WEEK ELEVEN

Dr. Jacqueline LAGUARDIA MARTINEZ

INSTITUTE OF INTERNATIONAL RELATIONSUNIVERSITY OF THE WEST INDIES

Jacqueline.Laguardia-Martinez@sta.uwi.edu

INRL 6003 SMALL STATES IN THE GLOBAL SYSTEM

The Singapore paradox

Small states are thus frequently viewed as dependent and peripheral, with their small economies seen as unable to withstand the pressure of a globalizing world economy where large states and businesses compete for new and existing markets.

Given that most states categorized as ‘small’ are developing countries and small island economies, it is not surprising that this ‘underdevelopment’ characteristic generally leads to the predominant view that smallness is a constraint on economic success and, in particular, a barrier to development.

The ‘Singapore Paradox’• Singapore is highly exposed to external shocks, and yet this island state has

managed to register high rates of economic growth and high GNP per capita• Not privileged with huge natural resources• Geographical advantages to be a trade center (port; location in a densely-

populated region)• Presence of multinational companies that do not cause underdevelopment

and impoverishment

Singapore’s ability to build economic resilience: TO GO GLOBAL!

Questions to debate1. What explains Singapore’s dramatic rise?

2. To what extent is Singapore a ‘one-off’?

3. Why has Singapore been so successful developmentally?

4. What lessons does it hold for other small states?

https://www.youtube.com/watch?v=kw2a1h4A0DA

Singapore development model• The experience started in 1965, when the island city-state was excluded from the

Federation of Malaysia, and ‘forced into independence’ (the Singaporean state recognized that, due to its lack of natural resources and small domestic market, it could only survive by participating in the global economy)

• Developmental state (According Pereira, developmental state is a coalition consisting of government ministers and state bureaucrats that prioritizes economic growth over all else, as Japan from 1950, South Korea from 1960 and Taiwan from 1970, but different because the developmental state has not being substituted by the regulatory state)

• Central role of the state in the economic direction

• In a move distinct from the other developmental states, the Singapore government chose not to collaborate with domestic capitalists or industrialists. Instead, it sought to collaborate with industrial multinational corporations

• The reasons for this choice included the relative lack of domestic industrial entrepreneurs and the advanced technological capability of multinational corporations

• The incentives offered included tax waivers for multinational corporations as well as the state’s provision of industrial infrastructure• The Singapore developmental state also provided multinational corporations with well

trained, low-cost and highly disciplined labor• Close relationship between the National Trade Union Congress (NTUC) and the state

• The Singaporean state’s engagement with the global economy has gone through phases: • (1) an imported globalization phase from 1965 to 1985• (2) a mixed defensive-domestic /imported global phase from 1985 to 1992• (3) an exported globalization / Regionalization Strategy phase since 1992• (4) Post-industrialization since 2001

• Its first national economic policy focused on transforming Singapore’s entrepôt-based economy into an industrial economy

• Singapore’s position as a low-cost production base for multinational corporations generated rapid economic growth, averaging around 15% growth per annum between 1965 and 1980• The growth allowed the state to invest heavily in housing, healthcare and education, which in

turn benefited the people• In the 80’s: A new national economic policy, known as the Industrial Upgrading Program (the

state encouraged multinational corporations to replace low value-added manufacturing jobs in Singapore with high technology jobs)• Also in the 80’s the Singapore developmental state began forming government-linked

corporations (GLCs), for-profit corporations that were majority-owned either by the Singapore government itself or via a state-controlled entity, such as Temasek Holdings, which was the state’s investment arm• The Singapore developmental state initially fostered GLCs in strategic sectors, such as the

telecommunications, airline and shipbuilding sectors. Later more GLCs were formed, entering into the aerospace engineering, electronics and mechanical manufacturing sectors• The Promising Local Enterprise (PLE) program and the Economic Development Board (EDB)

were created to develop local companies

• At the beginning of the 1990: A national development project, known as the Regionalization Strategy, where the state and GLCs invested in the Southeast Asian regional economy• The government announced that in future it would encourage locally-based

companies to spread out overseas, especially to Southeast Asia, China and India• The government offered tax incentives (the ‘Overseas Enterprise Incentive

scheme’ and the ‘New Technology Regionalization scheme’) to approved domestic firms to expand their operations overseas and remit profits to Singapore at reduced tax rates.• Creation of regional industrial parks• Participation in the formation of the ASEAN Free Trade Area (AFTA) and the Asia

