Archive for April 5, 2011
Contents
4.1 The Second Industrial Revolution
4.2. Development of Human Capital
4.3 Push for Trade Expansion
4.4 Second Oil Shock and Singapore’s First Recession since Independence
4.5 1985 Economic Committee – Charting New Directions
4.6 Strong Recovery (1986 – 19990)
4.1 The Second Industrial Revolution
The rapid economic growth of the late 1970s continued as Singapore stepped into the 1980s. Success in attracting foreign investment had caused the economy to become highly dependent on foreign firms, especially in manufacturing. Based on the 1980 Report on the Census of Industrial Production, majority foreign-owned firms accounted for 73.7% of gross output, 67.4% of value-added, 58.4% of total employment, and 84.7% of direct exports.
Externally, the 1980s was a time when the world economy experienced rapid globalization. More and more MNCs streamlined and relocated their operations either in search of lower costs or to be nearer to its raw materials and markets. As they sought to take advantage of advances in communications, transport, and production technologies and relocate their labour-intensive operations outside their home countries, a new international division of labour emerged. This new spatial configuration of economic activities provided unique opportunities for small countries like Hong Kong and Singapore, which had no hinterland or resources, to grow their economy by embarking on export-led industrialization driven by foreign investments. However, the success of the four Asian Tigers, namely Korea, Taiwan, Hong Kong, and Singapore, provided an attractive model which other developing countries could emulate. Competition was therefore heating up for foreign investment. Many national governments were ‘liberalizing’ their economies and were eager to receive FDI. Singapore would therefore have to compete with these economies in offering more attractive inducements to MNCs. To avoid competing with these lower costs countries, Singapore needed to reposition itself. It became apparent that the shift towards capital- and technology-intensive industries could wait no more. With the growth still going strong, the government resumed efforts to upgrade and diversify the economy.
In 1980, the Singapore government introduced a new national economic development strategy which heralded the city-state ‘Second Industrial Revolution’. During the 1980 Budget Speech, the Economic Development Plan for the Eighties was released. The plan outlined Singapore’s efforts to diversify its economic activities into new information-based services, such as computer, medical, consultancy and warehousing services. In line with the new economic plan, from the early 1980s the emphasis was put on promoting R&D, engineering design, and computer software.[1] To encourage industrial transnational corporations to switch from labour-intensive manufacturing towards more capital-intensive (Huff 1994), tax incentives would be offered to participating enterprises. At the same time, education and training programmes in the labour force would be upgraded.
Through its network of 22 overseas offices in the U.S., Japan and Europe, the EDB intensified its investment promotion efforts targeting MNCs from eleven primary and supporting industries: automotive components, machine tools and machinery, medical and surgical apparatus and instruments, specialty chemicals and pharmaceuticals, computers, computer peripheral equipment and software development, electronic instrumentation, optical instruments and equipment (including photocopying machines), advanced electronic components, precision engineering products, and hydraulic and pneumatic control systems.
Through EDB’s efforts, Singapore received an average of S$1.7 billion per annum during the period of 1980-84. More importantly, there was a strong expansion in new, higher value-added industries such as computers, electronics, machinery, printing and pharmaceuticals. In particular, the city-state succeeded in attracting many major electronics multinationals and emerged to be an important production platform for computers and hard disk drives.
4.2. Development of Human Capital
Along with repositioning of Singapore, the government had to reassess the dependency on foreign workers. The labour market became tighter as foreign investment continued to flow in. As a result, the inflow of foreign workers continued unabated. The 1980 Census of Population showed that the number of foreign workers in Singapore had increased to nearly 120,000 in 1980, an increase of about 50,000 since 1970. Given Singapore’s small population, it was inevitable that Singapore needed even more foreign workers to generate growth. However, from their earlier attempt to restructure the economy in the 1970s, the government also came to the conclusion that low wages encouraged the inflow of labour-intensive, low-technology investments and were therefore an obstacle to upgrading and restructuring. From 1979, to encourage companies to climb up the value chain, the NWC initiated wage increases of about 20 percent for three years in a row. The higher wages would induce companies to upgrade their operations and provide trainings to their workers. It would also enable Singapore to attract more skilled foreign talent and reduce its dependency on non-skilled workers. On the part of the government, new initiatives were introduce to assist local companies to adopt the use of information technology (IT) to raise efficiency through the automation of traditional work functions. Among others, the initiatives included the launch of Civil Service Computerization Programme (CSCP), National IT Plan (NITP), Small Enterprise Computerisation Programme (SECP), Enterprise Computerised Accounting Programme (SECAP). Financial assistance, such as the Skills Development Fund administered by EDB, were also provided to subsidize the training of the employees and to ensure that the market provided the right kind of manpower training.[2] At the same time, fiscal incentives were introduced to induce companies, especially the SMEs, to upgrade their operations.
