Singapore in transition: economic change and political consequences

Abstract

With Lee Hsien Loong's ascendancy to the prime ministership of Singapore, there has been a general recognition that whilst this heralded a change in generational leadership, little expectation exists that any fundamental political change will take place. This paper argues that, rather than examining the current actors for signs of political change, economic changes within the Singaporean economy are a more fruitful source of political change analysis. By political change the author does not mean any diminishing of the dominance of the People's Action Party, but a change in the ‘type’ of political actors that will be required to ensure Singapore's future economic success.

Keywords:

• Singapore
• state
• economy
• governance
• structural reform

Introduction

Lee has always had a strong preference for those who perform well scholastically, particularly in the sciences. (Mauzy and Milne 2002, p. 47)

To develop and implement these kind of strategies, requires much more than the absorption of new technologies and skills. It demands fundamental changes in yesterday's mind-sets, organization structures, and management processes … Challenging orthodoxies can play an important role in stimulating the flow of innovation necessary to win in the new Asian environment where companies need to be different as well as better. (Williamson 2004, pp. 3, 110)

With the ascendancy of Lee Hsien Loong to the prime ministership of Singapore (August 2004) and the introduction of new faces into the cabinet, the People's Action Party (PAP) has publicly advocated the move as heralding a new political generation with the mandate to confront new economic challenges (Tan 2007). Crucial new policy areas have been aimed at preparing for new global economic competition: finance, technology, education, health and infrastructure. All have been widely vetted amongst the island's elite. Lee Hsien Loong, of course, can only be defined as a new leader in the narrowest sense of the word, having already served for more than a decade in cabinet and as deputy prime minister to his predecessor Goh Chok Tong (Ho 2000, p. 49). The city state he now heads, being a direct consequence of the British Empire's globalization process, and as a city state without hinterland, has always been acutely attuned to changes within the global economy. As a consequence Lee and the other Singaporean political leaders continually declare that the current pace of global economic change, and the impact this will have on Singapore's economic structures, will remain central to the island's narrative. Most notably they highlight the impact of China and India in creating a new global investment environment challenging to Singapore's aspirations as a centre for high-end investment projects (Tan 2007).

This paper will focus on how the PAP leadership has not encouraged engagement by Singaporean citizens to discuss the political implication of the new economic challenges facing Singapore, or how the new economic structures initiated by the PAP might impact on the ruling party itself. The PAP has actively sold the introduction of new sectors to the Singapore economy in entertainment, resorts, casinos and other services as requiring new skills and assets amongst the Singapore workforce. This author argues that these new sectors reveal, and will continue to do so in the future, new Singaporean talents whose skill sets will be vital to national economic progress, but which are decisively different from the technocratic skill sets that make up the present PAP leadership. Questions will have to be asked about whether the PAP can successfully incorporate a group of talented individuals who do not share the current leadership group's intellectual training and skills. This author argues that new talent and new sectors will challenge for nation state resources in ways unexpected by the current political initiators, and the outcomes will be defined pragmatically. Crucially, having defined its governance in just such pragmatic terms, the PAP itself is not in an ideological position to resist such changes, as non-traditional economic powers (service sector and creative industries) increase their influence over national economic life.

The political status quo

In an act of conservative understatement Leifer (1998) states:

The social and political model which Singapore's government has deliberately chosen in the common good has not been uniformly well received in the West where it is seen to be at odds with the concept of a civil society inherent in Liberal Democracy. (Leifer 1998, p. 19) ¹

Singapore's post-independence (1959) political elite, particularly the founding leaders Lee Kuan Yew and Goh Keng Swee, have never made any attempt to hide the fact that they do not perceive liberal democracy as being of high value to Singapore (Mauzy and Milne 2002). ² They have established a domestic political paradigm based on the following non-democratic foundation:

• redirection of popular sentiments away from politics towards the economy;

• reduction of political competition to a single-party state, tantamount to ‘elimination of politics’; and

• increased power of administrative and bureaucratic authority with only minimal direct accountability to the public and sometimes even at the expense of elected politicians (Chua 1998).

