Singapore's transformation into an economic powerhouse has attracted adulation from developed and developing economies alike. In this paper, I discuss policies that fuelled this growth, and also highlight some negative side-effects/criticisms.

1. Vikas Sharma
Singapore’s Economic Growth
An Overview and Critique
Vikas Sharma, PMP®
Associate Director,
Public Sector & Government Practice, Frost & Sullivan
April, 2014

2. Vikas Sharma
Section 1 – Singapore: An Economic Miracle?
Analyst Tilak Abeysinghe has likened Singapore’s economic growth story to ‘a wonder created out of a tear
drop’, the tears alluded to being those of Lee Kuan Yew who was at the helm of the newly independent island-
state in 1965. Back then, Singapore was a poverty-stricken, disease-riddled little port city with a multi-racial
population of around a million Chinese, Malays, and Indians, constantly fighting with each other, while living
in atrocious housing conditions. Singapore had no natural resources to speak of, and relied on processing rubber
and other local produce; with trans-shipment trade under British rule being its main source of income. With the
British pulling out of the region, even this position as a regional entrepot came under threat. However, as
Singapore gears up for its 50th
year of independence, its remarkable transformation into an economic
powerhouse is there for all to see. Today’s Singapore is a model for developed and developing economies alike.
Developing economies look at Singapore as a role model as they chart their own economic turnarounds; while
developed economies marvel at Singapore’s affordable healthcare, world-leading test scores, robust fiscal
health, and high overall wealth and growth. It can be said without much risk of ridicule that the aforementioned
tear has in fact turned into an enduring pearl.
Singapore’s success story is best enumerated by citing actual performance on a range of pertinent socio-
economic parameters as below:
a) Singapore’s Gross Domestic Product (GDP) per capita increased from just US$ 925 in 1970 to US$
54,776 in 2013, placing the city-state 8th
globally (as per data from International Monetary Fund)
b) Over the same period, Singapore’s real GDP growth clocked in at an impressive 7.2% year on year, far
outperforming the corresponding number for the global economy, that was 3.0% year on year
c) Cementing Singapore’s position as an exporting nation par excellence, total export volume increased
from just SGD 4.8 billion in 1970 to SGD 510.3 billion in 2012, at a CAGR of 11.8%
d) Unemployment rate, that ranged between 10-12% in the 1970, has come down to a paltry 2.1% in 2013

3. Vikas Sharma
e) According to the Index of Economic Freedom, Singapore is the second freest economy globally
f) While recording excellent economic growth, Singapore has managed to keep inflation under check,
with average annual inflation hovering at near 2% over the last 3 decades
g) In terms of demographic factors typically linked to economic growth, Singapore has performed
admirably too. Life expectancy at birth has risen from just 65.8 years in 1970 to 82.3 years in 2012,
among the highest in the world. Over the same period, infant mortality rate (per 1000 live-births) has
shrunk from 20.5 in 1970 to just 1.8 in 2012. Home ownership rates among Singapore households are
among the highest globally, rising from just 29.4% in 1970 to 90.1% in 2012
h) Government finances are in robust health with zero external debt, and nary a year with fiscal deficits
over the last two decades. For a country ranked 116th
in terms of population, Singapore has the 11th
biggest foreign exchange reserves at USD 274 billion (as at Feb 2014)
i) Singapore has gained a reputation for good business governance, growth-inducive regulatory structure,
and strong protection of property rights. This is reflected in Singapore’s stranglehold over the top spot
of World Bank’s ‘Ease of Doing Business Index’ for almost a decade. In a similar vein, Singapore is
ranked among the 5 top countries having the least perceived levels of corruption, as measured by the
‘Corruption Perception Index’ published by Transparency International.
j) Singapore’s has done well in honing and nurturing its only ‘resource’, that is, manpower. According to
the ‘Global Talent Competitiveness Index 2013’ developed by Insead Business School, Singapore is
the second most competitive nation in the world (after Switzerland) when it comes to producing,
attracting and retaining talent. In another validation of the talent-pool’s prowess, Singapore was ranked
4th
(and top among countries in Asia-Pacific) in a study commissioned by LinkedIn aimed at measuring
‘Talent Adaptability’ of the workforce in 11 countries

