The ultimate Asian Tiger? I think so. Singapore is downright amazing. I mean, how do you become the third most competitive economy, and the 14th largest exporter in the world in 46 years when you have absolutely no natural resources and a current population of 5.5 million? That’s a damn good question. The answer is: the Singapore Model, or otherwise known as Singapore Inc. Now before I start my analysis, do know that I’m writing this from the perspective of an economist. What I mean by this is there are plenty of issues that come along with the Singapore Model, such as no democracy and lack of political rights for the population.
So how has Singapore become such a dominant player in the global economy? The country is run like a corporation. Singaporeans have agreed to sacrifice many political rights in return for economic growth. As Singapore has a small population, their leaders back in 1965 (their year of independence) knew that they had to become competitive in world markets as fast as they possibly could. And the best way to do that, they rationalized, was smart state intervention. Now I want to take a quick moment to look at some other historical cases of economic development in the 20th century. In particular, countries that obtained independence at around the same time who decided to follow a different model towards economic growth; the IMF/WB model. The IMF/WB’s famous Structural Adjustment Policies (SAPs) promoted the direct opposite of what Singapore did in 1965; free market economics with very little state intervention. Many of the countries that followed this model were in Africa and Latin America; countries that continue to face extreme economic hardship. The other funny thing is many of these countries that accepted the SAPs were packed to the teeth with valuable natural resources. So how did Singapore end up coming out on top, when they had absolutely no natural resources? I believe it was largely due to state intervention. When countries such as Ghana and Nigeria, both of which accepted the SAPs in the 1970s, were required to open up their borders to free trade, their industries were not ready to compete in international markets. Highly competitive Multi-National Corporations (MNCs) swept in with their super advanced technology and they simply out-competed the domestic industries. What did this lead to? These countries becoming periphery nations, meaning their economies were run by the exportation of raw materials, rather than by manufacturing those raw materials and exporting finished goods. Let’s now go back to Singapore. They excelled so quickly because they did the exact opposite. Singapore’s government utilized a heavy hand in orchestrating the development of domestic industries. They didn’t open up their gates right away, but protected them; which in turn bought time for domestic industry to develop to the point where they could compete in world markets.
So now that we have that quick little history lesson behind us… Let’s get back to figuring out why Singapore is so awesome. So for the beginning of Singapore’s post-independence history, the state was very involved in protecting domestic industry in a way that would allow it to grow without the pressure of outside competition. Now, Singapore is one of the most open economies in the world. I can’t think of many other countries that allow for such a conducive environment for foreign entrepreneurs. The average time it takes to open up a company in the world is approximately 34 days; in Singapore it’s 3. They even have an easily obtainable Entrepreneur Visa (the E-Visa). Singapore has successfully created one of the most business friendly environments in the world, and that’s one of the main factors that continues to drive economic growth. The low taxes and lack of regulation also help. Singapore has turned into one of the largest financial hubs in the global economy, due to the lack of financial regulation. The shadow banking sector is on the rise here, which is a cause for concern (for the global economy). But as of now, Singapore is truly reaping the benefits as hedge-funds and other financial service companies set up shop to escape the heavy regulation on both sides of the Atlantic.
I’ll always be a major supporter of free-market economics, but when you look at Singapore and the way their government runs the economy, you can’t help but be impressed. Taking a look at the U.S, we see a system crippled by a grid-locked Congress. When you compare the two economic models together, you have to ask yourself: what model is better designed to take advantage of globalization? My answer is the Singapore Model.
Ratings
World Bank ‘Ease of Doing Business’ Index: Rated #1
World Economic Forum’s Competiveness Report: Rated #3
Index of Economic Freedom: Rated #2
Highest Trade to GDP Ratio in the world: 407%
14th largest exporter
15th largest importer
Only Asian nation to hold a Triple-A credit rating by all three major ratings agencies
Statistics
GDP (2010): 223 Billion (USD)
GDP Five Year Estimate: 400 Billion (USD)
GDP Growth (2010): 14.5% (3rd fastest in the world)
GDP Growth (2011 estimate): 5.2-5.8%
GDP Per/Capita (2010): 56,500 (3rd highest in the world)
Unemployment (Current): 2.2%