Singapore’s Economic Miracle with Minister Tharman Shanmugaratnam

CREDIT SUISSE GROUP  -> Singapore’s Economic Miracle

Daniel Ammann, Journalist, Bulletin

Simon Brunner, Journalist, Bulletin


Fifty years ago Singapore was just a commercial port in the middle of malaria-infested swampland. Today its per capita income exceeds that of Switzerland, making it the model of success for Asia. Finance Minister Tharman Shanmugaratnam shares his thoughts on work, foreigners and low taxes. 


Daniel Ammann, Simon Brunner: Minister Tharman, how has Singapore achieved its incredible economic miracle?

Tharman Shanmugaratnam: I would say Singapore’s story can be explained by three factors: culture, particularly the work ethic of the Singaporeans, our response to adverse external conditions and our government, especially policies in education and housing. The government is activist, not hands-off. But our whole approach is to enable people, and support a culture of aspiration, work and personal responsibility, rather than have government taking over responsibility. That’s how we enable as many people as possible to both contribute and share in our country’s prosperity. That’s the best way to create an inclusive society.

Let’s start with culture: Does such a young country have a culture of its own?

Tharman Shanmugaratnam: Singapore is an accident of history, unlike most nations formed by the will of their people to come together. It was a multicultural and multireligious society that unexpectedly, in 1965, became an independent country. We were united not by a common language, as nation-states often are, but by the search to make the most of what we started with. What emerged was a social culture based on work. We told ourselves: we want a better life: Singaporeans are always making an effort and looking for new opportunities. This is in our DNA – not a biological DNA but a “social” DNA, mind you, that can vanish as quickly as it has appeared. It is something that requires constant effort to recreate and preserve.


The second factor you mentioned is “adverse conditions” – which seems counterintuitive.

Tharman Shanmugaratnam: We are a small country completely lacking in natural resources, with little of a domestic market to speak of, and surrounded by much larger neighbors. Malaysia, Indonesia and Thailand are very near, with China, India, Japan and South Korea not much further away. The list of our disadvantages is a long one…


…How can that be beneficial?

Tharman Shanmugaratnam: It’s better not to have too many choices in life. From the very beginning, we have had to consider how we might be relevant to the world. We knew that we could only succeed through enormous effort. That brought our people together. And to escape the poverty and unemployment we started with, we had to be attractive to the world – to business, and also to enterprising people from all over the world.


Your government has put in place activist policies aimed at promoting business, which is not the usual approach in Western countries.

Tharman Shanmugaratnam: Our economic goal, first and foremost, is to create good jobs for our people by enabling business to take advantage of opportunities around the world. We are constantly asking ourselves what the markets need, and how we can develop the capabilities to meet them. We want local as well as international companies to find it worthwhile to establish a presence and invest in Singapore.


What are the main factors that make a country “relevant,” as you put it?

Tharman Shanmugaratnam: I always point first to the skills and expertise of the country’s people – their ability to do excellent work, whichever the job. To remain competitive we must be constantly upgrading those skills. The second priority must be security, the rule of law and stability. This means political stability, but also predictability. Investors need certainty; they need to know what to expect ten and twenty years from now. As a result of the financial crisis, some countries saw a decline in predictability. We must keep predictability intact.



Tharman Shanmugaratnam:  We cannot retroactively change laws or rules. And we must try to anticipate changes in the international environment and move early. Governments shouldn’t wait until they are forced, kicking and shoving, to take action to meet international norms. Instead, they should evolve, make changes when times are good, with the self-confidence that comes from having a long-term strategy.


How important have low taxes been for your success?

Tharman Shanmugaratnam:  Let me first highlight a central fact. We are able to keep our taxes at a relatively low level only because we keep government spending relatively low as well. We put great importance on this discipline. In particular, we avoid untargeted subsidies, by focusing on helping those most in need. We want to make sure that lower-income people have access to quality education, housing and healthcare. A particularly important factor is that we have no unfunded or unsecured commitments; everything is financed within our current budget or backed by our assets.


No national debt?

Tharman Shanmugaratnam: No borrowing in the conventional sense, because Government is not allowed to borrow for purpose of spending. According to our constitution, the government is not allowed to run deficits in any single legislative period. The Government borrows only to create a healthy bond market, and the monies raised are invested abroad by our sovereign wealth fund.


Coming back to your low tax burden: Low taxes attract companies and investors from all over the world to Singapore.

Tharman Shanmugaratnam :  Different countries have different levels of taxation, that’s one strength of the international system. After all, countries are in competition with one another in many regards – skills and capabilities, costs, taxes, fiscal strategies, and the whole environment for businesses. Competition is at the heart of a healthy global economy, and countries do well by finding strengths that they can sustain. All of us – the government, companies, people – have to work together to maintain a nation’s competitive strengths.


Singapore’s economic success is attracting job seekers from all over the world. The foreign population has doubled over the past 30 years. How are you handling the pressures that come with an increase in immigration?

Tharman Shanmugaratnam :  We have to stay open, but not blindly so. We are not like just any global city. Just look around: we are an island, a small nation consisting of a single city. Foreigners make up well over 40 percent of the workforce of Manhattan or London, but those cities can deal with higher levels of immigration because they are part of larger countries. We don’t have the countryside to move to if the city becomes too crowded, or if the price of housing goes up beyond what people can afford. That’s why we have conscious immigration strategies: to ensure not only that we stay competitive, but that Singaporeans still feel at home, that we have a sense that this is our country, with our social customs and values at its core.


