How can Singapore remain competitive in a globalising world economy?

Introduction

The Swiss-based International Institute for Management Development (IMD) ranked Singapore as the second most competitive small economy (population under 20 million) out of 29 economies in 2003. The ranking system was based on four criteria: government efficiency, business efficiency, infrastructure and economic performance. What does this result mean for Singapore?  Does it mean that Singapore can now rest on its laurels? There is no denying that Singapore has had a lot of achievements over the past 40 years since independence in 1965.  However, will Singapore’s neighbours take long to catch up?  Will its hope of becoming the regional hub be extinguished by another Asian country such as Hong Kong, Taiwan or Malaysia? Some people believe that Singapore has come to its second crossroads since 1965. The Asian Financial Crisis, September 11, Bali blast and the Iraq war have changed the competitive landscape for international trade and investment. To thrive, Singapore must abandon the strategy of gaining incremental improvements. They need to make major, fundamental changes in strategies as well as mindsets. Singapore has been in constant transition and transformation. Maybe it should consider putting up a billboard at the airport welcoming foreign travellers with this message, “Welcome to Singapore. Work in Progress. Heading to the Future”. The Economic Review Committee (ERC) put forward many recommendations in its 2003 report (New Challenges, Fresh Goals – Towards a Dynamic Global City).  Some of the recommendations are excellent. However, some of them, which I regret to say, simply won’t work in the Singapore context. Some of the ideas in this essay are similar to those which can be found in the ERC report. However, given the latter’s rather comprehensive coverage, this is inevitable. I have tried as much as possible to be intellectually honest.

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The neoclassical growth models predict that the growth rate of output per person equals the growth rate of the effectiveness of labour when an economy is on the balanced growth path. The growth rate of output equals the growth rate of the effectiveness of labour plus the growth rate of the labour force. Output per person is commonly used as a measure of living standards, despite its limitations for this purpose, and the effectiveness of labour is virtually synonymous with productivity (Note: Living standards and labour productivity are two very important economic concepts in the Singapore-Cambridge GCE ‘A’ Level Economics and hence will be taught in the economics tuition class in great detail.).  Using empirical data from the United States, the famous economist at Princeton University, Paul Krugman, found that the growth rate of living standards was the same as the growth rate of productivity. Wages in Singapore are higher than those in many other Asian countries. For example, in 2003, manufacturing workers were paid US$7.14 per hour. Compare this to workers in China who were paid US$0.53 per hour and workers in Malaysia who were paid US$2.68 per hour. However, as Singapore’s productivity is higher, its productivity-adjusted wages remain competitive. This is also true in Germany. Wages in Germany are higher than those in many countries, including Singapore. However, its high level of productivity is far more than sufficient to compensate for this handicap. So now that we know that productivity growth is important, the natural question is, “How can we raise productivity?”. Technology is an undisputed factor that contributes to productivity growth. Although Singapore abounds with technologies, most high-end technologies are owned by MNCs (Note: As will be explained in economics tuition, Singapore is very FDI-dependent.). In fact, Singapore’s prosperity can be largely attributed to 6000 or so foreign MNCs in Singapore. Unlike other East Asian Newly Industrialised Economies (NIEs) like Korea and Taiwan, which put heavy regulations on Foreign Direct Investment (FDI) and nurtured local industries at the beginning of their industrialisation in the1960s, Singapore aggressively attracted MNCs by providing them with complementary assets like infrastructure, human capital, fiscal incentives etc. Singapore needs to continue to attract these giants to come to invest in the country. They create jobs, and more importantly, they bring along their technologies with them. Nevertheless, Singapore cannot be over dependent on MNCs as they are internationally mobile. Besides, there is a limit to the attainable growth through the complementing strategy because of the difficulty in acquiring core technologies. Core technologies, which are related to the development of new products and new processes, are the last thing that MNCs will transfer to local subsidiaries. Singapore needs to step up its R&D capabilities. The Government has set up the Biomedical Research Council (BMRC) and the Science and Engineering Research Council (SERC) under the Agency for Science, Technology and Research (A*STAR) to drive the overall development of the public R&D infrastructure. It has also established research institutes to support its industry clusters. These are positive moves and they show that the Government understands the importance of productivity growth. Singapore must continue to bring in leading scientists to help expand and deepen its research capabilities. Nevertheless, its commitment to R&D must not involve only ploughing money into R&D. It needs to generate ideas and see that they are commercialised. In other words, the focus should not be on “research” alone, but on “development” as well. The size of the pool of people with knowledge and high value-added skills is another factor crucial to achieving productivity growth. Singapore must ensure that it has the right education and training roadmap to develop a sizeable pool of these kind of people and in parallel, adopt the right labour market polices and put in place competitive incentives to attract people of this kind from abroad to augment the pool.

