History of Singapore
Singapore is an island nation in Southeast Asia, close to Malaysia and Indonesia. Singapore was formerly a colony of the British Empire since 1819. The British established military bases and ports here, indirectly creating an economy focused on transit trade: Western goods, raw materials from Southeast Asia, opium. When Britain returned the colony in 1959 and withdrew its troops. Singapore faced challenges: unemployment, lack of housing and health care, poverty, underdeveloped education. However, Singapore quickly overcame these challenges and rose to become the leading economically developed country in Asia. Creating the miracle of the Asian tiger Singapore. GDP per capita surpassed some Western countries in 1994 such as: Australia, Canada, UK. In 2013, Singapore ranked 9th in the human development index of UNDP (United Nations Development Programm). This achievement came to Singapore before any other Asian country.
Singapore’s difficulties
Small area leads to small domestic market, lack of resources. Multi-ethnic population, mainly descendants of immigrants from China 76.6%, India 6.4%, Malaysia 14.7%. There were ethnic riots between them in the 1950s-1960s. No industrial capital. Lack of defense forces when facing external threats.
Solve the problem.
Singapore does not rely on local capital like Japan, South Korea, and Taiwan, but relies on state capital and foreign transnational corporations to develop its economy.
The Singapore government, which is ruled by the People’s Action Party, has established Statutory Councils. These are quasi-governmental organisations, separate from the civil service, but still within the portfolios of ministries. They are managed by boards of directors comprising representatives of the government, the private sector, professional groups and interest groups. These statutory councils are set up to regulate state-owned or partly state-owned enterprises. They cover all sectors: industry, commerce, finance-banking, insurance, healthcare, housing, infrastructure, telecommunications, transport.
Singapore’s state-owned enterprises are different from those in other countries: They operate profitably (except in the health, education and low-income housing sectors). When they fail, they are not subsidized or bailed out by tax money, but must close. They are managed by highly qualified professionals and are paid salaries that are competitive with those in the private sector.
Most notably, the role of the Commercial Development Board – which plays a role in attracting investment and developing industry to solve the unemployment problem. And the Housing Development Board – which plays a role in solving the housing shortage.
In the early stages, the Trade Development Board was successful in attracting investment and joint ventures with foreign enterprises. Its tasks included developing infrastructure, industrial parks, managing the supply of quality labor, contributing capital or financing loans. From there, Singapore continuously created jobs and learned techniques, gradually moving towards knowledge and technology ownership.
In the later period, the Trade Development Board was successful in orienting the shift from labor-intensive to knowledge-intensive industries. (Moving labor-intensive industries to Malaysia and Indonesia). Successful in orienting exports and sending capital abroad for investment. In the 1970s, services became the second pillar of the economy alongside manufacturing.
The Housing Development Board also achieved something that no other country had. In the 25 years from 1960 to 1985, 84% of the population had access to public housing. In 1968, the government enacted the Central Provident Fund (CPF) Act. Businesses and employees had to pay a certain amount into the fund (a form of compulsory insurance). But citizens had the right to use the fund for housing, education and medical needs. The CPF was closely managed by a Statutory Board.
The elasticity of the Singapore economy
During the global economic recession of the 1990s.
Singapore has been agile in shifting between globalization and regionalization.
By establishing the Malaysia-Singapore-Indonesia economic growth triangle in 1989, they reassigned labor, taking advantage of the human resources of the other two countries, so that Singapore could focus on developing a knowledge-technology economy. They expanded the regionalization plan to the surrounding areas through industrial parks in Vietnam, China, and India.
China: China-Singapore Suzhou Industrial Park, Wuxi-Singapore Industrial Park; Indonesia: Batamindo Industrial Park, Bintan Industrial Park; India: Ban galore IT Park, Sentosa City; Vietnam: Vietnam-Singapore Industrial Park etc.
