Development Economies

Case Study - Singapore

The transition from a developing economy into one that is able to sustain itself is possible.  In 1980, Singapore had a total GDP of around US$25 billion, which meant that GDP per capita was around 39% of the equivalent figure for the USA.  By 2009 GDP had increased to almost US$250 billion, and GDP per capita was around US$52,000, a figure that is even higher than the USA is able to achieve.  Through this extraordinary turnaround, Singapore has transformed itself from a developing economy, and is now classified as one of the most advanced economies in the world.  Given that the entire island is only just over 700 square kilometres, and the population is less than five million people, it is worth taking a moment to understand how this tiny nation was able to achieve this incredible outcome.

The Australian government has identified that productive capacity is increased by “the three Ps” – population, participation and productivity.  Given that Singapore’s population is less than a quarter of our own, it is impossible for their workforce to be as large as the one in this country.  In fact, it is estimated that only around three million people are attached to the labour force in Singapore, compared with around eleven million here in Australia.  This means that it must have been the final ingredient – productivity – that has played the vital role in increasing Singapore’s productive capacity. 

While many countries in South East Asia have struggled with ongoing corruption issues at various levels of government, the government in Singapore is renowned as being completely corruption free.  They have also adopted a very strong pro-business philosophy.  For example, the company tax rate in Australia is 30%, while in Singapore the equivalent rate is 18%.  In addition, the government of Singapore has worked hard to attract foreign investment.  These two philosophical underpinnings have helped the Singaporean government to ensure that their country has grown at a faster rate than most others around the world.  Between 1980 and 2000, economic growth in that country averaged just over 8% per year.

It is also important to consider the way in which the government has used the money that has become available to it.  As companies began to make profits, the government was very careful about the way in which it used the taxation revenue that was collected.  For example, more than one fifth of the annual budget is spent on education.  This is far more than most countries.  (Comparisons with Australia are extremely difficult, as the money that is spent on schools comes from both the state government and the federal government.  Despite this, it is reasonably safe to say that in percentage terms the Singaporean government spends almost twice as much on education as we do in Australia.)  The government believes that spending on education will help to ensure that the workforce will be productive into the future.  Evidence so far suggests that their investment has been a wise one; even at the peak of the international financial crisis in 2009, the unemployment rate in Singapore was recorded at 2.2%.

There are two other key strategies that Singapore has used to ensure its success.  First, it has actively sought out key trading partners.  Singapore may be small, but it is also the 15^th largest trading partner of the USA.  They have negotiated free trade agreements with the USA, Peru, South Korea, Jordan and also Australia.  Close ties to strong economic states has helped Singapore to ensure that they will always have customers. 

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