How to explain Singapore’s growth despite lack of stimulus?

by philg

After a slight contraction in 2009, Singapore’s economy is roaring back with GDP growth of close to 15 percent in 2010 (nytimes). How did people there manage to achieve this success? By U.S. standards, the government of Singapore is almost non-existent, consuming just 12.5 percent of GDP (source). If you scroll down to the bottom of this chart, you’ll see that the U.S. federal deficit is, at 10.5 percent of GDP, nearly equal to all government spending in Singapore. (Local, state, and federal spending combined in the U.S. is now at a non-WWII record of 44 percent (source).)

One would think that any debate about the likely effectiveness of increased government expansion here in the U.S. would include a discussion of how Singapore is succeeding, but I have not seen that in the news. Why would Americans not look to more successful economies worldwide for inspiration?

[As a side note, the CIA factbook for Singapore shows that the per-capita GDP of this once-poor country is higher than that of the U.S.: $50,300 compared to $46,400. The data have been tweaked for “purchasing power parity”, so it isn’t exactly clear who would find a Honda Accord more affordable, but it is nonetheless impressive that a country with no land and no natural resources could have surpassed the U.S., which has been gifted with (or stolen from the Indians) almost an entire continent to exploit.]

30 thoughts on “How to explain Singapore’s growth despite lack of stimulus?”

  1. As ever, simple figures hide a lot of complexity. Singapore’s GDP spike is largely caused by factories that were stalled in 2009 starting to export again, resulting in a 44% (!) increase in manufacturing activity. As a whole, though, the economy is increasingly post-industrial and service-oriented, and the fastest-growing sectors here — luxury apartment construction, private banking, casino gambling, etc — are lubricated largely by the laundering of dodgy money from Indonesia, China and Myanmar. This is certainly a lucrative and possibly even sustainable model for Singapore, but hardly something the US as a whole can copy.

    As an entrepreneur, though, Singapore is an excellent place to do business: generous tax exemptions for start-ups, 0% capital gains tax, tax-free dividends, no minimum wage, cheap semi-slave foreign labor, powerless unions, virtually no statutory rights for workers earning over US$2k/mo or so, etc. One major flip side, though, is that government-linked companies (GLCs) have actual or effective monopolies over vast chunks of the economy, channeling huge amounts of money to…, well, nobody is quite sure where, but it’s certainly one reason why formal taxation is so low.

    Incidentally, that Honda Accord will set you back nearly US$100,000 in Singapore, thanks to the exorbitant taxes and levies on car ownership, notably the “Certificate of Entitlement” that lets you drive one for 5 years.

    http://www.sgcarmart.com/new_cars/newcars_overview.php?CarCode=10509 (S$1.38 = US$1)

  2. I am also dubious about the stimulus, but Singapore’s economy is driven by exports and benefits from larger countries’ stimulus spending. The US economy is so massive it cannot be bailed out by the rest of the world even if they tried.

    As for natural resources, resource extraction only takes you so far (Saudi Arabia: GDP per capita: $19K). Countries like Japan or Israel with little to no resources are forced to invest in brain power (Japan GDP per capita: $38K, Israel: $27K). Resource wealth also encourages kleptocratic dictatorships, the only exceptions being Austalia and Canada.

  3. The Honda Accord is a hard item to compare as Singapore’s car purchasing prices are very intentionally inflated. One buys a car for twice what it would cost anywhere else, and then then the government buys it back after 2 years for a substantial sum. The re-purchased cars are sold to Malaysia, and Singapore has only brand-new sparkly cars on the streets. Your license plate is also color coded depending on what hours of the day you’ve paid to drive in. Non-rush hour plates are cheaper.

    My favorite “this isn’t America” aspect of Singapore’s car system was driving out of a private parking garage my host hadn’t previously parked in and having the fee automatically deducted from my host’s account. I asked what stops someone from setting up a box that deducts a dollar from every car that passes by, expecting fancy some authorization scheme, and he just said, “jail.”

  4. Folks who live in Singapore: What can people get from the government there? Free education? If so, up to what age? And how much is tuition at universities? How about health care and retirement? Are there equivalents to Medicare and Social Security?

    How does unemployment insurance work over there? Is it run by the government or private?

    How about for business? Are the rewards to lobbying as potentially rich as here in the U.S.? Will the government impose tariffs to protect a locally influential company at the expense of consumers? Are there big subsidies for industries owned or run by government cronies?

    https://www.cia.gov/library/publications/the-world-factbook/rankorder/2034rank.html shows that Singapore spends almost 5 percent of GDP on its military, a higher percentage supposedly than the U.S. If the figure of 12.5 percent of GDP for all government spending is right, that leaves only 7.5 percent for everything else that government does.

