When Singapore’s success first attracted notice, American and British economists scrambled to claim it as a victory for textbook laissez-faire. Supposedly if only the United States and the United Kingdom would let markets rip, they too could enjoy Singapore-like growth.
This could hardly have been more wrong. In common with virtually ever other economy, Singapore is a mix: yes, in some ways it is a free market, but in others — many, many others — it is planned. Planning has driven Singapore’s spectacular growth. Contrary to all Anglophone nostrums about the salience of free markets, the state can be spectacularly successful in outthinking the market. Had this been understood earlier, successive U.S. presidential administrations might have offered fewer hostages to fortune in China policy – and the U.S. Treasury might not have become so deeply reliant on Beijing to fund U.S. budget deficits.
Of course, to a casual visitor sampling the nightspots, Singapore abounds with free market activity. At the level of bars and restaurants, entrepreneurs compete in much the same way as in New York, London, or Paris – or indeed Shanghai, Seoul, or Tokyo.
But eateries and watering holes are not the level at which an economy should be judged. There are higher levels and the higher you go in Singapore – as elsewhere in East Asia – the more decisive is state influence.
Singapore’s true “secret” is a government-driven program of high savings. Since the mid-1950s, workers have been required to pay a large share of their wages (in recent years 20 percent) into the Central Provident Fund. Employers contribute a further 16 percent. The fund meanwhile invests in ways best calculated to power Singapore’s economic growth while simultaneously offering savers a reasonable return.
One result is that a heavily state-funded Singaporean corporate sector can count on patient capital. Hence Singapore’s rise in finance, electronics, and airport and harbor services. A remarkable example is Singapore’s Keppel Shipyard. Founded in the 1960s, it has consistently grown, even as the once-world-dominating British shipbuilding industry has withered. At last count, Keppel employed more than 30,000 workers, engaged mainly in building offshore oil rigs. By comparison, Harland and Wolff of Belfast, which up to the 1960s, claimed to be the world’s largest shipyard with a workforce of close to 50,000, is now down to 500. A key difference is that no matter how bleak the short-term outlook seemed, Keppel could count on patient capital to tide it over. Harland and Wolff enjoyed no such support and suffered a ratchet effect of redundancies in every downturn. Basically it was sacrificed on the bonfire of short-term market forces – with devastating implications for employment in Belfast and for Northern Ireland more generally.
Via the Central Provident Fund and a tightly regulated banking system, the Singapore government has enjoyed finger-tip control over every aspect of the economy. A major tool has been the Oversea-Chinese Banking Corporation. Meanwhile the city state invests overseas via GIC and Temasek Holdings. Other key government controlled assets include SingTel.