Singapores Economy

SINGAPORE - A Survey of its Economic Institutions

Since its inception, the Republic of Singapore has combined the fastest growth with the lowest inflation of any industrial economy. This feat was accomplished with a strict set of economic goals including a conservative monetary and fiscal policy, free trade, and a commitment to stable prices (Wood, 25). This evaluation of Singapore\'s economy will look at the history and forces behind their success.

Background

Sir Stamford Raffles established Singapore as a British trading post in 1819. At the time the island was scarcely inhabited, had no valuable resources, was mostly marsh and jungle land and wasn\'t located on the major commercial trade routes. The only thing the island had going for it was its location for secondary trade and its deep water port. It wasn\'t until the 1860\'s, when the Suez Canal opened, that the port\'s true potential was realized. With the canal thoroughfare, the island suddenly became attractive as a resting point. Initially, it was used as a coaling station for the steam boats traversing the new routes between the East and West. From here, Singapore was rapidly integrated in the commercial channels as a source for rubber and tin, and as a distributor for goods collected from Europe and America (Woronoff, 121-2). This newfound prosperity came to a halt in World War II when Singapore\'s occupation was juggled between Japan, Britain, and Malaysia. After all the commotion was over, Singapore secured its independence on August 1965 and was declared a republic in December 1965. At this point, the Republic of Singapore had to start anew (Buchanan, 31). In effect, it had to develop it\'s own system of government and economic policies to retain its success. After all the smoke cleared Singapore was able to accomplish this feat and much more.

Setting

Singapore has approximately the area and population of the city of Chicago. The total land area is about 239 square miles including 58 surrounding islets. It is separated from the mainland of Malaysia by the Johore Strait to the north. Across the Strait of Malacca and the Singapore Strait to the west and south of the island lies Indonesia. It is situated just 85 miles north of the equator so its climate is tropical (Deyo, 104). The population is entirely urban with "a strong manufacturing base, and active service sector, and virtually no agriculture" (Gregory, 261). There are also virtually no natural resources (Woronoff, 122). Throughout its development, Singapore\'s population has increased at a blinding rate due to immigration and high birth rates. It went from a few thousand when Raffles arrived to about a million after the war to about 2.8 million today (Buchanan, 162).

Economy

Singapore has one of the World\'s most open economies, rivaled only by Hong Kong. There are few protective tariffs and the government has provided an attractive climate for foreign investment. It has one of the world\'s largest and busiest ports and oil refinery centers. Also, it is a major financial center, trailing only London, New York, and Hong Kong in the number of commercial banks (135) and is the center of the Asian Dollar Market with 190 financial institutions that cater to foreign depositors. Compared to the size of its economy, Singapore leads the world in foreign trade (Wood, 30). Goals are something Singapore holds dear. Among them are "the diversification and upgrading of industry while developing the island into a center of regional services and international finance." Skill-intensive and high-tech industries are encouraged (Buchanan, 164). Among the main industries that have made Singapore successful are as follows. Manufacturing is responsible for about 25% of the GDP. From 1965 to 1980, manufacturing grew at an annual rate of 13.3%. Other major activities are petroleum refining, and machinery and appliances (including the large electronics industry). Interestingly, agriculture is responsible for the employment of only about 1% of the labor force (Wood, 139-40). This is a drastic difference to many of its neighbors and the reason will be introduced shortly.

Though Singapore is a capitalist society, their monetary policy hardly takes a laissez faire approach. In their commitment to monetary stability, the government sets economic goals and "unhesitatingly interferes with market forces to achieve those goals" (Wood, 30). Examples of how the government accomplishes its goals are discussed briefly