Singapore‘s economic ascent over the past five decades is nothing short of remarkable. Within a generation, the small island-state transformed from having high unemployment and no natural resources to becoming one of the richest nations globally, with a GDP per capita of over USD 65,000 that rivals developed economies. This rapid and sustained growth, averaging around 8% annually since the 1960s, was driven by continued strategic reforms across areas like trade, investment, infrastructure and institution building.
Launching the Foundation for Growth
Singapore‘s initial conditions at independence in 1965 offered little promise for economic success. The island lacked natural resources, had minimal industry and depended heavily on entrepôt trade. But the advent of self-governance in 1959 under the pragmatic leadership of Lee Kuan Yew laid the basis for its subsequent takeoff.
Realizing Singapore‘s limitations, Lee focused on leveraging the port‘s strategic location to develop the island into a regional manufacturing, trade and financial hub. The establishment of an economic planning unit in 1961 marked the first moves towards formulating export-oriented, investment-driven strategic economic policies. After separation from Malaysia in 1965, these plans were accelerated to tackle high unemployment and growth of under 2%.
The Pivotal Role of the Economic Development Board
A pivotal institutional force that spearheaded Singapore‘s economic reforms was the Economic Development Board (EDB), established in 1961 but revamped in 1967. I see the EDB as instrumental in driving strategic initiatives that boosted export competitiveness and positioned Singapore as an attractive Asian business hub.
For instance, the EDB slashed bureaucratic red tape to reduce barriers to business. It also offered pioneering investors tax incentives like tax holidays and investment allowances. Such probusiness policy measures made Singapore a magnet for export-oriented multinationals in sectors like electronics and chemicals. These initial anchor investments then spurred expansion of supporting industries and services.
Furthermore, the EDB led major investments into advanced infrastructure like cargo ports, airports, roads telecommunications to support manufacturing and trade. By the late 1960s, Singapore was among the best infrastructured locations in Asia. The EDB also channeled government budget surpluses into building a skilled English-educated workforce to meet investor needs through education reforms. Such strategic decisions built firm capabilities to enable Singapore to keep moving up the value chain.
Manufacturing and Export Boom
Singapore‘s probusiness policies, stable government and strategic location as a gateway to Asia paid rich dividends by the 1970s. It had become arguably the most open and attractive manufacturing location globally, especially in electronics. Early investors like Texas Instruments were followed by nearly all major chipmakers establishing assembly plants and factories. Export volumes soared, led by electronics and petrochemicals. From 1967 to 1973, Singapore enjoyed a real GDP growth rate averaging nearly 10% annually – on par with Japan.
Manufacturing dominated economic activity, accounting for over 20% of Singapore‘s GDP by 1975. Besides multinationals, many local firms also ventured into basic electronics components, leveraging technology transfers and expanding regional export markets. The table below highlights key economic indicators during this high growth post-independence phase:
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| Indicator | 1965 | 1970 | 1975 |
|---|---|---|---|
| GDP Growth Rate % | 13.8 | 9.1 | 8.9 |
| Manufacturing % of GDP | 14 | 18 | 22 |
| Exports % Annual Growth | 15 | 17 | 24 |
| Foreign Investment Commitments (USD million) | 58 | 151 | 1,179 |
However, overdependence on foreign MNCs also meant Singapore was vulnerable to external shocks like the 1973 Oil Crisis. To mitigate such risks, state agencies like Temasek Holdings were established to promote local firms focused on high value-adding activities. The Government also doubled down on productivity initiatives and economic diversification.
The Authoritarian Underbelly
An under-discussed aspect of Singapore‘s development lies in its authoritarian political model. To enable rapid economic reforms, the PAP government used draconian laws to curb labor unrest and consolidate one party rule. Media outlets and civil society groups were tightly regulated to limit dissent. Democratic ideals undoubtedly took a hit.
However, by ensuring stability and policy continuity, authoritarian control attracted foreign investors who could maximize efficiency via flexible labor policies. It also neutralized foreign influence through unions and local pressure groups. Furthermore, the lack of political opposition gave the technocratic policy elite latitude to strategically invest budget surpluses over long horizons into infrastructure and public housing.
