Singapore miracle – How SL could benefit from trade with Singapore

There has been a debate about what type of policy which Sri Lanka should pursue in order to deliver prosperity to its people. Some have argued that the country should follow the Singaporean model to replicate the miracle. But many others, including those on the top of Sri Lanka’s political structure and those among the mainstream economists, have disagreed. They have argued that Sri Lanka should follow its own indigenous growth model unique to itself

Appointment of a committee of experts

According to a media report released by President’s Media Division, a committee of experts has been appointed by the President to examine and report on ‘the practical impact and use of the proposed officer policy guidelines and recommendations on framing Sri Lanka’s future trade policy’ (available at: http://www.pmdnews.lk/president-appoints-independent-experts-committee-on-sl-singapore-fta/). 

The choice of the five experts, it appears, has been done carefully drawing on the multitude of expertise which they possess not only on trade but also on all other aspects of economic policy. Two are respected university dons (Professor W.D. Lakshman and Professor Ajitha Tennakoon), one central banker turned university don (Professor Sirimevan Colombage), another a trade expert (Dr. Shantha Jayanetti) and the last, a well-experienced economist who had worn numerous hats in the Central Bank, Ministry of Finance and International Monetary Fund, just to mention a few (R.A. Jayatissa). 

Need for resolving conflicting views

The President had been prompted to appoint this committee due to conflicting views expressed by many sections of society on the Sri Lanka-Singapore Free Trade Agreement that was signed in early January this year. Hence, the members of public have been advised to make their representations to the committee. 

Since none of the experts had taken a position on the Free Trade Agreement in public previously, it can be reasonably assumed that they would approach the problem with an open mind. It is up to the warring professional associations and Government officials to have their views known to the committee. 

In the meantime, the sustainable national policy (available at: http://www.pmdnews.lk/long-awaited-national-policy/), pronounced by the President last week, too has emphasised the need for diversifying and promoting exports by adopting a strategic approach to trade agreements via supply-side reforms that aim at improving export competitiveness and productivity. Hence, as a second mandate, the committee will have to examine the proposed trade policy by the officials of the Ministry of International Trade in line with the sustainable national policy.

The trade agreement is incomprehensible to many

The full text of the Sri Lanka-Singapore Free Trade Agreement, running into thousands of pages, can be accessed from the Singapore Government’s website for enterprise development (available at: https://ie.enterprisesg.gov.sg/~/media/IE%20Singapore/Files/FTA/Existing%20FTA/Sri%20Lanka%20Singapore%20FTA/Sri-Lanka-Legal-Text-SLSFTA ). 

It contains 17 chapters and about an equal number of annexed documents. They are in such technical terms that only an expert with practical experience in trade and trade agreements would be able to comprehend them. Hence, many critics who have taken liberty to attack the Free Trade Agreement may not have examined the document in toto and referred only to some selected sections. In this background, the appointment of the committee of experts to listen to the public and report on the agreement is a welcome development. It is in line with the true spirit of economic policy governance as well.

This article does not seek to review the agreement. That is left to the committee of experts. Instead, it will analyse causes of the miraculous development of Singapore from around mid 1970s and identify what lessons which Sri Lanka could learn from its experiences. 

Singapore model versus national economic model

There has been a debate about what type of policy which Sri Lanka should pursue in order to deliver prosperity to its people. Some have argued that the country should follow the Singaporean model to replicate the miracle. This is understandable since Singapore, by following its unique growth model, was successful in elevating that Third World country four decades ago to a First World country within the lifetime of a single generation. 

But many others, including those on the top of Sri Lanka’s political structure and those among the mainstream economists, have disagreed. They have argued that Sri Lanka should follow its own indigenous growth model unique to itself. For them, following a foreign growth model and converting the country to another Singapore is not the dream of the nation. They want Sri Lanka to be ‘Sri Lanka’ and not another foreign country although that foreign country has been the envy of many by being a top achiever of the world.

Both sides are wrong

Both these arguments are wrong. Sri Lanka and Singapore are culturally, geographically and politically different from each other. Singapore is a city state composed of immigrants brought from three main countries in the region and settled in a narrow strip of land at the tip of Malaysian Peninsula just 200 years ago. 

In contrast, Sri Lanka is a country with a long history, dating back to 6th century BCE if one goes by its recorded history, with a fairly large commercial and subsistence agricultural sector and a diversified economy. Hence, Sri Lanka cannot be another Singapore and by being a Singapore it cannot fulfil the aspirations and wishes of its citizens.  

However, in the opposite, the complete rejection of the Singapore model is also short-sighted. The country need not endeavour to become another Singapore. But, the development lessons which Singapore has left behind are all worthy of serious examination by others who also wish to enter a high development path. 

Though the world environment which Singapore faced at the time it undertook its rapid development strategies is different from what we face today, the fundamentals underlying the issues, strategies and outcomes still remain valid. Hence, attempts should be made to dig up the strategies followed by Singapore with a view to subjecting them to a critical evaluation and generating a public debate on the same. 

Sources to gain knowledge on the Singapore model 

Several sources can be tapped to learn of the Singapore Model. The best way to do so is to learn it from the horse’s mouth itself. Singapore’s miracle maker, its Prime Minister from 1959, Lee Kuan Yew, has documented these strategies with a critical evaluation in two volumes of his autobiography under the titles of ‘The Singapore Story’ and ‘From Third World to First’. 

Goh Keng Swee, leading politician who provided economic wisdom to Lee, has also documented his experience in a contribution to the Silver Jubilee Commemoration Volume of the Singapore Board of Currency, ‘Prudence at the Helm,’ published in 1992. 