Meanwhile, EDB intensified its effort to ensure that Singapore’s human resource needs in the new economy would be met. Following the success of the earlier joint training centres, EDB proposed the setting up of institutes of technology with the aim of training A-level school leavers based on a curriculum that focused on equipping them with practical skills rather than theoretical and academic concepts. In the early 1980s, three such institutes were set up: the German-Singapore Training Institute (1982), the Japan-Singapore Training Institute (1983) and the French-Singapore Training Institute (1984).[3]
Meanwhile, the government also upgraded the local educational institutions. Besides strengthening the engineering departments of polytechnics, the government also transformed Nanyang University into Nanyang Technological Institute. Massive funds were allocated to the local universities to bring in foreign talent. At the same time, scholarships were given to local students to pursue advanced degrees in leading universities in the West with the hope that they could eventually augment the teaching and research capabilities of the local universities. As a result of government efforts, the science and engineering faculties at the local institutions expanded considerably.[4]
4.3 Push for Trade Expansion
Given Singapore’s strategy of export-led industrialization, another critical institution that played an important role in promoting economic growth was Trade Development Board (TDB). It was formed in 1983 from the Department of Trade which was initially involved in only trade policy development and regulatory formulation and enforcement only. Based on requests from the business community for a responsive trade promotion agency to facilitate their overseas market development activities, the new TDB took on additional functions of promoting and developing Singapore’s international trade and to develop Singapore as a premier international trading hub. Besides basic trade facilitation, TDB also reviewed marketing policies, strategies, and techniques and explored new opportunities in both traditional and non-traditional markets. In addition, TDB oversaw Singapore’s involvement in the General Agreement of the Tariff and Trade (GATT) to secure market access and to lobby for free trade. To carry out its job, TDB developed a comprehensive network of overseas in cities such as Frankfurt, Bombay, Shanghai, Geneva and Washington. In the ensuing years, TDB importance grew as Singapore’s trade expanded. By the 1990s, TDB represented Singapore at multilateral negotiations forums involving organizations such as WTO, ASEAN and OECD. Later on, it also actively assisted Singapore in pursuing free trade agreements with trading partners, paving the way for Singapore companies to internationalize.
4.4 Aftermath of Second Oil Shock and Singapore’s First Recession since Independence
The economy continued its upward trend in the early 1980s. From 1980 to 1984, real GDP growth averaged 8.5% p.a.[5] The construction sector, in particular, saw exceptionally high growth that averaged 21.6%. Financial and business services sector also registered an average of 11.3 percent per annum. In contrast, manufacturing sector grew only modestly by an average of 5.1 percent a year.
By 1985, however, the Singapore economy was badly hit by a slowdown in global demand. Exports declined drastically and for the first time since its dependence in 1965, the city state’s GDP contracted by 1.4 percent. The second oil shock in 1979 had a negative impact also on the oil- and marine- related industries. There was a global glut in the oil-refining industry and demand for Singapore’s oil products (mainly refined oil) fell. The shipbuilding and ship-repairing industry had also been laden with excess capacity since the first oil crisis of 1973. The outlook was so gloomy that the Mitsubishi Heavy Industries Ltd withdrew from Singapore in 1984. Other ship-building companies diversified their activities into the production of oil-rigs and marine engines in order to weather the recession. The global economic slump also hit the electrical and electronics industry. Even the construction industry, a sector which saw phenomenal growth in the past, was slowing down.
The situation was further exacerbated by the high-wage policy of 1979-1984 amidst growing labour shortages and high incidences of labour turnover.[6] By 1984, for example, the CPF contribution by employers had risen to 25 percent of wages. The rising wages squeezed profits at the same time as external demand was declining in a prolonged global recession. Enterprises engaging in labour-intensive operations were especially hard-hit as profitability declined.[7] Besides the rising wages, MNCs engaged in industrial development also faced rising rent and land costs as a result of land shortages.[8] To make things worse, the strategy to nudge enterprises up the value-ladder did not produce the desired results in the short term.
Instead of upgrading their operations, many chose to relocate to other locations where factor costs were lower.[9] For example, in 1989, labour costs on Batam Island, Indonesia were, on average, only 25 per cent of those in Singapore.[10] In short, Singapore was losing its competitiveness, as a location within the global industrial production system.
