Why is Singapore so rich? | CNBC Explains

Summary

This video explores Singapore's remarkable economic rise, despite its small size and lack of natural resources. The country's strategic location, strong government intervention, and focus on exports helped transform it into a global financial hub. Singapore's public housing initiatives and labor reforms further attracted foreign investment. However, the video highlights challenges like the high cost of living and growing income inequality, despite the nation's wealth. While Singapore boasts many millionaires, the gap between rich and poor has become a national concern. The video concludes by addressing the ongoing debate about inequality in the country.

Takeaways

• 🗺️ Singapore's strategic location at the center of a key trade route between Asia and Europe has been pivotal to its economic success.
• 🏙️ Despite its small size and lack of natural resources, Singapore has one of the highest average incomes globally, surpassing countries like Germany and Japan.
• 🇬🇧 Singapore's post-independence relationship with Britain signaled openness to global business, which was crucial for its economic growth.
• 🐯 The 'Asian Tigers', including Singapore, grew rapidly from the 1960s due to exports, industrialization, and significant government intervention.
• 🏢 The Singaporean government's early focus on affordable public housing played a critical role in building a disciplined labor force and reducing labor strikes.
• 📉 Singapore's first post-independence recession in 1985 led to economic restructuring, including the privatization of state-owned companies to boost competitiveness.
• 💼 The liberalization of service industries in the late 20th century attracted multinational companies, increasing Singapore's GDP and establishing it as a business hub.
• 💼 Singapore is now one of the easiest places in the world to do business, which continues to attract investment and contribute to its wealth.
• 💰 While Singapore is rich in terms of GDP per capita, high living costs and income inequality mean that not all residents feel wealthy.
• 🏦 A significant portion of Singaporeans' income is directed into a mandatory savings account, which affects their purchasing power despite high average incomes.

Q & A

How long does it take to drive across Singapore?

It takes just an hour to drive across the island of Singapore.

What is one of the key factors contributing to Singapore's high average income?

Singapore's strategic location in the middle of an important trade route connecting Asia to Europe has been a key factor in its economic success.

Why did the British establish a colony in Singapore in 1819?

The British established a colony in Singapore in 1819 due to its strategic location on a key trade route, which was beneficial for trade and commerce.

What term is used to describe Singapore, Hong Kong, Taiwan, and South Korea's rapid economic growth since the 1960s?

These four economies are collectively known as the 'Four Asian Tigers' due to their rapid growth fueled by exports, industrialization, and government intervention.

What was one of the first actions taken by the Singapore government to build a disciplined labor force?

One of the first actions was to focus on building affordable public housing, which provided workers with a stable living environment and incentives to work.

How did the Singapore government attract foreign investment in the past?

The government attracted foreign investment by offering tax incentives, which helped grow the economy and ease unemployment.

What significant change occurred in Singapore's economy from the 1980s to the present?

Manufacturing, which was a major part of Singapore's economy in the 1980s, now only accounts for about 20 percent of its GDP, with services like finance and insurance growing to over 70 percent.

How did Singapore's first post-independence recession in 1985 affect its economic policies?

The recession prompted the government to privatize state-owned companies and liberalize service industries, making them more competitive and attracting more foreign investment.

Why has Singapore been named the world's most expensive city for five years in a row?

Singapore's high cost of living is largely due to taxes on cars, making it the most expensive place to buy and run an automobile, and high costs for other goods and services.

What is the Gini coefficient and how does Singapore's Gini coefficient compare to other developed countries?

The Gini coefficient is a scale used to measure income inequality, with zero being the most equal and one being the least. Singapore's Gini coefficient was 0.356 in 2017, indicating a higher level of inequality compared to countries like the UK, Japan, and Germany, but lower than some others like the United States.

What measures is the Singapore government taking to address the issue of inequality?

The government has recognized inequality as a national priority and is working on policies to tackle it, although the effectiveness of these measures is yet to be seen.

Outlines

00:00

🌏 Singapore's Economic Success

Singapore, despite its small size and lack of natural resources, has one of the highest average incomes globally. Its strategic location on a key trade route between Asia and Europe has been crucial to its prosperity. The British established a colony there in 1819, recognizing its potential. Singapore's post-independence policies, including maintaining ties with Britain and focusing on exports, industrialization, and government intervention, have been instrumental in its economic growth. The government's efforts to build affordable public housing, attract foreign investment, and reduce unemployment have transformed the country into a regional manufacturing hub and a global financial center. However, the high cost of living and income inequality remain challenges.

