Singapore’s Economic ‘Manhattan Project’

June 10, 2002
Singapore Democrats

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Singapore, Feb. 22 (Bloomberg) — The news was heartening: Singapore- made exports posted their smallest decline in nine months in January. The report bolstered hopes that the island’s economy is recovering from its worst recession in 37 years.

Ironically, that’s where the trouble begins. You won’t find Los Alamos-like sand or desert here, but Singapore is home to a Manhattan Project of sorts. The specialists are working with economics, not nuclear science. The endeavor puts Singapore at ground zero of Asia’s attempt to reinvent itself.

The Japan Inc. model followed by so many in the region has long since unraveled. Singapore is hardly a Japan clone, but the nation’s reliance on exports, foreign investment, high savings and central government planning means it, too, needs a new playbook. Hence the economic Manhattan Project in our midst.

Reinventing a system that has worked so well for so long is no small task. Look no further than Japan, where 12 years into its malaise, Tokyo isn’t even approaching the drawing board. The good news is that Singapore has gotten started; the bad news is that it won’t be easy. In fact, it’ll be extraordinarily difficult.

The effort has been entrusted to the Economic Review Committee, a 20- member group of executives, bureaucrats and labor leaders. The group is charged with upgrading, transforming and revitalizing an economy that in 2001 turned in its worst performance since the 1960s.

Exports Slow

Singapore grew at an average annual rate of 8 percent in the 1990s as electronics exports surged. These days, exports are slumping.

The smaller-than-expected 4.1 percent drop in nonoil exports last month may be a harbinger of better times. The U.S., Singapore’s biggest export market, is showing signs of recovery. With the notable exception of Japan, other vital corners of the globe also are looking stronger economically.

As it turns out, that could be as much of a curse for Singapore as a blessing.

The risk is that Singapore gets sucked back into Asia’s export-your- way-to-prosperity model. That may work in the short run, but it’s the long run this nation of 4 million needs to continue thinking about. That Singapore’s policy makers will lose sight of this is the greatest risk to the economy.

There’s nothing wrong with exporting lots of goods, of course. But given the way the global economic order has changed since Sept. 11 — and even before that — it’s unlikely Singapore can live on exports alone. That’s especially true now that jobs, capital and attention are moving to low-cost countries like China.

Hollowing Out

With a per capita gross domestic product of $22,000, Singapore’s high standard of living is hollowing out its manufacturing businesses. Its population also leaves the country with a consumer sector that’s too small to support the economy; Singapore’s high savings rate is another speed bump. Add in limited hinterlands and increasing global competition, and one understands why Singapore needs a new model.

Yet if exports pick up and bail out the economy, the government may be less inclined to go through all the pain and mental gymnastics necessary to retool the economy.

Take Southeast Asia’s experience following the 1997-1998 financial crisis. At the height of the turmoil, governments took important steps toward stabilizing their economies. Foreign debt levels were reduced, banks were strengthened, transparency improved and some state-run companies were privatized. When investors returned, politicians declared victory and decided the more painful changes could wait.

Singapore held its own in during the crisis years, watching from a safe distance as Indonesia, South Korea and Thailand tanked. Singapore’s stability owed much to buoyant U.S. consumers and demand from American companies. That changed last year when the U.S. joined Japan in recession, removing Singapore’s economic safety net.

Longer-Term Thinking

For now, policy makers here seem determined to push forward with the longer-term thinking Singapore needs. How can it reinvent itself? How can it compete with China and cheaper manufacturing centers around Southeast Asia? How can it develop home-bred specialists in information and biotechnology and cutting-edge finance?

It’s comforting that these questions are being addressed. This isn’t the first time Singapore has asked them, but seldom has the exercise been more crucial. Ditto for the emphasis: stimulating entrepreneurship. If Singapore needs to do anything it’s to invent its own products and knowledge-based industries. The government is encouraging this, providing funding to start-ups and considering tax incentives.

Trouble is, it won’t be easy, particularly in a place that limits free speech. That’s prevented Singapore from developing a lucrative entertainment industry like Hong Kong’s that could produce content on the Internet. The Internet, after all, will be at the heart of many entrepreneurial pursuits.

It helps that Singapore offers an enviable mix of political stability, dependable public services and low taxes. Yet the free- speech issue will be a hindrance, regardless of what politicians say.

The government here is famous for sponsoring efforts to manage bubble gum consumption, promote politeness and encourage educated women to have children. Yet Singapore has never been known for breeding entrepreneurs.

The Next Bill Gates

The city state’s strength long has been churning out managers and workers for the many multinational companies headquartered here. When they graduate college, do Singaporeans dream of becoming the next Bill Gates of Microsoft or N.R. Narayana Murthy of India’s Infosys Technologies Ltd.? The government wants them to.

It won’t happen overnight. Short of importing talent, it could take many years to foster such a philosophical shift. And what if Singapore comes through with more of the same incremental polices seen before? Is there enough political will to implement the reforms? These are all-important questions, and ones that won’t be answered for some time.

None of this is to say Singapore isn’t to be commended for its efforts. The same is true of recent changes to its fiscal policy; the government is reducing its budget surplus for the first time in a decade. The hope is that once GDP is on stable footing, the government can turn to the task of reducing its role in the economy.

Wishful thinking? Probably. Singapore can engineer quarter-to- quarter GDP readings quite easily, but not the future of the economy. You can’t socially engineer cutting-edge companies that create jobs from the ground up. You can’t yell “OK, let’s brainstorm!” and expect the ideas to fly.

Hopefully, Singapore’s Manhattan Project will succeed in changing the Singapore that was into the Singapore that could be.