An economic miracle

Until the late Fifties Singapore was just another small island, with an area of 641.4 sq km (just over twice the size of Malta). An island without any natural resources, Singapore's only assets were a very active harbour that served as an international entrepot and a population nurtured on trading.

Obtaining a lease of the island in 1824 to establish a trading post and set up an administrative centre to serve its headquarters in India, the East India Co. succeeded in developing a port that was free of customs duties and restrictions. Soon, other traders from the region were attracted and the place became a hive of commercial activity. Perceiving an efficient administrative structure and substantial money to be made, migrants from China, India and nearby countries settled there.

When the East India Co. lost its monopoly and the Indian Mutiny broke out in 1857, Singapore's administration became inefficient. The migrants, who became ardent traders themselves, asked for direct British rule. The opening of the Suez Canal in 1869, the arrival of the steamships and the invention of the telegraph helped to make Singapore's harbour a major port of call and buttressed its trading culture.

This continued progress as an entrepot centre was rudely interrupted in 1942, when it was overrun by invading Japanese troops. After the war, British rule was re-established and Singapore become a Crown Colony. In 1957 internal self-rule was granted. Elections were held in 1959 and the People's Action Party (PAP), led by Lee Kuan Yew, won a landslide victory.

At the time, Lee firmly believed that Singapore could not survive on its own; union with the Malaysian Federation was vital for its continued existence. The people endorsed this proposal in a 1962 referendum, despite opposition from the Malaysian Socialist Front. But by 1965 Singa-pore was expelled from the federation because PAP wanted to participate in the Malaysian general election and the other federation's political parties were scared of Lee's capabilities.

By default, Singapore became an independent state against the wishes of its leaders and the majority of the people. Though the internal administration did not suffer as a result of this sudden break, it was felt that Singapore was faced with an insurmountable obstacle to make its presence felt in the world's economy.

But Lee Kuan Yew was a determined person. Inward-looking policies were overhauled. He took the bold step of opening his country to foreign investment. Ideologically, the PAP adopted a new platform instead of socialism. The economy was given greater importance and an attractive fiscal incentives programme was prepared.

By 1975 the agricultural sector accounted for just 1.5% of the economy, but the services sector took up 61.3%. Fifteen years later the agricultural sector declined to 0.2% and services rose to 63% of GDP. Manufacturing hovered around 27%, reaching 29.5% in 1990. But Singapore's success story did not lie in sectoral transfers but was mainly focused on manufacturing and services.

Whereas in the Sixties expansion of low-skill, labour-intensive manufacturing activities were targeted, in the Seventies the country's attention shifted to diversification of the manufacturing sector through higher skill levels and higher value added productive ends. The number of areas within the manufacturing sector progressed in various fields: petrochemicals, aerospace, biotechnology and information technology.

In the same way, the services sector moved from its simple re-export and entrepot activities to more focused development: to make Singapore a regional and international financial centre. Attention was also devoted to tourism, transportation and warehousing.

Foreign directed investment played a major role in such an expansion in a relatively short time. Multinationals came in their thousands to operate within this city-state; others were just happy to have their regional headquarters in Singapore. Political stability, strategic geographical location and availability of sophisticated infrastructure were the major factors that attracted major economic players.

Government was instrumental in procuring these fantastic economic results. It invested heavily in human resources development. Industrial peace was maintained through a complete liaison between the government and trade unions. This fact had two major effects: it helped the country expand its economic base and its people enhanced their standard of living. Today Singapore's GDP per capita is about $30,000 per annum.

When the government felt that the economy had matured, it embarked on a gradual privatisation programme. As labour costs started to rise, less land was available and a lack of natural resources was limiting further expansion, so the government focused on the 'dual engines of growth' - financial and business services on the one hand and high technology manufacturing activities on the other.

As growth maintained its momentum, the planners went a step further: actively seeking to build an external economy to keep on climbing the economic ladder. Venture capital was created to help local companies investing beyond Singapore to become regional.

Economists often refer to Singapore, because of its consistent growth, as one of the four Asian tigers; another common label is that Singapore and the others enjoyed an economic miracle. But if one were to go through the economic result, coupled with its unfolding, one would notice that the miracle did not just happen but that it was all planned to take place in gradual stages.

All activities were monitored, corrective measures were immediately taken when departures from the planned trends were observed and new policies were always prepared when targets were attained.

The person behind this phenomenal rise is Lee Kuan Yew, who planned all the economic phases for take-off and saw to it that all programmes were scrupulously implemented. He described his government's role thus: "In the early stages, when you try to bring up a very low level of economy to catch up with others, the government must be an activist, and catalyst to growth. But once the business got going, they would become too complex and specialised for any government to be involved. Hence private entrepreneurs and companies must be encouraged to take over."

Though Malta and Singapore are among the world's smallest states, we cannot compare Malta's economic achievements with those of Singapore. In both countries Government had a major role to play in the country's economic performance. Clearly, Singaporean politicians were more focused, planned in a better fashion, had tremendous economic foresight, exhibited determination and exercised a willpower to succeed; and they did.

Unfortunately, we are still preparing an industrial policy, for years no economic plans were prepared and, as a result, we did not have official economic targets to reach. After more than 40 years of independence, we still have to find our economic feet, it seems.

Apparently, things are changing. There is greater concern for Malta's economic performance. EU membership is having an effect with its financial aid and its regulations. Can we now start dreaming of an economic miracle similar to Singapore's?

Dr Borda is an economist specialising in the economic development of small states