Abstract
Singapore as we know it today has grown from a British source of raw material and manufacturing to a famous tech hub that now appeals to large multinational corporations across the globe. With efforts led by the People’s Action Party under Lee Kuan Yew, Singapore managed to strengthen its infrastructure and design it in a way that would attract foreign investment, which is exactly what it was able to do. Now, Singapore’s economy is thriving with high levels of GDP growth and the government’s constant support to ensure that the country’s growth continues. The nation has started implementing new forms of technology and promotes research to maintain its position as a center for future growth. In the future, its economy is projected to face issues including income inequality, changing demographics, and challenged competitiveness. Regardless, studying Singapore as an emerging market tells the story of how a producer of primary goods under colonial rule transformed itself into a commercial center that experiences one of the highest economic growth rates in the world.
Keywords: economy, multinational corporations, Lee Kuan Yew, competitiveness, innovation, government, technology
Introduction
Alongside Hong Kong, Taiwan, and South Korea, Singapore is classified as an “Asian Tiger” due to its rapid modernization in the late 1900s. Its government implemented new strategies that would be able to grow its economy and attract foreign investors through eliminating market risks as well as reducing trade barriers. Singapore also contains one of the world’s busiest deep-water ports that is frequently upgraded and expanded, similar to Hong Kong. The economy has been performing decently well and shows promising results for the future even though there are some challenges that they will have to face. However, knowing Singapore’s government-backed economy and past instances, it is likely that they will be able to find ways to resolve these issues in the least detrimental way possible.
Economic History
Until 1959, Singapore was a British colony that was mainly used as a regional processing center for manufacturing and a source of raw materials. Once the British realized that shipping raw materials between Singapore and Britain only to produce goods and export them back resulted in high transportation costs, they took on initiatives to lower this price. They began by turning Singapore into a processing hub for finished goods, but it later became a trading port and industrial center for the British to pursue their economic interests.
Lee Kuan Yew’s Reforms
The People’s Action Party (PAP) led by Lee Kuan Yew came into power in 1959 and began emphasizing the need for independence in Singapore both, politically and economically while supporting workers’ rights and benefits such as free education and health services. Until this point, the wealth distribution in Singapore was quite unbalanced so the PAP found great support in the common people. As an individual, Lee Kuan Yew greatly collaborated with major trade unions and was strongly in favor of the rights of labor. His works centered around growing Singapore’s global presence and he realized to do so he would need to create compelling incentives for multinational corporations (MNCs). He began with establishing investment projects in the market, regardless of it being underdeveloped, and implemented policies such as those that would reduce market risks for investors, strengthen the infrastructure, as well as establish a manufacturing base within the area.
Current Economic Conditions
In the past decade, Singapore has seen tremendous GDP growth with an average of about 5% per year which is absolutely remarkable considering it has a per capita income comparable to most other developed nations. The manufacturing sector in the country, from when it just began to expand its market to now, has been contributing a significant portion of the overall GDP. Although not as much as the 22% it made up in 1998, manufacturing falls closely behind the financial and business service industries. Singapore has an innovation efficiency of 0.64 which measures the total output upon the input invested. This number is relatively low when compared to 0.77 of most other high income countries and Hong Kong, whose economy is quite similar to Singapore’s, has a 0.68. Consequently, Singapore has been greatly encouraging innovation among its citizens and set no initial capital requirements for new start-ups recently in efforts to raise this number.
International Business
Singapore has been making attempts to create strong business relationships with foreign powers, specifically, it’s been looking for foreign investment, especially in its manufacturing sector, with a S$1B budget set aside in a fund where the government can share risks with partners in certain projects. At the moment, more than 5,000 multinational companies have invested in Singapore with a majority focusing on the electronics and petrochemical sectors. Oftentimes, Singapore companies are encouraged to take production matters and create factories in other local emerging markets which may include China, Vietnam, Indonesia, or Malaysia.
Governmental Involvement
One of Singapore’s biggest advantages is definitely the role that its government plays in its economy. From the start, Lee Kuan Yew took up the responsibility of growing the small island into a world-renown business hub and this attitude of the government to continue expanding Singapore has prevailed. There have been many instances where the government is able to make difficult decisions and have them implemented almost instantly. An example of this can be seen “When the Asian economic crisis occurred in mid-1997, the Singapore government quickly formed a competitiveness committee, comprising industry, unions, and the government. A result: a reduction in wage costs, factory rent, and utility rates” (Graham, 2000). Even now, seeing that the GDP has been growing steadily the government “responded by expanding the social safety net, such as increasing government support for healthcare and channelling more funds to help the lower income groups” (Bhaskaran, 2014). The positive trend that the country has seen can be traced back to its government and its constant support for the economy, proving the benefits of such involvement.
