The second decade—The economic outlook for a developing nation

The Second DecadeThe Economic Outlook for a Developing Nation* Rex Shelley Hume Industries (Far East) Ltd., Singapore

The author of this article argues that the people of Singapore are one of the crucial determinants of the country’s economic position in the next decade. He attempts to sketch the economic panorama for Singapore 70 years ahead to illustrate the importance of human resources in the fulfillment of the country’s potential. The article will be of interest to all planners who have to take a view of the potential of developing countries.

T

EN YEARS IS A LONG TIME;

10 YEARS AHEAD TO

the 15year-old holds the promise of his first job, marriage and the whole challenge of independent life; 10 years ahead to the 25-year-old is a time of fatherhood, responsibility and perhaps moving up to prosperity or new goals; to the 50-year-old the period holds changes that he will find harder to adapt to and must select with more care. The 10 years ahead depends on people like these; on how they see the future and on how they will react to the changing stimuli. The people of Singapore are one of the crucial determinants of our economic position in the next decade. Economics is the management of scarce resources. For Singapore, people are the only significant resource. In the next 10 years this will be a changing resource. How the economy of Singapore will develop will depend on our people; on our teenagers and the life styles and work attitudes they are bringing into the labour pool, on the present potential and flexibility of the main mass of workers in the 25 to 35 age group and on the few in their fifties whose thinking and planning will steer us through the next decade. ‘This article won the Gold Medal Essay Competition to commemorate the 10th Anniversary of the Republic of Singapore.

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The problem is to examine an economic community with one significant resource and some characteristics that make it difierent. As the future unravels both external factors affecting the economy and internal economic factors will change. These factors can be grouped into politics, economics, technology and sociology. We shall first look at the basic characteristics of our Republic and then look at external factors. A rough picture of the world around us in the years ahead will be rapidly sketched and the effects on Singapore estimated. We shall then move on to internal determinants with a sweeping review of the strengths and weaknesses of the economy. Finally we shall try to put the pieces together and attempt to visualize the next decade. A fundamental assumption in the approach made here is that statistical extrapolation is not valid. Ten years is a long time. With the quickening pace of technology and attitude changes historical data gets irrelevant earlier. Mathematical models and studies with adjustments of variables in the long term can only quantify possible limits. We can calculate the probabilities but must grope in the dark and rely on ‘hunch’ to select the most probable. Another basic point that is accepted here is that ‘no-surprise’ conditions cannot be assumed. The task of trying to feel out where Singapore will get to in the future implies the task of searching out the most probable surprises. The special characteristics of Singapore are its smallness, its lack of resources, its location on communication routes, its location between Malaysia and Indonesia, its history of trade and more recently its proved rapid adaption to change. Out of the smallness of the Republic comes ease of control, of dissemination of ideas and capability to change quickly. Ease of control means political forces can move fast, a bureaucracy can get a firm grip on the nation and the internal security has

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special problems. The smallness of our island Republic also means it is militarily indefensible. Our security depends heavily on internal security. Internal security depends on political climate. It is assumed that the economic climate determines the political climate (at the risk of controversy) and argued here that economic and political stability will continue for the next 10 years. Dissatisfactions with the PAP must increase in the absence of an opposition and a better educated more ambitious young population must erupt with new political ideas. Whether the PAP adapts to the new pressures or whether a new party takes over or provides vigorous opposition, it is felt that the education and discipline of the people will most probably ensure the stable political conditions obtaining today. Contributing to this is the knowledge in every Singaporean’s mind that our island is indefensible. Because of the strategic location of Singapore it is also highly probable that the ‘big boys’ will ensure that Singapore will not be attacked. The key asset arising out of our smallness is the capability to change quickly. The low median age of our population enhances the potential for flexibility. The leaders of our state and industry recognize this and will exploit this advantage in the decade ahead. Thus the size of the economy holds more assets than liabilities. Moving onto the external factors, a detailed study must develop scenarios of the political and economic futures of the key nations that affect us. Here we can only rush through assumptions for an international backdrop. In our crystal ball we see rapid development in Malaysia but serious political problems late in the decade when ideology comes to the forefront as Bumiputra superiority is established and religious disciplines ease off; a booming Indonesia but again with probable political upheavals much later in the decade due to liberalization of conventions coupled with regional nationalism, growing from prosperity and sparked by unavoidable inequable regional economic strategies; China building up her economy and moving to a near dominant position in agricultural commodity markets, struggling with internal power jostling, leading Asia in baring her teeth to the West; Japan equipped to be the fastest, hardest hitting, technically super-sophisticated military force in Asia, running out economic strangling lines all over and juggling them with new diplomatic skills equal to her present devious but effective marketing and management skills, moving to optimize her power in India, South America, West Asia, Africa as the coming decade drags down the economies of nations that cannot meet the shocks of natural disasters with their low levels of education and technological development and narrow minded politics; U.S.A. the EEC and Russia racing ahead technologically grappling with post-industrial social management problems; solving them, and solving the man-made trade and money confusions, using more muscle in dealing with upstart nations but

