1. Domestic Consequences of Rapid International Economic Development:
The Case of Singapore
by
Jake Mulkey
The Ohio State University
April, 2015

2. Mulkey !2
State and Economy
The story of Singapore’s economy follows much the same path of other newly
industrialized countries (NICs) in Southeast Asia during the last half of the twentieth century.
However, one thing which distinguishes the case of Singapore from those of Taiwan, Hong
Kong, and South Korea is the clear-cut, decisive actions of the People’s Action Party (PAP) in
navigating the development of the domestic economy while keeping the future growth of
Singapore and foreign direct investment (FDI) in mind. Following the nation-state’s semi-
autonomous period with Britain, the failed merger with Malaysia and subsequent split from the
Malaysian Federation and its ruling party, the United Malays National Organization (UMNO),
the independent government of Singapore prescribed a plan of socialistic democracy and a hard-
pressed desire to keep corruption out of the government. What this meant for the economy was
that the fledgling PAP ruled every aspect of the economy and oversaw every economic policy
decision from 1965 to the present. As a whole, these decisions have revolved around three main
economic strategies which provide a base for development in the country. They included the
government’s mandated, strategic role in realizing policy change, the mobilization of human
capital and the development of infrastructure to support education and the growing human
capital. The last two are especially important to the focus of this paper as the mobilization of1
human capital and the creation of a higher-educated human capital increase the appeal to foreign
industries and private foreign investment in Singapore during the 1980s; better trained laborers
and businessmen mean more money and return on investment for those pouring money into the
country. For the PAP’s goal of international success to occur, economic development
Cahyadi, G. et al. (2004) Singapore’s Economic Transformation. Global Urban Development. Singapore1
Metropolitan Economic Strategy Report. 4.

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domestically needed to be reimagined and hidden by the guise of domestic human capacity for
labor.
Cahyadi et al. break down this economic development of Singapore into two main areas
of focus from the PAP in their economic strategy report for Singapore; the first being the period
from 1965-1980 when the nation focused on using its “sufficient physical infrastructure as well
as the semi-skilled workforce to attract foreign investors to the island,” and the second period
which took place amongst the era of neoliberalization in the NICs in the 1980s and prescribed
that Singapore “switched its strategies [to focus on] establishing a modern ‘infostructure’ as well
as a dynamic high-skilled workforce to enable Singapore to become the financial and business
hub of the region.” Together the changes in this period reflect the fast-paced global economic2
changes which Singapore had to adjust to, like the liberalization of global finance and the
prevalence of foreign markets opening to the idea of multinational investments. The
‘infostructure’ term used by Cahyadi et al. represents the idea of gaining higher education
following the modernization of global business and markets, but also gives insight to the need for
Singapore to overcome it’s limited human resources going into the 1980s.
Politically, the government of Singapore, ran by the PAP virtually uncontested,
recognized the power of modernizing the outward image of Singapore to outside nations and
keeping international as opposed to domestic economy of primary importance. In an account of
Singapore’s early independence there are multiple factors to take into consideration. At its time
of independence in 1965, Singapore had no natural resources in the small space of the island, and
Cahyadi, G. et al. 4.2

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was focused on gaining all it could from its position as an entrepôt trade center. Its strategic3
position geographically in the dead center of Southeast Asia along with the aforementioned
disadvantages to the being an island nation, led the PAP to utilize “its powers in trade and
cultural affairs to establish contacts with the world community and to create an international
image for the island.” Looking upon their options as a small, resource-lacking nation and their4
central position among other Southeast Asian nations, their policy of non-alignment and the way
the nation “offered to work will all the countries that would recognize her territorial integrity and
sovereignty and advertised [Singapore’s] desire to trade with anybody” seemed pragmatic. It was
pragmatic in that the PAP did not want to align with one side in hopes of not cutting out future
investment based on political biases. Overlapping of economy and the political desire to create a
sparkling image of Singapore as a nation primed for economic opportunity to foreign investment
was a clever guise to cover up the needed improvement in human capital in the late 1970s.
For the PAP, the creation of the Economic Development Board (EDB), which simply
aimed for “attracting foreign capital to enter the Singapore market,” was the perfect method to5
ensure political visions of grandeur internationally were seen to fruition economically. While
improving upon the less desirable parts of Singapore, like the lower-skilled workers and the lack
of resources, the outward appearance of Singapore was upheld as one of rapid industrialization
and economic gains by the EDB. The EDB was for all intensive purposes the iron fist of the PAP
directly swaying the economic development path for Singapore; thus, it is a perfect
Chee, Chan Hen. (1969) Singapore’s Foreign Policy, 1965-1968. Journal of Southeast Asian History. 10(1), 177.3
Chee 177-78.4
Cahyadi, G. et al. 5.5

