Singapore’s economic success has resulted in one of the richest economies in the world. The country has a real GDP per capita—an indicator of people’s standard of living—of US$59,797, while Argentina’s only reaches US$8,441 and Germany’s is US$45,723. The unemployment rate in Singapore hovers around 3%, almost reaching full employment. In turn, it is second in the ranking prepared by “Doing Business,” which classifies countries according to the ease of doing business in them. Also, according to the Human Development (HDI) ranking, which shows people’s quality of life, Singaporeans are in the 9th place. However, this was not always the case.
Singapore’s Economic Success: What Can We Learn?
What is the cause of Singapore’s economic success?
When Singapore gained independence from Malaysia in 1965 most of its population was poor. Singapore was a small island without many natural resources and highly dependent on the world market. Surely if someone stopped in 1959 they could not imagine what it would become years later. In a few years the country became a developed economy with a growth rate that converges at a steady state, low inflation rates, almost reaching full employment, high quality of life, low mortality rates, and more.
The fundamental cause of Singapore’s success is a vision oriented towards economic freedom. Lee Kuan Yew was Prime Minister of Singapore from 1959 to 1990. In social affairs, hedonism is severely curtailed, let’s be clear about that. Now continuing in the economic sphere, Lee managed to turn Singapore into a profoundly capitalist country–people have long-term horizons because they can capitalize their savings and skills—and one of the most competitive in the world. The policies that he carried out focused on four axes:
1- Fight against corruption
3- Reform of the health system
4- Educational reform
Before 1965, Singapore had a high degree of corruption. Bribes were part of people’s daily lives. To put an end to this, Lee—knowing that legal certainty is one of the fundamental pillars for any type of development— implemented a series of measures at different levels to reduce it. Among them were:
- Increase in salaries for officials. He considered that in this way, the incentives to seek other sources of income would fall.
- The creation of a legislation named “law against corruption;” a frequent rotation of officials and formal surprise inspections.
- A judicial reform that strengthened the convictions of crimes.
Singapore’s economic freedom
Singapore is among the countries with the most economic freedom. According to the index prepared by the Heritage Foundation, Singapore is 2nd in the ranking of freest countries in economics. This economic success is due to the fact that since 1960 a series of economic policies oriented towards free markets, respect for private property, and contract enforcement were adopted.
Among the specific economic changes, they implemented the reduction of fiscal pressure over society, the reduction of public spending, trade liberalization, and the application of market competition for all firms.
Taxes are very low in Singapore, for example, income tax ranges from 0% for income below US$20,000 per year to 20% for income above US$320,000 and taxes on companies is 18%, although those that join the market are exempt for a while.
Likewise, public spending only represents 14% of GDP and the weight of the public sector does not exceed 5%. In commercial matters, 99% of imports are exempt from taxes and tariffs on foreign trade fell to 5% for a while, despite the low tariffs, Singapore has trade surpluses beyond the levels of Germany’s trade surpluses. Today, Singapore being one of the most competitive countries in the world with a trade surplus that exceeds that of Germany.
The regulations are lax, which allows foreign capital to be reinvested in internal capital. It is not surprising that this country is a global financial center, since the above mentioned attracts investment. Finally, all companies apply the concept of competition, including State-owned companies are obliged to compete efficiently and freely, since if they do not generate profits on their own, they are automatically closed.
Singapore’s health system reform
In Singapore, the health system represents a third of the cost of the North American health system and is still considered one of the best in the world. Market criteria apply: more than 60% of health spending is private spending, it is paid by individuals through contributions that accumulate in an account that can only be used for those purposes, which is adapted to each individual according to their contributions. The government subsidizes hospitals and has public funds to pay the healthcare bills for low-income families. Besides the above, individuals have the freedom to contract other services and health insurance that reinforce benefits.
Singapore’s education system reform
The educational system in Singapore has a methodology for primary education geared towards merit, effort, full proficiency in the English language and specialization according to academic results. The evaluation of student achievement is constant. Top students are allowed to choose advanced subjects and more challenging schools. The core focus is literacy, skills development in mathematics, and the knowledge necessary to succeed in the world’s markets. In other words, the students are trained to more easily join and compete in the world markets.
Other countries have not grown for 10 years. They deal with high rates of corruption, companies that have to pay very high taxes, broken healthcare systems, and an education quality well below what is needed to compete globally; although common worldwide expenditures in relation to the GDP are higher than that of Singapore. It is for this reason that, perhaps, developing and developed countries alike should study success stories like that of Singapore more and focus on economic freedom.