Pacific Economic Cooperation (APEC) in order to build synergistic links with countries in the region• https://www.youtube.com/watch?v=oISmOFKII7M

Association of Southeast Asian Nation (ASEAN)

• 8 August 1967 • Political and economic organization of ten

countries located in Southeast Asia• Members (10): Indonesia, Malaysia, the

Philippines, Singapore, Thailand, Brunei, Cambodia, Laos, Myanmar and Vietnam• Observers (2): Timor-Leste and Papua New Guinea• Its aims include accelerating economic growth,

social progress, sociocultural evolution among its members, protection of regional peace and stability, and opportunities for member countries to discuss differences peacefully• The sea area of ASEAN is about three times larger

than its land counterpart

Asia-Pacific Economic Cooperation (APEC) • A forum for 21 Pacific Rim member economies• It seeks to promote free trade and economic cooperation throughout the Asia-

Pacific region• It was established in 1989 in response to the growing interdependence of Asia-Pacific

economies and the advent of regional trade blocs in other parts of the world; to fears that highly industrialized Japan (a member of G8) would come to dominate economic activity in the Asia-Pacific region; and to establish new markets for agricultural products and raw materials beyond Europe (where demand had been declining)• Members: Australia, Brunei, Canada, Indonesia, Japan, South Korea, Malaysia, New

Zealand, Philippines, Singapore, Thailand, United States, China Taipei, Hong Kong, China, Mexico, Papua New Guinea, Chile, Peru, Russia, Vietnam• APEC Secretariat on Singapore• Next goal: Free Trade Agreement of the Asia-Pacific (FTAAP)

APEC summit in Beijing, November 2014

• https://www.youtube.com/watch?v=vhaDLH18JU8

• https://www.youtube.com/watch?v=jWEQcqM7jfM

• https://www.youtube.com/watch?v=6dDB4Y5-KTk

• https://www.youtube.com/watch?v=6dDH8bftVq4

Share of manufacturing within Singapore’s GDP (1960–2006)

Singapore Ministry of Manpower website, at http://www.mom.gov.sg/publish/momportal/en/communities/others/mrsd/statistics/Employment.html

2001: Post-industrialization in Singapore• Process where the proportion of manufacturing starts to decline, usually with the service sector

growing in its place

• Continued hollowing out of manufacturing jobs—including high value-added, capital-intensive and technology-oriented jobs—to lower cost industrializing countries, such as Indonesia, China, Malaysia, Vietnam and Thailand

• To avoid a situation of high unemployment in the future, the government invested heavily in a new policy known as the ‘Work Restructuring Scheme’

• To develop the biotechnology sector

• In 2001: Biomedical Sciences Initiative involving four industrial sub-sectors: pharmaceuticals, medical technology, biotechnology and healthcare services

• To ensure that there was an adequate supply of trained personnel Singapore invested heavily in biomedical training and amended its labor and immigration laws to allow ‘foreign talent’

• New legal and institutional framework with regard to intellectual property and bioethics

• Two large infrastructure projects: the Tuas Biomedical Park and Biopolis (https://www.youtube.com/watch?v=wsC23q6xx3s)

New pharmaceutical production plants in Singapore since 2000 (selected)

Source: Pereira, 2008

Results• From 1960 to 2000, the city-state experienced the highest national-income

growth in the world

• The country’s gross savings rate has risen to a whopping 50 % of GDP, which makes it the highest in the world

• In 2013, ranked 36 by the World Bank according GDP (297.941 millions dollars)

• Inflation and unemployment rates have generally remained low during the last forty years