  5. I’ve been thinking about Singapore lately as an example of small. lightweight government by people who don’t hate government, as opposed to massive, bloated government by people who claim to hate government. Statements like “”The nine most terrifying words in the English language are: ‘I’m from the government and I’m here to help'”, or “”I’m not in favor of abolishing the government. I just want to shrink it down to the size where we can drown it in the bathtub” may have been amusing, but they also indicated that the small government faction of America had become anti-government. Under Bush, republicans certainly did show their hostility to competence in government, but they didn’t seem to have any problem with growing it up nice, fat, and soft. Maybe Obama is just the ultimate capitulation – i.e., since I’m going to have to live with massive government under either party, I may as well pick the one that at least *thinks* it can be competent.

  6. > What can people get from the government there?

    Excellent infrastructure, safe streets, and not much else.

    > Free education? If so, up to what age?

    Primary schooling only, up to age 15. It’s not entirely free though, with fees for books, uniforms etc, and there’s a complex system of rankings, ratings and streams that determines who is permitted to continue onto universities.

    > And how much is tuition at universities?

    Market price, but with lots of scholarships for students who excel academically.

    > How about health care and retirement? Are there equivalents to Medicare and Social Security?

    Both are purely on a pay as you go basis: put in one dollar now, get back one dollar plus interest later.

    > How does unemployment insurance work over there? Is it run by the government or private?

    None. If you don’t work, you starve. (There are a limited set of very stingy support schemes for people who are physically unable to work though, but even here the expectation is that the primary support is through family.)

    > How about for business? Are the rewards to lobbying as potentially rich as here in the U.S.? Will the government impose tariffs to protect a locally influential company at the expense of consumers? Are there big subsidies for industries owned or run by government cronies?

    The line between government and business in Singapore is highly blurry, with various scions of the Lee family parachuting back and forth between positions in “actual” government and the various GLCs. For example, the prime minister’s wife runs the state investment fund Temasek, while his brother used to be head of SingTel. If a GLC screws up, which they do on a regular basis (eg. Temasek lost several billion on an ill-advised punt into Thaksin’s telco company in Thailand), the taxpayer eventually ends up footing the bill. Protective tariffs of any kind are pretty much unknown, as Singapore is first and foremost a tax-free port, but there are plenty of legal obstacles to setting up competition to the government in any number of sensitive areas like media (all TV, radio and newspapers are gov’t-controlled), telecoms, etc.

  7. Jani: If primary school run by the government goes only until age 15, what do Singaporeans do when they turn 16? Attend a private high school and pay tuition for a few years before university? (If so, how much is tuition? And how much is tuition, in USD, at the universities?)

  9. When people stop comparing Singapore with anyother country, we will have made real progress:
    1/ Singapore is small, with a small population (5 million). It calls for a small, efficient government: there are no huge infrastructures to maintains, no transport system to develop to keep area alive.
    2/ Singapore economy is hugely driven by import of foreign workers who increase the GDP but not increase the “per capita” when there is a recession since they have to be out of the country 2 weeks after losing their job
    3/ Singapore has a daily influx of cheap workers from malaysia who partcipate to the GDP, but never account in the “per capita”

    The goverment direct spending may not be high, but most Singaporean large companies are in large part or in majority government owned and participate in the govt policies.
    Singapore has an economy with one of the highest disparity of incomes in the developped world since high renewed immigration keeps the low wages low, and the higher wages (expats) high.
    Middle income Singaporeans have put all their (future) savings in real-estate, and to buy a Government Subsidised flat now one would take a 35 year loan.
    With that in mind Singaporeans find “normal” to spend a year of income or more to buy a car, and everything else is “cheap” by comparison.

  10. Fees for Primary and Secondary education is practically nothing.
    http://www.moe.gov.sg/education/secondary/

    For medical and retirement there is a Central Provident Fund (CPF) scheme run as individual account, where employees contribute around 20% and employers contribute 15% (which is adjustable up/down depending on how economy is doing).
    http://mycpf.cpf.gov.sg/Members/Gen-Info/mbr-Gen-info.htm

    Speaking of government, Singapore Ministers are probably the most well paid in the world with multi-million dollars package. This attracts high achievers from private sectors who really want to serve their countries without having to worry about monetary side of things to support their family. To draw a parallel to Software development – the best software engineers could be more than 20 times more effective than a normal run of the mill guys. Poor software developers can actually produce negative work output – the more he works the more bugs he introduces that require other to fix – hence pulling resources from more productive work.

