Singapore still the same after 23 years

One of my friends flagged on his Facebook this archived Fortune Magazine article from January 1986, the year after Singapore reported its first economic contraction in 20 years.

It’s uncanny how similar the situation is today, compared to 23 years ago. I guess we’ve changed, but not much…

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A HARD LANDING AWAITS SINGAPORE
The economy shrank in 1985 after two decades of 9% annual growth. Other Asian highfliers stalled too, but Singapore’s troubles are more than cyclical. Its high-wage policy backfired, and Prime Minister Lee Kuan Yew’s paternalism has stifled entrepreneurship.
By Lee Smith RESEARCH ASSOCIATE Hiroko Hara

(FORTUNE Magazine) – LIKE ANY GOOD FATHER, the government of Singapore knows when it’s time to back off and let the children run the business — to struggle, stumble, and with luck succeed. And like any good father, the government of Singapore finds that it’s easy to talk about letting go and tough to do it. Clearly the family business is in trouble. A financial panic temporarily closed the Singapore Stock Exchange in December. After two decades of roaring growth that averaged almost 9% a year, the economy has suddenly gone cold. The gross domestic product shrank an estimated 2% in 1985. Asia’s other little dragons — Hong Kong, South Korea, and Taiwan — have temporarily lost their economic fire as well. Exports of TV sets, computer peripherals, and other electronic gear from all four places have suffered as the U.S. economy has slowed down. Singapore has depended heavily on oil refining and shipbuilding and repair, businesses in serious decline. Getting out of the hole will be made harder by the paternalistic rule of Prime Minister Lee Kuan Yew, 62. To Lee’s great credit, his regime has given the 2.6 million Singaporeans the third-highest per capita income in Asia. (Brunei, which has lots of oil and few people, is No. 1, followed by Japan.) The government has no debt, and the inflation and unemployment rates both run about 4%. At the same time, Lee’s paternalism can be suffocating. At a recent Scrabble contest sponsored by a local hotel, players kept censorship guidelines in mind as they chose words. (The government forbids racial epithets, for example, lest they stir up animosity between Singapore’s Chinese, who make up three-quarters of the population, and its Malay and Indian minorities.) Singaporeans have always been smug about the tidiness of their society, especially in comparison with the boisterous, anything-goes capitalism of Hong Kong. Now some are beginning to think they are paying too high a price for domestic tranquillity. ”Hong Kong is more vibrant,” says Lee Hsien Loong, 33, son of the prime minister and his likely eventual successor (see box). For now he is a junior minister heading a committee charged with devising a new economic strategy for Singapore. ”People in Hong Kong are quick to see opportunities and quick to cut their losses,” he says. ”We don’t have quite the same crop of entrepreneurs here.” So now the government is trying to release the creative energies of the citizens so they can come up with new products and services to get the economy moving again. In March, Tony Tan Keng Yam, 45, then minister of finance, now of trade and industry, proclaimed that the private sector rather than the government should be the ”engine of economic development.” Government, which owns part or all of some 500 companies, should not get into new businesses, he said, unless private enterprise can’t or won’t. And except where its presence is essential, the government should get out of the businesses it’s already in. BY SELLING OFF COMPANIES the government might slap life into the sleepy Singapore stock market. The weakness of the nation’s capital markets limits entrepreneurship. Singapore Chinese traditionally raise cash for new ventures by putting the touch on aunts and uncles, but that kind of money is rarely enough to launch, say, a bioengineering company. The government sold 100 million shares of Singapore Airlines at $2.38 a share in November. Including some stock earlier sold to airline employees, 37% of the superbly managed carrier now is in the hands of local and foreign investors. The airline earned $69 million in fiscal 1985 on revenues of $1.4 billion. With such powerhouse companies trading on the exchange, more investors will be drawn in. That in turn should eventually produce more capital for start-up companies. Still, despite Tony Tan’s ringing rhetoric, not much else has gone on the block. Nor does the government seem ready to relinquish majority ownership of Singapore Airlines or sell some of its other leading companies. More sales apparently have been blocked for now by an argument within government. The prime minister has yet to say where he stands, though he must be at least open-minded on privatization or the idea would not have been floated. Pushing for it is a group of young ministers including Tony Tan and Lee Hsien Loong. Arguing against them are traditionalists who continue to think that government can run the economy best. ”Young politicians think that government is too big and that if a business makes money, government should get out of it,” observes the amiable P. Y. Hwang, 50, chairman of the Economic Development Board. ”But we’ve done things quite well. We hardly ever run businesses as charities. We run them as businesses.”

Paradoxically that’s part of the problem. Because government businesses are well managed, they not only compete effectively with private enterprise, they sometimes crowd it out. Singapore’s brightest students get government scholarships, then work five years or so for government agencies or companies. Says an executive for a large multinational corporation in Singapore: ”Bright young people, and that includes bright young bureaucrats, always want to make businesses grow.”

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Author: Gerald Giam

Gerald Giam is the Member of Parliament for Aljunied GRC. He is a member of the Workers' Party of Singapore. The opinions expressed on this page are his alone.