• The per capita foreign reserves are currently the highest in the world

• Sharp increase in literacy and life expectancy rates

• Eradication of hunger and extreme poverty

Success: foreign policy at the UNDiplomatic promotion of itself as a model of good governance. Singapore speaks on:• UN reforms• Disarmament• Non-proliferation and Security Issues• Human Rights• Advancement of Women• Drug Control• Economic and Financial Issues• Peacekeeping• Decolonization• Globalization• Environment• Sustainable Development• Internet• Global Governance

Some lessons from Singapore

• Successful small states specialize in products and services that utilize the human capital to its full extent. For such states it is important to raise the level of education of population, since they can’t rely on increase of economic capacities by involving workforce in large quantities in production processes due to low population size in these states

• The country’s economic growth has been driven mainly by investments in capital and by expanding the number of hours worked

• Infrastructure such as the harbors, airport, energy utilities, industrial land, and transportation policy were developed by dedicated state agencies that enjoyed quasi-autonomous budgets

• Political stability and positive perceptions of the government and bureaucracy mediate the impact of this on investors

Singapore main challenges• Overdependence on multinational companies (economic vulnerability owing to strong

dependence on trade and international cooperation)• With the economic rise of India and China, multinationals have new incentives to relocate• Lack of entrepreneurship and creativity (heavy reliance on foreign firms has come at the

expense of local entrepreneurship)• Lagging productivity growth (Singapore’s unique reliance on foreign companies has limited

productivity growth, because with the steady influx of foreign firms from different economic sectors—from petroleum refining, pharmaceuticals, and electronics to textiles, clothing, and plastics to financial, insurance, and business services—Singaporean employees have constantly had to be retrained and have not been given the time to master technically complex tasks)• To diversify the economy and move it up the value-added chain (but developing financial

sector comes with allowing more bank secrecy, or moving forward with the casinos)• To expand local universities and attract foreign ones (to turn Singapore into an “Asian

Cambridge”)• High and increasing level of income inequality

Year 2012, by OECD

http://thehearttruths.com/2013/02/21/singapore-has-the-highest-income-inequality-compared-to-the-oecd-countries/

http://thehearttruths.com/2013/10/28/poverty-in-singapore-grew-from-16-in-2002-to-28-in-2013/

http://thehearttruths.com/2013/10/28/poverty-in-singapore-grew-from-16-in-2002-to-28-in-2013/

Migration• In 2005, 4.3 million people lived in Singapore, 1.2 million were not Singaporean

• Most of these noncitizens came to work and can be separated into two main groups (low-paid workers from impoverished Asian countries as Bangladeshi construction workers and domestic maids from Indonesia and the Philippines; and highly paid expatriates from North America, Western Europe, Australasia, Japan, and South Korea)

• “Foreign talents” usually work either for one of the more than 6.000 multinational corporations or at the highest levels in local businesses (in addition to generous compensation, they benefit from Singapore’s low income-tax rates and the absence of a capital-gains tax). They tend to reside in expensive private condominiums flanked by swimming pools and security guards, away from the less luxurious Housing Development Board (HDB) flats in which some 80 % of Singaporeans live

• A large numbers of young, talented Singaporeans have been emigrating (low wages and long work hours, the ban on unmarried people under thirty-five buying HDB flats or the taboo of homosexuality, and political)

Bibliography• Pereira, Alexius A.(2008)'Whither the Developmental State? Explaining

Singapore's continued Developmentalism',Third World Quarterly, 29:6,1189 — 1203

• Marco Verweij, Riccardo Pelizzo (2009), 'Singapore: Does Authoritarianism Pay? ', Journal of Democracy, Volume 20, Number 2, April, pp. 18-32

• Hobson, John M. and Ramesh, M.(2002) 'Globalisation Makes of States What States Make of It: Between Agency and Structure in the State/Globalisation Debate', New Political Economy, 7: 1, 5 — 22

• Alan Chong, The Foreign Policy Potential of “Small State Soft Power” Information strategies