Remaking Singapore. Origins of Modern Singapore

Transcription

1 R E V : A U G U S T 2 2, M I C H A E L E. P O R T E R B O O N S I O N G N E O C H R I S T I A N K E T E L S Remaking Singapore Singapore had achieved impressive economic performance since gaining independence in The country had moved from $500 GDP per capita in 1965 to $10,000 in By 2008, GDP per capita had reached $37, While Singapore had continued to grow during the 2000s, competitive challenges were becoming increasingly evident. China and India, in particular, continued to expand exports and soak up foreign investment. Asian neighbors such as Vietnam and the Philippines had joined Malaysia, Thailand, and Indonesia in aggressive efforts to enhance competitiveness. Most Singaporeans were resigned to continued change as the only way to sustain prosperity. A visible example was the two casino complexes under construction in downtown Marina Bay and Sentosa Island, scheduled to open in 2010, 3 reversing a long-standing policy against gambling as a threat to the country s vaunted work ethic. Singapore s leaders were contemplating what other steps were needed to maintain and enhance Singapore s competitiveness. 4 Origins of Modern Singapore Singapore was an important trading center and port as early as the seventh century A.D. By the fourteenth century Chinese immigrants had established a small community on the island, and the name Singapura, a word of Sanskrit origin meaning Lion City, was in common use. Modern Singapore dated from the discovery of the island s superb natural port in 1819 by Sir Stamford Raffles, an officer of the British East India Company. The East India Company, seeking to forestall colonial advances by Holland and France, was in search of a base at the strategic southern tip of the Malay Peninsula that would complement the nearby British posts at Penang and Malacca (see Exhibit 1). Raffles instantly recognized the trading potential of the site, which he predicted would become a place of considerable magnitude and importance 5 and the emporium of the seven seas. 6 He settled a treaty the next day with a local sultan and established an outpost. HBS Professor Michael E. Porter, Professor Boon Siong Neo (National University of Singapore), and Principal Associate Christian Ketels prepared this case with the assistance of Research Fellow Susan Chung, Research Associate G. Alexander Muggah, Research Associate Stacie Rabinowitz, and Research Associate Jem Hudson. Professor Neo and Ms. Chung are affiliated with the Asia Competitiveness Institute at the National University of Singapore. This case draws heavily on an earlier case, Singapore, HBS No , which was prepared by Research Associate Edward Prewitt and Professor Forest L. Reinhardt. This case was developed from published sources. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management. Copyright 2010, 2013 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call , write Harvard Business School Publishing, Boston, MA 02163, or go to This publication may not be digitized, photocopied, or otherwise reproduced, posted, or transmitted, without the permission of Harvard Business School.

2 Remaking Singapore Singapore s location at one end of the Straits of Malacca and its policy of duty-free trade proved beneficial. It was earning revenue as a center for trade and transshipment within a year of the treaty. The population grew from about 150 at Raffles s arrival to 10,700 within five years. The three British posts on the Malay Peninsula were incorporated as the Straits Settlements in 1826, under the control of British India. In 1867 the Straits Settlements became a Crown Colony, controlled directly from London, and the British colonial civil service system was implemented. The population had reached almost 81,000 in 1860, including about 7,000 Europeans. Singapore developed a classic entrepôt economy, which funneled exports and imports to a surrounding region. An entrepôt typically included shipping, communications, banking, insurance, and infrastructure to support importing and exporting, as well as retailing and other services to provide for the needs of the shippers and service providers. The advent of the steamship and the opening of the Suez Canal in the 1860s dramatically increased traffic through the Malacca Straits, and Singapore became one of the region s major ports of call. The development of commercial rubber tree plantations in Malaysia was particularly important, as Singapore became the central rubber sorting and export center. Over time, processing and light manufacturing developed. Prosperity continued to grow based on entrepôt trade in rubber and tin from Malaya and the Dutch East Indies. Singapore s importance was enhanced by a sizable British military presence, which increased gradually after 1867 and culminated with the construction of a large military complex by By the beginning of World War II, the island had become Britain s principal naval and air base in Asia. When Britain was unable to commit sufficient forces to defend the base during World War II, the Gibraltar of the East fell to Japanese troops after six days of fighting. Renamed Syonan ( Light of the South ), Singapore was the capital of Japan s wartime southern region for three and a half years. The British returned in 1945 to find the island s housing and infrastructure in shambles, and unrest among the populace and workforce. 7 Reconstruction took four years, but by 1949 trade, labor productivity, and basic social services such as electricity and sewage had returned to their prewar levels. Entrepôt trade in rubber and tin boomed during the Korean War ( ), accounting for 20% of GDP. It was becoming clear, however, that traditional entrepôt trade was threatened. Newly independent Indonesia half of Singapore s trade hinterland had embarked on its own program of industrial development, lessening the need for Singapore as a trade hub. At the same time, politics began to take precedence over trade for many residents. The Malayan Communist Party, centered in Singapore, agitated for independence from Britain and gained many adherents, despite repression of the party by colonial administrators. 8 The End of British Rule: In 1946 the Colonial Office dissolved the Straits Settlements and combined the states of the Malay Peninsula into a Malayan Union. Singapore was excluded, however, and remained a separate Crown Colony. Strikes and repeated calls for self-rule in Singapore led Britain to agree to gradually increase Singapore s self-governance. In 1948, the first elections in Singapore s history were held, for 6 of Singapore s 25 Legislative Council seats. Throughout the next decade, a Singaporean government began to form alongside the weakening colonial administration. In response to communist protests in Singapore and an armed communist insurgency in Malaya, the British imposed the 1948 Internal Security Act, which allowed detention without trial for persons suspected of being threats to security. Protests continued until full sovereignty was granted in 1958, one year after the Malayan 2

