The Story of Singapore

The Story of Singapore

Singapore has leaped from third-world to first in just 53 years.

When Lee Kuan Yew took over the country as the nation’s first Prime Minister in 1965, Singapore's per capita GDP was about $400 a year, similar to Mexico and South Africa. Today, Singapore has a per capita GDP of about $50,000, well above that of the U.S.¹

From the beginning, Lee Kuan Yew faced tremendous odds. Singapore had an unlikely chance of survival. When it gained independence in 1965, Singapore was a tiny, impoverished nation — an island without its hinterland; a heart without a body. 

As Devon Zuegel wrote: 

"Few expected Singapore to survive when it became an independent country in 1965. It was a tiny, impoverished island with a diverse population of recent immigrants. They had little shared history and no natural resources. Singapore had been colonized, occupied, and abused for over a century, and it was surrounded by hostile nations in a region succumbing to pressure by Communist forces.

Singapore’s acknowledged its challenges and embraced its role as a resource-poor city-state. Singapore depended on the outside world for food, energy, and water. Unemployment was close to 9 percent.² 

 Prime Minister Lee Kuan Yew.  Source

Prime Minister Lee Kuan Yew. Source


Singapore: Laying the Foundation

In his quest to improve Singapore’s economic standing, Prime-Minister Lee adopted the following strategy:³ 

"When I started, the question was how Singapore can make a living against neighbors who have more natural resources, human resources, and bigger space. How did we differentiate ourselves from them? They are not clean systems; we run clean systems. Their rule of law is wonky; we stick to the law. Once we come to an agreement or make a decision, we stick to it. We become reliable and credible to investors. World-class infrastructure, world-class supporting staff, all educated in English. Good communications by air, by sea, by cable, by satellite, and now, over the Internet.”

Devon Zuegel continues: 

"At first, Singapore’s small size was considered a major disadvantage. The city-state imported all of its food, energy, and fresh water, and the surrounding region was embroiled in ethnic conflict, nationalist fervor, and Communist insurgencies. However, Singapore’s lack of resources proved to be a blessing in disguise. Its reliance on the outside world forced the country to think in terms of a global network. To survive, it had to focus on being a valuable, stable trade partner."

Constrained by its geography, Singapore turned outwards. It promoted exports and direct foreign investment. Singapore embraced global markets and sought multinational companies to spur industrial growth and shifted away from import substitution, towards export-led industrialization, a decision at odds with the conventional wisdom of the time. Few other countries pursued these strategies, which benefited Singapore.⁴ 


Singapore: an International Brand

Intelligent branding has accelerated Singapore's success.

With an open-door policy to foreigners, Singapore has created an environment where businesses want to be. They attract foreign investment through world-class infrastructure, a skilled workforce, open trade routes, a well-enforced rule of law, and low taxes. 

By focusing on stability, business conditions, and human capital, Singapore's encouraged foreign investment:

"To succeed, Singapore must be a cosmopolitan center, able to attract, retain, and absorb talent from all over the world. We cannot keep the big companies out of the local league. Whether we like it or not, they are entering the region. The choice is simple. Either we have a first-class airline, a first-class shipping line, and a first-class bank, or we decline. One of the things we did in the early years was to buck the third world trend by inviting the multinational corporations, and we succeeded. Now, we must buck the third world trend to be nationalistic. We must be international in our outlook and practices…Our own talent must be nurtured to come up to world standards by exposure and interaction with their foreign peers. Some of our best have been attracted away by leading American corporations. This is part of the global marketplace.”

According to Lee, governments should also provide a stable foundation:

"The business of a government is to…make firm decisions so that there can be certainty and stability in the affairs of the people. The art of government is utilizing to the maximum the limited resources at the country’s disposal… The acid test of any legal system is not the greatness or the grandeur of its ideal concepts, but whether, in fact, it is able to produce order and justice in the relationships between person and person, and between person and the state."

As the world economy changed, so did Singapore. During its first two decades, Singapore’s economy grew by about 10% per year. It transitioned from trading in spices, tin, and rubber to simple manufacturing such as water fabs, pharmaceuticals, and Asian currency units:⁵

"By 1975, Singapore had established a substantial industrial base, with manufacturing’s share in GDP climbing to 22% from 14% in 1965. The economy was at full employment and it was clear that Singapore had to move up the value chain towards more capital-intensive and skill-intensive activities… By the late 1970s and early 1980s, we saw the emergence of strong clusters in higher value-added electronics, petrochemicals, component and precision engineering. In the 1980s, Singapore became the world’s leading producer of hard disk drives – an early form of memory storage used in computers at the time."