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A Forbes Research survey, a Gallup poll and a Straits Times survey reveal that many Singaporeans believe that foreigners compete for jobs with them (Note: The Singapore government has tightened restrictions on foreign workers in recent years and this will be explained in economics tuition.). I have a different view on this issue. When discussing the foreign worker issue, it is important to look at the benefits to the economy as a whole rather than to individuals. Although some workers, especially those who are lowly skilled, may lose out, most other groups in society will gain. For example, consumers will pay lower prices, producers will benefit from lower costs, aggregate demand will rise, the Government will collect more tax revenue etc. The truth is, foreign workers create more jobs and stringent restrictions will hinder employers’ flexibility to respond to competition. If Singapore restricts foreign workers from coming, business firms will suffer from higher labour costs. Some firms may not be able to get the kinds of workers they need. Even in a downturn, some industries and firms may not find enough Singaporean workers, especially those with the right skills and experience. This is so in the manufacturing sector, notably in the shipbuilding and repair industry. These firms will either relocate or shut down. There will be fewer jobs in Singapore and the unemployment rate will rise. Put it differently, if Singapore does not allow foreign workers to come to the country, the jobs will go to theirs. Singapore should focus on creating jobs. Enlarge the pie rather than fight over who gets what share of a shrinking one. Overall, the consensus among economists is that the gains from an open-door policy outweigh the costs. Singapore has to keep its door open and help the minority who lose out from this policy. Harvard labour economist, George Borjas, concluded in a 1990 survey that the methodological arsenal of modern econometrics could not find a single shred of evidence that immigrants had a sizeable adverse impact on the earnings and employment opportunities of the natives in the United States. If we look at the status quo, countries which have tried to protect their workers with rigid labour market polices have not reduced their unemployment. For example, France, Germany, Canada and many other OECD countries have unemployment rates over 9 per cent! The message is clear. Singapore should free up the labour market to remain competitive”.  It should continue to use the Dependency Ceiling and the Foreign-Worker Levy to control the number of foreign workers in Singapore. Not only must it free up the labour market, but it should also restructure the wage system. Firms should replace the seniority-based wage system with the performance-based wage system. In other words, reward workers according to performance rather than seniority. Annual increments should be paid as variable bonuses instead of being built into basic salaries. It may be true for some that restructuring the wage system would mean a wage cut, but wages may go up for others. Some people will simply see part of their pay being converted from fixed to variable form. Wages must also be based on the firm’s profitability. This will allow employers to adjust wages rather than retrench workers in a downturn. Unfortunately, the wage system in Singapore is still largely seniority-based. The performance-based wage system will enable Singapore to attract more top foreign talents to the country. Young foreign talents would not want to see workers who are less educated or less capable than they are earning a higher pay. They would, in my view, prefer to go to work in a country in which they can earn a higher pay which is commensurate with their higher abilities. Although Singapore has many talented people, the indigenous talent pool is too small to meet the needs of an increasingly sophisticated and globalised economy.  Attracting foreign talents is key to maintaining Singapore’s competitiveness and Prime Minister Goh called it “a matter of life and death”. As pointed out by the Minister Mentor, Mr. Lee Kuan Yew, “If we don’t attract, welcome and make talents feel comfortable in Singapore, we will not be a global city, and if we are not a global city, we won’t count for much. It’s as simple as that”. If Singapore is to be a city like London or New York, it needs new people to bring new ways of thinking and to create new and diverse linkages and opportunities. Global talents have global contacts. This is the key. They can bring Singapore’s little economy into a large, global network of opportunities.