The cabinet, made up of a PAP cadre hand-picked by Lee and the PAP hierarchy, is defined as ‘the centre of power, the repository of legitimate political power, and the source for an authoritative allocation of government resources’ (Ho 2000, p. 152). Commonly defined as an ‘administrative state’, consisting of politicians and a selected elite bureaucracy-intelligentsia, who themselves often enter politics through the PAP, this elite apparatchik defines what is in the best interest of the Singapore citizen. The focus is nearly completely materialistic, with a driving interest on delivering to that citizenship dramatically improved housing, employment opportunity, infrastructure, education and national strategic security. The role of the elite bureaucracy, fully under the control of the PAP hierarchy and often destined to become members of it, is particularly noticeable as they take on the role of policy makers, as opposed to the policy-enacting role subscribed to them within the liberal model (Ho 2000). ³

Whilst advocating itself as the primary supplier of citizen needs, the PAP's leadership of Lee, Goh and now Lee Hsien Loong have at the very same time consistently proclaimed that the PAP will never bow to popular pressure in any policy sphere. Lee Kuan Yew in particular has been forceful in expressing the cabinet position that decision making will not be altered to counter public calls to open up the government's purse strings (Ngiam 2006). Budgetary prudence has been consistently reinforced as central to legitimizing the PAP's right to rule, with operational spending limited to 10% of GDP and an outright rejection of direct welfare expenditure to the public even in times of economic hardship (1997–1998 regional economic meltdown and the 2001 electronics downturn). Crucially, this cabinet policy stance has been maintained at a time in which the public is all too aware that the Singapore government is now one of the wealthiest in the world, with massive financial assets both at home and abroad (Jones 2001, pp. 139–141).

The predominant reasoning given for the continued dominance of the PAP over Singapore's political and economic landscape remains what has been termed the ‘idiom of survival’ (Leifer 2000, p. 56). Singaporeans are constantly reminded that, in a hostile world, only the PAP leadership has the experience and wherewithal to guide the Singapore ship safely to shore. The continued availability of ‘hostiles’, ‘challenges’ and ‘uncertainty’ is a given. Mauzy and Milne (2002, p. 176) reflect on this world view:

Singapore's leaders are realists who believe in a Hobbesian world where power counts and predators lurk all around looking for weaknesses and opportunities.

From the regional instability of the 1960s, the oil crises in the 1970s, to the regional financial crisis of 1997–1998, to contemporary Islamic terrorism, a hostile, uncertain world is always at hand. The PAP leadership highlights that its guiding hand is indispensable to the nation's survival. A crucial element of this ‘idiom of survival’ is the acknowledgement that ‘a primary aspect of good government is the capacity to bring about change before the crises emerge’ (Neher 1999, p. 52). The PAP-controlled media ensure that Singaporean society is bombarded with information on just how the wise hand of the PAP leadership is countering the latest threat/s with a comprehensive array of highly effective policy options. The technocratic nature of the cabinet legitimacy means that any dissenting voices, even on specific singular topics, are viewed as attacks upon the whole PAP governance structure (George 2000).

The economic status quo

The uninterrupted expansion of the trade between Asia and the West has enabled Singapore to become a transportation hub and a centre for international finance. Under British colonial rule (pre-1959) the financial system was geared solely for the purpose of serving the needs of international trade and the requisite foreign exchange services. Little to no effort was placed in developing the investment capital capacity required for the internal development of Singapore. No efforts were made to develop specialized agricultural or industrial banks as all primary trade-oriented financial services could be generated out of London. Nor did the British attempt to develop Singapore's human resource base, as no such thing was deemed to exist. Prior to 1945 people, like goods and capital, moved freely throughout South-East Asia. People, possessing neither passports nor fixed capital, simply moved within South-East Asia to the locality in which their skills and/or labour was most required (Goh 1972 (republished 1995), p. 106). So whilst the PAP did inherit a state with trade capacity and trade financing, the PAP can rightly claim to be the builders of the modern Singapore economy (Low 1998).