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keeping out of Asian politics; the world economies getting closer interlocked, smoothing out the ripples with improved economic management and showing substantial trade growth in the next 10 years. Our predictions of the world around us must affect our predictions of our economy. We will be buying and selling in international market places. With the most likely continuation of a free flow of money and goods policy, we are even more vulnerable to global economic shock waves, but it is argued here that we will, by the middle of the decade be able to ride the punches better than most other nations. The Singapore economic temperature will not be a simulation of world trade charts. The managers of our trade and industry will learn to move against the main currents and to adapt and exploit the flexibility of our economic machine. Just as there are industries which swung over to new lines overnight and boomed during periods of depression there will always be the opportunities to benefit from adverse conditions. It is most likely that our people will develop this ability in running our relatively small operations of finance, trade and industry. Overseas technological changes in the decade ahead will also be of less direct significance to us. The rate of transfer of technology across continents steps up daily. Singapore now plays the role of a middle man in this transfer. This role will be eliminated in the near future. Techniques of teaching and transplanting technology will be one of the world’s growth industries. Computers and other devices will allow less developed countries to draw directly on the colossal R & D sources of Japan and the West. What will probably happen, however, is that we will move into a regionally superior position of dovetailing finance, management, technology and marketing. We should be able to move faster than South East Asia and Australia in adjusting the package as overseas technological innovation demands the changes. Looking now for external ‘surprises’, our scenarios have included no major wars. The inevitability of harvest disasters must be considered. We will meet with two at least, perhaps three or four in the next 10 years. The population pressures on food and migration of resources away from agriculture will make the effects of Nature’s whims worse. It is suggested here that Singapore will invest more heavily as the years go by in food industries. Our entrepreneurs will see opportunities later in the decade and growth of the food business will make our economy less susceptible to the recessionary drawdowns following harvest failures. Finally the external social attitudes of the U.S.A. and Europe will creep into our society no matter what barriers and discouragement our leaders resort to. It is believed that the ‘permissive’ drift will not seriously affect the work ethic of the Singaporean. This is partly because of education and the realization of our economic vulnerability

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being instilled in our youth. It is also felt that out of the aflluent society, permissiveness and rebellion against the ‘establishment’ boiling up in the West will blossom new humanistic philosophies and lifestyles that will not only improve living quality but will contribute towards productivity and a general stable atmosphere in the U.S.A., Russia and Europe within the 10 years ahead. Turning to internal factors we have glanced at politics and economic flexibility in dealing with the special characteristics of our island Republic. Internal technology and sociology have been touched on in discussing external factors. In the economic scene looking back at the past economic behaviour will give us leads for projecting our thoughts into the future. We must however, examine statistical performance with discretion and separate accidents of fate from significant results. The government is one of the key digits. They have hustled the economy forward over the past 10 years with a unique mixture of strong-arm methods, economic planning, laisser-faire and participation in the private sector. More successes than failures have been chalked up to date. There is no doubt that the balance between economic planning and laisser-faire has been skillfully executed. The planning of industrial estates, attracting foreign of capital, manpower training, establishment quality standards, formation of the NWC, monetary management, inflation control and planning in many other areas has been far sighted and effective. There are however fringe areas of interference with free enterprise that raise some doubts. Details of individual cases need not concern us here but the reasons behind the mistakes should be scrutinized. With our politically mature leadership, we can rule out emotional reasons like politician’s personal quirks, national pride, blind commitment planned economies, etc. The defensive motives of fear of private economic power, especially in the hands of foreigners, and fear of exploitation of our people and our physical environment are the prime forces. Controls arising out of over-reactions to the threats have throttled down some sections of our economy. The mistakes are more pronounced in Singapore because the government takes advantage of the compactness of the society and moves swiftly. And partly because of the short time leads the civil service administration sometimes distorts matters with misinterpretations of policy. However, even with the errors of planning and control the government has given an overall impression of commitment to the principles of free enterprise. The government’s own entry into the private sector in various ways is often read as proof of this. But the manoeuvres in the business world cast some dark shadows. The instances of government backed private companies weaving their way to get the best of both worlds to the detriment of others and leaning on hidden props are many. Many doubts are raised on the eventual practicability of mixed