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Hitachi and Sanyo closed their manufacturing plants in Singapore and shifted their operations to China. Philips and ING Investment relocated their Singapore regional headquarters to Hong Kong to save costs and to be closer to the biggest market in Asia. With the exit of Evergreen and Maersk, Port of Singapore Authority (PSA) lost about 15 per cent of its business to Port of Tanjung Pelepas which started operation in 1999, where costs are up to 40 per cent lower. Singapore needs to cut business costs in order to stop more MNCs from leaving and hence losing more business. In fact, in order to thrive, it needs to attract more MNCs. “How then?” is a natural question. Corporate tax, which is a direct tax on business profits, is a statutory burden on business organizations. There is a worldwide trend of shifting from direct taxes to indirect taxes because what matters to companies are after-tax returns. Even in countries where corporate tax rates are high, there are usually generous tax breaks and incentives that lower the taxes that companies effectively pay. If Singapore does not follow suit, it will lose out to competitors who are vying with it to attract foreign direct investment. In 2003, the Singapore Government reduced the corporate income tax rate from 24.5% to 22%. That was a positive move and it is not inconceivable for the Government to reduce the rate further when the need arises. As Singapore’s economy matures, corporate groups will become increasingly common. Singapore’s current tax system taxes each company within a corporate group as a separate entity, leading to economic irrationalities such as the taxation of companies that register losses on a group basis. In recognition of the fact that companies within a corporate group are essentially one entity, and to attract foreign direct investment, the Singapore Government could consider allowing the losses of a company to be offset against the profits of another company within the same corporate group. Not only will these changes in the tax system attract foreign direct investment, but they will also boost domestic investment. Domestic corporate groups will be more willing to embark on new and risky ventures as they will be able to offset any losses from new ventures against the corporate groups’ taxable profits from their more established companies.

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NUS Associate Professor, SHIN Jang-Sup, the winner of the MAS-ESS Essay Competition 2002, argues that the role of the state becomes more important as the pace of globalisation accelerates, contrary to the popular perception that it should be diminished. Accelerating pace of globalisation leads to increased mobility of MNCs (mobile factors). Therefore, the state needs to accelerate its efforts at upgrading complementary assets (immobile factors) in the economy as MNCs are ever more ready to change production sites if new needs arise from competition or technological progress. In other words, MNCs have become more “footloose”. If location-specific factors are inadequate, foreign MNCs will not come to the country. True enough, some location-specific factors are non-man-made factors like natural resources and geographic position, which the state can hardly exert an influence. Nevertheless, man-made location-specific factors such as policies, institutions and infrastructures are more important in the locational decisions made by foreign MNCs. To attract foreign MNCs, the Singapore Government could improve the country’s infrastructure by providing cluster-focused infrastructure for new industries as it has done with the petrochemical complex on JurongIsland. One of the riskiest and yet most visionary investments at S$7 billion, JurongIsland has positioned Singapore as a world-class hub for chemical manufacturing activities. It is a good example of cluster-focused infrastructures. Who, besides the state, is willing and able to spend another S$7 billion to provide cluster-focused infrastructures for new growth areas? As SHIN Jang-Sup puts it, “As the ultimate system manager of the national economy, the state should maintain its leadership in the economy for the next leap. In Singapore, the role currently required for the state is more than that of the system manager because the local private sector is relatively underdeveloped as a result of the complementing strategy. It should be extended to compensate for the relative lack of capability in the local private sector”. Although SHIN Jang-Sup’s view has invited some critics, it has helped us look at the role of the state from another perspective.

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Manufacturing and services are the two main engines of growth in Singapore. The manufacturing sector needs to be fundamentally adapted to move up the value chain, supported by strong R&D capabilities, as basic manufacturing is shifting to China. Singapore must strengthen its key manufacturing clusters: electronics, chemicals, engineering and biomedical sciences. It must also develop new capabilities in emerging technologies such as photonics and nanotechnology. Photonics is the technology which uses light to process and communicate information at the speed of light. It can also be used to manufacture materials with high precision. Nanotechnology deals with objects more than 1000 times smaller than a human hair (one nanometer is one-billionth of a metre). Nanotechnology is the next big thing. Its applications are only just beginning. Nanotech firms have already introduced wrinkle-and stain-repellent cotton fabrics, antibacterial dressings, transparent sunscreen, food packaging that keeps meat fresher for longer periods and self-cleaning glass. Microscopic computers, powerful batteries and non-polluting car engines could come next.