From a critical perspective though, one could argue authoritarian policies went too far. For instance, the use of the Internal Security Act (ISA) for arbitrary detention eroded civil liberties. Strict curbs on media and public protests also undermined transparency and accountability channels. Labor unions were converted into political tools, enabling policies like low minimum wages and dependency on foreign workers that depressed wages for locals. State controls also fostered a narrow elitist decision making process with inadequate checks and balances against misguided policies.
On balance, my assessment is that authoritarian governance was a double-edged sword for Singapore. While economic policymaking definitely benefited, it did come at a cost to participatory democracy and bottom-up engagement. This tension remains unreconciled in Singapore even today.
Moving Up the Value Chain
By the late 1970s, Singapore was at risk of becoming a victim of its own success as business costs and wages rose with prosperity. Manufacturing growth tapered as MNCs looked to cheaper locations for labor intensive assembly work. This sparked a strategic shift to skill-intensive hi-tech manufacturing coupled with rapid financial sector growth to enhance Singapore‘s value proposition.
For instance, semiconductor firms were incentivized via grants and technical institutes to automate and move into higher value chip design and testing work. Pharmaceutical manufacturing was promoted as a new growth sector, leveraging Singapore‘s supply chain networks and skills base. Service industries like banking, transport and telecom also received policy attention, given their spill over benefits to manufacturing. Such constant economic upgrading became a hallmark of Singapore‘s resilient growth model, enabling it to stay ahead of regional competitors.
The table below shows how economic composition changed from 1978 to 1990, with services expanding rapidly along with slower but steady industrial growth:
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| Share of Real GDP (%) | 1978 | 1990 |
|---|---|---|
| Manufacturing | 24 | 27 |
| Finance & Business Services | 16 | 22 |
| Transport & Communications | 9 | 13 |
This structural upgrading also enabled Singapore to better tap opportunities unlocked by rapid growth across Asia Pacific. For example, Singapore positioned itself as the preferred logistics, aviation and maritime hub connecting manufacturers in East Asia to global export markets. It also emerged as the leading wealth management centre for rich Asians, besides becoming a critical design/R&D node for electronics firms. Such links to regional economies added to Singapore‘s value and reinforced growth.
Weathering Global Crises
While economic liberalization drove rapid growth, it also exposed Singapore to volatility from global downturns. For instance, the 1985 recession led to first ever year of negative GDP growth, while the 1997 Asian Financial Crisis sparked fears of substantial deindustrialization. However, prudent fiscal policies enabled Singapore to implement countercyclical stimulus measures that moderated impacts and stabilized investor confidence.
Structural shifts in strategic focus also played a role. When manufacturing demand tanked in 1985, policymakers responded by accelerating financial sector deregulation to tap renewed capital inflows. This intensified Singapore‘s transition towards a service-oriented economy. Later, the 1997 Crisis provided the impetus for enterprise upgrading programmes and closer cross-border economic integration with Indonesia, Malaysia etc. Focus also turned towards emerging sectors like biomedical sciences. Such nimble yet strategic policy pivots ensured Singapore rebounded faster than neighbors from external shocks.
Sustaining Future Growth
Looking ahead, despite its phenomenal progress, Singapore faces pressing challenges today to sustain growth momentum. For one, rapidly aging population threatens labor force and productivity declines. Furthermore, with costs and competition rising, Singapore risks getting displaced as MNCs relocate to cheaper locations like Vietnam and India.
To address this, recent policy initiatives target creating more flexible labor markets via dependency ratio reforms while boosting local workforce skills. There is also emphasis on reducing business costs, fostering innovation and attracting investments in new growth clusters like agri-tech, green energy solutions etc. Immigration policies are also being eased to support population growth. However, politically contentious issues like local-foreigner job competition and stresses on public infrastructure need resolution for reforms to succeed.
In conclusion, Singapore‘s economic success was no accident but meticulously strategized to capitalize on opportunities. This continued emphasis on future-oriented strategic policymaking and economic upgrading is what makes the Singapore model resilient, despite rising uncertainties in the global economy. It offers valuable lessons for other developmental states aspiring to emulate its dramatic transformation.