3 Remaking Singapore Union had become the independent Federation of Malaya. A new Singapore constitution established a unicameral parliamentary democracy. The results of the subsequent election in Singapore, held the following year, surprised almost everyone. 9 The People s Action Party (PAP), a party launched in 1954 by a group of anticolonial, leftist politicians headed by 30-year-old Lee Kuan Yew, won an absolute majority of votes and 43 of 51 seats in parliament. The communist-leaning PAP members split from Lee, leader of the moderates in the party, over his desire to merge Singapore with the Federation of Malaya. After the merger was accepted in a public referendum, Lee arrested 100 key communist leaders in a crackdown known as Operation Cold Store. Some were confined for years without trial under Singapore s Internal Security Act (ISA). 10 In the following election Lee s PAP won 46% of the vote (37 seats), followed by the Socialists with 32% (13 seats). In 1963 Lee and the leaders of Malaya, North Borneo (later Sabah), and Sarawak signed an agreement to form the Federation of Malaysia. The new nation fulfilled a condition that Lee believed was necessary for Singapore s survival. Nobody in his senses believes that Singapore alone, in isolation, can be independent, stated an official government publication of the time. 11 The marriage soon ended, as political strains between Chinese-dominated Singapore and the Malay majority in the rest of Malaysia erupted in riots. The separate territories were unable to agree on a common market, and Indonesia objected strongly to the merger. Indonesian agents bombed a Singaporean hotel and seized fishing boats as part of its Konfrontasi with Malaysia. 12 Singapore s GDP declined by 4% in In 1965, little more than a year after the formation of the federation, Malaysia ejected Singapore. Lee Kuan Yew wept as he announced the separation, saying all my life, my whole adult life, I have believed in merger and unity of the two territories. 13 His distress might have been due equally to his nation s prospects. With the link to the natural riches of Malaysia... severed, Singapore was doomed to live on the wits of its people. They were not a promising mix, wrote The Economist. 14 Creating an Independent Singapore: Lee Kuan Yew became Singapore s first prime minister and his People s Action Party swept the first elections after independence, winning all seats in parliament. Singapore was a representative parliamentary democracy. Members of the single-chamber parliament were elected for four-year terms with a mix of individual constituencies and group-representation constituencies (GRCs), unique for Singapore, 15 and in turn elected the prime minister, who led the executive branch. The head of state was the president who, elected up until 1993 by parliament and since then through popular vote, had a largely ceremonial role. Opposition parties won individual seats, but had never fielded candidates in all constituencies. The PAP had won between 66% and 95% of all seats in the elections since independence. In international assessments of political rights and civil liberties Singapore was classified as partly free. 16 Foreign observers criticized the use of strict defamation and libel laws that, in a number of instances, had kept opposition politicians from running for fear of expensive court judgments. 17 Despite these controversies, independent surveys indicated that the great majority of Singaporeans saw the election process as fair. 18 Government set out to create a Singaporean identity that would unite the country s diverse ethnic groups. At independence, Chinese accounted for 62% of the population, Indians 16%, Malays 14%, and Europeans and others 8%. Five major languages and approximately 20 dialects made communication difficult. Government policy directed schools to teach four official languages: English (designated the language of administration), Malay (designated the national language), Mandarin 3

4 Remaking Singapore Chinese, and Tamil. Compulsory service in the Singapore Armed Forces was introduced in 1970 to create a shared experience across Singapore s society. Fearful of its security in a hostile region, government retained the colonial-era Internal Security Act, which allowed indefinite detention of suspected criminals. In the 45 years between 1963 and 2008, the ISA was invoked about a dozen times. Orderliness and cleanliness were hallmarks of the new Singaporean society and were strictly enforced by the government. Private ownership of cars, for example, was limited through high taxes to avert traffic congestion and air pollution. Taxis were fitted with outside lights and internal buzzers that were triggered if they exceeded the speed limit. Fines for littering, smoking in public places, and failing to flush public toilets were stiff and exercised with alacrity. 19 For a time, long hair on men was prohibited among government workers and tourists. Urban renewal projects razed most of the sites that Western tourists tended to find appealing in Singapore, such as the old Chinatown. Singaporean newspapers and television stations routinely supported the government. Television stations were state owned, and regulations gave government the ability to appoint board members of newspapers. 20 A few foreign publications writing unfavorable assessments had found themselves under pressure to publish official responses by the Singaporean government or face the prospect of having their distribution temporarily suspended. In practice, suspensions almost never occurred. International assessments of press freedom ranked Singapore lower than many other advanced economies. 21 Commenting on these rankings, Lee Boon Yang, Singapore s minister for Information, Communications and the Arts, characterized them as based largely on a different media model which favors the advocacy and adversarial role of the press [while Singapore s] model is that of a free and responsible press whose role is to report news accurately and objectively to Singaporeans. 22 Singapore s political and business elite formed a rigorous meritocracy, granting advancement only to those with high test scores and educational achievement. According to observers, the governing style was not totalitarianism, but rather... a paternalistic, ordered, and planned approach to society, based on the government s belief that it knows best. 23 Big Brother in Singapore is less a tyrant than an authoritarian father worried that his family will one day disappear, observed another critic. 24 Because of the small size [of the society], each official wears many hats, a senior official said. This eases informal communication and makes it easier to have a shared vision. The Central Provident Fund (CPF), a social security plan, had been introduced in 1955 when Singapore was still under British rule. The CPF involved mandatory contributions from employers and employees (initially 5% of salary from both the employee and employer) and was designed to increase the country s savings rate and create a long-term stake of the population in the new nation. Lee s government also moved quickly to create jobs and provide housing, both of which were in short supply. Two statutory boards with autonomy from line ministries were created: the Housing Development Board (HDB) in 1960 and the Economic Development Board (EDB) in Other entities like the Public Utilities Board (created in 1963 to oversee the supply of water, electricity, and gas) and the Port of Singapore Authority (1964) followed. With a budget of S$10 million in 1960, the HDB set out to build 10,000 low- and middle-income housing units per year, many in new towns in undeveloped parts of the island. (The colonial housing authority had built 23,000 units in 32 years.) The HDB soon exceeded its goal. In 1968, CFP regulations were relaxed to allow low-income citizens to use their savings to buy low-cost Housing Board flats. 4