The PAP's leadership, consisting heavily of engineers and science-trained professionals, has directed, and continues to direct, much of its energy towards making Singapore a manufacturing centre. One of the founders of Singapore's manufacturing sector makes plain the commitment of the PAP elite to maintain manufacturing as a core component of the Singapore economy:

But the Singapore Government and its agency, the Economic Development Board (EDB), will always give help on preferred new industries or assist in the upgrading of existing ones which take into account Singapore's existing and future factor endowments. We shall press forward with our policy of promoting skill-intensive, high technology industries. (Hon 1997, p. 131)

A variety of government assistance mechanisms have been instituted to ensure manufacturing prospers, including the Double Tax Deduction Scheme, Capital Assistance Scheme, Export Credit Insurance Guarantee Scheme, Ship Financing Scheme, Small Industries Finance Scheme and Product Development Assistance Scheme. Most crucially of all, however, has been the Development Bank of Singapore extension of long-term loans at preferential rates, which has enabled manufacturers to establish their operation in Singapore despite considerable international competition. The net result was that Singapore became, and remains, effectively a platform for multinational enterprises seeking to establish offshore manufacturing operations to service their home markets, and the small but growing consumer base within Asia. ⁴ Given that the PAP's survival depends on the ability to drive rapid changes to the economy, reliance on market forces and entrepreneurship by themselves is deemed inadequate. Indeed, a corporatist approach is considered essential to guide the economy to fruitful ends. Singapore's domestic economy is dominated by enterprises such the Singapore Port Authority, Changi Airport, Singapore Airlines (SIA), Singtel and other major corporations that are uniform in the fact that the Singapore government remains the controlling shareholder and hence the final decision-making player (Koh and Mariano 2006).

The political risk of the PAP's governance paradigm?

Lee Hsien Loong's appointment as prime minister and the elevation to senior cabinet positions of several younger generation cabinet members was heralded by the PAP as the changing of the generational guard. A new generation of leaders for Singapore's twenty-first century challenges was the political line taken by the PAP and the controlled media (Ngiam 2006). The problem for the PAP is that no matter who holds the office of the prime ministership, the widely held perception is that Lee Kuan Yew, who holds the cabinet post of Minister Mentor, remains predominant. ⁵ Put simply, for many Singaporeans, a younger generation may govern, but the founding prime minister still ‘rules’, and only his total removal from the political scene or death will alter this power structure. The future challenge with the continuation of this political paradigm is such: What ‘new ideas’ are likely to come from a PAP cabinet whose institutionalized selected criteria are based firmly on the Lee Kuan Yew's techno-engineer paradigm of personal intellect and character? There are growing concerns over the cost Singapore will pay for this ‘political stability’:

the PAP's clean-room approach to politics is worrisome: it produces a political sphere that is sterile, in both senses of the word – not just antiseptically clean, but also devoid of vibrant life. Singapore is not in danger of having an over-politicised populace any time soon. The opposite condition, however, seems a more likely risk: a weak, underdeveloped political culture that is unable to meet the challenges of democratic citizenship, including the challenge of finding leaders. (George 2000, p. 46)

The political implication is that Singapore's creative talent, vital to Singapore's new economic drivers in entertainment and services, whilst willing to tilt the innovation wheel selectively, remains restricted and stilted in the public sphere. The creative minds defined as crucial to the new economy of Singapore are not only completely absent from the political centre, but they are often completely ignored by it, or, indeed, besieged by it.

This author argues that the future of Singapore's political framework should be examined through the very same economic-corporatist context that the Singapore elite themselves espouse to be prescient with. That is, the political predominance of PAP group-think, its obsessive commitment to scientific technocracy to the exclusion of almost all other skill sets from the higher reaches of office, poses a risk management threat to the long-term future of the Singaporean economy. Williamson's (2004) risk framework, whilst directed at Asian multinational corporations (MNCs), can equally be applied to the PAP's narrow political ‘talent’ framework:

Relying solely on home grown sources of innovation also leaves you exposed to competitors coming from left field with unfamiliar tactics that catch you by surprise. (Williamson 2004. p. 112)

