What can Sri Lanka learn from Singapore

by Razeen Sally

Sri Lanka is at another turning point. The presidential and parliamentary election results gave the country its best opportunity for reform and renewal since the UNP's election victory in 1977. To chart a new course one should scan the horizon for successful examples - of other countries with a record of economic, social and political achievement.

Then one should extract lessons of best practice and adapt them to Sri Lankan conditions. Intelligent emulation, therefore, is critical to success.

This brings Singapore into play. It is difficult to think of a more stellar modern success story - of economic success above all, but combined with political stability, ethnic harmony and balanced international relations.

Sri Lanka-Singapore comparisons are not new. Lee Kuan Yew, modern Singapore's founder and superman, says in his memoirs how impressed he was by Colombo when he stopped briefly in the 1950s.

But, a decade later, when he came back on an official visit as Prime Minister, he noted signs of degeneration: he got food poisoning on the train; and goats, cows and squatters were encroaching on the golf course. He describes Sri Lankan elections as an 'auction of non-existent resources'.

There was talk of Sri Lanka becoming the next Singapore when the economy opened in the late 1970s. Singaporean delegations came over; Singapore Airlines was brought in to run Air Lanka. But it ended badly.

SIA withdrew when they realised political meddling in Air Lanka would not stop. And Black July '83 snuffed out expectations of a Sri Lankan renaissance.

Now Sri Lanka has another once-in-a-generation opportunity to learn profitably from Singapore. So what accounts for Singapore's success? What lessons can be learned and applied here?

The French philosopher Montaigne said he admires the man who begins with his conclusions. Here are mine: Sri Lanka cannot replicate Singapore's success; it will never be the 'next Singapore'.

Because Singapore, as the world's last surviving sovereign city-state, is unique. Sri Lanka, in contrast, is a country with much more complicated politics, economics and ethno-religious cleavages. But Sri Lanka can learn many excellent lessons from Singapore; and intelligent emulation can help to chart our course and make the journey a success. This is what I want to explore.

The Singapore story

Background. Singapore is the successor to the fabled city-states of old - Venice, Genoa, Dubrovnik, the cities of the Hanseatic League, and the 'port-polities' on the Indian coastline and in Southeast Asian archipelagos that dominated Indian Ocean trade before Western colonisation.

Stamford Raffles founded it as a British colony in 1819. It grew prosperous as a free port, relying on entrepôt trade and open to immigrants. This remains its chief enduring strength: the global economy is its lifeblood; it disciplines the city's institutions and policies like nothing else.

But Singapore declined from the Great Depression until it became fully independent in 1965 after a brief, unhappy union with Malaysia. It was now free to chart its own course.

Since independence, Singapore has transformed itself virtually every decade. Its economic take-off started by attracting MNEs for labour-intensive, export-oriented light manufacturing, then shifted to capital-intensive production, then to higher-value, knowledge-intensive goods and services, and, most recently, to become a 'global city' with high-end services and manufacturing. Singapore, alongside Hong Kong, London, New York and Dubai, is now a global city in which business is conducted in several languages and currencies, and across several jurisdictions and time zones. Global cities are where truly global services cluster.

Now for some basic facts and figures. Singapore has a population of 5.5 million in 720 square km of space. It is a USD 400 billion economy. Its GDP per capita is USD 56,000 (USD 70,000 at PPP), the seventh highest (as a country) in the world. It was USD 550 in 1965.

There is virtually full employment. The government has run consistent budget surpluses since the 1980s and accumulated huge official reserves (now about USD 340 billion). Annual inflation is under 2 per cent. Singapore has no natural resources to speak of.

It is the most globalised economy of significant size in the world. External trade was about USD 1 trillion in 2014; it was USD 10 billion in 1965. Foreign MNEs have over USD 800 billion of investment stock in Singapore; and Singapore MNEs have about USD 400 billion of investment stock abroad.

Visitor arrivals were 15 million in 2014, with tourists spending about USD 25 billion. The island has almost 60,000 hotel rooms. There are 6500 weekly flights with 100 airlines, compared with 125 weekly flights with 11 airlines in 1960.

These numbers translate into top-of-the-world rankings. Singapore ranks No. 1 in the World Bank's Doing Business Index, No. 2 in WEF's Global Competitiveness Index,No. 2 in the Globalisation Index (in terms of attractiveness for foreign trade and investment), No. 5 in the World Bank's Logistics Performance Index (for which is it No. 1 in Asia),and No. 2 in the Fraser Institute's Economic Freedom of the World Index.

What explains this extraordinary success? I will start with the economy, and then move on to the political system, ethnic relations and foreign policy.

