How Does Singapore’s Economy Outperform Other Asian Economies? | Economy of Singapore | Econ

Summary

Singapore, a tiny island nation, has transformed into a global business hub with the world's second-highest per-capita GDP, ranking highly in economic freedom and low corruption. Its strategic location and history as a British trading post laid the foundation for its economic boom. Post-independence, visionary leadership and policies focusing on free trade, foreign investment, and social welfare catapulted its growth. Today, it faces challenges like income inequality and reliance on foreign talent, yet remains a model for urban development and economic strategy.

Takeaways

• 🌏 Singapore is recognized as a global business hub and a gateway to Asia, boasting high rankings in economic freedom and low corruption.
• 🏙️ The city-state has transformed dramatically from its early days as a British trading post to a modern financial center with a skyline of skyscrapers.
• 💼 Singapore's strategic geographical location and status as a free port were pivotal in its rise as a trade center, especially after the Suez Canal's opening.
• 🏛️ Historically, Singapore's development was heavily influenced by British colonial policies, which established it as a key trading post in the region.
• 🚧 Post-World War II, Singapore faced significant challenges including infrastructure damage and social unrest, leading to its push for self-governance.
• 🏦 Economic reforms under Lee Kuan Yew, including the adoption of economic liberalism and free market principles, were crucial for attracting foreign direct investment.
• 🏘️ The Singaporean government's control over resources like land, labor, and capital, along with strategic social investments, contributed to its economic success.
• 🏢 Singapore's public housing program, managed by the Housing Development Board, has been instrumental in providing affordable housing and maintaining low wages.
• 🌱 The country's focus on high-tech and high-skill sectors, along with aggressive investment incentives, has helped it remain competitive and attract multinational corporations.
• 🌐 Despite its success, Singapore faces contemporary challenges such as income inequality, reliance on foreign labor, and the need for political and social reforms to address modern demands.

Q & A

What is Singapore's ranking in economic freedom?

Singapore ranks first in economic freedom.

How does Singapore's per-capita GDP compare globally?

Singapore has the second-highest per-capita GDP in the world.

What significant transformation has the General Post Office in Singapore undergone?

The General Post Office has been transformed into the Fullerton Hotel, and the area now accommodates one of the world's top financial hubs.

How has Singapore's size impacted its economic development?

Despite being less than half the size of London, Singapore has become a proud global business hub.

What historical event marked the beginning of Singapore's journey towards economic development?

The signing of an official treaty by Stamford Raffles with Sultan Hussein and Temenggong Abdul Rahman in 1819, which led to Singapore being incorporated into the British Empire as a trading post.

What was the role of the Suez Canal in boosting Singapore's trade volume?

The opening of the Suez Canal allowed for a decrease in travel time, which resulted in a rise in trade volume for Singapore.

How did Singapore address the issue of unemployment and poverty after gaining independence?

After independence, Singapore, under Lee Kuan Yew, adopted economic liberalism and the free market for capital flow, attracting foreign direct investment to address unemployment and poverty.

What were the key factors that attracted foreign direct investment to Singapore?

Singapore's strategic location, natural harbor, free ports, and lack of foreign exchange controls or domestic price controls were key factors that attracted foreign direct investment.

How did the Singaporean government's control over resources contribute to social welfare?

The government's control over resources allowed it to focus on housing, medical care, and education, which significantly contributed to social welfare.

What is the Central Provident Fund (CPF) and how does it function?

The Central Provident Fund is a 'forced savings' scheme where employers and employees contribute mandated percentages of salaries to individual accounts, which can be used for housing, medical, educational expenses, and equity investments.

How has Singapore's political stability contributed to its economic success?

Singapore's political stability, with the People's Action Party being the only ruling party since 1959, has allowed for consistent policy-making and planning, contributing to its economic success.

What are some of the challenges Singapore faces in its current economic landscape?

Singapore faces challenges such as low birth rates, income and wealth inequality, expensive housing, reliance on foreign labor, and a need for political and social reforms to address modern issues like free speech and outdated regulations.