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While Singapore maintains manufacturing as a growth engine, it also needs to grow its services sector. Manufacturing and services are complementary. A strong manufacturing sector contributes to the growth of services and a strong services sector makes factories in Singapore more competitive. The services sector accounts for about 65 per cent of Singapore’s GDP and employs about 75 per cent of the labour force. This is considerable and therefore the change here should be primarily conservative; upgrade and liberalise areas where Singapore already has strong expertise such as tourism, financial services, trading and logistics and information and communications technology. Services are subject to more regulations because of their greater implications for social policies. Wherever possible, the Singapore Government should try to relax these regulations to strike a better balance between economic and social objectives. Singapore must promote areas such as healthcare and education. In parallel, it needs to simplify procedures and to make it convenient for overseas customers to come to the country to make use of its services. In the education sector, the effort to build an education ecosystem in Singapore and expand the education industry as a truly economic sector began as early as 1997 with the World-Class Universities (WCU) programme. This aimed to attract at least ten world-class educational institutions to set up branch campuses here. Today, international educational institutions like INSEAD (France), GIST (France), Johns Hopkins University (US), MIT (US), University of Chicago (US), and ShanghaiJiaoTongUniversity (Shanghai) have set up a significant presence here. Nevertheless, more can be done to step up its promotional effort. Singapore could establish an agency for promoting education, along the likes of the British Council and the US Education Information centre. This would be a centralised agency with overseas offices to attract international students to Singapore. For healthcare services, Singapore has also lagged behind its regional competitors in marketing despite its excellent, if not superior clinical services. Singapore should establish and communicate an internationally recognizable quality brand for Singapore’s healthcare services emphasizing trust, safety and excellence.

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The worldwide Intellectual Property (IP) market gigantic and is growing rapidly. One big player in IP licensing is IBM, which derives about one-fifth of its net earnings from royalties generated from its patents, technology, copyrights and trademarks. It is one of the few organizations that run IP licensing as a separate business. In order to get a share of the fast growing IP licensing market, the Singapore Government must make the country a key base for MNCs to conduct global R&D efforts. To achieve that, it must strengthen patent protection laws, facilitate low-cost filing and possibly establish a school (which the ERC calls IP Academy) to train IP professionals.

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The export sector in Singapore has been strong. The country has not run a current account deficit since 1988. The Singapore Government must continue to refrain from pursuing devaluation of the domestic currency to boost export competitiveness. It must address cost competitiveness issue directly. Although devaluing the domestic currency will boost exports, consumers will suffer because their imports will become more expensive. Besides, if Singapore can maintain the stability of and hence confidence in the Singapore dollar, it will be able to attract more foreign investment.

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Today, more and more Singaporeans are venturing to live and work abroad. While this means an outflow of local talents, it must accept this as parts and parcels of globalisation. However, there are advantages for Singapore because these overseas Singaporeans make up an extensive network across the globe. The Majulah Connection, which was set up in February 2003, aims to maintain links with them, keep them connected to Singapore and tap their vast networks abroad as well as their experience and knowledge of different countries. This was what the ERC had done. In the making of the ERC report, the Committee greatly benefited from significant contributions from the Singaporeans Overseas Networks (SONs) formed in April 2002 by Singaporeans living abroad, specifically to give inputs to the ERC’s work.

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Singapore needs a class of entrepreneurs in the country to find and develop new economic niches and to exploit economic opportunities. At the most fundamental level, it needs to inculcate Singaporeans with the spirit of entrepreneurship. The way of life in Singapore is too much based on rules. As one of the foremost entrepreneurs, Sim Wong Hoo, wrote in his book, Chaotic Thoughts from the Old Millennium, that the No U-Turn Syndrome has permeated every level of Singaporeans’ thinking and every segment of their life. In the United   States, when there is no sign on the road, it means that you can make a U-turn. In Singapore, it is the reverse. It is only when the authority allows you to make U-turns by putting a sign on the road that you are allowed to do it. When there is no rule, Singaporeans cannot do anything. They become paralysed, says Sim. Sim’s U-Turn story is probably an inappropriate analogy. There are good reasons for the Land Transport Authority (LTA) to use those signs in congested urban areas to manage the traffic flow efficiently. Nevertheless, there is some truth in the No U-TURN Syndrome, and it is a good metaphor if we take it out of its immediate context. The point is, do not set rules to meet new situations because by the time the rules are formulated, they become obsolete. It is a matter of how to live with ambiguity, and to survive and prosper in an environment where rules become shades of grey. How can we innovate when we need to obey rules to innovate? To innovate means to create things out of nothing. It means moving into uncharted territories where there are no rules.