4.5 1985 Economic Committee – Charting New Directions
The 1985 recession laid bare the risk of Singapore’s overdependence on a few sectors, such as electronics and chemicals, to drive export-led growth. Clearly, Singapore had to diversify its risks by widening its spectrum of economic activities.
In April 1985 an Economic Committee was set up to look into the economic downturn. In the following year, a report entitled The Singapore Economy: New Directions was released. It reaffirmed Singapore’s limitation in human and natural resources and recommended that Singapore be made into a ‘total business centre’ with not only manufacturing but also services (international services, transport and communications, logistics, and finance and banking) sectors as the backbones of the economy.[11] To promote the growth of the tertiary sector, services industry became eligible for pioneer status, an incentive which had hitherto been granted only to manufacturing firms. At the same time, companies that set up OHQ (operational headquarters) and IPO (international procurement offices) in Singapore could enjoy various tax reductions.
The committee also confirmed Singapore’s lost of competitiveness because of escalating costs. Wages, in particularly, had risen faster than productivity. To remedy the situation, the government froze wages for two years and lowered the corporate tax rate from 40% to 33%. At the same time, the employers CPF contribution was reduced from 25% to 10%, while the workers’ contribution remained at 25%. More importantly, by 1987, a system of flexi-wage had been put in place. Under the system, wages were tiered into a basic component, an annual supplement of one month’s basic wage, and a variable performance bonus based on company performance measurable by profits or productivity. With this system, workers’ remuneration would vary automatically with the performance of the economy and the individual enterprise.
The SMEs were also not left out in government’s plan of charting a new direction for the economy. In February 1987, the EDB coordinated a multi-agency effort to draft a master plan for SME development which culminated in the release of the SME Master Plan in 1988. Among other things, the plan aimed to promote entrepreneurship and innovation, encourage information exchange and dissemination to increase informational market efficiency, promote best practices through consultancy and training, and encourage internal expansion of domestic enterprises. These would be achieved through five strategic thrusts covering technology adoption, application and innovation; business planning and finance, human resource management; productivity improvement and training; and marketing and business partnership. The plan marked the first phase of the government overall strategy to develop indigenous world-class enterprises.
As for the tourism industry, after seeing double-digit growth rates for most years in the 1960s and 1970s, pace of development began to slow in the 1980s. In 1983, for the first time in 20 years, tourist arrivals were down by 3.5%. The decline jolted the government into action. A team of experts were quickly assembled to study the reasons for the decline and to formulate remedial actions. The taskforce came to the conclusion that the cause for the decline was structural rather than cyclical. Problems identified by the team included travel restrictions imposed by some ASEAN neighbours (particularly Indonesia), Singapore’s uncompetitive position as a tourist destination, and the loss of attractions.[12] For example, in its race for higher economic growth, Singapore was unwittingly destroying its heritage. Hence, Singapore needed to incur substantial investment in infrastructural projects to restore what has been lost and to build new tourists attractions.
In 1984, STB was reorganized and expanded to reflect the new needs of the industry. In conjunction with the Ministry of Trade and Industry which collected inputs from other ministries and statutory bodies, STB tabled a Tourism Product Development Plan in 1986. The $1 billion plan aimed to increase visitor arrivals, length of stay and tourist expenditure. It also outlined action plans for the restoration and revitalization of older areas such as Chinatown and Little India, the greening of the whole island and the cleaning of the Singapore River. The various projects would help to create five major themes (exotic east, colonial heritage, tropical island resort, clean and green garden city, and centre for international sporting events), each of which was expected to generate half-day or daylong visits by tourists. Finally, to encourage private sector participation in developing tourism-related projects, the government also offered a package of tax incentives to both local and foreign investors.
Tourist arrivals registered small increases of 4.8% in 1984 and 1.3% in 1985. Not surprisingly, the hospitality industry was also hit by the slowdown in tourist arrivals. Given the rising number of tourist arrivals in the previous two decades, Singapore’s hotel industry expanded quickly, resulting in a glut of hotel accommodation in the 1980s. Occupancy fell from 86.1% in 1980 to 64.7% in 1986. After a slowdown in hotel construction, the occupancy rates recovered in 1987. The industry was also helped by one bright spark which was the growing importance of Singapore as an international convention city. Singapore had continued to host the largest number of international conventions in Asia every year since 1983, and had ranked in the top ten in the world since 1983. By 1990, the number of tourist arrivals hit 5.3 millions.[13]
4.6 The Strong Recovery (1986 – 1990)
With all the efforts by the government to regain competitiveness, by the second half of the 1980s, the Singapore economy noticeably accelerated. Between 1986 and 1990, growth rates averaged 8.5 percent per annum.[14] Singapore was also achieving some success in establishing the tertiary sector as the second engine of growth. This change was noticeable in terms of both GDP and employment. By 1989, the financial and business services sectors had overtaken manufacturing as the vanguards of the economy. In 1990, they grew by a further 14.6 percent which amounted to one-third of the overall growth rate of 9.2 percent chalked up by the economy that year.