    Singapore is a small island (around 40km x 30km) with 5 million people, so it is necessary to artificially inflate car taxation to control car population. It has an excellent public transport system, so owning a car is not necessary.

  11. Re: age 16, the 20% or so Singaporean students destined for university continue their studies at “junior colleges”, which are more or less equivalent to US high school. The public ones are subsidized and cost S$6/month (plus minor miscellaneous fees), while the semi-private ones are more expensive but still reasonable (~S$300/mo). The rest go onto polytechnics or vocational schools.

  12. Charles: Your theory that Singapore is small and therefore easy to govern efficiently would imply that the smaller U.S. states would be models of efficiency and economic success. What do we observe? Rhode Island, whose politicians are in prison for corruption and whose citizens are unemployed at a greater rate than in larger states. As far as cheap foreign workers go, I think that we have that in the U.S. as well. A lot of people migrate here from Latin America and then go back home when the jobs evaporate (the ones who choose to stay and have kids, of course, tend to dominate the public consciousness). I don’t think it is enough to say “The U.S. is big and we have to build highways, therefore we can never compete with Singapore.”

  13. Are US citizens ready to let government control their everyday life as in Singapore? Would the current laws of Singapore make it past ACLU, or Unions of the US?

    A lot of Singapore’s success is rooted in its culture. Leaving the culture out is like comparing apples to oranges.

  14. George: As far as controlling everyday life, state and federal governments in the U.S. are the world leaders in this respect by at least one measure: percentage of population imprisoned. http://rds.homeoffice.gov.uk/rds/pdfs2/r188.pdf for example shows that Singapore imprisons only about half as many people, per capita, as does the U.S. I don’t think that a person currently languishing in a U.S. prison would share your implicit celebration of U.S. freedoms.

  15. US could never be like Singapore

    1) No one mentions Singpore’s largest export: Oil

    2) No one mentions 1/4 of Singapores work force are foreign workers
    The Singapore government openly admits and encourages the recruitment of migrant workers with12 hour working days, 7 days a week
    No rights and no minimum wage
    They may get 1 day off a month!
    http://www.nytimes.com/2005/11/14/opinion/14iht-edbowring.html

    100,000 this year alone – which is like the US allowing in 7 million workers who earn below minimum wage.

    3) No Minimum wage laws – elderly workers typically make $3 an hour

    4) 80% of people live in government housing

    5) 38.3 per cent of all households own cars (95 percent of American households own a car)

  16. @philg, Comparing control imposed by government over prisoners vs. free citizens is not a fair comparison. A fair comparison would be control of government over US’s prisoners vs. Singapore’s. But this is not the point.

    The US culture is far more open and thus is also far more outspoken and free thinking as individual. We pride our self on liberty and freedom above all. You have much more diversity and free thinkers in the US vs. Singapore. For example — and the example is hypostatical just to make a point — if the US government attempts to pass a law requiring each US student to exercise 1/2 hour a day before classes begin, you will see an uproar of rejections because it’s a forced program on students. On the other hand, if the Singapore government does the same (and I think they already do), it will be welcomed with silence support and solidarity since the majority of Singapore citizens accept what’s given to them by their leaders / government.

  18. George: I’m not sure it is productive for us to pat ourselves on the back and say that we are the world’s freest and best thinkers. We thought that the Japanese could never build a nice car and that the Chinese could never manufacture sophisticated electronics.

    Putty: I’m not sure that those CIA Factbook public debt numbers tell the whole story. The U.S. owes about 500 percent of GDP (see this New York Times article). We don’t account for it the way that a private company would have to and therefore it is hidden most of the time (until, apparently, it gets to 800 percent of GDP and the scheme blows up, as Greece found out recently). The CIA Factbook says that most of Singapore’s borrowing is for their pension fund and goes further to say “the government has not borrowed to finance deficit expenditures for more than 20 years”. So the true comparison is probably “The US owes 500 percent of GDP and Singapore owes 113 percent.” It is also unconventional that a fast-growing recently-poor country isn’t borrowing (traditional for expanding economies) while the stagnating country that was already wealthy 100 years ago is borrowing so heavily.

  19. GDP figures do not accurately reflect how wealthy the average Singapore citizen is. Firstly, wages in Singapore are a significantly lower proportion of GDP than in the US. Most of my highly educated friends could be earning much more in the US, Europe or Australia for the same job, and indeed most of them are doing just that. The average wage for fresh graduates in Singapore is much lower than that in the US (comparable to the subsistence stipends graduate students in the US get), and living costs in Singapore (primarily housing costs) are higher compared to practically any city in the US besides NYC. Finally, most Singaporeans work much, much, longer hours than their American and European counterparts, with lower pay and no overtime pay. For graduates with good degrees who can get hired overseas, working in Singapore is a very, very poor financial decision to make.