4. Vikas Sharma
Section 2 – Factors Contributing to Singapore’s Growth
Singapore is blessed with a strategic geographic location that is at the crossroads of international shipping;
negligible seismic activity; and a timezone that straddles Europe and the Pacific. And that is the entirety of
Singapore’s natural blessings. Singapore’s economic growth has been fueled instead by variety of policy-driven
(and some circumstantial) factors. These are discussed below:
a) Flexible and Future-sensitive Planning
• Policymakers can be credited with having planned for flexibility and with an outward-facing
perspective that accorded priority to quick and competitive response to needs of international markets,
rather than static inward planning. Requirements common to ALL industries – good infrastructure and a
cheap, trained and disciplined workforce – were made priorities and systematically met.
• Policymakers have traditionally monitored world markets and emerging global trends closely and tried
to exit declining/overly-competitive sectors swiftly, while focusing initiatives on developing upcoming
sectors. The Economic Development Board (EDB) has a storied role in Singapore’s growth, with its
model of identifying industries beneficial to Singapore (on criteria like value-added, capital intensity,
future-potential etc.) and then structuring incentives (tax concessions, pioneer status, cheap financing
etc.) for key global players to locate operations to Singapore.
• Evidence of successful future-gazing is aplenty. When the opportunity in Electronics seemed fading in
late 1990s (with regional competitors catchin up), Singapore branched off to skill and capital-intensive
areas like chemicals and biomedical manufacturing. Within a decade from 1995, electronics’ share of
manufacturing value added was reduced from 50% to 29%. As competitors drove manufacturing costs
down, Singapore encouraged companies to invest in facilities overseas. Even within services, Singapore
is endeavoring to move to non-traditional niche service areas (such as Casinos, Health tourism,

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Education, Private Banking) to future-proof its economy as regional competitors catch up in areas like
Financial Services, Tourism, Port-related services etc.
b) Public Enterprises setting the standards
• Although private enterprises, supported by government, are regarded as key growth engines;
Singapore’s government has long recognized public enterprise’s potential in the development process,
and showed little hesitation in moving into areas essential to economic growth in the early years. In
success stories like Singapore Airlines, DBS Bank, NOL, Intraco, etc; Singapore showed that public
enterprises can be run efficiently and at a profit (with instances of statutory boards making higher
profits than listed companies). Government had the advantage that public ownership began afresh rather
than via nationalization of loss-making enterprises; even so credit is due for turning around/liquidating
unsuccessful ventures ruthlessly and nurturing industries strategic to economic success.
• Even today, after major privatization of SOEs to free up equity and increase depth of local stock-
exchange, state continues industry participation via its statutory boards and provides a compelling
challenge to the notion of superior economic efficiency of private ownership.
c) Fiscal policy geared towards growth
• There is great emphasis on financial discipline. Government has to balance budget over its term and
can’t draw on previous reserves, thus creating incentives to keep deficits low and eliminate non-
necessary spending. Only 50% of investment returns from investing Singapore’s considerable reserves
can be used as income by government, with the rest ploughed back into reserves. Past reserves can only
be drawn on with the President’s explicit consent. Government accounting standards are much stricter
than those suggested by IMF; capital outlays are counted as expenditure but proceeds from capital asset
sales not counted as income.

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• Singapore has been wary of government-financed entitlement programs from the start; seeing them as
drains on resources as well as work-ethic. Government carefully chooses programs to subsidize based
on positive externalities (housing, healthcare, education etc.). Even so, copayment is always imposed.
• Reserves are treated as ‘endowment’, with the aim of preserving and growing their value. GIC and
Temasek Holdings have been set up to invest reserves in long-term appreciating assets, with stellar
results. Singapore’s reserves exceed USD 500billion by unofficial estimates
• Prudent spending and accumulating reserves has given government the ability to invest in economic
growth decisively and with long-term view. Financial incentives for foreign investors, which are a
mainstay of Singapore’s investor promotion even today, were started by government’s EDB in the
1970s. Additionally, to maintain competitive edge, corporate/personal income tax rates have been
slashed repeatedly over the years; not an intuitive decision short-term (reduces government revenues)
but a smart decision long-term as it spurred economic growth and increased tax-revenues by raising
taxable base, not taxes.
• Government response to the Global Financial Crisis (GFC) exemplified fiscal strength and far-
sightedness. Government was able to finance its Resilience Package through reserves rather than from
borrowing, enhancing response measures’ effectiveness since there was no signaling of higher tax-
burden in future. Also, since the government did not borrow to finance these measures, there was no
threat of usurping available credit and crowding out private investors. Additionally, government stayed
away from knee-jerk responses (like handing out cash) to stimulate aggregate-demand, instead focusing
on enabling businesses to obtain credit, keeping employees and expanding infrastructure, in anticipation
of eventual economic upturn. In hindsight, this was a masterstroke, with Singapore ready to fulfill
orders when global economy recovered, while competitors took time to regroup.

