Why Singapore is rich and will remain rich

Singapore has been called one of the Four Asian Tigers or Dragons, along with Hong Kong, South Korea and Taiwan. Recently, Singapore overtook the US and Hong Kong to reclaim its ranking as the world’s most competitive economy.

The ranking, by Swiss business school IMD, evaluates the extent to which a country fosters an environment where enterprises can achieve sustainable growth, generate jobs and increase the welfare of its citizens. Singapore’s rise to the top was attributed to its advanced technological infrastructure, availability of skilled labor, favorable immigration laws, and the efficient way in which new businesses can be set up here. How can a little country in Southeast Asia achieve such a feat? The following is a list of reasons for Singapore’s success from the eyes of a foreigner who lived here for more than two years.

Geography and neighborhood

Singapore is strategically located in the middle of Southeast Asia as a trading and logistics hub. For example, if oil is exported to East Asian countries such as Japan and South Korea, container ships from the Middle East must go through the Malacca Strait for the shortest distance. Moreover, they cannot make the whole journey without refueling. Therefore, Singapore is naturally well positioned to be a trade hub for container ships.

Stable political environment and policies

The People’s Action Party is a major center-right political party in Singapore. Founded in 1954 as a pro-independence party descended from an earlier student organization, it has gone on to dominate the political system. One of the founding members of the party, Lee Kuan Yew, served as the first prime minister of Singapore, governing for three decades. Lee is recognized as the nation’s founding father, with the country described as transitioning from a “Third World country to the First World country in a single generation” under his leadership. Lee maintained very strict one-party rule through various institutions, such as gerrymandering, which in turn gave him enough power to realize his grand vision for a small city-state.

This stable one-party-rule political system has provided a fertile foundation for economic growth. Combined with the charisma and leadership of a visionary leader, Singapore was able to develop and outshine many other developing countries. The Master Plan (MP) is the statutory land-use plan that guides Singapore’s development in the medium term, over 10 to 15 years. It is reviewed every five years and translates the government’s broad long-term strategies into detailed plans to guide the development of land and property. While providing stability, the Master Plan is flexible enough to allow amendments as circumstantial needs arise from time to time.

South Korea offers a counter-example, where a change in government can completely overturn policies implemented under the previous regime. For instance, the dismantling of nuclear power plants in a matter of years after President Moon-Jae-in came to power, thus destroying an entire industry that had grown over past decades, simply shows how important it is to have policy stability when it comes to long-term planning. The status of Singapore as a stable place to run business is also in stark contrast to Hong Kong, which is another city-state with a reputation as being business-friendly and has attracted many investments in the past. Recent political instability in Hong Kong shows how political risk can negatively affect business sentiment.

Efficient and competent public sector

Many bright Singaporean youth go overseas to study under government scholarships. In return, they are obliged to return to Singapore and work in the public sector for several years. Moreover, Singapore has a long-standing high-wage policy for civil servants. The government reviews and amends salaries regularly to ensure they are competitive. Civil servants also receive bonuses linked to the country’s economic performance.

These policies are based on the belief that a well-paid civil servant is highly unlikely to engage in corrupt practices. However, when corruption does occur in the public sector, the government ruthlessly punishes the wrongdoers. With this carrot-and-stick approach, Singapore has created a public-sector environment where talented citizens like to work and contribute to society. One example of the resultant efficiency is the Ministry of Transport. Currently, the ministry is taking a hybrid approach to the public transportation system, where it combines the responsiveness of a nationalized system (with government overseeing bus services, rail lines and operating standards) and the efficiencies of the private sector (with private companies operating buses and trains). 

Business-friendly environment

Singapore is well known for low tax rates. Income and corporate tax rates are among the lowest in the world. On top of this, there are many tax exemptions. Capital gains, dividends, inheritances and gifts are not taxed at all. Gold and silver, precious metals for which Singapore strives to become a trading hub, are not taxed in transactions. The government’s support for key sectors and industries plays an important role in luring foreign investments and companies. Moreover, public servants, who are mostly well-educated elites, know which industries to focus on and promote.

Livability despite inequality

One inevitable byproduct of rapid economic growth is raising inequality. It is true that Singapore has quite a high level of inequality as measured by the Gini coefficient. This is because the government believes in meritocracy and adopts a practical approach “to improve access to these opportunities among the less advantaged and make the most of the opportunities on offer, to bridge the shortfalls and narrow the gaps so that all can rise together.” Despite having quite a high level of inequality, however, Singapore offers an affordable living environment for the less wealthy. Singapore’s public transportation, including buses and Mass Rapid Transit subways, is the best in quality and surprisingly, cheapest as well compared with other developed countries such as the US and UK.

On the other hand, owning a car is very expensive in Singapore. The government limits the number of automobiles by setting high prices for car licenses. Because of the exorbitant license fees, buying a car in Singapore can cost as much as three times the outlay in South Korea, for example. Another stark difference is housing and food. On the one hand, Singaporeans can live in public housing subsidized by Housing and Development Board (HDB) and go to local food courts called hawker centers to eat for around S$6 (US$4.45). On the other hand, rich Singaporeans can live in private condominiums that are sometimes two or three times as expensive as HDB housing and eat at fancier places.

The key trick here is that those living in HDB, using the MRT and eating at relatively cheap local food centers can also maintain quite good standards of living. In a sense, Singapore has created systems for both the rich and less rich, but even for the less rich the living standard and environment is not sub-optimal at all. Rather than focusing on distribution of wealth, Singapore has acknowledged that inequality is bound to happen, and instead chose to promote meritocracy and provide a good living environment for both worlds.

Conclusion

All of the above reasons make Singapore a quite special place to live. Based on my experiences living in Singapore, I am confident that Singapore will continue to shine as the center of Asia and stay rich in the future.

* Joon Young Kwon holds a master’s degree in international economics and finance from Johns Hopkins University School of Advanced International Studies (SAIS), and currently works as an economics and finance consultant in Singapore