How Singapore became one of the world’s richest nations

Singapore gained its independence from the Federation of Malaysia on 9th August 1965. But upon receiving its freedom, income per person was only at $4,125, and the new sovereign state was considered to be in a state of poverty akin to that of Jordan and South Africa.

Yet in 2020, this number rose to $59,176, recording a real (inflation-adjusted) growth rate of 5%, far beyond the industrial mean of 1.9%. In fact, the country records the second-highest income per capita worldwide with a score of 98.7, only trailing Luxembourg, which has a perfect score. But how did a small Southeast Asian nation experience such impactful growth? 

Lee pursued a system of heavy export, which yielded huge success in the country’s first 20 years of existence.

At the heart of their transformation lay Lee Kuan Yew, the country’s first Prime Minister. An autocratic ruler, Lee and his People’s Action Party (PAP) employed a variety of pro-growth policies despite Singapore’s structural disadvantages, such as limited land availability and the absence of natural resources. One of his most crucial policies was directing a significant proportion of state finance to shipbuilding, banking, and electronics during a period of technological revolution and economic interconnectedness. This approach was leveraged to open doors for multinational companies instantly, and to advance international trade liberalization. In terms of protectionist policies, Singapore either had no barriers, or very minimal tariffs and non-tariff mechanisms, which made the country an attractive spot for global corporations. On the other hand, Lee also pursued a system of heavy export, which yielded huge success in the country’s first 20 years of existence. By exporting both textiles and second-generation products like semiconductors, the nation was able to record historic figures, with exports being 200% of the GDP in 1988, experiencing a year-on-year growth of 7.6%, more than double that of the 3.6% gained by the average industrial state.

Due to its combination of free internal and external economic policies, Singapore has been rated as the freest economy in the world.

The nation has also prevented itself from significant inflationary pressures by maintaining low government spending, with its record high being 24.15% of GDP in 2020, while the West (particularly the EU) has remained at 40-50% in recent years. Furthermore, all expenditures have been strategic, focusing on education to create a meritocratic system of rewards, whilst simultaneously developing capacity for future growth. This idea can be observed with Singapore’s SkillsFuture Programme, which focuses on developing micro-skills that modern employers seek to ensure their populace can obtain work and receive income. The low state expenses have also kept tax rates low, with the top rate of its progressive income tax at 22%, creating a revenue-retaining paradigm that has incentivized citizens to pursue both entrepreneurship and employment.

Due to its combination of free internal and external economic policies, Singapore has not only been rated as the freest economy in the world but also recognized by economists worldwide as such, with Conservatives seeing it as the best example of a cosmopolitan state.

But amid the credit, perhaps rightfully, for the overwhelming level of foreign investment, the world tends to overlook Lee Kuan’s equally impressive internal exploits. Right after independence, Singapore, burdened with overpopulation, had one of the highest concentrations of slums in the world. But the Housing and Development Board rapidly introduced robust housing initiatives. These planned units enabled slum-dwellers to escape poor conditions and settle into a healthy environment, which, in turn, incentivized greater productivity, launching a virtuous cycle of rising income and economic growth. Moreover, Lee stands as one of the few successful authoritarian rulers due to the imposition of strict rules, such as strict anti-drug trafficking and anti-corruption laws. Though seemingly harsh, this is one of the many policies that transformed the country from one of the most corrupt after British independence to the third least corrupt nation worldwide, according to the World Economic Forum.

Also, even if a person does not have a high-paying job, the minimum wage, or rather, its Progressive Wage Model (PWM), operates based on the forces of supply and demand, enabling anyone to live a decent life and access social support. In fact, the PWM was the brainchild of the National Trade Union Congress (NTUC), which Lee established after he repressed all independent labour unions and merged them into the NTUC to build greater corporate unity.

Overall, the rise of Singapore has been a success story that has been recognized by economists worldwide, and a model whose institutions are being emulated by other economies from lower-income nations like Rwanda to powerhouses such as China, once again exemplifying Milton Friedman’s claim that Singapore is an example of how to do development right.