[5] Ministry of Trade and Industry (1986).
[6] Okposin, S. B. (1999). P.12
[7] Chiu, Ho and Lui (1997)
[9] Krause, L. B. (1987).
[10] Kumar and Lee. (1991)
[11] Economic Committee 1986: 4—20
[12] Ministry of Trade and Industry (1984)
[14] Singapore Department of Statistics (2008b)
Contents
3.1 Growing Dependence on Foreign Workers
3.2 Oil Crisis and the Failed Attempt of Industrial Upgrading
3.1 Growing Dependence on Foreign Workers
By the early 1970s, as FDI continued to flow in, the unemployment situation was reversed and the economy approached a situation of full employment. The creation of jobs came not only from a dramatic increase in foreign direct investment but also a rapidly expansion in public housing program in the early 1970s.[1] Given Singapore’s small population, there was an increasing dependence on foreign workers from neighbouring countries. According to the 1970 Census of Population, there was a total of 72,590 non-citizen and non-resident workers in 1970 constituting about 11 per cent of the work force.[2]
Meanwhile, Singapore’s excellent geographical location had allowed it to successfully develop the service sectors in air transportation, telecommunications, shipping and cargo handling activities. Coupled with the efficient infrastructure of land-, air- and sea transport and an increasingly skilled and hard working labour force, Singapore emerged as an attractive choice for MNCs seeking low-cost locations to manufacture products for markets in the West.
Despite the success, there were worries about the sustainability of the economic growth driven by labour-intensive industries. Competition for foreign investment was heating up. Singapore was not unique in offering various incentives to MNCs. Costs in Singapore were also rising because of labour and land shortages. Wages, in particular were already higher than those in Taiwan, South Korea and Hong Kong. In 1972, for example, the average monthly wage of a semi-skilled worker was US$87 compared to the US$66 in South Korea, US$73 in Taiwan, and US$84 in Hong Kong. [3] The worries about rising costs and labour shortages prompted a shift in Singapore’s economic strategy away from labour intensive to capital- and technology-intensive industries.
3.2 Oil Crisis and the Failed Attempt of Industrial Upgrading
The government sought to upgrade the economy’s industrial structure through a two-pronged approach.
Firstly, efforts were intensified to attract manufacturing industries that would place more emphasis on quality, skills and technology (such as petrochemicals, machine tools, precision engineering, sophisticated electronics, office equipment and machinery). Next, assistance were provided to existing industries to upgrade their skills and technological level.
The Finance Minister, Hon Sui-Sen, also announced a ten-point program as part of the effort to restructure the economy. Industries with the desired level of technology would be given a five-year tax holiday. To help with the upgrading of the industries, an open-door policy was adopted for qualified foreign engineers, technicians and other professionals, and skilled workers. At the same time, manpower development efforts within the country would be intensified to promote industrial training.
As an incentive to enterprises, training expenses by medium- and high-technology industries could be amortized for tax purposes.[4] As a ‘disincentive’ for companies to remain labour-intensive, the wage policy was revised to effect increase in wages in stages. However, the increase was to be done in an orderly manner under the guidance of the National Wages Council established in 1972, to ensure that Singapore would remain competitive internationally in the medium- and high-technology industries.
Unfortunately, this initial attempt to upgrade the economy was disrupted by the first oil crisis in 1973, and the ensuing world recession in 1974-76.
As global economic conditions worsened, FDI inflow also fell sharply from S$708 million in 1972 to S$376 million in 1973. Singapore economy growth slowed consecutively to 6.1 percent in 1974 and then 4.1 percent in 1975.[5] As fear of recession rose, Singapore clung on to labour-intensive industries and kept wage increases down to protect jobs.[6] The delay in the restructuring because of the oil crisis meant that Singapore would become increasingly more dependent on low-skilled foreign workers to drive the economic growth. Had Singapore proceeded with the upgrading, many of the labour-intensive industries would have simply relocated to other locations with abundant labour supply.