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objectives in the management of such companies. Labour is another key digit. We have operated under conditions of surplus labour. Migration has kept the labour market a buyers’ market. Despite the scarcity in some trades and some alarms about unemployment we have never really closed the door to labour immigration. In these conditions the unions have striven to hold together the organization of labour, branching into the peripheral areas of co-operatives and amenities. They have done well but the real test of effective organization and disciplined, unemotional bargaining will only come in conditions of real labour shortage. The workforce has changed significantly in the past 10 years. Attitudes to work, productivity, quality and safety have undoubtedly improved especially in the past 3 years. Technical skills have been upgraded but still fall short of demand. There has also been a marginal diminishing of the rating of the pay packet as the main reward for their labour, in the eyes of the workers, accompanied by a perceptible higher rating of intangibles. A certain ‘softening’ could be detected before 1974 but the recent recession has cured this. The cost per manhour has jumped up above that of Malaysia and Indonesia but still lags well behind Japan, Australia, the U.S.A. and other industrialized countries. The price-quality relationship remains one of our competitive advantages in world markets but in many trades, and in the skilled foreman class, Singapore wages have gone beyond international levels. It is only immigration control that prevents many firms bringing in technicians from overseas. Capital, the other basic building block of an economy has undergone important transformation in the past 10 years. The availability, cost and character of capital supply are very different from 1965. Without dissecting the money market, we can say that capital now presents no serious problems to the industrial entrepreneur or trader. When the long delayed Export Credit and Insurance scheme gets off the ground another financing problem will be solved. Drifts in the patterns of management over the past decade are difficult to analyse. Management in the public sector has improved markedly at the higher levels in its appreciation and response to new situations. There are problems of the middle levels adapting to the rapidity of change and the new demands being made on them. This has shown up in misinterpretations when detailing politics, indecision, unwillingness to take responsibilities and exercise discretion, failure to analyse facts correctly and some arrogance. Management in the private sector must be taken as the total management being applied to the manipulation of our economic resources. This includes Singaporeans and expatriates and to some extent executives sitting in offices overseas. Examination of the quality and performance of Singaporeans alone will not give a correct picture of management today. Management has become a

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highly mobile factor. Erosion of prejudices and increasing similarities in the world’s business centres have made transfer much easier. We have put up some obstacles to immigration but have no barriers to emigration. In fact taxation and indirect cuts into the financial incentives for senior managers could have the opposite effect. Management in our private sector has shown some definite weaknesses. There has been some failure to work together because of short term selfishness. There have been tendencies to expect assistance and tariff protection from the government. In export marketing innumerable instances of inadequate groundwork and lack of planning can be cited. Failure to go into the implications of the particular quality level of the market which is being attacked is another common fault. Many others can be brought up-lack of appreciation of competitors’ strategies; blind acceptance of technologist’s advice; looking at the dollar value of labour and not the whole cost and efficiency unit; reluctance to develop a more human orientated personnel approach which is showing productivity results in some firms; rushing into new ventures vulnerable to trading conditions because of minimal added values. Management breakdowns in particular spheres are immeasurable and these criticisms are based on general impressions. On this shaky basis we can summarize and comment across the board that financial management has risen to high levels of sophistication; there has been some improvement in competence of manufacturing management; no discernible change in trading, negligible imporovement in marketing and personnel and no real development in strategic and long range planning. At the middle management level, comprising mainly of Singaporeans and Malaysians promotion has been rapid. This has brought with it a willingness to work hard at a high pitch and for long hours. It has also brought on a certain swagger and smugness and there are danger signs of ceasing to search for self improvement, not stopping to re-evaluate and select the alternatives in changing life styles and a leaning towards a materialistic sense of values. All these changes in management, in capital and labour and the government’s guiding policies have resulted in some structural changes to our economy. The planned shift from a trading centre to a mixed manufacturing, trading and financial centre has gone smoothly. With regard to the injection of foreign capital one can generally say that balance has been struck between local investment growth, joint venture growth and establishment of giant multinational branches in Singapore. There have been movements in trade, investment and off-shore fund distribution patterns that have spread our international business more evenly across different nations. We have diversified to some extent. Apart from the major increase in manufacturing the GNP structure remains similar to what it was in 1965.

