Singapore's Economic Model – the fallacy of “growth at all costs” – Part 3

by Rajiv Chaudhry

 

The Singapore economy

In the 1980s Singapore’s policy makers took a conscious decision to transcend the low-cost/low- value economy and move into more higher value activities such as computer chips, semiconductors and services. In the 2000s it is attempting to move into still higher-value ‘brain’ work by developing a research and development wing. However, by clinging on to the ‘old economy’ at the same time, the focus appears to be somewhat blurred.

The catchword should be “quality” not “quantity” but this is something that seems to have eluded our policymakers, judging by their desire to relentlessly pursue growth in every area of the economy. The Economic Review Committee, chaired by the then Deputy Prime Minister Lee Hsien Loong, while acknowledging in February 2003 that growth would slow in the future compared with the heady years that preceded it, continued to emphasise the twin engines of manufacturing and services. In particular, the report stated that “manufacturing will continue to be an important growth engine”i.

With the benefit of the insight that the current economic crisis provides and other reasons mentioned here, it is apparent that this reliance on manufacturing is misplaced. For a start, it leads to social pressures and stresses the physical environment owing to the need for both land and large numbers of workers. More importantly, manufactured goods have to find markets which increases our reliance on exports, since the domestic market is limited. If there is one thing the current crisis has shown, it is that we need to reduce our dependence upon exports in general and the US market in particular.

I submit it would be a far better proposition to concentrate our efforts on services alone, as the main engine of growth. The government has already identified and recommended the creation of service clusters in areas as diverse as aerospace, medical tourism and tertiary education. At the same time, there should be sharper focus on high-value, high-quality research and development in both the pure and applied sciences and engineering. Arguably these, together with the supporting services needed, will provide sufficient grist to keep a reasonable-sized population gainfully employed without the need to import large numbers of people with all its attendant problems and issues. (Note: small numbers of high-quality immigrants will still continue to trickle in. This type of “brain-gain” has been shown to be a major factor in the enormous progress the USA has made over the past century, enabling it to maintain leadership positions in the economic, scientific and technological fields).

These kinds of activities will also be, hopefully, less dependent upon external factors and less cyclical in nature.

Instead, our policymakers seem to be taking us down the value chain again. Casinos (for a casino by any other name is still a casino) are the type of activity that will create pressures of exactly the sort that a country of Singapore’s size doesn’t need. In attempting to compete with Genting (land area over 6,000 hectaresii), Macau and the cruise ships, we are revving up the economy and creating a circular argument: “we need more people to run the show”. If we didn’t have the activity in the first place, we wouldn’t need these extra people. In fact, it would be interesting to know how many of the myriad jobs that will be created by the integrated resorts, bell-boys, chambermaids, waiters and the like will be filled by Singaporeans? Anecdotal evidence says that the hospitality industry is already stretched to the limit and struggling to fill these low-value positions.

This opens the government up to the charge that it is creating jobs for foreigners, rather than taking care of its own.

The policy of “growth at all costs” also leads to the very real possibility of a bubble being created which, when deflated, can cause enormous headaches (the causes of deflation are often outside our control, as we are witnessing now). In times of trouble, it is easier to manage 3 million people than 5 million.

And therein lies another fallacy, that of linking government minister’s salaries to the growth in GDP. So long as this policy exists, the incentive for ministers (they are human, after all) will be to keep pumping up the economy.

As a parallel, recall the events that led to the crisis on Wall Street. Think of the legions of bankers who who were paid enormous sums for creating products that supposedly removed the risk from financial transactions, yet they left the worst mess the world has seen in 80 years. So long as the reward system was tailored to the production of ever more exotic products, the bankers obliged by churning them out in increasingly larger numbers. With hindsight, this proved to be a disaster.

Do we really need to put the economy on steroids? Is Singapore merely an economic machine and all of us just individual digits, mere cogs in the wheel? Are we still so insecure that we have to hark back to the days when we “fought the communists in the gutters”?

Let us take a bold look and challenge the status quo in order to safeguard the sustainability of our quality of life.

 

TO BE CONTINUED

 

 

This article is the opinion of the writer and any quote or reference should be duly acknowledged with a citation

ihttp://app.mti.gov.sg/data/pages/507/doc/ERC_Comm_ExecSum_v2.pdf

iiLim Goh Tong – My Story – page 77 ; Pelanduk Publications www.pelanduk.com

 

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