Download 48 - Newton Environmental Studies

The Primary Influences on Economic Development
In Singapore in the 1970s
External
Geographic location - influenced development because of Singapore strategic
locations Asia and was significant because of distance to markets and
competitive location advantage versus comparative disadvantage of both being
small islands with few resources and thus importers of raw materials.
 Singapore strategic location on Straits of Malacca which is the main
trading route in SE Asia resulted in continued opportunities for trade
and commerce
History - Historical influence was through the significant relationship of
Singapore with Britain, resulting in an outward orientation and trade-based
economies
 Singapore benefited from British trade and defence links until East of
Suez policy in 1968 and 72 British withdrawal from Singapore.
Benefits continued through alliances e.g. SEATO = low defence costs
 British bases occupied 10% of island, employed 250,000 and
contributed to 20% of GNP
 British withdrawal left 1 class facilities with docks, hospitals, sport
complexes etc
China was influential through the significant interactions and inter relationships
with cultural, economic and political linkages e.g. Confucianism and Chinese
style of doing business with its long term focus on market share.
 Singapore had a smaller direct impact but Chinese influence was
developing e.g. 78 Spratley island claim by China and through Chinese
counteracting the Soviets increased influence
Vietnam War and US Inflation were the two major economic factors in the US,
which was the worlds largest economy in 70s and a major trading partner for
Singapore
 Singapore gained from expanded ship building, repairs and war supplies
e.g. oils for mechanised warfare
 Vietnam war was significant because it was the first war US had to pay
for, resulting BOP problems and inflationary difficulties with an
expenditure or $1m a day, one outcome was increased isolationism in US
and resulting decline in US FDI
 $US went off gold standard and end of Bretton Woods leading to
economic vicissitudes in West
Oil Shocks of 72, 74, 78 increased the price of oil from $4 per barrel to $30 and
resulted in a recession, redirection of wealth, stagflation and energy shortages
e.g. heating oil and gasoline. Car less days and rationing followed and resulted
in a move to new energy policies in the West
 Singapore’s diversification meant there was little impact because of
increased oil related activities
 FDI slowed in 74 because of world wide recession
 But activity in oil exploration resulting from the increased price for oil,
directly increased demand for services in Singapore, particularly for
Indonesian exploration activities
 Diversification paid off for Singapore and was replicated in countries
like NZ e.g. Think Big
Other Little Dragon development - like ripples from a pond, the
 Perception of advancement resulted in benefits of US FDI accruing in
other Asian countries
 This spill over effect, increased competition from other Asian countries
such as Thailand, Indonesia and Malaysia and China - particularly in
light industries
Economics in the 70s saw the end of Keynesian interventionism and planning
systems in Western economies because of inflation and unemployment resulting
from the Vietnam War and oil shocks. There was a re-emergence of monetarist
liberalism and minimalist government intervention, not seen since 1920s.
 Singapore stayed with Keynesian planning and intervention, but
emphasised its pro market approach
 the parallel but divergent development of Singapore and HK marks an
interesting theoretical contrast in the efficacy of economic development
systems and government intervention.
Internal
Politics influences economic development through the legal, social and cultural
constructs on economic activity. In Singapore economic success is ascribed to
four factors; the first of which is political stability, industrious people, correct
development policy and rapid world economic growth.
 Singapore was effectively one party state using a top down approach
which was coercive and not indicative government by incentives
 Ideologically Singapore’s leaders professed a belief in democratic
socialism, constitutional democracy, a mixed economy and cultural
pluralism
 But there was pervasive government intervention which Goh justified
because “the laissez faire policies of the colonial era had led
Singapore to a dead end, with little economic growth, massive
unemployment, wretched housing and inadequate education. The
government has to be the planner and mobilizer of the economic
effort.” Turnbull p312
 Singapore’s comprehensive government planning and intervention was
based upon the1961 UN Plan for Development in SINGAPORE
Fiscal and monetary policy influence economic development through a direct
impact upon economic activity
 Singapore’s rate of government intervention was 30% of GDP in 70,
rising to 45% by 1985
 This was the highest rate of government intervention in Asia and was
the result of the comprehensive development plan with it’s pervasive
social and economic intervention
 Examples were tax holidays, fiscal incentives to invest, and 100%
foreign ownership
 Exchange rate control, wage rate and labour controls
 Direct government investment through EDB accounted for 38% of all
gross fixed capital formation
Taxation affects savings rates and returns on investment, with rates reflecting
level of government intervention
 Singapore’s rate was 35%, for information TW 25%, SK 27% and HK
12.5%
Banking influences economic development through internal control over finance
and financial arrangements in particular, ease of investment, credit availability
and return on investment
 Singapore has a central bank which directly targeted aid for
industrialisation and export orientation through subsidies and
incentives such as soft loans and easy credit availability
 Exchange and interest rates were controlled via pegged currency to
sustain Singapore’s economic competitiveness.
