SINGAPORE (Jan 28): Jan 29 marks the date, two centuries ago, that British East India Company agent Thomas Stamford Raffles set foot in Singapore. But Raffles would probably not recognise the place at which he was said to have disembarked, surrounded as it is today by skyscrapers of glass and steel.

Those buildings are, in some ways, measures of just how far Singapore has come in the two centuries since it was established as a trading post for the British Empire. Much of this success has been predicated on the fact that the island was turned into a free port, being favourably located in the lucrative trade route between the East and the West. The spice trade flourished and Singapore later focused on petrochemicals and oil bunkering, manufacturing exports, and cross-border financial services.

Yet, even as billions of dollars have been poured into developing the latest iterations of the port — both air and sea — there is a growing realisation that the advantages that Singapore has leveraged for growth for much of its history are no longer viable in the new economy. We are even being outpaced by our neighbours in the competencies that policymakers painstakingly nurtured over the last decade or so. One of Singapore’s leading businessmen, Ho Kwon Ping, founder and executive chairman of Banyan Tree Holdings, points out that Bangkok’s capital market is larger than ours, while Indonesia has a thriving entrepreneur and innovator scene.

At the same time, Singapore’s small and open economy is particularly susceptible to the external headwinds that are approaching: slowing global economic growth, geopolitical tensions and great-power rivalry.

Policymakers here have been casting about for new economic growth drivers centred on making Singapore a key hub for technology, innovation and enterprise. There is significant investment in fintech, for instance, built upon existing competencies in financial services. Certain industries, identified as strategic, have been developed into a force to be reckoned with. Seletar Aerospace Park, for instance, is a cluster of aviation industry competencies, from jet engine manufacturing and repair to engineering, ­avionics and flight training. There are also substantial grants and incentives to encourage entrepreneurship — people from all over the world come to Singapore to start businesses or “test-bed” their latest technologies.

But that may still not be enough to really drive growth in the longer term. For one, Singapore is still one of the more expensive places in the region to do business, which limits its competitive advantage as an attractive, modern-day landing point for MNCs. And, worryingly, among the countries in the region, Singapore is also where there is the biggest mismatch between the labour force’s skills and jobs available, according to a report by Cisco and Oxford Economics.

One way is for Singapore to push the envelope and really become what it envisions for itself: a highly innovative and productive economy. What that also requires, however, is a fair amount of risk-taking and the ability to break the mould and start afresh. A major obstacle to that happening, according to observers, is the fact that the city state lacks the diversity of ­ideas needed to foster such change.

The government and broader society are also facing challenges at home, arising from fast-changing demographics as well as the somewhat unintended consequences of certain policies formulated in the past — those on low-cost labour and education. There is increasing attention on the economic inequality here and, just as in the US and parts of Western Europe, there is growing pressure on the people in power to make changes.

There is an argument that economic growth needs to be secured before solutions can be found to address economic inequality. This is because if there is no growth, there would be nothing to distribute anyway. And it may be that, precisely because Singapore has been successful, people are comfortable enough to start noticing the gaps.

Yet, economic growth ought to be inclusive, though it does not mean a welfare state. It is a call for policies that ensure fair wages and educational opportunities, for a start, to level the playing field. This has important implications for business and investment, not least because there is ample literature linking inequality to instability. Ultimately, growth needs to be inclusive, if only to ensure everyone has the opportunity to be part of the country’s growth process for the long term.

This story appears in The Edge Singapore (Issue 866, week of Jan 28) which is on sale now. Subscribe here