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If you become an entrepreneur in Silicon Valley and if you come up with a creative software product, you can easily find people at Cisco Systems, Sun Microsystems or Microsoft willing to buy or test your product. There is overall support in Silicon Valley. However, in Singapore, people play it safe. Big local companies largely hesitate to buy a new product that has not yet met international standards. This must change. Singapore’s larger companies should give more support to young entrepreneurs (Note: There will be a discussion on the ways in which the Singapore government can encourage this in economics tuition.).

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Not only must Singapore uphold successful entrepreneurs as role models, but it must also be forgiving to those who try and fail, and not humiliate them or dampen their ability to start afresh. Unfortunately, Singapore has a culture where losing is not easily accepted. This must change. Thomas John Watson, Sr, founder of IBM, was once asked how he could have built up IBM faster. He replied, “Only if I had failed a thousand times faster”. Singaporeans must understand that almost all successful entrepreneurs have their fair share of setbacks along the way. The Government should establish an Award, like the Phoenix Award established in Australia in 2002, to honour those who have failed, and yet forged ahead to succeed in their enterprises.  Entrepreneurship is a mindset. It can be developed and nurtured. Although Singapore cannot manufacture entrepreneurs, it can create the environment and conditions that allow, encourage and facilitate entrepreneurship. The challenge for Singapore is to create the desire in enough Singaporeans to want to make it on their own rather than work for someone. This will require a change in the Singaporean mindset and will take time to achieve. As Sim Wong Hoo wrote in his book, “When I first started Creative Technology in July 1981. there was no clear business plan, no venture funding and no clear way of survival. I just wanted to be my own boss…”

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Singapore could try to run entrepreneurship programmes at all levels of education in different formats suited to each level.  However, given the finite size of its talent pool and the long time lag for promoting a more entrepreneurial culture among Singaporeans, it must tap entrepreneurial talent from abroad. Singapore should do more to attract foreign entrepreneurs with experience and good track records to Singapore to start to grow enterprises and at the same time, act as mentors to Singaporean entrepreneurs who do not have the experience of starting up new companies. One of the ways to do this is to build in more flexibility into the employment pass system to allow these foreign entrepreneurs to come to Singapore without a well-paid job or a specific opportunity and at the same time, facilitate the entry of their close family members. There is a need to ensure that the private sector is not deprived of its fair share of talents. The Government must ensure that it does not take up a disproportionate share of top students from each cohort. It should focus its scholarships in critical areas where talents are required.

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The Singapore Government should avoid engaging in the production of goods and services which private firms can produce, and hence crowding out the private secto. It should own and control companies only when they involve critical resources, where the ownership of a resource is critical to Singapore’s security or economic well-being. The Government should constantly review the stable of Government-Linked Companies (GLCs) and keep only those which serve strategic purposes. Non-strategic companies should be divested in an orderly fashion. Temasek Holdings should limit investment to business with the potential to internationalise. This should be in the new growth sectors where the private sector in Singapore is unable or unwilling to undertake the risks, such as large investment with long gestation periods.

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Singapore needs to encourage the growth of enterprising startups and SMEs, whether they are high-tech or low-tech, whether they develop their own products or expand the market for existing products, and whether they compete in the domestic market or abroad. A key condition for entrepreneurs to flourish is the availability of capital at the various stages of their enterprises. Singapore must develop the full spectrum of risk capital to improve the access of startups and SMEs to financing because any engine needs good fuel. Financial institutions traditionally rely on collateral in the form of physical assets. Lending against cash flow is not considered prudent in the case of startups.  The Singapore Government could encourage financial institutions to develop cash flow financing. There is no denying that cash flow financing will result in more bad loans. However, financial institutions could charge higher interest rates to compensate them for higher levels of risk and given the large pool of financial experts in Singapore, these financial institutions will surely be able to work something out.