5 Remaking Singapore Faced with an unemployment rate estimated at 13.5% in 1959, the EDB sought to support job creation by attracting investment. One of its first projects was the Jurong Industrial Estate, an industrial park created on filled land at the western end of the island that was designed to attract companies. Given the unstable political climate of the early 1960s, Jurong initially failed to attract much investment and won the epithet of white elephant. During the federation period and immediately afterward, Lee s government pursued an import substitution strategy, the policy most often recommended for less-developed countries by the International Monetary Fund (IMF) and other advisers during that period. But the separation from Malaysia, with its much larger market, rendered the strategy impractical. Building on the contrarian advice from a UN study (the Winsemius Report), the government turned to a strategy of export-led economic growth. 25 With a limited base of local companies, Singapore welcomed foreign direct investment at a time when many nations in the region viewed the presence of Western multinational firms as a vestige of colonialism. The government undertook measures to improve the investment climate. New laws moderated labor costs by limiting some tactics of trade unions, which had been prone to strikes in the pre-independence era. Exchange rates were managed close to market rates, and there was free convertibility of the Singapore dollar. Tariffs and duties on imports and exports were set at low rates. At independence, trade unions had communist leanings and frequently struck for better wages and working conditions. 26 Upon taking power, Lee banned antagonistic unions outright. Their successor, the National Trades Union Congress (NTUC), was cooperative with government, officially sharing the doctrines and policies of the PAP. Union membership began a long decline, from 75% of the workforce in the late 1960s to 25% in The governmental National Wages Council set economy-wide guidelines for wages, wage increases, and fringe benefits, which rose steadily over time. To improve the investment climate for foreign corporations, parliament barred unions from negotiating promotions, transfers, firings, and working conditions after Housing investments and EDB efforts created some jobs, but the unemployment rate remained over 10% in Singapore s economic prospects were dealt a further blow when Britain announced it would pull out its troops in the early 1970s. At the time, British military expenditures accounted for 18% of Singaporean GDP and 20% of employment. Speeches by Singaporean policymakers convey a... sense of desperation, 27 wrote the New York Times in The 90,000 to 100,000 jobs that will be lost with the British pullout will be added to an already high unemployment figure Fortunately, world trade and global investing were booming in the 1960s and early 1970s, and American and European firms were seeking sites for off-shore assembly plants. The EDB opened its first foreign offices in Hong Kong, New York, and San Francisco, pursuing multinational companies that sold to worldwide markets. Within months the campaign began attracting factories, beginning with the electronics industry. By late 1969, seven major firms, including National Semiconductor and Texas Instruments, had located plants in Jurong and other industrial estates. Their Singapore plants made components mostly for shipping back to the parent companies in America. The Ministry of Finance took equity stakes in some local companies and provided cofinancing on the large projects of foreign investors. By 1970, its holdings amounted to a quarter of all equity investments in the economy. 29 Electrical machinery, petroleum products, and construction were some of the sectors in which investment occurred. Early government-linked companies (GLCs) like Keppel, Sembawang, and Jurong Shipyards played an important role in the development of shipbuilding and 5

6 Remaking Singapore repair activities. Neptune Oriental Lines was established as a shipping line. Some GLCs were joint ventures with foreign companies, for example, the Singapore Refining Company, important in the development of the Singapore oil refining industry, was a joint venture with Caltex and BP. In all of these cases, the government provided the initial capital but didn t offer any other support or protection so that government-linked companies were forced to compete on the same terms as their foreign rivals. In 1974, the Finance Ministry created Temasek Holdings, a limited holding company with independent legal status, to manage the government s ownership stakes in GLCs. Temasek s initial portfolio included stakes in 36 companies 30 with a value of around $100m. Becoming an Asian Tiger From a compound annual growth rate of 5.8% during , Singapore s real GDP growth accelerated to 12.9% in , which was probably the highest rate in the world (see Exhibit 3). Foreign investment inflows, export-oriented manufacturing, and external trade all grew rapidly. Economic success earned Singapore and several other East Asian nations the appellation of little dragon. Monetary policy since independence had emphasized maintenance of very low inflation. The government maintained the convertibility of the Singapore dollar, and since 1973 the currency had been allowed to float. The current account balance turned positive in the mid-1980s. Positive net flows in services and foreign investment offset a negative goods trade balance. Singapore pursued a strategy of deliberately keeping its foreign exchange rate somewhat below what the IMF saw as the long-term equilibrium level. The government argued that it needed the accumulation of foreign reserves to prepare for the global shocks to which Singapore was highly exposed. 31 Government revenue exceeded spending, resulting in large budget surpluses for all but one year of the 1980s and 1990s. 32 Singapore s reserves of foreign currency reached S$59 billion in 1991, exceeding that of most other countries on a per-capita basis. Located on the main Europe Far East shipping route, Singapore became the world s fourth busiest port. 33 The government viewed the port as its lifeline, devoting as much capital to the facilities as it could afford. The result was a perpetual state of expansion and upgrading. Singapore built the region s first container freight terminal in 1972, and introduced 24-hour berthing service. The British naval dockyards were converted into a ship-repair center which grew rapidly. In addition to low-skilled assembly work, capital-intensive industries also grew. Singapore promoted the expansion of the former British Navy refueling facilities to multinational oil companies interested in the oil deposits in Indonesia, and Singapore soon became the largest petroleum refining center in Asia. Petrochemicals also benefited from the war in Vietnam as U.S. warships and supply ships increasingly used Singapore s port facilities. As the historically high unemployment rate evaporated during the 1970s and 1980s, labor market rules were gradually relaxed. During the same period, the functional composition of the labor force shifted. A large contingent of foreign workers was admitted to Singapore beginning in the early 1970s, when labor shortages began to appear. They fell into two categories: skilled workers and professionals, with long-term employment passes, and unskilled workers with biannual work permits, hired largely in the construction, manufacturing, and domestic service sectors. The government controlled the number of unskilled workers to regulate wages. In 1973, at the peak of an economic boom, guest workers constituted approximately 13% of the labor force, up from 3% around By 1980 their number had dropped to 7%, as the government limited work permits to discourage labor-intensive operations. The fraction rose again to reach 18% in Rules on the 6

7 Remaking Singapore permitted percentages of foreign workers changed frequently. Guest workers came at first largely from Malaysia, and as that nation s job market tightened, from Indonesia, Thailand, the Philippines, India, and Sri Lanka. The first international oil shock in 1973 brought about the end of two-digit growth in Singapore. Economic conditions in developed countries, on which Singapore was dependent, worsened. Real GDP growth fell from 11.2% in 1973 to 6.1% the following year. 34 Still, the economy grew at a rate of 7.1% (compounded annually) in , far exceeding the world average. During the second international oil shock, which induced recession in many countries in , real GDP grew by more than 9% in both years. In the tightening labor market, real wages began rising more rapidly than labor productivity. Other less-developed Asian countries with cheaper labor, such as Malaysia and Thailand, emerged as important manufacturers of labor-intensive products. The Lee government responded by initiating a large wage increase in 1979, with the total impact on wages ranged between 14% and 20%. 35 The government hoped the policy would encourage Singapore s factories to shift to higher-technology, higher-productivity products. The key element of the policy was a belief that manufacturers would not relocate all operations to other countries with lower labor costs, but would recognize enough value in Singapore s infrastructure, hardworking people, and pro-business government to stay on the island. Our strategy is to induce entrepreneurs and managers of capital to increase efficiency of production by restructuring, automation and rationalisation, said Goh Chok Tong, then minister of Trade and Industry. We also encourage them to upgrade into higher-technology industries that can generate more value-added products. The new policy would allow... wages to rise to a level reflecting the scarcity value of labour in Singapore. 36 Government ministers spoke with relish of inefficient firms going bankrupt, releasing skilled workers to successful companies that can make better use of them. 37 For several years the strategy appeared to work, or at least not to harm the economy. Real GDP grew 8.4% (compounded annually) from 1980 to However, fully a quarter of GDP growth in came from the construction sector, which rapidly expanded to work on several large infrastructure development projects. Financial services, transportation, and communication also grew rapidly. Recession and Reform In 1985 a deep recession was accompanied by weak external demand, low profits, much-reduced investment in manufacturing, and a sharp rise in unemployment. Singapore s real GDP declined by 1.4%, the first contraction since independence. The recession was partly explained by the depressed international market for oil. However, a high-level Economic Committee formed in April 1985, composed of top public and private sector managers, blamed structural deficiencies in the economy for a larger portion of the decline. It deemed the 1979 wage policy overambitious; growth of labor productivity had not kept pace with the rising wages, which had seriously eroded the nation s cost position relative to rival Asian economies. The committee (which was chaired by Lee s son, Lee Hsien Loong) pointed to the heavy payroll taxes levied for the CPF, which pushed up labor costs while external demand was slowing. Lastly, the committee blamed a dependence on the construction boom. When the boom ended, the economy collapsed. 39 The Economic Committee recommended that the government lessen its extensive managerial and development role to allow the private sector more freedom. Specifically, it advocated flexibility in wage setting and reduction of the high mandatory CPF contribution in order to stimulate domestic 7

