The ‘Singaporean story’ is virtually folklore at this point, throughout Asia but especially in Sri Lanka – Lee Kuan Yew’s transformation of an entrepôt into one of the most advanced and developed countries in the world. The comparisons between the unfettered success of Singapore and the relative failure of Sri Lanka are a mainstay of economic and political commentary in our country. 

Lee did himself develop quite an accurate narrative of Sri Lanka’s economic, political, and social unravelling; Singapore’s founding father was a keen observer of the island nation, which during the period had a diversified agrarian economy, while at independence in 1965, Singapore was a small, underdeveloped economy. The story since has been well documented, yet some of the finer points of Singapore’s success have been disregarded in favour of a more simplistic narrative. 

There is no doubt that liberalisation was a key factor in Singapore’s success, yet it is hardly the only country to liberalise; Singapore’s success is exceptional even among the most successful countries in Asia, the ‘Four Asian Tigers’. 

Singapore soars above its peers; its Gross National Income per capita based on Purchasing Power Parity (GNI PPP) is around $ 118,000 (World Bank, 2023) while Gross Domestic Product (GDP) per capita is around $ 84,000. Compare this to Hong Kong, which has a GNI PPP and GDP per capita of $ 77,000 and $ 50,000, respectively, while South Korea stands at $ 55,000 and $ 33,000, respectively. Figures for Taiwan are not as readily available but its GNI PPP is in the $ 80,000 range, substantially below that of Singapore. 

The narrative that Sri Lanka failed because it did not follow Singapore’s path is only part of the story; it ignores that many nations are nowhere near as successful as Singapore in this modern period, within such a short span of time. Yet the Sri Lankan commentariat believes that what Singapore achieved can be easily replicated; this is incredibly naive. 

The much-vaunted economic success stories of the modern age pale in comparison to Singapore: China’s GNI PPP is $ 24,000 while its GDP per capita is $ 12,000. India, our illustrious neighbour, is even further behind at $ 10,000 and $ 2,400, respectively. 

It is thus extremely important to understand that what Singapore achieved was not only exceptional in its outcomes but the condition and context of its post-independence period were also unique to that moment in history. This article will consider some of the less-emphasised facets of Singapore’s success.

Shenoy and Singapore

There have been numerous articles dedicated to B.R. Shenoy’s advice to Sri Lanka, for example by P.K. Balachandran and Dr. W.A. Wijewardena, with specific reference to a quite detailed and brilliantly organised paper presented by the economist to Sri Lanka’s J.R. Jayewardene. 

Shenoy is considered by many to have been ahead of his time, calling for sustainable, private sector-led, market-based, export-driven economic growth. An Indian economist from the classical liberal school with part of his education at the London School of Economics, Shenoy was heavily influenced by Friedrich von Hayek, a celebrated economist credited with reviving the Austrian school of economics in the late 20th century. 

The Austrian school is defined by its deference to market forces, emphasis on individual liberties, and strict adherence to non-interference by the government in the economy. It is important to note that even within this Austrian school revival of the 1960s, Hayek diverged from those even more dogmatic than himself such as Ludwig von Mises by acknowledging the benefits of minimal or limited government intervention where absolutely necessary. 

Hayek was himself in favour of direct cash transfers as opposed to food stamps, or housing assistance, hallmarks of what he considered to be an inefficient and paternalistic system. This reflects Shenoy’s own advice to Ceylon to abandon the prevalent policy of the time – commodity subsidies – in favour of direct cash transfers. 

In that sense, quite foundational to the Shenoy thesis of Sri Lanka, then Ceylon, was the growing inequality among divergent sections of society, which he viewed as counterproductive to sustainable development, not something that is associated with the modern libertarian discourse. 

On the very first page of Shenoy’s 1966 paper ‘Economic Situation and Trends in Ceylon: A Programme of Reform’ (available in full online), he states: “National income statistics show that production has not progressed fast enough. From 1960-1965, real income rose at a meagre annual rate of less than 2%. Population grew more rapidly, the annual rate for the same period being 2.7%. Consequently, per capita income has been declining. It is possible that the thin upper crust of top income groups have been generally able to maintain their consumption standards at undiminished levels of affluence against this background of falling per capita income. This implies an even more rapid erosion of mass well-being than national income statistics suggest. These developments are a serious matter in a democracy… A major policy objective should therefore be to halt the decline in the living standards of the masses and to reverse this trend without delay.” 

In an article by Dr. Wijewardana, he notes: “Shenoy was prophetic in his prognosis as demonstrated by the youth insurrection of 1971. Had political leaders taken his advice seriously, the bloody insurrection that ended in the loss of thousands of young lives could have been avoided.”

