1. From Cub to Tiger: Government Intervention in Singapore And Implications for the Future
By: Amber Huber

2. Introduction Singapore as a third world country Political strife
1960: Per capita GNP <US$320, unemployment rate 14%, illiteracy, poverty, poor housing conditions
Entrepot economy with few natural resources
Political strife
British control following Japanese occupation
Lim Yew Hock gains self-government for Singapore – 1959
People’s Action party wins general election -1959
Lee Kuan Yew - first Prime Minister
5 phases
Modified version of Singapore’s investment phases set forth by Teck-Wong Soon and C. Suan Tan (1993)
Soon, Teck-Wong, and C. Suan Tan "Singapore: Public Policy and Economic Development." World Bank.
Singapore

3. Labor-Intensive Import-Substitution (1959-65)
Industrialization as job creation medium
Small domestic market, expanded through political union with Malaya
Housing Development Board (HDB)
Subsidized housing to citizens, addressed housing crisis
“Five Year Plan”
Fixed poor education system, accelerated school building program
Math, science, and technical skills for successful industrialization
Economic Development Board
Industrial policies that provided capital to infant industries and land for industrial sites
Howard Pack and Kamal Saggi (2006) infant industry argument, foreign competition has the upper hand

4. Labor-Intensive Import-Substitution (1959-65)
Results were meek
Gov’t intervention and EDB efforts resulted in only 2.2% increase of manufacturing share of real GDP from
Unemployment still over 10%
However, policies enacted increased housing quality, widened semiskilled worker pool, and developed infrastructure on industrial sites
Expulsion from Malaysia and true independence- 1965
Racial tensions, lack of interest from Malaya to be trading partner
Trade barriers enacted between Malaysia
PAP changed promotional efforts to labor-intensive export-orientated manufacturing

5. Labor-Intensive Export-Orientated Manufacturing (1966-73)
Economic Expansion Incentives Act (1967)
Provided tax incentives for firms to expand and for investment
Tax relief for income from capital expansion, foreign loans, royalties, etc.
Tripartism – Government, employers, and labor working together to achieve greater productivity, efficiency, and faster economic growth
PAP’s efforts to strengthen relationship with National Trades Union Congress (NTUC)
Employment Act of 1968 abolished discriminatory practices
Raised Central Provident Fund (CPF) contributions to 25% of worker’s wages to promote macroeconomic stability
Provided non-inflationary financial source for less than market rates for gov’t to use for investment
Financed spending for upgrading education and technological level
Allowed gov’t to provide financial incentives to foreign investors without running fiscal deficits

6. Labor-Intensive Export-Orientated Manufacturing (1966-73)
Policies greatly promoted FDI, manufacturing investments totaled S$2.3 billion from
Elkan (1995): MNCs assume risk of implementing technology, allowing Singapore to “catch-up”
Bank of America entered Singapore with interest in creating currency unit (Asian Currency Unit)
Gov’t promoted this by creating tax exemption for nonresident deposits
Asia Dollar Market (ADM) boomed as other banks joined
Banks increase FDI by making financial resources easily accessible
Robert Maxon, manager of Mobil Oil refinery in Singapore in 1970 called Singapore an “investor’s dream” as they offered cheap labor, macroeconomic stability with low inflation, easily accessible financial resources, gov’t control over unions, and cheap factory sites.
Real GDP grew ~13% a year from

7. First Attempts to Upgrade (1973-78)
Neared full employment, created labor shortage, along with a decline in FDI inflows
Gov’t sought to upgrade the economy by focusing on quality, skills, and technological content
Hon Sui Sen’s (Finance Minister at the time) ten point program (1973) to upgrade skill/tech level of the manufacturing sector:
Wage increase policy under guidance of National Wages Council to increase wage competitiveness
Manpower-development to promote industrial training, tax exemptions for training expenses
Open-door policy for qualified foreign workers
Five year tax holiday for industries with desired technology levels
Tamasek Holdings, a Government Linked Company (GLC) created in 1974
Sole shareholder was Minister of Finance
Would take part ownership and provide guidance in a company if success was needed to further gov’t objectives
Controversial, fears that GLCs lead to crony capitalism and unfair advantages over domestic firms.
To address these fears, Goh Chok Tong, a member of PAP at the time, stated that the GLCs would have to operate competitively in a similar manner that private firms do. In addition, he argued that larger GLCs had to compete with the global market as well as the domestic market, which diminished part of their perceived advantage .