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representation of the political economy of the state. It represents the PAP’s lofty visions for the
future while at the same time promoting focused economic change.
Literature Review
Many development studies scholars hold the position that while government intervention
can be stifling to free markets and a natural growth to burgeoning economies, it is sometimes
important and necessary for governments to oversee growth directly. However, these scholars do
tend to disagree on what level of government intervention provides the best results for economic
growth. The majority of scholarly articles hold three main views on the development of NICs
and Singapore and the methods of economic growth during the last half of the twentieth century.
The first of these views follows the idea that government based economic policies have
had a mostly positive impact on economic development; in a sense this view sees political
intervention in the economy as effective and necessary to the growth seen while not completely
recognizing the pitfalls of such a largely external economic base. Under this main theme many
scholars will focus on the success of structural adjustment and neoliberal policy by insisting they
have done their job in creating a stable, open market in at least the developing countries in
Southeast Asia. This is also much the focus of many historical accounts of economic growth6
such like the one found in the Singapore Metropolitan Economic Strategy Report which only
Balassa, Bela. (1988) The Lessons of East Asian Development: An Overview. Economic6
Development and Cultural Change. 36(3), S273-S290. Balassa has the strongest of the voices on the benefits of
neoliberal policy; he dives deep into the economic theory aspect of development studies and successfully shows a
correlation between export-oriented economies in East Asia and their overall economic growth.

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accounts the strengthening of the Singapore economy since neoliberalization and
industrialization policies became commonplace in the last half of the twentieth century.7
The next view also recognizes the governments large role in deciding economic policy,
but it looks at the negatives of government intervention in the economy and offers ways in which
Singapore was limited domestically by the international focus of the government’s foreign
economic policy. As the focus of this paper is on domestic policy in relation to government-
directed methods of gaining foreign business, this view amongst others is particularly important
to the research at hand. Scholars which write about this view have most to offer to an argument
comparing domestic and foreign investment by the Singaporean government because they tend to
cover both accounts of the development case for Singapore. These scholars are able to
acknowledge then look past the great economic achievements in regards to FDI and really look
at what was happening within NICs and what foreign focus meant for countries internally. In
terms of the literature this is present in many forms whether it be using data to show domestic
versus foreign export-oriented markets or by demonstrating the detriment of Singaporean8
government assuming too large a role in the early economies of NICs. In both cases these9
scholars explain the positive impacts of economies reliant on foreign trade and investment while
looking past the miracle of their rapid growth to see the harm of not focusing enough on the
domestic situation at hand.
Cahyadi, G. et al.7
Tsao, Yuan. (1985) Growth Without Productivity. Journal of Development Economics. 18, 25-38.8
Ermisch, J. F. and W. G. Huff. (1999) Hypergrowth in an East Asian NIC: Public Policy and Capital Accumulation9
in Singapore. World Development. 27, 21-38. Ermisch and Huff drastically differ from the main focus of many
articles in that they focus on the sometimes negative implications of rapid economic expansion, especially when it is
reliant on foreign investment and business. They write about the obvious economic growth while citing empirical
data in referring to capital bottlenecking and how a “big push” set of economic policies has been beneficial in the
short run yet amounts to an “unknown” and economically uncertain future.

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The third view establishes that Singapore’s “development miracle” as many scholars
name it, is simply a product of timing, strategic geographic location, and past foreign affairs
which left Singapore in a position to spring forward in economic growth rates unseen in other
NICs regardless of governmental direction. Largely based off the physical geography and history
of NICs, these scholars take the “fate” approach to summarizing rapid economic growth. While
they account for economic conditions like the first two views, this third view looks beyond that
to see how each country operates differently under their own set of historical conditions and
predispositions. Compared to other scholarly sources these tend to be the most history based10
types of articles as well. While they incorporate some economic data for reference, by and large
it is not the focus of the articles as they rely more on largely visible historical trends and trends in
international relations.
After research was done on the topic of East Asian development, it is clear a wide range
of key viewpoints are present. With that said, most if not all recognize the government’s
impactful role in dealing with the economies of their countries; the craft was in deciphering
which tend to have bias towards seeing this government intervention as necessary and positive in
outcome and those which see the government intervention as important yet handicapping to
some aspects in domestic economies after comparing with other developing and developed
countries. The study of literature on the topic of Singapore’s foreign ventures guides further
research through this paper into delving into the question of how has Singapore’s domestic
investment in human capital played a roll in this economic growth? Was increasing the
Brohman, John. (1996) Postwar Development in the Asian NICs: Does the Neoliberal Model Fit Reality?10
Economic Geography. 72(2), 107-130. This article contrasts the differences between neoliberal policy and the actual
reality seen in Asian NICs; the fact that many of them have special circumstances like geographic location, first
world allies, or better social freedoms which impact the way economies grow under neoliberal policy.