As Lee Kuon Yew observed, the results were outstanding: 

"We have created this out of nothingness, from 150 souls in a minor fishing village into the biggest metropolis 2 degrees north of the equator. There is only one other civilization near the equator that ever produced anything worthy of its name. That was in the Yucatan Peninsula – the Mayan Civilization There is no other place where human beings were able to surmount the problems of a soporific equatorial climate."

What follows is a collection of observations about America and Singapore from Lee Kuan Yew, the long-time Prime Minister of Singapore. 


America: An International Perspective

Lee Kuon Yew’s outside perspective on America gives him an enlightened, international vantage point. Lee identified risks that threaten American prosperity. 

Contrasting America with Asia, Lee observed:

"One fundamental difference between American and Oriental culture is the individual’s position in society. In American culture, an individual’s interest is primary. This makes American society more aggressively competitive, with a sharper edge and higher performance."

Above all else, Lee admires America’s capacity for creativity and entrepreneurship — renewal and revival:

"America’s strengths include no grooved thinking but rather an ability to range widely, imaginatively, and pragmatically; a diversity of centers of excellence that compete in inventing and embracing new ideas and new technologies; a society that attracts talent from around the world and assimilates them comfortably as Americans; and a language that is the equivalent of an open system that is clearly the lingua franca of the leaders in science, technology, invention, business, education, diplomacy, and those who rise to the top of their own societies around the world.”

The United States has a “start from scratch and beat you” culture. America is a frontier society where citizens are encouraged to start new enterprises and create wealth.

"These are the four salient features of America’s entrepreneurial culture: (1) a national emphasis on personal independence and self-reliance, (2) respect for those starting new businesses, (3) acceptance of failure in entrepreneurial and innovation efforts, and (4) tolerance for a high degree of income disparity."

Due to its culture of entrepreneurship, America is always transforming. However, America’s belief in individual liberty comes at a cost:

"The ideas of individual supremacy…when carried to excess, have not worked. They have made it difficult to keep American society cohesive. Asia can see it is not working. Those who want a wholesome society where young girls and old ladies can walk in the streets at night, where the young are not preyed upon by drug peddlers, will not follow the American model…The top 3 to 5% of a society can handle this free-for-all, this clash of ideas. If you do this with the whole mass, you will have a mess…To have, day to day, images of violence and raw sex on the picture tube, the whole society exposed to it, it will ruin a whole community.”

Individual supremacy creates a multitude of issues in American culture: 

"I find parts of [American culture] totally unacceptable: guns, drugs, violent crime, vagrancy, unbecoming behavior in public, in sum, the breakdown of civil society. The expansion of the right of the individual to behave or misbehave as he or she pleases has come at the expense of orderly society…It has a lot to do with the erosion of the moral underpinnings of a society and the diminution of personal responsibility. The liberal, intellectual tradition that developed after World War II claimed that human beings had arrived at this perfect state where everybody would be better off if they were allowed to do their own thing and flourish."

Americans believe in the supremacy of their own culture and rarely question this assumption. Most Americans see America’s dominance as an absolute fact, not an accident of history. This American attitude poses a severe risk. As China expands its influence on the global stage, Americans will have to revise their thinking:

"The sense of cultural supremacy of the Americans will make this adjustment most difficult. Americans believe their ideas are universal—the supremacy of the individual and free, unfettered expression. But they are not—never were. In fact, American society was so successful for so long not because of these ideas and principles, but because of a certain geopolitical good fortune, an abundance of resources and immigrant energy, a generous flow of capital and technology from Europe, and two wide oceans that kept conflicts of the world away from American shores.”

Americans have a quasi-religious belief in the power of popular democracy. The system, however, is imperfect. The problem with popular democracy is it incentivizes a short-term mentality. In search of re-election, leaders avoid essential discussions and topics that may divide the voting populous. 

