We need to change the way the Government manages our economy

Written by Ng E-Jay
30 March 2009

At the launch of an alumni complex at the National University of Singapore (NUS) a couple of Fridays ago, Minister Mentor Lee Kuan Yew said that Singapore will take two to three years to bounce back from the recession, assumes that the United States recovers next year. (ST, “Full recovery at least 2 to 3 years away”, 21 March 2009)

MM Lee went on to lambast critics of Singapore’s economic model, citing for instance a recent Wall Street Journal editorial’s opinion that Singapore needed to focus more on stimulating domestic consumption of goods.

I have also opined repeatedly on this blog that Singapore’s strong emphasis on exports as opposed to domestic consumption has made it more vulnerable to global economic swings and increases the volatility of our local business cycle, bringing much hardship to Singaporeans in recessionary times such as these. (See here.)

But MM Lee said that Singapore “has no choice” but to export, adding: “Four million people to sustain industries supplying top-end goods to the world? That’s rubbish.

Exports are undoubtedly important for a small economy such as ours with no natural resources, but MM Lee appears to be missing the point.

Critics like the Wall Street Journal (see here) are not advocating that Singaporeans attempt to purchase, with their limited resources, goods that are meant to cater to the whims and fancies of the wealthy from the world over, and hence do away with the need to export those goods.

What we are talking about here is reducing our over-reliance on exports, in particular, our dependence on the US and G7 economies which look set to be in a very turbulent phase over the foreseeable future. We also need to encourage the resident population to spend and invest more in our local economy, in all manners of goods and services, especially those produced by small and medium enterprises who have their roots and stakes firmly anchored within our shores. This would create a virtuous cycle that makes for sustainable economic growth and development.

Every economy, no matter big or small, that aims to be self-sustaining over the long run must develop a strong domestic consumption sector in tandem with robust export industries. As it stands however, domestic consumption accounts for only about 40% of our GDP — far less than that of other developed Asian economies like Hong Kong and Taiwan whose share of GDP in consumption is over 55%.

Singapore is thus hit by a double-whammy, in that efforts to stimulate the economy by putting cash into people’s pockets will have less results as compared to similar measures employed in other economies like Hong Kong, and our over-reliance on exports for growth leaves us acutely vulnerable to the sharp global downturn.

If the global economic meltdown has taught us anything, it is that capitalism unchecked leads to grave excesses, and that when global asset bubbles burst, small and open economies like ours that pursue a “growth at all cost” model of economic management are the hardest hit.

MM Lee and our political leaders have failed to recognize that the old ways of treating the entire country like a corporation while neglecting its soul and its greater purpose has not served us well in the new millennium, despite our rapid downward economic spiral suggesting precisely that.

Going forward, our emphasis as a nation should be to learn the lessons of the current financial crisis, and endeavour to temper the excesses that unbridled capitalism can engender by sound regulation of the financial sector, the institution of adequate checks and balances, and enlightened social policies that aim to distribute wealth from the top echelons of society to the working class.

The Government’s investment in infrastructure, healthcare and education is of long-term value to the nation. But we also need independent and effective labour unions and a strong political economy to help translate this into a narrowing income gap, and rising living standards for all and not just a few.

Unfortunately, with our political elite’s insistence on adhering to the corporatist model and continuing their self-serving ways, it would take a significant disruption in their political power base before we can hope for meaningful change to occur.