By 1976, Singapore’s economy resumed its rising trend, growing by 7.1%. During the period 1974 – 79, its real GDP grew by 7.4% a year, much higher than the average of 4.8% achieved by developing countries. Notably, however, most of that Singapore’s economic growth did not come from the manufacturing sector which actually saw a declined in 1975.[7] Instead, the growth could be attributed to firstly the construction sector which benefited from the government’s continued investment in infrastructure, and secondly from financial services which saw a rise in activities in the Asian Dollar Market (ADM).
Despite the delay in the upgrading and restructuring of the economy because of the oil-crisis, several important developments further strengthened Singapore and helped it prepare for the shift to capital- and technology intensive industries in the next phase. As a result of the government’s constant effort in upgrading the skills of the entire work force, this phase saw the establishment of a strong foundation for industrial training. The Vocational and Industrial Training Board was set up in 1979 to increase the supply of skill-based workers. Besides continuing its efforts to strengthen the domestic educational institutions, the government had also initiated the establishment of the joint industry training centers, in collaborations with MNCs, through the EDB. The Joint Industrial Training Scheme was an excellent example of how industries and government could build symbiotic relationships. By helping to train the work force, the MNCs were guaranteed of a supply of highly-skilled workers as they shifted their operations increasingly towards more capital- and technology-intensive. In 1978, to encourage the adoption of automation, enterprises were charged a levy for foreign unskilled labour. At the same time, the government also encouraged wage increases in excess of productivity growth to nudge enterprises to upgrade their operations and reduce their dependence on labour.[8]
Next, services sector also saw rapid growth. The success of the ADM, for example, contributed to the growth of the financial and business sector and put Singapore on its path to become a regional financial centre.[9] Another service sector that continued to see high growth during this period was the tourism industry. To further extend the scope of the industry from private to business travellers, STPB created a Singapore Convention Bureau in 1974 to attract international conventions, exhibitions and incentive tours. Eventually, the relentless efforts of the STPB to promote Singapore paid off and the number of foreign visitors rose steeply from 98,500 in 1965 to 2.56 million by 1980. As a percentage of the GDP, tourism revenue grew from 5% in 1970 to more than 12% in 1980. Despite the rapid growth, Singapore faced natural constraints in its efforts to further develop the industry. As a small city-state, there were hardly any natural or cultural attractions to pull in tourists or entice them to extend their stay. Also, the industry was both labour- and land-intensive. Given the focus on industrial development, allocation of scarce resources, such as labour and land, to the tourism industry was seen as a diversion at the expense of the higher value-add industrial activities. As such, the government’s enthusiasm in developing the industry was thought to be lukewarm and low-key. [10]
The increase in tourists resulted in a rapid rise in air traffic at the Payar Lebar Airport, which had been in operation since 1955. In 1975, government made the decision to build the Singapore Changi Airport to facilitate a higher flow of travellers. The new airport opened for operation on 1 July 1981. The success of Singapore’s evolution into a regional transportation hub not only underpinned the development of tourism industry but also that of the export trade. Given that Singapore was an open economy with close links with global markets, the ability to maintain connections, both in terms of sea and air, was critical.
[1] [Sg004/83]
[2] [ePEScEc001/12]
[4] Hon, Sui-Sen (1973) “The New Phase of Industrial Development in Singapore,” Address to the Singapore Press Club on March 23, 1973.
[5] Singapore Department of Statistics. 2008b. Statistics: GDP at 2000 Market Prices. (http://www. singstat.gov.sg/stats/themes/economy/hist/gdp1.html).
[6] Goh, Chok Tong (1980) We Must Dare to Achieve” Budget Speech, 1980.
Contents
2.1 First Industrial Revolution and the Drive for Foreign Direct Investment
2.2 Building Soft and Hard Infrastructures
2.3 Expanding from Manufacturing to Services Sector
2.4 The Taking off of the Economy (1966 – 1973)
2.1 First Industrial Revolution and the Drive for Foreign Direct Investment
Singapore’s separation from Malaysia in 1965 marked the beginning of the city-state as an independent republic. It also meant the end of the import-substitution strategy. On its own, the domestic market was too small to be of interest to any MNCs. In addition, Singapore had to compete with Malaysia which was also seeking foreign investment. Left with no choice, the government increasingly turned to the idea of export–oriented industrialization, as proposed in the 1961 Winsemius Report, to drive economic growth. This early period of export-oriented industrialization is commonly known as Singapore’s “First Industrial Revolution”.