8. First Attempts to Upgrade (1973-78)
EDB joint industry training centers; means to upgrade work force skill
Collaboration between MNCs and EDB, provided support for Joint Industry Training Scheme
Provided MNCs with stream of well-trained workers
1973 Oil Crisis and the world slowdown that came after ( ) dampened their efforts
World recession caused unemployment fear, economy clung to labor-intensive industries
Mauzy and Milne (2002): Singapore’s attempt to increase employment by upgrading tech levels “was premature, and the foreign demand was not enough to make it possible at a profit”
Global recession affected FDI, but it never fell below S$300 million annually in the 1970s
Real GDP grew 7.4% from
Most economic growth came from foreign investment in construction and the ADM boom

9. Economic Restructuring (1979-84)
Singapore’s manufacturing economy became strongly dependent on foreign firms, needed to stay competitive to continue getting FDI
“Economic Development Plan for the Eighties” goal was economic diversification
Diversify economic activities into information based services, and diversify market by expanding exports to developing countries
Chose 11 industries for promotion, examples include software development and automotive parts
Assured MNCs they wouldn’t construct barriers to foreign investors
EDB and NWC set periodic wage increases over period
Sustained focus on education training to provide workers for promoted fields
IMF 1985 study; financial incentives alone weren’t enough to attract FDI
Explains the reason why Singapore chose several approaches

10. Economic Restructuring (1979-84)
Singapore infiltrated higher tech industries; by 1983 they were world’s largest export of disk drives even though they didn’t produce computer parts in 1980
Underwhelming manufacturing growth due to decreased global shipping demand, low petroleum prices, and U.S. growth decline dwindling demand for Singaporean exports
High wage policies lackluster, wage increases exceeded NWC guidelines and surpassed productivity gains
Adverse effects of oil crisis caused demand to go down while high wage policy increased unit labor cost
Real GDP only grew 5.1% a year, but financial sector grew by 11.3%
Monetary Authority of Singapore (MAS) pushing Singapore towards becoming international finance center
Financial sector accounted for 19.7% of GDP in 1980

11. Retrenchment and Further Diversification (1985-1990)
Foreshadowed in the previous period, global cool down caused recession in 1985
Real GDP in 1985 was -1.6%
Lee Hsien Loong (Minister of State for Trade & Industry) created the Economic Committee
Sole task to get economy out of recession
Two factors caused recession: increased business operating costs (caused by high wage policy and increased CPF contribution) and changed global demand
Lowered unit labor costs by decreasing CPF funds with support of NTUC
Cut down to 10% (from previous 25%), translated to 12% reduction in workers’ earnings
Gov’t lowered taxes, utility charges, offered rebates for port fees/industrial site rentals
Abolished high wage policy
Quick recovery, real GDP averaged 1.8% in 1986 and 10% from

12. Retrenchment and Further Diversification (1985-1990)
EDB created S$100 million Venture fund that jointly invested in overseas tech firms
Saggi and Pack (2006): Technology transfers, increase domestic quality and efficiency
Many small and medium enterprises (SMEs) shut down during recession
Local Industry Upgrading Program (LIUP) created in 1986 by EDB to unite MNCs and SMEs and encourage knowledge diffusions
1989 EDB enacted SME Master Plan providing SMEs with information, training, and loan services
Allowed SMEs to enter into skill-intensive production, broadened domestic base for high tech MNCs
EDB encouraged service sector investment, gave tax holidays and allowances for investments
Pushing Singapore towards being a “Total Business Center” and regional headquarters for MNCs
Several MNCs created operational centers there, ex: Exxon, IBM, and General Electric

13. Retrenchment and Further Diversification (1985-1990)
Gov’t subsidized R&D as incentives to bolster manufacturing firms
Ho and Wong (2009): Short run a 1% increase in Singaporean R&D leads to 1.33% TFP increase.
In long run 1% increase leads to 8.14% TFP increase.
Historical education focus beginning to bear fruit, by 1986 majority of Singaporean children received at least 10 years of schooling
To focus on uneducated adults, NWC joined forces with Skills Development Fund (SDF)
“Initiatives in New Technologies” introduced in 1984 to train high tech professionals
SDF provided funds for training workers
Took initiative when MNCs were hesitant to invest in costly training systems
Allowed Singapore to meet demand for educated workers, removed pressure from MNCs to take additional risk, and raised foreign investment

14. Investment Abroad and a Globalized Singapore (1990 onwards)
Lee Kuan Yew, Senior Minister to the Cabinet, proposed “go abroad” policy in 1990 to develop external economic wing
Singapore outgrowing it’s geographically small stature
EDB introduced Regionalization 2000 strategy to build external economy
Goal was to increase internationalization and become regional trade hub
Pursued formation of overseas industrial and technological parks
Parks allowed Singapore to keep higher value-added production goods in their own country while providing lower value-added activities at overseas parks
Not to delve too deep into specifics, this lead to the creation of several other flagship parks. Among those were; the Wuxi Singapore Industrial Park (WSIP), Vietnam-Singapore Industrial Park (VSIP), and the India International Technology Park Limited (ITPL).