Multinational Corporations
“Singapore has cemented a reputation for itself as being one of the best places in the region to do business thanks to its strategic location, stable economy and equally stable political environment, it’s world-class infrastructure and its ease of doing business” (“MNC Companies in Singapore”, 2018). Knowing this, it is inevitable that multinational corporations will be attracted to this growing city-state and want to engage in business here. Large, worldwide companies including Rakuten, Sony, Panasonic, Google, Microsoft, Apple, Unilever, and many more continue to be drawn by the potential they see for their corporate growth in a location like Singapore. Here, they have the innovative environment, technologically advanced employees, an educated workforce, low market risk, and government backing which make international business within Singapore a popular area of engagement for international corporations.
The Role of Technology
With Singapore ranked as the world’s second most digitally competitive country by the IMD, the government is looking to not only maintain this position, but even bring itself up to first. The country is well aware that the application of technology in their lives will make a significant impact across their society as a whole, given the highly literate, technologically-educated workforce. Currently, it’s working towards the digitalization and automation to transform certain aspects of their society, government, and economy mainly through the strategy crafted by the National University of Singapore’s School of Design and Environment. This entails developing machines equipped with human talents such as learning, creating, and innovating in areas that could include cyber security, data analytics, and digital twinning. So far, the implementation of this plan has been going well and strengthened Singapore’s economy given its advanced capabilities compared to other markets at the moment. To continue its progress, the National Research Foundation developed the National Cybersecurity R&D program that primarily focuses on improving “the trustworthiness of cyber infrastructures with an emphasis on security, reliability, resiliency, and usability” (“National Cybersecurity R&D Programme”, 2020) while collaborating with the government, educational institutions, and the working population. With it’s government’s initiatives underway as well as a population with a strong background in technology, Singapore shows great potential in making itself a major technology hub in the near future.
Future Challenges
Looking forward, there seem to be three main issues that the economy of Singapore is projected to face: income inequality, changing demographics, and challenged competitiveness. Recently, most of Singapore’s efforts include trying to move away from its previous reliance on hiring cheap labor from abroad through restrictions that are resulting in low productivity, higher wage costs, and a shortage of workers even if businesses offer employees higher wages. It seems likely that businesses will either downsize, relocate to cheaper locations, or shut down due to this new change.
Income Inequality
Regardless, income inequality seems to be a prevalent issue bound to hit Singapore’s economy in following years. “Unlike in the past, where high economic growth filtered through to impressive gains in the living standards of the vast majority of Singaporeans, the translation of economic growth into broadly distributed welfare gains that the citizenry expects is proving harder to achieve” (Bhaskaran, 2014). The equal distribution of wealth across all groups in the nation is continuously becoming more out of reach as both the population and amount of wealth continues to grow.
Changing Demographics
Singapore is also facing a great demographic change as its population begins to age while fertility rates remain too low. The current healthcare and retirement programs will be the primary focus moving forward and ensuring that they will function efficiently without resulting in conflict. Keeping this in mind, the government will have to find a way that the country’s economic growth, productivity, and innovation aren’t impacted without resorting to their previous solution of simply bringing in more workers. There is a possibility that companies will no longer be attracted to Singapore given the lack of a working population in the near future and a decent economy so they’re likely to find a better business environment elsewhere causing other talented Singapore citizens to leave the country for these opportunities instead.
Challenged Competitiveness
Finally, the worldwide competitiveness levels are increasing while costs in Singapore are going up which undermines its competitiveness. It seems as though the currency, the Singapore Dollar, won’t adjust downward in efforts to provide relief for the loss in competitiveness, so costs for rental, intermediate goods, or services will end up decreasing.
Conclusion
Given Singapore’s great successes in the past, specifically concerning how it structured its economy and successfully brought itself to the top despite being a small island once exploited by the British, other underdeveloped countries can utilize the same techniques. Even though Singapore is still an emerging market, its government support, promotion of innovation, and constant research efforts will definitely contribute to future growth as well. These economic policies adopted by Singapore can serve as a model for other countries looking to launch modernization programs in the near future by getting their country’s economy into the world market, and hopefully the same end result as Singapore.
References
Bhaskaran, M. (2014). Challenges Facing the Singapore Economy. Southeast Asian Affairs, 290–302.
CHEE TAT, T. H., & CHEE PING, G. L. (2020). Innovating Services and Digital Economy in Singapore. Communications of the ACM, 63(4), 58–59. https://doi-org.proxy.library.georgetown.edu/10.1145/3378554
Graham, M. (2000). SINGAPORE LURES TECHNOLOGY. (Cover story). Industry Week/IW, 249(7), 37.
Innovation Efficiency Index. (2018). Retrieved July 29, 2020, from https://tcdata360.worldbank.org/indicators/he4fcea6c?country=BRA
MNC Companies in Singapore: Setup Singapore Business. (2018, June 26). Retrieved July 30, 2020, from https://www.3ecpa.com.sg/resources/guide-to-setup-singapore-business/mnc-companies-in-singapore/
National Cybersecurity R&D Programme. (2020, March 09). Retrieved July 29, 2020, from https://www.nrf.gov.sg/programmes/national-cybersecurity-r-d-programme
Nizamuddin, A. M. (2007). Multinational Corporations and Economic Development: The Lessons of Singapore. International Social Science Review, 82(3/4), 149–162.