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productivity of human capital and regulating domestic taxes simply an effect of modernization
and industrialization or was it more a byproduct of the government’s grand plan to make the
Singaporean market attractive to foreign firms who had potential for investment in the
Singaporean economy?
Analysis
In regards to this paper, the argument stands with the latter of the preceding questions.
Following the early success of Singapore’s international interests economically, the Republic
took a more direct approach to dealing with the domestic issues, like human capital education
and building infrastructure, after recognizing it was to heavily dependent on foreign direct
investment and the benefits of strong international economic inflows. After gaining
independence Singapore found itself in tight position between the lack of resources and available
local industries, to the new and uncertain position of Singapore globally and diplomatically
under the People’s Action Party. It is in the combination of these two conditions that the PAP
reimagined a path of international focus for the Republic of Singapore.
The beginnings of this reimagined future the PAP envisioned for Singapore started with a
strong government-led restructuring of the economy to accommodate for an international
audience and field of investors. These domestic policy changes which spurred rapid international
economic investment started in the late 1960s and early 70s as Singapore was getting its feet on
the ground and the PAP was establishing their presence apart from the Malaysian Federation. The
first major implementation in policy that the PAP enacted was working to create the Economic
Development Board in Singapore. As mentioned previously, this board’s chief aim was focused

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on reeling in foreign rather than local investments; also, the EDB favored larger structures over
smaller ones and “government infrastructures at times tended to undercut the smaller local
industries.” It is not hard to see how the government had a strong-handed influence. Every11
country will always act in its own best self-interest, and Singapore during this time was no
different. It favored the larger corporations with the larger investment potential over the smaller,
local companies because they made the future economy of Singapore internationally more
viable.
Singapore, though, is similar to other newly industrialized countries of this time period in
that many of the governments of the NICs enacted boards to help usher in a new set of economic
policies. The important question to ask is, what made Singapore different than its developing
competitors? Ermisch and Huff distinguish that in the case of Singapore there were some
instrumental policy decisions that helped reel in higher growth rates. What made the Republic
different from other East Asian NICs at the time was the government’s decision to allow “tax
concessions and [ensure] infrastructural expenditure greater than in other countries,” and that
Singapore was able to raise firms’ returns to capital and therefore the level of investment and
growth a firm could hope to find there. This gave Singapore a prime atmosphere for investment12
because relative to other developing countries, where labor was also cheap and wages were low
just like in Singapore, the market could virtually guarantee investors would receive the most
return; thus, Singapore was given a competitive edge amongst other NICs.
Fong, T. K. and L. M. Hui. (1986) Singapore Corporations Go Transnational. Journal of Southeast Asian Studies.11
17(2), 338.
Ermisch, J. F. and W. G. Huff. 22-23.12

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Getting countries interested in investment was only part of the challenge though. Making
sure investors corporations and business ventures in Singapore were at the lowest cost to them as
well to ensure they kept roots in Singapore was the other half of the struggle. The government
therefore directly influenced the new subsidy system to encourage foreign TNCs to take hold and
keep planted once they did. One visible example of a subsidy system put in place was the
Economic Export Incentive Act of 1967. The Act “granted tax concessions on profits from export
of domestic products.” First off, these “[tax] concessions encourage[d] the inflow of foreign
capital and technology…” while “changes in labor and educational policies encouraged the
inflow of foreign investments.” This ensured that Singapore and those international firms13
which planted roots there were also benefiting in the long-run, and that all aspects of the foreign
market were meticulously planned out to ensure the most cradling of economic environments.
Simply put, Singapore adjusted its domestic policy in terms of labor practices and its educational
standards in oder to look more attractive and safe to outside ventures. Balassa even states this
export tax was a chief reason for economic growth in Singapore as he concludes that, “the lack
of discrimination of the incentive system against exports has led to rapid export growth…[and]
has contributed to high rates of economic growth.” This is arguably the most important act14
towards generating revenue and making the FDI investment economy work for Singapore’s
unique circumstances.
With that in mind, it makes sense that the firms which invested were able to see such
miraculous growth. As the TNCs grew and began to attract business to Singapore themselves, the
Fong, T. K. and L. M. Hui. 337-338.13
Balassa, Bela. S288.14

