From Socialist Worker Review, No.85, March 1986, p.7.
Transcribed & marked up by Einde O’ Callaghan for the Encyclopaedia of Trotskyism On-Line (ETOL).
‘Every time anybody starts anything which will unwind or unravel this orderly, organised, sensible, rational society and make it, irrational and emotional, I put a stop to it and without hesitation.’ – Lee Kuan Yew, Singapore National Day Speech, May 1982.
Singapore has come unstuck. For a quarter of a century, it has been one of the most state dominated and directed economies in the world, barring the Eastern bloc. In many ways, it was the prototype for the Keynesian managed economy. In the early eighties, public spending took 44 percent of gross domestic product (a third of it to defence). The government participated, directed or led every important sector of the economy, from manufacturing to trade and finance.
The results appeared spectacular. By 1983 Singapore had the second highest per capita income in the third world – 3 percent above Italy, nearly 40 percent above Spain, and over three times that of Argentina. The rate of growth of output per head between 1965 and 1983 was an astonishing 7.8 percent per year, the highest in the world (including the oil producers). In 1980, the government boasted that Singapore would overtake the 1980 income per head of Japan by 1990.
A key element in Singapore’s version of state capitalism was the tight control of labour. The National Wages Council decreed wage levels annually. The National Trade Union Congress’ government-appointed officials controlled the unions in detail. The Central Provident Fund tapped wage increases, an enforced tax supposedly to finance public housing and welfare provisions but actually to meet government funding needs (50 percent of gross wages were paid into the fund, half by employers and half by employees). Immigration of workers was tightly controlled. And finally, massive pressures were brought to bear to control the birth rate – with special favours to encourage the educated to breed (in the thirties it used to be called eugenics).
In the early sixties, the unemployment rate was as high as 15 percent, but by the mid-seventies headlong economic growth had produced virtual full employment. At such a point, either the government would be obliged to permit immigration, or the labour force would have to become more and more productive (which means higher and higher investment per worker) or there would be massive wage pressure.
The government was cocky, certain it could achieve the middle of these three alternatives. Singapore was to become a land of computer programmers, consultant gynaecologists and astronauts. The government deliberately tried to push out of the island low productivity jobs (much of the garment making was expelled in the mid-seventies), and lower the number of immigrants. In 1979, it was decided the change was not happening fast enough and, to accelerate it, gross wages should be increased by 20 percent per year for three years (in practice most of the increase went to the fund, not to wage packets). In 1982, the decision was taken to phase out immigrants by 1991.
Meanwhile, as the planners planned, the world was changing fast. An American boom sucked in Singapore’s exports: the US took 14 percent of the city’s exports in 1975, 20 percent in 1984. This last year supported a growth in the gross domestic product of 8.2 percent (after 1983, 7.9 percent). The effect of this massive export boom was compounded by a massive property boom in the city – construction spending increased by a quarter annually from 1981 to 1984. Property became a major outlet for the amazing 42 percent of national income saved in 1984.
Regardless of government intentions to increase gross wages, a desperate labour shortage rapidly pushed up net wages and drew in legal or illegal immigrants. The government tried to escape by increasing shift times (from eight to twelve hours). They also tried to increase the retirement age – from 55 to 60 and then to 65 – but the threat of political opposition curbed the ambition.
In the first half of 1985, the wave broke. The United States economy turned down. The property boom collapsed. Electronic component manufacture plunged into world crisis (and component exports had been a key element in Singapore’s growth – to the US they increased 53 percent in 1983, 25 percent in 1984). Shipbuilding turned down sharply (half Singapore’s capacity is to be closed). And the oil refineries – Singapore is the third largest oil refinery centre in the world – were caught in a general decline in demand (the refineries were operating at 55 percent of capacity in 1985). Underlying many of these changes was the fact that the Singapore dollar was tied to the US dollar, and as the American currency rose, this effect was added to rising local wage costs to price Singapore exports out of the US and European markets.
Over 8 percent growth in 1984 turned into 1.7 in 1985. It will not be much better in 1986. Investment declined by nearly 40 percent in 1985, and the profits of the foreign companies that dominate Singapore’s economy declined by 70 percent (Singapore companies’ profits declined 35 percent). The rate of return on manufacturing was halved (to 16.5 percent). Bankruptcies rose by a quarter. And in December of last year, Pan Electric Industries collapsed and the Singapore stock exchange was closed for three days, with ramifying shock effects on the Asia dollar market and the city’s standing as a financial centre.
Policy was badly dented. 1985 saw a swift increase in unemployment, 90,000 jobs were lost, two thirds of them affecting immigrant workers (who were promptly expelled from the country). The government suspended its policy of increasing gross wages, imposed a wage freeze and tried to find ways of cutting net wages. Last December, early results appeared when the opposition parties polled a third of the vote. And in January, after eight years without a recorded strike, workers in a US oil company walked out in protest at the sacking of six workers (which included five trade union officers).
Everything seemed likely to go into reverse. Wage cuts, cuts in the employer contributions to the Fund, tax cuts and a continuing policy of government withdrawal from participation in the economy (including the privatisation of the massive public sector). Singaporeans note that Hong Kong, with scarcely any government direction of the economy, has ridden the downturn far better than Singapore. When Singapore returns to growth, as it surely will, it will be as a much closer replication of Hong Kong’s laissez faire. Friedman has dented Keynes yet again.
History had not, after all, been abolished. The world market that the tiny bourgeoisie of tiny Singapore had manipulated so brilliantly for two decades had at last caught up and overtaken Lee Kuan Yew, just as he was thinking of retiring and handing over to his son (yes, despite all the electronic gadgetry, nepotism flourishes). After all the years of confidence in the power of the state to shape the world, privatisation and the market had won. And with the freeing of the market, comes the freeing of labour.
Last updated: 10 April 2010