The Singapore-on-Thames delusion

I know Martin Sorrell, the advertising tycoon, has visited Singapore because I saw him at a conference there about 15 years ago. But you would never guess he had been anywhere near the Asian city-state from the gushing enthusiasm with which he—and many Brexiteers—lauds it as a model for Britain’s economy after it leaves the European Union.

“I look for a Singapore on steroids... a regulation-light, tax-light UK economy, open for business in a way we haven’t seen before,” he said recently. “It has to be the home of Amazon, Google and Facebook, not the regulatory nightmare.”

However, like most of the visions bandied about by Singapore’s British fan club, Sorrell’s is somewhat detached from the reality. To be sure, the city-state boasts an enviable growth record—averaging 7.1 per cent annually since 1970, though it has slowed to a crawl of late—and its income per head at market rates is 50 per cent higher than Britain’s. It also has efficient modern infrastructure, good basic education, stable government and a business-friendly environment.

A key reason for Singapore’s economic success is its role as a major regional trading hub, most of whose domestic goods exports go to the rest of Asia, and its tight linkages with the cross-border supply chains that are the arteries of modern manufacturing. Brexit, in contrast, threatens to cramp Britain’s trade by impeding businesses’ access to the large single market on their doorstep and disrupting or severing their vital supply chains.

But Singapore has not prospered by being a small-government laissez-faire economy, as its British admirers seem to believe. Far from it. All its major domestic industries, from banking to telecommunications, are dominated by companies in which the state is the controlling shareholder. In 2017, those companies accounted for 37 per cent of the stock market’s capitalisation. Indeed, China’s Communist leaders were so taken by the system that they once seriously considered it as a model for their own country’s development.

The Singapore government has also long engaged in elaborate economic planning, backed by muscular industrial policy intervention. It designates industries such as electronics, biotechnology, pharmaceuticals and financial services as strategic growth sectors and offers foreign companies lavish financial inducements and other forms of assistance to help build them from scratch.

Economic development, like many other aspects of Singaporean life, is closely watched over by an elite cadre of highly-paid technocratic officials. In total, the country employs 85,000 civil servants—more than twice as many in proportion to the population as the UK. Singapore’s bureaucracy may be impressively capable and efficient, but it is hardly lean.

Far from being a paradise of deregulation, Singapore has rules for almost everything. Its laws, rigorously enforced, prohibit chewing gum, littering, jaywalking and even leaving lavatories unflushed, and offenders are punished. Media freedom is restricted and foreign publications that step out of line have been regularly sued or banned. Even family planning is not beyond the long arm of the all-pervasive state: the authorities have periodically directed parents to give birth either to more or to fewer children. No wonder that Singapore is known and often mocked in the rest of Asia as a rule-bound nanny state, a reputation in which the late Lee Kuan Yew, its long-serving leader, took peculiar pride.

On paper, Singapore appears lightly taxed, with a tax burden of 15 per cent of Gross Domestic Product, half the average of advanced economies, a 22 per cent top rate of personal income tax and no capital gains tax. However, in addition, employees must pay 20 per cent and their employers 17 per cent of their salaries into a state retirement and social security fund. Corporate tax, at 17 per cent, is barely lower than in Britain, while imported alcohol and cars are very heavily taxed.

In only two areas can Singapore be regarded as the regulation-light economy the Brexiteers dream of. One has been its open-door immigration policy, which has fuelled the population explosion over the past 25 years. However, popular resistance to the influx has led in recent years to a clampdown so severe that employers now complain that it is hard to recruit qualified local staff.

The other area is the labour market, where social protection is minimal by western standards and workers are expected to stand on their own feet. The prevailing policy is “workfare”—encouraging and equipping people to get jobs, not providing welfare for those unable to find them. Many of those jobs are also poorly paid and insecure.

That policy, along with a formerly liberal approach to immigration, has resulted in the growth of a cheap, flexible and relatively low-skilled labour force, with few statutory rights. Perhaps that is why right-wing Brexiteers find the idea of creating a “Singapore-on-Thames” so alluring. However, those policies have also produced a sizeable underclass.

For any high-flying international business executive, jetting in and out of gleaming Singapore’s Changi airport, it is a quite different story. They, and especially those promising to invest and create local jobs, can expect an easy ride and a red carpet welcome. But if they find life in Singapore sweet, it is not because it is a deregulated free-market paradise. It is because of its meticulously planned economy, handholding and cossetting by powerful eager-to-please bureaucrats, generous incentives and its formidable array of rules, laws and government edicts. That is not, it seems safe to assume, the kind of model that Brexiteers dream of for Britain’s future.

The writer is a former Financial Times Asia columnist and commentator