Singapore’s Humble Beginnings

• In 1965, Malaysia ejected the 360 square mile island of Singapore, a strategic and important part of its land, making Singapore an independent nation

• Singapore’s new leader, Lee Kuan Yew, foresaw an economic calamity due to the country’s poor position prior to independence, with 2/3 of its population living in slums, high unemployment, and no significant industry

• The island had a highly mixed population that was increasingly breaking out into violence, and it had no access to natural resources, making its new-found independence even more challenging

• Singapore’s larger and more powerful neighbors were hostile to its existence and were going to cut it off from trade, while British military forces were withdrawing from the island, taking 20% of the remaining economy with them

• Despite these challenges, Singapore has become the fourth richest nation on Earth, with its citizens being among the most educated, healthy, and productive, and the country having the best infrastructure in the world

• Singapore is a leader in high-tech manufacturing and is the financial and logistical hub of Southeast Asia, making it one of the best places to live in the world

The Beginning’s of Singapore

• The British East India Company was a powerful corporation in the 19th century, generating more revenue than its host nation and owning private lands where a fifth of the world’s population lived

• The company’s profits came from shipping and trading resources worldwide, with its most lucrative cargo being Chinese tea, which was purchased by selling massive quantities of opium grown in Northern India

• The Malaka Strait was a narrow corridor and the company’s most profitable trade route, constituting 50% of its revenue, but it needed a port in the region to protect this route and make voyages more feasible

• The Dutch had a monopoly on the lands in the region for two centuries and the British East India Company had a policy of not taking actions that might anger the Dutch to avoid disrupting existing trade routes

• Sir Thomas Raffles, a tenacious company official, took it upon himself to create a port on the sparsely populated island that would become Singapore, situated at the tip of the Malayan Peninsula

• After some back and forth in Europe, the Dutch did not stop the British from having the territory, and Singapore was established as a free port to attract traders away from existing ports in the region

The Rise of Singapore

• Singapore offered zero taxes on businesses or port-related activities, giving it a massive advantage over heavily taxed ports in the region, attracting tens of thousands of traders from China, Malaya, and India in just four years

• The lack of administrative oversight led to Singapore becoming a hub for less desirable ventures, including slave trading, gambling, opium dens, violence, and prostitution, despite booming international trade propelling its importance and popularity

• The opening of the Suez Canal in Egypt reduced the distance for trade from England to China by 5,000 miles, cutting costs and increasing shipping demands, favoring the Strait of Malacca over the Sunda Strait and increasing traffic through Singapore’s port

• By 1967, Singapore became an official Crown Colony of the British Empire, solidifying its position as the most important port in the region

• The introduction of rubber trees and booming global demand for tin, abundant in the region, transformed Singapore into a hub for Southeast Asia’s resources, with resources being extracted from the peninsula, processed in Singapore, and shipped globally

• Singapore’s lack of natural resources fostered a symbiotic economic relationship with Malaya, and its growing importance led to greater British military presence, creating industry surrounding its dockyards and providing services to military personnel

• By the year 1900, Singapore’s population had grown to over 200,000 people, who were better off than those in other nations in the region, marking the end of centuries of unhindered growth

The Fall of Singapore

• As the 20th century progressed, Singapore, despite being 6,000 miles away from Europe, was not safe from the global conflicts during the Second World War, with the Japanese empire expanding its territories

• In December 1941, the Japanese invasion of Malaya began, and within two months, it reached Singapore’s doorstep, leading to the city’s surrender on February 15th, 1942, despite orders from London

• Singapore underwent immense suffering and destruction for three years until its liberation in 1945, when the retaking of the island resulted in the destruction of much of the remaining structures

• The city was left devastated by war and neglected by a crippled British Empire, with uncoordinated and unregulated rebuilding efforts, leading to the dominance of haphazard slums and unaddressed violence and opium issues

• The British did little to promote or integrate the diverse and densely packed population over the centuries, resulting in a lack of Singaporean identity, with each group living in isolation and often having conflicting interests

• The terrible living conditions and growing unemployment led to violence among the different groups, further worsening Singapore’s situation

Independence

• For most of Singapore’s existence, its desire to split from the British Empire was low due to its lack of resources, which meant it did not experience the exploitation that other colonies faced