    Secondly, because of the heavy reliance on MNCs, spikes in GDP do not necessarily translate into higher incomes for Singaporeans — it depends on what proportion of the spike is taken out of the country by MNCs.

  20. I think that Singapore perhaps has a lesson for the USA, whose government seems to be growing with excess like a 400 lb lady consuming oreos. So many government officials are overpaid, so many departments are overstaffed, there is too much of an ‘old boys’ network in some parts of government (worse still with the Obama administration) and that is why deficit runs at 10.5% of GDP. The Singapore government is proof that a small government isn’t necessarily a bad or inefficient one. The USA govt needs to give more power back to the individual and only step in when it is truly NEEDED by those who NEED it, rather than at the indulgence of those who are already rich. However, given that those who are in power are those who would lose out under such a scenario, I doubt this would ever happen.

  21. Everybody has a fancy angle to look at numbers and slice and dice it the way they want their point taken. It really all depends on where a particular individual sits on the spectrum of social/economic ladder, if I may presume there is one.

    I am an average joe from Singapore, age 31, with blue-collar workers parents.
    I lived and worked in Arizona when I was 26 – 28, and I have this to say about the comparison.

    GDP is highly skewed in Singapore, with the middle and low income families not getting a fair bite of the pie. Most of my family and friends do not feel the difference between a 0% and a 15% growth year. Likewise, GDP per capital is highly skewed. While Singapore is said to be one of the safest countries in the world, Singaporeans do not live with a sense of economic security.

    Life is so much better in USA because of the vast amount of land and space. I could choose to move from cities to suburbs if I need a different kind of cost-of-living and pace-of-life to suit my needs. Singapore’s property is at 5x or more the median household income (and nearly family is, as it is, already having to earn dual income, unlike USA)

    The taxation in Singapore is misleading because of severe indirect taxes only citizens can attest to. Comparing my own experience of the same lifestyle between earning USD$2700 per month after tax in Arizona vs in Singapore, I managed to save 5 times more in USA.

    Singapore favors the rich. If you are just a everyday-bloke, trust me, America is way better for the individual in terms of purchasing power; further, the quality of life and cultural development in America is probably a few decades ahead of Singapore.

  22. @Anthony: Singapore _refines_ lots of oil from other countries, but it does not have any of its own. (Or anything else in the way of natural resources, for that matter.)

    @philg: Rhode Island is five times larger than Singapore and has only 4% of its population density, so it’s hardly a comparable city-state. (And RI has the additional misfortune of not lying on the main shipping route between Europe and Asia…)

    And I’ll add my voice to choir about GDP numbers being highly misleading: the average Indonesian maid or Bangladeshi toilet cleaner in Singapore can only dream about earning US$50,000 in ten years, never mind one! (The recommended — but not legislated — minimum wage for a full-time live-in Indonesian maid on call 24/7/365, with no holidays whatsoever and usually hefty debts incurred in getting to Singapore in the first place, is S$180, or about US$120, per month.)

  23. NEWS reports often mention the high debt of the United States and Japanese governments. At the same time, we are told Singapore has low debt. Yet the 2008 Statistics of Singapore notes that Singapore’s public debt stood at $255.464 billion that year, while the Gross National Income was $250.387 billion. It would appear Singapore too has pretty high public debt.

    –Can you explain this anomaly? How do economists compute a country’s debt? What is included in the list of debt and what is not?

    –First, Singapore has a well-deserved reputation for the conservative management of its public finances. Yet its gross debt to Gross National Income (GNI) ratio exceeded 100 per cent in 2008. Some international sources project that ratio to increase to 112 per cent by the end of the year, which is equivalent to US$38,000 (S$53,000) per person (assuming a population of 4.9 million). This contrasts with a projected 2010 debt-to-GNI ratio of 60 per cent for the United States.

    Unlike the US, however, Singapore has exhibited persistent and large structural budget surpluses. Thus, Singapore’s officially reported budget surplus averaged 7.4 per cent of GNI annually between 2003 and 2008. The apparent anomaly of, on the one hand, having high structural budget surpluses, and on the other, a large public debt has puzzled analysts. Usually public debt is issued to finance government deficits. But past budget surpluses suggest Singapore’s fiscal balance sheet has substantial accumulated balances, and there is no need to issue public debt.

    The main limitation of the gross public debt indicator in assessing fiscal health is that it leaves out the Government’s assets from past surpluses, and whatever funds that may have been set aside, as Singapore has done, to repay debt. Net public debt would be a better indicator. Thus, if the net instead of the gross public debt were used, Singapore will not exhibit any public debt. Instead, it will likely show a surplus.

