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Megi Kavtaradze

The Role of Economic Liberalism in Development of Singapore

Considering the actuality of liberal principles, we can assume that, economic liberalism is an important topic of the political economy.

Its methodology consists of human relations, individual welfare, and laws of economics that are prevalent for success. Singapore is the classic form of free-market liberalism. According to this, the outcomes caused by the liberal economic policy are significant in Singapore and the case of this country gives us an idea of whether this policy is a cornerstone of Singapore’s success, even when the state is developing under a dictatorship, or not.

Thus, the main question of this theoretical paper is: Which was the main reason for the rapid development of Singapore, liberal economic policy or dictatorship?

This question is far more extensive, considering the fact, that currently, the country is not ruled by the dictator Lee Kuan Yew, whose efforts developed the economic liberalism in Singapore. It is, therefore, interesting if a new prime minister’s- Lee Hsien Loong’s dictatorship will pursue further development of the economy in line with the liberal principles. It is worth mentioning, that Lee Hsien Long, perceived as one of the greatest dictators, is a son of Lee Kuan Yew and he continues to follow the policy of his father since 2004.

The theoretical paper discusses the economic role of liberalism on economic welfare indicators and sustainability towards economic crises, consequences of liberal-economic policy on democratization process and development, outcomes of implementing market economy as a precondition of state’s military power and the process of becoming a strong actor in an international system.

Expected finding of the paper is: a dictatorship was a helpful way for liberalism to be born in Singapore but liberalism itself was the only way that caused the development of the country.

The paper talks briefly about three main justifications of economic liberalism benefits in order to emphasize its great role. The first part discusses methodology and theoretical framework validity to the research question of the paper. The second paragraph is about historical choice and its consequences. The third one talks about achievements of the country according to liberal decisions. The fourth paragraph discusses the role of Singapore among the Asian Tigers. The last two parts present the debates, which are shown in the literature, in order to prove how relevant they are to the main question. The major expected findings and the results of economic policy will follow.

Economic liberalism is the only one economic theory that explains the case of Singapore. According to the theory economic liberalism is a set of principles which works for self-regulated market and creates the market that should be affordable for everyone. Liberals claim that market develops with its own rules and people get more than they give. As liberal principles are important, the paper maintains, that in the contemporary international system, economic liberalism is a very important issue and its methodology includes relations between people, individual prosperity and the fact, that economics has its rules which is the prerequisite of success. That is why this paper will claim that liberalism is the main effective theory in the development of Singapore, as the situation after huge economic transition helped the market to become self-regulated and free.

There is a huge debate about the main reasons for Singapore’s development. The ideas are divided into two parts. One school of thought maintains that economic development is based on the free-market idea in Singapore, while others claim, that the liberalism can not exist under government intervention in economics.

The late dictator Lee Kuan Yew started liberal politics under the dictatorship, which he saw as a must after the isolation policy which was very difficult for the country when it divorced the Great Britain and Malayzia. Yet, his policies resembled those of ‘’shock therapy’’, that means a sudden change in national economic policy which turns into the free-market model. When Singapore achieved freedom from the Great Britain its economy was almost nothing. Donella Meadows research from Donella Meadow Institute shows that there is also dictatorship today in Singapore but it is not the main reason for its development. As Donella Meadow claims the dictator was benevolent and he changed the whole economics into a liberal model to achieve the same goals as Switzerland did in order to produce Economic Miracle. According to Tim Worstall, Cuba chose socialism at the same time when Singapore chose liberalism. Cuba had a dictator like Singapore and this dictator made a mistake when he chose socialism regime because it obstructed the development of Cuba. The economic policy in Cuba didn’t achieve the first thing that an economic policy is supposed to achieve: make the people richer.

Particularly- the statistics which are published by World Bank on its official website: for example, 73.5% in the country is engaged in service. There is almost no agricultural sector in Singapore, which means that Singapore is highly developed country. The official website of Economic Freedom Index shows that Economic freedom in Singapore is 87.8 % and it is second after Hon-Kong in the world. These statistic indicators are evidence to suggest that Singapore achieved ideal liberalism model with its liberal Economics.