8 Remaking Singapore demand. Corrective measures were instituted in early 1986, including dramatically scaling back the mandatory contributions to the social security fund to 35% from its peak of 50% in By the end of that year a recovery had begun, which was sustained in 1987, when the real GDP growth rate of 9.8% exceeded the predicted figure of 6%. In 1988 high export growth and domestic demand led to 11.5% real growth, the highest rate in 15 years. Strong world trade growth assisted this impressive performance, but it owed much to the adoption of the corrective measures recommended by the Economic Committee, wrote one observer. 40 Fast growth continued in 1989 and 1990, despite a slowdown in Singapore s major export market, the United States. The manufacturing sector grew by 9.5% in 1990, led by electronic components (particularly disk drives), but was eclipsed by financial services, a sector that since the 1970s been supported by the government through targeted incentives. Over time, the focus had shifted to diversification and automation. Financial services had grown dramatically in importance, despite having rattled investors when the stock exchange closed at one point during the 1985 recession. Singapore became Asia s third most important financial center, behind Tokyo and Hong Kong by Financial services accounted for 28% of GDP and employed 11% of the labor force. (See Exhibit 4 for Singapore s export portfolio.) By the late 1980s, Singapore s population had reached 3 million, including foreign workers. Chinese formed 78% of the total population, Malays 14%, Indians 7%, and Europeans and others 1%. While attractive to unskilled workers, Singapore had encountered difficulty attracting skilled workers from elsewhere and retaining its own. A net 4,700 families left the country in This brain drain was particularly prevalent among Singaporeans of Malay and Indian descent. In 1989, the Lee government announced it would relax the stringent resident status criteria for up to 25,000 skilled workers from Hong Kong and their dependents, but the plan had limited success. The government had even founded a matchmaking service with the goal of finding husbands for welleducated Chinese women, who were marrying later and having fewer babies. Singapore s port, the world s busiest for the fifth consecutive year and the most efficient, overtook Hong Kong to become the world s largest container port (in terms of the number of containers handled). Its oil installations were third in the world in refining capacity, and Singapore was the world s third largest oil-trading center. Changi Airport was voted the world s best airport for the third straight year and Singapore Airlines, regularly named the best airline in the world, was also the most profitable. And Singapore s public administration was increasingly seen as a global role model; the CPF board alone registered 137 foreign visitors on study missions. The EDB had used landfill to expand the limited land available on the island. Government-linked companies, established in the earlier years to operate key infrastructure, remained the country s largest employer into the 1990s. The more than 450 companies in which the government had a majority stake, such as Singapore Airlines and Singapore Telecom, accounted for 20% of GDP in Government-linked firms were managed differently than in most other countries, with professional boards of directors and expectations that they make a profit. The government managed its equity positions through specialized entities, most importantly Temasek Holdings. 42 Government also held three-quarters of the country s land, which it retained when selling HDB flats to their occupants. According to one observer, Singapore... has been a major exception to the central tenet of Economics 101 that government participation is bad for the economy. 43 Singapore s tensions with Indonesia and Malaysia had receded enough by the late 1980s for the three countries to announce establishment of a growth triangle comprising Singapore, the Malaysian state of Johore to the north (connected to Singapore by two bridges), and the Riau Islands 8

9 Remaking Singapore of Indonesia to the south (30 minutes by ferry). Singapore had management, technology, telecommunications, and transportation, while Johore and Riau offered land and low-cost labor. Malaysia and Indonesia retained sovereignty, but Singapore had substantial freedom to administer the development. Development proceeded rapidly, mostly on the Indonesian island of Batam. At the beginning of 1990 Batam was rain forest with few human inhabitants. Two years later several companies had begun manufacturing and 35 more had signed up to occupy its industrial park. In 1992 a second island, Bintan, was added to the scheme, as a planned resort. The growth in Batam- Bintan slowed down after 2000 when political decentralization in Indonesia complicated local governance. In November 1990, Goh Chok Tong was elected the second prime minister of Singapore. Many thought Goh would be a transition figure, acting as a placeholder until Prime Minister Lee s son, Lee Hsien Loong, was ready to run for office. However, Goh went on to win three elections and served for 14 years. Singapore Maturing: 1991 to 2008 In early 1991 Goh s new government issued a long-range plan called the Next Lap. The plan plotted long-term social and economic goals. Plans included improving infrastructure, expanding educational opportunities, creating an advisory body of Singaporeans living abroad, and building research institutes to support companies expanding to world markets. 44 Its introduction sounded the familiar Singaporean insecurity of a small island in a big and hostile world: External events can shake us, as they have in the past. Nothing is certain. We have to keep trying to stay ahead in the race of nations. We must never forget the basics: We have to stay united, work hard, save, look after each other, be quick to seize opportunities and be vigilant. No one owes us a living we have to earn it. 45 The plan set the goal of achieving a U.S.-level per-capita standard of living by To ensure stability, the constitution was amended to safeguard government financial reserves by limiting how quickly they could be accessed. The amended constitution also aimed to ensure the independence of key statutory bodies in case of a change in government by placing limits on the ability to fire judges and by allowing the President and Prime Minister to file corruption charges against each other. 46 Singapore s growth slowed to 6.6% in as the U.S. recession deepened, and there were forecasts of a slowdown in the Singaporean economy in 1992, to only 5% to 6%. Even so, Singapore Inc., as many citizens referred to their nation, continued to claim an impressive set of economic superlatives. As Singapore s economy worsened in 1992, Singaporeans wondered nervously if the 1985 recession was about to be repeated. Official and unofficial commentators did not attempt to pin all the blame for the country s slowing economic growth on the international situation. Instead there was a relatively frank and public debate on the problems nearer to home. The major argument was over whether Singapore s virtuous cycle of saving had again become vicious. Some thought oversaving, in large part through the government s CPF savings schemes, served to depress private consumption and returns on investment. 48 The steady growth of CPF rates since 1986 was halted at 40%. Some CPF rules were relaxed to allow Singaporeans to use their savings for additional health care costs. 9

