Singapore’s Growth Model Needs Rethinking


In a rather critical article, the Wall Street Journal says our export-driven economy is “falling on its face” and the growth model which our government has embarked on “needs rethinking.”

The main criticisms seem to be our low consumption, the government’s risky bets on certain industries, and our over-reliance on the government:

Singapore’s economy would be more resilient if it were better balanced. Consumption composes only about 40% of GDP — far less than other developed Asian economies, nearer to 55%. (The) budget doesn’t do much to change long-term incentives to consume.

… the city-state’s bureaucrats have a habit of trying to pick winners, which sometimes works and sometimes doesn’t. In recent years the bets have been on financial services, biotechnology and gambling. (The) budget contained special tax incentives for the fund-management industry. Better to let private actors make those decisions based on market forces.

The best help for Singaporeans would be expanded, permanent opportunities to work, save and invest with more of their own money, rather than relying on government to do it for them.

BBC News also voices concerns about our wealth gap and, er, our government:

“… a huge wealth gap between the richest 10% and the rest is fast widening.

… When times were good, few questions were asked about how the wealth was distributed, or the lack of social safety net.

The next few years could be the biggest test ever faced by the Singapore government.

As expected, there are always people – see comments at TOC – who will use this to take a swipe at our highly remunerated government leaders for taking too much credit during the boom years.

References: Singapore’s Limits, WSJ (Jan 22, 2009) and Singapore’s budget targets recovery, BBC (Jan 22, 2009).


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  1. As mentioned also in the other forum, the WSJ article is not well-researched, and IMHO, missed the most important point in the budget, which is the company rebate for a portion of their employees’ CPF.

    Being a city-state, it is rather hard to argue for a consumption model. Assume that CPF are all given out in cash, and people do buy more, majority would go out to consume imported goods that depreciate significantly over time vs the current model where the most logical choice to place CPF is in real estate which does not follow normal depreciation. One of the significant contribution to wealth of our current generation of retirees is the significant appreciation of real estate value and the fact they own (had invested) in them many years back.

    On the rich-poor divide, the rich will get significantly richer during the good times, so with bad times, I suspect the rich-poor divide will be brought up less.

    My suspect is that the more pressing concern for the government is the threshold point between poor and middle income. There should not be any significant growth in the poor, which will result in civil unrest and political instability.

  2. This crisis have demostrated a lot of points which from 1997, we should have learnt –

    (1) having a large foreign reserves do not protect the value of your currency [neither do you want your currency too strong],
    (2) Regionalisation – you decide,
    (3) paying ministers millions in salary serves nothing, just let them live in a way that is divorced from the mass population,
    (4) Storing wealth via property is not really a good idea – housing is purely a social policy and harms the mass population by tying up significant wealth in a illiquid and “beg the bank” condition.

    We definitely need to stimulate domestic consumption, whether it will result in a leakage or not, needs to be done. Even if we import, there is value added that stays in the country – no one sells at cost. It will mean that we, as a nation, will hopefully, be subjected less, not none, to the vagaries of the international world.

    It is a tough problem to solve, that is why, we pay millions in salary for the best and the brightest to serve us. Otherwise, we can just pay them the amount that the US government is paying, why pay more?

  3. Agree with you more can be done on domestic consumption side, which should help the economy.
    But regarding paying millions, on one hand you said paying needless millions doesn’t help, but on the other you ended your comment saying we should pay millions for talent. So should we pay or not?

  4. I don’t listen to “expert” commentary from a armchair economist whose home country’s economy is in tatters. It’s just laughable.

  5. jimmy: to clarify, what i meant was that this economist sitting at his desk in his cosy office in the USA has no right to say how Singapore should manage their economy, as USA’s economy is in tatters right now with trillion dollar deficits and failing industries left and right.

    I think Singapore should do okay.

  6. I especially detest:
    “Better to let private actors make those decisions based on market forces.”
    Free market forces with absolutely no regulation led to the collapse of their economy and dragged down the rest of the world. Even their ex-Fed chairman admits his mistake now.

  7. US advocated a free market with relatively less government regulations and believed that market forces will regulate and steer the economy towards efficiency. Whether that has a direct link to the finacial turmoil we are seeing now does not diminish the fact that their policies and beliefs are questionable and were questioning conventional theories – the role of a government especially in time of market failure.

    In an economic point of view, any incentives to boost consumption will only lead to more leakages out of the economy since we consume mostly imported items such as food, hps, cars etc except education which is a form of human capital investment. Moreover, Singapore is too small to rely on consumption for growth. Thus, I believe it is more productive to spend on expenditures that could attract investments including FDIs, and education so that our labor force is better equipped and competitive.

    But on the other side of the coin and in a social point of view, government is right and benevolent to give income tax and GST rebates to households, not to boost consumption for growth, but to help them to survive the ordeal.

  8. armchair,

    I will not say “letting private actors make those decisions based on market forces” is the best in any country in any circumstances but what you have said (“Free market forces with absolutely no regulation led to the collapse of their economy and dragged down the rest of the world”) is not quite true.

    What happened in USA is a large central bank (FED) artificially played with the price (interest rate) of one of the most important commodities in the world (money, USD) to avert a relatively mild recession (2001 dot com bubble and 11/9). A small group of people led by Alan Greenspan decided what interest rates should be and against market forces they lowered it to zero.

    Second, the problem was not “lack of regulation” but “lack of risk”. In a free market, “probability of loss” naturally regulates the “desire to take risk”. Risk in money is usually reflected in interest rates. When Alan Greenspan and his team lowered interest rate to “zero” levels, they effectively destroyed natural regulation through “risk” because they transferred the risk from borrowers/lenders to the shoulders of tax payers including savers (currently we are witnessing the realization of promised risk transfer, risk takers are bailed out by tax payers).

  9. To armchair,

    You have to understand that free market forces did not contribute to this crisis because the rates were set artificially low by Greenspan for a prolonged period of time that channeled the $$$ into property market. In a true free market force, the fed rate should be genuinely determined by the MARKET, not the FED chairman.

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