Earlier today, Lee Kuan Yew, the founding father and architect of Modern Singapore, passed away. And with his death, the blogosphere is already awash with obituaries and reflections on his policies.I’ve mentioned Singapore before – mainly because it’s often proclaimed as a Free Market success story. Case in point: “Singapore: A Remarkable Free Market Success Story”
Singapore’s corporate tax rate is just 17 percent and the top tax rate for households is only 20 percent. In other words, there’s no Obama-Hollande class warfare against successful taxpayers. Lesson? Free markets create wealth; socialism creates poverty.
So why is Singapore so rich? Well, there aren’t many natural resources other than ocean access, so the only reasonable explanation is that the country has good economic policy.
Only, Singapore isn’t a free market economy.
The economy of Singapore is best described as a mixed economy. Although the country strongly advocates free-market policies and practices, government intervention is also evident in macroeconomic management and major factors of production such as land, labour and capital resources. This innovative and highly successful economic system – where both the market and the state have equally strong roles in the government – is dubbed as the Singapore Model.
The Singapore Model was born out of necessity. Singapore has a relatively small domestic market, and thus has to open its economy to external markets in order for the economy to thrive. However, the inherent vulnerability in depending on external markets compelled the government to enact economic policies that would safeguard the country from perturbations in the global market. Apart from these policies, the government has also actively encouraged new industries to develop in Singapore so as to respond to the needs of the global market.
The underlying influence of the government can also be felt in other various facets of the society – from education, to transportation, to housing and to the media. However, many social policies that have been implemented are often seen to be supplementary for the economy. As such, many people have labelled the country as “Singapore Inc.” – where the country appears to be run more like a corporation than a nation.
So Singapore is a very much pro free markets, except where it isn’t. The classic example: 17% of the Singapore Stock Exchange (by market cap) belongs to six of the top Government-Linked Corporations*.
*the official term for a successful parastatal.
Here is economic pluralist Ha-Joon Chang on Singapore:
If you read the standard account of Singapore’s economic success in The Economist,The Wall Street Journal, or some textbook, you only learn about Singapore’s free trade and welcoming attitude towards foreign investment. But you will never be told that all the land in Singapore is owned by the government, and 85 percent of housing is supplied by the government’s own housing corporation. 22 percent of GDP is produced by state-owned enterprises (including Singapore Airlines), when the world average in that respect is only about 9 percent.
So I challenge my students to tell me one economic theory, Neo-Classical or Marxist or whatever, that can explain Singapore’s success. There is no such theory because Singaporean reality combines extreme elements of capitalism and socialism. The point that I’m trying to make as an example is that all theories areClassical school or Marxist school focuses more on production than exchanges, in contrast to the Neo-Classical school. They make different assumptions, and they are interested in different issues. They all have their weakness and strengths. In recognition of the fact that the real world is very complex, we need to teach our students and the general public that there are different ways of understanding the economy.
It is terrible that students these days are taught there is only one flavor of ice cream, when there are 9 or 10 different ones. At least, let them taste them all, and if they conclude that neoclassical is the best, then so be it. But you have to at least tell them that there are all other kinds of theories. Otherwise, it’s like North Korea. They’re not told that there are other types of society because the information is blocked.
And the man most directly responsible for this curious dichotomy is Lee Kuan Yew. Which makes sense, I guess:
- He was anti-communist, but he was also a socialist.
- He put in place strong free market policies, but coupled them with even stronger government intervention.
- He eliminated corruption, but once put in place match-making policies amongst the elite and well-educated.
It’s the kind of story I love: something that works in practice, but doesn’t work in theory.
Rolling Alpha posts opinions on finance, economics, and the corporate life in general.