The Singapore Growth Model

Singapore has been one of the great success stories of South East Asia. The country started with very little money or resources just a few decades ago and had built one of the best global cities today. Their success story is not similar to that of China or Hong Kong. The differences are remarkable.

The world has seen a polarized debate regarding economic models. Some believe in capitalism whereas others believe in socialism. There seems to be no third alternative to “the market” or “the plan”. However, Singapore is proof that a third model does exist. It is a city where capitalism and socialism have coexisted, and the result has been economic prosperity.

What is So Special about Singapore?

The stupendous success of the Singapore model can simply be referred to as being astonishing. Singapore has close to 1% of the population of China. The GDP of Singapore is about 11% of China! Singapore has one of the lowest inflation rates in the world. The inflation has averaged close to 1.9% whereas the global average is close to 3.5%. This small city state possesses one of the world’s largest export sectors. This hugely successful export sector has ensured that Singapore has the 10th largest foreign reserves in the world! Singapore is a preferred destination for multinationals. This is because of the strong anti-corruption laws that have been put in place. The result is that Singapore has the busiest port in the entire world.

Singapore is home to over 3000 MNC’s from across the world and these MNC’s account for over two-thirds of the exports generated by Singapore. The economy is one of the strongest in the region. The 1997 crisis which spread like wildfire amongst Asian economies could not do much damage to the economy of Singapore.

Free Market Principles

The economy of Singapore has followed free market principles in some parts of their economy.

• Labor Market: Singapore has traditionally followed an open door policy for immigrant workers. About 35.8% of the labor force in Singapore is made up of foreigners. Singapore wanted to create an atmosphere wherein the best, and the brightest from across the globe were welcome into their economy. That is exactly what has happened. A significant portion of the success can be attributed to the contributions of immigrant workers. This policy seems to be changing of late as Singapore has started implementing policies which makes it difficult for foreign workers to enter into their nation.

• Bureaucrats Held Accountable: Singapore is the only country in the world where bureaucrats have a variable pay. This variable pay is affected by the health of the economy. For instance, during the 2008 crisis when the economy went down, Singapore’s bureaucrats lost money. It is amazing how much regulation bureaucrats can eradicate when they are motivated to do so. Instead of trying to overhaul the entire government by enforcing rules, Donald Trump should learn from the Singapore model.

• Low Tax Rates: Singapore has one of the lowest tax rates in the world. The corporations are taxed at 17%, and the households are taxed at 20%. This is the reason why all the MNC’s have flocked to Singapore. The end result has been that Singapore residents have high paying jobs and also the government earns much more money via indirect taxes.

• Low Government Spending: Singapore government has one of the lowest rates of government spending. The government meddling in the GDP is kept below 20%. If the spending goes above 20%, cuts are implemented. These cuts reduce the expenditure. They are not like the makeshift budget cuts that Washington pretends to be doing.

Socialistic Principles

Surprisingly some part of Singapore’s economy is also based on Socialistic principles.

• Public Housing: Singapore has one of the world’s most successful public housing projects. About 90% of the population of Singapore owns a house. These houses have been provided to them in government approved projects at government approved rates. The government of Singapore has also taken measures to prevent racial concentration. They have ensured that there is a mix of different races in every neighborhood. It is strange that a country with a capitalistic outlook towards trade has an entirely socialistic outlook towards housing. With regards to public housing, Singapore is almost like a welfare state. However, the good thing is that it has worked and Singapore has one of the best housing systems in the entire world.

• Public Healthcare: Just like the housing system, the public health system in Singapore is also heavily subsidized. Most of the healthcare expenses are taken care of by the government. Singapore does have private hospitals and nursing homes. However, they are mainly funded by taxpayer money. Also, Singapore forces its citizens to save a part of their income in the “Medisave” accounts. Employers are also supposed to contribute to these savings. Like housing, Singapore’s health care system is also well renowned across the world.

To sum it up, the Singapore model is like a bizarre mix of the US model and the Russian model. The astonishing thing is that it actually works!