In 1965, less than two years after joining Malaysia, Singapore was forced to leave the bigger country and declare its own independence.
Then its economy was in tatters. Lawlessness reigned. High levels of unemployment, lack of sanitation, short supply of potable water, and ethnic conflict were conditions that marred Singapore. About three million people, half of who were unemployed, occupied an island that was sandwiched between two large and unfriendly states: Malaysia and Indonesia. Ethnic Chinese and Malays were divided by race and language and often fought street battles.
Both economy and political situation were dire and mutually reinforcing.
1960s conventional wisdom in economics held that every nation, especially a small one, needed a hinterland to succeed. Singapore had none. The status-quo wisdom of development economists was that multinational corporations were great exploiters of cheap land, labor and raw material.
Forced to by all means to find work for their people, the leaders of Singapore engaged in promoting “globalization” before it became fashionable to do so. The reason why Singapore embraced globalization one generation earlier than other third world countries was because it had no choice but go against the dependency theory that was the predominate economic thinking of then.
But globalization was but one sign of manifestation of a bigger picture. At the heart of the Singapore model is the social contract that was articulated between the ruling People’s Action Party (PAP) run government and the people of Singapore. In essence, it said that while the people were willing to accept more government control, give up some individual rights, and work hard, the government would create the environment that would deliver prosperity and a better quality of life.
The idea of social contract is not new. Rousseau was among one of the most prominent theorists of social contract. In his view, the larger the bureaucracy, the more power required for government discipline. Normally, this relationship requires the state to be an aristocracy or monarchy (as far as he is concerned, both could be elected). Rousseau argues that the political authority (with which people are in social contract) will have two parts, sovereign (generic, legislative, representing the general will, which he defines as the rule of law) and government (particular, administrative day-to-day).
The autocratic dominance of the ruling PAP also provided confidence that national policies based on the social contract would remain stable in the short run, while continued efforts would be made to plan for Singapore’s long-term challenges. And they did.
In the period of 1960-1999, Singapore had been able to achieve an average annual economic growth of 8%. Singapore became one of the fastest-growing countries from 1970 to 2000, and the country has been classiﬁed as a ‘Growth Miracle’ and as an ‘Asian Tiger Economy’. As a result, World Bank officially classified Singapore as a “developed economy.”
The Singapore story is a thorn in the side of development specialists from the school of thought that Samuel Huntington has labeled as ‘convergence’ theorists, who believe that all desirable characteristics of national development (democracy, free markets, higher standards of living, etc.) reinforce one another. While democracy in Indonesia after Suharto and in the Philippines after Marcos has caused even more economic uncertainty and overall poverty, it has been the reign of an autocratic regime in Singapore that delivered economic development.
1. As the democratization of third world countries in Eastern Europe, Latin America and East Asia has shown over the last decade, being elected to office by the general populace provides no guarantee that national leaders will be free of corruption, effective, or dedicated to the national interest. In the case of even President Salinas of Mexico, a moderately respected elected president by Latin American standards, the national interest came second to his personal interest to keep the instability of the Mexican economy brewing while he changed jobs to become the head of the World Trade Organization (WTO). Contrary to the unanimous pushing by his economic advisors who were convinced that Mexican currency and financial markets could be saved from imminent collapse if an immediate devaluation of the currency was made before his retirement, Salinas did not act for fear of blotting his reputation. Like the Mexican example, the financial collapse of democratic Thailand and Russia in 1997 showed that elected leaders who come to power with substantial expectations on their shoulders after intense campaigning in which they promised significant national (social and economic) development, can never be immune from mortgaging the future of their people to finance grandiose if imprudent national projects that among other things, serve to enrich the cronies that helped in the outcome of the election in the first place.
2. Apart from effective governance, Singapore government exercises considerable discipline in managing its economic affairs. While PAP ran on a socialist platform to get elected, it was careful of which industries the government nationalized. Usually, the government did not intervene in markets it felt the private sector was doing a good job of meeting Singapore’s economical interests. This policy was outlined in a speech called “Survival” that former foreign minister, S. Rajaratnam, delivered in the early 1970s. In the speech, Rajaratnam told that the government supported state-run corporations like Singapore Airlines and Neptune Ocean Lines because the private sector did not have the ambition nor the financial backing to start such essential organizations that would make possible trade with the developed countries.
3. Importance that the government has attached to Singapore’s human resources development and the investments it has made in its own people. While the PAP ruthlessly crashed all independent labor unions and consolidated what remained into a union umbrella group called the National Trade Union Congress (NTUC), which it directly controlled, it did set up technical schools as well as paid foreign corporations to train unskilled workers for higher paying jobs in electronics, ship repair, and petrochemicals. For those who still could not get industrial jobs, the government enrolled the participation of the NTUC in creating labor intensive, “un-tradable” services, mostly for the purposes of tourism and transportation.