Outlines

00:00

🌏 Singapore's Economic Ascendancy

Singapore, a small island nation, has emerged as a global economic powerhouse. It boasts the highest economic freedom, a skilled workforce, and minimal political risks. With the world's second-highest per-capita GDP, it's also among the least corrupt countries. The transformation began with British colonial rule in the 19th century, where Singapore was established as a free port, leveraging its strategic location to become a trade hub. Post-independence in 1965, Singapore faced challenges but capitalized on its port facilities and adopted economic liberalism to attract foreign investment. The government's strategic management of resources, investments in social welfare, and promotion of free trade and capital flows laid the foundation for its economic success.

05:01

🏭 Industrial Policies and Economic Development

Singapore's economic strategy diverged from other Asian Tigers by focusing on industrial policies and selective protection to direct capital to key sectors. This approach led to multinational enterprises dominating the export market. The government's control over resources and allocation, investments in housing, healthcare, and education, and strategic labor and wage policies contributed to high labor productivity. The Central Provident Fund acted as a forced savings scheme, enabling the government to provide public services without deficits. Singapore's rapid urban development and business-friendly policies made it a preferred location for multinational headquarters, earning it the nickname 'Singapore Inc.'

10:01

🌱 Singapore's Challenges and Future Outlook

Despite its economic achievements, Singapore faces challenges common to high-income, dense urban economies, such as low birth rates, income inequality, housing affordability, and reliance on foreign labor. Its small size necessitates a focus on agrotechnology for food security and a heavy dependence on world markets for exports. Singapore continues to attract foreign investment with incentives and improve its competitive advantages. However, societal changes and a younger generation's push for more freedoms require the government to adapt its policies. For continued success, Singapore must address these challenges and consider a more flexible approach to governance and social issues.

Keywords

💡Economic Freedom

Economic freedom refers to the ability of individuals and businesses to conduct economic activities without undue government interference. In the context of the video, Singapore ranks first in economic freedom, which is a key factor in its economic success. The video highlights how Singapore's policies have fostered an environment where businesses can thrive, contributing to its high per-capita GDP and status as a global business hub.

💡Per-Capita GDP

Per-capita GDP is a measure of a country's economic output per person, indicating the average economic wealth of its citizens. The video mentions that Singapore has the second-highest per-capita GDP in the world, showcasing its economic prosperity. This high ranking is a testament to Singapore's effective economic policies and the overall wealth of its population.

💡Corruption

Corruption is the abuse of power for personal gain, which can hinder economic development and social progress. The video states that Singapore is the 4th-least corrupted country, implying a transparent and efficient government. This low level of corruption is a significant factor in attracting foreign investment and maintaining a robust business environment.

💡Colonization

Colonization is the establishment and control of settlements in one territory by people from another territory, often involving the exploitation of resources and people. The video discusses how Singapore was colonized by the British Empire, which laid the foundation for its strategic position as a trading post. The history of colonization is crucial for understanding Singapore's development into a global trading and financial hub.

💡Free Port

A free port is a customs territory with minimal or no tariffs, taxes, or other trade restrictions, allowing for the free flow of goods. The video explains that Singapore was established as a free port by Stamford Raffles, which was instrumental in its rise as a trade center. The free port status has been a significant factor in Singapore's economic development, attracting international trade and investment.

💡Suez Canal

The Suez Canal is a man-made waterway connecting the Mediterranean Sea to the Red Sea, significantly reducing travel time between Europe and Asia. The video mentions the opening of the Suez Canal, which increased Singapore's trade volume by facilitating faster and more efficient trade routes. This event highlights the importance of geographical and infrastructural advantages in Singapore's economic growth.

💡Economic Reforms

Economic reforms refer to changes in economic policies and structures to improve efficiency and stimulate growth. The video discusses how Lee Kuan Yew, upon being elected, implemented significant economic reforms in Singapore. These reforms, which included adopting economic liberalism and free market principles, were crucial in transforming Singapore's economy and attracting foreign direct investment.

