Singapore: The Role of Government in Promoting IT and Biotech

 Singapore is widely recognised as having a highly planned economy that has emerged over the past ten years to become one of Asia's most successful models for economic development and quality of life. A large part of Singapore's growth can be attributed directly to the careful implementation of government policies in the areas of education, commerce, social development, infrastructure, and regulatory environment.

 However, Singapore's economy faces challenges brought about by a changing external environment, including:

(1) Political instability in Indonesia and complex relations with neighbours including Malaysia.
(2) The global downturn in the knowledge economy.
(3) The steady emergence of giants China and India as regional centres of investment.

 Singapore's response, as always, is to plan the next phase of growth - this time through active government investment in biotechnology, information technology, and arts and creativity. Yet, in a rapidly changing global context, how appropriate is a planned economy, and how effective is the government's 'hands-on' approach (one which is increasingly viewed as 'interventionist')? This brief paper considers and balances opposing views on the government's role, focussing primarily on the government's promotion of technology and biotechnology as key sources of development for Singapore.


Singapore provides an environment that is particularly conducive to control by direct government intervention. This tiny island of just four million people comprises a mix of primarily Asian cultures with a high degree of respect for education and for authority. Singapore's history of secession from Malaysia followed by its rapid growth driven through effective government policy creates a mandate for further planned development. The government has been particularly effective at putting both an efficient infrastructure and an effective command and control structure in place, and is in the position of having developed an implicit pact with its people whereby they have been willing to exchange some areas of political and economic freedom in return for rapid growth and stability.

A large part of Singapore's economy is intricately dependent on government policy. For example, 65% of Singapore's citizens live in rent-controlled Housing Development Board (HDB) accommodation - changes in HDB rents directly affect both disposable income and government revenue. Similarly, changes to the government's Central Provident Fund (CPF) scheme have a direct impact on the 'marginal propensity to consume' of every working Singaporean (indeed the government has changed CPF savings rates several times in response to economic downturns). When significant parts of people's financial wellbeing and future is dependent on government policy, entrepreneurism and technology development cannot stand in isolation.

Singapore does not have significant natural resources, and hence the key to its growth is the knowledge economy. Singapore has been particularly clever in defining a role for the island that recognises its limitations and builds on its core competencies - infrastructure, technology and productivity. The government is investing in multi-gigabit connectivity to South and North Asia, Australia Europe and the US, and is focussing on developing Singapore as a regional headquarters for Asian companies as well as a media broadcasting hub. In addition, Singapore is trying to become a centre for the production, packaging, hosting and distribution of content from India and China - it is already the digital hub for companies such as AT&T Broadband. Singapore aims to provide a test bed in which small companies can trial technologies and alliances with over 6000 multi-national companies that have set up regional headquarters here. The government has even developed partnerships with Indonesian islands that can act as a low cost manufacturing base. Singapore's efforts in biotechnology have been equally concerted - a new bioscience park is in the works and some of the world's leading scientists have stated their intention to relocate to Singapore.

In the global context, Singapore is crucially dependent on the development and growth of its neighbours to spur foreign direct investment (FDI) in the region. While political talks with Malaysia and Indonesia continue, the economic development incentive and good old fashioned competition is often is often far more effective in driving reform within neighbouring countries. Singapore's own success spurs the region.

In summary, it can be argued that Singapore's culture, structure, history, geographical position and competencies provide a uniquely appropriate case for active government investment in information technology and other industries.



Singapore's rapid growth over the past ten years has been achieved through a dramatic mobilisation of first and second order economic inputs - workforce, education, tools and technologies, supported by the creation of an environment in which these resources can be applied effectively - efficient infrastrucure, low crime and freedom from corruption (Singapore consistently ranks among the least corrupt countries in the world).

Growth driven by economic inputs is characteristic of economies that move quickly from a low level of development to a high level of development, as seen in the 'paper tigers' of Thailand and Malaysia in recent times, as well as in the Soviet Union during the early stages of the cold war. This type of growth is driven and stimulated by government investment, but is ultimately unsustainable - there is only limited room for improvement in education levels, workforce participation and infrastructure.

In spite of its growth, productivity in Singapore's manufacturing plants remains behind its US and Japanese counterparts. The second phase of development for Singapore will be to achieve dramatic increases in total factor productivity. In a rapidly evolving global context, improvements in productivity and increases in GDP can effectively be driven through the encouragement of innovation, creativity and entrepreneurism. These elements thrive in environments of 'creative chaos' - something that countries such as the UK and US have excelled at providing.

It is here that the Singapore government will meet its greatest challenge - it is difficult to inculcate creativity and entrepreneurism in a population by imposition of policy from above - in fact it could be argued that high levels of creativity (often seeded by subservise or anti-authority cultures) are incompatible with Singapore's ability to retain its command and control structure or its 'autocratic democracy'. Further, informal studies indicate that on the passive-aggressive and extrovert-introvert scale, a surprisingly large majority of the Singaporean population exhibits passive introvert characteristics. By and larege, risk-taking is not ingrained in Singaporean culture.

This is an issue which the government is acutely aware of - and for every problem in Singapore the government, of course, has a solution. For example, US venture capital firm Draper Fischer Jurvetson was recently commissioned to trial the introduction of entrepreneurial concepts into infant schools - resulting in children manufacturing and requesting funding for trade in friendship beads ! In addition, the government has started to actively promote the arts and cultural events in Singapore. However, the fact remains that creativity and entrepreneurism are difficult to impose, even onto a willing populace. The ability and the real commitment of the government to drive cultural change of this type remains in question.

Singapore's economic development board (EDB) operates a variety of schemes to assist start-up companies. For example, they will match external funding dollar for dollar up to S$300k, and allow start-ups to use HDB apartments as collateral against loans. Proponents of free-market theory discount the value of government intervention of this form. In theory, an efficient market directs exactly the right amount of capital to the right projects in order to generate maximum economic value. Government intervention to provide a higher level of support ends up redistributing capital to less efficient projects (i.e. those more likely to fail), an inefficient use of resources.

'Interventionists' counter that government investment in the economy stimulates the private sector through increased consumption and spending that has a multiplier effect. However, the impact of government investment is limited by the degree to which consumers save, taking money out of the economy into the financial sector. The CPF scheme provides Singapore with one of the highest savings rates in the world, making government investment less effective as a means of economic stimulation.

In addition to supporting individual companies, Singapore's government has made big bets on industry clusters including biotechnology and infocomms. But governments are notoriously poor at spotting the right technologies to back. There are doubts about Singapore's suitability for biotech (an area in which it has no inherent historical advantage), and it is hard to envisage the five-year Infocomms plan, developed during the internet boom of 1998, accurately targeting the right technologies in a rapidly changing environment.

Leaving aside the merits of Singapore's policies, regional and global forces are afoot that are likely to make Singapore's efforts to control its own destiny less relevant. Singapore is a small country dominated by its neighbours, in a region dominated by the vast potential resources of China and India. At the regional level, political instability and economic malaise, coupled with the attractions of proximity to China, are increasingly redirecting foreign direct investment from South East Asia to North Asia. In addition, the opening up of the economies of India and China, coupled with their continued infrastructural development, may limit the value of Singapore as an intermediary gateway to Asia.

Therefore, it can be argued that the time is now right for Singapore to reduce its reliance on the planned economy and unleash the creativity and entrepreneurism of its people through reduced intervention, an opening up of the government sector to private competition, and political and cultural reform.

Jay Marathe
INSEAD Singapore