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domestic economy should have began to see more growth as well. By and large the foreign
market overshadowed the less-favored domestic one though and the expected growth was not
seen. While money was pouring into the economy, it was not directly benefiting the domestic
economy. Much of the money actually profited from taxes on investing companies was just
reinvested by Singapore’s government or stored away for future expeditures. In a sense, the
country experienced minimal domestic growth because it never saw the money. Ermisch
elaborates on this smart reinvestment saying that “at the same time as Singapore attracted large
capital inflows, the government’s control over savings allowed it to use the proceeds of foregone
consumption to build up large foreign reserves invested abroad…” What this meant, was that15
the laborers, the people perpetuating neoliberal policies and more investment by putting in their
labor power, were not actually benefitting. This again, ties back to the PAP’s predominant
position to look toward the future and not the present.
Structural adjustment is also something that, though forward thinking and demonstrated
Singapore was looking to the future, created some problems domestically. The aim of structural
adjustment was to “overcome the problems of developmental stagnation by promoting open and
free competitive market economies, supervised by minimal states.” Along with the EDB, the16
process of structural adjustment readily transformed Singapore’s role in a global system as well
as their own structure domestically by immersing the state in a free market. However, the cost
came when Singapore eventually realized they were placed directly in the center of a market they
had no control over. On top of that, domestic conditions like low-skill among laborers or poor
Ermisch, J. F. and W. G. Huff. 2515
Leftwich, A. (1994). Governance, the State and the Politics of Development. Development And Change. 25(2),16
367.

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infrastructure continued to be overlooked. Though cutting corners on domestic development,
Singapore’s government created a new face for the small Republic of Singapore which saw
increased inflows throughout the last half of the twentieth century. With capital inflows
skyrocketing and investment continuing to grow, the Singaporean government was in the perfect
position to help build the country from the ground up. One thing which stood in its way was the
lack of infrastructure, technology and high-tech education of the first world which kept it from
transforming into the global center it is known as today.
The PAP and EDB quickly readjusted their course of action upon seeing the domestic
sector fall to the wayside and their economic independence wavering after becoming the center
of attention in a large global network. By 1975, just ten years after the PAP's policies started
picking up speed and growth, Singapore realized it had a very heavy dependence on foreign
investment. The data at this time are astonishing and unlike that of any other developing NIC.17
Demonstrating just how tied up and dependent on foreign investment they were, 91.1% of total
export sales came from foreign owned companies. That, by anyones measurements, is a success
in attracting foreign business. Though seemingly a positive shock, the PAP quickly readjusted
their plans domestically to become more balanced and developed all around.
The government first looked to human capital as a method of solving the problems
Singapore faced domestically. The one problem they dealt with quickly, was the ability and
capacity of human capital to do their jobs more efficiently and for relatively the same amount of
money to keep hold of foreign investments who depended on third world wages in this rapidly
Kapur, B.K. (1983) A Short-term Analytical model of the Singapore Economy. Journal of Development17
Economics. 12(3), 357. By 1975 “wholly foreign-owned firms and joint ventures together accounted for 67.2% of
total manufacturing employment, 85.3% of the total fixed capital investment in manufacturing, 81.9% of the value
of output, 75.7% of valued-added, and 91.1% of direct export sales.”

