IV - Singapore's Experience of Industrial Restructuring: Lessons for the Other Asian NIEs

Summary

Introduction

Modern economic growth, as emphasized by Simon Kuznets, is always accompanied by structural change. Thus the early phase of modern economic growth in Singapore and in Hong Kong was marked by the rise of the manufacturing sector at the expense of the stagnating or declining entrepȏt trade sector. In Korea and Taiwan, the expansion of the manufacturing sector was marked by the relative decline of agriculture. But structural change is not confined to intersectoral adjustment, it also takes place within the manufacturing sector. Given sufficient institutional flexibility and minimal market distortion, a dynamic economy will carry out structural transformation continuously and concurrently with growth, with new activities rapidly rising to replace old operations and sunrise industries displacing sunset industries. In such a dynamic economy, rapid economic growth facilitates faster structural change, which, in turn, provides new sources for further growth.

Tn 1979, Singapore, after having experienced two decades of high economic growth averaging 8.8 percent for the period 1960-70 and 8.4 percent for the period 1970-79, introduced drastic measures with a view to speed up the process of economic restructuring. The move, which was publicized in Singapore as the “Second Industrial Revolution”, was initially received with some misgivings and skepticism, especially since “high wages policy” was a key policy instrument to spearhead the restructuring. In 1985, as the Singapore economy plunged into a severe recession with negative economic growth, some critics even pointed a finger specifically at the restructuring policy itself for causing the recession.

Today, the Singapore economy has resumed its economic growth momentum. At the same time, it has grown and changed under the impact of the restructuring policy for almost a decade. This is therefore a good time to assess Singapore's industrial restructuring strategies and policies in an objective manner, with a view to drawing some valuable lessons for the other Asian NIEs that are in a similar process of development.

Growth and Structural Transformation

Singapore's successful industrialization drive during the past 25 years is a familiar story. After the present People's Action Party (PAP) government took office in 1959 under the pragmatic leadership of Mr. Lee Kuan Yew, every effort was made to transform Singapore from a country based on entrepȏt trade to one that is based on manufactured exports and tradeable services.