Having pronounced itself as the party of modern corporatist governance, the PAP has left itself very much open to being judged on how it responds to the very same challenges facing global multinational enterprises in the first decade of the twenty-first century. The problem for the PAP, and one it has openly acknowledged, is that its traditional behaviour falls outside of the paradigms being set by MNCs for their continued sustainability within a globalized marketplace. There has been much talk of political renewal within the PAP over the previous decade, without much change in the collective thinking and backgrounds of the political participants incorporated into the cabinet or other higher echelon positions within the PAP or government. ⁶ To the PAP, the raising of the question of internal intellectual renewal or stagnation, in fact, strikes at the heart of its claim to continued political-economic legitimacy. Ho (2000, p. 76) makes this point clear:

To the PAP and the Singaporeans, governing well means first and foremost the government's capability in bringing economic progress and material well-being.

It has responded forcefully to these charges from opponents by maintaining that ‘pragmatic’ policy advocacy remains central to PAP thinking, including bringing in outside ideas through the co-option of former critics to significant government boards and statutory authorities. Another strategy has been to openly remunerate cabinet members and top public servants at levels near those of their MNC counterparts as a means of recruiting and retaining the ‘best’ candidates to drive Singapore's future prosperity. ⁷ The fact remains, however, that the new recruits go through a rigorous selection process that assures collective thinking, and so the PAP remains vulnerable to challenges not deemed within the purview of its coherent elite make-up (Ngiam 2006).

Caught off guard: the PAP's deliberative strategy

The Singapore success story of economic development and progress, from ports and airports, to manufacturing and finance, cannot be underestimated and rightly can only be defined in highly successful terms. It has been, and continues to be, characterized as the product of ‘deliberative strategy’ as administered by the PAP elite and close corporate associates. ⁸ The central driving ideology is absolute economic growth, with equity placed as secondary to delivering Singapore broad economic progress:

One school of thought, which is regrettably commanding increasing support, has reasoned that it is better to have fairer distribution of wealth than its rapid accumulation. In other words, more equity in sharing the GNP is better than just increasing it. This assumes that there is a trade-off in third world countries between faster growth and fairer income distribution. Such a trade-off may well exist in rich countries, but for poor countries such a policy choice is available only in exceptional circumstances. In the general case, Third World countries have no choice but to seize every opportunity to increase their GNPs. (Goh 1977, 1995, p. 182)

As examined in previous sections, policies have been pursued vigorously through energetic actions by highly qualified political and bureaucratic elite, and at the centre of the economic development strategy was the attracting of global MNCs committed to export promotion, because of the small size of Singapore's own domestic market. From 1959 to 1997 the deliberative strategic approach went largely unchallenged as Singapore became an international model for rapid, sustained economic development along with the other Asian Tigers of Taiwan, South Korea and Hong Kong. However, in the last decade there have been two distinct events in which the PAP has clearly been caught off-balance in terms of prediction and initial management of downturns and structural changes in the economy: the 2001 electronic sector restructuring and the 2008 recession brought on by the international financial crisis.

Under the PAP's deliberative strategy approach, the party's leadership (Lee Kuan Yew, Goh Chok Tong and Lee Hsien Loong) have constantly highlighted the fact that the linkage between political systems and financial crisis was a highly dubious empirical connection:

There is no clear correlation between political systems and financial vulnerability. The only correlation that is clear so far is that between good governance and resilience in times of financial crisis. Good governance is not associated with any single political system or ideology, but with the willingness and ability of governments to develop economic, social and administrative systems that are resilient and able to handle the challenges of the new economic era we are now entering. (Mahbubani 2002, p. 32)

In this the PAP is correct; previous studies by this author and others make clear that financial crises have afflicted both democratic and non-democratic societies alike (Austin 2004, Koh and Mariano 2006). The PAP felt the need to make a compelling public case in regard to this political–financial nexus so as to distance itself politically from the significant impact of the international economic crisis on the Singaporeans, more specifically the economic well-being of the working and lower-middle classes. Indeed, the political strategy of the PAP since the 1997 Asian financial crisis has been to openly talk of the need to move Singapore even further towards a version of total global economic integration, effectively diversifying the economy away from over-reliance on any one regional source. It is a form of risk minimization through maximum exposure to all of the world's regional markets, so in theory if one should falter, economic links with the remainder would support Singapore's continued growth.