"Contrary to what American political commentators say, I do not believe that democracy necessarily leads to development. I believe that what a country needs to develop is discipline more than democracy. The exuberance of democracy leads to undisciplined and disorderly conditions which are inimical to development…

When you have popular democracy, to win votes you have to give more and more. And to beat your opponent in the next election, you have to promise to give more away. So it is a never-ending process of auctions—and the cost, the debt being paid for by the next generation. Presidents do not get reelected if they give a hard dose of medicine to their people. So, there is a tendency to procrastinate, to postpone unpopular policies in order to win elections. So, problems such as budget deficits, debt, and high unemployment have been carried forward from one administration to the next."

Lee believes that popular democracy, especially in today’s media environment, leads to problems. For example, the best marketers — not the best governors — get elected.

"The presidential system is less likely to produce good government than a parliamentary system. In the presidential system, your personal appearance on TV is decisive, whereas in a parliamentary system, the prime minister, before he becomes the prime minister, has been a member of parliament, and probably a minister, and in Britain the people have sized you up over a period of time…and they have come to certain conclusions as to what kind of a person you are, what kind of depth you have, what kind of sincerity you have in what you say… Your presidents, I mean, like Jimmy Carter… my name is Jimmy Carter, I am a peanut farmer, I am running for president. The next thing you know, he was the president! Security, prosperity, and the consumer society plus mass communications have made for a different kind of person getting elected as leader, one who can present himself and his programs in a polished way… I am amazed at the way media professionals can give a candidate a new image and transform him, at least superficially, into a different personality. Winning an election becomes, in large measure, a contest in packaging and advertising… A spin doctor is a high-income professional, one in great demand. From such a process, I doubt if a Churchill, a Roosevelt, or a de Gaulle can emerge."

Elected officials take the easy way out. But by borrowing to give higher benefits to the current generation, officials pass on the costs to future generations who are not yet voters, which results in budget deficits and high public debt:

"American and European governments believed that they could always afford to support the poor and the needy: widows, orphans, the old and homeless, disadvantaged minorities, unwed mothers. Their sociologists expounded the theory that hardship and failure were due not to the individual person’s character, but to flaws in the economic system. So charity became “entitlement,” and the stigma of living on charity disappeared. Unfortunately, welfare costs grew faster than the government’s ability to raise taxes to pay for it. The political cost of tax increases is high."

Lee saw America’s debt as part of a broader issue — “Buffet Syndrome.” Lee believed that the West’s real mistake has been to set up “all you can eat” welfare states. When benefits are free, people consume them voraciously. In Singapore, families — not government — are the ultimate safety net. Singapore’s government has run budget surpluses almost every year for five decades.⁶

"Realism and pragmatism are necessary to overcome new problems. Only those basics that have proved sound in the past should not be changed unless absolutely necessary. Amongst them are honesty and integrity, multi-racialism, equality of opportunities, meritocracy, fairness in rewards in accordance with one’s contribution to society, avoidance of the buffet syndrome where, for a fixed price, you can take or eat as much as you want. That is why welfare and subsidies destroy the motivation to perform and succeed."

As economic influence shifts east, towards the Pacific, America must maintain its stronghold over the region: 

"What does the U.S. need to do to maintain global primacy? The 21st century will be a contest for supremacy in the Pacific, because that is where the growth will be. That is where the bulk of the economic strength of the globe will come from. If the U.S. does not hold its ground in the Pacific, it cannot be a world leader. America’s core interest requires that it remains the superior power on the Pacific. To give up this position would diminish America’s role throughout the world."

 Lee Kuan Yew.  Source

Lee Kuan Yew. Source


The Singapore Strategy

When I hear stories about trips to Singapore, people are always impressed by the knowledge of Singapore's citizenry. They seem to have an unparalleled understanding of economic, engineering and public policy.

Tyler Cowen called Singapore’s distinguished polity and “one of the best and most interesting sights of the contemporary world, more interesting than most natural wonders.” Singapore’s intellectual society is the result of a collection of traits that are encouraged by the government.

Singapore’s intellectual society is a result of a collection of traits that are encouraged by the government.⁷ Lee believed that Singaporean citizens should cultivate three qualities:

1. A striving, acquisitive community. You cannot have people just striving for a nebulous ideal. They must have that desire to improve… You must equate rewards to performance, because no two persons want to be the same. They want equal chances in order that they can show how one is better than the other.

2. We want forward-looking good management. The old family business is one of the problems in Singapore.

3. Easy social mobility. One of the reasons contributing to Japanese and German recovery was that their defeated capitalists, managers, executives, engineers, and workers…were fired by a singleness of purpose: to put their country back on its feet.