7. Vikas Sharma
d) Monetary Policy that encourages productivity gains
• As Singapore’s regional export competitors have long indulged in currency-depreciating measures to
keep their exports attractive in overseas markets, they have suffered the ill-effects of the imported
inflation that accompanies those measures. In comparison, Singapore has followed a strong S$ policy,
allowing its persistent balance-of-payments surpluses to appreciate S$ without any intervention. The
aim to keep inflation in check, met successfully with average inflation ranging around 2%.
• With Singapore’s reliance on exports, adopting a strong S$ policy doesn’t seem intuitive at first glance
(since it would reduce export competitiveness in world markets). However, looking under the hood
reveals sound policy-work at play. Singapore’s merchanize exports have high import-content, so prices
can be lowered without much impact on profits. This cushioning effect is lower for service exports due
to low import-content. Therefore, to maintain competitiveness, service firms have had to improve
efficiency and innovate offerings, a welcome development for long-term economic success. Hence,
policy has implicitly encouraged economic desirables like productivity gains and improved offerings.
e) Housing Policy that facilitates wealth-building and stability
• In view of various ‘positive externalities’ associated with home-ownership (lowering of public health
costs, crime-rates, vandalism, drug abuse etc.; greater community activism, political stability and
enforced financial discipline), Singapore’s policymakers decided early to play a key role in provision of
public housing via Housing Development Board (HDB).
• Over the years, they have allowed CPF contributions to be used for downpayments and loan-servicing;
imposed zero penalties for early repayment; pegged interest rates to CPF rates for stability; enacted
mandatory mortgage insurance; and introduced cooling-measures to improve affordability. The
overarching intent has been to encourage home-ownership and to promote sound financial decision-
making alongside.

8. Vikas Sharma
• These efforts have borne fruit with Singapore having among the highest home-ownership rates globally,
achieved without over-committing buyers’ cashflows and without major episodes of mortgage defaults.
Singaporeans’ high savings-rates and high average household wealth (ranked 8th
globally at USD
281,800 in 2013 by Credit Suisse) can be traced back to home-ownership for good measure.
• Another aspect of housing policy that has facilitated economic growth is HDB’s role as principal
property developer that has afforded Singapore the ability to plan holistically and long-term. With its
considerable financial means and juridictional backing, HDB has been able to develop self-sufficient
economic hubs throughout Singapore, spreading out development zones instead of centralized focus.
f) Emphasis on Education and Manpower Development
• Singapore tailored education policy based on skills needed in various economic phases – early
industrialization to post-1979 industrial re-structuring, to post-Asian crisis phase of knowledge-driven
economy. Education is highly subsidized and students regularly feature near the top of standardized
assessments. Education is linked to manpower planning via detailed quotas on students to be admitted
to specific tertiary programs (law, medicine, architecture, engineering etc.). There is a Workforce
Development Agency tasked with enhancing workforce skills.
• With persistent low fertility rates, Singapore has had to rely on pro-immigration policies to manage
labour shortfalls. In addition, government also uses foreign labor flow as a controlling mechanism on
wages. Also, foreign worker levies form an important government revenue source.
• As part of intended move to knowledge-economy, government embarked on a ‘foreign talent’ policy in
the 1990s to attract foreigners for high value-added professions. This strategy has worked well with
37% of economic growth in 1990s attributable to influx of foreign talent as per a MTI study.

9. Vikas Sharma
g) Thrust towards R&D and Innovation
• Sound economic planning and attracting foreign investments helped propel Singapore on a growth
trajectory for decades. However, as Singapore started competing closer and closer to the technology
barrier, the need was felt for a new strategy emphasizing innovation and technology creation. Starting
in the 1990s, policymakers started investing in R&D infrastructure and efforts, putting together 5-year
National Technology Plans. The Agency for Science & Technology was formed in 2001, and National
Research Fund in 2006 to bolster these efforts. In a whole-of-government effort, several incentives are
offered to local/foreign companies investing in innovation – ranging from tax deductions to grants,
incubation facilities, interest-free loans, shared-risk partnerships etc.
• The long-term nature of R&D investments make it difficult to measure their economic impact directly.
However, proxy indicators would suggest Singapore’s R&D thrust is bearing fruit already in
transforming local economy to one emphasizing innovation. A*STAR’s survey for 2012 revealed that
business expense on R&D grew at a CAGR of 8% over 2002-2012, a strong demonstration of
companies to build capabilities and raise productivity through R&D.

