The Lion in winter

Simon Elegant
30 June 2003

After years of prosperity, Singapore’s economic success formula is failingand citizens of the “nanny state” are being told it’s time to leave the comfort zone

Simon Toh seems to have it all. he’s sitting at the dining table in a spacious two-story house patiently helping his six-year-old, Samantha, with her spelling homework. His wife, Dilcy, whose barely swollen belly and slight glow are the only signs she is expecting their third child in a few months, sits watching a soap opera on a huge rear-projection TV. Their youngest, Stephanie, scampers around the living room while an Indonesian maid unobtrusively serves cold drinks and clears dishes. From the neat garden outsidea rarity in crowded Singaporecomes the soothing sound of a waterfall.

But despite his prosperous and settled appearance, this 39-year-old management consultant is being buffeted by forces far beyond his control. Toh, whose last steady job was with one of the world’s largest consulting firms, PricewaterhouseCoopers, hasn’t worked in nearly a year. Squeezed for cash, he was forced to sell his apartment and move his family in with his in-laws. He says he has sent out hundreds of r?um? and had scores of job interviews, but even though he is ready to try anything, he is considered either too qualified or not qualified enough. Solid jobs with big-name firms such as PricewaterhouseCoopersor Deloitte Touche Tohmatsu, another huge multinational Toh once worked forhave dwindled in Singapore, and Toh worries they are gone for good. “I’m not pessimistic, just realistic,” he says. “We just might not have the resources, either personal or national, to go forward.”

To the casual visitor flying into Singapore, such gloom seems absurd. The wealthy city-state still thrums with technocratic efficiency. But beneath the gloss of its modern skyline, an unprecedented economic downturn has produced the worst identity crisis since the traumatic 1960s, when the island gained independence from Britain. The body blow the economy took from SARSPrime Minister Goh Chok Tong recently warned of a possible recession in 2003has confirmed Singaporeans’ worst fears about their future. Accustomed to defining themselves by their country’s extraordinary commercial successes over the past four decades, they now confront the possibility that hard work and talent may not be enough, that history and geography can rob a nation of its wealth as fast as it was earned. “It sometimes seems as though Singapore’s best days are over,” one Singaporean accountant in his late 20s says. “Now we have to run as hard as we can just to stay in the same place.”

The country’s famously farsighted but heavy-handed leadership is all too aware of the challenges the nation faces in struggling to invent a new economic formula. “If you can’t evolve, big as you are or prosperous as you may be, you die like the dinosaurs,” Prime Minister Goh tells Time. “We have got to sound a warning, to get Singaporeans to be aware of what’s going on around them, and then to change and adapt.” Of course, other Asian economies face tough challenges, too. The war in Iraq and SARS have weakened key sectors, such as tourism and retail. And economies from Japan to Malaysia are under competitive pressure from China, the world’s rising manufacturing superpower.

But many Singaporeans believe their troubles go beyond transient business-cycle fluctuations and threaten the very foundation on which this “artificial nation,” as one senior Singaporean politician puts it, was built. Once consistently among the world’s fastest-growing economies, Singapore has stumbled in and out of recession since the Asian financial crisis of 1997. Despite having kept its financial house in orderfree of corruption and boasting huge trade surpluses, vast foreign-exchange reserves (some $80 billion at last count) and minimal public or private debtSingapore has been sideswiped by the economic transgressions of neighbors such as Indonesia, a major trading partner. Then, two years ago, just as the country finally appeared to be recovering, the technology bubble burst, causing a precipitous drop in the market for Singapore’s main product, electronics. This catastrophe was swiftly followed by another: roiling uncertainty caused by the terrorist attacks of Sept. 11, 2001.

During Singapore’s years as an Asian Tiger, its unemployment rate never much exceeded 2%meaning that essentially any able-bodied worker among the island’s 4 million residents could find work. But joblessness hit a record 4.4% last year and is expected to rise furtherpossibly hitting 6% this yearas the multinationals that account for about three-quarters of the city’s manufacturing output and 90% of manufactured exports look for cheaper sites, such as Malaysia and China, for their factories. Former Singapore stalwarts, including Compaq, Motorola and National Semiconductor, shuttered their plants in recent years, leaving the country’s manufacturing sector with a net loss from 2001 to 2002 of some 12,000 jobs. Economists say this trend will accelerate. On June 19, U.S. electronics conglomerate Honeywell announced that it was shifting its Asian headquarters from Singapore to Shanghai, a move the usually cautious Straits Times characterized as a sign of things to come.

