Evolving, in Singapore

Yesterday's blog, updating political and economic developments in Egypt, struck the theme that that country's Arab Spring, supposedly a period of transition from many decades of dictatorship, has so far been about social disruption, political muddling and a sinking economy.  Meaningful transition, with the emergence of private sector investment, innovation, productivity growth, and employment opportunities for the young, has yet to start. With more time, perhaps this process will be ignited.

There are, of course, economies that have transformed themselves in the past century, sometimes relentlessly, and so successfully, that they have arrived at an inflection point, where what has worked needs significant tweaking. China, and the countries of South-East Asia, are the obvious examples, where decades of economic growth have lifted hundreds of millions out of extreme poverty. Arguably one of the most dramatic transitions has occurred in Singapore, the city-state of 5.3 million people that a hundred years ago was a regional port, but otherwise little more than swampland and rain forest inhabited by opium gangs, prostitutes, fishermen, and an English elite. Today, after decades of a one-party, one-family political dynasty that conducted itself as though it were a corporation (Singapore is by no means a liberal democracy, and the press and internet are tightly regulated), Singapore's per capita income is some $60,000, ranking it as the third-richest economy in the world (after Qatar and Luxembourg). In the World Bank's "Doing Business" report for 2013, Singapore once again tops the world rankings, on the basis of such things as overall ease, the cost and time involved in starting a business, and the strength of legal institutions. Visiting the city leaves one with an impression of gleaming, premium hotels and shopping facilities, ultra-clean and very orderly streets, and elaborately-conceived gardens, parks and island resorts. A sense of energy, entrepreneurship and innovation pervades.

This "Singapore model" is well-known.  But the interesting story today is about the adjustments to the model that are now required, and that are being conceived and implemented with typical vigor by Singapore's policy-makers and business leaders. As a deliberately open economy, with few natural resources of its own, and thus dependent on financial services, and on the process of importing raw materials and transforming them into finished-goods exports, the global recession of the past several years has slowed Singapore's growth dramatically - GDP barely expanded in 2012 and in the first quarter of this year, and is not expected to increase much more than 1-3% for all of 2013. (Growth in Singapore averaged in the high-single digits over the past several decades.) But with huge trade, current account and budget surpluses, and international reserves, Singapore is comfortably positioned to foster the next phase of its expansion thrust - research and cutting-edge science and technology development. At the center of this strategy is the massively-funded Research, Innovation and Enterprise Council, headed by Prime Minister Lee Hsien Loong himself, and charged with the responsibility of seeking investment in Singapore from the world's multinational corporations, especially the knowledge-based ones. Success so far is impressive. Thus, for example, drug giant Roche is researching cancer and infectious disease treatments in Singapore, China's Baidu is developing language-processing technologies focusing on South-East Asia languages, France's Danone is creating new child nutrition products, America's Procter & Gamble is developing new health-care products for Asians, and Denmark's Vestas Wind Systems is establishing a technology research facility. Smaller multinationals, such as Canada's Sustainalytics, which focuses on environmental, social and governance services for private corporate clients, have also opened Singapore offices.

Singapore's model-tweaking can be summed up in a single phrase - moving up the value chain. As this process unfolds, the country will continue to exploit its existing comparative advantages, for example, in providing off-shore financial services especially to the rapidly growing segment of wealthy Asians. Taken together, these strategies are the very definition of constructive transition.