In his discussion of Shenoy, Dr. Wijewardena makes the point that “…Singapore, a nation ranked at the same economic status as Ceylon at that time, implemented a policy package similar to that recommended by Shenoy from the mid-1960s. Through that policy, Singapore was successful in producing an economic miracle by lifting that nation to the status of a developed country within a single generation.”

Singapore: The activist

To depart from Dr. Wijewardena, it is important to first acknowledge that Singapore did exhibit many aspects of Shenoy’s thesis for Ceylon: recommendations such as trade liberalisation, private sector incentives, market reforms, fiscal surpluses, and warnings against monetary financing, intervention in the currency, and tax increases. 

However, it is also important to understand the context for that period; Sri Lanka had a tax revenue-to-GDP of around 22% according to Shenoy, which he felt was adequate for the country. Shenoy also believed that Sri Lanka’s currency was overvalued, thereby impacting its terms of trade and international competitiveness, hence the call to limit interventions that maintain an artificially inflated value for the rupee.

What much of the commentariat seems to miss regarding Shenoy is that there are many aspects of the Singapore story that the Indian economist would no doubt have been sceptical of, specifically Lee’s utilising of the Singaporean Government to organise, strategise, and augment the development of the economy, utilising market forces and rapidly globalising trade flows. While Shenoy suggested a focus on export-led growth, would he have co-signed what an International Monetary Fund (IMF) report refers to as Singapore’s “activist industrial policy”? 

Rachel van Elkan, writing a chapter titled ‘Singapore’s Development Strategy’ in an IMF publication from 1995 called ‘Singapore: A Case Study in Rapid Development’ (edited by Kenneth Bercuson), lays out in concise detail the various interventions and strategic industrial policies implemented by Singaporean policymakers. 

PPP: Public-Private Prosperity 

In Singapore’s immediate post-independence period with unemployment soaring, the country utilised protectionism with import substitution but later adopted export-oriented industrial strategies, resulting in the “rapid industrialisation of the economy… Both the manufacturing sector and, more recently, the business and financial services sectors have seen their roles in the economy increase as part of the industrialisation process.” 

It was not just liberalising the economy and the subsequent surge in foreign investment that helped Singapore develop into the advanced economy it is today. As van Elkan notes: “Singapore’s development strategy also involved providing significant industrial incentives. Tax incentives were accorded to those sectors and firms that were seen to have the greatest growth potential. A number of criteria were used in evaluating these firms, but the resulting development path – which emphasised labour-intensive production initially, capital deepening and technological upgrading subsequently, and diversification most recently – appears rational on economic grounds, suggesting that the development policies may simply have ‘led the market.’”

The IMF, in noting the failure of import substitution policies to ease Singapore’s unemployment issues, still acknowledges that such policies were “somewhat successful at promoting Singapore’s industrialisation”. In discussing the country’s export orientation and accompanying policies, van Elkan states that, “breaking with what was then the preferred development strategy in both policy and academic circles, Singapore from 1967 on took an export-oriented approach to industrialisation. Hong Kong was perhaps the only other economy to have had a similar strategy at that time.” 

Other factors from the study that are worth highlighting:

1. “A number of specific incentives were introduced in 1967 under the Economic Expansion Incentives Act (administered by the Economic Development Board – EDB) including, for example, sharply reduced corporate tax rates on manufacturers engaged in export.”
2. During the early 1970s, policy switched from incentivising investments that were labour- and export-intensive towards more technologically advanced sectors. “No longer would policies be directed at securing an expansion of sectors – such as textiles, garments, electronic components assembly, and ship repair – that absorbed surplus labour but did little to upgrade the technology level used in domestic industry… Instead, policies would strive to encourage investments in skill- and technology-intensive sectors, such as computers, electronics, machinery, and pharmaceuticals, in order to generate more value added from the same amount of labour.”
3. The EDB also granted five-year tax holidays to foreign investments in high-technology industries, while enterprises already operating in Singapore were only incentivised to “upgrade the skill levels… improve the technology level of new investments, and… increase automation”. 
4. Joint industrial training centres with foreign multinationals operating in Singapore were also crucial to developing skills matched to investments.
5. In order to promote “restructuring away from low-technology, labour-intensive activities, a levy on foreign (mainly unskilled) workers was introduced in the early 1980s”.

Learning from the best

This active industrial policy has today allowed Singapore to participate in high-technology global supply chains from aerospace to semiconductors and precision machinery. The Singaporean Government also utilised State-Owned Enterprises (SOEs) through its now famous Temasek model. Thus, despite significantly diversifying its economy towards financial services, Singapore still boasts a manufacturing sector that is the envy of even some advanced nations. 

