BPS Economist Club
Turning people's good intentions into actionable steps
Team Essay 2
Singapore's Economic Odyssey: From Colonial Challenges to Global Powerhouse
Singapore’s Economic History
Singapore saw tremendous development over the years, transitioning from a third-world economy with a Gross Domestic Product per Capita (GDP per Capita - a measure of economic growth) of approximately $516 in 1965 to an impressive $82,808 in 2023, becoming a first-world nation. Over a span of 144 years (1819-1942) under British rule, Singapore emerged as a vital trading port, attracting immigrants and experiencing significant population growth. However, the locals had limited power as colonial powers retained authority, constraining their freedom despite the economic prosperity derived from trade.
World War 2 inflicted severe damage upon Singapore, disrupting its economy and causing upheaval in its societal fabric under Japanese occupation. Post-war, Singapore was under British administration before achieving self-governance, setting the stage for its journey towards independence.
Despite post-war challenges like overcrowding and high unemployment rates affecting nearly 70% of the population living in substandard conditions, Singapore's decision to join Malaysia in 1963 aimed at rapid industrialization and economic growth. However, political differences between the two nations and economic challenges led to Singapore's expulsion from Malaysia in 1965.
Singapore's independence in 1965 marked a daunting phase as the nation faced significant hurdles – a lack of natural resources, industry, and a sudden loss of a market. Despite these setbacks, visionary leadership, notably under Lee Kuan Yew, steered the country toward a focused agenda on industrialization, attracting global investments, and prioritizing infrastructure development.
The policies and strategies implemented post-independence laid the groundwork for the country's economic rise. Through a dedicated pursuit of industrialization, export-driven growth, and a focus on talent advancement and knowledge, Singapore transformed into a thriving economy with an impressive GDP per capita of $82,808 in 2023. Infrastructure development and attracting multinational investments, became pivotal in shaping Singapore's journey from a vulnerable nation to a leading economic powerhouse in the contemporary global landscape.
Embarking on Globalization
Singapore's economy benefited at the time from the importing, storing and exporting of goods at the port. Yet these services did not promote ample job opportunities for the local people, which was what Singapore needed at a time of mass unemployment.
This eventually led to the launch of an intensive industrialisation programme with a large emphasis on growing labour-intensive industries; however, this did come with its challenges:
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The country did not have an industrial history, and the majority of its workforce was only experienced in trade and services meaning training and education were necessary to create an environment to thrive in
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The neighbouring countries were less than willing to collaborate for development.
Under large amounts of pressure to deliver the promise of jobs for the people of Singapore, Lee reached out to the developed world and persuaded their multinational companies to invest in his company:
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To attract foreign investment, Singapore lowered taxes in an attempt to create aggregate demand (By increasing the exports to imports ratio)
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Rules became more strict as penalties for the trade of illegal drugs grew to possible death penalties. Any behaviour disrupting national, political, or corporate unity could put a person in jail. With the harsh law enforcement, the economic and political conditions quickly stabilised, giving Singapore a competitive edge to acquire funding from abroad.
Singapore’s Market Economy
Singapore has established itself as a dynamic hub with a flourishing market economy characterised by openness, efficiency, and innovation. The government played a crucial role in creating a favourable business environment by implementing pro-business policies, investing in education/training and technology, and fostering a transparent regulatory framework.
The advantages of a free-market economy in Singapore are evident in its rapid economic growth, low unemployment rates, and high standards of living. The absence of excessive government intervention has allowed businesses to thrive and adapt swiftly to global market changes.
However, challenges such as income inequality and social disparities have emerged as drawbacks, prompting ongoing efforts to address these issues. Overall, Singapore's market economy has proven successful due to its ability to harness the benefits of free-market forces while carefully managing the potential downsides, making it a model for economic development worldwide.
Factors contributing to Singapore's Economic success
Within seven years after its independence in 1972, Singapore emerged as a foreign investment magnet. The graph below clearly shows the notable augmentation of Singapore's Foreign Direct Investment (FDI), which experienced an almost six folded escalation from the year of its independence to the zenith of 2020.
More than one-fourth of Singapore's manufacturing firms are partnered with or owned by a foreign entity, majority of the investors came from the United States and Japan. Propelled by substantial foreign financial inflows, Singapore strategically allocated and invested heavily in its human resources and infrastructure. As technical schools opened, international corporations were hired to train unskilled workers in high-demand fields such as technology, petrochemicals, and electronics. Thus, with their high-skilled workforces and increased productivity, achieving double-digit economic growth rate every year.
From a landscape dominated by textile, garments, and rudimentary electronics as primary exports, Singapore has undergone a remarkable transformation, now commanding a primary export profile dominated by electrical machinery, computers, optical instruments, technical apparatus, medical equipment, gems, and precious metals, as depicted in Figure 2. Undoubtedly, Singapore has asserted itself as a preeminent hub within Southeast Asia.
From a country with mostly textiles, garments, and basic electronics as main export, Singapore’s tremendous development has pushed itself up, now having a main export of electrical machinery, computers, optical, technical, medical apparatus, gems, and precious metals. Through its endeavour for economic success and development of the country, Singapore has arguably become a “hub of Southeast Asia”.
[above] Change in FDI in Singapore - (International Monetary Fund, International Financial Statistics and Balance of Payments databases, World Bank, International Debt Statistics, and World Bank and OECD GDP estimates.
Written collaboratively by the BPS Economics Club
Sources:
https://www.studysmarter.co.uk/explanations/macroeconomics/macroeconomics-examples/singapore-economy/
https://www.bbc.com/news/world-asia-15971013
https://data.worldbank.org/indicator/NY.GDP.PCAP.CD?locations=SG
https://www.sg101.gov.sg/economy/surviving-our-independence/1959-1965/
https://www.roots.gov.sg/Collection-Landing/listing/1222768
https://www.bis.org/review/r150807b.htm
https://effectivestates.org/wp-content/uploads/2019/04/Singapore-From-Third-World-to-First.pdf
https://data.worldbank.org/indicator/NY.GDP.PCAP.CD?locations=SG