10 Remaking Singapore During the 1990s, the Singaporean government implemented a number of policy initiatives motivated by the experience of the recession of the mid-1980s and following up on the vision set out by Next Lap. EDB set out to attract new investments in high-value-added industries like electronics, information technology, communications, and petrochemicals. Manufacturing firms already operating in Singapore were given financial incentives to engage in activities beyond manufacturing. To boost advanced services, EDB set the goal of attracting 500 world-class companies to carry out substantial HQ activities in Singapore by 2010 (by 2006, more than 385 companies had some HQ functions in Singapore). While multinationals remained at the core of Singapore s economic strategy, the government also aimed to improve the conditions for local companies. In 1996, the Productivity and Standards Board (PSB) was formed to identify and nurture promising SMEs to become Asian MNCs. The Thinking Schools, Learning Nation program was launched to transform the education system to foster creativity, independent thinking, and problem solving. Students from lower social groups were not performing well on independent reasoning. Comprehensive reforms in school management processes, systems, and structures paved the way for subsequent changes in curricula and pedagogy, which would take many years. The old system had delivered high scores in international comparisons and there was hesitance to change what had been a successful approach. 49 Research centers and advanced training programs were launched in a number of areas. The governmental National Computer Board announced a plan for the development of information technology (IT), IT2000. Significant investments were made in new ISDN (integrated services digital network) technology and fiber optics to enable the use of advanced information and communication technologies. Through 1997, the economy grew at a brisk pace. Driven by strong export growth, GDP per capita levels reached US$25,269 by % of the U.S. level versus 61% 15 years earlier (for GDP levels over time, see Exhibit 3). Dealing with External Shocks: The Asian financial crisis in was the first of a number of severe external shocks that hit the Singaporean economy. In the early 1990s, global liquidity and low interest rates in industrialized countries coincided with a liberalization of cross-border capital transactions and deregulation of Asian financial markets to lead to a flood of foreign capital flows into Asia. The sharp expansion in domestic credit had been invested in cyclical and speculative sectors such as property and equity markets. Short-term foreign currency-denominated loans were used to finance longer-term infrastructural projects. When export revenues and foreign direct investment inflows softened as local currencies appreciated, current account deficits mounted. When the global electronics industry slowed down in 1997, current account deficits ballooned, and massive capital flight forced many Asian currencies to devalue while stock markets plummeted. Singapore had much stronger economic fundamentals than its neighbors but was affected nonetheless. Its exchange rate and stock market fell by 16% and 54%, respectively, between July 1997 and October While the currency was devalued against the U.S. dollar, it appreciated against the currencies of its much harder hit neighbors, increasing Singapore s relative cost position in the region. Foreign direct investments (FDI) into Singapore, which had peaked at US$13.8 million in 1997, fell to US$7.3 million in Unemployment rose from an average of 1.7% ( ) to 2.5% 10

11 Remaking Singapore in Weak regional demand for Singapore s products was partly offset by the relatively stable Organisation for Economic Co-operation and Development (OECD) markets. Almost 80% of Singapore s domestic exports to the region were intermediate components whose final products went to OECD countries. 51 The Asian financial crisis exposed the structural rigidities and weaknesses of countries in the region, many of which were forced to restructure, liberalize, and reform their economies. In Singapore, the Committee on Singapore s Competitiveness was created in 1997 to review and develop a path for Singapore s future development. The Committee was chaired by Trade and Industry Minister Lee Yock Suan and comprised of cabinet ministers, representatives from the private sector, and labor union leaders. It recommended that Singapore reduce its business costs, maintain investor confidence, and continue to build up the people s abilities to ride out the economic storm. The committee urged government to solidify the financial system, diversify the economy by developing new markets for exports, and form strategic alliances with regional economies to speed up the recovery process. A series of steps were taken, including the privatization of the National Computer Board in 1999 and the opening of government IT to private sector service providers on a competitive basis. While the Southeast Asian economies were still working through the political and economic turmoil left behind by the Asian financial crisis, the September 11, 2001, terrorist attack in New York sent shockwaves throughout the world. Singapore, which supported the U.S. stance against terrorism, was considered a target for attacks. 52 In December 2001, Singapore utilized the Internal Security Act to arrest several dozen members of a radical Islamic group called Jemaah Islamiah who were plotting to attack American and other Western interests. These arrests not only heightened the insecurity that Singaporeans were already feeling, but also strained the social cohesion that multiracial Singapore had worked so hard to develop since independence. Against this backdrop of political and security uncertainty, the IT and telecommunications industries crashed, and the U.S. economy slipped into a recession in the fourth quarter of The combined nominal GDP of the original five Association of South East Asian Nations (ASEAN) members was 21.3% lower in 2001 than 1997 and growth rates were anemic. Singapore s GDP growth worsened from 8.3% in 1997 to negative 2.4% in 2001, the worst GDP decline ever recorded. In 2001, Singapore recorded its first budget deficit in over 10 years. In March 2003, the spread of the deadly SARS virus worldwide took a heavy toll on business. Tourism, which accounted for about 5% of Singapore s GDP, 53 as well as transport-related industries were the worst hit. Singapore s National Association of Travel Agents estimated that inbound business fell by 70% while outbound business fell by 80%. Regional headquarters services were affected as companies imposed travel bans on their staff. Foreign patients seeking medical help in Singapore and foreign student arrivals also saw a dip. Singapore Airlines suffered its first quarterly loss and had to lay off 414 employees in Even the Housing Development Board shed 3,000 of its 8,000 staff as part of a restructuring exercise. Although retrenchment cut across all segments, it was especially severe among production and low-skilled workers. As less sensitive production relocated to China and service jobs were outsourced to India, many low-skilled workers in Singapore were made redundant. Unemployment doubled from 1.4% in 1997 to 3.1% in Maersk and Evergreen, two global shipping lines, relocated their container business from Singapore to the port of Tanjong Pelapas in the southern Malaysian state of Johor, reducing the Port of Singapore s (PSA) handling volume by more than 20% and forcing PSA to cut staff by 14%. 55 As restructuring swept across numerous industries, many workers found that the 11

