Uniquely Singapore

Just today, I had a very interesting meeting with a businessman from Estonia (I had to check the world map right before the meeting to find out where on earth Estonia is).

During the meeting, the gentleman (who had visited Singapore 8 times) said that Estonia is similar to Singapore, small land area (45,227 sq km) though comparatively bigger than Singapore and small population base (1.3 million people). In addition to the physical similarity, he also mentioned that Estonia is supposedly one of the most investor friendly and transparent country in the CIS region. Though a small country, it is flexible and innovative (like Singapore again, according to him). Finally, due to its small size, Estonia relies a lot on the economic spillover of its hinterland, Russia just like Singapore taps on the hinterland of Southeast Asia.

Somehow, his comparison to Singapore got me thinking about a particular question: The "Singapore Miracle"; this transformation in the period of 1960s - 1990s from a third world country with almost no natural resource to a first world country; the "Singapore Strategy" that made this transformation possible, how applicable is this to other small countries in the world that aspire to climb the economic ladder like Singapore did? Or perhaps I should rephrase the question to make it simpler. If Singapore only starts its own economic development in this century rather than 40 years ago, would we still be where we are 40 years later?

To answer this question, we need to understand the essence of the "Singapore Strategy". At the risk of oversimplification, I would like to suggest that the "Singapore Strategy" in the 1960s was simply "to be the most attractive country in the world for foreign direct investments". Every other thing that the Singapore Government did back then; from using English as the first language, ensuring Singapore is corruption free, creating a business friendly environment, making Singapore well-connected via our seaport and airport; all had the effect of making Singapore a darling for FDI back then (and to a certain extent till now as well).

This is no doubt a good strategy, as proven by the success of Singapore. However, we also need to bear in mind that this strategy was so successful back then simply because all our neighbouring countries were not getting their act together. Let's look at Asia in the 1960s. What was happening to the two largest countries? China was still in the throes of the disastrous Great Leap Forward, which killed off more Chinese through famine than the Japanese did with all their bombs and guns in the Second World War. But the worse was yet to come, for the Cultural Revolution had just begun. If the Great Leap Forward set back China's economy for half a century, then the Cultural Revolution probably threw back the Chinese civilization back by a few thousand years. India newly freed from British colonial rule was in the grip of socialism and not going to welcome the White Men and their money for a few more decades. Vietnam was about to be plunged into the Vietnam War. Korea was practicing import substitution and erecting high tariffs. Indonesia was still forging their own identity (I think) and Malaysia was probably more interested in playing race politics.

What this means was that if you were a Japanese or American MNC looking for a country to tap on cheap and skilled labour, you have little choice in Asia except Singapore and maybe Hong Kong. This was why the Singapore Strategy worked. Almost nobody else was doing it. All the big markets like China, India, Vietnam, Thailand and Indonesia were just not ready.

Let's imagine how things would be if Singapore is to only start developing our economy today, when China and Vietnam have already opened up and India is kind of bumbling its way into sustained economic development. Even if Singapore has the most efficient government, the most investor friendly policies, cheap and skilled labour and the most open economy, could Singapore still expect to have that same level of success? I doubt so. The reason is simple. Singapore is too small a market. Why invest in Singapore when you can invest in manufacturing facilities in China or India where the consumers are? Similarly, for small countries who only start developing now, it would be tough for them to take the Singapore way; to climb the economic ladder by first relying on simple manufacturing. (Singapore of course have moved beyond this; we no longer manufacture simple consumer electronics or textiles and garment. We made use of such activities to accumulate wealth and then naturally move on to more value added activities).

Therefore, I think that the "Singapore Miracle" is kind of a unique phenomenon and a special product of a period in history.