INGAPORE HAS DONE WELL

innavigating through myriad stormsover the last ve decades, emergingstronger each time. There is little doubtthat Singapore will survive the turmoilthat is now upon us. However, whetherSingapore will again emerge stronger de-pends on how well the country has pre-pared or the possible uture paths that lieahead or the global economy.At one end o the spectrum is thepossibility that this is just another cyclicaldownturn, with recovery back to statusquo around the corner. At the other end,however, is the possibility that we areseeing the beginning o a tectonic shit,which will challenge previously held no-tions o value and ultimately result in arepositioning o the global powers.In the ormer scenario, Singapore willalmost certainly rebound quickly, in syn-chrony with the global macro environ-ment. I the latter scenario pans out, how-ever, the outcome is less certain. In recentmonths, the odds o this worst-case situ-ation crystallising have been rising, andSingapore needs to be ready should thisnightmare scenario come about.I will briefy recapitulate Singapore’spath to its present status, assess its cur-

JOuRNEy INtOuNcHARtED tERRItORy

tEXt

_ JASON WEE

_ PULSES _ MAY 2009

How well has Singapore prepared for the possible future pathsthat lie ahead for the global economy?

policy_MAY_pg50-57.indd 224/04/2009 6:53:27 PM

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Source: IMF (Oct 2008), Singapore Department Of Statistics

FIGURE 1:

GDP per capita(1980 - 2008)

’80 ’84 ’88 ’92 ’96 ’00 ’04 ’085,00010,00015,00020,00025,00030,00035,00040,000

(US$)

SingaporeHong Kong SARMalaysiaIndonesiaPhilippines

rent strengths, outline challenges andother macro-economic risks, and discusspossible policy initiatives that might helpbuer against the allout should the night-mare come about.

SINGAPORE: PASt tO PRESENt

Singapore’s policy in the early 1960s o-cused on creating employment via importsubstitution, and reducing dependencyon entrepot trade as the newly electedPeople’s Action Party paved the way ora post-communist era in Singapore. Thencame the turmoil o the mid-1960s to theearly 1970s, where Singapore rst joinedand then had to leave the Federation oMalaysia, had a serious conrontationwith Indonesia, and saw the departureo the British military which was thencontributing around 20 per cent to Sin-gapore’s GDP.It is hard to exaggerate the challengesthat this fedgling economy had to ace atthis critical juncture. The departure romMalaysia derailed Singapore’s import-substitution plan, since scale economieswould be dicult to achieve without thevast hinterland that Malaysia oered.The conrontation with Indonesia, a sig-nicantly larger country, threatened se-curity and its position as a major tradingpost or the region. Finally, the departureo the British orces meant the loss osome 40,000 jobs and the urgent needto replace the departing military with acredible domestic army, while surround-ed geographically by less-than-riendlyneighbours on all ronts.Somehow, these challenges weresurmounted as the government pursuedan export-oriented strategy and man-aged to attract oreign investors into themanuacturing and nance sectors. Dur-ing this time, various agencies were setup, including the National Trades UnionCongress and the National Wage Council(both set up in 1972), which helped toanchor the tripartite employer-employee-government arrangement that has keptlabour disruptions at bay to this very day.Various companies were also nationalisedat this point where private capital and ex-pertise were deemed inadequate to takecritical industries into the global arena,eg, Singapore Airlines, Neptune OrientLines, and the Development Bank o Sin-gapore.Since 1980, Singapore has pursuedgrowth by targeting rst the higher val-ue-added manuacturing and then thevalue-added services sector. Augment-ing this was a continuing ocus on labourproductivity via basic education, man-power training and retraining; supportiveinvestment policies through a mixture otax incentives and scal subsidies; andexpanding the global reach o companiesvia encouraging domestic companies toregionalise and internationalise, and set-ting up ree trade arrangements with allmajor economic groups and countriesaround the world.During this period, Singapore’sGDP per capita grew rom US$4,859 toUS$37,597 at a compounded rate o 7.7per cent per annum, moving at a similarpace to Hong Kong, the other highly suc-cessul Asian city, but ar outstrippingneighbours Malaysia and Indonesia

(seeFigure 1).

