Whither Singapore Inc?

Nov 28th 2002
From The Economist print edition

Singapore’s unique brand of capitalism needs an overhaul. Will Ho Ching do the right thing?

UNDER Ho Ching’s father-in-law, Lee Kuan Yew, Singapore rose, to use his own phrase, from third world to first. How did Mr Lee achieve this? He would say it was by consistently ignoring intellectual fads. One such, in the 1970s, held that multinational companies exploited poor countries; Mr Lee busily courted multinationals. Another (to which this newspaper subscribes) suggests that the private sector is usually better than the public sector at running businesses. Mr Lee made sure that the government owned Singapore’s biggest companies. In this respect, Singapore was different from Asia’s other tigers. Hong Kong grew rich as a bastion of laisser faire; in Taiwan and South Korea, government may have guided, but rarely owned.

Leaving aside one or two small hiccups, Singapore did well with its brand of state capitalism, at least until the Asian crisis of 1997. Then came a short-lived recovery and another recession. Last year, Singapore’s economy shrank by 2%; last week the government lowered its estimate for growth this year to only 2%. Lee Hsien Loong, who is Singapore’s deputy prime minister and finance minister as well as being Lee Kuan Yew’s elder son and Ho Ching’s husband, has repeatedly lamented Singapore’s lack of entrepreneurialism. An awareness is sinking in among the island’s ruling elite that a model that turned a swamp into a metropolis may not work as well when it comes to turning the metropolis into a citadel of the knowledge economy. An unprecedented gloom has descended on Singapore Inc.

Ho Ching is the woman chosen to clear the gloom. In May, she was appointed to the helm of Temasek, a government holding company that is the most concrete expression of Singapore Inc. Temasek owns (in effect) controlling stakes in 20 of Singapore’s biggest companies and many smaller ones.
Ms Ho is spectacularly well connected. Quite apart from her powerful father-in-law and husband, her brother-in-law, Lee Hsien Yang, also happens to run Singapore Telecommunications (SingTel), Temasek’s and Singapore’s largest company. In August, Bloomberg, a news agency, ran an article ascribing her prominence to nepotism. The Lees’ lawyers rang, and Bloomberg retracted the offending article and paid hefty damages.

Her qualifications are certainly not to be sneezed at. A Stanford-educated engineer, she ably ran Temasek’s defence conglomerate for a decade. But the strongest argument for putting someone like Ms Ho in charge of reforming Singapore Inc is precisely those family connections. A trusted insider is more likely to break down the barriers to change in this small country than an outsider would be. That does not, of course, guarantee that she will do this. Asking Ms Ho her plans is not an option, since she declines to grant interviews to foreign newspapers. Temasek’s new charter, published in July, is not helpful either. Using ambiguous jargon (rationalise, consolidate, strategic development), it says that the government will keep some companies, allow others to find foreign partners, perhaps divest a few, start a few others, and so on. All possibilities are covered.

Looking at what Temasek’s companies have actually been doing is more confusing still. This month, for instance, battle raged over one listed Temasek-controlled company: NatSteel, a steel maker. It appeared to be settled only after another Temasek companyDBS, a bankagreed to sell its stake in NatSteel to a tycoon backed by the government. Other Temasek companies have botched share offerings, made staff changes, and so on. But as to overall direction, nobody is any the wiser.

Assuming that she plans to do something eventually, is Ms Ho still getting ready for action? Or has she yet to decide what to do? In broad terms, she has only two options, beyond inaction. She can try to become a sort of Singaporean Jack Welchan analogy actually used in the local pressand run the Temasek stable rather as legend says he ran GE, boosting profits and creating winners. Or she might become a Singaporean Margaret Thatcher, breaking up Temasek and liberating the corporate sector from its government shackles.

The Welch approach would require management genius. Many of Singapore’s companies certainly could use a bit of that. Stern Stewart, a consultancy, recently calculated a wealth added index for Singapore’s companies. This compares returns generated with those said to be expected by the market. The index found that a few Temasek companies, notably Singapore Airlines, have rewarded their shareholders well. Others, such as the oil company, land developer, telecoms operator, shipping line, semiconductor maker and hotel firm, have disappointed. A brilliant manager, with a more aggressive, hands-on approach than has been used of late, could turn them all around.

A time for boldness

One advantage of the Thatcherite approach, which requires less management genius, is that it is so much simpler. It would also be much bolder, breaking with Singapore’s tradition. Ms Ho and her family know of the criticism that the present structure stifles entrepreneurship. A common joke in Singapore is that working for Temasek companies is like doing national service.

They must also have become aware of the pariah factor that comes with government ownership. The only way for Singapore’s top firms to prosper is to expand beyond their tiny home market, regionally or even globally. But government ownership deters many potential foreign partners. Lee Hsien Yang’s SingTel is a prime example. It was defeated in takeover attempts in Hong Kong and Malaysia, in large part for this reason.

Only a fool underestimates this family. Mr Lee senior was bold in his time. The second generation (not least Ms Ho) might yet be as courageous. But the true test will be whether it realises that the most productive thing that it can do is to break up the Singapore Inc that it has inherited.

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