The economy

a) Policies and regulation. Singapore is arguably peerless in 'getting the basics right' on economic policy. It is generally simple and predictable. Stable and prudent fiscal, monetary and exchange-rate policies encourage high levels of savings and investment.

Personal and corporate income taxes are low; the tax code is simple, with few exemptions. Government spending is less than 20 per cent of GDP. It takes less than a day to set up a business. The labour market is flexible. There is a safety net, but a basic one that has largely eschewed middle-class entitlements.

Singapore hassystems for health care, pensions and social security funded out of individuals' savings, thereby putting much less burden on taxpayers and future generations.

Free trade is integral to Singapore's policy mix. There are zero tariffs on imports and exports, and few non-tariff trade barriers. Singapore is fully open to foreign investment and capital flows.

And it is now highly open in services sectors. By international standards it is extremely open to migrants and foreign workers. It is a preferred location for MNCs' regional headquarters, which puts it at the heart of global supply chains.

b) Institutions. Singapore is a textbook example of leadershipand vision. That Lee Kuan Yew and the founding generation of leaders showed abundantly.

They had a clear, long-term view of where Singapore should head, and a single-minded, practical will to get there. Mr Lee has built strong and stable institutions to outlast him.

Singapore has lean and efficient government. Public services are among the best in the world. There is a strong anti-corruption ethos. Salaries for ministers and civil servants are highly competitive.

There are credible performance benchmarks in the public sector. And the rule of law is strong on commercial matters: private property rights and contracts are enforced efficiently.

c) Infrastructure, education and skills. Singapore has excellent core physical infrastructure. Roads, the airport, port and public transport are among the best in the world.

Singapore has become Asia's education hub. The greening of the city continues: compact, tall buildings allow for more green spaces in a very dense urban setting.

The political system

Singapore is not a Western-style liberal democracy. Lee Kuan Yew emasculated what liberal political institutions Singapore had. His People's Action Party (PAP) government became a one-party state. Popular legitimacy came from elections, which the PAP won resoundingly. But Singapore-style authoritarianism has become much softer: government restrictions on civic freedoms are more occasional and subtle. The political space has become more competitive, though still dominated by the PAP.

Ethnic relations

Singapore and Sri Lanka have strong parallels in terms of ethnic mix. For both, the majority ethnicity is three-quarters, and the main minority ethnicity 15 per cent or thereabouts, of the population. Singapore had bubbling ethnic tensions, including occasional race riots, until the mid-1960s. There was little sense of a pan-Singaporean identity.

But Lee Kuan Yew and his colleagues had a different vision. They advertised a 'Singaporean Singapore', not a 'Chinese Singapore', based on meritocracy, a live-and-let-live atmosphere among the different ethnicities and religions, and a strong, unified Singaporean identity.

PAP governments practised social engineering to prevent ethnic conflict and build a Singaporean identity, e.g. through compulsory military service and enforced racial mixing in public housing.

They also eschewed Malaysian-style affirmative-action policies. These policies have worked well. Singapore's ethnicities and religions are remarkably diverse and express themselves freely for the most part. Ethnic harmony prevails, with a much stronger sense of Singaporean identity than there was fifty years ago. Malaysia has gone in the reverse direction.

Foreign policy

Singapore's foreign policy, shaped singularly by Lee Kuan Yew, is one of hard-boiled realism - like Henry Kissinger on steroids. Singapore's leaders accept they are too small and inconsequential to change the world, so they have to adapt to its raw realities as efficiently as possible.

That means being on the best terms with the major powers - now the USA and China - without having to choose between them; promoting a peaceful and more economically integrated ASEAN neighbourhood; and having excellent relations with other powers and large trading partners, such as Japan and India. This is Singapore's combination of geopolitical balance and economic interdependence.

What lessons for Sri Lanka?

Sri Lanka has much to learn from the Singapore story, above all on the economy, but also on ethnic relations and foreign policy.

The first lesson is to keep it simple. The priority must be to 'get the basics right': prudent fiscal and monetary policies, a stable exchange rate, domestic competition, a flexible labour market, openness to trade, foreign investment and foreign talent, a basic safety net but not a Western-style welfare state, and better education, skills and infrastructure.

Most urgent is macroeconomic stability. Taxation and expenditure need radical surgery to prevent further public-debt accumulation and make debt financing more sustainable.

The printing press must be stopped. These measures would also help to stabilise the exchange rate.

There should be a bonfire of domestic red tape to free up the private sector. Education reform is needed to upgrade knowledge and skills, given that Sri Lanka is now a lower middle-income country that cannot compete with cheap labour. The public sector should be restructured and downsized. Not least, Sri Lanka needs a new global economic strategy.

