’s War on Terror and witness the media’s emphasis on how expensive it is.
Singapore’s not-so-bad situation
Singapore is actually doing pretty good in spite of the sluggish global economy. This is mainly because of consistently sound government policies that help to buttress and compensate against its negative impacts. With:
1) a competitive, credible and arguably good education system;
2) provision,subsidies and incentives for training and skills upgrading of workforce to reduce structural unemployment, and keep the quality of its human resource high;
3) and business friendly environments such as low corporate tax, reliable infrastructures (arguable now because of public transport and telco breakdowns) and attraction spots for expats such as the Marina Bay casino and Resort World Sentosa.
All these contributed to the still healthy economy that we have:
“Unemployment is low, including among youth, and incomes are rising even for lower- and middle- income families…We are still creating more jobs than there are Singaporeans to fill them.” – Lee Hsien Long, Singapore PM in the PAP conference on 04/12/16
And not to mention, while other governments are applying austerity measures because they are in fiscal debt; Singapore government is increasing social spending now when it matters the most in terms of maintaining political stability. The incumbent’s ability to do so is thanks to its predecessors’ prudent policies that had led it to accumulate an unknown but undoubtedly huge reserves since its founding. Overall, Singapore is doing not too bad at all.
Nonetheless, we should not and have not fall to complacency; the government is still trying to boost productivity and upgrade its human resource because the incumbent party is geared towards the mindset that they shall never rest until the future is certain to be bright – even though there will never be certainty about the future. Joseph Nye is right in this case, small is beautiful indeed; because being small keeps our hubris away.
Let’s just address the elephant in the room: Donald Trump’s presidency. Economically, there are 2 complimentary viewpoints with regards to this development and Singapore’s economy:
1) Singapore has lost its potential economic rebound: The Trans-Pacific Pact
2) Singapore would not fall just because US turns protectionist. But the wider trend that it inspires might do it instead.
The Trans-Pacific Pact
This was never well-received in America and it was doomed anyway even if Clinton got elected. The main point of unhappiness with the TPP is the fact that details of the deal are classified (for now, as with all trade deals until it reaches the stage of ratification). The lack of transparency raised eyebrows and consequently condemned by both candidates alike (to appeal to populism). Donald Trump has fully confirmed that his cabinet will withdraw US from the deal and that really sucks because the deal is supposed to break down more trade barriers. For Singapore, we can always use more trade so this is a huge opportunity cost.
U.S Protectionism Will Have Minimal Direct Impact to Singapore’s Economy
Thanks once again to our government’s prudence, our trade partners are diverse in nature as a measure against over-reliance on few trade partners which can make our economy vulnerable to nation-wide recession. “Their (The US) contribution to our GDP is less than 20%. It is the rest of the world that will sustain Singapore and provide us with prosperity – not just Americans, but also the British, the Germans, the French, the Dutch, the Australians and so on.”(Yew, 2013).
The Wider Trend of Protectionism Can Be Highly Detrimental
Today, we are facing the middle-class backlash against the elites. Trade Liberalism may have helped nations prosper, but the prosperity is not equal within each society. Trade may have improved the well-being of everyone, bringing Globalization to a higher level, boost technological progress, etc. But it has exacerbated income inequality. Moreover, the system of liberal trade had demonstrated its deep flaw in 2008, with an American property market collapse causing a global financial crisis. After which, the middle class saw little to no pay-rise for 8 years because the economies were slow to pick itself up. Central political parties are losing ground not because they are no longer viable, they are losing because the voters are elicited to provide an emotional response; to vote for populist candidates that stands oppose to the current system. As of now, we have Brexit, Donald Trump and the prospect of Italy leaving EU because the PM resigned over the result of a referendum of his constitutional reform; leaving the seat open for a populist to take over. This trend of populism/protectionism,which I don’t know how far it will go, if extensive enough (hard to say but at this point it is unlikely to be very widespread) ; can be very disastrous for Singapore’s economy.
Economically, Singapore has prospered due to the holy mix of good governance and favorable external environment. In recent years, the external environment is becoming less favorable; and it is only getting worse due to recent developments. Singapore has coped fairly well so far economically due to exceptionally prudent and good governance. It is hard to say how long we can last in the current trajectory of the global economy.
An apt analogy for our situation would be a hunter stranded in the snowstorm. Over the years of favorable weather, the hunter (Singapore) has hunted animals to eat, keeping himself well-nutritioned. The hunter’s brain (Singapore government) was also prudent in thinking; stockpiling meat for unfavorable times (reserves). Right now, winter has come (unfavorable global economic climate) and the hunter can no longer hunt. The hunter rations and lives on the stockpile. But the reality remains that the food is finite, the hunter will still starve and die if the winter lasts for too long. And so the question is, how long will this winter last?
Yew, L.K. (2013) One man’s view of the world. .