* Singapore is hard-wired to ride most eventualities

Simon Long

At 50, according to George Orwell, everyone has the face he deserves. Singapore, which on August 9th marks its 50th anniversary as an independent country, can be proud of its youthful vigour. The view from the infinity pool on the roof of Marina Bay Sands, a three-towered hotel, casino and convention centre, is futuristic. A forest of skyscrapers glints in the sunlight, temples to globalisation bearing the names of some of its prophets—HSBC, UBS, Allianz, Citi. They tower over busy streets where, mostly, traffic flows smoothly. Below is the Marina Barrage, keeping the sea out of a reservoir built at the end of the Singapore River, which winds its way through what is left of the old colonial city centre. Into the distance stretch clusters of high-rise blocks, where most Singaporeans live. The sea teems with tankers, ferries and container ships. To the west is one of Asia’s busiest container ports and a huge refinery and petrochemical complex; on Singapore’s eastern tip, perhaps the world’s most efficient airport. But the vista remains surprisingly green. The government’s boast of making this “a city in a garden” does not seem so fanciful.

Singapore is, to use a word its leaders favour, an “exceptional” place: the world’s only fully functioning city-state; a truly global hub for commerce, finance, shipping and travel; and the only one among the world’s richest countries never to have changed its ruling party. At a May Day rally this year, its prime minister, Lee Hsien Loong, asserted that “to survive you have to be exceptional.” This special report will examine different aspects of Singaporean exceptionalism and ask whether its survival really is under threat. It will argue that Singapore is well placed to thrive, but that in its second half-century it will face threats very different from those it confronted at its unplanned, accidental birth 50 years ago. They will require very different responses. The biggest danger Singapore faces may be complacency—the belief that policies that have proved so successful for so long can help it negotiate a new world.

In 1965 Singapore was forced to leave a short-lived federation with Malaysia, the country to its north, to which it is joined by a causeway and a bridge. Lee Kuan Yew, Lee Hsien Loong’s father, who became Singapore’s prime minister on its winning self-government from Britain in 1959, had always seen its future as part of Malaysia, leading his country into a federation with its neighbour in 1963. He had to lead it out again when Singapore was expelled in 1965. By then he had become convinced that Chinese-majority Singapore would always be at a disadvantage in a Malay-dominated polity.

Mr Lee’s death in March this year, aged 91, drew tributes from around the world. But Mr Lee would have been prouder of the reaction in Singapore itself. Tens of thousands queued for hours in sultry heat or pouring rain to file past his casket in tribute. The turnout hinted at another miracle: that Singapore, a country that was never meant to be, made up of racially diverse immigrants—a Chinese majority (about 74%) with substantial minorities of Malays (13%) and Indians (9%)—had acquired a national identity. The crowds were not just mourning Mr Lee; they were celebrating an improbable patriotism.

Lee Kuan Yew himself defined the Singapore exception. As prime minister until 1990, he built a political system in his image. In line with his maxim that “poetry is a luxury we cannot afford,” it was ruthlessly pragmatic, enabling him to rule almost as a (mostly) benevolent dictator. The colonial-era Internal Security Act helped crush opposition from the 1960s on. Parliament has been more of an echo-chamber than a check on executive power. No opposition candidate won a seat until 1981. The domestic press toes the government line; defamation suits have intimidated and sometimes bankrupted opposition politicians and hit the bottom line of the foreign press (including The Economist).

Singapore, it is sometimes joked, is “Asia-lite”, at the geographical heart of the continent but without the chaos, the dirt, the undrinkable tap water and the gridlocked traffic. It has also been a “democracy-lite”, with all the forms of democratic competition but shorn of the unruly hubbub—and without the substance. Part of the “Singapore exception” is a system of one-party rule legitimised at the polls and, 56 years after Mr Lee’s People’s Action Party (PAP) took power, facing little immediate threat of losing it. The system has many defenders at home and abroad. Singapore has very little crime and virtually no official corruption. It ranks towards the top on most “human-development” indicators such as life expectancy, infant mortality and income per person. Its leaders hold themselves to high standards. But it is debatable whether the system Mr Lee built can survive in its present form.

It faces two separate challenges. One is the lack of checks and balances in the shape of a strong political opposition. Under the influence of the incorruptible Lees and their colleagues, government remains clean, efficient and imaginative; but to ensure it stays that way, substantive democracy may be the best hope. Second, confidence in the PAP, as the most recent election in 2011 showed, has waned somewhat. The party has been damaged by two of its own successes. One is in education, where its much-admired schools, colleges and universities have produced a generation of highly educated, comfortably off global citizens who do not have much tolerance for the PAP’s mother-knows-best style of governance. In a jubilant annual rally to campaign for lesbian, gay, bisexual and transgender (LGBT) rights on June 13th, a crowd estimated at 28,000 showed its amused contempt for the illiberal social conservatism the PAP has enforced. Younger Singaporeans also chafe at censorship and are no longer so scared of the consequences of opposing the PAP.

