SINGAPORE (Aug 12): This year, Singapore celebrates roughly 720 years since it first emerged as trading centre for the region. It is also 200 years since Raffles re-established Singapore as a regional port, and the 60th anniversary of self-government. The latter enabled Singapore to strike out on its own, eventually emerging as a uniquely successful and independent nation as well as one of the pre-eminent global hubs of commerce and finance.

These anniversaries and the 54th national day are a good occasion to take stock of the sources of Singapore’s success. It is a thoroughly modern city, yet it has preserved its history and traditional values. It is a highly diverse nation, yet it is harmoniously united. Its small size and heavy dependence on the world economy make it highly vulnerable, yet its resilience to the many shocks that have disturbed the world in the past two decades has been outstanding.

But, while there is much that is inspiring and exceptional about the Singapore story, history tells us that city states have an uneven track record of maintaining such success. Indeed, the past year has seen an eruption of discomfiting geopolitical trends and attacks on the international trade regime that make the world a scarier place for Singapore. Many analysts have also pointed to growing challenges within Singapore. So, Singaporeans have to ask themselves — how will these global and domestic changes affect us, and is the Singapore model still fit for purpose?

Three big changes that threaten Singapore’s position

First, the global political and economic arrangements that protected Singapore and provided it with the opportunities to soar are being undermined:

  • Weaker security frameworks offer less reliable protection. Southeast Asia is being buffeted by the intensifying strategic confrontation between the US and China, increasing question marks over the US commitment to preserving order in Southeast Asia and the diminishing effectiveness of Asean as a regional organisation. Southeast Asia, including Singapore, needs to be on good terms with both the US and China — it must avoid having to choose one over the other. Yet, as the Sino-US clash expands into a trade war and threatens to morph further into a technology and currency war, the big powers will increasingly demand that the smaller states in the region choose. Under President Donald Trump, the US is also questioning its commitments to defend old allies and sustain long-standing alliances in the region. Within the region, Asean, for all the progress it has made over the decades, is struggling to keep its continental part (the countries around the Mekong, which are increasingly in China’s orbit) from drifting away from the maritime part of Asean. The security arrangements that gave Singapore cover are thus weakening, making it much more vulnerable than before.
  • The international economic order is also offering less protection. Small countries need internationally agreed rules that protect them from being bullied by big ones. The World Trade Organization is a key pillar of such a rules-based international economic order. However, the Trump administration’s assault on the WTO will basically paralyse it as a protector in the trade arena by early 2020. New arrangements to offset this are proving difficult to create — negotiations to finalise the Regional Comprehensive Economic Partnership are floundering, while the Trans-Pacific Partnership has been diminished by the US’ withdrawal into a smaller version with less impact.
  • A wave of populism and nationalism is encouraging protectionism, promoting more inward-looking policies and leading to policies on taxation and regulation that call into question Singapore’s ability to attract business on the basis of low tax and light-touch regulation. Additionally, in many countries, growing inequality has fed rising social resentment, which then leads to political dislocations such as Brexit or the current unrest sweeping Hong Kong.

A small state such as Singapore is a big loser from these trends.

Second, the simultaneous emergence of many new technologies — from artificial intelligence and robotics to renewable energy, bio-medical advances and new technology platforms in social media and other areas — offers grand new possibilities but also much disruption:

  • There could be substantial displacement of workers in some areas as incumbent companies are made irrelevant and automation reduces demand for labour.
  • The factors that determined competitiveness could be moving against Singapore. In some cases, new technologies seem to favour countries with large markets that allow network externalities over countries with tiny domestic markets such as Singapore. The unpredictable ways these new technologies interact with each other seem to give an advantage to economies with strong bottom-up or spontaneous entrepreneurial strengths rather than Singapore’s top-down model.

Third, as we discussed in an earlier column, Singapore could be a disproportionate loser from climate change: As a low-lying island nation, it is susceptible to rising sea levels. And its location near the equator could mean that it warms up much more than the rest of the world. Singapore may have to incur much larger costs to mitigate these effects and struggle to attract talent and companies to its shores if its climate becomes enervatingly hot.

Can Singapore adapt sufficiently to overcome these challenges?

A nation’s adjustment capacity depends on two factors — the government’s top-down capacity to effect necessary changes and the more spontaneous bottom-up adaptation efforts of companies, civil society and individuals. We would argue that our topdown capacity was impressive in the past, remains intact in some areas, but has diminished overall. The bottom-up dimension has been weak in the past and remains so.

Certainly, top-down capacity remains impressive in some areas. Agencies such as the Economic Development Board continue to stay ahead of the curve, successfully bringing in new investments that create entire new engines of growth in Singapore’s economy. The Monetary Authority of Singapore has impressed many around the world with its well-calibrated — and increasingly successful — approach to encouraging fin-tech innovations.