Another profit of liberalism in Singapore is that it helped the country to become the part of The Asian Tigers. According to Bruno Marshall Shirley’s article, if we want to see how important the liberal economy in the development of Singapore was, we should consider that the development is impossible without exchanges between countries, and having successful economic relations is a priority for every country. The liberal domestic policy caused liberalization of economic policy on the international level and for today, as The Economywatch research shows, 47% of Singapore’s economics is re-exporting. The country is the 14th biggest exporters and the 15th biggest importer in the world. Liberal economics gave Singapore the way to becoming the important, strong actor on international level among The Asian Tigers and that is why this fact answers the idea of the research question.

The theoretical paper credits liberal model of economic development to be a prerequisite of a huge success. Maximum profitability and economic welfare are possible only in the case of free market conditions. The conditions mentioned above do not necessarily claim the need for democracy, despite the fact that democracy cannot exist without free markets. Therefore, in the case of Singapore, we come across the situation in which Lee Kuan Yew’s dictatorship, which is entitled as “soft autocracy”, was characterized as implementing liberal principles with a force. His dictatorship, which implemented free market, attracted investments, diminished trade barriers and fought with corruption, helped “the birth” of liberalism and its infusion in a state’s economy, which, in turn, resulted in the economic upturn and growth.

It is important to precise that every period of Singapore’s Economic history had its own challenges. According to the history, when Singapore became an independent country,in 1965 its prospects did not look good. The high unemployment was the huge challenge for Singapore in its 60s. Manufacturing industries became the main way to increase employment in the country. But there was still existing problem that was called – ‘’entrepot’’ trade. The dependency on the East India Company was the main reason for the undeveloped manufacturing sector.United Nations sent economic advisers to Singapore, as a result of this fact, The Economic Development Board (EDB) was established in 1961. The main purpose of the EDB was to help the country to attract foreign capital and rise income. Consequently, GDP of Singapore was growing a high average of 6% per year. In the late 1960s manufacturing part in GDP was already grown from 10% to 15%. Finally, Singapore managed to start technology brought in that was supported by foreign investors and corporations.

In 1970, the main economic challenge for Singapore was still high unemployment (10%) and British Withdrawal from the Island. Singapore did not have back from Britain. Plan of making a common market was destroyed because of separating from Malaysia. Singapore’s government had a variety of initiatives about wages and taxes. As a result unemployment rate became 3.5%.

The 1980s was a different part of Singapore’s economic history. Old challenges were transformed into problems like very tight labor market and high competition between economies of the South Asian region. Consequently, it was a must for the country to change manufacturing into a service industry.In order to save its place in region Singapore’s government formed the NCB – National Computer Board in 1981. After that Singapore was able to attract international IT firms in order to produce their software in Singapore. As a result from economic strategies, Singapore managed to grow its GDP at an average 7.3% in the 1980s. The number of highly skilled employees also rose from 11%-22% till 1985.

Period Since 1965 to the 1990s can be maintained as the ‘’take-off’’ period. From this time sound monetary policies, industrial co-operations, economic strategies, outward orientations, took root. The Economy was grown by an average 10% each year. On the level of forefront developing countries, Singapore became newly-industrialized economy. It is important to say that today’s political and economic conditions in Singapore are closely linked to the past reforms that are mentioned above. It is also worth to say that,in the framework of PAP(The people’s Action Party) and Prime Minister Lee Hsien Loong, freedom of assembly and freedom of speech became restricted, but the Pap reinforced economic liberalization and international trade. Even though today Singapore is maintained as one of the world’s prosperous nations and Lee Hsien Loong continues exactly the same way as his father Lee Kuan Yew, the country’s developing rate is slower than it was 10-15 years ago. This process can be caused by characteristics of liberalism. According to liberalism principles, the country which achieves the highest level of development will continue developing slower than the other one which is not developed yet.

To conclude, the theoretical paper describes the evolution of Singapore’s Economy after 1965, from the perspective of technological, industrial, political and economic development. The paper claims that liberalism was the main reason for country’s development. There are several arguments which prove that theoretical framework and methodology validate to the research question. The hard work of government helped markets to become open and liberalized. Since that liberalism is the spine of the country’s development. It is important to say that even today political and economic values are not developing under democracy, which can be the danger for security and stability in the long-term perspective.

Finally, other developing countries can learn from the experience of Singapore’s economic strategies. Success story can be shared by too many nations. The main lessons from Singapore can be: the culture of meritocracy, maximizing maneuverability in the foreign policy, starting with small wins, being relied on trade and investment and thinking about the long-term success.

Article by Megi Qavtaradze