Singapore's Success Story: Export-Oriented Strategy and Economic Growth
Singapore is a dynamic, multicultural city-state located at the heart of
Southeast Asia. Known for its incredible economic success, Singapore has
transformed from a small fishing village into one of the world’s leading
financial hubs. Since gaining independence, the country has shifted from a
low-wage, labor-surplus economy to a high-wage producer of high-tech,
capital-intensive products. This rapid industrialization has helped eliminate
the unemployment problems that existed at the time of independence and
has led to a significant increase in the income of Singaporeans over the past
few decades. Both the manufacturing sector and, more recently, the
business and export services sectors have played a crucial role in this
process.
Between 1965 and 1990, Singapore’s real GDP grew at an impressive rate,
with the manufacturing sector being a key driver (World Bank, 1992). Today,
Singapore is ranked as the third wealthiest nation in the world (World Atlas).
The country’s economy is now mature, with the modern service sector
making up a large portion of its GDP. Alongside Singapore’s remarkable
economic growth was a dramatic increase in exports. Between 1965 and
1988, Singapore’s exports grew at an annual rate of 7.6% in constant prices,
twice the rate of many middle-income countries. The economy is highly open
and has developed into a significant exporter of manufactured goods.
The rapid growth of export-oriented industries from 1967 onwards was
strongly supported by increasing participation from foreign enterprises.
Unlike many other countries, Singapore placed no limits on foreign
ownership, allowing foreign firms to repatriate profits and import skilled
workers. The major sources of foreign capital came from the United States,
Western Europe, and Japan.
Singapore’s Export Promotion Strategy and Its Connection to Economic
Growth
Transitioning Singapore’s economy to focus on export manufacturing was not
an easy task. Initially, there was little incentive for industrial investment.
Therefore, the government adopted an aggressive export-based industrial
growth strategy, heavily financed by foreign capital. This strategy involved
several key components:
1. Free Trade Regime:
The Singaporean government adopted a free trade regime, continuously
liberalizing trade starting in 1969 and removing most import tariffs by 1973.
However, the government didn’t just rely on free trade and market forces to
align the country’s production with its comparative advantage. Instead, it
strategically used trade liberalization to attract export-oriented industries
and foreign investment. This was particularly important for Singapore, which
is a small city-state with no natural resources and therefore could not rely on
industrialization behind tariff walls.
2. Incentives to Attract Foreign Investment:
The Singaporean government played a proactive role in shaping the
country’s economic landscape, using targeted incentives and strategic
planning to attract and sustain foreign investment. One of the key strategies
was the creation of "free zones," including Export Processing Zones (EPZs),
which were crucial to the country’s industrial development. To further attract
foreign investors, the government steadily increased tax incentives starting
in 1967, making Singapore an attractive destination for global capital.
3. Controls Over Labor and Forced Savings:
In the 1960s, Singapore was considered a high-cost producer by Asian
standards. To make the country more competitive, the government
implemented strategies to moderate wage increases and stabilize labor
costs. This was essential for fostering labor-intensive industrialization,
reducing unemployment, and attracting foreign investors. To achieve these
goals, the government imposed strict controls over labor, ensuring low labor
costs, enhanced productivity, and industrial stability.
4. Direct State Production:
Direct state production was also a key element of Singapore’s economic
strategy. The government took an active role in establishing and managing
state-owned enterprises (SOEs) to drive industrialization and develop key
industries. During the 1960s and 1970s, through agencies like the Economic
Development Board (EDB), the government created SOEs in various sectors
to accelerate economic growth, create jobs, and build industries that the
private sector was not ready to develop. This approach was particularly
important for Singapore, given its lack of natural resources and the need to
diversify its economy.
Singapore's success story is deeply rooted in its export-oriented strategy and
the government’s proactive role in economic management. By adopting a
free trade regime, providing targeted incentives, controlling labor, and
engaging in direct state production, Singapore transformed its economy from
a labor-surplus to a high-tech, capital-intensive powerhouse, achieving
extraordinary economic growth and global recognition.
