How Singapore Get So Rich
“People want economic development first and foremost”. ~The Man and His Ideas,
In 2021, Singapore’s GDP per capita was 72k dollars, The fourth largest GDP per capita in the world. Singapore ranks second in ease of doing business.
Singapore’s economic growth has been phenomenal. It teaches many lessons for countries that want to bring their people from poverty to prosperity.
Singapore was not always a developed economy as it is today. a few decades ago, it was a poor economy with no natural resources and a small population.
To understand how Singapore got so rich, we need to know the economic challenges they faced in their earlier days of economic development.
From 1819 to 1960, Singapore was a British colony. This small island was crucial for Britishers because of its geographical location. It served as the trade connection between Asia and Europe, which helped the British to transport goods from Asia to Europe.
When the British left Singapore in 1960. Its economy was in ruins.
At that time, Most Singaporeans were employed by the British administration. So when the British left, it put most Singaporeans out of jobs, Which created high unemployment.
The first elected prime minister of Singapore, Lee Kuan Yew wanted Singapore to merge with Malaysia to develop its economy.
Singapore had no natural resources and was even dependent on water and food supply from abroad.
Lee Kuan Yew thought that the way Singaporeans could escape poverty was to merge with Malaysia.
In 1963, after a lot of effort by Lee Kuan Yew, Singapore officially merged with Malaysia.
But this unification was short-lived. Malaysia expelled Singapore from the federation and forced it to declare independence.
Some reasons for this expulsion were racial tensions and Political disagreement between Singaporean and Malaysian. Likewise, economic differences were the reasons why Singapore had expelled from Malaysia.
As part of the Malaysia Agreement, Singapore had agreed to contribute 40% of its total revenue to the federal government.
But in July 1965. The Malaysian finance minister increased the contribution to 60% and hinted that “unless Singapore agrees to pay more, the common market would be slow in coming about”.
Singapore’s finance minister refused to do and accused Kuala Lumpur of imposing tariffs on Singapore-made products.
At the time, Singapore didn’t want to be independent. But it was expelled from Malaysia and forced to declare independence.
When people think of achieving economic growth, what comes to mind is privatizing businesses and a free market system with little government intervention.
But Singapore’s economic model was different from the traditional free market system.
Singapore is a blend of a free market and high government intervention which has proved to be very successful for the Singapore economy.
So let’s learn the causes behind Singapore’s economic success and can other countries copy that system to achieve the same economic growth.
Lee Kuan Yew was the first prime minister of Singapore from 1959 to 1990. He knew if Singapore wanted foreign businesses to invest and employ Singaporeans.
It had to clean up all the corruption, from businesses bribing government officials to regular people bribing officers.
The government imposed strict laws that made corruption almost impossible. Lee Kuan Yew was willing to go to any length to eliminate corruption.
Today, Singapore is the most transparent nation in Asia, and the public sector has ranked as the fourth least corrupt in the world.
Eliminating corruption from the country helped Singapore to achieve this miraculous growth.
When a country has no corruption, it can influence economic growth because businesses will tend to invest in countries where they know that they don’t have to bribe government officials to do business.
There are some common characteristics among poorer economies. They tend to have more corruption in their system, which prevents them from achieving economic growth.
Singapore’s fight against corruption was the first step toward achieving economic growth in the economy.
An administration that is completely corruption-free. Political leadership can be subject to the closest scrutiny because it sets the highest standards. It is not easy, because if we lose this, then our reason for our existence, our raison d’être … will disappear. Why does this island survive? Why does it attract banks, computer software, financial services, information services, and manufacturing, in preference to so many countries better endowed with natural resources, manpower, and markets? Any traveler knows that, because from the moment you hit the airport to the time you get into the taxi, you travel on the road, you know the difference, whether a place works on rules or it bends the rules
— Lee Kuan Yew.
Low Tax Rates
Low tax rates attracted much foreign business into Singapore, Which increase the foreign direct investment in the economy. As more companies invest in the economy, it boosts economic growth.
Singapore’s income and corporate tax rates are half of what are in the United States.
When people know that most of the income will be in their hands, It gives people an incentive to increase productivity to increase their income. as their income grows, they will consume more, which improves the overall economy.
In the 1960s, when most economies had high taxes, Lee Kuan Yew retained low tax rates to attract foreign businesses to invest in Singapore.
Most companies will be reluctant to invest in countries where they have to pay most of their earnings to the government. High tax rates tend to decrease foreign direct investment into the country, which can negatively impact economic growth.