10. Vikas Sharma
Section 3 – Negative Side-Effects of Singapore’s Economic Growth
Singapore’s rapid economic growth has not been without its share of negative side-effects and criticisms; some
of which are detailed below:
a) To attract and retain foreign investors, Singapore has aggressively cut down corporate income-tax rates
(40% in 1980 to 17% currently). There is concern that shrinking rates may pass the burden to residents
in the form of ever-higher consumption taxes; or government programs may need to be curtailed in
their scope, both undesirable outcomes
b) Paul Krugman’s controversial assessment of Singapore’s growth continues to find voice in some
quarters. It is contended that pro-immigration policies (and the growing labor supply they bring) have
reduced the need to lookout for efficiency-enhancing practices, leading to poor TFP growth. Over
2002-2012, annualized TFP growth ranged around 1%, well below declared targets.
c) The government’s steadfast emphasis on meritocracy and dislike for welfare entitlements has been cited
as hampering entrepreneurship in Singapore. The absence of safety net such as unemployment
benefits to fall back on, coupled with the cultural disdain for failure, has reduced appetite for
entrepreneurial risk. Even government schemes providing funding support to small businesses (such as
those from SPRING Singapore) have been criticized for adopting a ‘safety-first approach’, placing
inordinate emphasis on applicants’ track-records.
d) Government has done an admirable job of encouraging home-ownership among residents. The state’s
aversion to inter-generational transfers (no tax-financed pensions for elderly), coupled with upwards
marching housing prices (fueled by economic growth), has made it an attractive strategy to buy ‘as
much house as possible’ in the hope of selling for gains eventually to finance retirement. However,
this seemingly fool-proof plan can come to a screeching halt if property prices turn lower. In fact,
Singapore’s ageing population means many more elders selling in the near future to raise retirement
funds, which could further exacerbate price drops and adversely impact proceeds.

11. Vikas Sharma
e) The flip-side of measures to restrict inflow of cheap foreign labour has been rising costs for a host of
local small and medium-sized businesses. The tight labor market arising from the tightening measures
together with low resident unemploment rates is causing wages to edge up, with strong growth to
continue in the near term. To make matters worse, rental costs have been rising steadily too. With
increasing numbers of commercial spaces under private investors or Real Estate Investment Trusts
(REITS), SMEs are feeling the brunt of rental hikes, shorter rental contracts, and even profit-sharing
arrangments with landlords. According to a 2013 survey by Ministry of Trade and Industry, between
Q3 of 2009 and Q1 of 2013, business costs for manufacturing companies and services companies grew
by 19% and 25% respectively.
f) Income-inequality is on the rise, with Singapore’s GINI coefficient highest among all OECD countries
in 2012 (as per OECD calculation model). Singapore’s aversion to minimum wage and welfare
transfers, coupled with shrinking income tax-rates, have impacted the role redistribution can play in
reducing income-inequality. Also contributing are pro-immigration policies – high competition for
competent professionals has aligned wages of residents at the top-end of income-scale with those in
advanced economies, whereas the ready regional supply of labour for low-skilled jobs has pulled down
the lower end of Singapore’s w age distribution – in effect, widening income gaps further.
g) The incessant pursuit of economic success – in the face of rising prices of housing and aspirational
items like cars; and competition from overseas talent – has been blamed for more people choosing to
stay single, and for falling birth-rates, which are now among the lowest globally. Total fertility rate
(TFR) has come down from 3.07 in 1970 to just 1.29 in 2012, well below replacement rate. Low birth
rates and rising life expectancy have combined to have a ‘greying’ effect on Singapore’s age-pyramid.
Ratio of working age population (20-64) to elderly (>65) was 6.4 in 2013, down from 13.5 in 1970.
With no old-age pensions and retirement funds tied up in home-equity, there are rising concerns of
elderly destitution in Singapore.

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Appendix – Reference Sources
The key sources referred to for developing this paper are listed below:
1. W.G. Huff, 1995. “What is the Singapore model of economic development” Cambridge Journal of
Economics 1995
2. Tilak Abeysinghe, August 2007. “Singapore: Economy” Department of Economics, National
University of Singapore
3. Paul Krugman, November 1994. “The Myth of Asia’s Miracle” Foreign Affairs Journal, Nov/Dec 1994
4. Anthony Shome, June 2009. “Singapore’s state-guided entrepreneurship: A model for transitional
economies?” New Zealand Journal of Asian Studies
5. Chai Siow Yue, November 2005. “The Singapore model of industrial policy: past evolution and current
thinking” Second LAEBA Annual Conference, Buenos Aires
6. Winston T.H. Koh and Poh Kam Wong, December 2003. “Competing at the Frontier: The changing
role of technology policy in Singapore” Technology, Forecasting and Social Change
7. Boon Seong Neo and Geraldine Chen, July 2007. “Dynamic Governance: Embedding Culture,
Capabilities and Change in Singapore” World Scientific
8. Mukul G. Asher, December 2012. “Singapore: balancing growth with domestic imperatives” East Asia
Forum http://www.eastasiaforum.org/2012/12/26/singapore-in-2012-balancing-growth-with-domestic-
imperatives/
9. Anver Versi, August 2013. “Singapore: SEA’s economic miracle” Global – The International Briefing
http://www.global-briefing.org/2013/08/trading-up-south-east-asias-economic-miracle/
10. Department of Statistics Singapore
http://www.singstat.gov.sg/