When Singapore gained its independence nearly 50 years ago, it was a poor, colonial outpost in a swampland that lacked natural resources. Today, the Southeast Asian city-state of 5.4 million people is wealthier per capita than the United States and Germany. The country’s GDP per capita has risen more than tenfold from $4,756 in 1980 to an estimated $52,179 last year. Last year, the IMF named Singapore the easiest country in the world to do business and number two in competitiveness. Even its airport is taking home gold medals.
How did Singapore become the envy of the world? In many ways, it did what competent governments are supposed to do. Quality public housing? Check. Top-notch public education? Check. An open, pro-business economy? Check. The city-state also continues to develop innovative approaches to challenges such as immigration, taxes and debt. Singaporean Finance Minister Tharman Shanmugaratnam recently sat down with Credit Suisse to explain how the country became the alpha male of the Asian Tigers and a global archetype of economic success.
CS: How has Singapore achieved its economic success?
TS: Singapore’s story can be explained by three factors: the cultural work ethic of Singaporeans, our response to adverse external conditions and our government, especially its education and housing policies. Our approach is to enable people and support a culture of aspiration, work and personal responsibility, rather than have the government taking over responsibility.
CS: Let’s start with culture. Does such a young country have a culture of its own?
TS: Singapore is an accident of history, unlike most nations formed by the will of their people to come together. It was a multicultural and multi-religious society that unexpectedly became an independent country in 1965. We were united not by a common language, as nation-states often are, but by a search to make the most of what we had. What emerged was a social culture based on work.
CS: How have you become attractive to businesses?
TS: Our economic goal, first and foremost, is to create good jobs for our people by helping businesses take advantage of opportunities. We are constantly asking ourselves what the market needs, and how we can develop the capabilities to meet these needs. We want local as well as international companies to find it worthwhile to establish a presence and invest in Singapore.
CS: What are the main factors that make a country “relevant,” as you put it?
TS: I always point first to the skills and expertise of the people. To remain competitive, we must be constantly upgrading those skills. Other priorities must be security, rule of law and political stability. Investors need certainty; they need to know what to expect ten or twenty years from now.
CS: How do you provide that certainty?
TS: We cannot retroactively change laws or rules. We must try to anticipate changes in the international environment and move early. Governments shouldn’t wait until they are forced to take action to meet international norms. Instead, they should evolve and make changes when times are good.
CS: How important have low taxes been to your economic success?
TS: We are able to keep our taxes at a relatively low level only because we keep government spending relatively low as well. In particular, we avoid untargeted subsidies by focusing on helping those most in need. We want to make sure that lower-income people have access to quality education, housing and healthcare. A particularly important factor is that we have no unfunded or unsecured commitments; everything is financed within our current budget or backed by our assets.
CS: There’s no national debt?
TS: There’s no borrowing in the conventional sense, because the government is not allowed to borrow for the purpose of spending or to run deficits in any single legislative period. It borrows only to create a healthy bond market, and the monies raised are invested abroad by our sovereign wealth fund.
CS: Singapore’s foreign population has doubled over the past 30 years. How are you handling the pressures that come with immigration?
TS: We have to stay open, but not blindly so. We are an island, a small nation consisting of a single city. We don’t have the countryside to move to if the city becomes too crowded, or if housing prices exceed what people can afford. That’s why we have immigration strategies that ensure not only that we stay competitive, but that Singaporeans still have a sense that this is our country, with our social customs and values at its core.
CS: You seem to emphasize policymakers’ social responsibilities.
TS: When people look at Singapore from the outside, they often think of it as an economic success story. But at its core, our success is based on social policies and principles. Our education system and our public housing program are the foundations on which our nation is built.
CS: How would you describe Singapore’s educational model?
TS: We have a public education system with meritocratic selection into secondary schools and tertiary institutions. But it is also a system with diverse courses of study, and a strong emphasis on technical courses at the tertiary level. We want to offer everyone a chance to discover what they are good at and learn skills that are worth something in the job market.
CS: Your public housing program has been likened to a socialist experiment.
TS: That’s true, but in our own, unique way. The government decided to provide everyone with access to good living conditions, but also required that people of different races and cultures live in the same neighborhoods. This helped create a common identity, and a common pride in having a home.
CS: What would you say are Singapore’s foundational values?
TS: It may seem like a paradox, but active government support for self-reliance is at the core of our approach. If you work, we’ll reward you with more. You get something more from the government when you take personal responsibility. This is our way of preventing the erosion of work ethic and responsibility that we have seen in many affluent societies.
CS: What did those affluent societies do that you would like to avoid?
TS: Their politicians promised the people social benefits that were simply unsustainable. With each electoral campaign, they added new promises, leaving the bill for subsequent generations. Unfortunately, this hasn’t only had financial consequences, which are now obvious, but it’s also changed social values and norms. The culture of entitlement is now widespread, and will take time to reverse. It’s tragic, particularly for the next generation. That’s why Europe is in search of new social models. There’s no avoiding that.