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Studies in the United States have shown that entrepreneurship and the level of cultural vibrancy are closely correlated, and that the arts can help individuals become more creative in areas beyond the arts. Furthermore, a culturally vibrant city like London attracts global creative talents much faster. Professionals often choose where they want to work based on their lifestyle interests. The Esplanade is a clear signal that the Government understands the importance of arts and culture in its efforts to become a cosmopolitan city and hence attract foreign talents. To take a step further, the Government could signal support for arts, recreation, culture and sports through funding strategy. The Ministry of Information and the Arts could also consider setting up an Arts School.

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Singapore should encourage its companies with the scale and organizational depth to venture abroad. The larger companies could lead clusters of SMEs overseas. Getting SMEs to band together to form strategic alliances is another way to help them overcome their limitations in size.

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China is indisputably the largest market in Asia. It has completely transformed since opening up to the world economy in 1978 and it is now (2003) the seventh largest economy in the world.  Although its rise has posed challenges to Singapore, it has created opportunities at the same time. China joined the World Trade Organization (WTO) on 11 Dec 2001 and is now becoming the manufacturing workshop of the world. Nevertheless, the economy needs time to implement such a major shift. What is the moral of the story? The point is, instead of going directly into the great unknown, would it not be smarter for companies coming to Asia to implement a smaller investment in Singapore, where most managers and highly trained engineers are bilingual in English and Chinese, and then expand into China with a bigger investment as the next step?  The companies could also then send employees recruited in China to its Singapore operations for training and product familiarization. There is no denying that some of the MNCs will implement these small investments in Hong Kong. It is true that Hong Kong has some advantages over Singapore in attracting these foreign MNCs. For example, it is closer to China than Singapore is. However, it is equally true that Singapore has several advantages over Hong Kong. For example, many Chinese Singaporeans can speak Mandarin and English better than the people in Hong Kong. Besides, when was the last time you saw a demonstration in Singapore? It is little surprise to discover that Singapore hosts most of the top Indian IT firms and many of them are using Singapore as their operational base to develop their services in China. Besides, with the rise of Chinese companies, there will be more Chinese foreign direct investors coming to invest in Singapore. It all boils down to one theme. Can we attract these foreign direct investors? What do we have to offer them? Do our neighbouring countries have something better to offer? Effectively, we are back to the same theme.

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India, with a population of 1 billion, including a middle class of about 300 million, has also started to pick up in its economic development and it is now (2003) the tenth largest economy in the world. Some specific sectors have taken off, particularly the Information and Technology industry. The reforms in India may not yet be as vigorous as those in China, but it is only a matter of time for us to feel the economic power of another giant. A more prosperous India, like China, will mean bigger markets and more investment opportunities for Singapore. For instance, Singapore could do for southern India, the massive job of developing the region’s infrastructure, what Hong Kong did for southern China. Notwithstanding, in the short run, due to the restructuring and relocating of industries, Singapore may experience some dislocation. To minimize this impact, it could try to avoid head-on competition with them in the same products or markets.

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Physical size and natural resources become less of a constraint as Singapore taps markets in the global economy to broaden the basis of its prosperity. It needs to embrace globalisation and continue linking itself to the developed countries to attract investments and expand its markets.  At the same time, Singapore must continue to develop bilateral Free Trade Agreements with key trading partners to secure our economic ties and access to their markets. Singapore is leading Asia in the trade liberalisation movement. Already under its belt are FTAs with Trans-Pacific SEP, the Hashemite Kingdom of Jordan, the People’s Republic of China (jointly with 5 other ASEAN members), India, Japan, Australia, New Zealand, the European Free Trade Association and the United States. Meanwhile, talks have started for similar bilateral pacts with other countries like, Canada, Mexico, the Republic of Korea, Sri Lanka, the State of Kuwait, the State of Qatar, the United   Arab Emirates, Peru, Panama, Egypt and Bahrain. The USSFTA alone is expected to boost Singapore’s GDP by 0.5 per cent. The United States will remove 92 per cent of its tariffs with the rest removed within 8 years. The USSFTA also provides a so-called “Integrated Sourcing Initiative” whereby some IT components will be regarded as originating in Singapore, regardless of where they are made, as long as the final product is assembled in Singapore. This initiative is a powerful tool to attract foreign IT manufacturers to Singapore. How could Singapore go about doing it? It could improve the logistics network with islands such as Bintan and Batam. Such infrastructure will enable manufacturing companies to set up regional operations in Singapore that carry out activities like product design, and at the same time, use nearby Bintan or Batam as a low-cost location for labour-intensive manufacturing. This is a winning combination that many companies will find and consider seriously as a viable alternative to China. The outsourcing of cheaper components to lower-cost neighbours will benefit foreign manufacturers as well as local manufacturers.