12 Remaking Singapore skills they possessed were no longer in demand. Though new jobs were created, many remained unfilled even during the 2001 recession. The Economic Review Committee While the Singaporean government had initially viewed the external shocks as a temporary cyclical problem, signs were mounting that more fundamental economic restructuring was needed. In December 2001, Singapore created the Economic Review Committee (ERC), chaired by then Deputy Prime Minister (and Finance Minister) Lee Hsien Loong. The nearly 20-member committee included several ministers, the chairman of the Economic Development Board, the secretary-general of the National Trade Union Congress, the chairman of the Singapore National Employers Federation, and prominent CEOs from the private sector. Subcommittees worked on taxation, CPF, wages, and land; entrepreneurship and internationalization; human capital; the manufacturing sector; service industries; domestic enterprises; and the impact of economic restructuring. In total, more than 1,000 people from all parts of Singaporean economy and society were involved. In 2003, the ERC s report concluded that Singapore s successful growth model of the past 20 years was not going to be sufficient in the future. The committee presented its short- and long-term recommendations on Singapore s economic strategy, based on a vision of Singapore as a dynamic global city-state with an entrepreneurial and diversified economy. The ERC recommended short-term adjustments to improve the relative cost position of companies operating in Singapore. The employer s contribution to the CPF was cut to 13%, with an even lower rate of 9% for older workers between ages 50 and 55. The monthly salary cap for computing contributions was reduced from S$6,000 to S$4,500. Rental rates for government-owned industrial space were lowered. Government-related fees were frozen and fee increases deferred. In 2003, the income tax rate was reduced from 26% to 22% and further to 21% in Taxes were shifted to a goods and services tax, similar to a value-added tax (VAT) in other countries, which moved from 3% to 5%, and subsequently to 7% in In 2004, foreign-sourced income and domestic investment income from financial instruments were exempted from tax. In 2005, the corporate tax rate was reduced to 20%. The ERC s other recommendations were wide-ranging, including expanding economic ties with countries in the wider region (spanning India, China, Japan, and Australia) to enhance Singapore s regional hub status, promoting new export industries in education, health care, and professional services, and building stronger private companies through promoting entrepreneurship, attracting global talent, and facilitating economic restructuring through worker education and skills retraining. The ERC report triggered a series of steps. In some areas, it accelerated policies already under way. In 2003, for example, Singapore signed a free-trade agreement (FTA) with the United States. While most of the tariffs on trade in goods from the two countries had already been eliminated, the agreement would lead to their total elimination over a 10-year period and also covered government procurement, competition, and intellectual property protection. The U.S. Singapore FTA was implemented in 2004, and bilateral trade between the two countries rose by 8.7% by By 2007 Singapore had established 13 FTAs with various countries. Efforts to strengthen regional integration within ASEAN were intensified as ASEANs ambitions were expanded. Singaporean government-linked companies (GLCs), including Temasek Holdings, became more active investors abroad. By 2008, domestic holdings (see Exhibit 5) accounted for less than one third of Temasek s total portfolio. After some discussion, the ERC had concluded that GLCs continued to play a valuable role in the Singaporean economy. A number of studies comparing the performance of 12

13 Remaking Singapore Singaporean GLCs to privately owned peers had found their exposure to competition to be critical, not the ownership status. 57 Among new efforts launched, the Workforce Development Agency was established in 2003 to lead efforts to upgrade workers skills. Even during the economic downturn, some industries, such as shipbuilding and repair industry, could not find enough qualified Singaporean workers. 58 The Skills Redevelopment Program (SRP) subsidized employers costs of sending their workers for training. More than 25,000 workers from more than 15 industries and 500 companies benefited annually from these courses. 59 These efforts built on schemes that had been previously developed, including the Skills Development Fund (SDF), the Manpower Development Assistance Scheme, the Life-Long Learning Fund, and the National Skills Recognition System. In science policy, the National Research Foundation was established in 2006, and new efforts, called in2015 and i-gov2010, were launched to further develop the country s IT infrastructure and the use of e-services by government. A new online business licensing service was launched to simplify administrative procedures for companies. The Ministry of Information, Communications and the Arts mounted a plan to transform Singapore into a vibrant global city for information and the arts. 60 The Singapore Film Commission nurtured local talent and facilitated coproductions with international filmmakers filming in Singapore. To support local filmmakers, the Singapore Media Academy was set up in 2006 to help media professionals take advantage of new technologies. An increasing number of international media organizations set up operations in Singapore, including CNBC and MTV. The drive to preserve and showcase Singapore s heritage, headed by the National Heritage Board, attracted more than 1 million visitors in 2006 to its five museums. The 119-year-old National Museum of Singapore was upgraded at a cost of S$133 million. An ambitious plan to turn the entire downtown Marina Bay area into an exciting environment for businesses, tourists, and residents by 2010 became one of the most visible symbols of the economic transformation. New developments on reclaimed land included a new business and financial center, three new linked waterfront gardens, museums, art galleries, a giant Ferris wheel that is similar to the London Eye, several high-end condominiums, hotels, retail and entertainment facilities, the new Marina Barrage reservoir, water-sport zones, and the Sands Integrated Resort. International events such as a world horticultural show, the International Pink Dragon Boat Council World Championships, and a marathon were attracted to the Marina Bay. Besides the bay area, the old central business district, Chinatown, Little India, the Singapore River, Tanjong Pagar, Bugis, and the Orchard Road shopping belt were to be upgraded over the next 5 to 10 years. Between 2004 and 2008, Singapore grew strongly, taking advantage of a buoyant world economy. Average real GDP growth over the period was less than that of China and Vietnam, though faster than Hong Kong and the average growth rate registered by the 10 ASEAN countries. Labor productivity grew at a compound average rate of 1.5%, 61 while total factor productivity growth averaged 2.1% over the same period. Singapore s trade grew strongly to $338 billion in exports, an increase of 88% relative to Inward foreign direct investment flows reached $22.7 billion in 2008, up 13.3% between 2004 and In August 2004, Goh stepped down in order to transfer power to Deputy Prime Minister Lee Hsien as part of a long-planned succession process. Although some international observers expressed concerns about the nature of the transition, 63 in 2006 Lee Hsien called an early general election, which he won by a wide margin. 13

