Back in the year 1850, Singapore was a malaria-infested island at the southern tip of the British Straits Settlements.
Chinese gangs ruled the city while drug abuse, violent crime, and indentured servitude was widespread.
Almost 60,000 people lived in the colony at that time, but there were only 12 police officers. An 1854 paper from the Singapore Free Press complained that Singapore was “full of the very dregs of the population of south eastern Asia”.
It’s funny how things change. Not much longer than 160 years later, Singapore is certainly no haven for the misfits and criminals of Southeast Asia. Crime is almost non-existent and the city-state is now one of the richest nations in not only Asia, but the entire world.
Last week, Andrew discussed how “Cancun capitalism” – a central planning approach that actually worked – helped build Cancun, Mexico. Singapore has built amazing economic freedom using a different approach, but one that does have some similarities.
Singapore’s economic transformation is not slowing down either. Recent GDP growth has been higher than in some emerging markets, boasting a respectable 3.9% in 2013 – and an immense 15.2% a bit further back in 2010.
The country has proven to be resistant to many of the economic problems the rest of the world faces, and has only had three years with negative growth since the 1980s. During the 2008 Financial Crisis, for example, Singapore’s GDP only fell by 0.6%.
Some may find it amusing to hear someone boast about a “modest recession”. But compared to the U.S. and Japan which plummeted by over 5% during the same period, followed by several more years of weak growth, I daresay such numbers are a testament to Singapore’s economic strength.
Now that we know how successful Singapore has become, the question is: what has the city-state done to reach where it is today, and what can the rest of the world learn from it?
1. Low Taxes
Singapore has enticed many investors, entrepreneurs, tech-billionaires, and others who have tons of money and/or a great idea to immigrate to its shores. One of the most important reasons that the island is such an attractive destination for these people is because of low taxes.
No capital gains tax, no estate tax, no tax on dividends, no tax on foreign-sourced income, corporate tax rates capped at 17%, and individual tax rates capped at 20% (if you make several hundred thousand dollars a year, you pay closer to 15%).
With these low tax rates, what does Singapore have to show for it?
Highly advanced infrastructure, good services, well-maintained roads and highways, an airport built with taxpayer money that is consistently ranked the best in the world, and a government that is about as competent as one can be.
Singapore is proof that Oliver Wendell Holmes, Jr. was dead wrong when he said that “Taxes are the price we pay for a civilized society”. Some taxes are almost inevitable, but the outrageous rates seen in much of the west are not only unnecessary, but push away businesses and talented individuals.
If that sounds familiar to you, it probably is. People are now renouncing their U.S. citizenship in record numbers to escape high taxes.
2. Good Management
Putting some social issues aside, the government of Singapore seems to have a good idea of what it needs to do in order to maintain economic growth, international competitiveness, and long term sustainability. This in turn, keeps the citizens prosperous and satisfied enough to not cause unrest.
You may be surprised about how efficient Singapore’s government runs, if you are coming from the west.
A corporation can be formed in as little as a few hours, and many tasks that would require filling out long forms and mailing them in can instead be quickly done online.
Even state-owned enterprises, which are often mocked for their ineptitude in the western world, run smoothly. The country has an extensive metro system that is clean, cheap, efficient, fast, has a daily ridership of over 2 million people – and is profitable.
Compare that to New York city’s subway, where more taxpayer money is needed to pay for 55% of the system’s expenses.
Similar things can be said about almost every government venture in the city-state. This includes the aforementioned Singapore Changi Airport, the Port of Singapore (the largest in the world), and various state-owned enterprises such as Singapore Airlines, all of which are profitable and well-managed.
Why is the Singaporean government so efficient, while that of the United States is filled with undereducated goons? It may be that they are actually willing to pay for talent. State employees in Singapore have high wages, with a career path that rivals those who work for multinational companies.
Because a government job is lucrative in Singapore, many of the brightest university graduates choose to work in one when they could just as easily climb the corporate ladder in a large bank. By comparison, The United States underpays and gets underqualified workers.
Singapore understands that you need to actively seek out and pay for talent, and the entire country runs better because of it. The increase in total efficiency compensates for the high wages paid to government employees which in turn, still allows low taxes for all.
3. Giving Others What They Want
Singapore is very well aware that the balance of power will shift eastward in the 21st century, and is making good friends and creating favorable opportunities within its own borders so that the country can further its status as a hub for the region.
In many ways, the thought process is similar to that of an entrepreneur. Singapore knows what China, India, and its neighbors in Southeast Asia need and is making itself available to give these things to them.
For example, gold has been a desirable asset in many places throughout Asia, and still is today – especially in Chinese and Indian cultures.
What does Singapore do? Open up a market for storing gold safely. Get rid of the goods and services tax for precious metals, and announce its intent to increase its control of the world’s gold demand from 2%, to over 10% in the next decade.
China is determined to make the renminbi a more widely-used currency on the world stage. Singapore’s response? Making various deals with China from currency swap arrangements, to allowing shares denominated in renminbi to trade on its stock exchange. The result helped Singapore become the third largest foreign exchange hub in the world in 2013.
This is an underlying theme in Singapore’s economic development that should continue well into the future, which will lead to a more open economy, more capital flowing in, and more friends throughout the region.
What will also continue, is the United States burning the few bridges it has left with actions such as spying on Angela Merkel, shaking down BNP Paribas for billions of dollars, and intimidating the entire world into doing what it wants through FATCA regulations.
The United States, along with much of the western world, used to be lands of opportunity. Now, the opportunity is elsewhere. Singapore is certainly one of those places.