3.2. The underlying logic of economic development policy

growth rather than depending on further capital and labour accumulation. As an indication, the word “productivity” is again frequently mentioned in budget statements, with 2010 Budget being particular with 72 mentions of productivity – more than double the previous peak of 26 times in 1983 and an average of 5 times between 1985 and 2009 (Auyong, H. 2016).

The Industry transformation programme, as the key strategy of the government to ensure sustainable economic growth in this new economic and policy environment thus was selected as the focus of this research exercise. In particular, the analysis will focus on (i) the de-construction, based on public statements, document analysis and individual interviews, of the logic and scope of the programme and (ii) an evaluation, based on collected evidence, its capacity to achieve impact on productivity and economic growth. Given that ITP is combining many of the on-going productivity and growth oriented policy measures, notably those introduced since 2010, the analysis will have to cover also the scope of those policies in order to put together a comprehensive overview of all the major interventions covered, related or having similar goals and being implemented in parallel to the ITP.

3.2.The underlying logic of economic development policy

Ensuring continuing growth of Singapore citizens’ income has for a long time been the primary political goal of Singaporean government. In addition, the perceived capacity to achieve this goal was an important factor legitimating the stay of People Action Party (PAP) in power during each election since the time of independence in 1965.

In order to achieve this goal, it is argued by some authors that the government pursued a pragmatic economic and industrial policy approach – not driven by any specific political ideology, but rather as the main criteria to choose among competing policy options using a short and medium term potential of those policy options to generate higher economic growth and, presumably, consequently increasing the income of Singapore citizens.

Such economic logic can be well illustrated by the opening statements of the Economic Strategies Committee (ESC) report published in 2010 – an outcome of one of the latest national long-term strategic guidance exercises which states that:

“The goal High skilled people, innovative economy, distinctive global city We must make skills, innovation and productivity the basis for sustaining Singapore’s economic growth. This will also provide for inclusive growth, with a broad-based increase in the incomes of our citizens. <...>

1. The Singapore economy has fared well amidst the challenges of the last decade. Growth averaged 5 percent per year during the period, even with the deep recession of the last two years. The majority of households have seen significantly higher real incomes over the decade, with median incomes rising by over 20 percent.”

In addition to these high-level economic and development policy goals, political decision making in Singapore has also been objectively constrained by the geo-economic conditions of the Singaporean state. These constraints, but also enabling factors, which have been explicitly acknowledged numerous times by the government leaders, include: - Lack of natural resources; - Small amount of land; - Limited internal market;

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- Constrained supply of manpower (though high unemployment was registered during early years after independence); - Geographical location that is suitable for trade; - Some valuable institutional, legal and economic structures inherited from the British rule (though this last factor might be more explanatory rather than decision-driving element).

The economic and industrial policy choices, that locked-in Singapore’s developmental model since independence have also been highly conditioned by the advice received during those early years from the community of international organisations. The most notable one was the United Nations Expanded Programme for Technical Assistance (EPTA). The UN, within the scope of this programme and at the request of Singapore government in 1960 sent a dedicated mission, led by Dr. Albert Winsemius to advice on future economic and industrial strategy of Singapore. The recommendations of this programme together with the continued long-term economic advice by Dr. Winsemius for Singapore government are often attributed as several of the leading architects of Singapore’s economic model and success.

In the 1960s the key choices recommended and implemented could be summarised as: - An active pursuit of foreign capital investment, focused on labour-intensive manufacturing, to be consistent with the trade and export-oriented economic structure as well as to address high unemployment at that time.

During later years, there have been several modifications to this, highly aggregated policy formula, but those changes did not, at least until around 2010, change the underlying developmental logic of Singapore state – the pursuit of internal and external capital investment, consistent with trade and export oriented economic structure (therefore usually concentrated into tradable industry sectors), with a generally favourable manpower supply and competitive labour cost and tax regime.

The few modifications, or rather newly emerging and recognised constraints that also had an impact on policy choices (though evident at a later stage of Singapore development – as of late 1970s onwards), have been the emerging understanding that: i. Labour-intensive industrialisation is not sustainable given the small land area, slow population growth and limited tolerance to foreign population growth; ii. The need to transition towards high value-added activities in order to ensure income growth for Singapore citizens, rather than only GDP-oriented growth model.

These two economic and political constraints were likely the driving factors incentivising governments’ efforts to limit the growth of foreign worker population and concerns with (insufficient) productivity growth. A particular concern during 1990s has been the multi-factor productivity growth, which seemed to be very small in Singapore but also other Asian economies (Korea, Taiwan and Kong Kong) compared to the western countries, given the input (capital and labour) intensive economic growth (Krugman, 1994).

A number of policy instruments have been tested to address those challenges – including migrant quota systems; salary increases (but subsequent reductions given the reliance of economic model on competitive cost structure); migrant worker levies; education, training and skills development efforts, innovation expenditure and more generally efforts to increase productivity growth through economic restructuring policies.

These restructuring efforts could be said to combine almost the full array of policy areas in government responsibility, comprising different mixtures at different stages and situations: - Tax policy (i.e. employer social security - CPF contributions);

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