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industrializing and modernizing nation. Through primary and secondary education increasing,
and “specialized programs to develop scientific, engineering and technical expertise”18
Singapore was able to capitalize on modernizing and creating that “infostructure” which Cahyadi
et. al. mentioned in their development report. This was quite possibly the best course of action
the government could have taken in adjusting to balance international and domestic flows and
put focus back on Singapore as a nation rather than the entrepôt trade center it had been known
for previously. While helping the domestic market and infrastructure it was based around become
more modern and industrialized, it also became more attractive. Singapore was able to keep its
investments growing, while augmenting the ability of the human capital domestically.
After looking to human capital and the capacity of human capital to work, it then turned
to technology as the next step in modernizing. Tsao has much to say about the role of technology
in development. Most of his article on Singapore revolves around the Total Factor Productivity
growth, which measures “technical progress, improvements in organizational structure and
worker-management relations as well as the diffusion of technology across firms,” and the
effects of foreign investment on this TFP growth. He later mentions that “transnational19
companies are oriented towards global and not local profit goals,” aligning with what Fong and
Hui had to say about international investment, and that “there may be less room for adaptation of
technology to the local environment…” because the industry brings what technology and
knowledge it needs and then leaves with these things. Without regard for actually bettering the20
lives or helping Singapore to grow as a country domestically, these foreign ventures simply look
Brohman, John. 119.18
Tsao, Yuan. 31.19
Tsao, Yuan. 31.20

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for a pseudo-colony to propagate their business venture for cheap all the time expecting large
returns. Whether they were recognizing this pattern at the time, in retrospect, Singapore’s
decision to increase the capacity for technology and modernize in that sector to help promote
labor really pushed the scale back towards helping the domestic economy.
Conclusion
Not only did the country rally to increase education levels and higher-skilled labor
initiatives, but they were able to do so at a level which brought them closer to that of a modern,
first world nation. After the 1960s and 1970s, Singapore’s approach became more and more
focused on balancing out the weight of their economy between foreign own firms and domestic
owned companies by rebuilding the domestic economy through education and increased
technologies. In corroboration, Blejer and Khan’s study of Singapore as a “highly open
developing country” concludes with the view that “the foreign exchange market in Singapore,
though far smaller in size in comparison with the major financial centers, displays much the
same characteristics” This goes to prove that though Singapore is a small nation, it has been on21
it’s path to balancing out the weight between international and domestic economy.
With that said, there is only so much an island nation of around only 280 square miles
can do to promote its domestic economy. With virtually no resources, its only hope is in the
investment of outside industries. This is why, though extremely reliant on outside economies for
inflows and revenue, the Singaporean government never completely lost sight of its international
Blefer, Mano and Mohsin Khan. (1983) The Foreign Exchange Market in a Highly-Open21
Developing Economy. Journal of Development Economics. 12, 248.

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aims and goals to maintain an international “hub” atmosphere when dealing both diplomatically
and economically with other countries in modern day.
Singapore is truly a unique case. It practically sold itself on the international market as a
place to bring investment from foreign firms, and that was just based on its location and prior
history which left it now independently free to do as it wished. Capitalizing on the situation, the
PAP recognized potential and continually fought and worked out every detail to ensure rapid
economic growth. When this growth seemed to trap Singapore under a net of dependence on
foreign investors, they turned around, invested their revenues, built themselves up as a country
domestically through better education, technology, and infrastructure practices and used a
situation of extreme dependence to their advantage. Without the regard for balancing out the
domestic economy, the nation would still be dependent upon others for economic support and
though they would have grown based off of that alone, they would have remained subordinate to
the modern, first world.

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Works Cited
Balassa, Bela. (1988) The Lessons of East Asian Development: An Overview. Economic
Development and Cultural Change. 36(3), S273-S290
Blejer, Mano and Mohsin Khan. (1983) The Foreign Exchange Market in a Highly-Open
Developing Economy. Journal of Development Economics. 12, 237-49.
Brohman, John. (1996) Postwar Development in the Asian NICs: Does the Neoliberal Model Fit
Reality? Economic Geography. 72(2), 107-130
Cahyadi, G. et al. (2004) Singapore’s Economic Transformation. Global Urban Development.
Singapore Metropolitan Economic Strategy Report. 1-28.
Chee, Chan Hen. (1969) Singapore’s Foreign Policy, 1965-1968. Journal of Southeast Asian
History. 10(1), 177-91.
Ermisch, J. F. and W. G. Huff. (1999) Hypergrowth in an East Asian NIC: Public Policy and
Capital Accumulation in Singapore. World Development. 27, 21-38.
Fong, T. K. and L. M. Hui. (1986) Singapore Corporations Go Transnational. Journal of
Southeast Asian Studies. 17(2), 336-365.
Kapur, B.K. (1983) A Short-term Analytical model of the Singapore Economy. Journal of
Development Economics. 12(3), 355-76.
Leftwich, A. (1994). Governance, the State and the Politics of Development. Development And
Change. 25(2), 363-386.
Tsao, Yuan. (1985) Growth Without Productivity. Journal of Development Economics. 18, 25-38.