Much bigger volumes of imports, exports and foreign investment are critical to plug Sri Lanka into global supply chains, which drive productivity, employment and growth. For this, trade and foreign-investment barriers must be slashed.

On industrial policy, the wrong lesson to learn from Singapore is to intervene obsessively in particular sectors and firms. Sri Lankan governments have done this for decades, wasting enormous amounts of taxpayers' money, stoking corruption and exacerbating market distortions.

Singapore's success owes much more to 'horizontal' (economy-wide) policies to get the basics right than to selective incentives for sectors and firms. So the Sri Lankan government should cut back on 'vertical' industrial policy to focus better on 'horizontal' measures.

But, following Singapore, the government could do 'soft' industrial policy - marketing campaigns abroad, organising exhibitions and fairs, one-stop-shops for investors, providing infrastructure through industrial and science parks, and even creating special economic zones (SEZs). But that should be the extent of it. Of all these measures, a genuine 'one stop shop' for foreign investors - a statutory agency that advertises Sri Lanka as an investment destination abroad, and deals with paperwork and approvals - is probably the most important. Singapore's Economic Development Board sets the gold standard. That should be the Board of Investment's central function, rather than dishing out incentives as a 'one-more-stop-shop' among the thicket of ministries and agencies the investor has to deal with.

A flourishing market economy needs stable, clean and competent institutions. Singapore’s post-independence build-up of such institutions buttressed good policies; it ensured that high catch-up growth morphed into enduring prosperity. What are the right institutional lessons from Singapore? I would pick out the following: Explain market reforms to the public, tirelessly and continuously, and do so in clear, simple language. Take advantage of political and economic crises to accelerate reforms. Aim for lean and efficient government. Put the right systems in place to combat corruption, and be single-minded in tackling it. Establish credible performance benchmarks in the public sector. Strengthen the rule of law on commercial matters.

The political system

Sri Lanka should not try to copy Singapore’s one-party-state and soft authoritarianism. What worked in one densely populated city-state (though with social and economic costs) is unlikely to work in normal countries with more complicated polities, economies and societies. And Sri Lanka has tried Big Man politics and illiberal democracy several times since independence, culminating in the decade of Rajapaksa rule.

Better political lessons come from the mature liberal democracies of the West. For constitutional inspiration, Sri Lanka should look to the Federalist Papers of Hamilton and Madison, which led to the US Constitution, not to the playbook of Lee Kuan Yew or Deng Xiaoping. It should aim for an open society in the round, with a maximum of political and economic liberalism.

Ethnic relations

Here the lessons from Singapore are much better. It is a paragon of a secular meritocratic state with multi-religious, multi-ethnic, multi-lingual harmony. E Pluribus Unum (‘Out of Many, One’), the motto of the United States, also applies to Singapore today. If only Sri Lanka could get back to the founding secular, multi-ethnic vision of D.S. Senanayake and Ivor Jennings. But ‘Sinhala Sri Lanka’ policies since 1956, on top of a 2,500-year-old symbiotic link between Buddhism and the State, make that unlikely.

Foreign policy

The lesson to learn from Singaporean foreign policy is to combine geopolitical realism with the logic of economic globalisation – both especially important for a small country that cannot change the world but has to adapt as nimbly as possible to changing external circumstances. For Sri Lanka, that means being friendly with all the major powers – the USA, China, and India as the dominant sub-regional power. It also means having excellent relations with its main trading partners – the USA, EU and India – as well as other trading partners – including China, ASEAN and Japan. Finally, it should mean strong support for a multilateral, rules-based trading system. It is encouraging to see that foreign policy is rebalancing in this direction.

There are great lessons to learn from Singapore as a country and a city. They concern getting the basics right on economic policy, building solid institutions for a prosperous, globalised market economy, ensuring ethnic harmony, and maintaining a balanced foreign policy. A really big lesson from Singapore is that economic success is the foundation for stable politics and ethnic harmony. A richer Sri Lanka, with a sophisticated market economy, will also be a more politically stable and ethnically harmonious Sri Lanka. But Sri Lanka should not attempt to replicate Singapore’s political system, nor should it aim for Singaporean-style social engineering and a nanny State. Now to come full circle to where I started. One should be realistic. Sri Lanka will never be the ‘next Singapore’. But it can still learn selectively, and profitably, from Singapore.

The writer is Director of ECIPE, which he co-founded in 2006. He has been Associate Professor at the Lee Kuan Yew School of Public Policy at the National University of Singapore from January 2012. He was also on the faculty of the London School of Economics for eighteen years, where he received his PhD. His research and teaching focuses on global trade policy and Asia in the world economy.