💡Foreign Direct Investment (FDI)

Foreign Direct Investment is an investment made by a firm or individual from one country into business interests located in another country. The video highlights how Singapore attracted substantial FDI by offering a strategic location, free ports, and a business-friendly environment. The influx of FDI played a pivotal role in Singapore's rapid economic development and industrialization.

💡Housing Development Board (HDB)

The Housing Development Board is a Singapore government agency responsible for public housing. The video mentions that HDB has housed about 85% of Singapore's population, providing affordable housing. This has not only improved social welfare but also contributed to economic stability by keeping wages low and ensuring a steady supply of labor.

💡Central Provident Fund (CPF)

The Central Provident Fund is a compulsory savings scheme in Singapore where both employers and employees contribute a percentage of the employee's salary. The video explains that CPF serves as a form of social security, with funds used for housing, medical expenses, and retirement. This system has been a key component in Singapore's social and economic policy, promoting financial prudence and stability.

💡Multinational Enterprises (MNEs)

Multinational Enterprises are companies that operate in multiple countries and are typically large in scale and global in scope. The video notes the dominance of MNEs in Singapore's manufactured export sector, which has been a significant driver of economic growth. The presence of MNEs in Singapore is indicative of its successful strategy to become a global business hub, attracting investment and fostering innovation.

Highlights

Singapore ranks first in economic freedom, labor force quality, and lack of political risks.

It has the second-highest per-capita GDP in the world and is the 4th-least corrupted country.

Singapore has evolved from a colonial port city to a global financial hub with one of the highest GDPs per capita.

In 1819, Sir Stamford Raffles signed a treaty establishing Singapore as a British trading post.

Singapore's free port status and strategic location were key in attracting trade and foreign investment.

The opening of the Suez Canal in 1869 boosted trade volume and helped Singapore become a key trade center.

After gaining independence in 1965, Singapore faced high unemployment and poverty but used its ports to rebuild.

Lee Kuan Yew adopted free-market policies and attracted foreign direct investment, leading to rapid economic growth.

Singapore's government has been a key player in economic development, focusing on housing, healthcare, and education.

Singapore Housing Development Board (HDB) has provided housing for 85% of the population, keeping wages low.

Public sector agencies in Singapore often run surpluses, and the government budget is almost always in surplus.

Singapore's transformation parallels the rise of other 'Asian Tigers,' but it has outperformed them economically.

Singapore's asset management industry held $4 trillion in assets under management (AUM) in 2021.

Singapore is now a tax haven for the ultra-wealthy, contributing to income and wealth inequality in the city-state.

Social media has amplified dissent among younger generations, pressing for more freedom and social change.

Transcripts

This is Singapore, the gateway to Asia.

It ranked first in economic freedom, labor force quality,

and lack of future political risks.

It has the second-highest per-capita GDP in the world,

and Singapore is the 4th-least corrupted country.

Facts like this have had a considerable impact on thinking

about the economic development of Singapore.

These two photos tell a lot about Singapore's economy; in the left photo, we can see the

mouth of the Singapore River and the city's General Post Office on the right.

Now, the post office is the Fullerton Hotel, and many skyscrapers accommodate one of the

world's top financial hubs.

We can also see Theatres on the Bay - Esplanade.

The tiny city-state and island nation, less than half the size of London, is currently

home to a proud global business hub.

It has achieved so much in its short solo history as it marks 57 years since gaining

full independence from Malaysia on August 9, 1965.

In the 18th century, the Dutch Empire and British Empire were close economic rivals.

Colonization enabled both parties to gain vast control of resources from civilizations

whose economies were not as advanced.

A British colonial official - Stamford Raffles, had been searching for a new settlement that

could be used as an outpost of the British Empire.

He left Calcutta and set out to explore much of South-East Asia.

When Raffles arrived in Singapore, he met Temenggong Abdul Rahman to negotiate for a

British trading post to be established on the island.

In 1819, Raffles signed an official treaty with Sultan Hussein and the Temenggong and

successfully arranged for the territory

to be incorporated into the British Empire as a trading post.

To compete with other ports under the control of the Dutch, Raffles established the settlement

as a free port, which gave Singapore its strategic geographical location.

