A second Singapore Creating another Singapore elsewhere would help us overcome our land and labour shortage. BY TEH KOK PENG Reclaiming land . . . in the long term, there is clearly a limit as to how much more we can do in land-use intensification, given how much we have already done. THE term global city has been much bandied about in recent years. Singapore aspires to be one. Some think Singapore is already one. The concept of Singapore as a global city goes back much earlier than many of us realise. In 1972, Singapores first Foreign Minister S Rajaratnam addressed the Singapore Press Club. He said: . . . But times are changing and there will be less and less demand for the traditional type of entrepôt services that Singapore has rendered for well over a century. Its role as the entrepôt city of South-east Asia, the market place of the region, will decrease in importance. This is because Singapore is transforming itself into a new kind of city - a Global City. It is a new form of human organisation and settlement that has no precedent in mankinds past history. People have become aware of this new type of city only very recently. They have found a name for this distinctive type of city. They call it Ecumenopolis - the world-embracing city. When Mr Rajaratnam spoke, Singapore had already put in place a whole slew of policies that made it very attractive to international companies and financial institutions. He described the favourable developments that were already taking place. In particular, he focused on the role that Singapore would play in the international supply chain that was already developing in Asia. By linking up with international and multinational corporations, Singapore not only becomes a component of the world economy, but is offered a short cut to catch up or at least keep pace with the most advanced industrial and technological societies. By plugging-in in this way, we can achieve in 20 to 30 years what otherwise would have taken a century or more to achieve, he said. Most of us will agree that this development strategy, put in place so many years ago, has been spectacularly successful. This strategy, in essence, is to bring in capital and capabilities, including labour, from the rest of the world, to use Singapore as a production platform to access markets globally and in the region. Mr Lee Kuan Yew, in his book, From Third World to First, articulated a vision of creating a First World oasis in a Third World region by having in place first-rate infrastructure, institutions and governance practices, making Singapore attractive enough for global and regional companies to have a base here. This development strategy remains the dominant paradigm. Despite some recent policy shifts, particularly on foreign workers, many of our public agencies, mindsets and skill sets continue to operate around this paradigm. In Hard Choices, a collection of essays by various authors, and published earlier this year, Donald Low, Associate Dean at the Lee Kuan Yew School of Public Policy, challenged the vision of the global city. Mr Low said: The limits of the global city idea became particularly salient in the years just before the General Election of 2011; as Singapores population surged on the back of very liberal immigration and foreign-worker policies, inequality rose from levels that were already much higher than other developed countries, congestion and overcrowding began to undermine citizens trust in government, and citizens began expressing greater unease about competition from foreigners and the wage stagnation caused by cheap foreign labour. He also quotes Janadas Devan, Director of the Institute of Policy Studies, asking (rhetorically): Is it possible that we may have reached the limit of Rajaratnams vision? Is it possible that we have to re-adjust our relationship with globalisation to remain Singapore? To Mr Rajaratnams great credit, he was prescient enough to recognise the limits of his own vision. At the end of that very speech, he said: I have dealt largely with the economic aspects of Singapore as a Global City. But the political, social and cultural implications of being a Global City are no less important. . . . The political, social and cultural problems, I believe, would be far more difficult to tackle. These may be the Achilles Heel of emerging Global Cities. In 1972, the very year when Mr Rajaratnam spoke about global cities, another founding father, Dr Goh Keng Swee, then the Deputy Prime Minister, presented in his personal capacity an interesting and insightful paper called Singapore in the International Economy at a symposium in the then University of Singapore. In his paper, Dr Goh was in support of encouraging foreign direct investments into Singapore. Yet, in extrapolating from trends already apparent in recent years - in the high rates of growth of foreign direct investments, foreign workers and GDP - into a future year, he wondered aloud what this could imply in terms of comfortable living space, development of indigenous entrepreneurship and innovation, and more generally, the distribution of benefits between Singapore, the host country, and foreign investors. To quote an excerpt, The question we must answer sooner or later is this, When do we stop growing? Or to be more precise, at what point do we stop importing foreign workers and cease to encourage foreign entrepreneurs and capital in Singapore? Because of our limited land area, industrial expansion, together with the concomitant population expansion, will produce overcrowding to increasingly uncomfortable limits. I would like now to make the case that while the particular globalisation strategy that Singapore embarked on soon after independence was the right one, perhaps the only sensible one, given the circumstances and constraints of that time, we may have overstayed in applying this strategy as the dominant one. As a result, our shortage of land, labour and other capabilities is becoming more obvious and severe. I believe it is timely to have a second strategic pillar, which I would describe in short as creating a second Singapore outside Singapore - the economic space of Singapore and Singapore companies should be much bigger than the geographical space of Singapore. A similar idea was mooted nearly 20 years ago, when there was talk of creating a second wing for