Could the wealth accumulated in four decades of hard work and ruthlessly efficient planningthe city boasts an annual per-capita gross domestic product of $21,230, one of the world’s highestdisappear at the same astonishing pace at which it was accumulated? Prime Minister Goh and other leaders are adamant that Singapore can avoid that fate. “We can’t be hanging on to the manufacturing sector [if] the semiskilled jobs can be done better in China and elsewhere,” Goh says. “So we have got to move up the value chain into higher-skilled jobs.” Goh and his colleagues say the city-state can be remade from the top down by steering the economy away from its dependence on multinationals and into niche areas that the country is uniquely suited to exploit: financial services like banking and insurance, for example, or specialized and high-tech areas like medical care and biotechnology. The trick will be to foster creativity, entrepreneurship and the ability to take risks in a business culture long accustomed to following orders.

In characteristic fashion, the Singapore government sought to tackle its problem by forming two high-level committees, one to look at the needed economic-policy changes and the other to look at the thornier cultural changes. The cultural committee will publish its formal recommendations later this year, but its chairman has already indicated that bold initiatives aren’t in the cards. The economic committee, headed by Deputy Prime Minister and Finance Minister Lee Hsien Loong, reported its recommendations on Feb. 6. It eschewed sweeping changes, instead proposing tax restructuring, wage reform and external-trade expansion.

The lack of major policy recommendations is indicative of what might be called the Singapore dilemma: the efficient central planning that made the island such a success has become a millstone. To skeptics, it just doesn’t seem possible that a government that succeeded by dictating its citizens’ every move, right down to whom they should marry and how many kids they should have, can now foster a freewheeling atmosphere. “There are many people like me in Singapore,” says Toh, the unemployed management consultant. “We grew up in the era when the government guided us in everything, told us what kind of jobs to train for. The people of my generation were made to fit the industry the country needed, working for the big foreign corporations. Now, suddenly, we’re all supposed to be entrepreneurs. How can we change our personalities overnight? If they drop us, we will fall.”

That sense of hopelessness has convinced thousands of Singaporeans, including many of the country’s intellectual ?ite, to head for greener pastures. Emigration rates to favored destinationsAustralia, for exampledoubled in 2002, and a September 2002 survey by ACNielsen found that one-fifth of the country’s population was seriously contemplating permanent departure. “At the end of the day,” says Nicholas Woo, a lawyer now working as a partner in one of London’s best-known firms, “Singapore is too small. I cannot think of a single country the same size with the same ambitions that has succeeded in achieving them.” Woo, one of the many emigrants tagged “quitters” by Prime Minister Goh, has given up his Singaporean citizenship and now carries a British passport; he has married an Englishwoman and lives in a converted mill outside London with his two young children.

Given the island’s loss of high-paying jobs in recent years, it is easy to see why some of the country’s best-educated citizens are bolting. One way to plug the growing job gap is to lessen dependence on multinationals and government-controlled corporations by getting more Singaporeans to start their own businesses. But as even Singapore’s founding father, Lee Kuan Yew, acknowledges, the country’s entrepreneurial record is dismal. The city has produced just one world-class entrepreneur: Sim Wong Hoo, founder of Creative Technology, the company that almost single-handedly invented the PC sound card. Singapore is home to other enterprising business ventures, of course, but most are small and contribute relatively little to the economy. In Taiwan and Hong Kong, in contrast, small and medium-sized enterprises generate three-quarters or more of GDP. In Singapore, the figure is about one-fifth.

“The government has created an environment for the individual to be in a comfort zone that doesn’t give him the appetite to take risks of any sort,” says Alvin Phua, chief executive of Byte Power, an Australian information-technology company that reported $16 million in profits last year. Phua’s parents emigrated to Australia when he was 12 in part because they didn’t want their three sons to suffer the stifling pressure Singapore’s schools pile onto their students. Phua, now 30, believes his success as an entrepreneur would not have been possible had he stayed in Singapore. “The era we are moving into is extremely competitive in nature, and the government can be protective for only so long.”

Aware of the need for greater innovation, Singapore’s leaders have made some gestures to encourage a can-do spirit. Government-backed loans have been made more available to start-ups, for example, and a Minister for Entrepreneurship has been named. But fundamental reformssuch as selling off parts of the government’s stable of companies, which dominate every aspect of the private sector, from telecommunications to bankinghave been consigned to the back burner. Singapore’s “nanny-state” technocrats recognize that imposing a Silicon Valley-like mind-set on the population through social engineering won’t be easy. “We cannot create entrepreneurs,” says Lee, Singapore’s founding father. “We can only facilitate their emergence.”

But when the only tool you have is a hammer, everything looks like a nail. For example, Lee himself has suggested stimulating Singaporeans to be more independent by having the government encourage “little Bohemias,” neighborhoods where individuals with alternative views and lifestyles gather, cross-pollinate and eventually bring forth a brood of risk takers. The city already has one neighborhood with what passes for a raffish reputation: the former British army officers’ living quarters at Portsdown Road, a favorite haunt of artists, musicians and other avant-garde types. It is a sprawling estate of vintage-1950s two-story walk-ups shaded by trees and set among grassy knolls. The area boasts one fashionably shabby meeting place, the ColBar (short for Colonial Bar), which serves English beer and warmed-over meat pies under a corrugated-iron roof and acts as an unofficial meeting vessel for the community. But the ColBar, along with a large chunk of Portsdown Road, is to be bulldozed in a few months to make way for a highway that is part of an ambitious government project tagged with the invented-in-a-cubicle moniker of Fusionopolis. There, according to a local news report, “arts, business and technology will hopefully become bedfellows, and researchers may be able to rub shoulders with moviemakers to create, say, better digital films or cybergames.” If there are going to be little Bohemias, it seems they will be government built and supervised.

