Lessons in Liberalization from Singapore

Policy Brief by Benjamin Beiles.

A wide shot of the Singapore skyline at sunset.

Introduction

South Korea, Taiwan, Singapore, and Hong Kong are often used as examples to substantiate continued efforts to expand trade and liberalize national economies. However, to generalize the successes of the “Asian Tigers” to other contexts requires a greater understanding of the contexts in which they developed [1] . We can look to Singapore to clearly show that reaping the benefits of globalization is dependent on key domestic factors and decisions.

Contextual Advantages

Following the British withdrawal from the region and the failed merger with Malaysia, international trade, and foreign direct investment (FDI) were seen as the best opportunities to facilitate rapid growth in Singapore. Trade was also seen as a tool to ensure that powerful international actors had a stake in the survival of the politically vulnerable state. Singapore was in an ideal location to act as a center of finance in Asia and it already had some of the port infrastructure necessary for trade. The government sought to build on these advantages and invested in trade-facilitating initiatives in all areas of governance. Swamp land was reclaimed, and industrial estates were constructed under the direction of the Economic Development Board (EDB) [2]. Millions of dollars were spent on projects like Singapore Changi International Airport, the Jurong industrial estate, and a revamped national curriculum with English as the language of instruction [3,4]. The effectiveness of these policies was in part a result of a strict adherence to rule of law and anti-corruption measures, and a which also assisted Singapore in projecting stability and predictability to foreign investors [5]. Singapore’s unique history, robust domestic institutions, and multi-sector policy approach put it in a unique position to take reap the benefits of trade.

Domestic Incentives

Participating in international trade was seen as a means for national advancement, not some form of cosmopolitan goodwill. This is demonstrated by the strategic implementation of incentives that would attract the ‘right’ kind of investment to Singapore. At first, the government protected certain local products like cars and refrigerators and encouraged local businesspeople to set up small factories. However, the primary target became American multinational corporations (MNCs) because they brought high-technology, large scale employment opportunities. An organized campaign by EDB, including tax-free status for certain new factories, created high-value investments and new employment opportunities. The state also started several businesses such as two steel mills, a shipping company, and an airline that later were turned into private corporations. By 1975, the government was able to slash protections on domestic industries, but this was no success of shock therapy [6]. Rather, it is a model that demonstrates the benefits of properly managed liberalization and gradual retrenchment of state involvement. This tempered attitude is similarly reflected in Singapore’s approach to international trade agreements.

Dual Track Approach

Starting in the 1970s, Singapore aggressively pursued trade arrangements that would serve its national interest. Trade with neighbouring countries like Malaysia and Indonesia was limited by political tensions and, initially, bilateral negotiations put Singapore at a disadvantage due to its small size. Thus, multilateral arrangements like the GATT were attractive. In 1973, Singapore signed onto the GATT and has since remained committed to multilateral trade through the WTO. Trade policy reviews in the last two decades contain glowing reviews of Singapore’s open economy and steadfast advocacy for the multilateral trade regime [7]. However, Singapore has consistently supplemented multilateral trade with a series of regional and bilateral trade agreements. It is a founding member of the Association of Southeast Asian Nations (ASEAN) and has 15 bilateral FTAs with countries like the United States, China, India and the EU [8] . These agreements were essential to building alliances in multilateral fora and developing state/region-specific agreements that were to Singapore’s benefit [9]. This dual track strategy has made Singapore a disproportionately powerful actor in the global governance of trade.

Policy Recommendations

Singapore was able to benefit from globalization because of contextual advantages, strategic domestic incentives, and dual track approach to trade agreements. While it is impossible to perfectly transpose these features onto other countries seeking economic growth, they each contain broadly applicable lessons. Firstly, robust domestic institutions and a healthy political culture are critical for success. For example, Singapore was only able to attract high-value industries because it invested in human capital and projected an image of stability with high marks in anti-corruption and rule of law. Aid for trade cannot solely build the capacity of market institutions. Liberalization must coincide with a holistic strengthening of all domestic institutions and the global community can provide financial and technical assistance to that end. Secondly, the state can play a role in creating a competitive and productive economy. State-owned enterprises and incentives for certain industries can increase the viability of a domestic market. These policies can be later repealed but global trade regulations regarding state subsidy or ownership must recognize the important role of the state in kickstarting certain industries. Finally, the success of Singapore’s dual track approach is a lesson in the value of engaging in both multilateral, regional and bilateral negotiations. Developing countries cannot rely on international goodwill, they must seek out regional alliances and economic partners who can advance similar trade interests in multilateral fora. These three lessons are broadly applicable and can be altered to fit specific situations.

Conclusion

The case study of Singapore demonstrates that globalization can facilitate development under specific circumstances and alongside a series of robust domestic policies and institutions. It supports some arguments in defense of globalization and provides potential guidance to those states looking to similarly gain from international trade. The ongoing Doha Round is an opportunity to institutionalize mechanisms for developing countries to create the necessary domestic conditions to reap the benefits of trade.

 

Bibliography 

  1. Bhagwati, Jagdish. 2004. In Defense of Globalization. Oxford: Oxford University Press, 63.

  2. Lee, Kuan Yew. 2000. From Third World to First: The Singapore Story, 1965-2000: Singapore and the Asian Economic Boom. 1st ed. New York: HarperCollins Publishers.

  3. Boon, Goh Char, and S Gopinathan. 2008. “Education in Singapore: Developments Since 1965.” In An African Exploration of the East Asian Education, 80–108. Washington, DC: The World Bank. http://hdl.handle.net/10986/6424.

  4. Quah, Jon S.T. 2018. “Why Singapore Works: Five Secrets of Singapore’s Success.” Public Administration and Policy 21 (1): 5–21. https://doi.org/10.1108/PAP-06-2018-002.

  5. Lee, Kuan Yew. 2000. From Third World to First: The Singapore Story, 1965-2000: Singapore and the Asian Economic Boom, 57.

  6. Ibid., 51-59.

  7. WTO. 2021. “Singapore - Member Information.” World Trade Organization. 2021. https://www.wto.org/english/thewto_e/countries_e/singapore_e.htm#tprHead.

  8. Enterprise Singapore. 2022. “Singapore FTAs.” Enterprise Singapore. January 27, 2022. https://www.enterprisesg.gov.sg/non-financial-assistance/for-singapore-companies/free-trade-agreements/ftas/singapore-ftas.

  9. Crump, Larry. 2006. “Global Trade Policy Development in a Two-Track System.” Journal of International Economic Law 9 (2): 487–510. https://doi.org/10.1093/jiel/jgl005.