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Show HINCKLEY JOURNAL OF POLITICS 2002/2003 "foolish and absurd proposition" (Drysdale 1984, 249). Nevertheless, it was in this hostile international environment that the PAP would lead Singapore to become one of the most economically successful nations in the world. THE ECONOMIC AND POLITICAL ANALYSIS From 1965 on, two general types of policies have affected the political and economic situation in Singapore: first, those policies that were initially taken after independence to provide a favorable climate for investment, and second, those policies that provide for the continuous dominance of the Singaporean government by the People's Action Party. The latter are sometimes contrary to democracy, but nonetheless keep the environment primed for economic growth. Attention will be given to both types, with a discussion of the democratic merits of specific policies throughout. THE FIRST STAGE: ATTRACTING FOREIGN INVESTMENT Following independence, it was clear that Singapore's prevailing economic strategy of import substitution industrialization (in which fledgling native industries are given protectionist advantages to help them establish themselves in the world economy) was failing, due to a lack of natural resources, insufficient market demand, and unfavorable scale economies. As a small, relatively weak city-state, Singapore needed a strong economy to help ensure its survival. Thus, the government switched to an export oriented strategy. This included four elements: 1) abandoning protectionist policies in favor of free trade, 2) large scale public investments in education (human capital) and infrastructure (physical capital) to increase Singapore's attractiveness to foreign investors, 3) decreasing labor unrest, so that foreign investors would not be scared away by a volatile political situation, and 4) a smaller welfare state was necessary in order to convince investors that a transition to communism (and thus the expropriation of their property) was out of the question. If all went according to plan, foreign direct investment (FDI) would pour in, establishing a strong export sector and jumpstarting the domestic economy. Towards the first goal of free trade, Singapore's situation as an independent city-state located on major trade routes allowed the PAP to emulate the economic policy of similarly situated Hong Kong. The PAP established Singapore as a "Ricardian free port," after nineteenth-century classical economist David Ricardo, who showed that "in normal circumstances, any country or region allowing unrestricted international trade would prosper more than under any other approach to trade policy" (Lingle and Wickman 2000, 61). Free trade made foreign firms more competitive in the domestic economy, providing a more viable investment environment. However, this alone would not induce the necessary foreign investment. In order to attract large-scale foreign capital to their free trade paradise, the government undertook investments in the two resources they could provide for investors: the people and the infrastructure. Top priority was given to "modernizing the educational system" (Lingle and Wickman 2000, 62) in order to enhance the stock of human capital and attract foreign investors looking for a productive labor force. The Singaporean educational system was effective at producing "loyal workers with good literacy, well prepared to follow and interpret...complicated instructions" (Lingle and Wickman 2000, 62), an indispensable resource for attracting high value industries such as technology. Also essential was the build-up of infrastructure, largely in transportation. Singapore's basic economic activity was organized around the ports, and the government undertook huge investments in the port infrastructure to lower transportation costs and increase the amount of traffic its ports could handle (Lingle and Wickman 2000, 62). Because of this infrastructure, in addition to the distinct locational advantages afforded to firms by Singapore's central position in Southeast Asia, "thousands of private companies could trade with the rest of the world," making the island an ideal recipient for foreign direct investment (Lingle and Wickman 2000, 62). A third major policy concern was the high unemployment rate, which reached 8.9 percent in 1966 (Huff 1994, 291). Singapore had to instill investor confidence, meaning its reputation for labor disputes and strikes had to go. In December 1965, the government declared that "the excesses of irresponsible trade unions...are luxuries which we can no longer afford" (LePoer 1991, 59). The situation worsened in 1968, when Britain announced it would withdraw from its military bases in Singapore within three years. The economic consequences were sobering: British spending accounted for approximately 25 percent of Singapore's GNP (S$450 million/year) , and the bases employed some 21,000 Singaporeans (LePoer 1991, 59). There seemed little chance of absorbing the large-scale unemployment that was to come. Faced with crisis, the PAP called for an election of confidence to provide a new mandate for policy: the 1968 election resulted in the PAP winning every parliamentary seat with more than 84 percent of the vote (Turnbull 1989, 295). "With this new authority.. .the government passed far-reaching labor legislation, designed to transform confrontation into cooperation and provide an attractive climate for investment" (Turnbull 1989, 295). Aiming to curb labor disputes and increase productivity, the new laws allowed longer hours, reduced holidays, restricted overtime and bonuses, and decreased white-collar workers' fringe benefits. However, they also provided compensation for the masses of workers, including sick leave and retrenchment payments, and increased employer contributions to Singapore's social security system, the Central Provident Fund (which also acted as a store of financial capital the government could use for fiscal policy purposes) (Turnbull 1989, 295). These new policies made 1969 the first strike-free year since the PAP came to power (Turnbull 1989, 295). |