Industrial composition is a key factor influencing economic activity. In Singapore
secondary industry was predominant, but both moved to value added products
and into service industries in 70s
 Singapore in 1970 there were 264 factories and 106 factories under
construction
 ¼ manufacturing companies were foreign owned or JVs, with US FDI
= 42%
 Oil was the major industry, Singapore had 1/3 largest oil refinery in the
world and oil accounted for 40% of Singapore’s exports
 1976 Singapore underwent a 2 industrial revolution: phasing out
labour intensive industry, diversifying and introducing high tech/high
wage activities, especially in tertiary industry
Imports/Exports were a key economic activity because of potential economies
of scale, efficient resource utilisation and access to resources and markets.
Trade meant growth and prosperity for both.
 Singapore between 65-76 increased from .6-.9% of total worlds
imports and increased.5-.6% of exports
 In 70s petroleum was leading export industry with 40% of total
Singapore exports revenue
 Singapore undertook a short period of import substitution and then
export orientation in diversified secondary and tertiary industry
Population was a critical factor for Singapore, with not enough people
 Singapore’s problems due to a process called demographic transition
 Between 57-70 population increased 2.8% pa, between 70-90 under
population growth rates were 2% pa or below replacement rates
 The 72, two-child family policy resulted in ZPG by mid 80s. In 86
growth rates were down to 1.44%, which could potentially decrease
the pop by 25% in a generation
 1971 saw the relaxation of immigration laws, and by 72 12% of
workforce were immigrants
 200,000 guest workers were needed by end of 70s, which made up
11% of the work force, who could be sent home if not needed
Labour relations is a key determinant in production process, resulting in a
competitive edge in flexibility and resilience for Singapore
 In Singapore - “it was vital to have a flexible wage system to help keep
wages and costs down so as to maintain international competitiveness
for exports” - consequently in
 65 Labour laws introduced longer hours, reduced holidays, and
reduced fringe benefits
 68 Labour Relations Act resulted in decreased power of Unions
 In 1972 a tripartite National wage council was set up, resulting in 1.7%
wage increases between 73-78, which were the lowest in Asia
 Wage increases over the decade were 11% for Singapore versus an
average 23% in Asia - productivity in Singapore dropped to 2.6%
increases which were the lowest in Asia
 Unemployment also remained low, however, at a rate of 3% or below
the frictional rate
Land influenced economic development through it’s scarcity and need for
maximise it’s utility. This was a key issue for Singapore.
 Singapore underwent a boom/bust cycle of over investment
 Singapore also used new town projects such as Woodlands to provide
hospitals, schools and recreational facilities
 42% of Singapore’s population lived in government housing by 75
Transportation
 In Singapore the small land area was a competitive advantage
resulting in low internal costs and increased mobility of factors e.g.
labour. Improvements in transport technology helped to sustain
economic development in Singapore
 Singapore’s location at the end of the Malacca straits is strategic
location for shipping into and out of Asia
 There was investment by government in docks and port facilities
enabling construction of oil rigs, support vessels, tanker repair and
ship repair/construction
 Singapore had the most efficient, cheapest repair centre in world
 A container port established in 72 made Singapore the transhipment
centre for SE Asia
 75 Singapore had 1/3 largest container port capable of handling
200,000 containers pa
 Port handled 200 ships per day and 52m tonnes of freight pa
Communications
Improvements in communication technology enabled increased economic activity
and possibilities particularly in financial services areas
 Singapore established satellite connections resulting access and growth
of financial markets because of instant access to other world markets
 Singapore’s satellite and cable connection made SINGAPORE the major
Pacific gate into Europe and HK the gate into China
Social Welfare influenced economic development through political stability and
increased productivity and was mainly concerned with education, housing and
health.
Education -
 Singapore’s education policy was also part of the comprehensive
social welfare policy
Results
 GDP growth in Singapore was 9.4% pa and PCI rose to US$6,500 by 1985
making Singapore 2nd highest PCI in Asia after Japan
 Finally both Singapore developed tertiary industries, of which, obviously the
most significant in terms of economic development was the emergence of the
Bruce Lee movies such as “Enter the Dragon”, which represented the
spiritual and cultural zeitgeist of a decade.