The success or otherwise of this strategy, however, does not alter the fact that no open discussion within Singapore on why the PAP has missed the warning signs of three international economic downturns (1997 Asian financial crisis, 2001 global electronics slump and the 2008 recession) has ever taken place. Whilst other institutions that also missed the warning signs, such as the United States Treasury and Federal Reserve, the International Monetary Fund and the World Bank, have all been subject to vigorous public debate and crucifixion by their critics at various times, the political stranglehold of the PAP on the nation means no equivalent domestic public assessments have ever taken place. No doubt internal PAP reviews did take place, but these have never been exposed to any kind of external scrutiny, so remain a mystery.

Electronics crisis of 2001

With the PAP's political legitimacy squarely founded on economic management, the American information technology bust of 2001–2002 reverberated throughout the Singapore political economy. The immediate economic impact was mass retrenchments within Singapore's large electronics sector. The importance of the electronic sector to the PAP is hardly confined to export dollars, but politically crucial in its ability to provide mass employment to semi-skilled Singaporeans within the PAP's political heartland. The PAP leadership, as a result, offered an implicit industrial policy for the sector, providing it with a wide array of financial and technical support. ⁹ A number of research and development plans (R&D plans) from the 1985 National Information Technology Plan (NITP), 1991 Strategic Economic Plan and the 1998 Committee on Singapore's Competitiveness (CSC) had outlined the developmental strategy for the growing electronics sector as a key platform within the national manufacturing sector. The National Science and Technology Board (NSTB) was amply funded at $S2 billion from the first five-year plan (1991–1995) and $S4 billion for the second five-year period (1996–2000), reflecting the PAP leadership's commitment to the electronic sector's movement up the international technological ladder (Wong 2001, p. 60). The Singapore government was to find this investment accounted for little as the global information technology and electronic sector went into severe contraction in 2001, exiting Singapore shores as mass producers, despite the above wide array of government investments and incentives. Whilst higher-end design and technology remained because of further Singaporean government inducements for them to remain, the crucial semi-skilled positions evaporated, thus leaving thousands of middle-aged, semi-skilled Singaporean without jobs. So whilst Singapore's future as a designer and manufacturer of high-end electronics was secured, the immediate and future political dynamics were poor for the PAP.

The electronics economic downturn (2001–2002), so close to the Asian financial crisis–driven national economic downturn (1997–1998), was a bitter pill for the Singapore leadership. In both finance and electronics they had, over the preceding three decades, positioned themselves in accordance with global best practice to receive international funds and maintain foreign direct investment:

The emphasis on job creation is unrelenting, and the government's friendliness to global capital, as the main provider of those jobs, has earned Singapore recognition as one of the freest economies in the world. (George 2000, p. 16)

The PAP, as they had been with the Asian financial crisis, was caught totally by surprise by the severity and duration of the international electronics downturn. Leaders such as Lee Kuan Yew, Goh Chok Tong and Lee Hsien Loong, repeating their 1997–1998 modus operandi, upped their public pronouncements for the need to broadly explore Singapore's future economic direction (Ngiam 2006). Whilst the PAP remains to this day an open advocate of this sector in its now high-end technical form, these public pronouncements can be seen as the PAP politically repositioning itself in the face of two unexpected economic downturns that had undermined its legitimacy as the deliverer of economic prosperity to all Singaporeans.

Political legitimacy, globalization, diversification and the 2008 economic recession

For the second time this decade (2000s), Singapore has quickly dropped into recession in 2008–2009 on the back of a sharp decline in American consumer demand (−2% of annualized GDP for the third quarter, −16.4% GDP annualized fourth quarter) (Adam 2009). The previous recession in 2001, much like this current one, caught the Singaporean elite off guard and led to a serious of macroeconomic introspection as to the future direction of the city state. The outcome of this introspection was to rapidly engage in an economic policy of diversification aimed at alleviating Singapore economy's dependency on the American consumer. The 2008–2009 Singapore recession, which is a direct product of the Wall Street debacle and now international financial crisis, has revealed in the most brutal of forms that the diversification process is as yet ineffective.

