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Singapore’s Economic Transformation; Where Will She Stand 50 Years On?
Aspire, Dr Chan Yan Chong | 14 August 2015
By: Dr Chan Yan Chong
Articles (200) Profile

On 9 August 1965, the Republic of Singapore was thrust into existence abruptly, having been booted out of Malaysia. 50 years later, Singapore has transformed into a wealthy country with a per capita gross domestic product that is ranked third in the world.

In 1976, the death of Mao Zedong and the fall of the Gang of Four caused an upheaval in China politics that also affected the political leanings of Singaporeans, resulting in the decline of the socialist opposition party. The People’s Action Party (PAP) went on to claim all the seats in parliament. Freed from political entanglements, Singapore’s economic development took flight. With this growth, the Central Provident Fund (CPF) contribution rate of all citizens increased year after year, and the housing policy of the Housing Development Board (HDB) began to bear fruit. Singaporeans began to enjoy a quality living and working environment.

Today, about 85 percent of all Singaporeans live in public housing, bought at a relatively low price from the government. As some attain greater wealth, they might feel that it is time to upgrade to private properties, which are seen as a status symbol in Singapore. In such instances, they would sell their flats in the open market – where non-citizens who are not eligible to buy HDB flats directly from the government are able to make a purchase.

Many political observers believe that Singapore’s public housing policy, which allows majority of Singaporeans to be homeowners, is the most important contributor to political stability in the nation. With almost every Singaporean a house owner, there will be naturally less unhappiness with the government, the reason PAP has been able to stay in power.

With the SG50 celebrations over, the excitement over the coming general election is more palpable than before. At this election, the amount of support for the PAP may swing either way, but no one is expecting the PAP to lose the election.

However, the Singapore stock market has not been performing well recently. The benchmark Straits Times Index stood at 3,196 points on the eve of National Day, close to a new low for the year. Fortunately, this level is actually just 10 percent down from the year’s high of 3,549 points. In other words, the Singapore stock market has changed little over the past year, which is neither good nor bad. Based on past experience, market sentiments tend to be subdued before elections, so we are unlikely to see any up ticks soon.

Some people may worry about how Singapore will fare 50 years from now. Singapore’s evolution has been gradual; its success today was never guaranteed, but was instead carved out through conquering whatever adversities that came. The nation will likely stick to a similar plan for the next half-century; adapting is still the way for survival.

50 years ago, our young nation faced the problems of high population and high unemployment. Singapore’s population has since grown more than twofold. However, with unemployment exceeding 10 percent then, how would Singapore support its population? Therefore, the Singapore government initiated the “Stop at Two” campaign to convince people that having two children were enough.

Apart from family planning, the government unveiled the Jurong Industrial Estate in the western part of Singapore to attract foreign investors to set up factories here by offering cheap labour. Between 1965 and 1986, things had been mostly smooth sailing for Singapore. Then, in 1986, Singapore was hit by a recession for the first time and unemployment spiked. It was then that Singapore realised that its wages had crept up significantly, prompting some foreign-owned factories to relocate.

Faced with this challenge, Singapore cut wages nationwide by trimming the CPF contribution rate of all its workers. From 1965 to 1986, Singapore’s CPF contribution rate (for both employers and employees) rose from 5 percent of the employees’ wages to 25 percent. The real wage cost for employers to hire a staff was thus 125 percent of the employee’s quoted salary – a heavy burden for companies here.

Cutting salaries alone is not sufficient. More importantly, Singapore had to restructure its economy to move away from labour-intensive manufacturing activities to high value-adding industries, while stimulating domestic consumption to drive the tertiary industry. Thus, Singapore’s economy underwent a structural makeover with the government leading the charge by investing heavily in high value-adding industries. This strategy is talent intensive, so Singapore opened its doors to talents from around the world. Meanwhile, it was time to retire the “Stop at Two” campaign, as Singapore needed to balance out the influx of foreign residents.

Trimming CPF contribution is a wage cut in disguise, and Singapore could not afford to suppress wage growth for long. However, wage growth must come through higher productivity, and the development of high value-adding industries was a reliable way to achieve this. For the past 30 years, Singapore has enjoyed high wage growth rates because Singaporeans are engaged in such industries.

Today, Singapore boasts a large number of high-tech industries, and though Singapore has no oil reserves, it is the world’s largest oil refining centre. Singapore is also one of the most important biotechnology production hubs in the world.

In the financial sector, Singapore does not have as much a geopolitical advantage as Hong Kong, which is backed by mainland China and boasts mega companies like PetroChina, China Mobile, and Industrial and Commercial Bank of China on its bourse. Singapore therefore had to look in another direction. These days, Singapore has become the world’s largest stock index futures trading centre. Singapore is also the world’s third largest foreign exchange trading centre after London and New York.

In the last general election, the PAP won its lowest number of votes in its history. The PAP concluded that one reason was that Singaporeans became unhappy with increased number of immigrants. This is a new problem facing the government of Singapore despite the fact that these younger immigrants were a solution to the country’s ageing population. However, the votes reflect the public’s opinion and when a party is unable to secure enough votes, it loses the mandate to govern. If the PAP is voted out, what would happen to Singapore then?

Dr Chan Yan Chong is a renowned investment expert with many accolades under his belt.

Please click here for more information about this author.

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