Singapore: Working Towards Prosperity

Abstract

There are three main sections in this chapter. The first section gives an overview of the economy and an insight into the ethos behind both the single-minded pursuit of material success and the mode of governance which characterizes Singapore. The second section examines the history of growth in the twentieth century, noting the consistent implementation of evolving but consistent policies including the development of human capital. The third section describes developments in the twenty-first century such as new destinations for trade and changing investment patterns.

Appendix

The development of the economy of Singapore has been repeatedly described as a graduation up the ladder of value and technical know-how. The Economic Complexity Index (with scores labelled ECI and the more accurate ECI+) is an indicator of the degree of complexity of a nation’s economy. One thus might expect ECI and ECI+ scores over the years to map out the evolution of Singapore’s progress. However, ECI and ECI+ do not directly measure the complexity of processes producing goods and services. The fundamental calculation is based on the diversity of exports and their ubiquity (the number of countries able to produce them weighted by the complexity of each of those countries). Thus, complexity and sophistication are not synonymous. Complexity is measured by diversity and uniqueness of offerings. Sophistication is indicated by the technical refinement and complexity of a process as well as its educational requirements for operators.

Both the start and the end of the curve in Fig. 6.14 seem to contradict the narrative of Singapore steadily moving up the ladder of technical sophistication. One solution would be to argue that industrial policies took time to have an effect (although this would not explain the decrease in complexity from 1964 to 1967 and 1970) and that either those policies were abandoned with the Asian financial crisis (ECI+) or in 1993 (ECI) or there was no room for greater complexity at those points. Regarding the latter part of the curve, human ingenuity, current developments in technology and the higher rankings of other countries belie the last explanation. Nor has the government of Singapore abandoned the pursuit of greater sophistication among its businesses.

Fig. 6.14

Index of complexity for Singapore 1964–2016. ECI+ is a better indicator than ECI according to Albeaik et al. 2017. Data source: Observatory of Economic Complexity

One problem is the data on which the index is based: services are excluded. This is not an oversight of the creators of the index, but simply a limitation of the data available across countries (Hausmann et al. 2018, p. 23). Because Singapore has a population under six million, it does not aspire to extremely complex manufacturing requiring a vast domestic network of tributary producers. Rather, it seeks sophistication in services. This is not captured by the Economic Complexity Index.

A second limitation of the index in its current form is revealed in Fig. 6.15.

Fig. 6.15

Evolution of complexity compared. Data source: Atlas of Economic Complexity

Indonesia, Malaysia and Singapore have curves of a similar shape. They have different starting points, and the curve for Indonesia has the most dramatic slope of the three from 1976 to 1992, rising more sharply than that of Singapore. This corresponds to the better years under Suharto, during which economic policy was dictated by the “Berkeley Mafia” and foreign direct investment skyrocketed. This more pronounced slope might make sense. However, the general similarity of the curves for the three countries is a little surprising. Further, although the curves for Thailand and the Philippines are different, the general upward trend is there.

What is happening? There seem to be two factors at play. First, the world economy is more complex today than it was in 1964. A country could be losing ground with respect to the rest of the world but still increase in economic complexity. So there could well be a general upward trend in the curve of a country like the Philippines even though that economy was relatively stagnant from 1982 to 2004. Second, the data for economic complexity are taken from exports. Exports represented between 150% and 200% of GDP in Singapore until 2018 excepting the anomaly years to 1972 and the four years thereafter (see Fig. 6.16). As a result, the complexity of the economy adding value is diluted by the trade throughput.

Fig. 6.16

Singapore exports of goods and services (% of GDP). Data source: World Bank national accounts data, and OECD National Accounts data files