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Singapore should not merely aim to boost its own trade links with far-flung FTA partners, but it must also catalyse economic engagement between the whole of ASEAN and its FTA partners. This may seem silly at first thought because Singapore is in head-on competition with its neighbours. I regret to say that many people have misunderstood the nature of the competition between countries. Countries engage in a positive-sum game rather than a zero-sum game. If Singapore’s neighbouring countries prosper, there will be a beneficial spillover effect on the country. They will buy more of its goods and services, increase investment in the country etc. Malaysia, for example, is Singapore’s largest importer. The nature of competition between countries is about who can get a larger slice of an expanding “foreign investment pie” and this pie will only keep expanding if the countries flourish simultaneously.

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Singapore must encourage strategic alliances at the corporate level.  Strategic alliances can bring about many advantages. Ease of entry, shared risk, shared expertise, synergy, just to name a few. Business organizations should be encouraged to form both comprehensive alliances (joint ventures) and functional alliances (sharing of production facilities, cofunding of research projects, cross-licensing of technology etc). For example, PSA’s strength lies in its connectivity and its port management. PTP has a cost advantage and a land bank which makes future expansion possible. If these two ports form a strategic alliance, they will emerge as a formidable competitor to other neighbouring ports.

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Inculcating a global mindset in Singaporeans has become virtually necessary to operate in an increasingly interconnected world. However, Singaporeans who spend the whole of their working lives in Singapore are unlikely to fully develop the breadth and depth of skills and perspectives needed to be effective global managers. To overcome this problem, one of the ways is to attract foreign universities to set up branch campuses in Singapore. The local universities could also have more exchange programmes with foreign universities. These will increase Singaporeans’ exposure to foreign cultures, ways of life and business practices. The education and training roadmap should move from uniformity to diversity and from rigidity to flexibility. Singapore must develop a diversity of talents starting with pupils in school. This can be done by developing a more flexible school curriculum that allows for wider access to subjects of humanities and sciences.

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Living in an era of rapid technological changes, Singapore needs to keep restructuring its economy to move up the value chain. This is the only alternative as it has no natural resources besides its people and talents. Inevitably, structural and frictional unemployment will rise and this is a real problem that is going to haunt the economy for a few decades. Older and less-skilled workers who missed out on their secondary education will be most severely affected. Nevertheless, white-collar workers and professionals will not be spared either as the consolidation of the banking sector has painfully revealed. To lower structural unemployment, the Singapore Government must provide training and retraining to its workers. The Government should continue to enhance the Job Training Programme and the Skills Redevelopment Programme. This will help workers upgrade their skills to qualify for new jobs. The days of lifetime employment are over. The Government needs to make workers prepare for job changes several times in their working lives. To lower frictional unemployment, the Ministry of Manpower (MOM) could work with employers, including the public sector, to augment its job bank and help match the jobs with retrenched workers.

Conclusion

Prior to the Asian Financial Crisis which broke out in 1997, Southeast Asia played a star role in the Asian economic miracle. However, the boom was ended abruptly. The US recession in 2001 marked the end of a long boom, and the beginning of a new period of slower growth. The Singapore economy is maturing. Its GDP per capita has reached OECD levels. Singapore can no longer expect the high growth rates that it experienced over the past two decades. However, the Singapore economy will keep growing. The Government predicts that, going forward, the sustainable growth rate will be between 3 per cent and 5 per cent. Although it will be lower than the average growth of 7.3 per cent that the country experienced between 1985 and 2001, it will already be an achievement. Few developed countries at similar levels of per capita GDP have sustained growth exceeding 3 per cent. Being small and open, Singapore must expect rough weather from time to time. However, if it adopts the right strategies, and with perseverance, Singapore will continue to thrive.

 

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