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Diversification has also been continuing in the manufacturing sector in the past 10 years. We have perhaps diversified too widely. No character or common denominator running through the wide variety of local industry has emerged as yet. In spite of the filtering out of undesirable businesses our early years of industrialization saw many new activities starting up with new technologies and new markets. While the growth was centrifugal in product range, some intensification did occur here and there-in shipbuilding, electronic component assemblies, petroleum products, light machinery. The oil crisis and the American recession hit petroleum, timber, textile and electronics badly but partly due to our diversification, the effects on the national economy were dampened. The need for planned diversification was underlined. Coming down to the structural changes in the commercial world, centripetal forces have been at work while the economy expanded. Growth of industries and capital needs, increase of heavy engineering and mass production, arrival of global giants have increased the size of companies. Mergers and takeovers, dismantling and re-arranging groups of companies have also brought more power into fewer hands. But with all this there are no disturbing high concentration ratios in the economy as a whole. On the other hand there has been insufficient vertical or lateral integration to show up better efficiencies in an overall survey of the economy. Picking up our threads of thought on the special characteristics of our economy, on our imaginative visions of the future world around us, on our critcal views of the directions of change in the previous 10 years we can begin to piece together our speculations on the 10 years in front of us. As we examine each of the key sectors we shall try to bear in mind the effects of our external scenarios and the state of the economic sector today; assessing whether the present faults will be corrected or whether they will get worse. Trade and services stand out as major sectors. Our external factor assumption was a growing world trade which will be reflected in our GDP. Some trade will drift to Malaysia and Indonesia as their commercial experience and expertise develops. The probable deterioration of Malaysian rubber trade in the first half of the decade and the loss of trade in Indonesian and Malaysian timber in the same period will be major ‘minus’ points but counterbalancing this will be the huge consumption growth of Japan, Indonesia, the Philippines and possibly Korea. If our present traders upgrade their skills to stay in front, and the new generation learns from the old, our trade may change drastically in product mixes with sophistication in financing and the drop in commodity trading will be more than compensated for by new products. It should be noted that our external trade is but a small fraction of the Asia-Pacific area volume and we are only talking of growth of a small portion of the total.

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Table 1.

Rough Estimate of GDP in 1988 (In million 1973 Singapore

Assumed Base for 1976

Actual Growth Rate 1971-I 973 (per cent)

Agriculture Oil Rubber Granite

350 240 50 20

-15 -

Sub-total

660

Shipbuilding Electrical Food Textiles Timber Chemicals Plastics Metals Miscellaneous

200 600 200 140 200 60 1::

Sector

Estimated GDP Growth Rates to 1986 Min. Max. (per cent) (per cent) IO2 0 3

;

-

6

2

-

15 10 I7 f I7 6 12 8

6 8 8 0 0 IO 6 IO 6

1660

29

II

7

610 200

23 13

IO IO

6 6

Sub-total

2470

27

10

7

E. Trade D. Trade Dwellings Government Military Tourism Finance Services

1100 1600 400 600 150 600 200 1600

17 ::

fZ

17 IO 10 10 3 6 17 I2

10 8 6 10 2 4 I4 8

Sub-total

6150

I5

I2

8

Total

9280

29

11

7

Construction Utilities

100

In the manufacturing sector many upheavals will occur. Our manufacturing industries have produced sensational growth statistics. The statistics do not show a lot of the sickness and mismanagement discussed above. These are considered here to be growing pains. It is estimated that general industry will suffer from these pains for about two-thirds of the decade, but towards the end of the period there will emerge a pattern of dominant sectors. The principle of ‘synergy’, of synchronized energy, will eventually draw industry to a mix of product manufacture which will reinforce and enhance each other. Medium weight engineering, shipbuilding, medium scale chemicals, food processing will probably emerge in clusters of units as the main industries. There will be a higher degree of intermeshing within each cluster. Finance, banking, insurance have been described as one of the growth sectors in world economics and with the establishment of the foundations for building up these activities in Singapore, we foresee a very rapid growth early in the decade in financial operations involving off-shore sources and applications of funds. Growth of the construction industry will continue. Utilities and ownership of dwellings will grow along with the construction industry.

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Dollars).

12 27

:

The tourism sector will probably level off fairly early as Singapore will become more a transit point on the tourists’ itinerary rather than a destination. On all fronts the managers of our resources will find that they have to seek out gaps and slots that the rest of the world has left open and move in. There will be more specialization coupled with flexibility. There will be rapid assimilation of foreign technology, and quick adaptation to changes of technology. The bureaucracy, managers of capital and leaders of labour will clash more and more with each other as the size of companies grow, as ‘Zaibatsu’s’ are formed, labour demand exceeds supply and politicians worry over the private sector power concentrations but returning again to the assumptions of a disciplined educated population, out of the conflicts practical compromise will be born. On the basis of the above approaches, assumptions and thoughts, an attempt to quantify the predictions of the future with an estimate of the limits of GDP in 1985 was made (see Table 1). Reasons for the adjustment of the base year values, selection of the growth rate, neglect of inflation etc. are not given because the figures are not presented as a detailed estimating exercise. LONG RANGE PLANNING

It is a crude ‘guesstimate’. It shows average growth rate limits of 7 per cent to I1 per cent. The economic panorama of the 10 years ahead of us has been painted only with rough broad strokes; it has attempted to fill in hastily a background of one view of the whole world and has

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attempted to fill in sketchily the economic prospects of Singapore in the foreground. The outlines are blurred but everywhere we see the forms of people; and the dominant colours are those of sunshine and brightness. The economic outlook of the Republic’s second decade is bright and hopeful. W

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