Education in Singapore
Singapore’s government was giving low tax rates, fighting aggressively to eliminate corruption to make their country attractive to foreign businesses. So business will invest in the country, employ Singaporeans and improve economic growth.
But Lee Kuan Yew knew that attracting foreign business to come here and employ Singaporeans was only possible. If the people in the country are well educated and had the technical knowledge that foreign companies want in their employees.
Businesses will hire individuals who have specialized education that companies could benefit from.
The government knew that its most valuable asset was its people. If the administration invests heavily in their people and educates them, it could hugely improve their economy.
“A society to be successful must maintain a balance between nurturing excellence and encouraging the average to improve.”
― Kuan Yew Lee, The Wit, and Wisdom of Lee Kuan Yew
In 1960, Most people were illiterate in Singapore. So the government started allocating a bigger percentage of the government budget to improving the education system to make their workforce well educated. Then foreign businesses would be more likely to hire them. It can improve people’s living standards and increase economic growth.
For more than 50 years, the government’s efforts to recruit the best teachers from around the world to educate its citizens and increase their human capital paid off.
Today, Singapore has one of the best education systems in the world. Rankings published by OECD in its program for international student survey (PISA) had repeatedly placed Singapore in the top five highly ranked countries in educational outcomes.
Within the subject of math and science, Singapore was ranked number one in the global rankings in 2016 and frequently outsmarts other Asian giants like Japan or Taiwan.
Savings, Savings, Savings
As the income of people grows, the government made it compulsory for Singaporeans to save a portion of their income into their CPF (Central provident fund).
CPF started under the British colonial regime in 1955. It is a compulsory savings plan under which every employee must maintain a CPF account and deposit a percentage of income into a CPF account, with the employer making a matching contribution.
CPF funds are invested entirely in government bonds which enhances the power of the government to spend the fund to the best use for its economic growth. Indeed, the Singapore government has used the fund productively to improve its economic growth.
Savings are the backbone of economic growth. If there are no savings, there will be no investment, Therefore no economic growth.
Investment in new technology, infrastructure, and education systems is only possible with savings, which can be invested to improve economic growth.
Singapore’s savings rate has played a big part in its economic growth. Singapore has a gross domestic savings rate of 53.8%, which comes to an average of 101,00 dollars (adjusting for purchasing power parity).
Singapore’s savings rate is one of the highest in the world. It made its remarkable economic growth possible.
Singapore’s Economic Challenges
This small island has continued its economic growth and remains a hub for financial services and technological innovation.
But there are still some problems in the Singapore economy that can negatively affect its economic growth in the future.
Like many developed economies, Singapore’s population has declined in the last decade. Singapore had one of the lowest birth rates in the world at 1.15 children per woman.
The declining population is due to people preferring to have fewer children, and more people are choosing careers over marriages.
The high cost of living in Singapore is one of the causes for people having fewer kids.
Solving the problem of a declining population is one of the main priorities for the government because a shrinking population means few workers, which will produce fewer goods and lead to lower productivity, which causes a decline in economic growth.
Another economic problem that can cause a significant decline in Singapore’s economy is its exposure to globalization.
For three decades, Singapore has greatly benefited from globalization. Many foreign companies invested heavily in Singapore, Which plays a big part in its economic growth.
But the problem is that if global financial crises occur, Singapore’s economy would be most affected.
Interconnectedness with other economies can be a good thing in an economic growth period, but it can be a real bad thing in crises.
Foreign companies would stop investing in the economy and may shut down their operation, which can cause high unemployment and a blow to the economy.
Solving these economic problems is the top priority for the administration, which has a track record of solving these economic challenges in their economy for decades.
In the 1960s, Singapore had no natural resources to export, nor did it have a large population.
But right government policies with a free economic system made Singapore one of the most prosperous economies in the world.
Manufacturing is the largest sector in Singapore. It contributes 20% percent of the annual GDP.
Singapore has made itself a hub for international conferences. Most people around the world come to Singapore for international conferences.
Singapore’s GDP per capita has grown from 428 dollars to 72k dollars.
Nobody would have thought that this small island that can not produce necessities like food or water to field its people would become one of the most prosperous nations on the entire Asian continent.
Singapore’s government has proved that sometimes heavy government intervention with market systems can be an efficient path to achieving economic growth.
“I am often accused of interfering in the private lives of citizens. Yes, if I did not, had I not done that, we wouldn’t be here today. And I say without the slightest remorse, that we wouldn’t be here, we would not have made economic progress if we had not intervened on very personal matters — who your neighbor is, how you live, the noise you make, how you spit, or what language you use. We decide what is right. Never mind what the people think.”
― Lee Kuan Yew
Originally Published on Medium
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