‘The Singapore Way’

The Wall Street Journal

The city-state redoubles its efforts for state-directed growth.

Singapore’s government took unprecedented actions to shield its economy from the 2008 financial crisis, even tapping its foreign-exchange reserves for the first time in its history. Yet GDP still fell 10% from peak to trough. The experience unfortunately seems to have reinforced policy makers’ conviction that government needs to play a bigger role in the economy.

That’s the message from the budget announced by Finance Minister Tharman Shanmugaratnam last week. The government aims to double the city-state’s productivity growth rate over the next decade; support the creation of more globally competitive companies; and ensure the economic growth trickles down to the needy.

These are worthy goals. Mr. Tharman himself acknowledges that free-market principles are the best way to boost productivity: “The government cannot decide which enterprises should succeed or phase out, or say exactly what the corporate landscape should look like 10 years from now. We must rely on the market to achieve this restructuring,” he said in his budget speech.

But that philosophy isn’t borne out by the details, starting with the approach to boosting productivity. The government will create a new entity called the National Productivity and Continuing Education Council to drive the effort. The Council will be headed by Deputy Prime Minister Teo Chee Hean and include “members from the government, business community and labor movement.” It is as yet unclear how its members will be chosen. Mr. Teo may release more details when he addresses Parliament this week.

One thing is for sure: There will be a lot of taxpayer money involved. The Council will oversee a S$2 billion ($1.4 billion) National Productivity Fund that will “initially” invest in “sectors where there is a potential for large gains in productivity,” and the budget cites construction as an example. But the fund could “also be used to develop centers of expertise for a range of industries,” leaving the door open for more public monies down the road. There are no details yet on which companies will qualify for funds; how productivity gains will be measured; or how the Fund’s managers will be held accountable for their performance.

On the promise to create globally competitive companies, here, too, the government will have a heavier hand. To its credit, the budget includes some new tax cuts for private research and development. But it also proposes to add another S$1.5 billion to the National Research Fund for public-sector R&D, and to make the government a “co-investor,” alongside private money, in new growth “funds” worth up to S$1.5billion over a decade. Other Singapore government-run funds—Temasek and the Government of Singapore Investment Corporation—have historically provided only limited financial disclosure to taxpayers, so perhaps these funds could set a new, and better, standard. The budget also moots the creation of an import-export bank, though it’s unclear why Singaporean companies would have trouble accessing ready capital in one of Asia’s biggest financial centers.

Lastly, the budget describes some S$1.8 billion in transfer payments and contains a new, small levy on foreign workers. Both are populist moves aimed at appealing to voters who will go to polls for general elections within the next two years. Next year’s deficit is expected to be around S$3.0 billion, or 1.1% of GDP, compared to a deficit of S$8.5 billion last year. Given the bleeding balance sheets of nations like the United States or Britain, this looks manageable.

Mr. Tharman said the government and the private sector tackled the recent economic crisis “together, the Singapore way.” If he wants to achieve the kind of laudable goals he outlined, perhaps it’s time to rethink that public-private mix.


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