The shock of the current 2008 Singapore recession upon the government and indeed upon its citizens should not be underestimated considering that the nation right up until mid-2008 was riding on a wave of high economic growth. It was believed that growth was being driven by substantive economic reforms introduced by the PAP over the last decade to drive Singapore towards a more sustainable economic future. By any measure Singapore's recent economic performance had been impressive with annual GDP expansion of 7.6% from 2004 to 2006 and 7.7% in 2007. ¹⁰ To further attract foreign multinationals, corporate tax rates have been cut from 26% to 20% over the 2001–2006 period and manufacturing investment has moved from $S7.5 billion in 2003, to $8.3 billion in 2004 and $S8.5 billion in 2005. The search to attract foreign talent has seen permanent residence status grow 8.7% between 2000 and 2005. This level is 10 times that of growth in citizenship and reflective of the PAP's desire for a mobile international workforce. The unemployment rate reduced from 4.8% in 2003 to 2.7% in 2006, whereas employment creation has moved from −12,950 in 2003 (as electronic sector jobs exited) to +71,400 in 2004 and +113,300 in 2005. Half the new jobs created in Singapore presently go to foreign workers. The service sector has risen from 62.2% in 2000 to 63.1% of GDP in 2005 with new investments in financial services (private banking and wealth management), biomedical research and luxury tourism and resort development (Resort World at Sentosa). This new economic growth must be viewed not only within the context of successful PAP policy adjustments to the national economy, but also as part of a changing economic structure within Asia in which products and services are increasingly directed towards domestic and regional needs and not exclusively for export to the West. This progress, however, has not been achieved without financial pain to Singaporean workers who saw their employer contribution to the Central Provident Fund (CPF) cut by 3% (from 16% to 13% of income) in 2004 (Tan 2007). The economy has split into two distinct sectors, the global and the domestic, with members of the former being the clear economic winners whilst the latter group is clearly being left behind (see Appendix Table A).

The notably increasing role of services within the Singapore economy highlights the fact that the national economy has moved away from its traditional manufacturing infrastructure development emphasis towards economic activities more reliant on ‘soft’ skills. Post 2001, and with increasing emphasis under Lee Hsien Loong, the PAP has highlighted its plan to centre the service sector on the following:

• global talent;

• global universities; and

• global financial and economic institutions.

The open courting of foreign professionals, massive investments in domestic universities, including the opening of Singapore Management University, the building of the Esplanade Theatre complex, the decision to build two massive integrated resorts, expanding medical services to foreign patients/customers and the rapid expansion of private wealth banking services are all part of a burgeoning service sector. Furthermore, the Singapore government has established alliances between Singapore firms and major foreign MNCs in a number of high-tech industries, including semiconductors' wafer fabrication, chemicals, biotechnology and medical research. Collectively this restructuring can be seen as part of the PAP leadership's ‘globalization of the economy’ project.

MNCs through extensive partnerships with Singapore government enterprises have over the last decade moved their operation on the island state towards high-end activities such as advanced electronics and design. Unfortunately, as current events are demonstrating, this has not prevented MNC market demand for Singapore skilled products and labour enter a rapid decline as global demand has driven downwards. The high reliance on electronic manufactures has once again been exposed as it makes up to 37% of industrial production and large section of the air cargo and logistics operation within Singapore (Bhaskaran 2007). The 2008 recession simply revealed what has long been acknowledged within Singapore policy elite centres:

We have been flying on auto-pilot for too long. The MNCs have contributed a lot to Singapore but they are totally unsentimental people. The moment you're uncompetitive, they just relocate. (Ngiam 2006)

Singapore in the current economic climate is hardly alone in feeling the fleet foot of MNCs as they exit markets, but as a small city-state centred on trading it is particularly exposed and has once again felt the full brunt of boardroom decisions made elsewhere. This is not to say that Singapore policy makers and enterprises are without blame as concern over what some see as Singapore's over-reliance on MNCs has grown. Key policy decisions by the government, such as the development of two integrated resorts (read casinos) despite significant public objections and the courting of private wealth managers, in fact, reflect the PAP elite's acknowledgement that Singapore's dependence on MNCs, particularly in electronics, remains a fundamental weakness. This weakness is being fully exposed as the global economy has slumped in the last quarter of 2008, and the first quarter of 2009.