There were three major trade networks in Southeast Asia at the time: the Chinese network connected

Southeast Asia to southern Chinese ports of Fujian and Guangdong; the Southeast Asian

network connected Indonesian islands; and the European and Indian Ocean network connected

Singapore to European and Indian Ocean markets.

By the 1830s, Singapore had become the center of English country trade and overtaken Batavia

— a port of Indonesia (now Jakarta)- as the center for Chinese junk trade.

Because Southeast Asian traders prefer Singapore's free port

to other major regional ports with complicated restrictions.

Between 1824 and 1879, Singapore's port trade volume rose from 11 million dollars to 105

million dollars, with the most significant increase seen between 1869 and 1879 due to

the opening of the Suez Canal, connecting the Mediterranean Sea to the Red Sea.

This allowed for a decrease in travel time, which resulted in a rise in trade volume.

The city-state of Singapore became the administrative capital of British Malaya.

Roads and railways were developed to transport primary materials such as crude oil, rubber,

and tin from the Malay Peninsula to Singapore.

Then these products were shipped to Britain and other international markets.

All the raw materials, profits, and resources in this colonial era went to Britain.

In world war II, Singapore's infrastructure had been destroyed,

including those needed to supply utilities.

A food shortage led to malnutrition, disease, and rampant crime and violence.

So, there was nothing left for the local people.

As a result, the region saw social unrest, which dissolved colonial powers in the 1950s.

The colonial powers sought to empower and establish a formidable local government in

the aftermath of race riots.

Singapore ceased to be part of the British Empire when it merged with Malaysia in 1963.

After two years, in 1965, Singapore gained full independence, but it found itself alone

with no substantial industries, no local markets, and high levels of unemployment and poverty.

The only thing they had were their ports.

When Lee Kuan Yew was elected, he oversaw significant economic reforms in the country.

At that time, Singapore doesn’t have the capital to start economic processes.

So Mr. Lee adopted economic liberalism and the free market for capital flow.

The needed capital came in the form of foreign direct investment, but the question remains:

how did Mr. Lee attract so much FDI?

First, its strategic location and natural harbor helped.

Second, Singapore had free ports, with only a few revenue and protective tariffs, and

no foreign exchange controls or domestic price controls, which was common in many developing

countries at that time.

There were also virtually no controls on private enterprise and investment, no anti-monopoly

laws, no approval or licensing required of foreign or local private investments, no limitations

on profit remittances and capital repatriation, and so on.

so, it appears that free trade and free capital flows

are seen as the foundations of Singapore's economic success.

But the so-called Asian tigers — Hong Kong, South Korea, Taiwan, and Singapore,

were doing the same thing then.

From a market perspective, these economies in the 1960s and 1970s developed through free

trade by specializing in the export of labor-intensive manufactures based on comparative advantage.

From a "developmental state" perspective, they relied heavily on the industrial policy

of selective protection and subsidies to direct capital investment to particular sectors,

which gave rise to almost complete multinational enterprise (MNE) dominance

in the manufactured export sector.

Despite the same industrial policy and free market, Singapore outperformed its tiger friends.

At the end of the 20th century, Singapore's per capita income was already higher than

almost anywhere in Asia and overtook the United Kingdom.

So, what did Singapore do differently to dramatically boost its GDP per capita?

Since its political independence in 1959, the People's Action Party (PAP) has been the

only party to have power in Singapore.

A distinctive feature of the Singapore economic model was government owns, controls, or regulates

land, labor, and capital resource and their allocation.

By doing this, the Singaporean government focused on the three most important aspects

of social welfare; housing, medical care, and education.

Most notably, Singapore's Housing Development Board (HDB) has housed some 85% of the population

since the 1980s, building and maintaining "public" housing units

which most residents own.

Affordable housing helped keep wages low while integrating industrial premises into residential

housing estates provided an easily accessible supply of factory labor.

Investments in public health and education increased labor productivity and skills.

At the same time, a vigorous family planning campaign encouraged low fertility and significantly

increased female labor force participation.