Singapore. Singapores land and labour constraints are immutable. Since independence in 1965, our planners have done a remarkable job in land reclamation and urban planning such that we have been able to increase our population and the intensity of our land use without the residents feeling unduly overcrowded or congested until recent years. Nevertheless, in the long term, there is clearly a limit as to how much more we can do in land-use intensification, given how much we have already done. DOMESTIC LABOUR CONSTRAINTS With regard to labour, Singapore had actually run up against domestic labour constraints early on, and had begun importing foreign workers, mainly Malaysians, by the early 1970s. In fact, both Mr Rajaratnam and Dr Goh referred to this matter in their speeches. Since then, our dependency rate of foreign workers as a proportion to our total workforce, has risen sharply, to possibly the highest in the world, with the exception of the Gulf States in the Middle East. It is this surge in our resident population, which has been taking place from sometime since the middle of the last past decade, that has given rise to the discontent described by Donald Low. It may well be that Singapore can support a population of 6.9 million without being congested or over-crowded, with clever planning and after the current massive construction of MRTs, highways, hospitals, schools, HDB flats, etc, all reach completion. The question also arises as to the marginal benefit of such further large capital investments in a limited space and, given the recent policy shift, with the limited supply of labour. In economic theory, when one factor of production - land - is largely fixed, and another factor - labour - can grow only slowly, adding more and more capital leads to diminishing returns. About 20 years ago, Paul Krugman argued that Singapores growth (and that of a few other East Asian economies), was largely driven by inputs of labour and capital rather than productivity. If this is true, are we in the process of doing more of the same, even if the declared intent is to develop a more innovation-based, productivity-driven economy? At this stage, it is useful to look at the experience of more mature developed economies. All of them have been major exporters and importers of foreign direct investments for many years. The US Department of Commerce publishes annual returns on US companies operating in Singapore. These have shown attractive equity returns, higher than returns usually achieved by portfolio assets. Singapore, because of its high savings rate, especially by the government in the form of budget surpluses, has accumulated a very large stock of investments overseas. But unlike the mature developed economies, these investments are mostly in the form of portfolio investments, managed mainly by MAS and GIC. Singapore will continue to need to have a sizeable stock of overseas portfolio investments. Nevertheless, it seems we have reached the stage where we should be able to follow in the footsteps of the mature developed economies by having much more direct investments overseas than we currently do, even as we continue to work to attract high quality direct investments into Singapore. We have a high savings rate, a large stock of investible past savings, a per capita income level that is among the worlds highest, and access to capabilities outside Singapore, in addition to what we have attained ourselves. BENEFITS OF A SECOND SINGAPORE •Further expansion overseas by Singapore companies would ease the pressure on our land and labour market. It would ease the inflow of foreign workers since our companies would employ them in their home countries. •It would enable our SMEs to achieve scale more easily. A McKinsey study released early this year found that Singapore SMEs, with their limited market size, need to go overseas at a much earlier stage of their development compared with those of other countries. •Because of the speed at which our land and labour costs have risen, many of our SMEs have useful technologies and capabilities which could enable them to continue operating profitably in a country where such costs are lower. Their chances of success could be lower if they remained totally in Singapore. There is an interesting study done many years ago by FT Knickerbocker of the Harvard Business School, published in a 1973 book. Its findings are relevant to Singapore companies as well. American firms went global because there was a risk of being excluded completely and permanently from a foreign market by trade barriers, visible and invisible, if they did not invest. There are already clear efforts by public agencies to encourage and help Singapore companies to expand overseas, notably, by International Enterprise Singapore. But in terms of priority and resources allocated by the government, this ranks lower than the present dominant strategy of attracting foreign direct investments into Singapore. A strategic shift of this nature would require a change in mindset, institutions and skills. Mistakes will be made, and the risks will be greater in the short to medium term. It seems to me that the greater long-term risk is in staying with a strategy that has been largely unchanged for nearly half a century. Finally, if we do embark on, and succeed in creating a second Singapore, one scenario would be proportionally more Singaporeans spending time in foreign countries on assignments, possibly for years. Foreign staff will also be posted to Singapore to help the parent companies manage and coordinate operations in subsidiaries in their home countries. A Singaporean abroad will develop a better understanding of what it means to be a foreigner, adapting to the living and working conditions of the country he is in. He will develop working relationships and friendships with his colleagues in foreign lands. When he comes home, he will have a fresh and more sympathetic or benign perspective on foreigners living and working in our midst, and a renewed perspective on his own home country. The writer is chairman of Ascendas. This is a revised version of a talk he gave at the APREA (Asia Pacific Real Estate Association) chairman/CEO Leadership Series In Conversation in early September.
Posted on: Mon, 13 Oct 2014 02:22:04 +0000
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