Given that the 2008 recession has struck before new projects in biotechnology and entertainment, such as the two massive Integrated Resort projects, have come on line, it is difficult to judge the ultimate effectiveness of the government's diversification programme. It must, however, surely be a worrying sign that in the 2008 international economic downturn no sectors have been immune. Just as international and domestic financial firms have contracted, SIA, business hotel groups and broader international tourism trade have followed. It is a clear indication that in a global economy, diversification may not be a safety chute because just as nations have become integrated, so have internationally oriented sectors (finance, manufacturing, medical and leisure), each dependent on the other's health for vitality. So whilst it is too early to tell given that Singapore's diversification process has several years still to run before reaching economies of scale, in this author's view signs from the 2008 recession for the PAP's diversification programme are worrying. Singapore's rapid economy decline in the last quarter of 2008 is revealing that the diversification policy central to the city state's future economic plans might in times of international economic decline be ineffectual. In a truly global economy so interwoven is the health and well-being of sectoral economies that just as they rise together in prosperity, when the tide goes out all suffer contraction as key markets disappear. For example as financial firms in Singapore, like elsewhere, have undertaken retrenchments and placed restrictions on remaining staff flying for business, SIA's earnings as a result have taken a hit and staff benefits have been cut and route capacity reduced. The international implications of the failure of diversification to halt Singapore's economic slide are that many national governments view Singapore, an open advocate and embracer of globalization, as the forerunner to globalized economic processes.

Conclusion

In the Singapore context the need for the PAP to revalidate its political legitimacy after rapid economic downturns in 2001 and now in 2008, and possibly continuing well into 2009, centres on the political fact that:

Today, most Singaporeans judge people, institutions and policies on their bottom-line contribution to material wellbeing. It is a shared ideology that in the end makes the PAP's job of coordination and control much easier. (George 2000, p. 23)

Anything less than the full revitalization of the Singapore economy will leave Lee Hsien Loong being compared unfavourably to his predecessors, and hence the legitimacy of the whole younger generation of PAP leadership coming under question. Questions however remain unanswered. The major investments in service sectors across the economy will fundamentally alter not only the economy, but also the human capital produced by the city state. As the service economy expands and diversifies over the next decade as a direct result of government investments currently taking place and as more manufacturers further specialize their operations in the city state as a result of the current electronics downturn, how will the PAP give voice to the new domestic talent that emerges? To date no moves have been taken to extend the PAP talent pool beyond the narrowly confined technocratic ‘qualities’ required by the party elite; a position that pragmatism, the defining ideology of the PAP, should dictate is untenable. ¹¹ How the PAP manages to incorporate new talents from outside its tradition technical pool will dictate its future, but not the nation's future. As the above quotation makes clear, the Singaporean people place their own future prosperity over political party and political science considerations.

This paper was presented to the 17th Biennial Conference of the Asian Studies Association of Australia in Melbourne 1–3 July 2008.

Notes

1. Leifer in 2000 goes on to state: ‘Singapore's accomplishments are also the product of an efficient authoritarian political system which generates strong mixed feelings in the West. That system has been based on continuous rule through general elections by the PAP ever since the island attained self-government in June 1959’ (Leifer 2000, p. 17).

2. ‘Certain draconian laws [ISA specifically], controls on political participation, and measures limiting civil and political rights and freedom of the press, mean that Singapore is, to some extent – critics vary on the degree – an authoritarian state’ (Mauzy and Milne 2002, p. 128).