It’s striking how often you mention policymakers’ social responsibilities.

Tharman Shanmugaratnam : When people look at Singapore from the outside, it is often thought of as an economic success story. But at its core, our success is based on social policies and principles. To put it in a nutshell: Our education system and our public housing program are the foundations on which our nation is built.

The most successful countries have recognized the crucial role of education.

Education is a force for transformation, but putting it to work in a way that individuals and society truly benefit is not easy. It’s not simply about producing as many people with academic skills as possible.


How would you describe the structure of the Singapore model?

Tharman Shanmugaratnam :  We have a public education system, with meritocratic selection into secondary schools and tertiary institutions. But it is also a system with diverse courses of study, and in particular a strong emphasis on technical and application-oriented courses of study at the tertiary level. We want to offer everyone a chance to discover what they are good at, and learn skills that are worth something in the job market.


Your public housing program is reminiscent of socialist experiments.

Tharman Shanmugaratnam : That’s true, but in our own, unique way. Our housing policies are perhaps our most intrusive social intervention. To understand this, you need to be familiar with our history. It was important to create a sense of unity among people of different races and cultures. We could not leave social cohesion in a multicultural society to be decided by the market, or the natural workings of society. It needed conscious government strategy. Housing provided the opportunity, especially because housing conditions soon after Singapore became independent were poor. The government decided to provide everyone with access to good living conditions, but to require at the same time that people of different races and cultures live together in the same neighborhoods. It helped create a common identity, and a common pride in having a home.


Has Switzerland been a role model for Singapore?

Tharman Shanmugaratnam :  In many ways yes, and it still is. I admire many things in its education system, with its strong emphasis on applied learning. Switzerland’s apprenticeship system, combining work and practical training, is a useful model to learn from. In addition, the Swiss people show great respect for regular, blue-collar workers and tradespeople, and they are properly compensated. It appears that work is important to the Swiss as a source of identity and a sense of contribution, just as it is to the Singaporeans.


Singapore and Switzerland are also rivals, particularly in the area of private banking.

Tharman Shanmugaratnam :  We still lag far behind, since the largest pool of wealth is still in the West. But you’re right, we’re catching up. Our growth rates are high, because growth in both wealth and investments is stronger in Asia than anywhere else in the world. As a result, demand for financial intermediaries to handle the full range of financial services is growing. We’re ready to meet that demand.


What role remains for Switzerland?

Tharman Shanmugaratnam : Switzerland has fundamental competitive advantages such as economic and social stability, a culture of reliability and a high level of technical skills. Swiss banks also have a strong reputation going back for a long time, well into the 18th century. It is unlikely to disappear anytime soon, even with modified banking secrecy rules.


Singapore’s gross domestic product, much like Switzerland’s, is generated largely by the financial sector. Is that an advantage or a disadvantage?

Tharman Shanmugaratnam :  A properly regulated financial system benefits the overall economy and helps to create jobs. It is also a source of business growth in its own right. Finance provides good jobs and careers for Singaporeans.


What are the core values on which the Singapore model is based?

Tharman Shanmugaratnam :  At its core are two things: personal responsibility for helping oneself, and the collective willingness to help those with less. These two values may appear different from each other, but it is when they come together that we get a society that is both vibrant and fair. It may seem a paradox, but the paradox of active government support for self-reliance is at the core of our approach. It reflects our values. If you work, we’ll reward you with more. If you want to study hard or pick up a new skill, we’ll support you. If you want to buy a home and save to pay down the loan, we will give you a grant to reduce the costs. You get something more from the government when you take personal responsibility. This is our way of preventing the erosion of the work ethic and responsibility that we have seen in many affluent societies.


Why do you think this is happening?

Politicians promised their people social benefits that were simply unsustainable. With each electoral campaign they added new promises, leaving the bill for subsequent generations. It has unfortunately had not just financial consequences, which are now obvious, but has also changed social values and norms. The culture of entitlement is now widespread, and will take time to reverse. It’s tragic, particularly for the next generation.  That’s why Europe is in search of new social models. There’s no avoiding that.



Smaller than the Canton of Jura, Singapore is a Southeast Asian city-state on a small island, densely populated with 5.4 million people. Its citizens are very diverse: 0.5 million are permanent residents, and 1.6 million are foreigners without a permanent dwelling. 76 percent of Singaporeans have a Chinese background, 15 percent are from Malaysia, more than 7 percent from India and the rest from other parts of the world. The island was a British colony between 1867 and 1962 (with some interruptions). Present-day Singapore gained its independence on August 9, 1965.

Tharman Shanmugaratnam

Singapore’s 57-year-old finance minister is one of the leading economic policymakers in Asia as well as deputy prime minister and chairman of the Monetary Authority of Singapore. In addition, Shanmugaratnam is the first Asian to head the International Monetary Fund’s policy steering committee, known as the International Monetary and Financial Committee. A Singaporean with Tamil roots, he was educated at the Anglo-Chinese School in Singapore, the London School of Economics, Cambridge and Harvard. He is married to a Chinese-Japanese attorney, with whom he has three sons and a daughter. As he revealed to Bulletin, Shanmugaratnam’s aspirations revolved solely around sports when he was young. He was active in field hockey, football, track and field, and cricket.




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