To attract foreign investment for its export-oriented industrialization drive, the government adopted various measures. In 1967, the Economic Expansion Incentives Act was enacted to provide incentives to the MNCs. Besides incorporating the Pioneer Industries Ordinance of 1959, the act also introduced export promotion measures.[1] Among other things, foreign firms were allowed total freedom in repatriation of capital and earnings abroad. Singapore was also one of the few developing nations to allow companies with 100 percent foreign ownership.[2]
Unfortunately, just as Singapore was struggling to stand on its feet after its separation from Malaysia, another crisis erupted. In 1967, the British government, pressured by its own financial difficulties, dealt another blow to Singapore’s fragile economy when it announced its intention to withdraw its military base in Singapore by 1971. Since the bases-related activities accounted for 20% of the Singapore’s GNP, the move could seriously worsen the unemployment situation and even trigger a recession.[3] Under these conditions, the government began to push for FDI in heavy industries, especially those that could create jobs quickly.
One country that played a significant role in Singapore early industrialization efforts was Japan which had achieved rapid post-war economic growth through its own industrialization efforts. Japanese investment flowed into Singapore as early as the 1950s. With economic survival at stake after its separation from Malaysia, the Singapore government was anxious to obtain the Japanese assistance. To invite Japanese companies to set up plants in Singapore, EDB set up an office in Tokyo in 1962. There was however, strong animosity towards the Japanese, especially among the local Chinese people, because of the atrocities committed by the Japanese when Singapore was under their occupation. Despite so, some Japanese investments did flow in. For example, in 1963, the Japanese shipbuilding firm Ishikawajima-Harima Heavy Industries (IHI) was invited to form a joint venture company, Jurong Shipyard Ltd.
To resolve the what came to be known as the “blood-debt issue”, Japan signed an agreement on ‘quasi-reparations’ with Singapore on 21 September 1967. As compensation, Japan offered grants amounting to $25 million (2,940 million yen) and an equal amount of loans in yen on liberal terms.[4] With the symbolic reparation, the historical baggage and animosity was put behind, at least at the governmental level.[5] In 1968, the Singapore government and the Mitsubishi Heavy Industries Ltd became venture partners to set up Mitsubishi Singapore Heavy Industries Ltd. In 1970, Robin Group joint Hitachi Zosen Ltd to set up the Hitachi Zosen Robin Dockyard Ltd. In 1971, Jurong Shipyard Ltd, a $15 million joint venture between the Ishikawajima-Harima Heavy Industries, the Singapore government, and the Jurong Shipbuilders Ltd, began operation.[6]
The Japanese interests went beyond just heavy industries. Large trading companies including Mitsui & Company, Mitsubishi Corporation, Marubeni-Iida, Ito Chu and Nissho also invested, some as early as the 1950s. These trading companies played a crucial role in helping to attract Japanese manufacturing investments, including those from textile and plywood industries, into Singapore in the first half of 1960s. Many of these manufacturing companies were unfamiliar with overseas market conditions at that time and had to depend on the trading companies for their overseas expansion.
2.2 Building Soft and Hard Infrastructures
Meanwhile, Singapore government’s policy initiatives during the early 60s were beginning to bear fruit. The education system’s sole focus on producing skilled artisans and technicians needed for industrial growth allowed the city state to generate a substantial pool of semi-skilled workers instead of unemployable white-collar graduates. School curriculum focused on applicative, rather than academic, subjects such as English, mathematics, and science. Enrolment was strictly merit-based.[7] In addition, to support the industrialization effort, EDB set up its Manpower and Training Unit in 1971, to provide ad hoc industrial training. In the same year, EDB launched the Overseas Training Programme which put young Singaporean workers in apprenticeship programmes in Germany. Joint training centres were also set up between the Singapore government and Tata of India, Philips of Holland, and Rollei of Germany.[8]
At the same time, the government also quickened its pace of putting in place infrastructures needed for the industrialization. Efforts to improve telecommunication, port and air services were intensified. The EDB had also developed several industrial estates each equipped with excellent physical infrastructure at subsidized rate. After promoting Singapore to its prospective foreign investors for almost a decade, the EDB had also improved its organizational capability and accumulated selling experience. Its officials had gained a reputation of delivering their promises. They were also very efficient in helping foreign investors cut down red tapes so that the production could begin within the shortest period of lead time. By November 1969, the government had set up Singapore Investment Centres in various countries including the US, Japan, Germany and Britain to help attract direct investments in Singapore.
