Singapore - The Economy

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The economy

A FORMER COLONIAL TRADING PORT serving the regional economies of maritime Southeast Asia, Singapore in the 1990s aspired to be a "global city" serving world markets and major multinational corporations. A quarter century after independence in 1965, the city-state had become a manufacturing center with one of the highest incomes in the region and a persistent labor shortage. As one of Asia's four "little dragons" or newly industrializing economies, Singapore along with the Republic of Korea (South Korea), Taiwan, and Hong Kong was characterized by an export-oriented economy, relatively equitable income distribution, trade surpluses with the United States and other developed countries, and a common heritage of Chinese civilization and Confucian values. The small island had no resources other than its strategic location and the skills of its nearly 2.7 million people. In 1988 it claimed a set of economic superlatives, including the world's busiest port, the world's highest rate of annual economic growth (11 percent), and the world's highest savings rate (42 percent of income).

Singapore lived by international trade, as it had since its founding in 1819, and operated as a free port with free markets. Its small population and dependence on international markets meant that regional and world markets were larger than domestic markets, which presented both business managers and government policymakers with distinctive economic challenges and opportunities. In 1988 the value of Singapore's international trade was more than three times its gross domestic product ( GDP). The country's year-to-year economic performance fluctuated unpredictably with the cycles of world markets, which were beyond the control or even the influence of Singapore's leaders. In periods of growing international trade, such as the 1970s, Singapore could reap great gains, but even relatively minor downturns in world trade could produce deep recession in the Singapore economy, as happened in 1985-86. The country's dependence on and vulnerability to international markets shaped the economic strategies of Singapore's leaders.

The economy in the 1980s rested on five major sectors: the regional entrep�t trade; export-oriented manufacturing; petroleum refining and shipping; production of goods and services for the domestic economy; and the provision of specialized services for the international market, such as banking and finance, telecommunications, and tourism. The spectacular growth of manufacturing in the 1970s and 1980s had a major impact on the economy and the society, but tended to obscure what carried over from the economic structure of the past. Singapore's economy always depended on international trade and on the sale of services. An entrep�t was essentially a provider of services such as wholesaling, warehousing, sorting and processing, credit, currency exchange, risk management, ship repair and provisioning, business information, and the adjudication of commercial disputes. In this perspective, which focused on exchange and processing, the 1980s assembly of electronic components and manufacture of precision optical instruments were evolutionary steps from the nineteenthcentury sorting and grading of pepper and rubber. Both processes used the skills of Singaporeans to add value to commodities that were produced elsewhere and destined for consumption outside the city-state.

The dependence on external markets and suppliers pushed Singapore toward economic openness, free trade, and free markets. In the 1980s, Singapore was a free port with only a few revenue tariffs and a small set of protective tariffs scheduled for abolition in the 1990s. It had no foreign exchange controls or domestic price controls. There were no controls on private enterprise or investment, nor any limitations on profit remittance or repatriation of capital. Foreign corporations were welcome, foreign investment was solicited, and fully 70 percent of the investment in manufacturing was foreign. The government provided foreign and domestic enterprises with a high-quality infrastructure, efficient and graft-free administration, and a sympathetic concern for the problems of businesses.

The vulnerability inherent in heavy dependence on outside markets impelled Singapore's leaders to buffer their country's response to perturbations in world markets and to take advantage of their country's ability to respond to changing economic conditions. Unable to control so much that affected their nation's prosperity, they concentrated on those domestic institutions that could be controlled. The consequence was an economy characterized by a seemingly paradoxical adherence to free trade and free markets in combination with a dominant government role in macroeconomic management and government control of major factors of production such as land, labor, and capital. The extraordinarily high domestic savings rate provided reserves to weather such economic storms as trade recessions and generated a pool of domestically controlled capital that could be invested to serve the long-term interests of Singapore rather than of foreign corporations. The high savings rate, however, was the result of carefully formulated government programs, which included a compulsory contribution of up to 25 percent of all salaries to a government-controlled pension fund. The government held about 75 percent of the country's land, was the largest single employer, controlled the level of wages, and housed about 88 percent of the population in largely self-owned apartments. It also operated a set of wholly-owned government enterprises and held stock in additional domestic and foreign firms. Government leaders, deeply aware of Singapore's need to sell its services in a competitive international market, continually stressed the necessity for the citizens to master high levels of skills and to subordinate their personal wishes to the good of the community. The combination of devotion to free-market principles and the need for internal control and discipline in order to adapt to the demands of markets reminded observers of many family firms, and residents of the country commonly referred to it as Singapore Inc.

For more recent information about the economy, see Facts about Singapore.

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