There were three blips along this blis-tering 28-year growth path, namely in1985, 1998 and 2001. In each instance,the government led the way via a com-bination o measures including wage cuts(sometimes through a lowering o thestatutory pension und contribution rate),monetary and scal measures to regainoverall competitiveness, and continuous-ly reocusing industry towards promisinggrowth areas. The result is that a countrydevoid o all natural resources and de-pending primarily on entrepot trade andbasic manuacturing is now a bustling cityhosting the regional headquarters, R&Dlaboratories and key support centres otop names in the elds o technology, -nance, pharmaceuticals and petrochemi-cals.It is now 2009, and Singaporeanscount among the most afuent in theworld, with a purchasing power parity-adjusted GDP per capita o $51,649 (in-ternational dollars), just behind oil- andgas-rich countries o Norway and Qatar,and nancial haven Luxembourg. Evenater adjusting or the recent stock marketcorrection, I believe Singapore is a coun-try o household millionaires, with house-hold wealth averaging around S$780,000per resident household, augmented bygovernment assets o around S$260,000per resident household, ie, a total o justabove S$1 million per household. Whilethis is down some 20 per cent rom theall-time high o S$1.3 million in 2007, itremains substantial. Clearly, the averageSingaporean has moved well past the ba-sic needs on Maslow’s hierarchy and thegovernment’s challenge has become oneo catering to aspirational desires.Alas, the average household is buta statistical concept. At the risk o over-simpliying, we can broadly classiy Sin-gapore into two distinct groups: the eliteand the masses. The elite are the multi-millionaires and high achievers who, to-gether, push Singapore’s ranking on mostnancial and economic ratings to the topin the world.As an indication, or the year toMarch 2008, 156,660 residents (9.4 percent o resident labour orce) in the topincome brackets contributed $2.9 billionor almost 90 per cent o the country’s to-tal income tax rom residents!While this statistic might exaggeratethe income disparity due to the highlyprogressive income tax system, it doeshighlight how important this small groupis towards sustaining Singapore’s currentscal model. For a better understandingo the income dispersion, the ve-yearlyhousehold expenditure surveys are prob-ably a better indicator. The last survey in2003 showed that the top 20 per cento households earned some 53 per cento total income, up rom 36 per cent in

MAY 2009 _ PULSES _

clearl, he averageSingaporean has movedwell pas he basi needson Maslow’s hierarhand he governmen’shallenge has beomeone o aering oaspiraional desires.

policy_MAY_pg50-57.indd 324/04/2009 6:53:28 PM

1993, arming that income disparity isindeed rising

(see Figure 4).

However, i we extrapolate the surveydata urther by subtracting expenditurerom income to estimate household sav-ings, we see that the lowest 20 per centhas been experiencing a worsening de-cit, while the top 20 per cent has seentheir savings more than double over thelast 10 years. Using the 2003 data as aproxy suggests that the top 20 per centcontributes to some 80 per cent o totalhousehold savings. This is, not surprising-ly, similar to the observation o VilredoPareto, a European economist who, in1906, observed that 20 per cent o thepopulation held owned 80 per cent o theproperty (wealth) in Italy – a principlewhich has since been generalised to the80-20 rule, or Pareto principle, or a vari-ety o uses.Using our dual group model, the datasuggests that while the elite in Singaporehave continued to thrive, the lowest ech-elon has seen a decline in their incomeand a widening o their income-expendi-ture decit. Those who wish to investigatethis idea on a more macro scale might beinterested to read the various books byNobel Prize winner Joseph Stiglitz, whohas outlined why some groups can actu-ally be worse o even during periods oglobal prosperity.In the case o Singapore, we believethat this issue is not lost on the govern-ment and some eorts have been made indirecting subsidies to this lower-incomebracket. Still, the data suggests that thegap has not been ully oset. The 2008survey has just been completed and, soonenough, we shall be able to assess thedirection o this disparity in the last veyears.Using this dual-group model, a con-ceptual ramework or the governing oSingapore could be outlined as ollows:

•

For the masses, the government playsthe role o caretaker, making sure thatbasic needs are met, and opportunities toupgrade into a better lie remain open. Inreturn, the masses help to maintain thecontinuity o the current governmentthrough their votes.

