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LKYSPP – NU: Singapore Component Mariyam Ydyrys Singapore’s growth model: key features and limitations Within the last 60 years Singapore’s economy has been growing rapidly, and it was recognized as one of the most developed countries in the world. Even though Singapore’s growth model helped to face many challenges to achieve current state of development, some weaknesses and limitations of the model might show its negative consequences in the near future. In this essay, I highlight the key features of Singapore’s growth model and state it’s limitations. The first important feature of the model concerns foreign labor and investments. During the industrialization process Singapore’s labor market was not able to supply sufficient amount of labor, which enforced the policy makers to attract labor from neighboring countries. Malaysia, Sri Lanka, Thailand, India and Bangladesh were the largest suppliers of labor to Singapore. Along with foreign labor, Singapore was in need of inflow of foreign investments from MNCs to flourish its economic growth. Therefore, without foreign labor and capital it is almost impossible to imagine present day Singapore. The second main feature highlights importance of solid macroeconomic policies. Industrialization plan developed by Professor Winsemius, named “crash”, along with the other 10-year program dedicated to creating jobs in Singapore’s market are stated to be outstanding programs, which helped to emphasize the role of investments and job creation. As a result, within 10 years Singapore was successful in decreasing unemployment rate, which reached negligible rate by the 1970s. Flexibility of economy during financial crises demonstrates that the government was smart enough to adapt quickly to external shocks, which again represents implementation of solid macroeconomic policies. Though the growth model was successful enough in improving a lot of aspects, weaknesses of it resulted in negative consequences. Firstly, Singapore’s high dependence on foreign labor and improvement in productivity of local labor were the main agenda settings of the government. However, every time when economy faced crisis, the government created more jobs and it was inevitable to bring cheap foreign labor. Simultaneously, Singapore sets new goals of moving from the economy mostly relying on factors of production to economy based on innovation. This situation even more encouraged increase in potential and productivity of local labor. Having constantly changing and flexible immigration policies have been distracting focus around productivity of local workers. Therefore, the government

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implemented several strict policies such as increase in wages and field specific minimum wages (Progressive Wage Model), which forced some companies to relocate their cheap foreign labor. Furthermore, creating more capital-oriented industries rather than labor intensive ones was another goal. Last but not least, heavy investments on research and development to flourish innovations was additional decision made by government to tackle this issue. Therefore, it can be observed that Singapore did not figure out how to protect economy during downfalls without importing cheap foreign labor. In 2010 the Economic Strategies Committee targeted 2-3% annual increase of labor productivity. However, the statistics shows that productivity level increased only by 0.2% from 2010 to 2013, which again shows that something is wrong. The other policies of ESC include but are not limited to prolonging stay of older workforce in the labor market, which was undertaken within WIS32 program. Regarding businesses Singapore implemented generous innovations credit system, to encourage business to invest more on innovations. However, the main challenge with businesses is that locally-oriented businesses are not competitive enough with foreign-oriented companies when it comes to exports. Specifically, local firms use larger share of labor than their contribution to GDP, which lowers overall performance of labor productivity. In addition, some social issues around overdependence on foreign labor have been raised. For instance, immigration of cheap foreign labor resulted in instability in the society. Local population expressed their concerns about increasing number of immigrants coming to Singapore. The number of immigrants is going to increase to almost 3 million, and the rate of local to foreign population is expected to be 1:1 by 2030. This point leads me to highlight that low population growth of Singaporeans is another limitation of the growth model. Singapore is entering the list of aging societies, fertility rate is decreasing gradually, which reinforces entrance of foreign labor into market. In conclusion, despite having fast economic growth, as any developed country Singapore faced challenges in its development process. Foreign labor and capital, along with good macroeconomic policies were the main driving forces of the economy. However, struggles with productivity of local workers and low population growth due to large inflow of immigrants to sustain economy during downfalls are the main weaknesses of the model. In my opinion, like most of the developed nations Singapore needs to aim slow economic growth and focus more on sustainable development, namely increasing productivity of local workers and competitiveness of domestically-oriented firms. Overall, this essay highlighted

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main features and weaknesses of Singapore’s economic growth model within the last 60 years.

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