The government also influences the wages and salaries of its labor in several ways.

The first thing it does is control the supply of labor through visas and immigration.

Second, it employs a significant number of people through the public sector and the Government

of Singapore Investment Corporation, which influences

both labour demand and supply, as well as labour prices.

Third, it is the dominant participant in the government, unions, employers, and the National

Wages Council, which comes up with annual wage increase guidelines for the private sector.

Fifth, it controls the labor movement and significantly influences the business sector.

Social security was provided through a Central Provident Fund (CPF) or “forced savings”

scheme in which employers and employees contributed mandated percentages ranging from 20% to 50%

of employees’ salaries to individual CPF accounts.

Though intended to be retirement savings, employees could and did use these funds to

purchase housing, limited medical and educational expenses, as well as equity investments in

specific “blue chip.”

Implementing such institutional innovations enabled the Singapore government to provide

high-quality public and social goods and services without running a deficit in the public sector.

The Majority of public sector agencies earned surpluses from user charges, and the government

budget was almost always in surplus,

with revenues exceeding expenditures almost every year.

“Singapore Inc.” became a frequently-invoked moniker in the international business press,

even before the privatizations of the 1990s and 2000s turned monopolistic state agencies

into publicly-listed corporations, e.g., Singapore Airlines, Neptune Orient Lines, Singapore

Telecoms, Singapore Mass Rapid Transit, etc.

dominating the market capitalization of the Singapore Stock Exchange.

Due to the state’s early ability to organize efficiently, it was able to embark on an extreme

makeover of the cities with lightning speed with little political backlash.

As a result of the quick delivery of good infrastructure, low inflation, fiscal balance,

political stability, policy predictability, and low corruption, it became the preferred

regional headquarters for multinationals over cheaper neighbors.

The fact that Singapore has been politically a “one-party state” for three generations

has much to do with the social and institutional support of

its economic success in the 20th century.

Without a doubt, Singapore's transformation from a colonial port city to an industrialized

economy in the twentieth century and now a high-tech economy parallels that of the other

"Asian Tigers" of South Korea, Taiwan, and Hong Kong.

Singapore is now one of the wealthiest nations in the world; according to this report,

the Singapore asset management industry had assets

under management(AUM) of approximately $4 trillion in 2021.

They are still attracting foreign companies in these new sectors by showering them with

investment incentives like tax breaks, R&D and training subsidies, employment subsidies,

cheap land, and unique buildings.

Singapore is constantly improving its competitive advantages of location, infrastructure, logistics,

legal and tax regimes, and the general business environment—all of which contribute to its

popularity as a global financial center and regional headquarters for multinationals.

The attraction is so high that Singapore has become a tax haven, with the ultra-wealthy

owners or investors contributing to widening income

and wealth in the already densely-packed island city-state.

Singapore is so small that it heavily depends on agrotechnology parks for agricultural production.

This means Singapore imports 90% of its food supply and has a wide variety of supplier

countries to achieve its food security.

It is highly dependent on world markets with exports,

including re-exports, accounting for over 320% of GDP.

Singapore is pushing growth in many different directions, like in new high-tech, high-skill

sectors, while requiring heavy dependence on specialized foreign talent.

Many of Singapore’s problems today are shared by other high-income developed economies,

especially in their dense urban areas.

These include low birth rates, higher income and wealth inequality, more expensive housing,

and more extreme reliance on foreign labor.

The country also ranks far below its per capita income rank in comparative rankings, which

include variables such as political freedom and the human development index.

This is what Singapore’s government has always done: look around corners on behalf

of its people and plan ahead, confident enough in the infallibility of its policymaking and

in the certainty of its re-election to ignore pressure groups

and to scorn pandering to populism.

Even its critics contend it has been successful.

But times have changed.

Social media have turned silent, isolated dissent into more concerted, vocal protest.

The young activists are against outdated rules,

such as the bans on selling chewing gum or having gay sex.

And knowledge workers, among others, feel suffocated without free speech.

For its next half-century to be as successful as its first,

Singapore will have to loosen up.