Singapore: The Challenges of Success

Stephen DeAngelis

November 16, 2007

Singapore’s economy is sizzling and along with its success comes challenges. Singapore’s success and the challenges that success brings are the focus of articles in The Economist [“High-flyer,” 27 October 2007 print edition] and Washington Post [“Singapore’s economic boom widens income gap,” by Melanie Lee, 9 November 2007]. Let’s start with The Economist’s article, which labels Singapore’s economy as “booming, bustling and bursting at the seams.”

“The strong global economic tide has lifted the boats of most South-East Asian countries, but perhaps the most impressive performer is Singapore. Its national income per head is already higher than Spain’s and New Zealand’s, and five times that of its nearest neighbour, Malaysia. Yet in the year to the third quarter, its economy grew by 9.4%. Singapore is ‘a developed country that grows at developing-country rates,’ as Robert Prior-Wandesforde, an economist at HSBC, puts it. Since the 1997 Asian crisis it has fared markedly better than its rival, Hong Kong.”

The reason that Singapore interests me is because it was able to move from developing to developed country is such a short period. Not everyone believes its strategy for success was fairly executed, but it’s hard to deny the results. And those results just keep pouring in.

“The signs of a boom are unmissable. The shopping malls along Orchard Road are bustling. Fancy hotels are full of wealthy tourists despite cranking up their room rates. Marina Bay, by the financial district, is a forest of cranes as a $3.6 billion casino resort goes up. The Singapore Flyer, a giant Ferris wheel, looks down on the vast expanse of building site. Office rents have risen by 50% in the past year, while the price of homes is up by 28%.”

My colleagues at Enterra Solutions studied Singapore when framing our Development-in-a-Box™ approach. We wanted to know what conditions existed that permitted such rapid development and what strategy was used. We also looked to Singapore because its model has been widely praised.

“Singapore has sustained its growth through unusually clean and efficient government, and by having one of the world’s best education systems. While Hong Kong has shifted most of its factories to its southern China hinterland, in Singapore manufacturing still accounts for around 25% of GDP. However, anticipating the competitive threat from China, it has moved up the value chain, away from low-end electronics, and found lucrative new niches. Its marine-engineering and biomedical firms are growing at around 40% annually. Its finance industry has cornered the regional market in private banking for the wealthy.”

The biggest criticism of Singapore’s strategy is its immigration policy, which is aimed at controlling population growth while, at the same time, allowing people willing to work for minimum wages to settle there. That policy has created two big challenges: continuing to provide affordable, quality living conditions for those at the bottom of the economic pyramid and the how to deal with the growing income gap.

“Singapore’s boom has already sucked in millions of immigrants: new figures show that, as in London, almost one-third of residents were born in other countries. To keep the economy growing and reduce pressure for wage rises, the government is keen to admit more foreigners: its development plans assume the population will grow from 4.7m now to 6.5m in 40-50 years’ time, mostly by immigration. Many of the new immigrants come from India and China. They are wowed by Singapore’s order and prosperity, notes Sinapan Samydorai of the Think Centre, a think-tank. They also tend to be conservative-minded and thus are likely to embrace Singapore’s unique mixture of free-market economics and strait-laced politics. There have been worries that lower-paid Singaporeans are missing out on the boom. Indeed, until recently, consumer spending was lacklustre. But it has gathered pace in the past few months and, with employment and wages each growing at around 9% annually, there is plenty of domestic spending power to help the economy survive any export downturn.”

Frankly, income disparity is a bit of red herring. The key to whether a society is fair and prosperous is not how wide the income gap is between the top and bottom but how those are on the bottom are treated. On the surface, it looks Singapore is doing fairly well.

“Though its Gini coefficient, a measure of income disparity, suggests Singapore is a rather unequal place, there are few visible signs of poverty. Most Singaporeans live in massive, publicly built housing projects that are freshly painted and surrounded by neat, litter-free gardens. No graffiti or menacing youngsters here. Most residents have bought their apartments and are seeing their value soar.”

Looks can be deceiving however. It can be argued that the city-state looks neat not because there is no poverty but because Singapore is harsh on anyone breaking their strict laws (ask gum chewers). But surveys about the “happiness” of Singaporeans generally find them rating themselves around a “7” on a scale of 1 to 10. Lee points out in her article, however, that there are those living in poverty inside the city-state.

“Income inequality is nothing new in free-market Singapore, but two years of blistering economic growth and a government policy of attracting wealthy expatriates have created a new class of super-rich, while a string of price increases for everything from bread to bus fares have made life harder for the poor. ‘I can’t save anything, it’s so difficult for me,” [Singapore resident Carol] John told Reuters. John, who is unemployed, relies on her husband’s S$600 (US$420) monthly salary and a S$100 government handout. ‘We don’t benefit at all from the economy. As far as I know, my husband’s pay hasn’t gone up,’ she said. Singapore’s economy is firing on all cylinders, with a booming construction sector, record tourist arrivals and a fast-growing financial sector all contributing to a gross domestic product set to grow nearly 8 percent in 2007. But the rising tide is not lifting every boat.”

Lee points out that the big concern is not that the rich are getting richer, but that the percentage of the population living at bottom of the pyramid is growing.

“The proportion of Singapore residents earning less than S$1,000 ($690) a month rose to 18 percent last year, from 16 percent in 2002, central bank data released late last month show. At the same time, the proportion of those earning S$8,000 and above rose from 4.7 percent to 6 percent in the same period.”

Analysts that Lee interviewed indicated that widening of the wage gap is typical in growing economies. What troubles them is that Singapore’s Gini profile looks more like that of developing than a developed country. Wikipedia notes that the Gini coefficient is a measure of statistical dispersion most prominently used as a measure of inequality of income distribution. The Gini coefficient was developed by the Italian statistician Corrado Gini and published in his 1912 paper “Variability and Mutability.” Lee writes:

“Despite sporting a first-world GDP per capita of $29,000 — second only to Japan in Asia — Singapore has an income inequality profile more in line with third-world countries. Singapore’s Gini coefficient, a measure of income inequality, has worsened from 42.5 in 1998 to 47.2 in 2006, and is now in league with the Philippines (46.1) and Guatemala (48.3), and worse than China (44.7), data from Singapore’s Household Survey and the World Bank show. Other wealthy Asian nations such as Japan, Korea and Taiwan have more European-style Ginis of 24.9, 31.6 and 32.6.”

Clearly, despite doing many things right, Singapore still has some lessons to learn when it comes to dealing with those at the bottom of the pyramid if it is to remain the development model that other countries should follow. To be fair, I should note that the U.S. Gini coefficient is also bad and rising (46.6), which is worse than Iran’s (43). The creation of jobs and fair wages are the way out of this situation, not welfare. The creation of dependencies has never been the answer to poverty. The challenge should be easier for a small city-state than it is for a continental nation like the U.S. I would love to see the Singaporean government find a creative solution to the problem that could exported for use in both the developed and developing world.