Thayer Watkins

Economic History of Singapore

History of Singapore

How Singapore Came to Develop Its High Tech Industry

Other than location the only resource that could be a basis for the economic development and prosperity of Singapore is its labor force, more specifically the training of its labor force. Singapore could not hope to compete upon the basis of the cheapness of its labor; it had to create technical skills that are unavailable elsewhere in the Third World.

The local industry was limited to trade and did not have the capability of creating export industry. Singapore, under the leadership of Lee Kuan Yew, sought to bring in foreign industry. But, with much of the Third World trying to do the same thing it was not an easy task. One of the first goals was to make potential employers aware of the relative incorruptibility of the Singaporean bureaucracy. In much of the world laws are arbitrary and subject to change by the government. Corporations do not want to risk investing millions of dollars in facilities in an area where various elements of the government can take part or all of it at any time. The laws in Singapore might not be exactly to the liking of foreign companies but they would be fairly enforced. This proved to be a highly attractive feature of Singapore. The tax system was also attractive to foreign companies, often giving lower tax rates for foreign investment than for local residents.

One of the keys to Singaporean development was the upgrading of infrastructure, streets, roads, an airport, port facilities. The upgrading was financed not primarily by borrowing but by a special infrastructure tax.

Lee Kuan Yew was not infallible. His ideological background was the social democratic Labour Party. His intention was to raise income levels of Singaporean labor and when his program for attracting foreign employers was proving successful he announced an increase in the minimum wage levels. This produced a serious recession. The higher wages were a discouragement to foreign companies considering Singapore relative to other locations, but probably the most serious effect was the signal that Singapore might be like other Third World governments that would encourage investment and then change the rules when companies were vulnerable. Lee Kuan Yew learned his lesson and took a different strategy for raising Singaporean incomes.

The strategy was to improve the training of Singaporean workers through government training institutes. A typical training program would meet twice a week for three-hour sessions over a two year period. The training was voluntary and free and it was geared to the needs of the companies operating in Singapore at that time.

Apple Computers was one company that located facilities in Singapore. Initially Apple just produced electronic boards in Singapore for assembly into their computers in the U.S. As a result of the production of more skilled personnel in Singapore through the training institutes Apple decided to produce its entire computer in Singapore. Apple made this decision on the basis of Singaporean workers being able to duplicate the operations of its American plant. But the newly trained, highly motivated Singaporean workers not only replicated the old production process but began to make improvements that further lowered costs. There developed in Singapore a culture of innovation. The government training program proved to be so beneficial to employers that they acquiesed to a special tax to help pay for it.

As a result of the success of its technical training programs the government of Singapore branched out into the creation of: