Singapore has the third highest per capita GDP in the world. It has a budget surplus. The Trump Administration should take note.
From the outset, it is very clear that there are vast differences between Singapore and the United States. The United States has a plethora of natural resources; Singapore has virtually nothing. Its drinking water has to be imported from neighboring Malaysia. The United States outweighs its smaller counterpart in most major areas: military strength, cultural influence, number of Fortune 500 companies, just to name a few. Hence, it would be perfectly reasonable to assume that comparing the two countries’ economies would result in finding the United States to have the much stronger one.
This is partially true. The American GDP in 2016 stood at approximately US$18 trillion, 56 times larger than that of Singapore.
Dig deeper, however, and you find a different story emerging.
Singapore’s GDP per Capita (often used as an indicator for standard of living), is 3rd in the world, while the US’s is 8th
Singapore’s unemployment rate in 2016 was at 1.9%, compared to US’S 8.1%
Plucky little Singapore beats the United States in terms of national debt; it has a budget surplus.
So, without any natural resources, very little space, and a relatively recent independence (1965), how was Singapore able to produce the economic success that it is experiencing now- and can the US learn something from it?
An integral part of Singapore’s Economic success can be attributed to good governance, low corruption, and sound policy making. Its government was rated the fifth least corrupt in the world by Transparency International, ahead of regional neighbors like China and Malaysia, which were 100th and 50th respectively. The United States ranked 23rd.
Singapore’s public services are also frighteningly efficient. A World Bank report found that Singapore had “world-leading” public services, obtained at a fraction of cost. For a snapshot, the country spends less than 3% of its GDP on education and less than 2% on health care yet achieves superior outcomes to other developed countries spending far more. The United States, for instance, spends roughly 7.3% of its GDP on education and a whopping 17.9% of its GDP on health care. Singaporeans outlive Americans by almost five years, and their students routinely trounce Americans in international tests.
Sound economic policies have also aided the Singaporean economy. A study, “Relative Efficiency of Government Spending and its Determinants,” presented by professors Eric Wang and Eskander Alvi found that government spending efficiency improves as private-sector production, consumption, investment and exports increase; it declines as government spending rises.
However, being two very different countries politically, geographically and culturally, can the US actually learn something from Singapore’s economic success?
The first element that has brought Singapore much success is how she played to her strengths. A prime example is Singapore’s maritime trade. Singapore may not have much natural resources, but she has a trump card in her location. Singapore has a deep natural harbor, and, being located at the mouth of the Malacca Strait, it sees about 40% of the world’s maritime trade. Even though it is such a small country, its port is currently the world’s second-busiest port in terms of total shipping tonnage and half of the world’s annual supply of crude oil. The maritime industry currently contributes about 7 per cent to Singapore’s GDP, or 10 percent of the service sector- which makes up three-quarters of the Singapore economy.
For all its criticism of being under a rather authoritative regime politically with only one party in power since independence, it must be noted that Singapore has one of the most open economies in the world. Singapore is an international standard city to work and live in; its small domestic market combined with no tariffs on most imports and low corporate tax rates have made Singapore into a popular low-risk high-return FDI (foreign direct investment) destination. In 2015, FDI accounted for 22.3% of Singapore’s overall GDP.
A noteworthy example of Singapore’s push to attract FDI would be the construction of Jurong Island. Built in 2000, Jurong Island today is home to more than a 100 leading petrochemical companies (Exxon-Mobil, Shell etc.), and contributes an investment of more than S$30 Billion- that’s more than 5% of Singapore’s GDP from FDI on one Island alone. Its ‘plug and play’ infrastructure (state of the art infrastructure built by the government to accommodate to the various needs of MNCs) means that foreign companies need not put in exorbitant fees to build their bases in Singapore.
With a global outlook, Singapore has signed more than 20 free trade agreements, effectively cutting tariffs on many products, and hence helping to boost their economy. In contrast, Present Donald Trump and the United States’ recent wave of a protectionism can already be seen in effect with the most notable example being the United States’ exit from the Trans-Pacific partnership (TPP). A CNBC survey showed that protectionism is seen as the No. 1 threat to U.S. expansion. Increasing U.S. protectionism will further slow economic growth. It would in fact cause more layoffs, not fewer, which is one of the main arguments for protectionism in the first place. If the United States closes its borders, other countries will do the same. This could cause layoffs among the 12 million U.S. workers who owe their jobs to exports.
The United States could also learn adaptability from Singapore. Not long ago, back in the 1980s and 1990s, Singapore’s main source of GDP was manufacturing, but cheap labour with decent experience was easy to find. However, as it does with all rapidly developing countries, increasing development in Singapore meant that wages began to rise; and so did the cost for manufacturing firms. Many big manufacturing firms operating in Singapore, such as Sanyo and Maxtor, closed their factories and relocated to cheaper countries such as China. Over 30,000 people lost their jobs from the two firms relocating. Singapore’s government, however, was able to solve the issue of unemployment and an economic slowdown by preparing in advance for a tertiariation transition, which consists of replacing the old manufacturing industries with the service based industries. The government invested heavily on tourism, finance, education, and the biotech industry. The investment in education helped to retrain workers, enabling them to find jobs in these fields so as to reduce unemployment and keep a steady pool of skilled and educated workforce to keep the economy going. In contrast, while this was attempted in the United States, it did not experience much success. Perhaps insufficient emphasis was placed on investing in the service sectors, as well as on retraining. The results can be seen in modern day Detroit, which was once a symbol of the strong American economy. The city just recently went bankrupt in 2013, and the unemployment rate hovers just above 10%.
While the two countries may differ in many ways, there are in fact various strategies that the United States could learn from Singapore. Open door policies, playing to the nation’s strengths, less red tape, sound economic policies, and adaptability are some of the few things that we can be learned from Singapore. Perhaps the Trump administration should pay attention.