05:01

💰 Wealth and Inequality in Singapore

Singapore is home to a significant number of millionaires, reflecting its status as a wealthy nation. However, the country also faces issues of income inequality. The Gini coefficient, a measure of income distribution, indicates a higher level of inequality in Singapore compared to other developed countries. The government has acknowledged this as a national priority. A think tank's findings suggest a social divide, with public housing residents having few connections with those in private housing. The video concludes with a call for more content suggestions and an invitation to subscribe for future videos.

Keywords

💡Singapore

Singapore is a small island nation in Southeast Asia known for its economic prosperity despite its lack of natural resources. The video explores how Singapore transformed from a developing country to a major global financial hub by leveraging its strategic location and government intervention, focusing on exports and industrialization.

💡Location

Singapore's location along a major trade route between Asia and Europe played a pivotal role in its economic success. The British recognized this strategic position when they established a colony there in 1819, allowing Singapore to become a key player in global trade.

💡Colonial history

Unlike many of its neighbors, Singapore maintained close ties with Britain after gaining independence in 1965. This decision helped Singapore position itself as a business-friendly nation, signaling to the global market that it was open to foreign investment, contributing significantly to its economic development.

💡Asian Tigers

The term 'Asian Tigers' refers to four rapidly industrializing economies: Singapore, Hong Kong, Taiwan, and South Korea. In the video, Singapore is highlighted as one of these economies, driven by exports, government intervention, and industrialization starting in the 1960s.

💡Public housing

Public housing in Singapore is a key part of its economic and social development. The government created affordable housing to improve living conditions and foster a disciplined workforce. Today, over 80% of Singapore's population lives in public housing, compared to just 9% in the 1960s.

💡Foreign investment

The Singaporean government implemented tax incentives to attract foreign companies, which helped reduce unemployment and grow the economy. This strategy was crucial in the transition from a struggling post-colonial nation to a regional manufacturing hub and, later, a global financial center.

💡Privatization

During Singapore's 1985 recession, the government privatized state-owned companies to improve their competitiveness. This included sectors like telecommunications and marked a shift toward economic liberalization that would attract more foreign investment and support Singapore’s growth.

💡Service sector

Singapore’s service sector, including finance and insurance, expanded significantly in the late 20th century. By liberalizing these industries, the share of services in Singapore's GDP grew from 24% in 1985 to over 70% in 2017, reflecting a shift away from manufacturing toward high-value services.

💡Inequality

Despite its economic success, Singapore faces significant income inequality, with a Gini coefficient of 0.356 in 2017. The video points out that this inequality is a national concern, especially as it affects social cohesion, as seen in the divide between public and private housing residents.

💡Cost of living

Singapore consistently ranks as one of the most expensive cities in the world, with high costs for cars, housing, and clothing. While the country enjoys a high GDP per capita, the cost of living limits the purchasing power of its citizens, contributing to social issues like inequality.

Highlights

Singapore is a small island nation that can be driven across in just an hour, yet it boasts one of the highest average incomes in the world.

Despite its lack of natural resources, Singapore's strategic location on a major trade route has been crucial to its economic success.

The British established a colony in Singapore in 1819 due to its valuable location, which played a significant role in its growth.

Singapore kept close ties with Britain even after gaining independence in 1965, positioning itself as open for business and boosting its global trade appeal.

Singapore, along with Hong Kong, Taiwan, and South Korea, became known as one of the 'Four Asian Tigers' due to rapid growth fueled by exports and government intervention.

In the 1960s, Singapore faced high unemployment and a housing crisis, but government initiatives focused on building public housing and improving employer rights.

Today, over 80% of Singapore's population lives in public housing, a significant increase from just 9% in the 1960s.

Government tax incentives helped attract foreign investment, lowering unemployment from 14% in 1959 to 4.5% in the 1970s.

By the 1980s, Singapore had become a major manufacturing hub, known for being the world's largest producer of hard disk drives.

Economic growth surged twice in Singapore’s recent history—first in the late 1980s and then again in the early 2000s.

A recession in 1985 prompted the government to privatize state-owned companies and liberalize service industries, further driving economic growth.

By 2017, the services sector made up more than 70% of Singapore's GDP, compared to just 24% in 1985.

Despite its economic success, Singapore faces challenges like high living costs and income inequality, with the city being named the most expensive in the world.

Singapore has a high Gini coefficient, indicating income inequality higher than countries like the UK and Japan, though lower than the US.

The government's efforts to address inequality are ongoing, with public debates about social class divides and disparities in wealth continuing.

Transcripts

Singapore is a tiny country, so tiny you can drive across the island in just an hour.