• The idea of independence started to propagate among the population with the decolonization of much of the rest of the world, rising social violence, and the British Empire’s inability to defend Singapore during the war

• Lee Kuan Yew, a lawyer who studied in Britain, formed the People’s Action Party (PAP) and successfully gained a few seats in local elections in 1955, spearheading the independence movement

• Lee was elected as prime minister in 1959 on the promise of merging with Malaya, as he believed it was the only way for Singapore to survive due to its economy being symbiotically linked with Malaya and its inability to defend itself

• On September 16th, 1963, Singapore merged with Malaya, North Borneo, and Sarawak to become the Federation of Malaysia

• However, the Malaysian elections resulted in a party coming to power that ruled on the promise of putting ethnic Malays first, which was a problem for Singapore, a deeply mixed ethnic state with a 60% Chinese population

• Massive violence broke out in the streets, and the PAP ran in the federal elections on the promise of a fair and multiethnic state, but the ruling party saw Singapore as a threat to stability and ejected it from the nation with a unanimous vote just 2 years after the merger

• Against its wishes, Singapore was independent and alone, forced to defend itself

Building a Nation from Scratch

• Lee Kuan Yew found himself in a challenging situation after Singapore’s independence, with the task of building a nation from a population lacking a national identity and natural resources, and with 70% of the population living in abject poverty

• The country faced significant economic challenges, including the departure of the British military, which damaged the economy and led to job losses

• Singapore was also geographically vulnerable, situated south of Malaysia, which planned to economically isolate it by diverting trade, and north of an expansionist Indonesia, which had potential aspirations of invading

• Despite these challenges, Lee Kuan Yew was determined to modernize Singapore and decided to take drastic measures to achieve this goal, even if it meant using authoritarian methods

• The newly independent nation had to overcome numerous obstacles to create jobs, educate its population, and set them on a path towards a better life

Dictatorship

• To address social unrest and solidify the People’s Action Party’s (PAP) power, individual freedoms were restricted, including the banning of Free Speech, jailing of political opponents without trial, and implementation of harsh punishments for various offenses

• The authoritarian approach included public canings for minor offenses such as chewing gum, graffiti, and public drunkenness, and those who spoke out against the government were sued into bankruptcy

• Religious extremists, communist Chinese Malays who wanted to reunite with Malaysia, and others who posed a threat to the government were silenced or worse

• Lee Kuan Yew’s solution to the underlying ethnic and social tensions was authoritarian rule, which, although harsh, was effective in curtailing violence and stabilizing the nation

• The population’s freedoms were diminished, but in exchange, they received economic prosperity and social peace, with the understanding that free elections would continue, albeit tampered with to maintain the PAP’s one-party rule

• The PAP’s rule, established during this period, still stands today, and with the social and political situation stabilized, Lee Kuan Yew was able to carry out a significant economic overhaul that would contribute to Singapore’s future success

Housing the Masses

• One of the most pressing economic problems in Singapore was housing, with 70% of the population living in rough, temporary structures with no plumbing, representing one of the largest slum populations on Earth

• To address this issue, Lee instituted a law allowing the government to buy land cheaply to construct row after row of affordable housing, initially inspired by the British welfare state

• However, Lee did not want citizens to be dependent on the state forever, so he encouraged residents to buy their apartments at low rates, giving them a stake in the nation’s prosperity and increasing upkeep of structures and building wealth

• To make this affordable, Lee modified the Central Provident Fund, a policy that forced a percentage of one’s income to be saved, originally for pensions, to allow citizens to spend on housing

• The amount forced to be saved was increased over time to 25% of every paycheck, with another 25% being deposited by employers, making Singapore the nation with the highest ratio of savings to income earned

• This savings policy, coupled with cheap rates for state-owned housing, proved to be a massive success, housing all citizens living in slums and allowing most to own their own property

• Today, 80% of all Singaporeans live in houses they own, which were originally built by the state, allowing Singapore to largely avoid extreme housing prices seen in other similar nations like Hong Kong