But there are other areas where top-down adjustment capacity has been woefully inadequate. There are too many areas where there has been either denial or where policy has little to show after years or even decades of effort:

  • Despite occasional tweaks, retirement adequacy remains insufficient — this is a forbidding challenge for a country with an ageing population.
  • Concerns over the 99-year leases of public housing remain unaddressed, while housing affordability remains a challenge.
  • Small businesses continue to complain about high costs and a less-than-supportive policy environment. Indeed, the indigenously owned private sector remains on the back foot despite years of complaints.
  • After more than 30 years of all manner of schemes, our total fertility rate keeps relentlessly declining — in contrast to some European countries that have reversed that trend.
  • The productivity growth so essential to competitiveness and rising standards of living has been paltry for a long time.
  • Countless studies have highlighted how Singapore’s innovation efficiency — the art of translating our impressive capacity to mobilise inputs for innovation into actual successful innovation outcomes — has underperformed other countries.

Policymakers should not shirk from confronting the reality of where Singapore has been underperforming and taking corrective actions.

What would we like to see being done?

Policymakers may need to review some basic assumptions and guiding principles in order to step up and provide effective responses to a more challenging environment. Here is a list, not complete or comprehensive, of where it is time to see bold thinking:

  • First, tackle retirement adequacy by moving away from a system overly reliant on a single Central Provident Fund pillar to a multi-pillared one that includes a tax-funded state pension. Introduce expanded financial support for segments of the population that are unable to fend for themselves such as the elderly poor. But this will not happen until we remove the policy bias against anything that smacks of “Western-type” welfare.
  • Second, address the housing challenge. This requires Singapore to move away from the questionable notion that government-owned land must be sold at market prices even to the Housing and Development Board, the provider of social housing to the nation. Singapore also needs to recalibrate pricing strategy for social housing so that there is a sensible relationship between home price and median incomes.
  • Third, take the business sector’s feedback on costs more seriously. There are several possible factors that have contributed to a cost challenge for businesses, which we need to study more carefully. One is the insidious way higher real estate prices feed through to wages, rentals and related costs, which the above suggestion could help mitigate. Another is the lack of competition in key sectors, which could have caused prices to rise. The Competition and Consumer Commission of Singapore should be more substantially empowered to address this. And the third is the weak productivity experience, which means that unit costs are higher than they should be.
  • Fourth, fundamentally rethink our approach to the region. But that may necessitate some rethinking of how we view our neighbours. One cannot but get the impression that some policymakers have a dour view, that resentment against Singapore is so deeply entrenched in the region that genuine and bold cooperation is difficult to achieve. It would be encouraging if we overcame this and made an imaginative offer to the region — such as proposing a network of bridges to connect the southern Strait of Malacca region together, with Singapore at the heart of that network — as leading thinkers such as Tay Kheng Soon have been suggesting.
  • Finally, we need policies to promote a more vibrant locally owned private sector. The revamped Enterprise Singapore has started operations and, it is hoped, will put together strategies to remove the bottlenecks facing local companies and help them blossom. While there are countless schemes to assist small and medium-sized enterprises, the collective impact has not been effective. A better enabling environment for SMEs will require the government to rethink its long-standing resistance to things such as an SME bank and an export-import bank. Government procurement could be refashioned to provide more opportunities for SMEs to gain a foothold in markets. Often, the response to this has been that Singapore’s free trade agreements limit this option — but somehow other countries with free trade agreements seem to find ways to do so!

Conclusion: An inhospitable world environment leaves us no choice but to make decisive changes

After decades of rapid globalisation that played to Singapore’s top-down strengths such as good infrastructure and a stable and accommodating policy environment, we are entering a new era that will be marked by more political and economic shocks. In the new world that is emerging, it will not be possible for policymakers to predict rapidly changing technologies, business models and social mores and adjust quickly enough to them.

So, ultimately, the final thing we need to do is to re-energise our bottom-up ability to effect change. But that requires us to rebuild society’s capacity for rigorous self-inspection — by which, we mean the ability of individual citizens, businessmen and civil society to discover trends that the government may not see or might underestimate, and to be able to question policies on the basis of better information and data than the government currently releases.

But that will not happen until the government places more trust in its own citizenry, releases more information and liberalises restrictions on the activities of civil society.

Singapore has made bold changes before and reinvented itself successfully. With the right policy rethink, there is no reason why Singapore cannot succeed again, even in the face of a more difficult global environment.


Manu Bhaskaran is a partner and head of economic research at Centennial Group Inc, an economics consultancy

 

This story appears in The Edge Singapore (Issue 894, week of Aug 12) which is on sale now. Subscribe here