14 Remaking Singapore Singapore in 2008 By 2008, Singapore was ranked fourth in the prosperity league of countries, just behind Norway but ahead of countries like the United States, Ireland, and Hong Kong. 64 Inequality was relatively high compared to other Asian countries, though not versus Western economies. Singapore s government provided many public services to lower income groups, education, health care, and public amenities like parks and sport facilities. Quality of life was generally considered high, and there were repeated stories in the press of expatriates preferring Singapore over Hong Kong because of its better environment and good schools. There was no indication that income inequality had led to public unrest, but politicians repeatedly stressed the need for social cohesion. (For comparison of basic economic indicators in Singapore versus selected Asian countries, see Exhibit 2.) The ratio of working age people (15 to 64 years) to pensioners (65 and older) had dropped from 15 to 1 in the 1980s to 10 to 1 in 2000 and was expected to drop to 5 to 1 by Singapore s fertility rate of 1.3 births per woman was far below the replacement level of 2.1 and the rates of all other advanced economies. 65 The government experimented with several programs to increase the attractiveness of having children and there was a debate about the use of immigration policy to address the demographic challenges. The number of Singaporeans living abroad, many of them highly skilled, had grown from 36,000 in 1990 to 143,000 in A 2006 survey found that 53% of Singaporean teens would consider emigrating compared to 28% of Malaysians and 39% of Indians. 66 Labor productivity stood at 96% of the OECD average, and had grown slightly faster than in the average of this group of advanced economies (see Exhibit 6). Labor productivity growth had become much more volatile over the last decade and had slowed down after 2005 while wage growth continued at higher rates. 67 Singapore had made limited gains against the U.S., still the global labor productivity leader. Of special concern was the fall in total factor productivity growth since 2005, a measure of how efficiently labor and capital inputs were used in companies. Temporary foreign workers, a group with very high labor mobilization rates, played an important role in the labor force. Female workforce participation in Singapore was somewhat lower than in most other OECD countries, especially for the age groups above The most commonly cited reasons given were lack of part-time/flexible working arrangements (61%) and inability to find jobs near home (45%). Singapore s trade (exports plus imports) was well over 400% of GDP. The 2008 trade balance registered a surplus of US$22.5 billion or 12.3% of GDP. 69 Re-exports accounted for close to 50% of all Singaporean exports, a share that had gone up significantly from 34% in Re-exports were particularly important in technology-intensive product categories. Singaporean value added was significant in product categories like petroleum products. By 2008, Malaysia, Indonesia, and Hong Kong were the top three destinations of Singaporean goods exports, ahead of the United States, the European Union, and Japan. Many of the exports to emerging Asian economies were components for end products ultimately sold in the U.S. and Western European markets. Foreign investment activity had reached historic highs (see Exhibits 7 and 8) and foreign investors Singaporean operations were highly profitable. Domestic fixed investment rates stood at 28.5%, compared to the 19.7% average for OECD countries and 25.7% for ASEAN countries. 70 According to the World Bank, Singapore had the world s best environment in terms of rules and regulations for conducting business. 71 Singapore continued to invest heavily in physical infrastructure and skills. Corruption was all but nonexistent (see Exhibits 9 and 10 for more details). On economic freedom, a general measure of openness and the freedom for private business activity, Singapore consistently ranked among the top countries in the world

15 Remaking Singapore Starting in 2003, Singapore made six years of free basic education compulsory for children aged six through fifteen. The Singaporean system was focused on flexibility, and allowing children to pursue unique paths either through accelerated learning programs or specialty subject areas to foster unique skills. The OECD s PISA study of educational outcomes ranked Singaporean students second out of 65 countries in mathematics, fourth in science, and fifth in reading proficiency. 73 Singaporean fourth graders ranked first in science and second in mathematics in the international TIMSS assessment of education systems. Students at the secondary level achieved similarly high rankings. 74 BERI s 2005 Global Labor Force study rated Singapore as having the best workforce, although the average years of schooling of workers still lagged behind those of other Asian countries. 75 Wages were at 34% of the U.S. level in 2007, low compared to OECD countries but slightly higher than in Hong Kong or Taiwan (see Exhibit 11). 76 Singapore ranked 9th in spending on R&D as a percentage of GDP and 13th on the number of researchers in the workforce. The National University of Singapore (NUS) was ranked 30th globally, behind one Australian and two Asian regional competitors. In the disciplines associated with life sciences and technology, NUS ranked 17th and 11th, respectively. 77 In 2008, Singapore-based inventors had registered 399 patents in the U.S., compared to a cumulative total of 301 between 1965 and 1995 (see Exhibit 12). 78 Electrical engineering accounted for half of all Singaporean U.S. patents. Singapore s ranking on the intensity of local competition had improved to 16th by Since 2005, a number of steps, including the creation of the Competitive Commission of Singapore (CCS), had been taken to enhance rivalry. However, 10 sectors, including telecommunications, postal, media, transport, and parts of banking, remained outside the jurisdiction of the competition law. Foreign companies accounted for about 50% of total value added in the Singaporean economy, dominating sectors like chemicals, pharmaceuticals, electronics, and financial services. 80 Singapore had also become home for a large number of Asian regional headquarters for multinational companies, often in competition with Hong Kong. Locally based companies ranked lower. Government-linked companies, professionally managed at arm s length through Temasek Holdings, were strong in engineering, transportation, and communications. Privately owned Singaporean companies dominated in the areas of business services and real estate, hotels and restaurants, and as suppliers to foreign-owned manufacturing activities. Rates of new business registration had increased in recent years. However, most talented Singaporeans preferred to join the established multinational or government-linked companies rather than launching new ventures. Singaporean Clusters The Singaporean economy consisted of a portfolio of clusters that had evolved over time. Traditional strengths were in areas like petrochemicals, transportation and logistics, finance, and information technology. Government policy aimed to develop these clusters further, in some cases significantly shifting the nature of their activities towards higher value added. There were also efforts to develop new clusters like tourism, education, and biopharmaceuticals. The petrochemical cluster had been a major part of the Singapore economy since Shell built the country s first oil refinery on Bukom Island (which later became part of Jurong Island) in By 2008, Singapore was one of the top three oil refining centers in the world. The petrochemical industry accounted for 11.2% of Singaporean industrial output and was the third largest manufacturing sector in Singapore, after petroleum (23.3%) and semiconductors (14.8%). 81 The heart of the cluster was on Jurong Island, reclaimed from the sea in the late 1980s and provided with dedicated infrastructure at a cost of more than $5.1 billion borne by the EDB. More than 80 of the world s biggest petroleum and petrochemical companies such as Shell, ExxonMobil, BASF, and Mitsui Chemical operated on the 15