    In this regard, there is strong merit in routinely publishing the Government’s balance sheet, indicating the extent of past budget surpluses and their deployment. That way, we would avoid such puzzlement as the questioner has noted.

    –Second, why does the Singapore Government issue debts and who holds them?

    There is official data available on gross public debt according to instruments. In 2008, for example, 82 per cent of debt was in Registered Stocks and Bonds, and 14 per cent was in Treasury Bills, with the remaining 4 per cent in Advanced Deposits with the Monetary Authority of Singapore (MAS) to be converted later into the other two categories. There is data available also on gross debt according to maturity. In 2008, for example, most of the debt was over a one-year period. There is, however, no data according to the holders of the debt.

    The Central Provident Fund (CPF) Annual Report for 2008 stated that of its total investments of $153.4 billion, $150.8 billion was held in Hold-To-Maturity financial assets. Nearly all of the CPF’s assets were held between Special (non-marketable) government securities, and Advanced Deposits with the MAS. Thus, the CPF as an institution is the single largest holder of government debt. The CPF itself is passive in investing its members’ assets, content to receive administered rates of interest on its Hold-to-Maturity assets.

    Other holders of Singapore government debt include financial institutions that are required to purchase such debt as part of their prudential norms. The rest is distributed among other investors.

    **A major objective of issuing public debt is to facilitate intra-fund transfers within the broadly defined public sector. More recently, establishing a risk-free interest rate benchmark through issuance of longer period government securities has also been an objective.

    To conclude, conventional aggregate ratios to assess fiscal health have important limitations. Specifically, they do not take into account the type of public finance management that Singapore practises. Suitable changes in the way the Government presents its fiscal accounts could enable analysts to better assess Singapore’s fiscal health.

  24. I think Phil’s comparison is relevant.

    Neither the gov’t of Singapore nor the US are very different. Both have acquired the monopoly on domestic use of force.

    However:

    Gov’t here has decided to exercise its franchise in order to secure the relative enrichment of its favored constituencies through wealth extraction from productive enterprises and private capital. Between ZIRP and deficit public spending through deficits, rent seeking has become the dominant national economic activity. And has been for at least two years.

    Gov’t there has chosen to exercise its franchise in order to effect quite rapid and ongoing change that [they believe] enhance both Singapore’s ability to survive over a multi-decade horizon, along with their ability to maintain control.

    The issue becomes, if you’re a productive soul, you’re going to be in perpetual conflict with the US gov’t, wheras in Singapore, the problem arises if the Lee family decides to move in a direction where it wants your resources or limits your access to some resource you needed as an input.

    If forced to pick, I’d choose to throw in with the Lees and deal with the resource contention problem if it happens.

    It would be nice if there was a better choice available, but that’s wishful thinking.

  25. Perhaps one factor is the benefit of having an extremely stable government, ie one dominated by the same single party for the last 50 years. 96% of the current parliament is from the ruling party and the percentage has always been around that figure (see http://en.wikipedia.org/wiki/Parliament_of_Singapore).

    In terms of government policy, this plays out more like a (benign?) dictatorship with policies building upon the past, rather than the situation in many Western countries where every 3 – 8 years a whole new group sweeps into power and attempts to reverse all progress made by their predecessors.

    Incidentally, the discomfort at having (effectively) a single political party comes mostly from those with a Western background. Most residents that come from poorer neighbouring countries seem to take it as a fair trade for clean streets, efficient public transport, etc.

  27. I must point out, that the USA has not only stolen this immense territory from the indians but also from Mexicans.

  28. I am surprised that no one has mentioned the importance of the port of Singapore: http://en.wikipedia.org/wiki/Port_of_Singapore

    US and Singapore are not entirely comparable, a better comparison would be between the city of New York and Singapore…although if given the chance, I wouldn’t think twice about leaving New York for Singapore…

    D.M

  29. There was an interesting discussion of Singapore’s healthcare system here:
    http://www.willwilkinson.net/flybottle/2010/07/11/so-hayek-basically-had-ezra-kleins-views-on-health-care-right/#comments

    “For what it’s worth, Singapore really does have very good healthcare policy – the most important features are probably the absolute powerlessness of the doctor’s associations and other labor unions, the compulsory publication of prices (even by private services!), vigorous means-testing, and the very small geographical size (meaning that you can easily find a dozen general practitioners within twenty minutes of virtually everywhere on the island). Prices like these are representative. Competition is stiff.”

    Compulsory publication of prices, *drool*. Wouldn’t it be nice…

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