Two British academics, Daniel Yergin and Joseph Stanislaw, have reviewed the economic reforms undertaken by both the developed and emerging countries in a publication titled ‘The Commanding Heights,’ and it provides a useful description of the models adopted by all the countries including Singapore. The careful perusal of these documents and other publications will help one to keep himself informed of the different strategies adopted by many countries to push themselves up in the last few decades.

Lee’s dilemma 

According to Lee, when Singapore separated from Malaysia in 1965, everybody had expected it to fail without the supporting strength of its big brother to the North, Malaysia. All advisors had advised Singapore to remain within a close trading block with Malaysia and Indonesia, the other big economy to its South. 

They had rationalised that by being the trade service centre to these two big powers, Singapore could continue to harness its comparative advantage of functioning as an entrepot trading centre. According to them, there was no any other future for Singapore. 

Poor neighbours versus rich strangers

This advice was essentially to concentrate on having strong economic relationships with its neighbours and not to look beyond. Today, Sri Lanka too gets similar advice that it should have strong economic relationships with its neighbours and other South Asian nations. The logic behind this advice is that trading with developed countries is a risk and when trading is done with countries of similar circumstances, there is a certain element of safety because those countries do not have hidden agendas to follow.

Wealth was with rich countries 

This advice has puzzled Lee and his team. Wealth in the world is not with developing countries but with the developed world. If someone has to reap the benefits from such wealth accumulation, he has to necessarily link himself with developed countries. While the richness of developed countries could be witnessed from below, there is a glass ceiling which stands as an effective barrier for developing countries to reach them. In the circumstances, the advice given to them is perfectly in order.

Breaking the glass ceiling

Singaporean leaders had thought that there should be a way to break the glass ceiling without harming themselves and causing damage to their relationship with the developed world. To do so, they have to make a long jump to the developed world bypassing the neighbouring developing countries. Even if they are successful in doing so, it would not be sustainable, since the developed countries might be disappointed with their performance and delivery capability. 

Hence, it was necessary to look for a solution which will allow them to undertake the long jump and keep their relationship with developed countries unhindered. Compared to Malaysia and Indonesia, the two big neighbours, North America, Europe including the UK, Japan, Australia and New Zealand which are located thousands of miles farther from Singapore, had offered the best prospects for Singapore to tap markets and create wealth on a sustainable basis. Though the long jump to these countries is strenuous, it was worth making efforts to do it successfully.

‘Leapfrogging’ strategy

Singapore, therefore, decided to ‘leapfrog’ the two neighbours and reach the developed countries directly. This was contrary to the advice given to them constantly and the popular wisdom prevailing at that time. Yet, they found that all the prerequisites for rapid economic development were with those developed countries and not with their neighbours. 

In the late 1960s, technology especially, information and communication technology, was advancing at an unprecedented rate and such technological innovations were alien to its neighbours just like to Singapore. Hence, to get the benefit from the advancing technology, one should align itself with those who have the technology and not with those who looked at those innovations with goggled eyes. 

Developed countries were also making rapid strides in productivity and quality improvements thereby capturing markets and cutting down costs, two main ingredients for success in trading. Singapore as well as its two neighbours were light years behind both quality and productivity improvements, because they have not been an important part of their cultural traits. Hence, the most important requirement of the day was to jump onto the bandwagon of the developed world and be part of the new quality and productivity improvements. 

In addition, the management and business decision making of the firms in the developed world were mainly based on sound prudential criteria and they helped them to become resilient and stand up to challenges coming from outside. Given all these requirements, ‘leapfrogging’ the two neighbours was a must.

A developed country oasis

Then, the question was, ‘even after the successful leapfrogging, how to maintain the relationships with prospective investors continuously?’ At that time, Singapore was another typical developing country with no considerations for quality, environmental beauty, learning, self-discipline, maintaining law and order and rule of law which constituted the foundation of the ever rising prosperity of the developed countries. 

Hence, among the pool of the developing countries surrounding Singapore, it was necessary to create a ‘developed country oasis’ to attract developed country investors and project it as completely different from all other developing countries in Asia, Africa and Latin America.

Conscious efforts were then taken to beautify Singapore, make Singaporeans quality conscious at all levels, improve skills and competencies through learning and training, maintain law and order and rule of law and create a clean society by eliminating bribery and corruption. Infrastructure for mobility was developed by modernising the port, airport, transport system and the road network.

Within a decade, Singapore emerged as a ‘developed country oasis’ with distinguishing characteristics and attributes. According to Lee, it made a world of difference because its neighbours were still embroiled in internal disputes and substandard legal, managerial and business practices. 

Lessons Sri Lanka could learn from Singapore

Singapore became a rich country by being seamlessly integrated to the global economy. In the first few decades, it was a free trade centre and functioned as an entrepot trading centre in which goods were imported from the rest of the world and exported to other countries. Subsequently, it developed its own capacity as an industrial powerhouse. 

Sri Lanka too through millennia brought prosperity to its people by functioning as an entrepot trading centre. Goods that were brought from all over the world were stockpiled here and made available to traders who visited the country freely. Today’s trade is digital and does not require goods to be shifted physically from one country to another to be sold in the international markets. This is what Singapore does today. Hence, by jumping on the bandwagon of Singapore, Sri Lanka has no reason to lose.

(W.A. Wijewardena, a former Deputy Governor of the Central Bank of Sri Lanka, can be reached at [email protected].)