•

For the elite, the government ensuresthat Singapore’s overall environment re-mains attractive relative to other globalcities in terms o a complex potpourri ometrics, including pay, saety, pollutionlevels and opportunities. In return, theelite continue to pay their dues in termso taxes and maintain the country’s over-all competitiveness by leading the vari-ous private and public institutions in anincreasingly challenging global arena.

•

To ensure that there remain harmonyand a sense o airness between these twogroups, the government must ensure thatthe opportunity to upgrade onesel intoa better lie remains, eg, via scholarshipsand other education subsidies.This dual nature o the government’srole is what most oreign critics miss, andwhy Singapore, while rated highly onmost nancial and economic rankings,loses out on various individual reedomrankings and their ilk. Like or like, themasses in Singapore have a better liethan most other countries in the world,with household ownership at over 90 percent and low sub-5 per cent unemploy-ment rates over the last 10 years. Thiskeeps the social compact intact.As or the elite, most do not care muchthat Singapore has just one very dominantruling party as long as it keeps governingthe country well since most really don’thave the slightest interest in enteringpolitics anyway. As or constraining rules,the reality is that with the ease o interna-tional travel that Singapore provides, andinormation accessibility via the Internet,they present no great issue to those whodo seek greater reedoms. To paraphrasea senior lawyer’s words, “as long as youstay clear o politics, drugs and racial/reli-gious issues”, you should be ne.

cHALLENGES AHEAD

With this dual-nature concept o Singa-pore in mind, we can now proceed toexamine the challenges ahead. First, wediscuss the domestic challenges, then theregional issues, beore proceeding to ex-amine risks o a global import.On the domestic ront, we expect thatGDP will decline by anywhere between5 and 12 per cent or 2009. The best casescenario is arrived at by simply assum-ing that 2009’s quarterly GDP averagesat just 3 per cent below estimated Q42008 levels, compared to the 4.8 per centquarter-on-quarter decline that Q4 2008itsel registered.The worst case is arrived at by assum-ing that each o Singapore’s industriesindividually repeats its worst periods inthe last three recessions o 1985, 1998and 2001

(see Figure 6)

. In this case, theoverall GDP should bottom out aroundQ3 2009 ollowed by a modest rebound,bringing GDP levels back to 2008’s highonly in 2012.The our sectors o manuacturing,wholesale/retail trade, transport/storageand nancial services – which might su-er double-digit declines in 2009 takentogether – provide some 1.3 million jobsor 46 per cent o all jobs in Singapore.Major labour orce dislocation, that is,

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FIGURE 2:

GDP per capita (2008)

Source: IMF

PPP-adjusted NominalCountry Rank International $ Rank US$

Qatar 1 86,670 2 106,460Luxembourg 2 81,730 1 118,045Norway 3 55,199 3 102,525

Singapore 4 51,649 22 41,291

Brunei 5 50,596 21 43,752United States 6 47,025 17 47,025Hong Kong* * 44,413 * 31,849United Kingdom 19 36,571 20 45,681Japan 22 34,501 24 37,940Malaysia 60 14,225 66 7,866

Note: * HK is shown for comparison purposes only as it is not strictly speaking, aseparate country

FIGURE 3:

Total wealth of Singapore – residenthouseholds and government

Period ending 2007 Estimated March ’09

Total household wealth (S$bn) 0.95 0.85- Per resident household (S$m) 0.90 0.78Government net assets