The policy discourse in Sri Lanka still revolves around tourism, value addition in the agricultural industry, and the maintaining of textile and garment manufacturing, all no doubt crucial sectors; however, other than vague references to export-oriented growth, there has been no strategic industrial planning in Sri Lanka for decades. 

Even when policy calls for Sri Lanka to join global production networks, so called ‘production fragmentation value chains,’ there is no discernible policy to encourage and incentivise Sri Lankan companies to create things of value that are tradable. 

Sri Lanka’s President has repeated that his Government would not seek foreign investments but would collaborate on technology sharing. This is neither Shenoy nor Singapore; Sri Lankan industry and technology are already significantly behind the curve, the education system is still not geared towards engineering or STEM, and Sri Lanka does not have the luxury of rejecting advanced technology investments. In fact, Sri Lankan policy should literally revolve around making such investments happen. 

The IMF publication is clear that the Singapore Government’s policies to incentivise multinational firms in specific, high-technology sectors and engage and collaborate with multinationals to ensure the supply of suitable skilled labour were crucial to creating spillover effects to the local industrial sector. Singaporean firms learnt from multinationals, from their corporate governance and best practices, to becoming integrated into their supply chains.

Singaporean manufacturing contributes over 20% to the GDP, among the highest for advanced economies and those with high value-added exports. Proactive Government policy is a common denominator in the success stories of many of the world’s most advanced economies, including in Asia. 

While Singapore is regularly touted as a country that succeeded through some sort of laissez-faire form of capitalism and private enterprise, it is clear that Singapore diverted significantly from the Shenoy thesis in its development of the backbone of its economy, an advanced manufacturing sector. 

Sri Lankan policy remains fixated on other aspects that do not require the type of imagination that Singapore’s founding fathers exemplified; the philosophies of Lee and Goh Keng Swee.

Trade and trade-offs

In 1970, Singapore joined the Non-Aligned Movement (NAM) despite being considered a US ally. This signalled to nations of the NAM as well as to the US and Western powers that it was willing to chart an independent course that was interested in Singaporean economic and security imperatives, beyond being a representative or ally of American power in the region. 

Yet consider that Singapore has since also developed close ties with the US, signing a defence cooperation Memorandum of Understanding (MOU) in 1990 which granted the US access to Singaporean military facilities including an air force base. 

This has led to joint military drills, deployment of US forces to be stationed in Singapore, and the hosting of US littoral combat ships and P-8 Poseidon maritime patrol aircraft. Singapore more recently has benefited from access to intelligence and counterterrorism information as well as advanced US defence technology and equipment. 

Singapore also constructed the Changi Naval Base (2001), its most advanced military instalment, which has since become a critical component of regional security and a hub for defence and military cooperation. Changi is located in close proximity to the busy shipping lanes in the strategic Strait of Malacca and South China Sea. 

The infrastructure was specially built to accommodate the most advanced American aircraft carriers and amphibious assault ships with a 6 km deep-water berth that allows American nuclear powered aircraft carriers to dock. While Changi is not an exclusive US naval base, agreements between Singapore and the US allow it consistent access to the facilities while other friendly nations (mainly US allies) also utilise the base, including Australia, New Zealand, the UK, India, Japan, and France. 

Would Sri Lankan foreign policy, with its own emphasis on non-alignment and neutrality, have acceded to such a close relationship with a global power? This is not intended to create a connection between Singaporean economic advancement and its close military alliance with the US. However, it is important to note that Sri Lankan policy, even to this day, does not consider the trade-offs of its various policies throughout history, be it the failure to industrialise and invest in human capital or the inability to maintain non-aligned status while engaging in fruitful strategic alliances. 

It is not the land area of a country or the size of its population, or even the abundance of natural resources that ultimately determine the economic outcomes of a nation state. Singaporean policy has thus far successfully negotiated numerous potential exogenous events, ethnic strife, civil tensions, and corruption through the force of its institutions and the preparedness of its political leadership to retain the best advice from the economic philosophies of the time, such as Shenoy, but to also move beyond the existing strictures of policy orthodoxy and learn from the stories that have unfolded all around us.

(The writer has 15 years of experience in the financial and corporate sectors after completing a Degree in Accounting and Finance at the University of Kent [UK] and also holds a Master’s in International Relations from the University of Colombo. He is a media presenter, resource person, political commentator, and foreign affairs analyst. He is also a member of the Working Committee of the Samagi Jana Balawegaya [SJB]. He can be contacted via email: kusumw@gmail.com and X: @kusumw)