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Singapore Inc.

Singapore's per capita GDP has grown from 2,860 in 1975 to 25,910 US in 2001. Singapore's economic miracle that was initiated in the 1961 owed great gratitude to Albert Winsemius. Dr. Winsemius who previously had helped the Dutch Government in developing its post-war industrialization programme, was asked to help Singapore develop a similar kind of plan. With his advise and the enlightened and visionary leadership of Lee Kuan Yew and cohorts Singapore was able to prevent Winsemius' initial fear that Singapore would end up being "a poor little market in a dark corner of Asia".1 Instead Singapore became an Asian Tiger Economy and in 2010 in Singapore "one in every six households has more than $1 million in assets, making it the densest population of wealthy households in the world."2

One of the reasons on why the number of millionaires is so high is the compulsory savings scheme that the Singapore government (CPF) had implemented. Under this scheme 36% of total wages are to be forced savings for those above 35 to 50 years and earning more than 1500 SGD a month.3 The CPF functions as the only formal social security scheme in Singapore. Beyond functioning as a social security scheme the CPF has functioned as a vehicle for the country to access cheap capital. This capital has been used to make investments in Singapore (and more recently abroad) and offer the government (at least in good times) a steady source of additional income that could function as a cushion to the cyclicity of the economy. But can the high saving rate explain Singapore's miracle?

It is important to note here that there is no magical bullet in explaining a country's economic development or downturn for that matter. A series of interrelated factors play a role. Young and Krugman have shown how in the case of Singapore a large part of Singapore's initial growth could be accounted for by the ability to increase inputs. These inputs were the increased size of the workforce, higher education level of workforce and huge investments in physical capital.4 The second and third factor both contributed from increased savings as it reduced Singapore's reliance on foreign capital. According to Comin et al. an increase in the saving rate for countries such as Singapore in the period 1960s-1980s could contribute to an

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Kees Tamboer, Albert Winsemius, 'founding father' of Singapore, http://www.iias.nl/iiasn/iiasn9/soueasia/winsemiu.html http://www.businessweek.com/investor/content/jun2011/pi2011062_946842.htm\\ 3 http://mycpf.cpf.gov.sg/CPF/Templates/SubPage_Template.aspx?NRMODE=Published&NRORIGINALURL=%2fEmployers%2fGenInfo%2fHB-FAQ%2fEmployer.htm&NRNODEGUID={F066A170-D0F4-4DBA-85A4-FF4CE38A20B6}&NRCACHEHINT=Guest#annexb 4 Krugman, P. (1994) "The myth of Asia's miracle," Foreign Affairs, Nov/Dec, 73(6), p.62-78.

"increase in the average growth rate over the next 10 years of 1.3 percentage points". 5 The relationship savings-investment is thus clearly established for economies that are undertaking the journey of transforming a lower-income country to a middle income country.

In the case of Singapore it has already been able to become a higher-income country. One of the contributing factors to this has been the heavy involvement of the meritocratic government in the economy. After the initial success of adopting of many of Dr. Winsemius and his team's suggestions, Singapore has periodically been updating its plan on how to make the next steps in its economic development. Most recently Singapore has identified that it likes to become a hub in Biomedical Sciences. The choice of Singapore to select this area is strategic as it knows that regionally it has no competition in this sector and it will be able to attract regional talent who will find it hard to get six figure salaries (in SGD or USD) in their own countries. Other valid arguments to focus on this sector are the high growth expectation for this sector over the next decennia and the multiplier effect the presence of such industries and highly skilled scientists would have for other sectors in Singapore.

However, investing in become a Biomedical Science hub is for Singapore only a means to an end namely to become a world-class global R&D hub which would be able to whither better the economic cyclicality it has been experiencing through its exposure to its previous efforts to be a manufacturing and transport hub and more recently a financial and education hub.

It is likely that Singapore's strategy to diversify its economy and focus on its comparative advantages will ensure that Singapore's position in the world economy is guaranteed. As long as the Singapore government requires its residents (and it ensures that highly educated foreigners are still able to obtain residency) to save a considerable share of its income the percentage of millionaires is likely to increase over the years to come.

Philippe Aghion, Diego Comin, Peter Howitt, and Isabel Tecu, When Does Domestic Saving Matter for Economic Growth? HBS Working Paper Number: 09-080. http://www.hbs.edu/research/pdf/09-080.pdf

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