Singapore from above
Challenges in Singapore
The small land area led to a small domestic market and resource scarcity. The population is diverse, primarily descendants of immigrants from China (76.6%), India (6.4%), and Malaysia (14.7%). Ethnic tensions arose in the 1950s-1960s. There was no local industrial capital, and a lack of defense forces faced external threats.
People of Singapore
Addressing Challenges
Singapore didn't rely on local capital like Japan, South Korea, and Taiwan but depended on state capital and multinational corporations to develop the economy.
The Singaporean government, led by the People's Action Party, established Regulatory Boards. These are quasi-governmental organizations, separate from the civil service, but still within the investment portfolio of the ministries. Managed by boards comprising government representatives, private sector forces, professional groups, and interest groups, these regulatory boards were created to oversee state-owned or partially state-owned enterprises. They covered all sectors: industry, commerce, finance-banking, insurance, healthcare, housing, infrastructure, and postal-telecommunications, and transportation.
Singapore's state-owned enterprises differ significantly from those in other countries. Profitable operations are expected (excluding healthcare, education, and public housing for low-income individuals). If a state-owned enterprise incurs losses, it doesn't receive subsidies or bailouts and must shut down. These enterprises are managed by highly qualified professional teams with competitive salaries compared to the private sector.
Notably, the Economic Development Board played a crucial role in attracting investment and developing industries to address unemployment. And the Housing and Development Board tackled housing shortages.
In the initial phase, the Economic Development Board successfully attracted investment and formed joint ventures with foreign companies. The board's tasks included developing infrastructure, industrial estates, managing the supply of quality labor, and providing capital or sponsoring loans. Singapore continuously created jobs and acquired technical expertise, gradually moving towards owning knowledge and technology.
In the later stage, the Economic Development Board succeeded in shifting from labor-intensive industries to knowledge-intensive ones (relocating labor-intensive industries to Malaysia and Indonesia). Success was found in export-oriented strategies and overseas investment. In the 1970s, services became the second pillar of the economy alongside manufacturing.
The Housing and Development Board achieved a remarkable feat unmatched elsewhere. From 1960 to 1985, 84% of the population had public housing. In 1968, the government enacted the Central Provident Fund (CPF) Savings Scheme. Both employers and employees had to contribute a fixed amount to the fund (a mandatory form of insurance). Citizens could use the CPF for housing, education, and healthcare. The CPF was tightly managed by a regulatory council.
Changi Airport
Flexibility of Singapore's Economy
During the economic slowdown of the 1990s, Singapore astutely transitioned between globalization and regionalization by establishing the Malaysia-Singapore-Indonesia economic growth triangle in 1989. They reallocated labor, leveraging the advantages of the labor force in the remaining two countries, allowing Singapore to focus on developing a knowledge and technology-based economy. They expanded regionalization plans to surrounding areas through industrial zones in Vietnam, China, and India.
China: Suzhou Industrial Park, Tianjin Eco-city; Indonesia: Batamindo Industrial Park, Bintan Industrial Estate; India: Bangalore IT Park, Sentosa City; Vietnam: Vietnam-Singapore Industrial Park, and more.
In 1987, the government began divesting and embarked on privatization, creating conditions for private sector participation in various industries: telecommunications, services, finance, insurance. The motivations were:
1.Strengthening the role of the private sector in economic development.
2.Reducing competition between the government and private sector, leading to the second motivation.
3.Transforming Singapore into an international financial center through the development of the stock market.
The government would allocate funds to invest in new, potentially profitable sectors where the private sector couldn't participate. Examples include biomedical sciences, interactive media and digital technology, environmental protection and water technologies, etc.
During the Asian financial crisis in 1997, Singapore shifted to globalization. The government encouraged companies to expand into global markets: Europe, North America, South Asia, the Middle East.
Several state-owned companies became crucial global players in various industries: Singtel (telecommunications), Keppel Corporation and Sembcorp Industries (marine transport), CapitaLand (real estate development), DBS Group Holdings (finance), Singapore Airlines (air passenger transport), Neptune Orient Lines (shipping), and more.
Role of Temasek Holding and GIC
Initially, Temasek Holding played a role in managing the state's shares in various companies, overseeing and reporting the financial status of these companies to the government.
Later on, the role of Temasek Holding shifted towards promoting the economic development of Singapore, achieving long-term stable profits to enhance the national assets.
Temasek maintains a global investment portfolio, with a relatively low allocation of 28% to Singapore. The remaining focus is on Asia outside Singapore, Europe, North America, Australia, and New Zealand, as of 2015. Temasek invested 70% in Asia and distributed the remaining 30% across Europe, North America, Australia, New Zealand, and Central Asia.
In 2015, according to the Sovereign Wealth Fund Institute's ranking, Temasek Holdings, with assets valued at $1.936 trillion USD, stood as the world's largest sovereign wealth fund. Another sovereign wealth fund from Singapore, GIC, was ranked eighth with assets totaling $344 billion USD.
GIC, established by the Singapore government with a surplus foreign exchange reserves, receives an annual discretionary transfer from the government to augment its capital. In contrast, Temasek is entirely self-funded, drawing its capital from main sources such as company dividends, proceeds from divestments, investment fund profits, and the issuance of long and short-term debt.
Unlike Temasek, GIC is prohibited by law from investing in Singapore. GIC's investment portfolio is also less concentrated in Asia compared to Temasek. In 2015, GIC's geographical allocation of investment portfolios was as follows: the Americas 43% (U.S. 34%), Europe 25%, Asia 30%, and Australia 2% (source: http://www.gic.com.sg/images/pdf/GIC_Report_2015.pdf).
This strategy serves as insurance for Singapore's economy. On one hand, it reduces risks for the investment portfolio originating from Singapore, and on the other hand, it secures foreign capital to stabilize and develop the economy.
These two national investment funds play crucial roles in maintaining and safeguarding the long-term financial stability of the domestic economy. GIC, acting as a reserve currency investor, is vital for protecting Singapore's economy from financial crises and preventing interference from the government and multilateral institutions in Singapore's economy, similar to the role played by the IMF in neighboring countries during the 1997-98 Asian financial crisis, leading to reduced national sovereignty.
In conclusion, in Singapore, the state acts as an entrepreneur. State-owned enterprises follow market principles and operate efficiently. Loss-making enterprises are not bailed out but are required to close. Since its establishment in the 1960s and 1970s, Singapore's state capitalism has continuously evolved. On one hand, the state has withdrawn from certain economic sectors; on the other hand, it has expanded into other areas with the goal of Singapore's economic development. The result is a continuous restructuring of Singapore's state capitalism. The government decides to privatize some or all companies not only because they are loss-making entities but also because state participation is no longer necessary in specific sectors.
Since the 1980s, many profitable state-owned enterprises, professionally managed by Singapore, have expanded beyond the city-state's borders, becoming significant entities in their respective fields in the global economy.
References:
Title: "The Successful Model of State Capitalism: Singapore"
Author: Katalin Völgyi
Published in 2019