In its efforts to consolidate its governance, the government continued with its efforts to streamline and put in place institutions that were critical for building and managing the economy. For example, as industrialization efforts gained momentum, EDB’s functions grew increasingly complex. In 1968, to relieve the EDB of the financial functions of providing investors with long-term loans at favourable interest rates and of making capital investment in industry, the Development Bank of Singapore (DBS) was established. In the same year, EDB’s responsibility of managing industrial estates was transferred to the Jurong Town Corporation (JTC). As a result of such relegations of tasks to other agencies, EDB could focus on its original goal of investment promotion to foreign investors. In 1971, Singapore created the Monetary Authority of Singapore (MAS) as its central bank. The task of issuing currency, however, remained with the Board of Commissioners of Currency, Singapore (BCCS) which had been performing that role since 1967.
Domestically, the government had also won the confidence of its people with the success in alleviating the problem of housing shortage. During the general election held in 1968, PAP won all 58 parliamentary seats. Armed with the strong mandate from the resounding victory, the government then acted quickly to improve industrial relations, another thorny issue which, if not tackled, could derail the industralization effort. Stoppages were widespread at that time. In quick succession, two legislations were introduced in 1968. Firstly, the Employment Act abolished some discriminatory practices and rationalized pay structures. Next, the Industrial Relations (Amendment) Act gave the management absolute prerogative over matters such as promotions, methods of recruitment, transfers, task assignments and retrenchment. These legislative changes helped to remove a big source of friction between labor and management and allowed trade unions to adopt a non-confrontational stance towards management.[9]
To further foster industrial peace, government promoted a tripartite relationship consisting of the government, employers and labour. The interests of the labour would be represented and protected by the National Trades Union Congress (NTUC). It was hope that tripartism would provide a system of dialogue to reduce stoppages and help to achieve higher productivity, greater efficiency and faster economic growth. The inclusion of six central committee members of the NTUC as parliamentary candidates in the 1968 general election further consolidate the relationship between the government and the unions.[10] By co-opting the union leaders within the government, it ensured that the interests of the workers would be taken into considerations during policy makings. More importantly, it shifted the focus of the unions from class actions to that of meeting national interests.
2.3 Expanding from Manufacturing to Services Sector
Despite its focus on industrialization, the government was quick to capitalize on emerging opportunities even in the financial sector. For example, it was quick in capitalising on the opportunity of providing international banking services after San Francisco had closed in the evening and before Zurich opened the next morning. The move made 24-hour global trading possible for the first time. In 1968, the government invited Bank of America to set up an Asian Currency Unit (ACU) to deal in U.S. dollars and other hard currencies, similar to its Eurocurrency unit in London. The Bank of America (BoA) jumped at the offer as it was anxious to collect deposits particularly from Chinese in Southeast Asia. As incentives, the government offered tax-exemption for the interest derived from non-resident deposits in these units. BoA’s entry was followed by a rapid succession of other banks, mainly foreign. These commercial banks (and merchant banks after 1970) were permitted to set up Asian Currency Units (ACU) to accept foreign currency deposits and make loans in foreign currencies. The ensuing phenomenal growth led to the formation of the Asia Dollar Market (ADM). It also resulted in the expansion of financial services industry and helped to diversify the economy from its dependence on the manufacturing sector. At the same time, the growth of the financial industry facilitated the inflow of foreign investment by making financial resources more readily available. Hence, the growth of the ADM provided the impetus for Singapore to emerge as a regional financial centre.[11]
Another industry which Singapore sought to develop was tourism. The Singapore Tourist Promotion Board (STPB, renamed the Singapore Tourist Board in 1997) was created in 1964 to oversee the development of the industry. In addition to its functions of marketing and planning tourism, the STPB also acted as an agent for the government on a wide range of tourism-related matters. For example, to improve the wholesome experience of tourists in Singapore, STPB acted as the lead agency that coordinated activities with other government bodies including Civil Aviation Authority of Singapore, Economic Development Board, Urban Redevelopment Authority, and the Ministry of Information and the Arts.
In 1970, STPB set up an office in Tokyo to attract Japanese tourists which formed the second highest group of visitors, after those from the neighbouring ASEAN countries. By 1972, another statutory body, Sentosa Development Corporation, was established to develop Sentosa Island (formerly known as Pulau Blakang Mati) into a tourist resort. For most years in the 1960s and 1970s, the tourism industry saw double-digit annual growth rates. One factor that contributed to the rapid growth of the industry was the liberal tourism policy Singapore adopted right from the beginning.[12] To welcome visitors from all over the world, there were hardly any visa or foreign currency restrictions. To ensure tourists safety, strict laws were enforced. At the same time, tough pollution control measures were implemented to keep the environment clean.
The growth of the tourism industry was also boosted by the development of the aviation industry. There were few restrictions on the landing rights or scheduled airlines and on the operation of chartered flights. The liberal aviation policies helped to increase the growth of air travel.