 Singapore's Parliament House.  Source

Singapore's Parliament House. Source

Singapore is one of the best functioning bureaucracies in the world.

From an American perspective, Singapore has achieved the impossible. The country spends on about 5 percent of GDP on the medical sector but delivers some of the world’s best health outcomes. Even education only consumes 3.3 percent of GDP.⁸ In contrast, America spends roughly 17 percent of its GDP on the health sector but suffers from worse outcomes. Singapore’s entire government spending (17 percent of GDP) is approximately equal to America’s spending on the healthcare sector. Singapore's government is relatively small. Taxes are low, and there are no additional state and local government taxes.⁹

Singapore's citizenry has an ethos of public service. As Tyler Cowen remarked: 

"Strikingly, Singapore is one of the few countries where there is brain drain into the public sector. This stems partly from the high salaries paid. Top bureaucrats typically receive more than their American equivalents, and cabinet-level pay may exceed $800,000, with bonuses attached that can double that sum for excellent performance."

Lee saw a clean, efficient, rational and predictable government as a competitive advantage. He sought order and justice in the relationships between citizens and the state. Singapore’s government officials rank among the highest paid in the world. Singaporeans believe that high pay for government officials will reduce — or even eliminate — corruption. The salaries of Singapore’s judges, ministers, and top civil servants resemble the salaries of leading professionals in the private sector. 

As the country developed, Lee didn’t just focus on the government; he also molded habits and social customs. Inspired by American ideals, Lee encouraged Singaporeans to accept immigrants — no matter where they originated.

Lee’s top three priorities were cultivating (1) a determined leadership, (2) an efficient administration, and (3) social discipline:

"When I started, the question was how Singapore can make a living against neighbors who have more natural resources, human resources, and bigger space. How did we differentiate ourselves from them? They are not clean systems; we run clean systems. Their rule of law is wonky; we stick to the law. Once we come to an agreement or make a decision, we stick to it. We become reliable and credible to investors. World-class infrastructure, world-class supporting staff, all educated in English. Good communications by air, by sea, by cable, by satellite, and now, over the Internet."

Singapore’s social discipline points to a fundamental difference between American and Singaporean culture: Americans believe in the primary rights of the individual while Singaporeans prioritize the interests of the masses over the interests of the individual. Inspired by this philosophy, Lee instilled a belief in thrift, hard work, filial piety, loyalty in the extended family, and most of all, respect for scholarship and learning.

"Habits that make for high productivity in workers are the result of the values implanted in them at home, in school, and at the workplace. These values must be reinforced by the attitudes of society. Once established, like a language a society speaks, the habits tend to become a self-reproducing, self-perpetuating cycle.”

A common language makes social cohesion much easier. Singapore’s schools focused on teaching English. Due to its English-speaking populous, Singapore can collaborate with the most influential multi-national corporations. 

"To optimize our opportunities, we must retain the vigor of our multi-racial-lingual-cultural-religious society. We have the advantage of all being educated in English in an age when English is the common language of the world and the Internet. However, we must not lose our basic strengths, the vitality of our original cultures and languages.”

 Modern Singapore.  Source

Modern Singapore. Source


Facing the Future

There are stark cultural differences between Singapore and America — East and West. America is democratic, while Singapore has an authoritarian bent; Singapore focuses on the collective, while America focuses on the individual; Singapore’s government operates with lean efficiency, while America is a bloated, inefficient bureaucracy. 

As American productivity has stagnated and its citizens have become complacent, Singapore’s seen remarkable growth. Americans cannot copy Singapore — only draw from their experience. That, though, is an intelligent decision.


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Footnotes

¹ Source: CEIC Data 

² The British government withdrew its troops from Singapore in 1968. Thousands of workers immediately lost their jobs. As much as 1/5th of the economy risks coming to a halt. 

³ All quotes in this post come from Lee Kuan Yew: The Grand Master's Insights on China, the United States, and the World unless otherwise noted.

⁴ According to Wikipedia, Import Substitution Industrialization is trade and economic policy which advocates replacing foreign imports with domestic production. ISI is based on the premise that a country should attempt to reduce its foreign dependency through the local production of industrialized products.

 Source: An Economic History of Singapore 

⁶ Source: Marginal Revolution 

 Of course, there are other factors too. For example, I suspect that Singapore’s density makes it easier to motivate the populous.

⁸ Source: The Economist

⁹ Source: Bloomberg