A New Economic Direction

A New Economic Direction

Singapore’s extraordinary economic growth over the last 40 years has made it an interesting case study for many emerging economies. However, Singapore is highly dependent on the export markets of Europe and America, and the current economic downturn highlights the danger of this dependence.

In addition, the economy is highly reliant on foreign workers, with foreign workers making up 69.3% of our construction workforce, more than 50% of our manufacturing employment, and a quarter of our services jobs. This huge influx of foreign workers causes two problems: it depresses the wages of Singaporeans to the point that they cannot have a decent standard of living in Singapore without wage supplements or subsidies; and it places great strain on our living environment, healthcare, education, and transport infrastructure.

Such a model does not help us to achieve our economic goals of a better standard of living for all Singaporeans and is unsustainable in the medium- to long-term.

Three Broad Thrusts

Is there an alternate model then? I propose three broad thrusts: seeking a local competitive advantage, integration with our neighbours, and developing indigenous enterprises.

1. Seeking a local competitive advantage

In order for us to be successful in the long-term, we must take advantages of whatever local, and location specific advantages that we have. These advantages are less easily duplicated than preferential tax rates, physical infrastructure, and even regulatory and business support services.
Instead we should focus on:
a) Transport and logistics
Singapore is still straddles the world’s busiest shipping lanes, and logistics, shipping, heavy engineering associated with moving goods should still play a big part in our economy. Exporting our expertise in this area through PSA and SATS would also constitute part of the strategy.
b) Agriculture and biodiversity
Singapore is located amongst the largest rainforests in the world, with a great diversity of species, some of them endangered. The proximity of these resources should give us a natural advantage in:
- making improvements to agricultural productivity,
- the exploitation of pharmacologically active compounds, and
- increasingly important in the context of global warming, the management of biological and other natural resources.
This advantage has yet to be exploited in a major way.
c) Arts, culture and education
We have a highly educated population, and our past policies and open immigration has also created a place where people of many different cultures, Indian, Chinese, Malay, Thai, Philipino, and English can mix and intermingle. We have the ingredients to create an arts, culture and education nexus in the region, where we can provide education services for neighbouring countries in their own languages, create music, theatre, movies, literature, computer games and so on that can be exported to the region. We would also facilitate cross-cultural understanding by promoting Thai movies in Indonesia, and create a more integrated Asean.


2. Integration with our neighbours

We have tried to participate in the economies of our neighbours through acquisitions of significant businesses in their countries. While this is still a viable option, it is not without its own risks. It is important that Singapore participation in the region is accepted at the people-to-people level in our neighbouring countries, and not just at the government-to-government level. To this end, we should:

a) Focus on ASEAN language and culture
Education should also give regional language and culture a larger role, so that citizens can be comfortable working not only in America, Europe, Australia and China, but also Indonesia, Philippines, Vietnam and Malaysia. Creation of joint entertainment and educational material can also facilitate integration. Computer games, movies, documentaries and educational material for the ASEAN markets will create local employment and can potentially be exported beyond ASEAN.
b) Contribute beyond transactional aid
Our responses to natural or man-made disasters in neighbouring countries have been generous from a humanitarian perspective, and we have been fast to respond. However, we should also consider using our resources to provide development on a longer term basis beyond business parks. We should include social facilities like schools, hospitals, playgrounds and religious facilities. This will encourage integration and co-operation and increase the acceptability of Singaporean participation in the economies of our neighbours. The delivery of such services can be made through Singaporean firms, which encourages greater engagement by Singaporeans in the region, and also provides these businesses with a base from which to seek further economic opportunity.

3. Developing indigenous companies

It is not uncommon for companies from Korea or Japan to bring along their suppliers or supporting companies when investing into other countries. Such an approach lowers the costs of operating in an unfamiliar environment for the leading company, and allows the supplier companies to grow stronger and develop their own economies of scale. The government can facilitate the growth of indigenous companies through:

a) support from government-linked companies (GLCs)
In Singapore, where GLCs lead the way in investing globally, they can help local businesses by picking local subcontractors over foreign ones, all other things being equal. They can facilitate the entry into overseas markets by creating joint ventures with Singapore firms or facilitating the creation of such entities between Singapore firms and local firms in the overseas markets, and incorporating them as part of their supply chain. A conscious effort should be made to support Singaporean organizations.
b) Lowering the costs of business, land and property in Singapore
The indiscriminate targeting of multiple industry sectors creates competition for scarce industrial and commercial space. A more focused and restricted targeting of industries may lower overall economic growth, but may benefit the same number of locals, or even more locals, by lowering costs for local businesses and creating jobs that can filled by Singaporeans.


a) releasing talent into the private sector
The limited talent pool in Singapore makes it important that we achieve the right allocation of skills between the public and private sector. In order to develop indigenous companies, we must encourage young talented people to join local small and medium-sized businesses and to help make them successful. SMEs are, however, in competition with the public sector which offers high paying jobs at low risk, and multi-national corporations which offer high paying jobs with high risk, but also much higher potential payouts. While SMEs have to hold their own with the latter, there is no need for them to compete with the public sector. Public sector wages should be set to attract the top 30% of each cohort, rather than to be set so high as to remove the top 3% or 5% from the private sector. This will help balance the allocation of skills across the economy.

Conclusion

While the current economic model with its high dependence on cheap foreign labour, and exports to the US and Europe has served us well in the last 2 decades, there are increasing signs that this model is not sustainable in the mid- to long-term. Some of these include:
- the increased volatility of Singapore’s economic growth which causes more frequent disruptive dislocations in the employment market,
- highly depressed wages at the low end of the employment market which creates the need for income supplements for local Singaporeans,
- the strain on our housing, transport, healthcare and education infrastructure which results in the housing of foreign workers in substandard accommodation, and the subdivision of condominiums to serve as worker dormitories.

While we and the rest of the world will still be dependent on the US and European markets, it is probably necessary to shift some of the focus to Asian markets, and to be more selective in the kinds of industry we pursue. This is so that we can continue to create jobs for Singaporeans at wages that allow them a reasonable standard of living in their own country.