3. Ho Kai Leong (2000) states that, ‘In many ways, Singapore's bureaucrats are politicians in their own right. They do not merely serve; they also wield decision-making power without an electoral mandate’ (pp. 22–23). Furthermore, ‘In the process of political consolidation, the PAP has established its control over the bureacracy to make it absolutely subordinate to its political masters’ (p. 143). ‘From the List of the functions it performs, the bureaucracy can be seen to infiltrate into almost every aspect of citizen's life’ (p. 147). Singapore bureaucracy: ‘On the contrary, a dissatisfied citizen who protests too much is liable to be lectured on the need to respect the government's authority. It is a unique – and convenient – mix: the most modern, capitalist system of remuneration, coupled with a feudal belief in a cosmic hierarchy that separates rulers from ruled’ (George 2000, p. 78).

4. ‘From the early days of independence, Singapore also had its interests served by the willingness of American multinational enterprises to locate their factories and regional headquarters in the Republic. The contribution of such multinationals played a decisive part in the industrial transformation of the island-state and in underpinning a new-found independence with economic growth and vitality’ (Leifer 2000, p. 106).

5. ‘The widespread public perception, however, is that he [Lee Kuan Yew] is still very much in command as far as major decisions and strategic direction of the country are concerned’ (Ho 2000, p. 63).

6. For PAP biographies, see the People's Action Party official web site: http://www.pap.org.sg

7. Ho Kai Leong (2000, p. 162). For a source on the salaries of the PAP elite, see http://www.atimes.com/atimes/Southeast_Asia/ID05Ae01.html

8. ‘Undoubtedly, deliberate strategy on the part of a proactive and pragmatic state has been the linchpin of Singapore post-independence economic success’ (Kwok 2001). ‘Singapore's rapid development as a financial centre since the late 1970s has been aided by a host of provisions and incentives by the Singapore government’ (Rodan 1997, p. 157).

9. Furthermore: ‘The political leadership had always displayed a clear understanding of the importance of technological upgrading in sustaining economic growth, but until the late 1980s, the conviction was that Singapore should use its resources to exploit available technology from advanced countries rather that to create its own technologies’ (Wong 2001, p. 51).

10. Singapore Government Web. Information and policies: finance and economy. Available from: http://www.gov.sg/pol_fin.htm [Accessed 20 September 2008].

11. Pragmatism or ‘strategic pragmatism’ is defined as the ability of leaders/organizations to define an ultimate goal whilst being prepared to alter immediate or short-term approaches to achieve the desired final outcome. See Schein (1996) and Austin (2004).

Appendix

Table A. Singapore's global and domestic economy

Global	Domestic
Global: cater to the international economy in goods and services. For example, International wealth management has rapidly expanded over the last decade	Domestic: cater to domestic goods and services. For example, Wholesale banking to domestic-oriented employees. SGD lending has stagnated over the last decade
Global remuneration for managers, professionals and highly skilled engineers and scientists	Household survey showed that the bottom 30% income percentile saw incomes fall over the period 2000–2005 on average by 2.8% and a further 9.1% in 2006–2007, before showing a considerable rise of 8.5% in real terms in 2007–2008. With unemployment in the 2008 recession hitting manufacturing hardest, it can be expected that earnings for the lowest third of Singapore households will be the most severely affected
Singapore's financial sector has the highest rating of regulatory and institutional capacity in not only Asia, but also the world. Totally open to global shift in liquidity and financial sector environment	Singaporean's domestic choices, at a practical level, remain largely limited to the existing Singapore-based banks
International construction projects, at the peak end of the marketplace, have enjoyed a boom with resort and resort-style developments becoming prominent	Construction sector: domestic sector residences have stagnated over the last decade with numerous domestic-oriented construction/renovation groups exiting the market
Singapore infrastructure for high-level science, technology, management and education activities	Singapore's immediate economic zone: Iskandar Development Region and Batam/Bintan developmental zones in Indonesia to be utilized for lower-level manufacturing and industrial activities
Singaporean enterprises expand into China, ASEAN and India in an effort to diversify their income sources	MNCs involved in low-skilled activities exiting Singapore. The ‘hollowing-out-process’. Fewer opportunities for Singapore's low- and semi-skilled workers
Source: Tan, T.H., ed., 2007. Statistics Singapore. Available from: http://www.singstat.gov.sg/pubn/papers/people/op-s15.pdf [Accessed 24 February 2009].