One government effort which eventually gave rise to a mega-success story that epitomizes the development of Singapore was the creation of Singapore Airlines (SIA). The history of SIA dates back to 1 May 1947 with the formation of Malayan Airways Limited operating three scheduled flights a week to Kuala Lumpur, Ipoh and Penang from Singapore’s Kallang Airport. Then, in 1966, Malaysia – Singapore Airlines (MSA) was formed from the Malayan Airway Ltd (MAL) after the governments of independent Singapore and Malaysia acquired a joint majority holding on it. Two years later, the iconic Singapore Girl adorning the sarong kebaya uniform designed by French couturier Pierre Balmain was introduced and became internationally the recognized image of the airlines. In 1972, Malaysia-Singapore Airlines split up to become two entities – Singapore Airlines and Malaysian Airline System. This milestone marked the beginning of the modern history of one of the most successful and respected airlines in the world.
2.4 The Taking off of the Economy (1966 – 1973)
The multi-front efforts by the government worked and the economy picked up during the second half of 1960s. Foreign direct investment (FDI) began to surge after 1967. During 1968-73, for example, manufacturing investment commitments amounted to S$2.3 billion. The US overtook United Kingdom as the largest foreign investor with most of their investment going to petroleum refineries and electronics. During that period, Singapore also benefited from the political uncertainties in Hong Kong attributed to China’s Cultural Revolution. The resultant relocation of textile and garments plants to Singapore generated a large increase in industrial employment and exports.
Overall, Singapore economy grew by an average of 12.6 percent every year between 1966 and 1973 (See Figure 2.1).[13] Exports expanded by an average of 19 percent annually between 1965 and 1974.[14] The number of workers employed in electronics industry rose from 1,611 in 1966 to 44,483 in 1973. During the same period, employment in textiles and clothing also increased from 2,459 to 35,012.
Altogether, these two industries alone generated more than half the total growth of about 147,500 in manufacturing employment during this period.[15]
The share of manufacturing rose sharply from 16.0 percent in 1966 to 22.3 percent in 1973. During the same period, direct exports as a percentage of total sales in manufacturing rose from 43.3 percent to 53.9 percent. Gross domestic capital formation as a percentage of GDP rose rapidly, from 21 percent to 40 percent in 1973.[16] Even though operations were focused initially on labour-intensive, low value-added items such as textiles, garments, furniture, electrical household appliances, ship repair, and simple repetitive assembly tasks in consumer electronics, capital intensity subsequently increased with investments in petroleum refining and chemicals.[17] In particular, the industrialization drive was led by the shipbuilding, oil refining, and electronics sectors.
With continuous inflow of FDIs, foreign invested companies dominated both production and exports and became the locomotives of industrial growth. Because of Singapore’s traditional strength in trading, there was a shortage of indigenous industrialists with the necessary experience to build industries. In the end, the government had to create state-own companies, including Singapore Airlines, Sembawang Shipyard and DBS, to grow the tertiary and manufacturing sectors. The rest of the domestic private companies, especially those dominated by Chinese conglomerates and active in trade and services played a relatively smaller role in Singapore’s industrialization process.
[1] Goh Keng Swee (1973) “lnvestment for Development : Lessons and Experiences of Singapore, 1959 to – 1971,” paper presented at the Third Economic Development Seminar in Saigon on January 17, 1973.
[2] [eBESg012/188]
[3] [eBESg012/188]
[4] Hiroshi Shimizu, Hitoshi Hirakawa (1999). “Japan and Singapore in the world economy: Japan’s economic advance into Singapore, 1870-1965”, Routledge,
[5] This simple statement makes light the severity of the conflict and the power struggle between the government and those who led the blood-debt campaign which included students, workers, and ordinary Chinese who supported the communists. Since this is beyond the scope of this paper, anyone interested should read Chapter 7 of Hiroshi Shimizu, Hitoshi Hirakawa (1999).
[6] Hiroshi Shimizu, Hitoshi Hirakawa (1999).
[7] [Sg004/73]
[8] http://www.edb.gov.sg/edb/sg/en_uk/index/about_edb/our_history/the_1970s.html
[9] [ePESgEc001/11]
[10] [ePESgEc001/11]
[11] [ePESgEc001/11]
[12] Khan (1998)
[13] Singapore Department of Statistics. (2008).
[14] Koh et al. (2007). P187
[15] [ePESgEc001/11]
[16] [ePESgEc001/12]
[17] [Sg004/83]
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