The PAP’s second success that has turned against it is a big rise in life expectancy, now among the world’s longest. This has swelled the numbers of the elderly, some of whom now feel that the PAP has broken a central promise it had made to them: that in return for being obliged to save a large part of their earnings, they would enjoy a carefree retirement. And it is not just old people who have begun to question PAP policies. Many Singaporeans are uncomfortable with a rapid influx of immigrants. These worries point to Singapore’s two biggest, and linked, problems: a shortage of space and a rapidly ageing population. 

Fifty years of breakneck growth have left Singapore’s economy in a position of enviable strength

Since 1976, GDP growth has averaged 6.8% a year. The past decade has seen vertiginous swings, from a slight recession in 2009 as the global crisis battered a very trade-dependent economy to a 15.2% leap in GDP in 2010. Since then growth has stabilised in the range of 2-4% a year, which the government expects to continue for the next few years. Unemployment is low, just under 2%, and prices are subdued without stoking worries about deflation. The national finances look just as robust.

Thanks to the CPF, Singapore enjoys a very high saving rate: nearly 50% of GDP. With investment averaging a still impressive 30% or so of GDP a year, the country has a structural surplus on its current account which last year reached 19% of GDP, a higher proportion than in any other developed economy. It also maintains a consistent fiscal surplus in conventional terms. The constitution mandates that the budget must be balanced over the political cycle, but ring-fences half of the projected long-term investment income earned on the government’s reserves. When all the returns were added in, estimated the IMF, the surplus for the fiscal year ending March 2014 was 5.7% of GDP, compared with the official figure of 1.1%.

The full extent of the country’s reserves is a closely guarded secret. They are managed by the Monetary Authority of Singapore (MAS, the central bank) and two sovereign-wealth funds, the Government of Singapore Investment Corporation (GIC) and Temasek Holdings. The government defends the opaque structure as a necessity: should the Singapore dollar ever come under attack, it can keep the assailants guessing. Nevertheless, the secrecy gives rise to occasional rumours that the reserves are smaller—or more probably bigger—than most suspect.

Singapore seems well placed to withstand an external financial crisis. It is a diversified economy with a strong manufacturing base as well as many service industries. But it is, its officials like to say, “at an inflection point”. It cannot continue as it has done because a growth model that relies on so many immigrant workers is unsustainable and has already become politically contentious. The government has been trying to prepare for change, with a typically intense focus on the core issue of labour productivity.

A white paper on population in 2013 made a number of assumptions about the productivity of Singaporean workers in order to calculate how many foreigners might be needed. It worked out that, even with the controversially high levels of immigration it projected, Singapore would have to reverse a long-term slide in productivity if it wanted to maintain GDP growth of 2-3% a year between now and 2030. Productivity grew at an annual average of 5.2% in the 1980s and 3.1% in the 1990s but just 1.8% in the 2000s. The White Paper set a target of a 2-3% annual increase in average productivity for 2010-30. If Singapore falls short of that target, it will have to get used either to slower economic growth or even more immigrants.

At the micro level, says Ravi Menon, managing director of the MAS, it is possible to see some “positive mindset shifts to increase efficiency”, but “the macro productivity numbers are still not showing it.” In 2013 productivity increased by just 0.3%, and last year it actually fell by 0.8%. Some of the structural changes being made to improve it—notably rebalancing the education system towards more vocational and skills training and greater emphasis on creativity—will take years to make a difference. But measures such as the establishment of a S$2 billion fund to help businesses innovate and automate, and an increase in the levies employers must pay to hire foreign workers, might have been expected to provide a boost already.

A big part of the solution, the government hopes, lies in cyberspace. Singapore has invested heavily in the infrastructure of the internet: exchanges and island-wide broadband access at home, and undersea cables that route much of the internet traffic between Japan and Europe through Singapore. But despite high internet usage and smartphone penetration, it scores less well on an “e-intensity” index developed by BCG, a consultancy, than countries such as South Korea, Denmark and even Britain. The index measures the availability of digital infrastructure, internet use by businesses, government and consumers, and spending on online commerce and advertising. Michael Meyer of BCG says Singapore falls short in three “output factors”—the adoption of e-commerce; the use of the internet in small and medium-sized enterprises; and in advertising spending.

One initiative that may help change that is the government’s “Smart Nation” drive, involving a further improvement of internet connectivity, the deployment of sensors all over the island to garner more big data and the use of those data to develop new applications. Some interesting ideas are in the works. In transport, these include point-to-point buses on commuting routes where demand is high, and driverless taxis for the “last mile” to the tube station; in health care there is already an app that alerts those trained in first aid of an emergency nearby; and in caring for the elderly, an alert might be sent to family or neighbours if, say, a tap has not been used for a while.

In the retail, hospitality and construction industries especially, the addiction to cheap foreign labour seems hard to kick. Government officials point to promising developments: online check-in for flights; restaurants offering iPads in lieu of waiters; supermarkets moving to self-checkout tills; security guards being replaced with cameras. But counter-examples are also legion: the handyman who used to do the job himself in 30 minutes but now employs two Sri Lankans to do it in an hour; the employers sometimes caught with “ghost” Singaporean workers on their books for whom they pay CPF contributions so they can get a foreign-worker quota. As one government official notes, it is a feature of inflection points that things can go either way.