15. Investment Abroad and a Globalized Singapore (1990 onwards)
Indonesia-Malaysia-Singapore Growth Triangle (IMS-GT) created in
Pooled Singaporean capital, management, and tech levels with the cheap land and labor of Indonesia and Malaysia
Linked countries’ comparative advantages to jointly attract MNCs
Attracted quality investors, including Toshiba and Phillips

16. Investment Abroad and a Globalized Singapore (1990 onwards)
Focused on China with creation of China-Singapore Suzhou Industrial Park (CS-SIP) in 1994
Ultimately became global investment center
held 38 Fortune 500 companies
Success lead to creation of several other flagship parks
1997 Asian Financial Crisis
Singapore’s robust reserves and financial strength helped avoid contagion
Gov’t responded to growth fall with a package of cost reductions and tax rebates
Economic Review Committee (ERC) established in 2001 to revitalize, upgrade, and transform domestic economy
Reviewed current policies, analyzed economic climate, and recommended changes
FTAs allowed Singapore to remove trade barriers, increase FC savings, and have greater market access
Ex: bilateral agreements between New Zealand and Singapore (ANZCEP) and U.S. and Singapore (USSFTA)
CS-SIP (2006)

17. Investment Abroad and a Globalized Singapore (1990 onwards)
International Enterprise Singapore (IES) created in 2002
Helped domestic firms invest overseas, shorten learning curve, and find overseas partners
Biopolis Centre, a biomedical complex, built by Jurong Township Cooperation (JTC) in 2003
Helped drive Singapore towards being a “high-tech haven”
Instituted Singapore as biomedical hub, priority in nanotechnology and stem-cell research
Leading destination for healthcare services due to high medical science reputation
EDB, IES, and Singapore Tourism Board jointly sought to promote healthcare sector investment
Biopolis Centre (2008)
 The 2009 budget’s “Resilience Package”, aiming at helping businesses to retain workers, amounted to S$ 20.5 billion. S$5.1 billion of this was spent on helping to preserve jobs, and S$5.8 billion extended to stimulate bank lending through a Special Risk-Sharing Initiative (SRI).
Policies furthered Singapore towards becoming the trade, healthcare, biomedical, and finance hub of Asia
Despite negative global impact from 2001 and 2008 U.S. recession, GDP growth averaged 5% from

18. Policy Criticisms High wage policy played a role in 1985 recession
Otani and Sassanpour (1988) found that without the policy, GDP would have remained unchanged from instead of declining
While China-Singapore Suzhou Industrial Park (CS-SIP) was prosperous, following parks didn’t have the same achievement
Nicholas Phelps (2007): Regionalization 2000 program was ineffective; “gaining from globalization” is difficult; parks had little economic benefits outside of CS-SIP
Excessive dependence on FDI causes economy to become vulnerable to external events outside of their range of control - Sajid Anwar (2006)
CPF criticisms - Mauzy and Milne (2002):
High contribution rates played role in 1985 recession due to increasing unit labor costs.
CPF may not provide adequate funds for retirement
In 1999, 24% of members who reached 55 in 1998 had a CPF account <$16,000

19. Sustainability Issues
Krugman (1994): Singapore lacks long term growth potential because growth based on non- repeatable one time changes
Ex: Singapore boomed when workers became educated
Unsustainable growth because factors for past growth can’t be replicated
Alwyn Young (1992): Singapore experienced slightly negative TFP growth from
Success depends on gov’t changing policies from factor accumulation to TFPG and technological change
However, using dual estimates based on price data rather than nominal account quantity data, Huff (1999) found TFP growth averaged 1.6% a year
Huff (1999): Merit based education system stifles creativity and innovation
Johannes Chang (2003) agreed and said it is the reason Singapore is short of original technological innovation, must produce entrepreneurs for long term success
Sajid Anwar (2006): Continued liberalization of financial sector must occur to foster long term FDI
Would increase competition, accountability, and transparency in disclosure standards
Increase efficiency of financial sector and raise productivity
The first exercise of growth accounting was presented by Solow (1957) and was based
on subtracting of weighted growth rates of capital and labor from the growth rate of
output. The remaining (residual) part was ascribed to growth of technology. This is
primal approach to growth accounting. The main problem of primal approach is that it
relies on measuring inputs such as capital or labor which can be sometimes unreliable.
On the other hand, dual approach is based on factor prices rather than quantities, which
are usually better to measure. Next advantage of price-based estimates is that the prices
are formed at the markets and agents have incentive to get the right price. A firm that
pays to factor more than its marginal product is throwing money away. On the contrary,
national accounts are provided by government (statistical) agencies and the figures may
be subject to large errors.

20. Conclusion Singapore - 2011
Outlined framework vital to understanding Singapore’s growth and their reasoning for policy decisions
Gov’t attained success by using sensibly fashioned policies to:
Develop infrastructure
Promote tripartism
Invest in human capital
Promote R&D
Attract foreign investment
Maintain macroeconomic stability
Singapore’s flexibility will allow them to combat future problems directly
They have demonstrated their capability of achieving growth by adapting to shifting global economy
Only time will tell how well Singapore achieves long term growth, but historical indications imply they are likely up for the challenge
Singapore

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