It’s not that the government is opposed to agents of organic change, as represented by the ColBar. In fact, authorities are trying to diversify the island’s gene pool so that spontaneous change can occur. Once notoriously picky about whom it allowed into the country to live and work, Singapore has opened the floodgates in recent years through its “foreign-talent” program. Some 70,000 foreign professionals now reside in the city-state, and foreign-born residents make up one-quarter to one-third of the population, a demographic unmatched anywhere except a few rich Gulf emirates.

Singapore will do “whatever it takes” to attract talent, says Vivian Balakrishnan, the government official in charge of the Remaking Singapore Committee. As part of that effort, repressive government policies previously enforced in the name of social stability are being relaxed. The city now boasts seven saunas catering almost exclusively to gay clients, for example, something unthinkable even a few years ago. There are a sprinkling of gay bars, and many dance clubs set aside one night each week for gay customers. Prime Minister Goh says his government now allows gay employees into its ranks, even in sensitive positions. The change in policy, inspired at least in part by the desire not to exclude talented foreigners who are gay, is being implemented without fanfare, Goh says, to avoid raising the hackles of more-conservative Singaporeans. “So let it evolve, and in time the population will understand that some people are born that way,” Goh says. “We are born this way and they are born that way, but they are like you and me.”

Foreigners, gay or straight, will be critical to carving out the niches in which the government hopes Singapore’s new economy will thrive. In biotechnology, for example, the republic successfully lured Dr. Alan Colman, of Dolly-the-cloned-sheep fame, with $30 million or so in funding for his stem-cell research into a cure for diabetes. And Professor Yoshiaki Ito, a world-renowned cancer specialist from Kyoto University, moved his entire team of 10 research scientists to Singapore. He says a maneuver on this scale could not have been accomplished anywhere else in the world. Ito observes that although there is no direct pressure on his team to focus on commercial results, the atmosphere in Singapore’s scientific and research circles is the most business oriented he has ever seen. “‘We don’t want a Nobel Prize; we want money,'” he says a senior Singapore official told him. “That message controls the whole academic atmosphere here.” For the moment, the tight commercial focus seems to be producing results: biotech and pharmaceutical products contributed some $5.8 billion to the country’s GDP last year, a 48% gain over 2001, and the government predicts the figure will surpass $8.6 billion by 2005.

But even Singapore’s deep-pocketed government can’t afford to forever throw money at sectors it deems crucial. Nor can it afford a large population of the permanently unemployed. Economists point out that neither biotechwhich employs about 7,000 scientistsor other niche fields can come close to providing jobs for the tens of thousands of factory workers whose positions will probably disappear in coming years. Ultimately, the solution to Singapore’s woes lies with individuals being willing to move out of their comfort zones and start taking risks, says Sudhanshu Sarronwala, chief executive of Internet-based music site Soundbuzz. “It doesn’t really matter what the government does or doesn’t do,” says Sarronwala, who was born in India but runs Soundbuzz in Singapore. “The change has already begun, and it’s going to happen a lot faster than anyone thinks. That’s because you aren’t talking about changing the mind-set of an existing population. You’re talking about the influence of a flood of new people, with their talents and viewpoints making a completely new mixture.” A former chief executive of MTV Asia, Sarronwala says his own company is a good example of what is coming: staffed by a mixture of native Singaporeans and immigrants from a dozen other countries, it has survived the Internet debacle and is now expanding throughout the region.

It will be years before efforts such as the foreign-talent program can be deemed successes or failures. But there are early signs that sheer necessity is forcing change. Even Toh, a cautious company man, has taken a stab at entrepreneurship. He and two friends (one Singaporean and the other Australian) formed a consulting firm last year to teach the latest inventory-control techniques. After months of failing to find work in Singapore, their company finally landed a jobin Inner Mongolia. The project, which involved advising executives at a milk factory about how to streamline operations, collapsed after a few months, taking the budding consultancy with it. “It was hard,” Toh says, “we lost almost all of what we had put into the company.”

But Toh says he would be willing to try again, probably with the help of more foreign talent. “You have to be flexible,” he says. “We Singaporeans were always told we had to be perfect. Now sometimes we’re learning it’s okay to make mistakes, too, if you learn from them.” Words to live by, if Toh and his hometown are to pull through their mid-life slumps.

With reporting by Genevieve Wilkinson and Douglas Wong/Singapore