Singapore’s Economic Miracle

• To grow Singapore’s economy, Lee Kuan Yew focused on attracting foreign investment by keeping taxes and regulations low, offering massive incentives such as 10-year tax exemptions, and maintaining competitive wages by banning unions and encouraging businesses to fire striking workers

• The government invested heavily in infrastructure projects and created modern industrial zones to support foreign businesses, taking advantage of Singapore’s strategic port and geography

• With business-friendly policies and a small domestic market, numerous policies were implemented to gear the economy toward exports, resulting in a significant influx of foreign businesses

• The Cultural Revolution in China, led by Mao Zedong, further encouraged investors to choose Singapore over Hong Kong and Taiwan

• Within 10 years, Singapore achieved nearly zero unemployment and a remarkable 13.3% annual economic growth rate

• The government continued to implement hyper-capitalistic policies to increase foreign investment, making Singapore the second easiest nation to do business in

• To combat corruption, Lee Kuan Yew introduced drastic measures, including the death penalty for suspected corruption and high wages for government officials, resulting in Singapore becoming one of the least corrupt nations in the world

• The reduction in corruption substantially increased the effectiveness of policy implementation, boosted investor confidence, and reduced wasteful spending, further driving economic growth

Improving Productivity

• Lee Kuan Yew did not want Singapore to focus solely on simple and cheap manufacturing, recognizing the nation’s most valuable resource as its human capital

• To develop this resource, Lee created technical schools, paid foreign companies to train workers, and established modern hospitals to maintain a healthy population

• This led to the attraction of more specialized industries, resulting in higher wages, increased savings, and a larger budget for the government to reinvest in education, creating a positive feedback loop of productivity gains

• By the 1980s, Singapore had transitioned into more advanced industries, including petrochemicals, pharmaceuticals, advanced computer components, shipbuilding, and chemical manufacturing

• Despite lacking natural resources, Singapore became the world’s third-largest producer of refined petroleum, leveraging its position as a regional hub in Southeast Asia to import raw materials, process, and manufacture them for global export

• The growth of Singapore’s financial sector played a crucial role in facilitating its status as a regional hub, bridging the gap between American and European markets and capitalizing on the growth of other Asian nations

• Singapore’s strategic position allowed it to act as a logistical and financial hub for foreign investment, which, combined with pro-financial policies, enabled the country to become the fourth-largest financial center in the world

State Owned Enterprises

• Singapore’s humble beginnings meant it lacked a class of entrepreneurs, capital, and technical know-how to build substantial companies and compete globally

• To facilitate growth, Lee organized a group of gifted civil servants and international businessmen to create efficient state-owned enterprises, including Singapore Airlines, steel, iron, and chemical manufacturing, and other capital-intensive enterprises

• The primary objective of these state-owned companies was to make a profit, unlike the common association of such companies with inefficiency

• Factors contributing to the success of these companies included low corruption in government, Lee’s willingness to shut down loss-making ventures, and the lack of unions, which kept costs low

• By the 1990s, the government began limited privatization of the most profitable state-owned companies, offering Singaporeans preferential rates for buying shares

• The privatization of state-owned companies helped diversify the economy and fill gaps in the market

• The revenue generated from these companies was placed in a sovereign wealth fund, which was used to fund healthcare, infrastructure, and education

The 4th Richest Nation on Earth

• Singapore is one of the richest, most advanced, and competitive economies in the world, operating the second-largest port and being the second-easiest nation to do business in

• The country attracts the third-highest foreign direct investment and offers its people affordable housing, world-class healthcare, and high-quality education, with students testing the highest in the world

• Singapore’s government, under Lee Kuan Yew, efficiently implemented policies that prioritized the country’s long-term prosperity over ideology, but this came at the cost of political and individual freedoms

• The consolidated power in Singapore allowed the country to maximize its advantages while limiting its shortcomings, and its location on a major global shipping lane contributed to its success

• Singapore benefited from the growth of globalization in the second half of the 20th century and had a “benevolent dictator” in Lee Kuan Yew, who made smart decisions for the country’s development

• The country’s unique path to success may not be replicable by other nations, as it was shaped by its specific circumstances and the fact that it had to develop rapidly

• Singapore’s economy is tailored to its own needs and is not a model that can be applied universally, but it has been successful in achieving prosperity for the country