16 Remaking Singapore island. The Chemical Process Technology Centre (CPTC) and the Institute of Chemical and Engineering Sciences (ICES) had been set up to provide staff training and research. Investments had recently been made in the Banyan logistic hub on Jurong Island dedicated to chemical warehousing, tank filling, cleaning and maintenance, drumming and water treatment facilities, an upgraded Jurong Port, and a new underground storage facility for petroleum and petrochemical products. The financial services industry contributed about 13% to Singapore s GDP in 2008 and registered a growth rate of 7.3% despite a general slowdown of financial services in other parts of the world. 82 In , Singapore undertook a strategic review of financial services and launched several initiatives to liberalize previously heavily regulated activities like local insurance and retail banking as well as stock trading. The 2003 Economic Review Committee had triggered a new effort to move to higher value activities. 83 By 2008, Singapore-based institutions had strong positions in currency trading, asset management, private banking, and insurance. There were also growing attempts to tap into the emerging market for Islamic finance, based on specific tax advantages for such instruments 84. While Singapore had a strong position in Asia, it remained behind the leading global financial clusters. In foreign exchange trading, daily trading volumes in the U.K. were five times higher and had grown faster than in Singapore. 85 Skilled personal were in increasingly short supply. Scholarship programs for finance training were launched 86 and the Institute of Banking & Finance worked with the industry to launch the Financial Industry Competency Standards (FICS), a set of skill standards to raise the quality of training and workforce skills in the sector. 87 In late 2006, the government brokered a voluntary freeze on poaching by foreign banks from their Singaporean peers. 88 In logistics, the ports of Singapore remained in a leading global position, despite stronger growth in some Chinese ports and Shanghai in particular. By 2008, Singapore remained the largest container port in the world. 89 NOL, formed by the Singaporean government and majority owned by Temasek Holdings, was among the largest shipping lines in the world, with a market share of 3.6% in In air transport, Changi airport ranked close to the top 20 by passenger volume. 90 Changi was perceived to be particularly strong on service quality. 91 In 2002, the government also had set up a number of programs to strengthen workforce skill development, help companies to upgrade operational efficiency, assist SMEs in the use of IT, and support entrepreneurship in the cluster. Information technology accounted for 3.6% of GDP while electronics manufacturing accounted for 4.7% of GDP and employed more than 90,000 workers in The cluster was traditionally concentrated on efficient production of advanced IT hardware by MNCs and had remained resilient throughout the Asian financial crisis and the burst of the dotcom bubble. In 2006, the National Research Foundation had set a goal of developing the cluster toward interactive digital media (IDM). An IDM R&D Program Office was established with a five-year budget of S$500 million for research in animation, video games, and special effects. 93 Two new agencies were created, the Infocomm Development Authority (IDA), regulating telecommunications and promoting ICT usage, and the Media Development Authority (MDA), supporting content development across different media platforms, promoted investments in digital media products, services, and content. Local polytechnics and universities started offering digital media and animation courses, and in 2007 the DigiPen Institute of Technology opened a campus for animators and game developers. Animation studios and electronic game developers such as Koei, Lucas Films, and Electronic Arts 94 as well as international media companies like BBC International and academic publishing houses like Elsevier, set up operations in Singapore. Many of them used Singapore as a regional headquarters for Southeast Asia or talked about using Singapore as a base to blend Asian and American styles. 95 Biopharmaceuticals, especially pharmaceutical production, had begun in Singapore in the 1970s, when first SmithKline Beecham and later Glaxo Welcome set up production sites for active 16

17 Remaking Singapore pharmaceutical ingredients (APIs). 96 API production continued to dominate the cluster, which registered the highest value added of all Singaporean non-oil exports. In 2000, the government had started to develop biomedical science as a new growth area. Tuas Biomedical Park (launched in 2000) and the Biopolis Science Park (phase 1 launched in 2003, phase 2 in 2006) attracted significant investments. A*STAR, the national research and development agency, recruited globally renowned researchers to Singapore and by 2007 more than 2,000 scientists and professionals were working in Biopolis. Five biomedical research institutes 97 had been created by New advisory committees and laws strengthened the regulatory framework. By 2009, foreign investors had built new manufacturing facilities and a total of 25 life sciences R&D labs. 98 Research spending by pharmaceutical companies went from S$88 million (2001) to S$238 million (2004). 99 The EDB worked with multinationals to develop a 10-year road map for development, including the construction of an Academic Centre of Excellence for Discovery Research and a S$50 million endowment for research in green manufacturing and public health policy. The Singapore Academy of GxP Excellence worked with private sector partners to enhance life sciences, clinical research, and manufacturing standards. In tourism, S$100 million had been committed in 2003 to enhance infrastructure and market Singapore to the rapidly growing Asian middle class, especially in China and India. The Uniquely Singapore campaign was launched in 2004 to increase brand awareness. A key component of this program was involving local Singaporeans as brand ambassadors for their homeland. In 2009, the tourism board also invested S$90million in collaboration with private sector partners such as airlines, hotels, and tour operators to develop specialty packages to entice visitors from target markets. Singapore was also expanding its offering of major events, such as the first nighttime Formula 1 Grand Prix race in 2008, and new attractions, such as HortPark amusement area. More than 10 million tourists visited Singapore in 2008 and spent S$15.2 billion. Medical tourism was a part of the cluster that was expected to have particular potential. In 2003, the Health Ministry launched the Singapore Medicine project with the intent of attracting a million foreign patients to Singapore. In 2008, 10% of all tourism spending went toward medical services. The majority came for medical checkups and minor treatments, but more complex treatments for cancer, heart problems, and gynecological and orthopedic problems were gaining in importance. Singapore was also hoping to become a global education hub. In 2004, the Singapore Education Services Centre was set up as a one-stop center for foreign students in Singapore. The Anglo-Chinese School, one of Singapore s top privately funded schools, opened its doors to international students in Singapore attracted more than a dozen foreign universities, including MIT, Cornell, Wharton, University of Chicago, and INSEAD, which offered mainly postgraduate courses. Schools for highly specialized areas, such as the American Digipen Institute of Technology for digital media studies, also began to open satellite arms in Singapore. What s Next? In 2008 Singapore was the first Asian country to enter recession as a result of the global financial crisis. The financial services cluster was shaken by the announcement of layoffs, the port was bracing itself for a slump in global trade, and there were rumors about the financial stability of Sands, the lead developer behind the Marina Bay casino complex. In early 2009, Prime Minister Lee Hsien Loong announced the formation of an Economic Strategies Committee (ESC). The aim of the ESC, chaired by Minister of Finance Tharman Shanmugaratnam and comprised of 25 members drawn from government, unions, and companies, was to provide recommendations on how to support sustainable future growth. 17

18 Remaking Singapore Exhibit 1 Map of the Southeast Asia Region Source: Courtesy of the University of Texas Libraries, The University of Texas at Austin. 18