In 1987, the government began to divest and privatize, opening up to the private sector in a number of industries: telecommunications, services, finance, and insurance. The motivation for this was:
1. The government wants to increase the role of the private sector in economic development. Reduce competition between the government and the private sector. Leads to driving force number 2
2. Turn Singapore into an international financial center through the development of the stock market.
3. The government will allocate capital to invest in developing new industries with potential that the private sector has not been able to participate in.
For example: biomedical sciences, interactive and digital media, environmental protection and water technology, etc.
When the 1997 Asian economic crisis hit, Singapore turned to globalization. The government encouraged companies to expand into markets: Europe, North America, South Asia, and the Middle East.
Several state-owned enterprises have become important global players in various industries: Singtel (telecommunications), Keppel Corporation and Sembcorp Industries (shipping), CapitaLand (property development), DBS Group Holdings (finance), Singapore Airlines (air passenger transport), Neptun Orient Lines (shipping), etc.
The role of Temasek Holding and GIC.
Temasek Holding initially had a role in managing the state’s shares in companies. Monitoring and reporting the companies’ finances to the government.
Later, Temasek Holding’s role shifted to promoting Singapore’s economic development, achieving stable long-term profits to increase national assets.
Temasek has a global portfolio. Of which, the allocation to Singapore itself is relatively low at 28%. The rest is focused on Asia outside Singapore and Europe, North America. By 2015, Temasek invested 70% in Asia, the remaining 30% was distributed to Europe, North America, Australia and New Zealand, and Central Asia.
In 2015, according to the SWF Institute, Temasek Holdings (with assets of US$1,936 billion) was the largest sovereign wealth fund in the world. Singapore’s other sovereign wealth fund, GIC, was ranked eighth with assets of US$344 billion.
GIC was created by the Singapore government with a portion of its surplus foreign exchange reserves and it receives an annual (discretionary) transfer from the government to help increase its capital base. Temasek, on the other hand, is completely self-funded with five main sources of capital: corporate dividends, proceeds from divestments, distributions of fund investment profits, and issuance of long-term and short-term debt.
Unlike Temasek, GIC is not legally allowed to invest in Singapore. GIC’s portfolio is also not Asia-focused like Temasek’s. In 2015, GIC’s portfolio’s geographical distribution was as follows: Americas 43% (US 34%), Europe 25%, Asia 30% and Australia 2%. (Retrieved from http://www.gic.com.sg/images/pdf/GIC_Report_2015.pdf .)
It can be seen that this is an insurance strategy for the Singapore economy itself. On the one hand, it reduces the risks for the investment portfolio coming from Singapore. On the other hand, it brings in capital from abroad to stabilize and develop the economy.
The two sovereign wealth funds play an important role in maintaining and protecting the long-term financial stability of the domestic economy. The role of GIC as an investor in foreign exchange reserves is important to protect the Singapore economy from financial crises, while at the same time, preventing government and multilateral institutions from interfering in the Singapore economy; as the IMF did in neighboring countries during the 1997–98 Asian financial crisis, which resulted in a reduction of national sovereignty.
Conclude:
In Singapore, the state plays the role of entrepreneur. State-owned enterprises are governed by market principles and efficiency. Loss-making enterprises are not saved but closed down. Since its establishment in the 1960s and 1970s, the state-owned capitalist sector in Singapore has been in constant change. On the one hand, the state has withdrawn from some economic sectors, on the other hand, it has expanded into other sectors in line with Singapore’s economic development goals. As a result, the state-owned capitalist sector in Singapore is constantly restructuring. The government decides to privatize companies partly or completely not only because they are loss-making, but also because state involvement is no longer needed in a particular sector.
Since the 1980s, many of Singapore’s profitable, professionally managed state-owned enterprises operating in a competitive market environment have begun to expand regionally and globally beyond the city-state’s borders, and have become important players in their respective sectors of the global economy.
Reference article from:
Successful Model of State Capitalism: Singapore
Author: Katalin Völgyi
2019