Despite its size and lack of natural resources, Singapore’s 5.6 million people enjoy

one of the highest average incomes in the world, ahead of countries like Germany, France and Japan.

So, how did this little island get so rich?

Singapore doesn’t have resources like coal or oil but it does have something countries can’t buy, location.

The island sits in the middle of an important trade route connecting Asia to Europe.

That’s a key reason why the British decided, back in 1819, to set up a colony in Singapore.

Location isn’t everything though.

There are several countries nearby that could have made use of their whereabouts,

but they weren’t quite as successful.

That’s because there are other ingredients that go into this crazy rich Singapore recipe.

I’m at the Raffles Hotel, which is one of the most prominent icons of Singapore’s colonial history.

Unlike some of its neighbors, which wanted to separate themselves from their colonial histories,

Singapore kept close ties with Britain, even after independence in 1965.

That decision announced to the rest of the world that Singapore was open for business.

That’s important because we know now that exports help to grow and expand an economy.

But back then, it wasn’t conventional wisdom.

Singapore, Hong Kong, Taiwan and South Korea, became known as the four Asian tigers,

which have grown rapidly since the 1960s.

Their rise was fueled by exports, industrialization and more crucially, big doses of government intervention.

This was especially true for Singapore.

Labor strikes were common on the island in the 1960s, even with high unemployment.

On top of that, there was a housing crisis,

with Singapore being home to one of the largest slum settlements in the world.

So how do you build a more disciplined labor force to attract investment?

Well, you give them something to work for, like a house of their own,

which is why one of the first Singapore government agencies set up was

focused on building affordable public housing.

While just nine percent of the population lived in public housing in the 1960s,

that figure stands at more than 80 percent today,

add in greater employer rights and strikes became extremely rare.

At the same time, the government attracted foreign investment through tax incentives,

growing the economy and easing unemployment,

which fell from an estimated 14 percent in 1959 to 4.5 percent in the 1970s.

By the 1980s, Singapore was a regional manufacturing hub,

and it was the world’s biggest producer of hard disk drives.

But today, manufacturing makes up only about 20 percent of Singapore’s GDP.

Take a look at Singapore’s growth in GDP.

You can see two big surges, one beginning in the late 80s and another at the start of the new millennium.

Ironically, Singapore has a downturn to thank for that.

You see, in 1985, Singapore went into its first post-independence recession,

prompting the government to introduce new measures.

State-owned companies like telecommunications were privatized to make them more competitive.

Then at the turn of the century, service industries like finance and insurance were further liberalized.

That openness helped to grow the share of services from just 24 percent of GDP in 1985

to more than 70 percent in 2017.

Multinational companies began to set up regional headquarters in Singapore.

That attracted even bigger players, boosting Singapore’s attractiveness to corporates and in turn its GDP.

Now, Singapore is ranked as one of the world’s easiest places to do business.

Singapore has been praised for transforming itself from a developing to a developed economy.

But do most Singaporeans feel rich?

Well, not exactly.

Two of the most important reasons?

The high cost of living and inequality.

For five years in a row, Singapore has been named the world’s most expensive city,

ahead of New York and London.

That’s largely because of taxes on cars, making Singapore the most expensive place in the world

to buy and run an automobile.

It’s also the third most expensive place on Earth to buy clothes.

But personal care, household goods and domestic help in Singapore

tend to be less expensive than in other major cities.

While Singapore is rich in terms of GDP per capita, the median monthly salary is $3,270.

That doesn’t sound too bad, but about 20 percent of that goes into a mandatory savings account.

You can use that account to pay for medical bills, housing and education,

but it does restrict the purchasing power of the population.

You’ve probably heard of the movie Crazy Rich Asians, which was set here in Singapore.

And it’s no wonder.

Because Singapore has about 184,000 millionaires, making it truly the land of the crazy rich.

That’s great news.

But Singapore also has a fairly high rate of inequality, compared with other developed countries.

Let’s look at the Gini coefficient, which is a scale used to calculate inequality,

with zero being the most equal and one being the least.

Singapore’s Gini coefficient, after accounting for taxes and transfers, was 0.356 in 2017.

That was worse than countries like the United Kingdom, Japan, Korea and Germany,

although it fared better than some, like the United States.

Is that number really that bad?

That question had books like this flying off the shelves.

A think tank ignited public debate on the divide in social classes, after it found that on average,

Singaporeans who live in public housing have fewer than one friend who lives in private housing.

The government has called the issue of inequality a national priority,

but it remains to be seen if it is a problem that can be tackled effectively.

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